10-QPeriod: Q2 FY2003

CROWN CASTLE INC. Quarterly Report for Q2 Ended Jun 30, 2003

Filed August 12, 2003For Securities:CCI

Summary

Crown Castle International Corp. reported its financial results for the quarter ended June 30, 2003. The company experienced a slight decrease in total net revenues, driven by a significant decline in network services and other revenue, particularly from CCUSA. However, this was partially offset by an increase in site rental and broadcast transmission revenues, primarily due to new tenant additions and contractual escalations on existing leases. Despite the revenue shifts, the company saw an improvement in operating income compared to the same period last year. Significant financial activities during the quarter included managing long-term debt, with a notable redemption of Senior Discount Notes and the issuance of new Convertible Senior Notes. The company also continues to navigate its joint venture arrangements with Verizon Communications, having acquired full ownership of Crown Castle GT and increasing its stake in Crown Atlantic. While the company has a substantial level of indebtedness and has historically experienced net losses, management is focused on maximizing operating cash flow to fund capital expenditures and debt service, aiming to reduce reliance on further borrowing. Investors should monitor the company's debt levels and its ability to generate consistent operating cash flow.

Key Highlights

  • 1Total net revenues for the quarter decreased slightly to $224.2 million compared to $225.5 million in the prior year's quarter.
  • 2Site rental and broadcast transmission revenues increased by 10.2% to $189.5 million, indicating growth in core leasing business.
  • 3Network services and other revenues decreased significantly by 35.2% to $34.7 million, reflecting a strategic reduction in US offerings.
  • 4Operating income improved to $6.3 million from $4.9 million in the prior year's quarter.
  • 5The company redeemed $239.2 million in 10 5/8% Senior Discount Notes and issued $230 million in 4% Convertible Senior Notes, impacting the debt structure.
  • 6Cash provided by operating activities increased to $100.0 million for the six months ended June 30, 2003, up from $70.0 million in the prior year.
  • 7Goodwill remained substantial at $1.14 billion, with a note on potential impairment risk for CCUSA if performance declines.

Frequently Asked Questions

The primary driver for the decrease in overall revenues was a significant decline in 'network services and other' revenues, which fell by $22.8 million from CCUSA and $2.5 million from Crown Atlantic. This was partially offset by an increase in 'site rental and broadcast transmission' revenues.

Crown Castle redeemed $239.2 million of its 10 5/8% Senior Discount Notes and issued $230 million in new 4% Convertible Senior Notes. This move aims to manage interest expenses and potentially reduce future dilution.

The company is focused on maximizing net cash from operating activities to fund capital expenditures and debt service, aiming to avoid reliance on additional borrowing. Net cash provided by operating activities increased to $100 million for the first six months of 2003, and they project between $200-$220 million for the full year.

The company's annual goodwill impairment test in late 2002 indicated no impairment. However, management notes that a decline in forecasts for CCUSA's site leasing and network services revenues has narrowed the gap between fair value and carrying value, and further declines could lead to a future impairment charge for CCUSA's goodwill.