10-QPeriod: Q2 FY2002

CROWN CASTLE INC. Quarterly Report for Q2 Ended Jun 30, 2002

Filed August 14, 2002For Securities:CCI

Summary

Crown Castle Inc. (CCI) reported its financial results for the quarter and six months ended June 30, 2002. The company experienced a decrease in consolidated revenues driven by a significant drop in network services and other revenues, particularly from CCUSA, although this was partially offset by growth in site rental and broadcast transmission revenues across its various segments. Despite increased site rental revenues, the company's overall net loss widened in both periods compared to the prior year, reaching $(68,598,000) for the quarter and $(171,991,000) for the six months. This was exacerbated by a substantial increase in interest expense and amortization of deferred financing costs, as well as asset write-down charges and restructuring costs, particularly impacting CCUSA and CCUK. While operating income showed a slight positive turn for the quarter, the overall loss before income taxes and minority interests deepened. The company's liquidity remains a key focus, with consolidated cash and cash equivalents at $701.4 million as of June 30, 2002. However, a significant portion of its long-term debt has been reclassified as current liabilities due to events concerning its UK subsidiary, CCUK, related to the liquidation of ITV Digital. This has led to discussions with lenders for facility amendments and carries the risk of default if not resolved. Management anticipates future capital expenditures will be funded by operating cash flow, but also notes the potential need for additional financing, with no assurance of availability on favorable terms. The company is actively managing its debt structure and exploring options to avoid common stock dilution from preferred stock dividends.

Key Highlights

  • 1Consolidated revenues declined slightly for the three months ended June 30, 2002, primarily due to a significant decrease in network services and other revenues, partially offset by growth in site rental and broadcast transmission revenues.
  • 2Net loss widened for both the three and six-month periods ended June 30, 2002, to $(68.6 million) and $(171.9 million) respectively, compared to $(84.7 million) and $(152.8 million) in the prior year's periods.
  • 3Interest expense and amortization of deferred financing costs increased significantly, contributing to the widening net loss.
  • 4A substantial portion of CCUK's long-term debt and related bonds have been reclassified to current liabilities due to an event of default related to the liquidation of ITV Digital, creating potential covenant issues and requiring lender discussions for amendments.
  • 5Consolidated cash and cash equivalents stood at $701.4 million as of June 30, 2002, providing some liquidity, but the debt reclassification poses a significant near-term financial risk.
  • 6The company is navigating a challenging operating environment with reduced capital expenditures from US wireless carriers and a slowdown in new tenant additions.
  • 7New accounting standards, specifically SFAS 142, have eliminated goodwill amortization, leading to a significant reduction in annual depreciation and amortization expense by approximately $60.6 million.

Frequently Asked Questions

Crown Castle Inc. reported a net loss of $68.6 million for the three months ended June 30, 2002, an improvement from the $84.7 million net loss in the same period last year. However, consolidated revenues decreased slightly to $225.5 million from $229.4 million, primarily due to a significant drop in network services and other revenues, despite growth in site rental revenues.

The company faces several challenges, including a substantial level of indebtedness, the risk of reclassifying significant debt to current liabilities due to issues with its UK subsidiary (CCUK) and its customer ITV Digital, which could lead to covenant violations. Additionally, the ongoing economic slowdown, decreased capital expenditures from wireless carriers, and potential customer consolidation are factors impacting growth and revenue.

As of June 30, 2002, Crown Castle had $701.4 million in cash and cash equivalents. However, the reclassification of CCUK debt to current liabilities presents a significant liquidity concern, prompting discussions with lenders for facility amendments. The company expects future capital expenditures to be funded by operating cash flow, but acknowledges potential future financing needs.

The liquidation of ITV Digital has led to the termination of a significant transmission contract for Crown Castle's UK subsidiary (CCUK), representing about 12% of CCUK's 2001 revenues. This termination is a 'Termination Event' under CCUK's credit facility, causing a reclassification of substantial debt to current liabilities and necessitating discussions with lenders to amend the facility to avoid default. CCUK has secured new transmission contracts with the BBC and BSkyB, which are expected to generate similar revenues starting in early 2003.