<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 September 30, 2000
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
Suite 500
Houston, Texas 77057-1457
(Address of principal executive (Zip Code)
offices)
(713) 570-3000
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Number of shares of common stock outstanding at November 1, 2000: 198,245,002
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<PAGE>
CROWN CASTLE INTERNATIONAL CORP.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 1999 and September 30, 2000... 3
Consolidated Statement of Operations and Comprehensive Loss for the three
and nine months ended September 30, 1999 and 2000....................... 4
Consolidated Statement of Cash Flows for the nine months ended September
30, 1999 and 2000....................................................... 5
Condensed Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 25
PART II--OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds......................... 26
Item 6. Exhibits and Reports on Form 8-K.................................. 27
Signatures................................................................ 28
</TABLE>
2
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 549,328 $ 816,938
Receivables:
Trade, net of allowance for doubtful accounts of
$3,218 and $11,544 at December 31, 1999 and
September 30, 2000, respectively................ 74,290 132,805
Other............................................ 4,327 1,322
Inventories....................................... 19,178 53,960
Prepaid expenses and other current assets......... 14,922 20,148
---------- ----------
Total current assets........................... 662,045 1,025,173
Property and equipment, net of accumulated
depreciation of $119,473 and $248,812 at December
31, 1999 and September 30, 2000, respectively..... 2,468,101 4,081,113
Escrow deposit for acquisition..................... 50,000 --
Goodwill and other intangible assets, net of
accumulated amortization of $53,437 and $85,213 at
December 31, 1999 and September 30, 2000,
respectively...................................... 596,147 1,091,587
Deferred financing costs and other assets, net of
accumulated amortization of $4,245 and $7,953 at
December 31, 1999 and September 30, 2000,
respectively...................................... 60,357 109,281
---------- ----------
$3,836,650 $6,307,154
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable.................................. $ 45,998 $ 82,120
Accrued interest.................................. 20,912 36,413
Accrued compensation and related benefits......... 4,005 6,849
Deferred rental revenues and other accrued
liabilities...................................... 60,366 117,995
---------- ----------
Total current liabilities...................... 131,281 243,377
Long-term debt..................................... 1,542,343 2,564,896
Other liabilities.................................. 67,064 82,970
---------- ----------
Total liabilities.............................. 1,740,688 2,891,243
---------- ----------
Commitments and contingencies
Minority interests................................. 55,292 125,468
Redeemable preferred stock......................... 422,923 834,338
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares
authorized:
Common Stock; shares issued: December 31, 1999--
146,074,905 and September 30, 2000--
197,196,557..................................... 1,461 1,972
Class A Common Stock; shares issued: December 31,
1999--11,340,000 and September 30, 2000--none... 113 --
Additional paid-in capital........................ 1,805,053 2,855,365
Cumulative foreign currency translation
adjustment....................................... (3,013) (30,044)
Accumulated deficit............................... (185,867) (371,188)
---------- ----------
Total stockholders' equity..................... 1,617,747 2,456,105
---------- ----------
$3,836,650 $6,307,154
========== ==========
</TABLE>
See condensed notes to consolidated financial statements.
3
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1999 2000 1999 2000
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Site rental and broadcast
transmission........................ $ 75,632 $117,174 $183,135 $ 320,418
Network services and other........... 23,295 57,415 48,428 126,774
-------- -------- -------- ---------
98,927 174,589 231,563 447,192
-------- -------- -------- ---------
Operating expenses:
Costs of operations (exclusive of
depreciation and amortization):
Site rental and broadcast
transmission....................... 32,934 50,383 78,018 139,233
Network services and other.......... 11,712 34,993 26,869 70,901
General and administrative........... 12,534 18,196 30,076 52,544
Corporate development................ 1,194 2,222 4,134 6,415
Restructuring charges................ -- -- 1,814 --
Non-cash compensation charges........ 501 808 1,672 1,619
Depreciation and amortization........ 39,850 65,596 89,369 167,365
-------- -------- -------- ---------
98,725 172,198 231,952 438,077
-------- -------- -------- ---------
Operating income (loss)............... 202 2,391 (389) 9,115
Other income (expense):
Interest and other income (expense).. 7,923 10,217 12,802 22,586
Interest expense and amortization of
deferred financing costs............ (34,506) (65,498) (72,348) (173,987)
-------- -------- -------- ---------
Loss before income taxes, minority
interests, extraordinary item and
cumulative effect of change in
accounting principle................. (26,381) (52,890) (59,935) (142,286)
Provision for income taxes............ (71) (127) (268) (163)
Minority interests.................... (615) 52 (1,187) (1,806)
-------- -------- -------- ---------
Loss before extraordinary item and
cumulative effect of change in
accounting principle................. (27,067) (52,965) (61,390) (144,255)
Extraordinary item--loss on early
extinguishment of debt............... -- -- -- (1,495)
Cumulative effect of change in
accounting principle for costs of
start-up activities.................. -- -- (2,414) --
-------- -------- -------- ---------
Net loss.............................. (27,067) (52,965) (63,804) (145,750)
Dividends on preferred stock.......... (6,824) (16,353) (19,846) (39,571)
-------- -------- -------- ---------
Net loss after deduction of dividends
on preferred stock................... $(33,891) $(69,318) $(83,650) $(185,321)
======== ======== ======== =========
Net loss.............................. $(27,067) $(52,965) $(63,804) $(145,750)
Other comprehensive income (loss):
Foreign currency translation
adjustments......................... 6,747 (13,901) (1,573) (27,031)
-------- -------- -------- ---------
Comprehensive loss.................... $(20,320) $(66,866) $(65,377) $(172,781)
======== ======== ======== =========
Per common share--basic and diluted:
Loss before extraordinary item and
cumulative effect of change in
accounting principle................ $ (0.23) $ (0.36) $ (0.66) $ (1.07)
Extraordinary item................... -- -- -- (0.01)
Cumulative effect of change in
accounting principle................ -- -- (0.02) --
-------- -------- -------- ---------
Net loss............................. $ (0.23) $ (0.36) $ (0.68) $ (1.08)
======== ======== ======== =========
Common shares outstanding--basic and
diluted (in thousands)............... 149,621 191,763 123,067 171,985
======== ======== ======== =========
</TABLE>
See condensed notes to consolidated financial statements.
4
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1999 2000
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (63,804) $ (145,750)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization........................ 89,369 167,365
Amortization of deferred financing costs and
discounts on long-term debt......................... 31,238 59,805
Minority interests................................... 1,187 1,806
Non-cash compensation charges........................ 1,672 1,619
Extraordinary loss on early extinguishment of debt... -- 1,495
Cumulative effect of change in accounting principle.. 2,414 --
Changes in assets and liabilities, excluding the
effects of acquisitions:
Increase in deferred rental revenues and other
liabilities........................................ 65,056 86,336
Increase (decrease) in accounts payable............. (13,680) 37,447
Increase in accrued interest........................ 1,812 15,807
Increase in receivables............................. (20,112) (56,357)
Increase in inventories, prepaid expenses and other
assets............................................. (19,445) (51,983)
---------- ----------
Net cash provided by operating activities.......... 75,707 117,590
---------- ----------
Cash flows from investing activities:
Acquisitions of businesses and assets, net of cash
acquired............................................. (1,095,692) (1,091,416)
Capital expenditures.................................. (213,627) (437,005)
Investments in affiliates............................. (6,826) (1,989)
---------- ----------
Net cash used for investing activities............. (1,316,145) (1,530,410)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.............. 757,206 1,015,020
Proceeds from issuance of capital stock............... 617,297 741,603
Net borrowings under revolving credit agreements...... 84,751 63,000
Principal payments on long-term debt.................. -- (82,000)
Incurrence of financing costs......................... (22,283) (47,184)
---------- ----------
Net cash provided by financing activities.......... 1,436,971 1,690,439
---------- ----------
Effect of exchange rate changes on cash................ (824) (10,009)
---------- ----------
Net increase in cash and cash equivalents.............. 195,709 267,610
Cash and cash equivalents at beginning of period....... 296,450 549,328
---------- ----------
Cash and cash equivalents at end of period............. $ 492,159 $ 816,938
========== ==========
Supplementary schedule of non-cash investing and
financing activities:
Amounts recorded in connection with acquisitions:
Fair value of net assets acquired, including goodwill
and other intangible assets......................... $1,676,582 $1,899,940
Escrow deposits for acquisitions..................... -- 50,000
Issuance of long-term debt........................... 180,000 --
Minority interests................................... 14,330 74,525
Issuance of common stock............................. 386,560 683,999
Supplemental disclosure of cash flow information:
Interest paid......................................... $ 38,931 $ 95,071
Income taxes paid..................................... 295 175
</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, 1999,
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 September 30,
2000, the consolidated results of operations for the three and nine months
ended September 30, 1999 and 2000 and the consolidated cash flows for the nine
months ended September 30, 1999 and 2000. 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 had deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 required that such deferred costs be charged to results of operations
upon its adoption. 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, as
amended, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company will adopt the requirements of SFAS 133 as of
January 1, 2001. The Company estimates that the adoption of SFAS 133 will
result in a net transition adjustment gain of approximately $3,000,000 in
accumulated other comprehensive income, and the recognition of approximately
$3,000,000 of derivative instrument assets. The estimated amount for this
transition adjustment is based on current fair value measurements, and such
measurements could be substantially different at the date of adoption of SFAS
133. As such, the transition adjustment recorded on that date could be
substantially different from this estimated amount. The Company also expects
that the adoption of SFAS 133 will increase the volatility of other
comprehensive income as reported in its future financial statements.
2. Acquisitions
Agreement With GTE Corporation ("GTE")
On November 7, 1999, the Company entered into an agreement with GTE to form
a joint venture ("Crown Castle GT") to own and operate a significant majority
of GTE's towers. The agreement contemplates that the transaction will be
completed in multiple closings during 2000. On January 31, 2000, the formation
of Crown Castle GT took place in connection with the first such closing of
towers. During the course of the multiple closings, (1) the Company will
contribute an aggregate of approximately $825,000,000 (of which up to
$100,000,000 can be in shares of its common stock, with the balance in cash)
in exchange for a majority ownership interest in Crown Castle GT, and (2) GTE
will contribute approximately 2,300 towers in exchange for
6
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
cash distributions aggregating approximately $800,000,000 (less any amount
contributed in the form of the Company's common stock) from Crown Castle GT
and a minority ownership interest in Crown Castle GT. Upon dissolution of
Crown Castle GT, GTE will receive (1) any shares of the Company's common stock
contributed to Crown Castle GT and (2) a payment equal to approximately 11.4%
of the fair market value of Crown Castle GT's other net assets; the Company
will then receive the remaining assets and liabilities of Crown Castle GT. The
Company is accounting for its investment in Crown Castle GT as a purchase of
tower assets, and is including Crown Castle GT's results of operations and
cash flows in the Company's consolidated financial statements for periods
subsequent to formation. Upon entering into this agreement, the Company placed
$50,000,000 into an escrow account. At the January 31, 2000 closing, the
Company contributed $223,870,000 in cash to Crown Castle GT, and GTE
contributed 637 towers in exchange for a cash distribution of $198,870,000
from Crown Castle GT.
On April 3, 2000, the Company contributed $479,671,000 in cash and
5,067,488 shares of its common stock to Crown Castle GT, and GTE contributed
1,607 towers in exchange for a cash distribution of $479,671,000 from Crown
Castle GT. The funds in the escrow account were used to pay $50,000,000 of the
Company's cash contribution. A portion of the remaining cash contribution was
financed with the net proceeds from borrowings under the Term Loans due 2011
(see Note 3). In June 2000, the Company contributed $13,191,000 in cash, and
GTE contributed 39 towers in exchange for a cash distribution of $13,191,000
from Crown Castle GT.
In addition to the approximately 2,300 towers to be contributed pursuant to
the formation agreement, GTE had the right to contribute certain additional
towers to Crown Castle GT, including towers acquired by GTE from Ameritech
Corp. ("Ameritech"), on terms substantially similar to those in the formation
agreement. In April 2000, the Company agreed with GTE that the Ameritech
towers would be contributed to Crown Castle GT. In August and September 2000,
the Company contributed $181,641,000 in cash, and GTE contributed 497 of the
Ameritech towers in exchange for a cash distribution of $181,641,000 from
Crown Castle GT.
BellSouth Mobility Inc. and BellSouth Telecommunications Inc. ("BellSouth")
and BellSouth DCS
On February 2, 2000, the Company closed on an additional 90 of the
BellSouth towers. In connection with this closing, the Company paid
$20,437,000 in cash and issued 441,925 shares of its common stock. On the same
date, the Company closed on an additional 26 of the BellSouth DCS towers. In
connection with this closing, the Company paid $10,662,000 in cash.
On April 20, 2000, the Company closed on an additional 90 of the BellSouth
towers. In connection with this closing, the Company paid $20,518,000 in cash
and issued 441,926 shares of its common stock. On the same date, the Company
closed on an additional 32 of the BellSouth DCS towers. In connection with
this closing, the Company paid $13,175,000 in cash.
On September 1, 2000, the Company closed on an additional 82 of the
BellSouth towers. In connection with this closing, the Company paid
$18,726,000 in cash and issued 402,643 shares of its common stock. On the same
date, the Company closed on an additional 22 of the BellSouth DCS towers. In
connection with this closing, the Company paid $9,098,000 in cash.
Crown Castle Australia Holdings Pty Ltd. ("CCAL")
In March 2000, CCAL (a 66.7% owned subsidiary of the Company) entered into
an agreement to purchase approximately 700 towers in Australia from Cable &
Wireless Optus ("Optus"). The total purchase price for the towers will be
approximately $135,000,000 in cash (Australian $220,000,000). The Company is
accounting for its investment in CCAL as a purchase of tower assets, and is
including CCAL's results of operations and cash flows in the Company's
consolidated financial statements for periods subsequent to the purchase date.
On April 3, 2000, the first closing took place for CCAL. The Company
contributed $90,786,000 in cash (Australian $147,500,000) to CCAL. The largest
portion of this amount, along with a capital contribution from CCAL's
7
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
minority shareholder, was used to pay $103,485,000 (Australian $168,131,000)
to Optus. In May and June of 2000, CCAL made additional payments to Optus
amounting to $6,931,000 (Australian $11,607,000). In August and September of
2000, CCAL made additional payments to Optus amounting to $4,764,000
(Australian $8,727,000).
CCUK
On July 5, 2000, TeleDiffusion de France International S.A. ("TdF", a
subsidiary of France Telecom) and an affiliate of TdF sold their remaining
interests in the Company and CCUK to a third party (see Note 5). In connection
with this disposition, the Company issued 17,443,500 shares of its Common
Stock in exchange for TdF's 20% interest in CCUK. As a result, CCUK became a
wholly owned subsidiary of the Company. The Company recognized additional
goodwill of approximately $492,702,000 in connection with this transaction.
Crown Atlantic
In addition to the towers originally contributed to Crown Atlantic by Bell
Atlantic Mobile ("BAM"), the Company and BAM agreed that certain additional
towers owned by BAM (the "Frontier towers") could be contributed to Crown
Atlantic. In August 2000, BAM contributed 136 of the Frontier towers in
exchange for additional ownership interests of $37,400,000 from Crown
Atlantic. See Note 10.
3. Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(In thousands of dollars)
<S> <C> <C>
2000 Credit Facility............................ $ -- $ 500,000
Senior Credit Facility.......................... 63,000 --
CCUK Credit Facility............................ 133,456 137,213
Crown Atlantic Credit Facility.................. 180,000 224,000
9% Guaranteed Bonds due 2007.................... 195,699 179,629
10 5/8% Senior Discount Notes due 2007, net of
discount....................................... 186,434 201,485
10 3/8% Senior Discount Notes due 2011, net of
discount....................................... 321,284 346,604
9% Senior Notes due 2011........................ 180,000 180,000
11 1/4% Senior Discount Notes due 2011, net of
discount....................................... 157,470 170,965
9 1/2% Senior Notes due 2011.................... 125,000 125,000
10 3/4% Senior Notes due 2011................... -- 500,000
---------- ----------
$1,542,343 $2,564,896
========== ==========
</TABLE>
2000 Credit Facility
In March 2000, a subsidiary of the Company entered into a credit agreement
with a syndicate of banks (the "2000 Credit Facility") which consists of two
term loan facilities and a revolving line of credit aggregating
$1,200,000,000. Available borrowings under the 2000 Credit Facility are
generally to be used for the construction and purchase of towers and for
general corporate purposes of CCUSA, Crown Castle GT and CCAL. The amount of
available borrowings will be determined based on the current financial
performance (as defined) of those subsidiaries' assets. In addition, up to
$25,000,000 of borrowing availability under the 2000 Credit Facility can be
used for letters of credit.
On March 15, 2000, the Company used $83,375,000 in borrowings under one of
the term loan facilities of the 2000 Credit Facility to repay outstanding
borrowings and accrued interest under the Senior Credit Facility. The net
proceeds from $316,625,000 in additional borrowing under this term loan
facility are being used to fund a portion of the purchase price for Crown
Castle GT and for general corporate purposes. As of September 30, 2000,
approximately $440,000,000 of borrowings was available under the 2000 Credit
Facility, of which $25,000,000 was available for letters of credit. There were
no letters of credit outstanding as of September 30,
8
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2000. In the first quarter of 2000, CCI recorded an extraordinary loss of
$1,495,000 consisting of the write-off of unamortized deferred financing costs
related to the Senior Credit Facility.
The amount of available borrowings under the 2000 Credit Facility's term
loans and revolving line of credit will decrease by stated amounts at the end
of each calendar quarter beginning on June 30, 2003. Any remaining borrowings
under the term loan currently outstanding must be repaid on March 15, 2008.
Any remaining borrowings under the other term loan and the revolving line of
credit must be repaid on September 15, 2007. Under certain circumstances, the
Company's subsidiaries may be required to make principal prepayments under the
2000 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 borrowings.
The 2000 Credit Facility is secured by substantially all of the assets of
CCUSA and CCAL, and the Company's pledge of the capital stock of those
subsidiaries and Crown Castle GT. In addition, the 2000 Credit Facility is
guaranteed by CCIC. Borrowings under the 2000 Credit Facility bear interest at
rates per annum, at the Company's election, equal to the bank's prime rate
plus margins ranging from 1.75% to 2.00% or a Eurodollar interbank offered
rate (LIBOR) plus margins ranging from 2.75% to 3.00%. The interest rate
margins may be reduced by up to 1.00% (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 six
months) for which such LIBOR rate is in effect. The 2000 Credit Facility
requires the borrowers to maintain certain financial covenants and places
restrictions on their 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 2011
On April 3, 2000, the Company borrowed $400,000,000 under a term loan
agreement with a group of lenders (the "Term Loans"). The net proceeds from
this borrowing, which amounted to $395,875,000, were used to fund a portion of
the cash contribution for the second closing of towers at Crown Castle GT (See
Note 2). The Term Loans were repaid in June 2000 with proceeds from the sale
of the Company's 10 3/4% Senior Notes.
10 3/4% Senior Notes due 2011 (the "10 3/4% Senior Notes")
On June 21, 2000, the Company issued $500,000,000 aggregate principal
amount of its 10 3/4% Senior Notes for proceeds of $483,674,000 (after
underwriting discounts of $16,326,000). A portion of the proceeds from the
sale of these securities were used to repay the Term Loans (as discussed
above), and the remaining proceeds are being used to fund the initial interest
payments on the 10 3/4% Senior Notes and for general corporate purposes.
Semi-annual interest payments for the 10 3/4% Senior Notes are due on each
February 1 and August 1, commencing on February 1, 2001. The maturity date of
the 10 3/4% Senior Notes is August 1, 2011.
The 10 3/4% Senior Notes are redeemable at the option of the Company, in
whole or in part, on or after August 1, 2005 at a price of 105.375% of the
principal amount plus accrued interest. The redemption price is reduced
annually until August 1, 2008, after which time the 10 3/4% Senior Notes are
redeemable at par. Prior to August 1, 2003, the Company may redeem up to 35%
of the aggregate principal amount of the 10 3/4% Senior Notes, at a price of
110.75% of the principal amount thereof, with the net cash proceeds from a
public offering of the Company's common stock.
Reporting Requirements Under the Indentures Governing the Company's Debt
Securities (the "Indentures") and the Certificate of Designations Governing
the Company's 12 3/4% Senior Exchangeable Preferred Stock (the "Certificate")
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
9
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
alternative measure of financial position, operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles). Furthermore, the Company's measure of the following information
may not be comparable to similarly titled measures of other companies.
Summarized financial information for (1) the Company and its Restricted
Subsidiaries and (2) the Company's Unrestricted Subsidiaries is as follows:
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Cash and cash
equivalents............. $ 808,355 $ 8,583 $ -- $ 816,938
Other current assets..... 132,534 75,701 -- 208,235
Property and equipment,
net..................... 2,872,274 1,208,839 -- 4,081,113
Investments in
Unrestricted
Subsidiaries............ 1,492,878 -- (1,492,878) --
Goodwill and other
intangible assets, net.. 155,604 935,983 -- 1,091,587
Other assets, net........ 90,898 18,383 -- 109,281
---------- ---------- ----------- ----------
$5,552,543 $2,247,489 $(1,492,878) $6,307,154
========== ========== =========== ==========
Current liabilities...... $ 145,983 $ 97,394 $ -- $ 243,377
Long-term debt........... 2,024,054 540,842 -- 2,564,896
Other liabilities........ 19,063 63,907 -- 82,970
Minority interests....... 73,000 52,468 -- 125,468
Redeemable preferred
stock................... 834,338 -- -- 834,338
Stockholders' equity..... 2,456,105 1,492,878 (1,492,878) 2,456,105
---------- ---------- ----------- ----------
$5,552,543 $2,247,489 $(1,492,878) $6,307,154
========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000 Nine Months Ended September 30, 2000
-------------------------------------- --------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 97,033 $77,556 $174,589 $ 218,947 $228,245 $ 447,192
Costs of operations
(exclusive of
depreciation and
amortization).......... 48,371 37,005 85,376 100,983 109,151 210,134
General and
administrative......... 14,976 3,220 18,196 41,836 10,708 52,544
Corporate development... 2,132 90 2,222 5,755 660 6,415
Non-cash compensation
charges................ 423 385 808 1,170 449 1,619
Depreciation and
amortization........... 35,044 30,552 65,596 88,606 78,759 167,365
-------- ------- -------- --------- -------- ---------
Operating income
(loss)................. (3,913) 6,304 2,391 (19,403) 28,518 9,115
Interest and other
income (expense)....... 10,084 133 10,217 21,431 1,155 22,586
Interest expense and
amortization of
deferred financing
costs.................. (53,217) (12,281) (65,498) (136,560) (37,427) (173,987)
Provision for income
taxes.................. (3) (124) (127) (18) (145) (163)
Minority interests...... 969 (917) 52 2,344 (4,150) (1,806)
Extraordinary item...... -- -- -- (1,495) -- (1,495)
-------- ------- -------- --------- -------- ---------
Net loss................ $(46,080) $(6,885) $(52,965) $(133,701) $(12,049) $(145,750)
======== ======= ======== ========= ======== =========
</TABLE>
10
<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 under (1) the indenture governing the 10
5/8% Senior Discount Notes and the Certificate (the "1997 and 1998
Securities") and (2) the indentures governing the 10 3/8% Discount Notes, the
9% Senior Notes, the 11 1/4% Discount Notes, the 9 1/2% Senior Notes and the
10 3/4% Senior Notes (the "1999 and 2000 Securities"):
<TABLE>
<CAPTION>
1997 and 1998 1999 and 2000
Securities Securities
------------- -------------
(In thousands of dollars)
<S> <C> <C>
Tower Cash Flow, for the three months ended
September 30, 2000............................... $25,142 $25,142
======== ========
Consolidated Cash Flow, for the twelve months
ended September 30, 2000......................... $ 81,981 $ 88,917
Less: Tower Cash Flow, for the twelve months ended
September 30, 2000............................... (73,070) (73,070)
Plus: four times Tower Cash Flow, for the three
months ended September 30, 2000.................. 100,568 100,568
-------- --------
Adjusted Consolidated Cash Flow, for the twelve
months ended September 30, 2000.................. $109,479 $116,415
======== ========
</TABLE>
4. Redeemable Preferred Stock
Redeemable preferred stock ($.01 par value, 10,000,000 shares authorized)
consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ -------------
(In thousands of dollars)
<S> <C> <C>
12 3/4% Senior Exchangeable Preferred Stock; shares
issued:
December 31, 1999--226,745 and September 30, 2000--
249,126 (stated at mandatory redemption and
aggregate liquidation value)...................... $227,950 $250,450
8 1/4% Cumulative Convertible Redeemable Preferred
Stock; shares issued:
200,000 (stated net of unamortized value of
warrants; mandatory redemption and aggregate
liquidation value of $200,000).................... 194,973 195,280
6.25% Convertible Preferred Stock; shares issued:
8,050,000 (stated net of
unamortized issuance costs; mandatory redemption
and aggregate liquidation value of $402,500)...... -- 388,608
-------- --------
$422,923 $834,338
======== ========
</TABLE>
On July 27, 2000, the Company sold shares of its common stock and preferred
stock in concurrent underwritten public offerings (the "July 2000 Offerings").
The Company had granted the underwriters for the July 2000 Offerings over-
allotment options to purchase additional shares in both offerings. On August
1, 2000, the over-allotment option for the preferred stock offering was
exercised in full. As a result, the Company sold a total of 8,050,000 shares
of its 6.25% Convertible Preferred Stock at a price of $50.00 per share and
received proceeds of $388,412,000 (after underwriting discounts of
$14,088,000). The proceeds from the July 2000 Offerings will be used for
general corporate purposes. See Note 5.
The holders of the 6.25% Convertible Preferred Stock will be entitled to
receive cumulative dividends at the rate of 6.25% per annum payable on
February 15, May 15, August 15 and November 15 of each year, beginning on
November 15, 2000. The Company will have the option to pay dividends in cash
or in shares of its common stock (valued at 95% of the current market value of
the common stock, as defined). The Company is required to redeem all
outstanding shares of the 6.25% Convertible Preferred Stock on August 15, 2012
at a price equal to the liquidation preference plus accumulated and unpaid
dividends.
11
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The shares of 6.25% Convertible Preferred Stock are convertible, at the
option of the holder, in whole or in part at any time, into shares of the
Company's common stock at a conversion price of $36.875 per share of common
stock. Beginning on August 15, 2003, under certain circumstances, the Company
will have the right to convert the 6.25% Convertible Preferred Stock, in whole
or in part, into shares of the Company's common stock at the same conversion
price.
The Company's obligations with respect to the 6.25% Convertible Preferred
Stock are subordinate to all indebtedness and the 12 3/4% Senior Exchangeable
Preferred Stock of the Company, and are effectively subordinate to all debt
and liabilities of the Company's subsidiaries. The 6.25% Convertible Preferred
Stock ranks in parity with the 8 1/4% Cumulative Convertible Redeemable
Preferred Stock.
5. Stockholders' Equity
Disposition of the Company's Common Shares by France Telecom
On July 5, 2000, TdF and an affiliate of TdF sold their remaining interests
in the Company and CCUK to a third party. In connection with this disposition,
the Company issued 17,443,500 shares of its Common Stock in exchange for TdF's
20% interest in CCUK (see Note 2). In June 2000, the outstanding shares of the
Company's Class A Common Stock held by an affiliate of TdF were converted into
11,340,000 shares of the Company's Common Stock in connection with the sale of
a portion of TdF's shares to a third party. Upon conversion of the Class A
Common Stock, France Telecom relinquished its governance rights with respect
to the Company and its subsidiaries.
July 2000 Offerings
On July 27, 2000, the Company sold shares of its common stock in the July
2000 Offerings (see Note 4). On August 1, 2000, the over-allotment option for
the common stock offering was partially exercised. As a result, the Company
sold a total of 12,084,200 shares of its common stock at a price of $29.50 per
share and received proceeds of $342,225,000 (after underwriting discounts of
$14,259,000).
6. Restructuring Charges
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.
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.
7. Per Share Information
Per share information is based on the weighted-average number of common
shares outstanding during each period for the basic computation and, if
dilutive, the weighted-average number of potential common shares resulting
from the assumed conversion of outstanding stock options, warrants and
convertible preferred stock for the diluted computation.
12
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the numerators and denominators of the basic and
diluted per share computations is as follows:
<TABLE>
<CAPTION>
Three Months
Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1999 2000 1999 2000
-------- -------- -------- ---------
(In thousands of dollars, except per
share amounts)
<S> <C> <C> <C> <C>
Loss before extraordinary item and
cumulative effect of change in
accounting principle................. $(27,067) $(52,965) $(61,390) $(144,255)
Dividends on preferred stock.......... (6,824) (16,353) (19,846) (39,571)
-------- -------- -------- ---------
Loss before extraordinary item and
cumulative effect of change in
accounting principle applicable to
common stock for basic and diluted
computations......................... (33,891) (69,318) (81,236) (183,826)
Extraordinary item.................... -- -- -- (1,495)
Cumulative effect of change in
accounting principle................. -- -- (2,414) --
-------- -------- -------- ---------
Net loss applicable to common stock
for basic and diluted computations... $(33,891) $(69,318) $(83,650) $(185,321)
======== ======== ======== =========
Weighted-average number of common
shares outstanding during the period
for basic and diluted computations
(in thousands)....................... 149,621 191,763 123,067 171,985
======== ======== ======== =========
Per common share--basic and diluted:..
Loss before extraordinary item and
cumulative effect of change in
accounting principle............... $ (0.23) $ (0.36) $ (0.66) $ (1.07)
Extraordinary item.................. -- -- -- (0.01)
Cumulative effect of change in
accounting principle............... -- -- (0.02) --
-------- -------- -------- ---------
Net loss............................ $ (0.23) $ (0.36) $ (0.68) $ (1.08)
======== ======== ======== =========
</TABLE>
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of September 30, 2000: (1)
options to purchase 20,900,261 shares of common stock at exercise prices
ranging from $-0- to $39.50 per share, (2) warrants to purchase 639,990 shares
of common stock at an exercise price of $7.50 per share, (3) warrants to
purchase 1,000,000 shares of common stock at an exercise price of $26.875 per
share, (4) shares of the Company's 8 1/4% Cumulative Convertible Redeemable
Preferred Stock which are convertible into 7,441,860 shares of common stock
and (5) shares of the Company's 6.25% Convertible Preferred Stock which are
convertible into 10,915,254 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.
8. Contingencies
The Company is involved in various claims, lawsuits and proceedings arising
in the ordinary course of business. While there are uncertainties inherent in
the ultimate outcome of such matters and it is impossible to presently
determine the ultimate costs that may be incurred, management believes the
resolution of such uncertainties and the incurrence of such costs should not
have a material adverse effect on the Company's consolidated financial
position or results of operations.
9. Operating Segments
The measurement of profit or loss currently used to evaluate the results of
operations for the Company and its operating segments is earnings before
interest, taxes, depreciation and amortization ("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),
13
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 is presenting the financial results of CCAL as a reportable
operating segment for periods subsequent to the purchase date (see Note 2).
The financial results for the Company's operating segments are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000
-------------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
---------- -------- ---------- -------- --------- ------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Site rental and
broadcast
transmission......... $ 51,007 $ 2,325 $ 47,503 $ 16,339 $ -- $ 117,174
Network services and
other................ 43,701 -- 6,488 7,226 -- 57,415
---------- -------- ---------- -------- --------- ----------
94,708 2,325 53,991 23,565 -- 174,589
---------- -------- ---------- -------- --------- ----------
Costs of operations
(exclusive of
depreciation and
amortization).......... 47,140 1,231 27,046 9,959 -- 85,376
General and
administrative......... 11,914 1,504 1,154 2,066 1,558 18,196
Corporate development... -- -- 90 -- 2,132 2,222
---------- -------- ---------- -------- --------- ----------
EBITDA.................. 35,654 (410) 25,701 11,540 (3,690) 68,795
Non-cash compensation
charges................ 82 -- 385 -- 341 808
Depreciation and
amortization........... 32,726 2,001 22,109 8,443 317 65,596
---------- -------- ---------- -------- --------- ----------
Operating income
(loss)................. 2,846 (2,411) 3,207 3,097 (4,348) 2,391
Interest and other
income (expense)....... 689 114 39 94 9,281 10,217
Interest expense and
amortization of
deferred financing
costs.................. (13,201) (46) (7,783) (4,498) (39,970) (65,498)
Provision for income
taxes.................. (3) -- -- (124) -- (127)
Minority interests...... (155) 1,124 -- (917) -- 52
---------- -------- ---------- -------- --------- ----------
Net loss................ $ (9,824) $ (1,219) $ (4,537) $ (2,348) $ (35,037) $ (52,965)
========== ======== ========== ======== ========= ==========
Capital expenditures.... $ 118,477 $ 1,126 $ 25,933 $ 23,762 $ 9,102 $ 178,400
========== ======== ========== ======== ========= ==========
Total assets (at period
end)................... $3,109,399 $133,308 $1,465,164 $782,325 $ 816,958 $6,307,154
========== ======== ========== ======== ========= ==========
<CAPTION>
Nine Months Ended September 30, 2000
-------------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
---------- -------- ---------- -------- --------- ------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Site rental and
broadcast
transmission......... $ 126,928 $ 4,139 $ 144,077 $ 45,274 $ -- $ 320,418
Network services and
other................ 87,846 -- 18,764 20,130 34 126,774
---------- -------- ---------- -------- --------- ----------
214,774 4,139 162,841 65,404 34 447,192
---------- -------- ---------- -------- --------- ----------
Costs of operations
(exclusive of
depreciation and
amortization).......... 98,672 2,262 80,593 28,558 49 210,134
General and
administrative......... 34,122 2,859 4,811 5,897 4,855 52,544
Corporate development... -- -- 660 -- 5,755 6,415
---------- -------- ---------- -------- --------- ----------
EBITDA.................. 81,980 (982) 76,777 30,949 (10,625) 178,099
Non-cash compensation
charges................ 149 -- 449 -- 1,021 1,619
Depreciation and
amortization........... 84,389 3,292 54,309 24,450 925 167,365
---------- -------- ---------- -------- --------- ----------
Operating income
(loss)................. (2,558) (4,274) 22,019 6,499 (12,571) 9,115
Interest and other
income (expense)....... 3,401 341 365 790 17,689 22,586
Interest expense and
amortization of
deferred financing
costs.................. (28,827) (92) (24,488) (12,939) (107,641) (173,987)
Provision for income
taxes.................. (18) -- (21) (124) -- (163)
Minority interests...... 255 2,089 (2,333) (1,817) -- (1,806)
Extraordinary item...... (1,495) -- -- -- -- (1,495)
---------- -------- ---------- -------- --------- ----------
Net loss................ $ (29,242) $ (1,936) $ (4,458) $ (7,591) $(102,523) $ (145,750)
========== ======== ========== ======== ========= ==========
Capital expenditures.... $ 283,103 $ 1,566 $ 69,525 $ 72,768 $ 10,043 $ 437,005
========== ======== ========== ======== ========= ==========
</TABLE>
14
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
-----------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCUK Atlantic and Other Total
-------- -------- -------- --------- ------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Net revenues:
Site rental and
broadcast
transmission......... $ 19,549 $ 43,863 $12,220 $ -- $ 75,632
Network services and
other................ 13,730 5,400 4,008 157 23,295
-------- -------- ------- -------- --------
33,279 49,263 16,228 157 98,927
-------- -------- ------- -------- --------
Costs of operations
(exclusive of
depreciation and
amortization).......... 13,943 23,091 7,487 125 44,646
General and
administrative......... 7,887 1,672 1,802 1,173 12,534
Corporate development... -- 43 -- 1,151 1,194
-------- -------- ------- -------- --------
EBITDA.................. 11,449 24,457 6,939 (2,292) 40,553
Non-cash compensation
charges................ -- 161 -- 340 501
Depreciation and
amortization........... 15,195 16,283 8,073 299 39,850
-------- -------- ------- -------- --------
Operating income
(loss)................. (3,746) 8,013 (1,134) (2,931) 202
Interest and other
income (expense)....... 8 137 812 6,966 7,923
Interest expense and
amortization of
deferred financing
costs.................. (1,189) (7,301) (4,145) (21,871) (34,506)
Provision for income
taxes.................. (12) -- -- (59) (71)
Minority interests...... -- (1,012) 397 -- (615)
-------- -------- ------- -------- --------
Net loss................ $ (4,939) $ (163) $(4,070) $(17,895) $(27,067)
======== ======== ======= ======== ========
Capital expenditures.... $ 36,991 $ 42,395 $ 6,579 $ 98 $ 86,063
======== ======== ======= ======== ========
<CAPTION>
Nine Months Ended September 30, 1999
-----------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCUK Atlantic and Other Total
-------- -------- -------- --------- ------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Net revenues:
Site rental and
broadcast
transmission......... $ 34,428 $124,600 $24,107 $ -- $183,135
Network services and
other................ 27,615 14,866 4,507 1,440 48,428
-------- -------- ------- -------- --------
62,043 139,466 28,614 1,440 231,563
-------- -------- ------- -------- --------
Costs of operations
(exclusive of
depreciation and
amortization).......... 24,328 66,142 13,335 1,082 104,887
General and
administrative......... 18,775 4,732 2,870 3,699 30,076
Corporate development... -- 731 -- 3,403 4,134
-------- -------- ------- -------- --------
EBITDA.................. 18,940 67,861 12,409 (6,744) 92,466
Restructuring charges... 1,814 -- -- -- 1,814
Non-cash compensation
charges................ 67 608 -- 997 1,672
Depreciation and
amortization........... 25,231 47,404 15,862 872 89,369
-------- -------- ------- -------- --------
Operating income
(loss)................. (8,172) 19,849 (3,453) (8,613) (389)
Interest and other
income (expense)....... (450) 391 3,973 8,888 12,802
Interest expense and
amortization of
deferred financing
costs.................. (2,999) (19,828) (8,070) (41,451) (72,348)
Provision for income
taxes.................. (57) -- -- (211) (268)
Minority interests...... -- (2,608) 1,421 -- (1,187)
Cumulative effect of
change in accounting
principle for costs of
start-up activities.... (2,014) -- -- (400) (2,414)
-------- -------- ------- -------- --------
Net loss................ $(13,692) $ (2,196) $(6,129) $(41,787) $(63,804)
======== ======== ======= ======== ========
Capital expenditures.... $ 80,209 $125,034 $ 7,697 $ 687 $213,627
======== ======== ======= ======== ========
</TABLE>
10. Subsequent Events
Crown Atlantic
In October 2000, BAM contributed an additional 79 of the Frontier towers in
exchange for additional ownership interests of $21,725,000 from Crown Atlantic.
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion is intended to assist in understanding our
consolidated financial condition as of September 30, 2000 and our consolidated
results of operations for the three- and nine-month periods ended September
30, 1999 and 2000. The statements in this discussion regarding the industry
outlook, our expectations regarding the future performance of our businesses
and the other nonhistorical statements in this discussion are forward-looking
statements. These forward-looking statements are subject to numerous risks and
uncertainties, including but not limited to the uncertainties relating to
decisions on capital expenditures to be made in the future by wireless
carriers and broadcasters. 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 related notes, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Form 10-K. Any capitalized terms used but not defined in this
Item have the same meaning given to them in the Form 10-K.
Results of Operations
In March 1999, we completed the formation of Crown Atlantic. In June and
December of 1999, we completed the acquisition of towers from Powertel. During
1999, we completed the substantial portions of the transactions with BellSouth
and BellSouth DCS. In January 2000, the formation of Crown Castle GT took
place with the first closing of towers; additional closings took place from
April through September of 2000. Finally, in April 2000, the first closing of
towers took place for CCAL. Results of operations of these acquired businesses
and towers are included in our consolidated financial statements for the
periods subsequent to the respective dates of acquisition. As such, our
results of operations for the three and nine months ended September 30, 1999
are not comparable to the results of operations for the three and nine months
ended September 30, 2000.
The following information is derived from our historical Consolidated
Statements of Operations for the periods indicated.
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Ended
Ended September 30, Ended September 30, September 30, Nine Months Ended
1999 2000 1999 September 30, 2000
----------------------- ----------------------- ------------------ -------------------
Percent Percent Percent Percent
of Net of Net of Net of Net
Amount Revenues Amount Revenues Amount Revenues Amount Revenues
----------- ---------- ----------- ---------- -------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Site rental and
broadcast
transmission.......... $ 75,632 76.5% $ 117,174 67.1% $183,135 79.1% $ 320,418 71.7%
Network services and
other................. 23,295 23.5 57,415 32.9 48,428 20.9 126,774 28.3
----------- -------- ----------- -------- -------- ----- --------- -----
Total net revenues... 98,927 100.0 174,589 100.0 231,563 100.0 447,192 100.0
----------- -------- ----------- -------- -------- ----- --------- -----
Operating expenses:
Costs of operations:
Site rental and
broadcast
transmission.......... 32,934 43.5 50,383 43.0 78,018 42.6 139,233 43.5
Network services and
other................. 11,712 50.3 34,993 60.9 26,869 55.5 70,901 55.9
----------- ----------- -------- ---------
Total costs of
operations.......... 44,646 45.1 85,376 48.9 104,887 45.3 210,134 47.0
General and
administrative........ 12,534 12.7 18,196 10.4 30,076 13.0 52,544 11.8
Corporate
development........... 1,194 1.2 2,222 1.3 4,134 1.8 6,415 1.4
Restructuring
charges............... -- -- -- -- 1,814 0.8 -- --
Non-cash compensation
charges............... 501 0.5 808 0.4 1,672 0.7 1,619 0.4
Depreciation and
amortization.......... 39,850 40.3 65,596 37.6 89,369 38.6 167,365 37.4
----------- -------- ----------- -------- -------- ----- --------- -----
Operating income
(loss)................. 202 0.2 2,391 1.4 (389) (0.2) 9,115 2.0
Other income (expense):
Interest and other
income (expense)...... 7,923 8.0 10,217 5.8 12,802 5.5 22,586 5.1
Interest expense and
amortization of
deferred financing
costs................. (34,506) (34.9) (65,498) (37.5) (72,348) (31.2) (173,987) (38.9)
----------- -------- ----------- -------- -------- ----- --------- -----
Loss before income
taxes, minority
interests,
extraordinary item and
cumulative effect of
change in accounting
principle.............. (26,381) (26.7) (52,890) (30.3) (59,935) (25.9) (142,286) (31.8)
Provision for income
taxes.................. (71) (0.1) (127) (0.1) (268) (0.1) (163) (0.1)
Minority interests...... (615) (0.6) 52 0.1 (1,187) (0.5) (1,806) (0.4)
----------- -------- ----------- -------- -------- ----- --------- -----
Loss before
extraordinary item and
cumulative effect of
change in accounting
principle.............. (27,067) (27.4) (52,965) (30.3) (61,390) (26.5) (144,255) (32.3)
Extraordinary loss on
early extinguishment of
debt................... -- -- -- -- -- -- (1,495) (0.3)
Cumulative effect of
change in accounting
principle for costs of
start-up activities.... -- -- -- -- (2,414) (1.1) -- --
----------- -------- ----------- -------- -------- ----- --------- -----
Net loss................ $ (27,067) (27.4)% $ (52.965) (30.3)% $(63,804) (27.6)% $(145,750) (32.6)%
=========== ======== =========== ======== ======== ===== ========= =====
</TABLE>
16
<PAGE>
Comparison of Three Months Ended September 30, 2000 and 1999
Consolidated revenues for the three months ended September 30, 2000 were
$174.6 million, an increase of $75.7 million from the three months ended
September 30, 1999. This increase was primarily attributable to:
(1) a $41.5 million, or 54.9%, increase in site rental and broadcast
transmission revenues, of which $3.6 million was attributable to CCUK,
$4.1 million was attributable to Crown Atlantic, $2.3 million was
attributable to CCAL and $31.5 million was attributable to CCUSA,
(2) a $30.0 million increase in network services and other revenues from
CCUSA,
(3) a $1.1 million increase in network services and other revenues from
CCUK, and
(4) a $3.2 million increase in network services and other revenues from
Crown Atlantic.
Costs of operations for the three months ended September 30, 2000 were
$85.4 million, an increase of $40.7 million from the three months ended
September 30, 1999. This increase was primarily attributable to:
(1) a $17.4 million increase in site rental and broadcast transmission
costs, of which $1.5 million was attributable to CCUK, $0.9 million was
attributable to Crown Atlantic, $1.2 million was attributable to CCAL
and $13.8 million was attributable to CCUSA,
(2) a $19.4 million increase in network services costs related to CCUSA,
(3) a $2.4 million increase in network services costs from CCUK, and
(4) a $1.6 million increase in network services costs from Crown Atlantic.
Costs of operations for site rental and broadcast transmission as a
percentage of site rental and broadcast transmission revenues decreased to
43.0% for the three months ended September 30, 2000 from 43.5% for the three
months ended September 30, 1999 because of higher margins attributable to the
CCUK and Crown Atlantic operations. Costs of operations for network services
and other as a percentage of network services and other revenues increased to
60.9% for the three months ended September 30, 2000 from 50.3% for the three
months ended September 30, 1999, primarily due to lower margins from the
CCUSA, CCUK and Crown Atlantic operations.
General and administrative expenses for the three months ended September
30, 2000 were $18.2 million, an increase of $5.7 million from the three months
ended September 30, 1999. This increase was primarily attributable to:
(1) a $4.0 million increase in expenses related to the CCUSA operations,
(2) a $0.3 million increase in expenses at Crown Atlantic,
(3) a $0.4 million increase in expenses at our corporate office, and
(4) $1.5 million in expenses at CCAL, partially offset by
(5) a $0.5 million decrease in expenses at CCUK.
General and administrative expenses as a percentage of revenues decreased
for the three months ended September 30, 2000 to 10.4% from 12.7% for the
three months ended September 30, 1999 because of lower overhead costs as a
percentage of revenues for CCUK, Crown Atlantic and CCUSA.
Corporate development expenses for the three months ended September 30,
2000 were $2.2 million, compared to $1.2 million for the three months ended
September 30, 1999. This increase was primarily attributable to an increase in
expenses at our corporate office.
For the three months ended September 30, 2000, we recorded non-cash
compensation charges of $0.8 million related to the issuance of stock options
to certain employees and executives, compared to $0.5 million for the three
months ended September 30, 1999.
17
<PAGE>
Depreciation and amortization for the three months ended September 30, 2000
was $65.6 million, an increase of $25.7 million from the three months ended
September 30, 1999. This increase was primarily attributable to:
(1) a $5.8 million increase in depreciation and amortization related to the
property and equipment and goodwill from CCUK,
(2) $2.0 million of depreciation and amortization related to the property
and equipment from CCAL, and
(3) a $17.5 million increase in depreciation and amortization related to
the property and equipment, goodwill and other intangible assets
related to the CCUSA operations.
Interest and other income (expense) for the three months ended September
30, 2000 resulted primarily from the investment of the net proceeds from our
recent offerings (see "-Liquidity and Capital Resources").
Interest and other income (expense) for the three months ended September
30, 1999 resulted primarily from:
(1) the investment of the remaining portion of the cash contribution from
the formation of Crown Atlantic in March 1999, and
(2) the investment of the net proceeds from our securities offerings in
1999, partially offset by
(3) costs incurred in connection with unsuccessful acquisition attempts and
an offering of common stock by one of our shareholders.
Interest expense and amortization of deferred financing costs for the three
months ended September 30, 2000 was $65.5 million, an increase of $31.0
million, or 89.8%, from the three months ended September 30, 1999. This
increase was primarily attributable to interest on indebtedness at CCUSA,
amortization of the original issue discount on the 11 1/4% discount notes, and
interest on the 9 1/2% senior notes and the 10 3/4% senior notes (see "--
Liquidity and Capital Resources").
Minority interests represent the minority shareholder's 20% interest in
CCUK's operations (prior to July 2000), the minority partner's 41.5% interest
in Crown Atlantic's operations, the minority partner's 17.5% interest in Crown
Castle GT's operations and the minority shareholder's 33.3% interest in CCAL's
operations.
Comparison of Nine Months Ended September 30, 2000 and 1999
Consolidated revenues for the nine months ended September 30, 2000 were
$447.2 million, an increase of $215.6 million from the nine months ended
September 30, 1999. This increase was primarily attributable to:
(1) a $137.3 million, or 75.0%, increase in site rental and broadcast
transmission revenues, of which $19.5 million was attributable to CCUK,
$21.2 million was attributable to Crown Atlantic, $4.1 million was
attributable to CCAL and $92.5 million was attributable to CCUSA,
(2) a $60.2 million increase in network services and other revenues from
CCUSA,
(3) a $3.9 million increase in network services and other revenues from
CCUK, and
(4) a $15.6 million increase in network services and other revenues from
Crown Atlantic.
Costs of operations for the nine months ended September 30, 2000 were
$210.1 million, an increase of $105.2 million from the nine months ended
September 30, 1999. This increase was primarily attributable to:
(1) a $61.2 million increase in site rental and broadcast transmission
costs, of which $9.6 million was attributable to CCUK, $7.6 million was
attributable to Crown Atlantic, $2.3 million was attributable to CCAL
and $41.8 million was attributable to CCUSA,
18
<PAGE>
(2) a $32.6 million increase in network services costs related to CCUSA,
(3) a $4.9 million increase in network services costs from CCUK, and
(4) a $7.6 million increase in network services costs from Crown Atlantic.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues increased to 43.5% for the
nine months ended September 30, 2000 from 42.6% for the nine months ended
September 30, 1999 because of lower margins attributable to the CCUK, CCAL and
CCUSA operations. Costs of operations for network services and other as a
percentage of network services and other revenues increased to 55.9% for the
nine months ended September 30, 2000 from 55.5% for the nine months ended
September 30, 1999, primarily due to lower margins from the CCUSA, CCUK and
Crown Atlantic operations.
General and administrative expenses for the nine months ended September 30,
2000 were $52.5 million, an increase of $22.5 million from the nine months
ended September 30, 1999. This increase was primarily attributable to:
(1) a $15.3 million increase in expenses related to the CCUSA operations,
(2) a $1.2 million increase in expenses at our corporate office,
(3) a $3.0 million increase in expenses at Crown Atlantic,
(4) a $0.1 million increase in expenses at CCUK, and
(5) $2.9 million in expenses at CCAL.
General and administrative expenses as a percentage of revenues decreased
for the nine months ended September 30, 2000 to 11.8% from 13.0% for the nine
months ended September 30, 1999 because of lower overhead costs as a
percentage of revenues for CCUSA, CCUK and Crown Atlantic.
Corporate development expenses for the nine months ended September 30, 2000
were $6.4 million, compared to $4.1 million for the nine months ended
September 30, 1999. This increase was primarily attributable to an increase in
expenses at our corporate office.
In connection with the formation of Crown Atlantic, we completed a
restructuring of our 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. In the
first quarter of 1999, we 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 nine months ended September 30, 2000, we recorded non-cash
compensation charges of $1.6 million related to the issuance of stock options
to certain employees and executives, compared to $1.7 million for the nine
months ended September 30, 1999.
Depreciation and amortization for the nine months ended September 30, 2000
was $167.4 million, an increase of $78.0 million from the nine months ended
September 30, 1999. This increase was primarily attributable to:
(1) a $6.9 million increase in depreciation and amortization related to the
property and equipment and goodwill from CCUK,
(2) an $8.6 million increase in depreciation and amortization related to
the property and equipment and goodwill from Crown Atlantic,
(3) $3.3 million of depreciation and amortization related to the property
and equipment from CCAL, and
(4) a $59.2 million increase in depreciation and amortization related to
the property and equipment, goodwill and other intangible assets
related to the CCUSA operations.
19
<PAGE>
Interest and other income (expense) for the nine months ended September 30,
2000 resulted primarily from:
(1) the investment of the net proceeds from our recent offerings (see "-
Liquidity and Capital Resources") and
(2) a gain recognized upon the disposition of an investment in an
affiliate.
Interest and other income (expense) for the nine months ended September 30,
1999 resulted primarily from:
(1) the investment of the net proceeds from our securities offerings in
1998 and 1999, partially offset by
(2) costs incurred in connection with unsuccessful acquisition attempts and
an offering of common stock by one of our shareholders, and
(3) a loss incurred upon the disposition of an investment in an affiliate.
Interest expense and amortization of deferred financing costs for the nine
months ended September 30, 2000 was $174.0 million, an increase of $101.6
million, or 140.5%, from the nine months ended September 30, 1999. This
increase was primarily attributable to interest on indebtedness at CCUSA, CCUK
and Crown Atlantic, amortization of the original issue discount on the 10 3/8%
discount notes and the 11 1/4% discount notes, interest on the 9% senior
notes, the 9 1/2% senior notes and the 10 3/4% senior notes, and the write-off
of unamortized deferred financing costs related to the term loans (see "--
Liquidity and Capital Resources").
Minority interests represent the minority shareholder's 20% interest in
CCUK's operations (prior to July 2000), the minority partner's 41.5% interest
in Crown Atlantic's operations, the minority partner's 17.5% interest in Crown
Castle GT's operations and the minority shareholder's 33.3% interest in CCAL's
operations.
The extraordinary loss on early extinguishment of debt represents the
write-off of unamortized deferred financing costs related to the senior credit
facility. See "--Liquidity and Capital Resources".
The cumulative effect of the change in accounting principle for costs of
start-up activities represents the charge we recorded upon the adoption of SOP
98-5 on January 1, 1999.
Liquidity and Capital Resources
Our business strategy contemplates substantial capital expenditures:
(1) in connection with the expansion of our 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
(2) to acquire existing transmission networks globally as opportunities
arise.
Since its inception, CCIC has generally funded its activities, other than
acquisitions and investments, through excess proceeds from contributions of
equity capital and cash provided by operations. CCIC has financed acquisitions
and investments with the proceeds from equity contributions, borrowings under
our senior credit facilities, issuances of debt securities and the issuance of
promissory notes to sellers. Since its inception, CCUK has generally funded
its activities, other than the acquisition of the BBC home service
transmission business, through cash provided by operations and borrowings
under CCUK's credit facility. CCUK financed the acquisition of the BBC home
service transmission business with the proceeds from equity contributions and
the issuance of the CCUK bonds.
For the nine months ended September 30, 1999 and 2000, our net cash
provided by operating activities was $75.7 million and $117.6 million,
respectively. For the nine months ended September 30, 1999 and 2000, our net
cash provided by financing activities was $1,437.0 million and $1,690.4
million, respectively. Our primary financing-related activities in the first
nine months of 2000 included the following:
2000 Credit Facility
In March 2000, a subsidiary of CCIC entered into a credit agreement with a
syndicate of banks which consists of two term loan facilities and a revolving
line of credit aggregating $1,200.0 million. Available borrowings under the
2000 credit facility are generally to be used for the construction and
purchase of towers
20
<PAGE>
and for general corporate purposes of CCUSA, Crown Castle GT and CCAL. The
amount of available borrowings will be determined based on the current
financial performance (as defined) of those subsidiaries' assets. In addition,
up to $25.0 million of borrowing availability under the 2000 credit facility
can be used for letters of credit. On March 15, 2000, we used $83.4 million in
borrowings under the 2000 credit facility to repay outstanding borrowings and
accrued interest under the Crown Communication senior credit facility. The net
proceeds from $316.6 million in additional borrowings are being used to fund a
portion of the purchase price for the GTE joint venture and for general
corporate purposes.
Term Loans due 2011
On April 3, 2000, we borrowed $400.0 million under a term loan agreement
with a group of lenders. The net proceeds from this borrowing, which amounted
to $395.9 million, were used to fund a portion of the cash contribution for
the second closing of towers at the GTE joint venture (as discussed below).
The term loans were repaid in June 2000 with proceeds from the sale of our 10
3/4% senior notes.
June 2000 Debt Offering
On June 21, 2000, we issued $500.0 million aggregate principal amount of
our 10 3/4% senior notes for proceeds of $483.7 million (after underwriting
discounts of $16.3 million). A portion of the proceeds from the sale of these
securities were used to repay the term loans (as discussed above), and the
remaining proceeds are being used to fund the initial interest payments on the
10 3/4% senior notes and for general corporate purposes.
July 2000 Offerings
On July 27, 2000, we sold shares of our common stock and preferred stock in
concurrent underwritten public offerings (the "July 2000 Offerings"). We had
granted the underwriters for the July 2000 Offerings over-allotment options to
purchase additional shares in both offerings. On August 1, 2000, the over-
allotment option for the common stock offering was partially exercised and the
over-allotment option for the preferred stock offering was exercised in full.
As a result, we sold (1) a total of 12,084,200 shares of our common stock at a
price of $29.50 per share and received proceeds of $342.2 million (after
underwriting discounts of $14.3 million) and (2) a total of 8,050,000 shares
of our 6.25% convertible preferred stock at a price of $50.00 per share and
received proceeds of $388.4 million (after underwriting discounts of $14.1
million). The proceeds from the July 2000 Offerings will be used for general
corporate purposes.
Capital expenditures were $437.0 million for the nine months ended
September 30, 2000, of which $10.0 million were for CCIC, $283.1 million were
for CCUSA, $72.8 million were for Crown Atlantic, $69.5 million were for CCUK
and $1.6 million were for CCAL. We anticipate that we will build, through the
end of 2000, approximately 900 towers in the United States at a cost of
approximately $225.0 million and approximately 270 towers in the United
Kingdom at a cost of approximately $45.0 million. We also expect that the
capital expenditure requirements related to the roll-out of digital broadcast
transmission in the United Kingdom will be approximately (Pounds)17.5 million
($25.9 million).
In addition to capital expenditures in connection with build-to-suits, we
expect to apply a significant amount of capital to finance the remaining cash
portion of the consideration being paid in connection with the recent and
agreed to transactions discussed below.
In connection with the BellSouth transaction, through September 2000, we
have issued approximately 9.0 million shares of our common stock and paid
BellSouth $429.8 million in cash.
In connection with the BellSouth DCS transaction, through September 2000,
we have paid BellSouth DCS $299.8 million in cash.
On November 7, 1999, we entered into an agreement with GTE to form a joint
venture to own and operate a significant majority of GTE's towers. The
agreement contemplates that the transaction will be completed in multiple
closings during 2000. On January 31, 2000, the formation of the joint venture
took place in connection
21
<PAGE>
with the first such closing of towers. During the course of the multiple
closings, (1) we will contribute an aggregate of approximately $825.0 million
(of which up to $100.0 million can be in shares of our common stock, with the
balance in cash) in exchange for a majority ownership interest in the joint
venture, and (2) GTE will contribute approximately 2,300 towers in exchange
for cash distributions aggregating approximately $800.0 million (less any
amount contributed in the form of our common stock) from the joint venture and
a minority ownership interest in the joint venture. Upon dissolution of the
joint venture, GTE will receive (1) any shares of our common stock contributed
to the joint venture and (2) a payment equal to approximately 11.4% of the
fair market value of the joint venture's other net assets; we will then
receive the remaining assets and liabilities of the joint venture. We are
accounting for our investment in the GTE joint venture as a purchase of tower
assets, and are including the joint venture's results of operations and cash
flows in our consolidated financial statements for periods subsequent to
formation. Upon entering into this agreement, we placed $50.0 million into an
escrow account. At the January 31, 2000 closing, we contributed $223.9 million
in cash to the joint venture, and GTE contributed 637 towers in exchange for a
cash distribution of $198.9 million from the joint venture. On April 3, 2000,
we contributed $479.7 million in cash and 5.1 million shares of our common
stock to the joint venture, and GTE contributed 1,607 towers in exchange for a
cash distribution of $479.7 million from the joint venture. The funds in the
escrow account were used to pay $50.0 million of our cash contribution. A
portion of our remaining cash contribution was financed with the net proceeds
from borrowings under term loans (as discussed above). In June 2000, we
contributed $13.2 million in cash, and GTE contributed 39 towers in exchange
for a cash distribution of $13.2 million from the joint venture.
In addition to the approximately 2,300 towers to be contributed pursuant to
the formation agreement, GTE had the right to contribute certain additional
towers to the joint venture, including towers acquired by GTE from Ameritech,
on terms substantially similar to those in the formation agreement. In April
2000, we agreed with GTE that the Ameritech towers would be contributed to the
joint venture. In August and September 2000, we contributed $181.6 million in
cash, and GTE contributed 497 of the Ameritech towers in exchange for a cash
distribution of $181.6 million from Crown Castle GT.
In March 2000, CCAL (our 66.7% owned subsidiary) entered into an agreement
to purchase approximately 700 towers in Australia from Cable & Wireless Optus.
The total purchase price for the towers will be approximately $135.0 million
in cash (Australian $220.0 million). We are accounting for our investment in
CCAL as a purchase of tower assets, and are including CCAL's results of
operations and cash flows in our consolidated financial statements for periods
subsequent to the purchase date. On April 3, 2000, the first closing took
place for CCAL. We contributed $90.8 million in cash (Australian $147.5
million) to CCAL. The largest portion of this amount, along with a capital
contribution from CCAL's minority shareholder, was used to pay $103.5 million
(Australian $168.1 million) to Optus. In May and June of 2000, CCAL made
additional payments to Optus amounting to $6.9 million (Australian $11.6
million). In August and September of 2000, CCAL made additional payments to
Optus amounting to $4.8 million (Australian $8.7 million). We expect to use
borrowings under our 2000 credit facility to finance our remaining portion of
the cash purchase price for this transaction.
We expect that the completion of the recent and agreed to transactions and
the execution of our new tower build, or build-to-suit program, will have a
material impact on our liquidity. We expect 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,
we believe that as new towers become operational and we begin to add tenants,
they should result in a long-term increase in liquidity.
To fund the execution of our business strategy, including the recent and
agreed to transactions described above and the construction of new towers that
we have agreed to build, we expect to use the net proceeds of our recent
offerings and borrowings available under our U.S. and U.K. credit facilities.
We will have additional cash needs to fund our operations in the future. We
may also have additional cash needs in the future if additional tower
acquisitions or build-to-suit opportunities arise. Some of the opportunities
that we are currently pursuing could require significant additional capital.
If we do not otherwise have cash available, or borrowings under our credit
facilities have otherwise been utilized, when our cash need arises, we would
be forced to seek additional
22
<PAGE>
debt or equity financing or to forego the opportunity. In the event we
determine to seek additional debt or equity financing, there can be no
assurance that any such financing will be available, on commercially
acceptable terms or at all, or permitted by the terms of our existing
indebtedness.
As of September 30, 2000, we had consolidated cash and cash equivalents of
$816.9 million (including $42.1 million at CCUSA, $7.5 million at CCUK, $20.3
million at CCAL and $1.0 million at Crown Atlantic), consolidated long-term
debt of $2,564.9 million, consolidated redeemable preferred stock of $834.3
million and consolidated stockholders' equity of $2,456.1 million.
As of November 1, 2000, Crown Atlantic had unused borrowing availability
under its credit facility of approximately $11.0 million, and CCUK had unused
borrowing availability under its credit facility of approximately (Pounds)55.0
million ($81.3 million). As of November 1, 2000, our subsidiaries had
approximately $440.0 million of unused borrowing availability under the 2000
credit facility. Our various credit facilities require our subsidiaries to
maintain certain financial covenants and place restrictions on the ability of
our subsidiaries to, among other things, incur debt and liens, pay dividends,
make capital expenditures, undertake transactions with affiliates and make
investments. These facilities also limit the ability of the borrowing
subsidiaries to pay dividends to CCIC.
If we are unable to refinance our subsidiary debt or renegotiate the terms
of such debt, we may not be able to meet our debt service requirements,
including interest payments on the notes, in the future. Our 9% senior notes,
our 9 1/2% senior notes and our 10 3/4% senior notes will require annual cash
interest payments of approximately $16.2 million, $11.9 million and $53.8
million, respectively. Prior to November 15, 2002, May 15, 2004 and August 1,
2004, the interest expense on our 10 5/8% discount notes, our 10 3/8% discount
notes and our 11 1/4% discount notes, respectively, will be comprised solely
of the amortization of original issue discount. Thereafter, the 10 5/8%
discount notes, the 10 3/8% discount notes and the 11 1/4% discount notes will
require annual cash interest payments of approximately $26.7 million, $51.9
million and $29.3 million, respectively. Prior to December 15, 2003, we do not
expect to pay cash dividends on our exchangeable preferred stock or, if
issued, cash interest on the exchange debentures. Thereafter, assuming all
dividends or interest have been paid-in-kind, our exchangeable preferred stock
or, if issued, the exchange debentures will require annual cash dividend or
interest payments of approximately $47.8 million. Annual cash interest
payments on the CCUK bonds are (Pounds)11.25 million ($17.0 million). In
addition, our various credit facilities will require periodic interest
payments on amounts borrowed thereunder.
As a holding company, CCIC will require distributions or dividends from its
subsidiaries, or will be forced to use capital raised in debt and equity
offerings, to fund its debt obligations, including interest payments on the
cash-pay notes and eventually the 10 5/8% discount notes, the 10 3/8% discount
notes and the 11 1/4% discount notes. The terms of the indebtedness of our
subsidiaries significantly limit their ability to distribute cash to CCIC. As
a result, we will be required to apply a portion of the net proceeds from the
recent debt offerings to fund interest payments on the cash-pay notes. If we
do not retain sufficient funds from the offerings or any future financing, we
may not be able to make our interest payments on the cash-pay notes.
Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any such debt
obligations, will depend on our future performance, which, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. We anticipate that
we may need to refinance all or a portion of our indebtedness on or prior to
its scheduled maturity. There can be no assurance that we will be able to
effect any required refinancings of our indebtedness on commercially
reasonable terms or at all.
Reporting Requirements Under the Indentures Governing the Company's Debt
Securities (the "Indentures") and the Certificate of Designations Governing
the Company's 12 3/4% Senior Exchangeable Preferred Stock (the "Certificate")
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
23
<PAGE>
alternative measure of financial position, operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles). Furthermore, the Company's measure of the following information
may not be comparable to similarly titled measures of other companies.
Summarized financial information for (1) the Company and its Restricted
Subsidiaries and (2) the Company's Unrestricted Subsidiaries is as follows:
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
<S> <C> <C> <C> <C>
Cash and cash
equivalents............. $ 808,355 $ 8,583 $ -- $ 816,938
Other current assets..... 132,534 75,701 -- 208,235
Property and equipment,
net..................... 2,872,274 1,208,839 -- 4,081,113
Investments in
Unrestricted
Subsidiaries............ 1,492,878 -- (1,492,878) --
Goodwill and other
intangible assets, net.. 155,604 935,983 -- 1,091,587
Other assets, net........ 90,898 18,383 -- 109,281
---------- ---------- ----------- ----------
$5,552,543 $2,247,489 $(1,492,878) $6,307,154
========== ========== =========== ==========
Current liabilities...... $ 145,983 $ 97,394 $ -- $ 243,377
Long-term debt........... 2,024,054 540,842 -- 2,564,896
Other liabilities........ 19,063 63,907 -- 82,970
Minority interests....... 73,000 52,468 -- 125,468
Redeemable preferred
stock................... 834,338 -- -- 834,338
Stockholders' equity..... 2,456,105 1,492,878 (1,492,878) 2,456,105
---------- ---------- ----------- ----------
$5,552,543 $2,247,489 $(1,492,878) $6,307,154
========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000 Nine Months Ended September 30, 2000
-------------------------------------- --------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 97,033 $77,556 $174,589 $ 218,947 $228,245 $ 447,192
Costs of operations
(exclusive of
depreciation and
amortization).......... 48,371 37,005 85,376 100,983 109,151 210,134
General and
administrative......... 14,976 3,220 18,196 41,836 10,708 52,544
Corporate development... 2,132 90 2,222 5,755 660 6,415
Non-cash compensation
charges................ 423 385 808 1,170 449 1,619
Depreciation and
amortization........... 35,044 30,552 65,596 88,606 78,759 167,365
-------- ------- -------- --------- -------- ---------
Operating income
(loss)................. (3,913) 6,304 2,391 (19,403) 28,518 9,115
Interest and other
income (expense)....... 10,084 133 10,217 21,431 1,155 22,586
Interest expense and
amortization of
deferred financing
costs.................. (53,217) (12,281) (65,498) (136,560) (37,427) (173,987)
Provision for income
taxes.................. (3) (124) (127) (18) (145) (163)
Minority interests...... 969 (917) 52 2,344 (4,150) (1,806)
Extraordinary item...... -- -- -- (1,495) -- (1,495)
-------- ------- -------- --------- -------- ---------
Net loss................ $(46,080) $(6,885) $(52,965) $(133,701) $(12,049) $(145,750)
======== ======= ======== ========= ======== =========
</TABLE>
24
<PAGE>
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows under (1) the indenture governing the 10
5/8% Senior Discount Notes and the Certificate (the "1997 and 1998
Securities") and (2) the indentures governing the 10 3/8% Discount Notes, the
9% Senior Notes, the 11 1/4% Discount Notes, the 9 1/2% Senior Notes and the
10 3/4% Senior Notes (the "1999 and 2000 Securities"):
<TABLE>
<CAPTION>
1997 and 1998 1999 and 2000
Securities Securities
------------- -------------
(In thousands of dollars)
<S> <C> <C>
Tower Cash Flow, for the three months ended
September 30, 2000............................... $ 25,142 $ 25,142
======== ========
Consolidated Cash Flow, for the twelve months
ended September 30, 2000......................... $ 81,981 $ 88,917
Less: Tower Cash Flow, for the twelve months ended
September 30, 2000............................... (73,070) (73,070)
Plus: four times Tower Cash Flow, for the three
months ended September 30, 2000.................. 100,568 100,568
-------- --------
Adjusted Consolidated Cash Flow, for the twelve
months ended September 30, 2000.................. $109,479 $116,415
======== ========
</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 had deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 required that such deferred costs be charged to results of operations
upon its adoption. 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
$2.4 million 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, as amended, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company will adopt
the requirements of SFAS 133 as of January 1, 2001. The Company estimates that
the adoption of SFAS 133 will result in a net transition adjustment gain of
approximately $3.0 million in accumulated other comprehensive income, and the
recognition of approximately $3.0 million of derivative instrument assets. The
estimated amount for this transition adjustment is based on current fair value
measurements, and such measurements could be substantially different at the
date of adoption of SFAS 133. As such, the transition adjustment recorded on
that date could be substantially different from this estimated amount. The
Company also expects that the adoption of SFAS 133 will increase the
volatility of other comprehensive income as reported in its future financial
statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a result of our international operating, investing and financing
activities, we are exposed to market risks, which include changes in foreign
currency exchange rates and interest rates which may adversely affect our
results of operations and financial position. In attempting to minimize the
risks and/or costs associated with such activities, we seek to manage exposure
to changes in interest rates and foreign currency exchange rates where
economically prudent to do so.
Certain of the financial instruments we have used to obtain capital are
subject to market risks from fluctuations in market interest rates. The
majority of our financial instruments, however, are long-term fixed interest
rate notes and debentures. Therefore, fluctuations in market interest rates of
1% in 2000 would not have a material effect on our consolidated financial
results.
25
<PAGE>
The majority of our foreign currency transactions are denominated in the
British pound sterling or the Australian dollar, which are the functional
currencies of CCUK and CCAL, respectively. As a result of CCUK's and CCAL's
transactions being denominated and settled in such functional currency, the
risks associated with currency fluctuations are generally limited to foreign
currency translation adjustments. We do not currently hedge against foreign
currency translation risks and believe that foreign currency exchange risk is
not significant to our operations.
PART II--OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On February 2, 2000, April 20, 2000 and September 1, 2000, the Company
issued 441,925, 441,926 and 402,643 unregistered shares of common stock,
respectively, to an affiliate of BellSouth Corporation in connection with
closings relating to the BellSouth transaction. The agreement of sublease
relating to the BellSouth transaction will close in a series of closings, with
approximately 30% of the consideration being paid with our common stock. As of
November 1, 2000, we have issued a total of 9,015,281 shares of common stock
to BellSouth in connection with closings relating to the BellSouth
transaction. We contemplate that a total of up to 9.1 million shares of our
common stock will be issued to BellSouth in connection with the BellSouth
transaction. The shares were issued in exempt transactions pursuant to Section
4(2) of the Securities Act of 1933, as amended (the "Act").
On July 5, 2000, the Company issued 17,443,500 unregistered shares of
common stock to a subsidiary of France Telecom upon the exercise and
conversion by such subsidiary of convertible securities it held in Crown
Castle UK Holdings Limited ("CCUK"). The shares were issued in an exempt
transaction pursuant to Section 4(2) of the Act. All of such shares of common
stock were subsequently sold on July 5, 2000 in connection with the sale of
17,713,536 shares of the Company's common stock by France Telecom to Salomon
Brothers International Limited.
On July 14, 2000, in connection with the acquisition of Terracom Estates
Limited by CCUK, the Company issued an aggregate 199,473 unregistered shares
of common stock to the holders of the outstanding share capital of Terracom
Estates Limited. The shares were issued in an exempt transaction pursuant to
Rule 506 of Regulation D promulgated under the Act.
On September 1, 2000, in connection with the acquisition of Tacit
Communications, Inc. by the Company, the Company issued 336,600 unregistered
shares of common stock to the prior shareholders of Tacit Communications, Inc.
The shares were issued in an exempt transaction pursuant to Rule 506 of
Regulation D promulgated under the Act.
On October 6, 2000, in connection with the acquisition of SiteSafe, Inc. by
the Company, the Company issued 1,043,320 unregistered shares of common stock
to the prior shareholders of SiteSafe, Inc. The shares were issued in an
exempt transaction pursuant to Rule 506 of Regulation D promulgated under the
Act.
On September 5, 2000, pursuant to cashless exercises of warrants, 23,269,
28,582, and 3,826 unregistered shares of common stock were issued to Berkshire
Fund IV, Limited Partnership; Berkshire Fund III, A Limited Partnership; and
Berkshire Investors LLC, respectively. The shares issued to the Berkshire
entities were issued in exempt transactions pursuant to Section 4(2) of the
Act.
On September 22, 2000, pursuant to cashless exercises of warrants, 98,089
unregistered shares of common stock were issued to New York Life Insurance
Company. The shares were issued in exempt transactions pursuant to Section
4(2) of the Act.
26
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<C> <S>
11.1 Computation of Net Loss Per Common Share
12.1 Computation of Ratios of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
None.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Crown Castle International Corp.
Date: November 13, 2000 /s/ W. Benjamin Moreland
By: _________________________________
W. Benjamin Moreland
Senior Vice President,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
Date: November 13, 2000 /s/ Wesley D. Cunningham
By: _________________________________
Wesley D. Cunningham
Senior Vice President,
Chief Accounting Officer and
Corporate Controller
(Principal Accounting Officer)
28
