<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 March 31, 1999
Commission File Number 000-24737
----------
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 May 1, 1999:
Common Stock - 99,168,585
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, 1998 and March 31, 1999......... 3
Consolidated Statement of Operations and Comprehensive Loss for the
three months ended March 31, 1998 and 1999................................ 4
Consolidated Statement of Cash Flows for the three months ended
March 31, 1998 and 1999................................................... 5
Condensed Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......... 22
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................... 24
Item 6. Exhibits and Reports on Form 8-K.................................... 24
Signatures................................................................... 25
</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,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 296,450 $ 101,847
Receivables:
Trade, net of allowance for doubtful accounts of 32,130 30,249
$1,535 and $1,653 at December 31, 1998 and March 31,
1999, respectively
Other 4,290 6,897
Inventories 6,599 8,634
Prepaid expenses and other current assets 2,647 7,148
---------- ----------
Total current assets 342,116 154,775
Property and equipment, net of accumulated depreciation of 592,594 1,233,204
$22,780 and $34,729 at December 31, 1998 and March 31,
1999, respectively
Escrow deposits for acquisitions -- 100,000
Goodwill and other intangible assets, net of accumulated 569,740 617,769
amortization of $20,419 and $28,116 at December 31, 1998
and March 31, 1999, respectively
Deferred financing costs and other assets, net of 18,780 17,946
accumulated amortization of $1,722 and $2,045 at December ---------- ----------
31, 1998 and March 31, 1999, respectively
$1,523,230 $2,123,694
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,020 $ 27,383
Accrued interest 15,677 918
Accrued compensation and related benefits 5,188 2,979
Deferred rental revenues and other accrued liabilities 26,002 47,015
---------- ----------
Total current liabilities 92,887 78,295
Long-term debt 429,710 771,190
Other liabilities 22,823 46,884
---------- ----------
Total liabilities 545,420 896,369
---------- ----------
Commitments and contingencies
Minority interests 39,185 53,098
Redeemable preferred stock, $.01 par value; 10,000,000
shares authorized:
12 3/4% Senior Exchangeable Preferred Stock; shares 201,063 207,471
issued: December 31, 1998 - 200,000 and March 31, 1999
- 206,375 (stated at mandatory redemption and
aggregate liquidation value)
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares
authorized:
Common Stock; shares issued: December 31, 1998 - 831 992
83,123,873 and March 31, 1999 - 99,168,585
Class A Common Stock; shares issued: 11,340,000 113 113
Additional paid-in capital 795,153 1,051,224
Cumulative foreign currency translation adjustment 1,690 (3,053)
Accumulated deficit (60,225) (82,520)
---------- ----------
Total stockholders' equity 737,562 966,756
---------- ----------
$1,523,230 $2,123,694
========== ==========
</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
March 31,
----------------------------
1998 1999
---------- -----------
<S> <C> <C>
Net revenues:
Site rental and broadcast transmission $ 5,061 $ 45,326
Network services and other 6,776 9,783
------- --------
11,837 55,109
------- --------
Operating expenses:
Costs of operations (exclusive of depreciation and
amortization):
Site rental and broadcast transmission 1,172 18,527
Network services and other 4,421 6,982
General and administrative 3,803 8,304
Corporate development 1,331 874
Restructuring charges -- 1,814
Non-cash compensation charges -- 667
Depreciation and amortization 3,604 19,656
------- --------
14,331 56,824
------- --------
Operating loss (2,494) (1,715)
Other income (expense):
Equity in losses of unconsolidated affiliate (99) --
Interest and other income (expense) 706 340
Interest expense and amortization of deferred financing (4,706) (11,286)
costs ------- --------
Loss before income taxes, minority interests and cumulative (6,593) (12,661)
effect of change in accounting principle
Provision for income taxes (13) (127)
Minority interests -- (685)
------- --------
Loss before cumulative effect of change in accounting (6,606) (13,473)
principle
Cumulative effect of change in accounting principle for -- (2,414)
costs of start-up activities ------- --------
Net loss (6,606) (15,887)
Dividends on preferred stock (2,055) (6,408)
------- --------
Net loss after deduction of dividends on preferred stock $(8,661) $(22,295)
======= ========
Net loss $(6,606) $(15,887)
Other comprehensive income:
Foreign currency translation adjustments 671 (4,743)
------- --------
Comprehensive loss $(5,935) $(20,630)
======= ========
Per common share - basic and diluted:
Loss before cumulative effect of change in accounting $ (0.79) $ (0.21)
principle
Cumulative effect of change in accounting principle -- (0.03)
------- --------
Net loss $ (0.79) $ (0.24)
======= ========
Common shares outstanding - basic and diluted (in thousands) 10,954 94,732
======= ========
</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,
----------------------------
1998 1999
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,606) $ (15,887)
Adjustments to reconcile net loss to net cash provided
by (used for) operating activities:
Depreciation and amortization 3,604 19,656
Amortization of deferred financing costs and discounts 4,207 4,920
on long-term debt
Cumulative effect of change in accounting principle -- 2,414
Minority interests -- 685
Non-cash compensation charges -- 667
Equity in losses of unconsolidated affiliate 99 --
Changes in assets and liabilities, excluding the effects
of acquisitions:
Increase in deferred rental revenues and other 72 46,046
liabilities
Decrease in accounts payable (2,796) (17,738)
Decrease in accrued interest -- (14,457)
Increase in inventories, prepaid expenses and other (669) (4,456)
assets
Increase in receivables (862) (1,363)
-------- ---------
Net cash provided by (used for) operating activities (2,951) 20,487
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired -- (204,845)
Capital expenditures (24,539) (76,363)
-------- ---------
Net cash used for investing activities (24,539) (281,208)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreements 27,050 64,679
Proceeds from issuance of capital stock -- 1,835
Incurrence of financing costs (1,243) (117)
-------- ---------
Net cash provided by financing activities 25,807 66,397
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (279)
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,683) (194,603)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 55,078 296,450
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 53,395 $ 101,847
======== =========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Amounts recorded in connection with acquisitions:
Fair value of net assets acquired, including goodwill $ -- $ 653,029
and other intangible assets
Escrow deposits for acquisitions -- 100,000
Issuance of long-term debt -- 280,000
Minority interests -- 14,330
Issuance of common stock -- 253,854
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 486 $ 21,452
Income taxes paid -- 104
</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, 1998,
and related notes thereto, included in the Annual Report on Form 10-K (the "Form
10-K") filed by Crown Castle International Corp. with the Securities and
Exchange Commission. All references to the "Company" include Crown Castle
International Corp. and its subsidiary companies unless otherwise indicated or
the context indicates otherwise.
The consolidated financial statements included herein are unaudited; however,
they include all adjustments (consisting only of normal recurring adjustments)
which, in the opinion of management, are necessary to present fairly the
consolidated financial position of the Company at March 31, 1999 and the
consolidated results of operations and consolidated cash flows for the three
months ended March 31, 1998 and 1999. 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 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 requires 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 has adopted 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 resulted in a charge to results of operations for
$2,414,000 in the Company's financial statements for the three months ended
March 31, 1999.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that
derivative instruments be recognized as either assets or liabilities in the
consolidated balance sheet based on their fair values. Changes in the fair
values of such derivative instruments will be recorded either in results of
operations or in other comprehensive income, depending on the intended use of
the derivative instrument. The initial application of SFAS 133 will be reported
as the effect of a change in accounting principle. SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. The Company
will adopt the requirements of SFAS 133 in its financial statements for the
three months ending March 31, 2000. The Company has not yet determined the
effect that the adoption of SFAS 133 will have on its consolidated financial
statements.
2. Acquisitions
Agreement with Bell Atlantic Mobile ("BAM")
On December 8, 1998, the Company entered into an agreement with BAM to form a
joint venture ("Crown Atlantic") to own and operate a significant majority of
BAM's towers. Upon formation of Crown Atlantic on March 31, 1999, (i) the
Company contributed to Crown Atlantic $250,000,000 in cash and 15,597,783 shares
of its Common Stock in exchange for a 61.5% ownership interest in Crown
Atlantic; (ii) Crown Atlantic
6
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
borrowed $180,000,000 under a committed $250,000,000 revolving credit facility
(see Note 3); and (iii) BAM contributed to Crown Atlantic approximately 1,458
towers in exchange for a cash distribution of $380,000,000 from Crown Atlantic
and a 38.5% ownership interest in Crown Atlantic. Upon dissolution of Crown
Atlantic, BAM will receive (i) the shares of the Company's Common Stock
contributed to Crown Atlantic and (ii) a payment (either in cash or in shares of
the Company's Common Stock, at the Company's election) equal to approximately
15.6% of the fair market value of Crown Atlantic's other net assets; the Company
would then receive the remaining assets and liabilities of Crown Atlantic. The
Company has accounted for its investment in Crown Atlantic as an acquisition
using the purchase method, and will include Crown Atlantic's results of
operations and cash flows in the Company's consolidated financial statements for
periods subsequent to formation. The Company recognized goodwill of
approximately $58,339,000 in connection with this acquisition.
BellSouth Mobility Inc. and BellSouth Telecommunications Inc. ("BellSouth")
In March 1999, the Company entered into an agreement with BellSouth to
acquire the operating rights for approximately 1,850 of their towers. The
transaction is structured as a lease agreement and will be treated as a sale of
the towers for tax purposes. The Company will pay BellSouth consideration of
$610,000,000, consisting of $430,000,000 in cash and $180,000,000 in shares of
its common stock. The Company will account for this transaction as a purchase
of tower assets. The transaction is expected to close over a period of up to
eight months beginning in the second quarter of 1999. Upon entering into the
agreement, the Company placed $50,000,000 into an escrow account. In order to
fund this escrow deposit, the Company borrowed $45,000,000 under the Senior
Credit Facility.
Powertel, Inc. ("Powertel")
In March 1999, the Company entered into an agreement with Powertel to
purchase approximately 650 of their towers and related assets. The purchase
price for these towers will be $275,000,000 in cash. The Company will account
for this transaction as an acquisition using the purchase method. Upon entering
into the agreement, the Company placed $50,000,000 into an escrow account. The
Company funded this escrow deposit with borrowings under a $100,000,000 loan
agreement provided by a syndicate of investment banks (see Note 3). The
remaining $50,000,000 of borrowings under this loan agreement were used to repay
the amount drawn under the Senior Credit Facility in connection with the
BellSouth escrow deposit.
3. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
----------- ----------
(In thousands of dollars)
<S> <C> <C>
Senior Credit Facility $ 5,500 $ 40,000
CTI Credit Facility 55,177 83,513
Crown Atlantic Credit Facility -- 180,000
10 5/8% Senior Discount Notes due 2007, net of discount 168,099 172,505
9% Guaranteed Bonds due 2007 200,934 195,172
Term Loans due 2007 -- 100,000
-------- --------
$429,710 $771,190
======== ========
</TABLE>
Crown Atlantic Credit Facility
Crown Atlantic has a credit agreement with a bank (the "Crown Atlantic Credit
Facility") which consists of a $250,000,000 secured revolving line of credit.
Available borrowings under the Crown Atlantic Credit
7
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Facility are generally to be used to construct new towers and to finance a
portion of the purchase price for towers and related assets of Crown Atlantic.
The amount of available borrowings is determined based on the current financial
performance (as defined) of Crown Atlantic's assets. In addition, up to
$25,000,000 of borrowing availability under the Crown Atlantic Credit Facility
can be used for letters of credit.
On March 31, 1999, Crown Atlantic borrowed $180,000,000 under the Crown
Atlantic Credit Facility to fund a portion of the cash payment to BAM (see Note
2). As of March 31, 1999, approximately $6,160,000 of borrowings was available
under the Crown Atlantic Credit Facility, all of which was available for letters
of credit. There were no letters of credit outstanding as of March 31, 1999.
The amount of available borrowings under the Crown Atlantic Credit Facility
will decrease by a stated amount at the end of each calendar quarter beginning
on September 30, 2001 until March 31, 2006, at which time any remaining
borrowings must be repaid. Under certain circumstances, Crown Atlantic may be
required to make principal prepayments under the Crown Atlantic Credit Facility
in an amount equal to 50% of excess cash flow (as defined), the net cash
proceeds from certain asset sales or the net cash proceeds from certain sales of
equity or debt securities.
The Crown Atlantic Credit Facility is secured by a pledge of the membership
interest in Crown Atlantic and a security interest in Crown Atlantic's tenant
leases. Borrowings under the Crown Atlantic Credit Facility bear interest at a
rate per annum, at Crown Atlantic's election, equal to the bank's prime rate
plus 1.25% or a Eurodollar interbank offered rate (LIBOR) plus 2.75%. The
interest rate margins may be reduced by up to 1.75% (non-cumulatively) based on
a financial test, determined quarterly. Interest on prime rate loans is due
quarterly, while interest on LIBOR loans is due at the end of the period (from
one to three months) for which such LIBOR rate is in effect. The Crown Atlantic
Credit Facility requires Crown Atlantic to maintain certain financial covenants
and places restrictions on Crown Atlantic's ability to, among other things,
incur debt and liens, pay dividends, make capital expenditures, dispose of
assets, undertake transactions with affiliates and make investments.
Term Loans due 2007
In March 1999, the Company entered into a term loan credit facility with a
group of investment banks. On March 16, 1999, the Company borrowed $100,000,000
under this facility (the "Term Loans") in order to fund the escrow deposits paid
in connection with the BellSouth and Powertel acquisitions (see Note 2). The
Term Loans mature on November 30, 2007 and bear interest at an initial rate of
LIBOR plus 5.5% per annum, payable quarterly. The Term Loans will be repaid in
May 1999 with proceeds from the Company's underwritten securities offerings (see
Note 8).
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.
The Company has designated Crown Atlantic as an Unrestricted Subsidiary (see
Note 2). Summarized financial information for (i) the Company and its
Restricted Subsidiaries and (ii) the Company's Unrestricted Subsidiaries is as
follows:
8
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ -------------- ------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 50,669 $ 51,178 $ -- $ 101,847
Other current assets 21,373 31,555 -- 52,928
Property and equipment, net 178,304 1,054,900 -- 1,233,204
Escrow deposits for acquisitions 100,000 -- -- 100,000
Investments in Unrestricted 992,675 -- (992,675) --
Subsidiaries
Goodwill and other intangible assets, 141,443 476,326 -- 617,769
net
Other assets, net 13,406 4,540 -- 17,946
---------- ---------- --------- ----------
$1,497,870 $1,618,499 $(992,675) $2,123,694
========== ========== ========= ==========
Current liabilities $ 9,394 $ 68,901 $ -- $ 78,295
Long-term debt 312,505 458,685 -- 771,190
Other liabilities 1,744 45,140 -- 46,884
Minority interests -- 53,098 -- 53,098
Redeemable preferred stock 207,471 -- -- 207,471
Stockholders' equity 966,756 992,675 (992,675) 966,756
---------- ---------- --------- ----------
$1,497,870 $1,618,499 $(992,675) $2,123,694
========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
-----------------------------------------------------
Company and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------- ------------- -------------
(In thousands of dollars)
<S> <C> <C> <C>
Net revenues $ 12,254 $42,855 $ 55,109
Costs of operations (exclusive of depreciation 4,725 20,784 25,509
and amortization)
General and administrative 6,624 1,680 8,304
Corporate development 841 33 874
Restructuring charges 1,814 -- 1,814
Non-cash compensation charges 383 284 667
Depreciation and amortization 4,517 15,139 19,656
-------- ------- --------
Operating income (loss) (6,650) 4,935 (1,715)
Interest and other income (expense) (2,328) 2,668 340
Interest expense and amortization of deferred (5,747) (5,539) (11,286)
financing costs
Provision for income taxes (127) -- (127)
Minority interests -- (685) (685)
Cumulative effect of change in accounting (2,414) -- (2,414)
principle for costs of start-up activities -------- ------- --------
Net income (loss) $(17,266) $ 1,379 $(15,887)
======== ======= ========
</TABLE>
9
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows:
<TABLE>
<CAPTION>
(In
thousands
of dollars)
----------
<S> <C>
Tower Cash Flow, for the three months ended March 31, 1999 $ 4,098
========
Consolidated Cash Flow, for the twelve months ended March 31, 1999 $ 4,854
Less: Tower Cash Flow, for the twelve months ended March 31, 1999 (15,318)
Plus: four times Tower Cash Flow, for the three months ended March 31, 1999 16,392
--------
Adjusted Consolidated Cash Flow, for the twelve months ended March 31, 1999 $ 5,928
========
</TABLE>
4. Restructuring Charges
In connection with the formation of Crown Atlantic (see Note 2), the Company
completed a restructuring of its United States operations during the first
quarter of 1999. The objective of this restructuring was to transition from a
centralized organization to a regionally-based organization in the United
States. Coincident with the restructuring, the Company incurred one-time
charges of $1,814,000 related to severance payments for staff reductions, as
well as costs related to non-cancelable leases of excess office space.
5. Per Share Information
Per share information is based on the weighted-average number of common
shares outstanding during each period for the basic computation and, if
dilutive, the weighted-average number of potential common shares resulting from
the assumed conversion of outstanding stock options, warrants and convertible
preferred stock for the diluted computation.
A reconciliation of the numerators and denominators of the basic and diluted
per share computations is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1998 1999
---------- -----------
(In thousands of dollars,
except per share amounts)
<S> <C> <C>
Loss before cumulative effect of change in accounting principle $(6,606) $(13,473)
Dividends on preferred stock (2,055) (6,408)
------- --------
Loss before cumulative effect of change in accounting
principle applicable to common stock for basic and diluted computations (8,661) (19,881)
Cumulative effect of change in accounting principle -- (2,414)
------- --------
Net loss applicable to common stock for basic and diluted computations $(8,661) $(22,295)
======= ========
Weighted-average number of common shares outstanding during
the period for basic and diluted computations (in thousands) 10,954 94,732
======= ========
Per common share - basic and diluted:
Loss before cumulative effect of change in accounting principle $ (0.79) $ (0.21)
Cumulative effect of change in accounting principle -- (0.03)
------- --------
Net loss $ (0.79) $ (0.24)
======= ========
</TABLE>
10
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of March 31, 1999: (i) options
to purchase 18,700,607 shares of common stock at exercise prices ranging from
$-0- to $25.62 per share; (ii) warrants to purchase 1,294,990 shares of common
stock at an exercise price of $7.50 per share; and (iii) shares of Castle
Transmission Services (Holdings) Ltd ("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.
7. Operating Segments
The measurement of profit or loss currently used to evaluate the results of
operations for the Company and its operating segments is earnings before
interest, taxes, depreciation and amortization ("EBITDA"). The Company defines
EBITDA as operating income (loss) plus depreciation and amortization, non-cash
compensation charges and restructuring charges. EBITDA is not intended as an
alternative measure of operating results or cash flow from operations (as
determined in accordance with generally accepted accounting principles), and the
Company's measure of EBITDA may not be comparable to similarly titled measures
of other companies. There are no significant revenues resulting from
transactions between the Company's operating segments.
The Company intends to present the financial results of Crown Atlantic as a
reportable operating segment for periods subsequent to its formation (see Note
2). As of March 31, 1999, Crown Atlantic's total assets of approximately
$700,457,000 are included with the total for "Corporate Office and Other." The
financial results for the Company's operating segments are as follows:
11
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
-------------------------------------------------------------------
Corporate
Office Consolidated
CCI CTI and Other Total
----------- ----------- ----------- -------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Net revenues:
Site rental and broadcast transmission $ 6,316 $ 39,010 $ -- $ 45,326
Network services and other 5,167 3,845 771 9,783
-------- -------- -------- ----------
11,483 42,855 771 55,109
-------- -------- -------- ----------
Costs of operations (exclusive of
depreciation and amortization) 4,208 20,784 517 25,509
General and administrative 5,294 1,680 1,330 8,304
Corporate development -- 33 841 874
-------- -------- -------- ----------
EBITDA 1,981 20,358 (1,917) 20,422
Restructuring charges 1,814 -- -- 1,814
Non-cash compensation charges 67 284 316 667
Depreciation and amortization 4,238 15,139 279 19,656
-------- -------- -------- ----------
Operating income (loss) (4,138) 4,935 (2,512) (1,715)
Interest and other income (expense) (533) (175) 1,048 340
Interest expense and amortization of
deferred financing costs (685) (5,539) (5,062) (11,286)
Provision for income taxes (31) -- (96) (127)
Minority interests -- (685) -- (685)
Cumulative effect of change in
accounting principle for costs of
start-up activities (2,014) -- (400) (2,414)
-------- -------- -------- ----------
Net loss $ (7,401) $ (1,464) $ (7,022) $ (15,887)
======== ======== ======== ==========
Capital expenditures $ 17,171 $ 58,805 $ 387 $ 76,363
======== ======== ======== ==========
Total assets (at period end) $353,007 $918,043 $852,644 $2,123,694
======== ======== ======== ==========
</TABLE>
12
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
-----------------------------------------------
Corporate
Office Consolidated
CCI and Other Total
---------- ---------- -------------
(In thousands of dollars)
<S> <C> <C> <C>
Net revenues:
Site rental and broadcast transmission $ 5,061 $ -- $ 5,061
Network services and other 6,677 99 6,776
------- ------- -------
11,738 99 11,837
------- ------- -------
Costs of operations (exclusive of depreciation and
amortization) 5,593 -- 5,593
General and administrative 3,370 433 3,803
Corporate development -- 1,331 1,331
------- ------- -------
EBITDA 2,775 (1,665) 1,110
Depreciation and amortization 3,540 64 3,604
------- ------- -------
Operating loss (765) (1,729) (2,494)
Equity in losses of unconsolidated affiliate -- (99) (99)
Interest and other income (expense) 15 691 706
Interest expense and amortization of deferred
financing costs (572) (4,134) (4,706)
Provision for income taxes (13) -- (13)
------- ------- -------
Net loss $(1,335) $(5,271) $(6,606)
======= ======= =======
Capital expenditures $23,724 $ 815 $24,539
======= ======= =======
</TABLE>
8. Subsequent Events
Interest Rate Swap Agreement
In April 1999, the Company entered into an interest rate swap agreement in
connection with amounts borrowed under the Crown Atlantic Credit Facility (see
Note 3). This interest rate swap agreement has an initial notional amount of
$100,000,000, decreasing on a quarterly basis beginning September 30, 2003 until
the termination of the agreement on March 31, 2006. The Company will pay a
fixed rate of 5.79% on the notional amount and received a floating rate based on
LIBOR. This agreement effectively changes the interest rate on a portion of the
borrowings under the Crown Atlantic Credit Facility from a floating rate to a
fixed rate of 5.79% plus the applicable margin. The Company does not believe
there is any significant exposure to credit risk due to the creditworthiness of
the counterparty. In the event of nonperformance by the counterparty, the
Company's loss would be limited to any unfavorable interest rate differential.
Sales of Securities
On May 12, 1999, the Company sold shares of its common stock and debt
securities in concurrent underwritten public offerings (collectively, the
"Offerings"). The Company sold (i) 21,000,000 shares of its common stock at a
price of $17.50 per share and received proceeds of $352,800,000 (after
underwriting discounts of $14,700,000); (ii) $500,000,000 aggregate principal
amount (at maturity) of its 10 3/8% Senior Discount Notes due 2011 (the "10 3/8%
Notes") for proceeds of $292,644,000 (net of original issue discount of
$198,305,000 and after underwriting discounts of $9,051,000); and (iii)
$180,000,000 aggregate principle amount of its 9% Senior Notes due 2011 (the "9%
Notes") for proceeds of $174,600,000 (after underwriting discounts of
$5,400,000). The proceeds from the Offerings will be used to repay amounts
drawn under the Term Loans in connection with the BellSouth and Powertel
transactions, to pay the remaining purchase price for such transactions, to fund
the initial interest payments on the 9% Notes and for general corporate
purposes.
13
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company had granted the underwriters for the Offerings an over-allotment
option to purchase an additional 3,150,000 shares of the Company's common stock.
On May 13, 1999, the underwriters exercised this over-allotment option in full.
As a result, the Company will receive additional proceeds of $52,920,000 (after
underwriting discounts of $2,205,000).
The 10 3/8% notes will not pay any interest until November 15, 2004, at which
time semi-annual interest payments will commence and become due on each May 15
and November 15 thereafter. Semi-annual interest payments for the 9% Notes are
due on each May 15 and November 15, commencing on November 15, 1999. The
maturity date of the 10 3/8% Notes and the 9% Notes is May 15, 2011.
The 10 3/8% Notes and the 9% Notes are redeemable at the option of the
Company, in whole or in part, on or after May 15, 2004 at prices of 105.187% and
104.5%, respectively, of the principal amount plus accrued interest. The
redemption prices are reduced annually until May 15, 2007, after which time the
10 3/8% Notes and the 9% Notes are redeemable at par. Prior to May 15, 2002, the
Company may redeem up to 35% of the aggregate principal amount of the 10 3/8%
Notes and the 9% Notes, at prices of 110.375% and 109%, respectively, of the
accreted value thereof, with the net cash proceeds from a public offering of the
Company's common stock.
The 10 3/8% Notes and the 9% Notes are senior indebtedness of the Company;
however, they are unsecured and effectively subordinate to the liabilities of
the Company's subsidiaries, which include outstanding borrowings under the
Senior Credit Facility, the CTI Credit Facility, the Crown Atlantic Credit
Facility and the CTI Bonds. The indentures governing the 10 3/8% Notes and the
9% Notes place restrictions on the Company's ability to, among other things, pay
dividends and make capital distributions, make investments, incur additional
debt and liens, issue additional preferred stock, dispose of assets and
undertake transactions with affiliates.
14
<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, 1999 and its results of
operations for the three-month periods ended March 31, 1998 and 1999. 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. 333-74553) (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 Form 10-K. Any capitalized terms used but not
defined in this Item have the same meaning given to them in the Form 10-K.
Results of Operations
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 CTI are included in
the Company's consolidated financial statements for the periods subsequent to
the date the exchange was consummated. As such, the Company's results of
operations for the three months ended March 31, 1998 are not comparable to the
results of operations for the three months ended March 31, 1999.
15
<PAGE>
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
March 31, 1998 March 31, 1999
---------------------------- -------------------------
Percent of Percent of
Amount Net Revenues Amount Net Revenues
----------- ------------ ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net revenues:
Site rental and broadcast transmission $ 5,061 42.8% $ 45,326 82.2%
Network services and other 6,776 57.2 9,783 17.8
------- ------ -------- ------
Total net revenues 11,837 100.0 55,109 100.0
------- ------ -------- ------
Operating expenses:
Costs of operations:
Site rental and broadcast transmission 1,172 23.2 18,527 40.9
Network services and other 4,421 65.2 6,982 71.4
------- --------
Total costs of operations 5,593 47.3 25,509 46.3
General and administrative 3,803 32.1 8,304 15.1
Corporate development 1,331 11.2 874 1.6
Restructuring charges -- -- 1,814 3.3
Non-cash compensation charges -- -- 667 1.2
Depreciation and amortization 3,604 30.5 19,656 35.6
------- ------ -------- ------
Operating loss (2,494) (21.1) (1,715) (3.1)
Other income (expense):
Equity in losses of unconsolidated affiliate (99) (0.8) -- --
Interest and other income (expense) 706 6.0 340 0.6
Interest expense and amortization of
deferred financing costs (4,706) (39.8) (11,286) (20.5)
------- ------ -------- ------
Loss before income taxes, minority
interests and cumulative effect of change
in accounting principle (6,593) (55.7) (12,661) (23.0)
Provision for income taxes (13) (0.1) (127) (0.2)
Minority interests -- -- (685) (1.2)
------- ------ -------- ------
Loss before cumulative effect of change in
accounting principle (6,606) (55.8) (13,473) (24.4)
Cumulative effect of change in accounting
principle for costs of start-up activities -- -- (2,414) (4.4)
------- ------ -------- ------
Net loss $(6,606) (55.8)% $(15,887) (28.8)%
======= ====== ======== ======
</TABLE>
Comparison of Three Months Ended March 31, 1999 and 1998
Consolidated revenues for the three months ended March 31, 1999 were $55.1
million, an increase of $43.3 million from the three months ended March 31,
1998. This increase was primarily attributable to (i) a $40.3 million, or
795.6%, increase in site rental and broadcast transmission revenues, of which
$39.0 million was attributable to CTI and $1.3 million was attributable to the
Crown operations; (ii) a $0.8 million decrease in network services and other
revenues from the Crown operations; and (iii) $3.8 million in network services
and other revenues from CTI.
Costs of operations for the three months ended March 31, 1999 were $25.5
million, an increase of $19.9 million from the three months ended March 31,
1998. This increase was primarily attributable to (i) a $17.4 million increase
in site rental and broadcast transmission costs, of which $16.9 million was
attributable to CTI and $0.5 million was attributable to the Crown operations;
(ii) a $1.4 million decrease in network services costs related to the Crown
operations; and (iii) $3.9 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 40.9% for the three
months ended March 31, 1999 from 23.2% for the three months ended March 31, 1998
because of higher costs attributable to the CTI and Crown operations. Costs of
operations for network services and other as a percentage of network services
and other revenues increased to 71.4% for the
16
<PAGE>
three months ended March 31, 1999 from 65.2% for the three months ended March
31, 1998, primarily due to lower margins from the CTI operations. Margins from
the Crown network services operations increased for the three months ended March
31, 1999 as compared to the three months ended March 31, 1998.
General and administrative expenses for the three months ended March 31, 1999
were $8.3 million, an increase of $4.5 million from the three months ended March
31, 1998. This increase was primarily attributable to (i) a $1.9 million
increase in expenses related to the Crown operations; (ii) a $0.9 million
increase in expenses at the Company's corporate office; and (iii) $1.7 million
in expenses at CTI. General and administrative expenses as a percentage of
revenues decreased for the three months ended March 31, 1999 to 15.1% from 32.1%
for the three months ended March 31, 1998 because of lower overhead costs as a
percentage of revenues for CTI, partially offset by increases in costs at Crown
and the Company's corporate office.
Corporate development expenses for the three months ended March 31, 1999 were
$0.9 million, compared to $1.3 million for the three months ended March 31,
1998. 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.
In connection with the formation of Crown Atlantic, the Company completed a
restructuring of its United States operations during the first quarter of 1999.
The objective of this restructuring was to transition from a centralized
organization to a regionally-based organization in the United States. For the
three months ended March 31, 1999, the Company has recorded one-time charges of
$1.8 million related to severance payments for staff reductions, as well as
costs related to non-cancelable leases of excess office space.
For the three months ended March 31, 1999, the Company has recorded non-cash
compensation charges of $0.7 million related to the issuance of stock options to
certain employees and executives.
Depreciation and amortization for the three months ended March 31, 1999 was
$19.7 million, an increase of $16.1 million from the three months ended March
31, 1998. This increase was primarily attributable to (i) $15.1 million of
depreciation and amortization related to the property and equipment and goodwill
from CTI and (ii) a $0.7 million increase in depreciation and amortization
related to the property and equipment, goodwill and other intangible assets
related to the Crown operations.
The equity in losses of unconsolidated affiliate represents the Company's
34.3% share of CTI's net earnings (losses) for the periods prior to August 1998
(at which time the share exchange with CTI's shareholders was consummated). 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 non-
cash compensation charges for approximately $2.9 million related to the issuance
of stock options to certain members of CTI's management.
Interest and other income (expense) for the three months ended March 31, 1999
resulted primarily from (i) the investment of the net proceeds from the
Company's initial public offering of common stock (the "IPO") in August 1998;
(ii) the investment of the excess proceeds from the sale of the Company's 12
3/4% Senior Exchangeable Preferred Stock due 2010 (the "Exchangeable Preferred
Stock") in December 1998; and (iii) the investment of the excess proceeds from
the sale of the Company's 10 5/8% Senior Discount Notes due 2007 (the "10 5/8%
Notes") in November 1997 (the "1997 Notes Offering"); largely offset by costs
incurred in connection with unsuccessful acquisition attempts. Interest and
other income (expense) for the three months ended March 31, 1998 resulted
primarily from the investment of the excess proceeds from the sale of the Notes.
Interest expense and amortization of deferred financing costs for the three
months ended March 31, 1999 was $11.3 million, an increase of $6.6 million, or
139.8%, from the three months ended March 31, 1998. This
17
<PAGE>
increase was primarily attributable to interest on CTI's indebtedness,
amortization of the original issue discount on the 10 5/8% Notes and interest on
the Term Loans.
Minority interests represent the minority shareholder's 20% interest in CTI's
operations.
The cumulative effect of the change in accounting principle for costs of
start-up activities represents the charge recorded by the Company upon the
adoption of SOP 98-5 on January 1, 1999.
Liquidity and Capital Resources
As of March 31, 1999, the Company had consolidated cash and cash equivalents
of $101.8 million (including $5.2 million at CTI and $46.0 million at Crown
Atlantic), consolidated long-term debt of $771.2 million, consolidated
redeemable preferred stock of $207.5 million and consolidated stockholders'
equity of $966.8 million.
On May 12, 1999, the Company consummated the Offerings. The Company sold (i)
21,000,000 shares of its common stock at a price of $17.50 per share and
received proceeds of $352,800,000 (after underwriting discounts of $14,700,000);
(ii) $500,000,000 aggregate principal amount (at maturity) of the 10 3/8% Notes
for proceeds of $292,644,000 (net of original issue discount of $198,305,000 and
after underwriting discounts of $9,051,000); and (iii) $180,000,000 aggregate
principle amount of the 9% Notes for proceeds of $174,600,000 (after
underwriting discounts of $5,400,000). The Company had granted the underwriters
for the Offerings an over-allotment option to purchase an additional 3,150,000
shares of the Company's common stock. On May 13, 1999, the underwriters
exercised this over-allotment option in full. As a result, the Company will
receive additional proceeds of $52,920,000 (after underwriting discounts of
$2,205,000). The proceeds from the Offerings will be used to repay amounts drawn
under the Term Loans in connection with the BellSouth and Powertel transactions,
to pay the remaining purchase price for such transactions, to fund the initial
interest payments on the 9% Notes and for general corporate purposes.
The Company's business strategy contemplates substantial capital expenditures
(i) in connection with the expansion of its tower portfolios by partnering with
wireless carriers to assume ownership or control of their existing towers, by
pursuing build-to-suit opportunities and by pursuing other tower acquisition
opportunities and (ii) to acquire existing transmission networks globally as
opportunities arise. Since its inception, the Company has generally funded its
activities (other than acquisitions and investments) through excess proceeds
from contributions of equity capital. The Company has financed acquisitions and
investments with the proceeds from equity contributions, borrowings under the
Senior Credit Facility, issuances of debt securities 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.
For the three months ended March 31, 1998 and 1999, the Company's net cash
provided by (used for) operating activities was ($3.0 million) and $20.5
million, respectively. For the three months ended March 31, 1998 and 1999, the
Company's net cash provided by financing activities was $25.8 million and $66.4
million, respectively. The Company's primary financing-related activities in
the first quarter of 1999 were borrowings under revolving credit agreements
amounting to $64.7 million.
Capital expenditures were $76.4 million for the three months ended March 31,
1999, of which $0.4 million was for CCIC, $17.2 million was for Crown and $58.8
million was for CTI. The Company anticipates that it will build, through the
end of 1999, between 900 and 1,200 towers at an aggregate cost of between $170.0
million and $220.0 million. The Company also expects that the capital
expenditure requirements related to the roll-out of digital broadcast
transmission in the United Kingdom will be approximately (Pounds)40.0 million
($64.6 million).
In addition to capital expenditures in connection with build-to-suits, the
Company expects to apply a significant amount of capital to finance the cash
portion of the consideration being paid in connection with the proposed
transactions.
18
<PAGE>
In connection with Crown Atlantic, the Company issued approximately 15.6
million shares of its common stock and contributed $250.0 million in cash to
Crown Atlantic. Crown Atlantic borrowed approximately $180.0 million under the
Crown Atlantic Credit Facility, following which Crown Atlantic made a $380.0
million cash distribution to BAM.
In connection with the proposed BellSouth transaction, the Company will issue
approximately 9.1 million shares of its common stock and pay BellSouth $430.0
million in cash. The Company has deposited $50.0 million in an escrow account
pending the first closing of the transaction, which was funded through
borrowings under the Term Loans on March 16, 1999. The Company will use a
portion of the net proceeds from the Offerings to finance this transaction.
In connection with the proposed Powertel acquisition, the Company will pay
Powertel $275.0 million in cash. The Company has deposited $50.0 million, which
was funded through borrowings under the Term Loans on March 16, 1999, in an
escrow account to be applied to the purchase price at closing. The Company will
use a portion of the net proceeds from the Offerings to finance this
transaction.
The Company expects that the consummation of the proposed transactions and
the execution of its new tower build, or build-to-suit program, will have a
material impact on its liquidity. The Company expects that once integrated,
these transactions will have a positive impact on liquidity, but will require
some period of time to offset the initial adverse impact on liquidity. In
addition, the Company believes that as new towers become operational and tenants
are added, they should result in a long-term increase in liquidity.
To fund the execution of the Company's business strategy, including the
proposed transactions described above and the construction of new towers that
the Company has agreed to build, the Company and its subsidiaries expect to use
the net proceeds from the Offerings, the borrowings available under the Senior
Credit Facility, the borrowings available under the CTI Credit Facility, the
borrowings available under the Crown Atlantic Credit Facility and the remaining
net proceeds from the 1997 Notes Offering. The Company will have additional
cash needs to fund its operations in the future. The Company may also have
additional cash needs in the near-term if additional tower acquisitions or
build-to-suit opportunities arise. Some of the opportunities that the Company
is currently pursuing could require significant additional capital. In the
event the Company does not otherwise have cash available, or borrowings under
its credit facilities have otherwise been utilized, when cash needs arise, 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.
As of May 1, 1999, (i) the Company's subsidiaries had approximately $31.1
million of unused borrowing availability under the Senior Credit Facility; (ii)
CTI had unused borrowing availability under the CTI Credit Facility of
approximately (Pounds)11.5 million ($18.6 million); and (iii) Crown Atlantic had
approximately $6.2 million of unused borrowing availability under the Crown
Atlantic Credit Facility. The Company's various credit facilities require its
subsidiaries to maintain certain financial covenants and place restrictions on
the ability of the Company's subsidiaries to, among other things, incur debt and
liens, pay dividends, make capital expenditures, undertake transactions with
affiliates and make investments. These facilities also limit the ability of the
borrowing subsidiaries to pay dividends to the Company.
If the Company is unable to refinance its subsidiary debt or renegotiate the
terms of such debt, it may not be able to meet its debt service requirements,
including interest payments on the 10 5/8% Notes, the 10 3/8% Notes and the 9%
Notes, in the future. Prior to November 15, 2002 and May 15, 2004, respectively,
the interest expense on the 10 5/8% Notes and the 10 3/8% Notes will be
comprised solely of the amortization of original issue discount. Thereafter, the
10 5/8% Notes and the 10 3/8% Notes will require annual cash interest payments
of approximately $26.7 million and $51.9 million, respectively. The 9% Notes
require annual cash interest payments of approximately $16.2 million, commencing
on November 15, 1999. Prior to December 15, 2003, the Company does not expect to
pay cash dividends on the Exchangeable Preferred Stock or, if issued, cash
19
<PAGE>
interest on the exchange debentures. Thereafter, assuming all dividends or
interest have been paid-in-kind, the Exchangeable Preferred Stock or, if issued,
the exchange debentures will require annual cash dividend or interest payments
of approximately $47.8 million. Annual cash interest payments on the CTI Bonds
are (Pounds)11.25 million ($18.2 million). In addition, the Senior Credit
Facility, the CTI Credit Facility and the Crown Atlantic Credit Facility will
require periodic interest payments on amounts borrowed thereunder.
As a holding company, the Company will require distributions or dividends
from its subsidiaries, or will be forced to use capital raised in debt and
equity offerings, to fund its debt obligations, including interest payments on
the Notes. As described above, the terms of the indebtedness of the Company's
subsidiaries significantly limit such subsidiaries' ability to distribute cash
to the Company.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, its debt obligations, and its ability to refinance any such debt
obligations, 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. The Company anticipates that it
may need to refinance all or a portion of its indebtedness (including the
10 5/8% Notes, the 10 3/8% Notes, the 9% 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 on commercially
reasonable terms or at all.
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.
The Company has designated Crown Atlantic as an Unrestricted Subsidiary.
Summarized financial information for (i) the Company and its Restricted
Subsidiaries and (ii) the Company's Unrestricted Subsidiaries is as follows:
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ -------------- ------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 50,669 $ 51,178 $ -- $ 101,847
Other current assets 21,373 31,555 -- 52,928
Property and equipment, net 178,304 1,054,900 -- 1,233,204
Escrow deposits for acquisitions 100,000 -- -- 100,000
Investments in Unrestricted Subsidiaries 992,675 -- (992,675) --
Goodwill and other intangible assets, net 141,443 476,326 -- 617,769
Other assets, net 13,406 4,540 -- 17,946
---------- ---------- --------- ----------
$1,497,870 $1,618,499 $(992,675) $2,123,694
========== ========== ========= ==========
Current liabilities $ 9,394 $ 68,901 $ -- $ 78,295
Long-term debt 312,505 458,685 -- 771,190
Other liabilities 1,744 45,140 -- 46,884
Minority interests -- 53,098 -- 53,098
Redeemable preferred stock 207,471 -- -- 207,471
Stockholders' equity 966,756 992,675 (992,675) 966,756
---------- ---------- --------- ----------
$1,497,870 $1,618,499 $(992,675) $2,123,694
========== ========== ========= ==========
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
-----------------------------------------------------
Company and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------- ------------- -------------
(In thousands of dollars)
<S> <C> <C> <C>
Net revenues $ 12,254 $42,855 $ 55,109
Costs of operations (exclusive of depreciation
and amortization) 4,725 20,784 25,509
General and administrative 6,624 1,680 8,304
Corporate development 841 33 874
Restructuring charges 1,814 -- 1,814
Non-cash compensation charges 383 284 667
Depreciation and amortization 4,517 15,139 19,656
-------- ------- --------
Operating income (loss) (6,650) 4,935 (1,715)
Interest and other income (expense) (2,328) 2,668 340
Interest expense and amortization of deferred
financing costs (5,747) (5,539) (11,286)
Provision for income taxes (127) -- (127)
Minority interests -- (685) (685)
Cumulative effect of change in accounting (2,414) -- (2,414)
principle for costs of start-up activities -------- ------- --------
Net income (loss) $(17,266) $ 1,379 $(15,887)
======== ======= ========
</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 March 31, 1999 $ 4,098
========
Consolidated Cash Flow, for the twelve months ended March 31, 1999 $ 4,854
Less: Tower Cash Flow, for the twelve months ended March 31, 1999 (15,318)
Plus: four times Tower Cash Flow, for the three months ended March 31, 1999 16,392
--------
Adjusted Consolidated Cash Flow, for the twelve months ended March 31, 1999 $ 5,928
========
</TABLE>
Impact of Recently Issued Accounting Standards
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 requires 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 has adopted 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 resulted in a charge to results of operations for
$2,414,000 in the Company's financial statements for the three months ended
March 31, 1999.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 requires that derivative instruments be recognized as either assets or
liabilities in the consolidated balance sheet based on their fair values.
Changes in the fair values of such derivative instruments will be recorded
either in results of operations or in other comprehensive income, depending on
the intended use of the derivative instrument. The initial application of SFAS
133 will be reported as the effect of a change in accounting principle. SFAS
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. The Company will adopt the requirements of SFAS 133 in its financial
statements for the three months ending March 31, 2000. The Company has not yet
determined the effect that the adoption of SFAS 133 will have on its
consolidated financial statements.
21
<PAGE>
Year 2000 Compliance
The year 2000 problem is the result of computer programs having been written
using two digits (rather than four) to define the applicable year. Any of our
computer programs that have date-sensitive software may recognize a date using
"00" as 1900 rather than the year 2000, or may not recognize the date at all.
This could result in a system failure or miscalculations causing disruption of
operations including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
In 1997 we established a year 2000 project to ensure that the issue received
appropriate priority and that necessary resources were made available. This
project includes the replacement of our worldwide business computer systems with
systems that use programs primarily from J.D. Edwards, Inc. The new systems are
expected to make approximately 90% of our business computer systems year 2000
compliant and are in production today. Remaining business software programs,
including those supplied by vendors, will be made year 2000 compliant through
the year 2000 project or they will be retired. None of our other information
technology projects has been delayed due to the implementation of the year 2000
project.
Our year 2000 project is divided into the following phases: (1) inventorying
year 2000 items; (2) assigning priorities to identified items; (3) assessing the
year 2000 compliance of items determined to be material to us; (4) repairing or
replacing material items that are determined not to be year 2000 compliant; (5)
testing material items; and (6) designing and implementing contingency and
business continuation plans for each organization and company location. We have
completed the inventory and priority assessment phases and are 90% complete with
the assessing compliance phase. The remaining items include various third party
assurances regarding the year 2000 status of their operations. We are now
continuing with the testing phase of the year 2000 project. All critical
broadcast equipment and non-information technology related equipment has been
tested and is either year 2000 compliant, has been designated as year 2000
ready, or will be repaired or replaced by June 1999. A year 2000 ready
designation implies the equipment or system will function without adverse
effects beyond year 2000 but may not be aware of the century. All critical
information technology systems have been designated year 2000 compliant or are
scheduled to be retired or remediated by July 1999. The testing phase is
ongoing as hardware or system software is remediated, upgraded or replaced.
Testing as well as remediation is scheduled for completion in July 1999. The
final phase of our year 2000 project, contingency planning, will be completed
and tested to the extent possible by September 1999.
We have expended approximately $7.2 million on the year 2000 project through
March 31, 1999, of which approximately $6.8 million related to the
implementation of the J.D. Edwards Systems and related hardware. Funds for the
year 2000 project are provided from a separate budget of approximately $0.3
million for all remaining items.
The failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect our results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the year 2000 problem, resulting in part from the uncertainty of the
year 2000 readiness of third-party suppliers and customers, we are unable to
determine at this time whether the consequences of year 2000 failures will have
a material impact on our results of operations, liquidity or financial
condition. The year 2000 project is expected to significantly reduce our level
of uncertainty about the year 2000 problem and, in particular, about the year
2000 compliance and readiness of our material business partners. We believe
that, with the implementation of new business systems and completion of the
project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, as a result of its international operating, investing and
financing activities, is exposed to market risks, which include changes in
foreign currency exchange rates and interest rates which may adversely affect
its results of operations and financial position. In seeking to minimize the
risks and/or costs associated
22
<PAGE>
with such activities, the Company manages exposure to changes in interest rates
and foreign currency exchange rates.
Certain financial instruments used to obtain capital are subject to market
risks from fluctuations in market rates. The majority of our financial
instruments, however, are long-term fixed interest rate notes and debentures.
Therefore, fluctuations in market interest rates of 1% in 1999 would not have a
material effect on the Company's consolidated financial results.
The majority of our foreign currency transactions are denominated in the
British pound sterling, which is the functional currency of CTI. As these
contracts are denominated and settled in the functional currency, risks
associated with currency fluctuations are minimized to foreign currency
translation adjustments. The Company does not currently hedge against foreign
currency translation risks and believes that foreign currency exchange risk is
not significant to its operations.
23
<PAGE>
PART II-OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 31, 1999, the Company contributed via its wholly owned subsidiary,
CCA Investment Corp. ("CCA"), 15,597,783 shares of common stock of the Company
along with $250.0 million in cash to a joint venture ("Crown Atlantic") between
CCA and Cellco Partnership, a Delaware general partnership doing business as
Bell Atlantic Mobile ("BAM"), which owns and operates the wireless communication
towers contributed by BAM to Crown Atlantic. The common stock contributed by
CCA to Crown Atlantic was valued at $197.0 million for purposes of structuring
the transaction. CCA has approximately a 61.5% membership interest in Crown
Atlantic and BAM has approximately a 38.5% membership interest in Crown Atlantic
along with a .001% interest in Crown Atlantic's operating subsidiary. BAM
contributed 1,322 towers along with related assets and liabilities to Crown
Atlantic plus the ecomomic benefit of 136 towers and was distributed $380.0
million in cash. BAM has entered into a global lease for space on the towers
contributed to Crown Atlantic. Crown Atlantic has also entered into a build-to
suit agreement with BAM as to 500 towers for the BAM wireless communication
business and has a right of first refusal on the Company's next 300 build-to-
suit tower opportunities not affiliated with BAM within the region of the
contributed towers. The stock was issued and contributed in an exempt
transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended.
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
The Registrant filed a Current Report on Form 8-K dated March 8, 1999 and
filed with the Securities and Exchange Commission on March 9, 1999 reporting
under Item 5 thereof the execution of a letter agreement with BellSouth
Mobility for the sublease of its towers.
The Registrant filed a Current Report on Form 8-K dated March 15, 1999 and
filed with the Securities and Exchange Commission on March 16, 1999 reporting
under Item 5 thereof the execution of an asset purchase agreement with
Powertel for the acquisition of its towers and an agreement with One2One for
the management, development and acquisition of its towers.
The Registrant filed a Current Report on Form 8-K dated March 31, 1999 and
filed with the Securities and Exchange Commission on April 12, 1999 reporting
under Item 5 thereof the formation and closing of the joint venture with Bell
Atlantic Mobile.
24
<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 14, 1999 By: /s/ CHARLES C. GREEN, III
------------------------------
Charles C. Green, III
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: May 14, 1999 By: /s/ WESLEY D. CUNNINGHAM
------------------------------
Wesley D. Cunningham
Senior Vice President, Corporate Controller
and Chief Accounting Officer
(Principal Accounting Officer)
25
<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 March 31,
-------------------------------
1998 1999
---------- -----------
(In thousands of dollars,
except per share amounts)
<S> <C> <C>
Loss before cumulative effect of change in accounting
principle $(6,606) $(13,473)
Dividends on preferred stock (2,055) (6,408)
------- --------
Loss before cumulative effect of change in accounting
principle applicable to common stock for basic and diluted
computations (8,661) (19,881)
Cumulative effect of change in accounting principle -- (2,414)
------- --------
Net loss applicable to common stock for basic and diluted
computations $(8,661) $(22,295)
======= ========
Weighted-average number of common shares outstanding during
the period for basic and diluted computations (in
thousands) 10,954 94,732
======= ========
Per common share - basic and diluted:
Loss before cumulative effect of change in accounting
principle $ (0.79) $ (0.21)
Cumulative effect of change in accounting principle -- (0.03)
------- --------
Net loss $ (0.79) $ (0.24)
======= ========
</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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 101,847
<SECURITIES> 0
<RECEIVABLES> 31,902
<ALLOWANCES> 1,653
<INVENTORY> 8,634
<CURRENT-ASSETS> 154,775
<PP&E> 1,267,933
<DEPRECIATION> 34,729
<TOTAL-ASSETS> 2,123,694
<CURRENT-LIABILITIES> 78,295
<BONDS> 771,190
207,471
0
<COMMON> 1,105
<OTHER-SE> 965,651
<TOTAL-LIABILITY-AND-EQUITY> 2,123,694
<SALES> 0
<TOTAL-REVENUES> 55,109
<CGS> 0
<TOTAL-COSTS> 25,509
<OTHER-EXPENSES> 31,315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,286
<INCOME-PRETAX> (12,661)
<INCOME-TAX> 127
<INCOME-CONTINUING> (13,473)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (2,414)
<NET-INCOME> (15,887)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
