================================================================================ 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 June 30, 2002 Commission File Number 000-24737 ----------------- CROWN CASTLE INTERNATIONAL CORP. (Exact name of registrant as specified in its charter) Delaware 76-0470458 (State or other (I.R.S. Employer jurisdiction Identification No.) of incorporation or organization) 510 Bering Drive Suite 500 Houston, Texas 77057-1457 (Address of principal (Zip Code) executive offices) (713) 570-3000 (Registrant's telephone number, including area code) ----------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes : [X] No [_] Number of shares of common stock outstanding at August 1, 2002: 212,990,370 ================================================================================
CROWN CASTLE INTERNATIONAL CORP. INDEX Page ---- PART I--FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet at December 31, 2001 and June 30, 2002............................ 3 Consolidated Statement of Operations and Comprehensive Loss for the three and six months ended June 30, 2001 and 2002............................................................... 4 Consolidated Statement of Cash Flows for the six months ended June 30, 2001 and 2002......... 5 Condensed Notes to Consolidated Financial Statements......................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 33 PART II--OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders...................................... 34 Item 5. Other Information........................................................................ 34 Item 6. Exhibits and Reports on Form 8-K......................................................... 35 Signatures and Certifications.................................................................... 36 2
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands of dollars, except share amounts) December 31, June 30, 2001 2002 ------------ ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents....................................................... $ 804,602 $ 701,375 Receivables: Trade, net of allowance for doubtful accounts of $24,785 and $25,194 at December 31, 2001 and June 30, 2002, respectively......................... 188,496 170,752 Other....................................................................... 2,364 7,934 Short-term investments.......................................................... 72,963 87,460 Inventories..................................................................... 102,771 102,695 Prepaid expenses and other current assets....................................... 44,865 54,504 ---------- ----------- Total current assets..................................................... 1,216,061 1,124,720 Property and equipment, net of accumulated depreciation of $566,837 and $721,060 at December 31, 2001 and June 30, 2002, respectively............................. 4,844,912 4,926,574 Investments........................................................................ 128,500 56,500 Goodwill, net of accumulated amortization of $152,451 at December 31, 2001......... 1,036,914 1,040,283 Deferred financing costs and other assets, net of accumulated amortization of $32,859 and $39,344 at December 31, 2001 and June 30, 2002, respectively......... 149,071 151,958 ---------- ----------- $7,375,458 $ 7,300,035 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................................ $ 104,149 $ 77,072 Accrued interest................................................................ 60,081 51,220 Accrued compensation and related benefits....................................... 13,553 10,333 Deferred rental revenues and other accrued liabilities.......................... 204,584 246,318 Long-term debt, current maturities.............................................. 29,086 351,710 ---------- ----------- Total current liabilities................................................ 411,453 736,653 Long-term debt, less current maturities............................................ 3,394,011 3,117,257 Other liabilities.................................................................. 157,549 164,958 ---------- ----------- Total liabilities........................................................ 3,963,013 4,018,868 ---------- ----------- Commitments and contingencies Minority interests................................................................. 168,936 170,511 Redeemable preferred stock......................................................... 878,861 898,630 Stockholders' equity: Common stock, $.01 par value; 689,100,000 shares authorized; shares issued: December 31, 2001--218,804,363 and June 30, 2002--221,469,520................. 2,188 2,215 Additional paid-in capital...................................................... 3,301,023 3,320,927 Accumulated other comprehensive loss............................................ (43,246) (2,842) Accumulated deficit............................................................. (895,317) (1,108,274) ---------- ----------- Total stockholders' equity............................................... 2,364,648 2,212,026 ---------- ----------- $7,375,458 $ 7,300,035 ========== =========== See condensed notes to consolidated financial statements. 3
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) (In thousands of dollars, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, ------------------- -------------------- 2001 2002 2001 2002 --------- -------- --------- --------- Net revenues: Site rental and broadcast transmission.............................. $ 139,800 $171,952 $ 273,842 $ 332,216 Network services and other.......................................... 89,616 53,579 168,527 113,932 --------- -------- --------- --------- 229,416 225,531 442,369 446,148 --------- -------- --------- --------- Operating expenses: Costs of operations (exclusive of depreciation and amortization): Site rental and broadcast transmission........................... 59,555 65,946 117,294 128,012 Network services and other....................................... 63,551 45,847 119,007 89,572 General and administrative.......................................... 30,465 28,732 56,360 50,520 Corporate development............................................... 3,758 1,733 7,211 3,972 Restructuring charges............................................... -- 100 -- 5,952 Asset write-down charges............................................ 12,272 765 12,272 32,706 Non-cash general and administrative compensation charges............ 1,380 1,326 2,775 2,640 Depreciation and amortization....................................... 74,756 76,172 148,847 147,887 --------- -------- --------- --------- 245,737 220,621 463,766 461,261 --------- -------- --------- --------- Operating income (loss)................................................. (16,321) 4,910 (21,397) (15,113) Other income (expense): Interest and other income (expense)................................. 4,544 3,840 7,636 (2,250) Interest expense and amortization of deferred financing costs....... (73,175) (76,388) (139,830) (152,707) --------- -------- --------- --------- Loss before income taxes and minority interests......................... (84,952) (67,638) (153,591) (170,070) Provision for income taxes.............................................. -- (684) (60) (5,343) Minority interests...................................................... 219 (276) 863 3,422 --------- -------- --------- --------- Net loss................................................................ (84,733) (68,598) (152,788) (171,991) Dividends on preferred stock............................................ (20,265) (20,861) (39,770) (40,966) --------- -------- --------- --------- Net loss after deduction of dividends on preferred stock................ $(104,998) $(89,459) $(192,558) $(212,957) ========= ======== ========= ========= Net loss................................................................ $ (84,733) $(68,598) $(152,788) $(171,991) Other comprehensive income (loss): Foreign currency translation adjustments............................ (17,872) 42,396 (45,465) 40,190 Derivative instruments: Net change in fair value of cash flow hedging instruments........ 323 (4,193) (3,018) (2,653) Amounts reclassified into results of operations.................. 356 1,448 134 2,867 --------- -------- --------- --------- Comprehensive loss before cumulative effect of change in accounting principle.............................................................. (101,926) (28,947) (201,137) (131,587) Cumulative effect of change in accounting principle for derivative financial instruments.................................................. -- -- 178 -- --------- -------- --------- --------- Comprehensive loss...................................................... $(101,926) $(28,947) $(200,959) $(131,587) ========= ======== ========= ========= Loss per common share--basic and diluted................................ $ (0.49) $ (0.41) $ (0.91) $ (0.97) ========= ======== ========= ========= Common shares outstanding--basic and diluted (in thousands)............. 214,059 220,897 212,627 220,159 ========= ======== ========= ========= See condensed notes to consolidated financial statements. 4
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (In thousands of dollars) Six Months Ended June 30, --------------------- 2001 2002 ---------- --------- Cash flows from operating activities: Net loss....................................................................... $ (152,788) $(171,991) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization................................................ 148,847 147,887 Amortization of deferred financing costs and discounts on long-term debt..... 44,878 49,197 Asset write-down charges..................................................... 12,272 32,706 Non-cash general and administrative compensation charges..................... 2,775 2,640 Minority interests........................................................... (863) (3,422) Changes in assets and liabilities, excluding the effects of acquisitions: Increase in deferred rental revenues and other liabilities................. 81,190 32,376 (Increase) decrease in receivables......................................... (32,475) 16,284 (Increase) decrease in inventories, prepaid expenses and other assets...... (37,414) 2,487 Decrease in accounts payable............................................... (5,142) (28,924) Decrease in accrued interest............................................... (8,403) (9,250) ---------- --------- Net cash provided by operating activities................................ 52,877 69,990 ---------- --------- Cash flows from investing activities: Maturities of investments...................................................... 175,000 173,500 Capital expenditures........................................................... (408,694) (199,276) Purchases of investments....................................................... (137,500) (115,997) Investments in affiliates and other, including escrow deposit.................. (415,249) (21,122) Acquisitions of businesses and assets, net of cash acquired.................... (151,129) -- ---------- --------- Net cash used for investing activities................................... (937,572) (162,895) ---------- --------- Cash flows from financing activities: Proceeds from issuance of capital stock........................................ 352,295 867 Principal payments on long-term debt........................................... -- (15,245) Purchase of capital stock...................................................... -- (3,996) Proceeds from issuance of long-term debt....................................... 450,000 -- Net borrowings under revolving credit agreements............................... 281,829 -- Proceeds from issuance of subsidiary stock to minority shareholder............. 16,434 -- Incurrence of financing costs.................................................. (11,791) -- ---------- --------- Net cash provided by (used for) financing activities..................... 1,088,767 (18,374) ---------- --------- Effect of exchange rate changes on cash......................................... 1,129 8,052 ---------- --------- Net increase (decrease) in cash and cash equivalents............................ 205,201 (103,227) Cash and cash equivalents at beginning of period................................ 453,833 804,602 ---------- --------- Cash and cash equivalents at end of period...................................... $ 659,034 $ 701,375 ========== ========= Supplemental disclosure of cash flow information: Interest paid.................................................................. $ 104,267 $ 111,771 Income taxes paid.............................................................. 60 190 See condensed notes to consolidated financial statements. 5
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, 2001, 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 June 30, 2002, the consolidated results of operations for the three and six months ended June 30, 2001 and 2002, and the consolidated cash flows for the six months ended June 30, 2001 and 2002. 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. Certain reclassifications have been made to the prior period's financial statements to be consistent with the presentation in the current period. 2. New Accounting Pronouncements Derivative Instruments On January 1, 2001, the Company adopted the requirements of 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 are recorded either in results of operations or in other comprehensive income (loss), depending on the intended use of the derivative instrument. The initial application of SFAS 133 is reported as the effect of a change in accounting principle. The adoption of SFAS 133 resulted in a net transition adjustment gain of approximately $178,000 in accumulated other comprehensive income (loss), the recognition of approximately $363,000 of derivative instrument assets and the recognition of approximately $185,000 of derivative instrument liabilities. The amounts for this transition adjustment are based on current fair value measurements at the date of adoption of SFAS 133. The Company expects that the adoption of SFAS 133 will increase the volatility of other comprehensive income (loss) as reported in its future financial statements. The derivative instruments recognized upon the Company's adoption of SFAS 133 consist of interest rate swap agreements. Such agreements are used to manage interest rate risk on a portion of the Company's floating rate indebtedness, and are designated as cash flow hedging instruments in accordance with SFAS 133. The interest rate swap agreements have notional amounts aggregating $150,000,000 and effectively convert the interest payments on an equal amount of debt from a floating rate to a fixed rate. As such, the Company is protected from future increases in market interest rates on that portion of its indebtedness. To the extent that the interest rate swap agreements are effective in hedging the Company's interest rate risk, the changes in their fair values are recorded as other comprehensive income (loss). Amounts recorded as other comprehensive income (loss) are reclassified into results of operations in the same periods that the hedged interest costs are recorded in interest expense. The Company estimates that such reclassified amounts will be approximately $5,900,000 for the year ending December 31, 2002. To the extent that any portions of the interest rate swap agreements are deemed ineffective, the related changes in fair values are recognized in results of operations. 6
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As of June 30, 2002, the accumulated other comprehensive loss in consolidated stockholders' equity includes $7,778,000 in losses related to derivative instruments. Business Combinations, Goodwill and Long-Lived Assets In July 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141"), and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 prohibits the use of the pooling-of-interests method of accounting for business combinations, and requires that the purchase method be used for all business combinations after June 30, 2001. SFAS 141 also changes the manner in which acquired intangible assets are identified and recognized apart from goodwill. Further, SFAS 141 requires additional disclosures regarding the reasons for business combinations, the allocation of the purchase price to recognized assets and liabilities and the recognition of goodwill and other intangible assets. The Company has used the purchase method of accounting since its inception, so the adoption of SFAS 141 will not change its method of accounting for business combinations. The Company has adopted the other recognition and disclosure requirements of SFAS 141 as of July 1, 2001 for any future business combinations. The transition provisions of SFAS 141 require that the carrying amounts for goodwill and other intangible assets acquired in prior purchase method business combinations be reviewed and reclassified in accordance with the new recognition rules; such reclassifications are to be made in conjunction with the adoption of SFAS 142. The application of these transition provisions of SFAS 141 as of January 1, 2002 resulted in a reclassification of other intangible assets with finite useful lives (the value of site rental contracts from the acquisition of Crown Communication) to deferred financing costs and other assets on the Company's consolidated balance sheet. The gross carrying amount, accumulated amortization and net book value of such reclassified intangible assets were $26,000,000, $11,483,000 and $14,517,000 at January 1, 2002, respectively, and $26,000,000, $12,209,000 and $13,791,000 at June 30, 2002, respectively. The net book value of these intangible assets will be amortized using a revised life of 10 years, resulting in amortization expense of $1,452,000 for each of the years ending December 31, 2002 through 2006. The Company has no other intangible assets from prior business combinations. SFAS 142 changes the accounting and disclosure requirements for acquired goodwill and other intangible assets. The most significant provision of SFAS 142 is that goodwill and other intangible assets with indefinite useful lives will no longer be amortized, but rather will be tested for impairment on an annual basis. This annual impairment test will involve (1) a step to identify potential impairment at a reporting unit level based on fair values, and (2) a step to measure the amount of the impairment, if any. Intangible assets with finite useful lives will continue to be amortized over such lives, and tested for impairment in accordance with the Company's existing policies. SFAS 142 requires disclosures about goodwill and other intangible assets in the periods subsequent to their acquisition, including (1) changes in the carrying amount of goodwill, in total and by operating segment, (2) the carrying amounts of intangible assets subject to amortization and those which are not subject to amortization, (3) information about impairment losses recognized, and (4) the estimated amount of intangible asset amortization expense for the next five years. The provisions of SFAS 142 are effective for fiscal years beginning after December 15, 2001. In addition, the nonamortization provisions of SFAS 142 were to be immediately applied for goodwill and other intangible assets acquired in business combinations subsequent to June 30, 2001. The Company has adopted the requirements of SFAS 142 as of January 1, 2002. SFAS 142 requires that transitional impairment tests be performed at its adoption, and provides that resulting impairment losses for goodwill and other intangible assets with indefinite useful lives be reported as the effect of a change in accounting principle. The Company has completed its transitional impairment tests and has determined that no impairment losses for goodwill and other intangible assets will be recorded as a result of the adoption of SFAS 142. The Company expects that its depreciation and amortization expense will decrease by approximately 7
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) $60,617,000 per year as a result of the adoption of SFAS 142. If amortization of goodwill had not been recorded, and if amortization of other intangible assets had been recorded using the revised life, the Company's net loss and loss per share for the three and six months ended June 30, 2001 would have been as follows: Three Months Six Months Ended Ended June 30, June 30, 2001 2001 ------------ ---------- (In thousand of dollars, except per share amounts) Net loss, as reported.................................................. $(84,733) $(152,788) Add back: amortization of goodwill..................................... 15,048 30,139 Adjust: amortization of other intangible assets........................ 287 574 -------- --------- Net loss, as adjusted.................................................. (69,398) (122,075) Dividends on preferred stock........................................... (20,265) (39,770) -------- --------- Net loss applicable to common stock for basic and diluted computations, as adjusted.......................................................... $(89,663) $(161,845) ======== ========= Per common share--basic and diluted: Net loss, as reported........................................... $ (0.49) $ (0.91) Amortization of goodwill........................................ 0.07 0.14 Adjustment for amortization of other intangible assets.......... -- 0.01 -------- --------- Net loss, as adjusted........................................... $ (0.42) $ (0.76) ======== ========= A summary of goodwill by operating segment is as follows: Six Months Ended June 30, 2002 --------------------------------------- Crown Consolidated CCUSA CCUK Atlantic Total -------- -------- -------- ------------ (In thousands of dollars) Balance at beginning of period. $164,023 $817,514 $55,377 $1,036,914 Effect of exchange rate changes -- 3,369 -- 3,369 -------- -------- ------- ---------- Balance at end of period....... $164,023 $820,883 $55,377 $1,040,283 ======== ======== ======= ========== In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 supersedes Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("SFAS 121"), but retains many of its fundamental provisions. SFAS 144 also clarifies certain measurement and classification issues from SFAS 121. In addition, SFAS 144 supersedes the accounting and reporting provisions for the disposal of a business segment as found in Accounting Principles Board Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("APB 30"). However, SFAS 144 retains the requirement in APB 30 to separately report discontinued operations, and broadens the scope of such requirement to include more types of disposal transactions. The scope of SFAS 144 excludes goodwill and other intangible assets that are not to be amortized, as the accounting for such items is prescribed by SFAS 142. The provisions of SFAS 144 are effective for fiscal years beginning after December 15, 2001, and are to be applied prospectively. The adoption of the requirements of SFAS 144 as of January 1, 2002 had no impact on the Company's consolidated financial statements. 8
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Other Pronouncements In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS 145"). SFAS 145 amends or rescinds a number of authoritative pronouncements, including Statement of Financial Accounting Standards No. 4, Reporting Gains and Losses from Extinguishment of Debt ("SFAS 4"). SFAS 4 required that gains and losses from extinguishment of debt that were included in the determination of net income or loss be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Upon adoption of SFAS 145, gains and losses from extinguishment of debt will no longer be classified as an extraordinary item, but rather will generally be classified as part of other income (expense) on the Company's consolidated statement of operations. Any such gains or losses classified as an extraordinary item in prior periods will be reclassified in future financial statement presentations. The provisions of SFAS 145 related to the rescission of SFAS 4 are effective for fiscal years beginning after May 15, 2002, with early application encouraged. The Company will adopt the provisions of SFAS 145 no later than January 1, 2003. In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146"). SFAS 146 replaces the previous accounting guidance provided by Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS 146 requires that costs associated with exit or disposal activities be recognized when they are incurred, rather than at the date of a commitment to an exit or disposal plan (as provided by EITF 94-3). Examples of costs covered by SFAS 146 include certain employee severance costs and lease termination costs that are associated with a restructuring or discontinued operation. The provisions of SFAS 146 are effective for exit or disposal activities initiated after December 31, 2002, and are to be applied prospectively. The Company will adopt the requirements of SFAS 146 as of January 1, 2003. 3. Long-term Debt Long-term debt consists of the following: December 31, June 30, 2001 2002 ------------ ---------- (In thousands of dollars) 2000 Credit Facility................................... $ 700,000 $ 700,000 CCUK Credit Facility................................... 172,050 165,439 Crown Atlantic Credit Facility......................... 300,000 300,000 9% Guaranteed Bonds due 2007........................... 177,401 186,271 10 5/8% Senior Discount Notes due 2007, net of discount 229,321 241,504 10 3/8% Senior Discount Notes due 2011, net of discount 393,320 413,723 9% Senior Notes due 2011............................... 180,000 180,000 111/4% Senior Discount Notes due 2011, net of discount. 196,005 207,030 91/2% Senior Notes due 2011............................ 125,000 125,000 103/4% Senior Notes due 2011........................... 500,000 500,000 9 3/8% Senior Notes due 2011........................... 450,000 450,000 ---------- ---------- 3,423,097 3,468,967 Less: current maturities............................... (29,086) (351,710) ---------- ---------- $3,394,011 $3,117,257 ========== ========== CCUK Credit Facility In April 2002, ITV Digital ("ITVD"), a significant customer of CCUK, announced plans to liquidate its assets and returned its digital terrestrial television licenses to the UK Independent Television Commission (See 9
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 9). The termination of the ITVD transmission contract is a Termination Event (a defined event of default) under the CCUK Credit Facility. The Company has entered into discussions with the banks in order to obtain an amendment to the CCUK Credit Facility such that the Termination Event would be cured. Based on these preliminary discussions, the Company does not currently believe that it will be required to prepay the outstanding borrowings under the CCUK Credit Facility as a result of this event of default. However, there can be no assurance that such an amendment can be obtained. As a result, the Company has reclassified all the outstanding borrowings under the CCUK Credit Facility as current liabilities on its consolidated balance sheet as of June 30, 2002. If the Company is unable to obtain an amendment to the CCUK Credit Facility as discussed above, the uncured Termination Event would result in an event of default under the trust deed governing the 9% Guaranteed Bonds due 2007 (the "CCUK Bonds"). As a result, the Company has also reclassified the principal amount of the CCUK Bonds as a current liability on its consolidated balance sheet as of June 30, 2002. None of the Company's other debt instruments, including the public debt securities and the two U.S. bank credit facilities, contain default provisions related to the ITVD transmission contract. Furthermore, none of these other debt instruments contain cross default provisions with either of the CCUK debt instruments. As such, the events of default under the two CCUK debt instruments do not constitute events of default under any of the Company's other debt instruments. Reporting Requirements Under the Indentures Governing the Company's Debt Securities (the "Indentures") and the Certificate of Designations Governing the Company's 123/4% 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 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: June 30, 2002 ---------------------------------------------------- Company and Restricted Unrestricted Consolidation Consolidated Subsidiaries Subsidiaries Eliminations Total ------------ ------------ ------------- ------------ (In thousands of dollars) Cash and cash equivalents............... $ 188,590 $ 512,785 $ -- $ 701,375 Other current assets.................... 287,642 135,703 -- 423,345 Property and equipment, net............. 3,334,405 1,592,169 -- 4,926,574 Investments............................. 56,500 -- -- 56,500 Investments in Unrestricted Subsidiaries 2,117,542 -- (2,117,542) -- Goodwill................................ 164,023 876,260 -- 1,040,283 Other assets, net....................... 124,611 27,347 -- 151,958 ---------- ---------- ----------- ---------- $6,273,313 $3,144,264 $(2,117,542) $7,300,035 ========== ========== =========== ========== Current liabilities..................... $ 212,082 $ 524,571 $ -- $ 736,653 Long-term debt, less current maturities. 2,817,257 300,000 -- 3,117,257 Other liabilities....................... 38,063 126,895 -- 164,958 Minority interests...................... 95,255 75,256 -- 170,511 Redeemable preferred stock.............. 898,630 -- -- 898,630 Stockholders' equity.................... 2,212,026 2,117,542 (2,117,542) 2,212,026 ---------- ---------- ----------- ---------- $6,273,313 $3,144,264 $(2,117,542) $7,300,035 ========== ========== =========== ========== 10
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Three Months Ended June 30, 2002 Six Months Ended June 30, 2002 ------------------------------------- ------------------------------------- Company and Company and Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total ------------ ------------ ------------ ------------ ------------ ------------ (In thousands of dollars) Net revenues.................. $124,572 $100,959 $225,531 $ 246,820 $199,328 $ 446,148 Costs of operations (exclusive of depreciation and amortization)............... 60,027 51,766 111,793 116,594 100,990 217,584 General and administrative.... 21,304 7,428 28,732 39,588 10,932 50,520 Corporate development......... 1,733 -- 1,733 3,972 -- 3,972 Restructuring charges......... 96 4 100 2,222 3,730 5,952 Asset write-down charges...... 597 168 765 24,318 8,388 32,706 Non-cash general and administrative compensation charges........ 872 454 1,326 1,744 896 2,640 Depreciation and amortization................ 50,840 25,332 76,172 98,624 49,263 147,887 -------- -------- -------- --------- -------- --------- Operating income (loss)....... (10,897) 15,807 4,910 (40,242) 25,129 (15,113) Interest and other income (expense)................... (6,883) 10,723 3,840 (7,482) 5,232 (2,250) Interest expense and amortization of deferred financing costs............. (65,231) (11,157) (76,388) (129,348) (23,359) (152,707) Provision for income taxes.... (102) (582) (684) (190) (5,153) (5,343) Minority interests............ 1,032 (1,308) (276) 2,555 867 3,422 -------- -------- -------- --------- -------- --------- Net income (loss)............. $(82,081) $ 13,483 $(68,598) $(174,707) $ 2,716 $(171,991) ======== ======== ======== ========= ======== ========= 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% 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 111/4% Discount Notes, the 91/2% Senior Notes, the 103/4% Senior Notes and the 9 3/8% Senior Notes (the "1999, 2000 and 2001 Securities"): 1997 and 1999, 2000 1998 and 2001 Securities Securities ---------- ---------- (In thousands of dollars) Tower Cash Flow, for the three months ended June 30, 2002........ $ 50,753 $ 50,753 ========= ========= Consolidated Cash Flow, for the twelve months ended June 30, 2002 $ 174,585 $ 182,737 Less: Tower Cash Flow, for the twelve months ended June 30, 2002. (185,198) (185,198) Plus: four times Tower Cash Flow, for the three months ended June 30, 2002.................................................. 203,012 203,012 --------- --------- Adjusted Consolidated Cash Flow, for the twelve months ended June 30, 2002.................................................. $ 192,399 $ 200,551 ========= ========= 11
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CCUK Letter of Credit In April 2002, CCUK issued a letter of credit to one of its customers in connection with a site development agreement. The letter of credit was issued through one of CCUSA's lenders in the amount of (Pounds)50,000,000 (approximately $76,225,000) and expires on March 31, 2003. 4. Redeemable Preferred Stock Redeemable preferred stock ($.01 par value, 20,000,000 shares authorized) consists of the following: December 31, June 30, 2001 2002 ------------ -------- (In thousands of dollars) 123/4% Senior Exchangeable Preferred Stock; shares issued: December 31, 2001--291,444 and June 30, 2002--310,320 (stated at mandatory redemption and aggregate liquidation value)............... $292,992 $311,968 81/4% 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)............. 195,793 195,999 6.25% Convertible Preferred Stock; shares issued: 8,050,000 (stated net of unamortized issue costs; mandatory redemption and aggregate liquidation value of $402,500)........................ 390,076 390,663 -------- -------- $878,861 $898,630 ======== ======== In June of 2002, the Company paid its quarterly dividend on the 81/4% Convertible Preferred Stock by issuing 900,000 shares of its common stock. As allowed by the Deposit Agreement relating to dividend payments on the 81/4% Convertible Preferred Stock, the Company then repurchased the 900,000 shares of common stock from the dividend paying agent for $3,996,000 in cash. The Company utilized cash from an Unrestricted investment subsidiary to effect the stock repurchase. The Company may choose to continue such issuances and repurchases of stock in the future in order to avoid further dilution caused by the issuance of common stock as dividends on its preferred stock. 5. Per Share Information Per share information is based on the weighted-average number of common shares outstanding during each period for the basic computation and, if dilutive, the weighted-average number of potential common shares resulting from the assumed conversion of outstanding stock options, warrants and convertible preferred stock for the diluted computation. A reconciliation of the numerators and denominators of the basic and diluted per share computations is as follows: Three Months Ended Six Months Ended June 30, June 30, ------------------------ ------------------------ 2001 2002 2001 2002 --------- -------- --------- --------- (In thousands of dollars, except per share amounts) Net loss......................................... $ (84,733) $(68,598) $(152,788) $(171,991) Dividends on preferred stock..................... (20,265) (20,861) (39,770) (40,966) --------- -------- --------- --------- Net loss applicable to common stock for basic and diluted computations........................... $(104,998) $(89,459) $(192,558) $(212,957) ========= ======== ========= ========= Weighted-average number of common shares outstanding during the period for basic and diluted computations (in thousands)............ 214,059 220,897 212,627 220,159 ========= ======== ========= ========= Loss per common share--basic and diluted......... $ (0.49) $ (0.41) $ (0.91) $ (0.97) ========= ======== ========= ========= 12
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The calculations of common shares outstanding for the diluted computations exclude the following potential common shares as of June 30, 2002: (1) options to purchase 23,927,996 shares of common stock at exercise prices ranging from $-0- to $39.75 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 81/4% 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 6. Commitments and Contingencies The Company is involved in various claims, lawsuits and proceedings arising in the ordinary course of business. While there are uncertainties inherent in the ultimate outcome of such matters and it is impossible to presently determine the ultimate costs that may be incurred, management believes the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's consolidated financial position or results of operations. 7. Operating Segments The measurement of profit or loss currently used to evaluate the results of operations for the Company and its operating segments is earnings before interest, taxes, depreciation and amortization, as adjusted ("Adjusted EBITDA"). The Company defines Adjusted EBITDA as operating income (loss) plus depreciation and amortization, non-cash general and administrative compensation charges, asset write-down charges and restructuring charges. Adjusted EBITDA is not intended as an alternative measure of operating results or cash flow from operations (as determined in accordance with generally accepted accounting principles), and the Company's measure of Adjusted 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. 13
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The financial results for the Company's operating segments are as follows: Three Months Ended June 30, 2002 ----------------------------------------------------------------- Corporate Crown Office Consolidated CCUSA CCAL CCUK Atlantic and Other Total ---------- -------- ---------- -------- --------- ------------ (In thousands of dollars) Net revenues: Site rental and broadcast transmission................... $ 80,321 $ 6,170 $ 62,409 $ 23,052 $ -- $ 171,952 Network services and other....... 37,505 576 8,934 6,564 -- 53,579 ---------- -------- ---------- -------- -------- ---------- 117,826 6,746 71,343 29,616 -- 225,531 ---------- -------- ---------- -------- -------- ---------- Costs of operations (exclusive of depreciation and amortization).... 57,580 2,447 38,385 13,381 -- 111,793 General and administrative.......... 15,686 1,518 6,346 993 4,189 28,732 Corporate development............... -- -- -- -- 1,733 1,733 ---------- -------- ---------- -------- -------- ---------- Adjusted EBITDA..................... 44,560 2,781 26,612 15,242 (5,922) 83,273 Restructuring charges (credits)..... (277) -- 4 -- 373 100 Asset write-down charges............ 597 -- -- 168 -- 765 Non-cash general and administrative compensation charges.............. 531 -- 454 -- 341 1,326 Depreciation and amortization....... 47,006 3,433 14,926 10,344 463 76,172 ---------- -------- ---------- -------- -------- ---------- Operating income (loss)............. (3,297) (652) 11,228 4,730 (7,099) 4,910 Interest and other income (expense)......................... (572) 133 1,119 190 2,970 3,840 Interest expense and amortization of deferred financing costs.......... (9,852) (863) (6,409) (4,748) (54,516) (76,388) Provision for income taxes.......... -- (102) (582) -- -- (684) Minority interests.................. 457 575 -- (1,308) -- (276) ---------- -------- ---------- -------- -------- ---------- Net income (loss)................... $ (13,264) $ (909) $ 5,356 $ (1,136) $(58,645) $ (68,598) ========== ======== ========== ======== ======== ========== Capital expenditures................ $ 31,354 $ 1,187 $ 87,476 $ 6,278 $ -- $ 126,295 ========== ======== ========== ======== ======== ========== Total assets (at period end)........ $3,498,942 $279,621 $1,867,318 $904,904 $749,250 $7,300,035 ========== ======== ========== ======== ======== ========== 14
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Six Months Ended June 30, 2002 ------------------------------------------------------------ Corporate Crown Office Consolidated CCUSA CCAL CCUK Atlantic and Other Total -------- ------- -------- -------- --------- ------------ (In thousands of dollars) Net revenues: Site rental and broadcast transmission................... $159,574 $11,183 $115,864 $45,595 $ -- $ 332,216 Network services and other....... 74,854 1,209 24,879 12,990 -- 113,932 -------- ------- -------- ------- --------- --------- 234,428 12,392 140,743 58,585 -- 446,148 -------- ------- -------- ------- --------- --------- Costs of operations (exclusive of depreciation and amortization).... 111,512 5,082 75,241 25,749 -- 217,584 General and administrative.......... 28,915 2,779 8,073 2,730 8,023 50,520 Corporate development............... -- -- -- -- 3,972 3,972 -------- ------- -------- ------- --------- --------- Adjusted EBITDA..................... 94,001 4,531 57,429 30,106 (11,995) 174,072 Restructuring charges (credits)..... (277) -- 3,730 -- 2,499 5,952 Asset write-down charges............ 24,318 -- 431 7,957 -- 32,706 Non-cash general and administrative compensation charges.............. 1,063 -- 896 -- 681 2,640 Depreciation and amortization....... 91,250 6,619 28,399 20,613 1,006 147,887 -------- ------- -------- ------- --------- --------- Operating income (loss)............. (22,353) (2,088) 23,973 1,536 (16,181) (15,113) Interest and other income (expense). (1,315) 295 (4,450) 171 3,049 (2,250) Interest expense and amortization of deferred financing costs.......... (19,147) (1,689) (13,961) (9,398) (108,512) (152,707) Provision for income taxes.......... -- (190) (5,153) -- -- (5,343) Minority interests.................. 1,276 1,279 -- 867 -- 3,422 -------- ------- -------- ------- --------- --------- Net income (loss)................... $(41,539) $(2,393) $ 409 $(6,824) $(121,644) $(171,991) ======== ======= ======== ======= ========= ========= Capital expenditures................ $ 72,985 $ 4,143 $105,144 $16,675 $ 329 $ 199,276 ======== ======= ======== ======= ========= ========= 15
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Three Months Ended June 30, 2001 ----------------------------------------------------------- Corporate Crown Office Consolidated CCUSA CCAL CCUK Atlantic and Other Total -------- ------- -------- -------- --------- ------------ (In thousands of dollars) Net revenues: Site rental and broadcast transmission................... $ 64,609 $ 4,471 $ 50,694 $20,026 $ -- $139,800 Network services and other....... 74,325 525 6,240 8,526 -- 89,616 -------- ------- -------- ------- -------- -------- 138,934 4,996 56,934 28,552 -- 229,416 -------- ------- -------- ------- -------- -------- Costs of operations (exclusive of depreciation and amortization).... 76,106 2,271 31,663 13,066 -- 123,106 General and administrative.......... 16,872 1,735 5,316 2,536 4,006 30,465 Corporate development............... -- -- -- -- 3,758 3,758 -------- ------- -------- ------- -------- -------- Adjusted EBITDA..................... 45,956 990 19,955 12,950 (7,764) 72,087 Asset write-down charges............ 3,969 -- 3,785 767 3,751 12,272 Non-cash general and administrative compensation charges.............. 532 -- 508 -- 340 1,380 Depreciation and amortization....... 39,255 3,064 22,051 9,938 448 74,756 -------- ------- -------- ------- -------- -------- Operating income (loss)............. 2,200 (2,074) (6,389) 2,245 (12,303) (16,321) Interest and other income (expense). 665 219 815 155 2,690 4,544 Interest expense and amortization of deferred financing costs.......... (13,798) (752) (6,497) (5,148) (46,980) (73,175) Provision for income taxes.......... -- -- -- -- -- -- Minority interests.................. (171) 853 -- (463) -- 219 -------- ------- -------- ------- -------- -------- Net loss............................ $(11,104) $(1,754) $(12,071) $(3,211) $(56,593) $(84,733) ======== ======= ======== ======= ======== ======== Capital expenditures................ $ 98,475 $ 171 $ 28,818 $27,248 $ 2,122 $156,834 ======== ======= ======== ======= ======== ======== 16
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Six Months Ended June 30, 2001 ------------------------------------------------------------- Corporate Crown Office Consolidated CCUSA CCAL CCUK Atlantic and Other Total -------- ------- -------- -------- --------- ------------ (In thousands of dollars) Net revenues: Site rental and broadcast transmission................... $126,785 $ 7,461 $100,062 $ 39,534 $ -- $ 273,842 Network services and other....... 134,930 525 16,016 17,056 -- 168,527 -------- ------- -------- -------- --------- --------- 261,715 7,986 116,078 56,590 -- 442,369 -------- ------- -------- -------- --------- --------- Costs of operations (exclusive of depreciation and amortization).... 142,207 3,366 63,692 27,036 -- 236,301 General and administrative.......... 33,194 3,226 7,019 5,181 7,740 56,360 Corporate development............... -- -- 48 -- 7,163 7,211 -------- ------- -------- -------- --------- --------- Adjusted EBITDA..................... 86,314 1,394 45,319 24,373 (14,903) 142,497 Asset write-down charges............ 3,969 -- 3,785 767 3,751 12,272 Non-cash general and administrative compensation charges.............. 1,063 -- 1,031 -- 681 2,775 Depreciation and amortization....... 78,882 4,760 44,270 20,069 866 148,847 -------- ------- -------- -------- --------- --------- Operating income (loss)............. 2,400 (3,366) (3,767) 3,537 (20,201) (21,397) Interest and other income (expense). 1,539 75 1,746 170 4,106 7,636 Interest expense and amortization of deferred financing costs.......... (27,265) (795) (13,532) (10,163) (88,075) (139,830) Provision for income taxes.......... -- -- (27) (33) -- (60) Minority interests.................. (369) 1,776 -- (544) -- 863 -------- ------- -------- -------- --------- --------- Net loss............................ $(23,695) $(2,310) $(15,580) $ (7,033) $(104,170) $(152,788) ======== ======= ======== ======== ========= ========= Capital expenditures................ $212,338 $ 657 $139,647 $ 53,349 $ 2,703 $ 408,694 ======== ======= ======== ======== ========= ========= 8. Restructuring Charges and Asset Write-Down Charges The Company recorded asset write-down charges of $12,272,000 during the six months ended June 30, 2001 in connection with the restructuring of its business announced in July 2001. Such non-cash charges related to the write-down of certain inventories, property and equipment, and other assets that were deemed to have no value as a result of the restructuring. A summary of the asset write-down charges by operating segment is as follows: Six Months Ended June 30, 2001 --------------------------------------------- Corporate Crown Office Consolidated CCUSA CCUK Atlantic and Other Total ------ ------ -------- --------- ------------ (In thousands of dollars) Inventories........... $ -- $3,785 $ -- $ -- $ 3,785 Property and equipment 3,969 -- 767 456 5,192 Other assets.......... -- -- -- 3,295 3,295 ------ ------ ---- ------ ------- $3,969 $3,785 $767 $3,751 $12,272 ====== ====== ==== ====== ======= 17
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) For the six months ended June 30, 2002, the Company recorded cash charges of $3,730,000 in connection with a restructuring of its CCUK business announced in March 2002. Such charges relate to staff redundancies and the disposition of certain service lines. The Company expects that the total charges reflected in its 2002 results of operations for this CCUK restructuring will be between approximately $7,000,000 and $13,000,000. For the six months ended June 30, 2002, the Company also recorded cash charges of $2,499,000 related to additional employee severance payments at its corporate office in connection with the July 2001 restructuring. At December 31, 2001 and June 30, 2002, other accrued liabilities includes $6,591,000 and $1,786,000, respectively, related to restructuring charges. A summary of the restructuring charges by operating segment is as follows: Six Months Ended June 30, 2002 ----------------------------------------------- Corporate Crown Office Consolidated CCUSA CCUK Atlantic and Other Total ------ ------- -------- --------- ------------ (In thousands of dollars) Amounts accrued at beginning of period: Employee severance........................ $1,126 $ 357 $ 230 $ 3,568 $ 5,281 Costs of office closures and other........ 1,075 -- 235 -- 1,310 ------ ------- ----- ------- -------- 2,201 357 465 3,568 6,591 ------ ------- ----- ------- -------- Amounts charged (credited) to expense: Employee severance........................ -- 3,399 -- 2,397 5,796 Costs of office closures and other........ (277) 331 -- 102 156 ------ ------- ----- ------- -------- Total restructuring charges (credits)... (277) 3,730 -- 2,499 5,952 ------ ------- ----- ------- -------- Amounts paid: Employee severance........................ (685) (3,450) (153) (5,882) (10,170) Costs of office closures and other........ (185) (278) (55) (69) (587) ------ ------- ----- ------- -------- (870) (3,728) (208) (5,951) (10,757) ------ ------- ----- ------- -------- Amounts accrued at end of period: Employee severance........................ 441 306 77 83 907 Costs of office closures and other........ 613 53 180 33 879 ------ ------- ----- ------- -------- $1,054 $ 359 $ 257 $ 116 $ 1,786 ====== ======= ===== ======= ======== During the six months ended June 30, 2002, the Company abandoned a portion of its construction in process related to certain open projects and recorded related asset write-down charges of $24,318,000 for CCUSA and $7,957,000 for Crown Atlantic. For the six months ended June 30, 2002, the Company also recorded asset write-down charges of $431,000 for CCUK related to certain inventories and property and equipment. 9. ITV Digital From 1999 to March 2002, pursuant to a digital transmission contract with an original term of twelve years, CCUK was responsible for the transmission of the ITV Digital ("ITVD") signal through the CCUK-owned digital terrestrial television ("DTT") network to approximately 1.2 million subscribers in the U.K. In April 2002, after a U.K. court approved an application by ITVD to be placed into administration (similar to a Chapter 11 bankruptcy proceeding in the United States) and unsuccessful efforts by the administrator to sell the ITVD business as a going concern, ITVD announced plans to liquidate its assets and returned its DTT licenses to the UK Independent Television Commission ("ITC"). CCUK had gross revenues of approximately $27,600,000 annually under the ITVD transmission contract. ITVD represented approximately 12% of the 2001 gross revenues of CCUK and approximately 3% of the 2001 consolidated gross revenues of the Company. 18
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Following the return of the licenses by ITVD, the ITC announced a process for reawarding the three digital multiplex licenses which ITVD previously held. In June 2002, CCUK and the BBC submitted linked applications for these licenses. On July 4, 2002, the ITC conditionally awarded the license for one multiplex to the BBC and the license for two multiplexes to CCUK. No license fees were paid to the UK government with respect to the award of the multiplex licenses other than an approximately $38,000 application fee per multiplex. CCUK has entered into a preliminary agreement with the BBC to provide a transmission and distribution service for the multiplex awarded to the BBC. CCUK has also entered into a preliminary agreement with BSkyB to provide a transmission, distribution and multiplexing service in relation to 75% of the available capacity of one of the multiplexes awarded to CCUK. CCUK expects to enter into additional agreements to provide transmission, distribution and multiplexing services to channel providers for the other multiplex capacity awarded to CCUK. Starting in the first quarter of 2003, CCUK expects to generate annual revenues from the BBC, BSkyB and other broadcasters of between approximately $26,000,000 and $30,000,000 from the provision of transmission, distribution and multiplexing services related to the new multiplex licenses. CCUK has already invested, as a result of its previous contract with ITVD, substantially all of the capital required to provide the services described above. CCUK expects to invest approximately an additional $3,000,000 to increase the power of the transmission network at a number of sites. CCUK is already incurring, again by virtue of its previous contract with ITVD, substantially all of the operating costs required to provide these services (including payments to British Telecom for distribution circuits and payments to NTL for site rental). In total, CCUK is incurring annual operating expenses of between approximately $20,000,000 and $23,000,000 from the provision of transmission, distribution and multiplexing services to the BBC, BSkyB and other broadcasters related to the new multiplex licenses. The termination of the ITVD transmission contract is a Termination Event under the CCUK credit facility (see Note 3). 10. Subsequent Event In July of 2002, the Company repurchased 8,500,000 shares of its common stock for $18,275,000 in cash. The shares purchased by the Company represented all of the remaining shares previously owned by affiliates of France Telecom. The purchase was conducted through a privately negotiated transaction. The Company utilized cash from an Unrestricted investment subsidiary to effect the stock repurchase. 19
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 June 30, 2002 and our consolidated results of operations for the three- and six-month periods ended June 30, 2001 and 2002. 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, assumptions 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, the success or failure of our efforts to implement our business strategy and the following: . Our substantial level of indebtedness could adversely affect our ability to react to changes in our business and limit our ability to use debt to fund future capital needs. . If we are unable to service our indebtedness, our indebtedness may be accelerated. . Our business depends on the demand for wireless communications, which may be lower or slower than anticipated. . The continuation of the current economic and telecommunications industry slowdown could materially and adversely affect our business and the business of our customers. . We may be unable to manage our significant growth. . The loss, consolidation or financial instability of any of our limited number of customers could materially decrease revenues. . Restrictive covenants on our debt instruments may limit our ability to take actions that may be in our best interests. . We operate in an increasingly competitive industry and many of our competitors have significantly more resources than we do. . Technology changes may significantly reduce the demand for towers. . 2.5G/3G and other technologies may not deploy or be adopted by customers as rapidly or in the manner projected. . Carrier consolidation or reduced carrier expansion may significantly reduce the demand for towers and wireless communication sites. . Network sharing and other agreements among our customers may act as alternatives to leasing sites from us. . We may not be able to construct or acquire new towers at the pace and in the locations that we desire. . Demand for our network services business is very volatile which causes our network services operating results to vary significantly for any particular period. . We anticipate significant capital expenditures and may need additional financing which may not be available. . We generally lease or sublease the land under our towers and may not be able to maintain these leases. . Extensive regulations, which could change at any time, govern our business and industry, and we could fail to comply with these regulations. . We could suffer from future claims if radio frequency emissions from equipment on our towers are demonstrated to cause negative health effects. . Our international operations expose us to changes in foreign currency exchange rates. . We are heavily dependent on our senior management. . Sales or issuances, including as dividends, of a substantial number of shares of our common stock could adversely affect the market price of our common stock. 20
. Disputes with customers and suppliers have recently increased. . Economic viability or acceptance of digital terrestrial broadcasting. Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected. More information about potential factors which could affect the Company's financial results is included in the Risk Factors sections of the Company's filings with the Securities and Exchange Commission. The following 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 During 2001 we completed the transactions with BellSouth and BellSouth DCS. Results of operations of these acquired 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 six months ended June 30, 2001 are not comparable to the results of operations for the three and six months ended June 30, 2002. During the first six months of 2002, the level of capital expenditures from US wireless carriers for new tower sites has generally been less than levels experienced in 2001. As a result, the pace at which we have been able to add new tenants to our sites has decreased during 2002. The following information is derived from our historical Consolidated Statements of Operations for the periods indicated. Three Months Ended Three Months Ended Six Months Ended Six Months Ended June 30, 2001 June 30, 2002 June 30, 2001 June 30, 2002 ------------------ ------------------ ------------------- ------------------- Percent of Percent of Percent of Percent of Net Net Net Net Amount Revenues Amount Revenues Amount Revenues Amount Revenues -------- ---------- -------- ---------- --------- ---------- --------- ---------- (In thousands of dollars) Net revenues: Site rental and broadcast transmission............... $139,800 60.9% $171,952 76.2% $ 273,842 61.9% $ 332,216 74.5% Network services and other.. 89,616 39.1 53,579 23.8 168,527 38.1 113,932 25.5 -------- ----- -------- ----- --------- ----- --------- ----- Total net revenues...... 229,416 100.0 225,531 100.0 442,369 100.0 446,148 100.0 -------- ----- -------- ----- --------- ----- --------- ----- Operating expenses: Costs of operations: Site rental and broadcast transmission.............. 59,555 42.6 65,946 38.4 117,294 42.8 128,012 38.5 Network services and other..................... 63,551 70.9 45,847 85.6 119,007 70.6 89,572 78.6 -------- -------- --------- --------- Total costs of operations............. 123,106 53.7 111,793 49.6 236,301 53.4 217,584 48.8 General and administrative.. 30,465 13.3 28,732 12.7 56,360 12.7 50,520 11.3 Corporate development....... 3,758 1.6 1,733 0.8 7,211 1.6 3,972 0.9 Restructuring charges....... -- -- 100 -- -- -- 5,952 1.3 Asset write-down charges.... 12,272 5.3 765 0.3 12,272 2.8 32,706 7.3 Non-cash general and administrative compensation charges....... 1,380 0.6 1,326 0.6 2,775 0.6 2,640 0.6 Depreciation and amortization............... 74,756 32.6 76,172 33.8 148,847 33.7 147,887 33.2 -------- ----- -------- ----- --------- ----- --------- ----- Operating income (loss)....... (16,321) (7.1) 4,910 2.2 (21,397) (4.8) (15,113) (3.4) Other income (expense): Interest and other income (expense).................. 4,544 2.0 3,840 1.7 7,636 1.7 (2,250) (0.5) Interest expense and amortization of deferred financing costs............ (73,175) (31.9) (76,388) (33.9) (139,830) (31.6) (152,707) (34.2) -------- ----- -------- ----- --------- ----- --------- ----- Loss before income taxes and minority interests........... (84,952) (37.0) (67,638) (30.0) (153,591) (34.7) (170,070) (38.1) Provision for income taxes.... -- -- (684) (0.3) (60) -- (5,343) (1.2) Minority interests............ 219 0.1 (276) (0.1) 863 0.2 3,422 0.7 -------- ----- -------- ----- --------- ----- --------- ----- Net loss...................... $(84,733) (36.9)% $(68,598) (30.4)% $(152,788) (34.5)% $(171,991) (38.6)% ======== ===== ======== ===== ========= ===== ========= ===== 21
Comparison of Three Months Ended June 30, 2002 and 2001 Consolidated revenues for the three months ended June 30, 2002 were $225.5 million, a decrease of $3.9 million from the three months ended June 30, 2001. This decrease was primarily attributable to: (1) a $36.8 million decrease in network services and other revenues from CCUSA and (2) a $2.0 million decrease in network services and other revenues from Crown Atlantic, partially offset by (3) a $32.2 million, or 23.0%, increase in site rental and broadcast transmission revenues, of which $11.7 million was attributable to CCUK, $3.0 million was attributable to Crown Atlantic, $1.7 million was attributable to CCAL and $15.7 million was attributable to CCUSA, and (4) a $2.7 million increase in network services and other revenues from CCUK. The following is a summary of tenant leasing activity on our tower sites: Three Months Ended June 30, ------------- 2001 2002 ------ ------ New tenants added on existing, newly constructed and acquired tower sites, net: CCUSA (includes 130 tenants from acquired tower sites in 2001).............. 1,058 479 Crown Atlantic.............................................................. 192 75 CCUK (includes 459 tenants from acquired tower sites in 2001)............... 1,156 379 CCAL (includes 1,054 tenants from acquired tower sites in 2001)............. 1,141 112 ------ ------ 3,547 1,045 ====== ====== Average monthly lease rate per new tenant added on existing tower sites: CCUSA and Crown Atlantic.................................................... $1,498 $1,476 CCUK........................................................................ 686 1,078 CCAL........................................................................ 608 650 The increases in site rental and broadcast transmission revenues reflect the new tenant additions on our tower sites. The increases or decreases in network services and other revenues reflect fluctuations in demand for antenna installation from our tenants along with fluctuations in third party service work. Costs of operations for the three months ended June 30, 2002 were $111.8 million, a decrease of $11.3 million from the three months ended June 30, 2001. This decrease was primarily attributable to: (1) a $21.1 million decrease in network services costs related to CCUSA and (2) a $0.5 million decrease in network services costs from Crown Atlantic, partially offset by (3) a $6.4 million increase in site rental and broadcast transmission costs, of which $2.7 million was attributable to CCUK, $0.8 million was attributable to Crown Atlantic, $0.3 million was attributable to CCAL and $2.6 million was attributable to CCUSA, and (4) a $4.0 million increase in network services costs from CCUK. Costs of operations for site rental and broadcast transmission as a percentage of site rental and broadcast transmission revenues decreased to 38.4% for the three months ended June 30, 2002 from 42.6% for the three months ended June 30, 2001, because of higher margins attributable to incremental revenues from the CCUSA, CCUK, Crown Atlantic and CCAL operations. Costs of operations for network services and other as a percentage of network services and other revenues increased to 85.6% for the three months ended June 30, 2002 from 70.9% for the three months ended June 30, 2001 because of lower margins from the CCUSA, CCUK and Crown Atlantic operations. 22
General and administrative expenses for the three months ended June 30, 2002 were $28.7 million, a decrease of $1.7 million from the three months ended June 30, 2001. This decrease was primarily attributable to: (1) a $1.2 million decrease in expenses related to the CCUSA operations, (2) a $1.5 million decrease in expenses at Crown Atlantic, and (3) a $0.2 million decrease in expenses at CCAL, partially offset by (4) a $1.0 million increase in expenses at CCUK, and (5) a $0.2 million increase in expenses at our corporate office. The decreases in general and administrative expenses resulted primarily from lower staffing levels after the restructuring of our business announced in July 2001, partially offset by a charge of approximately $2.6 million for a bad debt provision at CCUK related to the ITV Digital liquidation (see "Item 5. Other Information"). General and administrative expenses as a percentage of revenues decreased to 12.7% for the three months ended June 30, 2002 from 13.3% for the three months ended June 30, 2001 because of lower overhead costs as a percentage of revenues for CCAL, CCUK and Crown Atlantic. Corporate development expenses for the three months ended June 30, 2002 were $1.7 million, compared to $3.8 million for the three months ended June 30, 2001. This decrease was attributable to a decrease in expenses at our corporate office. During the three months ended June 30, 2002, we recorded asset write-down charges of $0.6 million for CCUSA and $0.2 million for Crown Atlantic. For the three months ended June 30, 2001, we recorded asset write-down charges of $12.3 million in connection with the July 2001 restructuring. Such non-cash charges related to write-downs of certain inventories, property and equipment, and other assets. See "--Restructuring Charges and Asset Write-Down Charges". For the three months ended June 30, 2002, we recorded non-cash general and administrative compensation charges of $1.3 million related to the issuance of stock and stock options to certain employees and executives, compared to $1.4 million for the three months ended June 30, 2001. Depreciation and amortization for the three months ended June 30, 2002 was $76.2 million, an increase of $1.4 million from the three months ended June 30, 2001. This increase was primarily attributable to: (1) a $10.2 million increase in depreciation related to property and equipment and amortization of other intangible assets from CCUSA, (2) a $4.7 million increase in depreciation related to property and equipment from CCUK, (3) a $1.2 million increase in depreciation related to property and equipment from Crown Atlantic, and (4) a $0.4 million increase in depreciation related to property and equipment from CCAL, partially offset by (5) a $15.0 million decrease in goodwill amortization resulting from the adoption of a new accounting standard for goodwill and other intangible assets, of which $2.4 million was attributable to CCUSA, $11.8 million was attributable to CCUK and $0.8 million was attributable to Crown Atlantic (see "--Impact of Recently Issued Accounting Standards"). 23
Interest and other income (expense) for the three months ended June 30, 2002 resulted primarily from: (1) interest income and foreign exchange gains from invested cash balances, partially offset by (2) charges of approximately $5.0 million for the write-down of investments in unconsolidated affiliates, (3) our share of losses incurred by unconsolidated affiliates and (4) costs incurred in connection with unsuccessful network acquisitions. Interest expense and amortization of deferred financing costs for the three months ended June 30, 2002 was $76.4 million, an increase of $3.2 million, or 4.4%, from the three months ended June 30, 2001. This increase was primarily attributable to interest on indebtedness at CCUSA, CCUK and Crown Atlantic, and interest on the 9 3/8% senior notes. The provision for income taxes of $0.7 million for the three months ended June 30, 2002 consists primarily of a non-cash deferred tax liability recognized by CCUK. CCUK's deferred tax liability resulted from differences between book and tax basis for its property and equipment. Minority interests represent the minority partner's 43.1% interest in Crown Atlantic's operations, the minority partner's 17.8% interest in the operations of the GTE joint venture and the minority shareholder's 22.4% interest in the CCAL operations. Comparison of Six Months Ended June 30, 2002 and 2001 Consolidated revenues for the six months ended June 30, 2002 were $446.1 million, an increase of $3.8 million from the six months ended June 30, 2001. This increase was primarily attributable to: (1) a $58.4 million, or 21.3%, increase in site rental and broadcast transmission revenues, of which $15.8 million was attributable to CCUK, $6.1 million was attributable to Crown Atlantic, $3.7 million was attributable to CCAL and $32.8 million was attributable to CCUSA, (2) an $8.9 million increase in network services and other revenues from CCUK, and (3) a $0.7 million increase in network services and other revenues from CCAL, partially offset by (4) a $60.1 million decrease in network services and other revenues from CCUSA, and (5) a $4.1 million decrease in network services and other revenues from Crown Atlantic. The following is a summary of tenant leasing activity on our tower sites: Six Months Ended June 30, ------------- 2001 2002 ------ ------ New tenants added on existing, newly constructed and acquired tower sites, net: CCUSA (includes 130 tenants from acquired tower sites in 2001).............. 1,989 1,241 Crown Atlantic.............................................................. 377 214 CCUK (includes 459 tenants from acquired tower sites in 2001)............... 1,782 778 CCAL (includes 1,054 tenants from acquired tower sites in 2001)............. 1,280 208 ------ ------ 5,428 2,441 ====== ====== Average monthly lease rate per new tenant added on existing tower sites: CCUSA and Crown Atlantic.................................................... $1,487 $1,478 CCUK........................................................................ 619 1,074 CCAL........................................................................ 622 610 24
The increases in site rental and broadcast transmission revenues reflect the new tenant additions on our tower sites. The increases or decreases in network services and other revenues reflect fluctuations in demand for antenna installation from our tenants along with fluctuations in third party service work. Costs of operations for the six months ended June 30, 2002 were $217.6 million, a decrease of $18.7 million from the six months ended June 30, 2001. This decrease was primarily attributable to: (1) a $34.2 million decrease in network services costs related to CCUSA and (2) a $2.7 million decrease in network services costs from Crown Atlantic, partially offset by (3) a $10.7 million increase in site rental and broadcast transmission costs, of which $4.4 million was attributable to CCUK, $1.4 million was attributable to Crown Atlantic, $1.4 million was attributable to CCAL and $3.5 million was attributable to CCUSA, (4) a $7.1 million increase in network services costs from CCUK, and (5) a $0.3 million increase in network services costs from CCAL. Costs of operations for site rental and broadcast transmission as a percentage of site rental and broadcast transmission revenues decreased to 38.5% for the six months ended June 30, 2002 from 42.8% for the six months ended June 30, 2001, because of higher margins attributable to incremental revenues from the CCUSA, CCUK, Crown Atlantic and CCAL operations. Costs of operations for network services and other as a percentage of network services and other revenues increased to 78.6% for the six months ended June 30, 2002 from 70.6% for the six months ended June 30, 2001 because of lower margins from the CCUSA operations, partially offset by higher margins from the CCUK and Crown Atlantic operations. General and administrative expenses for the six months ended June 30, 2002 were $50.5 million, a decrease of $5.8 million from the six months ended June 30, 2001. This decrease was primarily attributable to: (1) a $4.3 million decrease in expenses related to the CCUSA operations, (2) a $2.5 million decrease in expenses at Crown Atlantic, and (3) a $0.4 million decrease in expenses at CCAL, partially offset by (4) a $1.1 million increase in expenses at CCUK, and (5) a $0.3 million increase in expenses at our corporate office. The decreases in general and administrative expenses resulted primarily from lower staffing levels after the restructuring of our business announced in July 2001, partially offset by a charge of approximately $2.6 million for a bad debt provision at CCUK related to the ITV Digital liquidation (see "Item 5. Other Information"). General and administrative expenses as a percentage of revenues decreased to 11.3% for the six months ended June 30, 2002 from 12.7% for the six months ended June 30, 2001 because of lower overhead costs as a percentage of revenues for CCUSA, CCAL, CCUK and Crown Atlantic. Corporate development expenses for the six months ended June 30, 2002 were $4.0 million, compared to $7.2 million for the six months ended June 30, 2001. This decrease was primarily attributable to a decrease in expenses at our corporate office. For the six months ended June 30, 2002, we recorded cash charges of $3.7 million in connection with a restructuring of our CCUK business announced in March 2002. Such charges relate to staff redundancies and the disposition of certain service lines. We expect that the total charges reflected in our 2002 results of operations for this CCUK restructuring will be between approximately $7.0 million and $13.0 million. For the six months ended June 30, 2002, we also recorded cash charges of $2.5 million related primarily to additional employee severance payments at our corporate office in connection with the July 2001 restructuring. See "--Restructuring Charges and Asset Write-Down Charges". 25
During the six months ended June 30, 2002, we abandoned a portion of our construction in process related to certain open projects and recorded related asset write-down charges of $24.3 million for CCUSA and $8.0 million for Crown Atlantic. For the six months ended June 30, 2002, we also recorded asset write-down charges of $0.4 million for CCUK related to certain inventories and property and equipment. See "--Restructuring Charges and Asset Write-Down Charges". For the six months ended June 30, 2001, we recorded asset write-down charges of $12.3 million in connection with the July 2001 restructuring. Such non-cash charges related to write-downs of certain inventories, property and equipment, and other assets. For the six months ended June 30, 2002, we recorded non-cash general and administrative compensation charges of $2.6 million related to the issuance of stock and stock options to certain employees and executives, compared to $2.8 million for the six months ended June 30, 2001. Depreciation and amortization for the six months ended June 30, 2002 was $147.9 million, a decrease of $1.0 million from the six months ended June 30, 2001. This decrease was primarily attributable to: (1) a $30.1 million decrease in goodwill amortization resulting from the adoption of a new accounting standard for goodwill and other intangible assets, of which $4.9 million was attributable to CCUSA, $23.7 million was attributable to CCUK and $1.6 million was attributable to Crown Atlantic (see "--Impact of Recently Issued Accounting Standards"), partially offset by (2) a $7.8 million increase in depreciation related to property and equipment from CCUK, (3) a $17.3 million increase in depreciation related to property and equipment and amortization of other intangible assets from CCUSA, (4) a $1.9 million increase in depreciation related to property and equipment from CCAL, and (5) a $2.1 million increase in depreciation related to property and equipment from Crown Atlantic. Interest and other income (expense) for the six months ended June 30, 2002 resulted primarily from: (1) charges of approximately $12.0 million for the write-down of investments in unconsolidated affiliates, (2) our share of losses incurred by unconsolidated affiliates and (3) costs incurred in connection with unsuccessful network acquisitions, partially offset by (4) interest income and foreign exchange gains from invested cash balances. Interest expense and amortization of deferred financing costs for the six months ended June 30, 2002 was $152.7 million, an increase of $12.9 million, or 9.2%, from the six months ended June 30, 2001. This increase was primarily attributable to interest on indebtedness at CCUSA, CCUK and Crown Atlantic, and interest on the 9 3/8% senior notes. The provision for income taxes of $5.3 million for the six months ended June 30, 2002 consists primarily of a non-cash deferred tax liability recognized by CCUK. CCUK's deferred tax liability resulted from differences between book and tax basis for its property and equipment. Minority interests represent the minority partner's 43.1% interest in Crown Atlantic's operations, the minority partner's 17.8% interest in the operations of the GTE joint venture and the minority shareholder's 22.4% interest in the CCAL operations. 26
Liquidity and Capital Resources Our business strategy contemplates substantial capital expenditures, although reduced from previous years' levels, in connection with the selective expansion of our tower portfolios in the markets in which we currently operate. During the remainder of 2002 and continuing into 2003, we expect that the majority of our capital expenditures will occur at CCUK in connection with the development of the sites acquired from British Telecom. 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 and issuances of debt securities. 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 six months ended June 30, 2001 and 2002, our net cash provided by operating activities was $52.9 million and $70.0 million, respectively. For the six months ended June 30, 2001 and 2002, our net cash provided by (used for) financing activities was $1,088.8 million and $(18.4) million, respectively. For the remaining six months of 2002, we expect that our net cash provided by operating activities will be between approximately $90 million and $110 million. Capital expenditures were $199.3 million for the six months ended June 30, 2002, of which $0.3 million were for CCIC, $73.0 million were for CCUSA, $16.7 million were for Crown Atlantic, $105.1 million were for CCUK and $4.1 million were for CCAL. We anticipate that we will build, through the end of 2002, approximately 230 to 250 towers in the United States at a cost of approximately $88 million and approximately 400 to 430 towers in the United Kingdom at a cost of approximately $87 million. In addition, we were obligated to pay a site access fee to British Telecom in the amount of (Pounds)100.0 million ($152.5 million). In April 2002, we reached agreement with British Telecom to defer until March 2003 payment of (Pounds)50.0 million ($76.2 million) of the (Pounds)100.0 million originally due March 2002; the other (Pounds)50.0 million ($73.4 million) was paid in the second quarter of 2002. We also expect to spend approximately $60 million in the United States for tower improvements, including enhancements to the structural capacity of our domestic towers in order to support the anticipated leasing. For the remaining six months of 2002, we expect that our total capital expenditures will be between approximately $90 million and $110 million. As such, we expect that our capital expenditures for this period will be fully funded by net cash provided by operating activities, as discussed above. We expect that the execution of our new tower build program will have a material impact on our liquidity. We expect that once integrated, these new towers 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. Our decisions regarding the construction of new towers are discretionary, and depend upon expectations of achieving acceptable rates of return given current market conditions. Such decisions are influenced by the availability of capital and expected returns on alternative investments. We have increased our minimum acceptable level for internal rates of return on new tower builds given current market conditions, and may continue to decrease the number of new towers built in the future. To fund the execution of our business strategy, including the construction of new towers, we expect to use the net proceeds of our recent offerings and cash provided by operations. We do not currently expect to utilize further borrowings available under our U.S. and U.K. credit facilities in any significant amounts. 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. 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 27
forced to seek additional 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 June 30, 2002, we had consolidated cash and cash equivalents of $701.4 million (including $29.2 million at CCUSA, $111.3 million at CCUK, $47.9 million at Crown Atlantic, $13.9 million at CCAL, $353.6 million in an unrestricted investment subsidiary and $145.5 million at CCIC and a restricted investment subsidiary), consolidated liquid investments (consisting of marketable securities) of $144.0 million, consolidated long-term debt of $3,469.0 million, consolidated redeemable preferred stock of $898.6 million and consolidated stockholders' equity of $2,212.0 million. In June of 2002, we paid our quarterly dividend on the 81/4% Convertible Preferred Stock by issuing 900,000 shares of our common stock. As allowed by the Deposit Agreement relating to dividend payments on the 81/4% Convertible Preferred Stock, we then repurchased the 900,000 shares of common stock from the dividend paying agent for $4.0 million in cash. We utilized cash from an Unrestricted investment subsidiary to effect the stock repurchase. We may choose to continue such issuances and repurchases of stock in the future in order to avoid further dilution caused by the issuance of common stock as dividends on our preferred stock. In July of 2002, we repurchased 8.5 million shares of our common stock for $18.3 million in cash. The shares purchased by us represented all of the remaining shares previously owned by affiliates of France Telecom. The purchase was conducted through a privately negotiated transaction. We utilized cash from an Unrestricted investment subsidiary to effect the stock repurchase. We seek to allocate our available capital among the investment alternatives that provide the greatest returns given current market conditions. As such, we may continue to acquire sites, build new towers and make improvements to existing towers when the expected returns from such expenditures meet our investment criteria. In addition, we may utilize a portion of our available cash balances to repurchase our own stock (either common or preferred) or debt securities from time to time as market prices make such investments attractive. As of August 1, 2002, Crown Atlantic had unused borrowing availability under its amended credit facility of approximately $45.0 million. As of August 1, 2002, our restricted U.S. and Australian subsidiaries had approximately $435.6 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. The primary factors that determine our subsidiaries' ability to comply with their debt covenants are (1) their current financial performance (based on earnings before interest, taxes, depreciation and amortization, or "EBITDA"), (2) their levels of indebtedness and (3) their debt service requirements. Since we do not currently expect that our subsidiaries will need to utilize significant additional borrowings under their credit facilities, the primary risk of a debt covenant violation would result from a deterioration of a subsidiary's EBITDA performance. In addition, certain of the credit facilities will require that EBITDA increase in future years as covenant calculations become more restrictive. Should a covenant violation occur in the future as a result of a shortfall in EBITDA performance (or for any other reason), we might be required to make principal payments earlier than currently scheduled and may not have access to additional borrowings under these facilities as long as the covenant violation continues. Any such early principal payments would have to be made from our existing cash balances. In April 2002, ITV Digital ("ITVD") announced plans to liquidate its assets and returned its digital terrestrial television licenses to the UK Independent Television Commission (see "Item 5. Other Information"). The termination of the ITVD transmission contract is a Termination Event (a defined event of default) under the CCUK credit facility. We have entered into discussions with the banks in order to obtain an amendment to the CCUK credit facility such that the Termination Event would be cured. Based on these preliminary discussions, 28
we do not currently believe that we will be required to prepay the outstanding borrowings under the CCUK credit facility as a result of this event of default. However, there can be no assurance that such an amendment can be obtained. As a result, we have reclassified all the outstanding borrowings under the CCUK credit facility as current liabilities on our consolidated balance sheet as of June 30, 2002. If we are unable to obtain an amendment to the CCUK credit facility as discussed above, the uncured Termination Event would result in an event of default under the trust deed governing the CCUK bonds. As a result, we have also reclassified the principal amount of the CCUK bonds as a current liability on our consolidated balance sheet as of June 30, 2002. None of our other debt instruments, including the public debt securities and the two U.S. bank credit facilities, contain default provisions related to the ITVD transmission contract. Furthermore, none of these other debt instruments contain cross default provisions with either of the CCUK debt instruments. As such, the events of default under the two CCUK debt instruments do not constitute events of default under any of our other debt instruments. 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 91/2% senior notes, our 103/4% senior notes and our 9 3/8% senior notes require annual cash interest payments of approximately $16.2 million, $11.9 million, $53.8 million and $42.2 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 111/4% 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 111/4% 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 123/4% 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 ($17.2 million). In addition, our various credit facilities will require periodic interest payments on amounts borrowed thereunder, which amounts could be substantial. 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 111/4% 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 joint venture agreements with Bell Atlantic Mobile and GTE (both now part of Verizon Communications) provide that, upon dissolution of either venture, Verizon Communications will receive (1) the shares of our common stock contributed to the venture and (2) a payment equal to a percentage of the fair market value (at the dissolution date) of the venture's other net assets. As of June 30, 2002, such percentages would be approximately 24.1% for the Bell Atlantic Mobile venture and 11.0% for the GTE venture. The 24.1% payment for the Bell Atlantic Mobile venture could be paid either in cash or shares of our common stock, at our election. The 11.0% payment for the GTE venture could only be paid in cash. A dissolution of either venture may be triggered (1) by Verizon Communications at any time following the third anniversary of the formation of the applicable venture and (2) by us at any time following the fourth anniversary of such venture's formation (subject to certain penalties if prior to the seventh anniversary). Our joint venture with Bell Atlantic Mobile was formed on March 31, 1999, and our joint venture with GTE was formed on January 31, 2000. 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. In addition, our ability to refinance any indebtedness in the future would depend in part on our maintaining adequate credit ratings from the commercial rating agencies. Such credit ratings are dependent on all 29
the liquidity and performance factors discussed above, as well as general expectations that the rating agencies have regarding the outlook for our business and our industry. We anticipate that we may need to refinance a substantial 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. Restructuring Charges and Asset Write-Down Charges For the six months ended June 30, 2002, we recorded cash charges of $3.7 million in connection with a restructuring of our CCUK business announced in March 2002. Such charges relate to staff redundancies and the disposition of certain service lines. We expect that the total charges reflected in our 2002 results of operations for this CCUK restructuring will be between approximately $7.0 million and $13.0 million. For the six months ended June 30, 2002, we also recorded cash charges of $2.5 million related primarily to additional employee severance payments at our corporate office in connection with the July 2001 restructuring. During the six months ended June 30, 2002, we abandoned a portion of our construction in process related to certain open projects and recorded related asset write-down charges of $24.3 million for CCUSA and $8.0 million for Crown Atlantic. For the six months ended June 30, 2002, we also recorded asset write-down charges of $0.4 million for CCUK related to certain inventories and property and equipment. For the six months ended June 30, 2001, we recorded asset write-down charges of $12.3 million in connection with the July 2001 restructuring. Such non-cash charges related to write-downs of certain inventories ($3.8 million), property and equipment ($5.2 million), and other assets ($3.3 million) that were deemed to have no value as a result of the restructuring. Reporting Requirements Under the Indentures Governing the Company's Debt Securities (the "Indentures") and the Certificate of Designations Governing the Company's 123/4% 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 alternative measure of financial position, operating results or cash flow from operations (as determined in accordance with generally accepted accounting principles). Furthermore, our measure of the following information may not be comparable to similarly titled measures of other companies. 30
Summarized financial information for (1) CCIC and our Restricted Subsidiaries and (2) our Unrestricted Subsidiaries is as follows: June 30, 2002 ---------------------------------------------------- Company and Restricted Unrestricted Consolidation Consolidated Subsidiaries Subsidiaries Eliminations Total ------------ ------------ ------------- ------------ (In thousands of dollars) Cash and cash equivalents............... $ 188,590 $ 512,785 $ -- $ 701,375 Other current assets.................... 287,642 135,703 -- 423,345 Property and equipment, net............. 3,334,405 1,592,169 -- 4,926,574 Investments............................. 56,500 -- -- 56,500 Investments in Unrestricted Subsidiaries 2,117,542 -- (2,117,542) -- Goodwill................................ 164,023 876,260 -- 1,040,283 Other assets, net....................... 124,611 27,347 -- 151,958 ---------- ---------- ----------- ---------- $6,273,313 $3,144,264 $(2,117,542) $7,300,035 ========== ========== =========== ========== Current liabilities..................... $ 212,082 $ 524,571 $ -- $ 736,653 Long-term debt, less current maturities. 2,817,257 300,000 -- 3,117,257 Other liabilities....................... 38,063 126,895 -- 164,958 Minority interests...................... 95,255 75,256 -- 170,511 Redeemable preferred stock.............. 898,630 -- -- 898,630 Stockholders' equity.................... 2,212,026 2,117,542 (2,117,542) 2,212,026 ---------- ---------- ----------- ---------- $6,273,313 $3,144,264 $(2,117,542) $7,300,035 ========== ========== =========== ========== Three Months Ended June 30, 2002 Six Months Ended June 30, 2002 ------------------------------------- ------------------------------------- Company and Company and Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total ------------ ------------ ------------ ------------ ------------ ------------ (In thousands of dollars) Net revenues.................. $124,572 $100,959 $225,531 $ 246,820 $199,328 $ 446,148 Costs of operations (exclusive of depreciation and amortization)............... 60,027 51,766 111,793 116,594 100,990 217,584 General and administrative.... 21,304 7,428 28,732 39,588 10,932 50,520 Corporate development......... 1,733 -- 1,733 3,972 -- 3,972 Restructuring charges......... 96 4 100 2,222 3,730 5,952 Asset write-down charges...... 597 168 765 24,318 8,388 32,706 Non-cash general and administrative compensation charges........ 872 454 1,326 1,744 896 2,640 Depreciation and amortization................ 50,840 25,332 76,172 98,624 49,263 147,887 -------- -------- -------- --------- -------- --------- Operating income (loss)....... (10,897) 15,807 4,910 (40,242) 25,129 (15,113) Interest and other income (expense)................... (6,883) 10,723 3,840 (7,482) 5,232 (2,250) Interest expense and amortization of deferred financing costs............. (65,231) (11,157) (76,388) (129,348) (23,359) (152,707) Provision for income taxes.... (102) (582) (684) (190) (5,153) (5,343) Minority interests............ 1,032 (1,308) (276) 2,555 867 3,422 -------- -------- -------- --------- -------- --------- Net loss...................... $(82,081) $ 13,483 $(68,598) $(174,707) $ 2,716 $(171,991) ======== ======== ======== ========= ======== ========= 31
Tower Cash Flow and Adjusted Consolidated Cash Flow for CCIC and our Restricted Subsidiaries is as follows under (1) the indenture governing the 10 5/8% 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 111/4% Discount Notes, the 91/2% Senior Notes, the 103/4% Senior Notes and the 9 3/8% Senior Notes (the "1999, 2000 and 2001 Securities"): 1997 and 1998 1999, 2000 and 2001 Securities Securities ------------- ------------------- (In thousands of dollars) Tower Cash Flow, for the three months ended June 30, 2002............ $ 50,753 $ 50,753 ========= ========= Consolidated Cash Flow, for the twelve months ended June 30, 2002.... $ 174,585 $ 182,737 Less: Tower Cash Flow, for the twelve months ended June 30, 2002..... (185,198) (185,198) Plus: four times Tower Cash Flow, for the three months ended June 30, 2002............................................................... 203,012 203,012 --------- --------- Adjusted Consolidated Cash Flow, for the twelve months ended June 30, 2002............................................................... $ 192,399 $ 200,551 ========= ========= Impact of Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141"), and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 prohibits the use of the pooling-of-interests method of accounting for business combinations, and requires that the purchase method be used for all business combinations after June 30, 2001. SFAS 141 also changes the manner in which acquired intangible assets are identified and recognized apart from goodwill. Further, SFAS 141 requires additional disclosures regarding the reasons for business combinations, the allocation of the purchase price to recognized assets and liabilities and the recognition of goodwill and other intangible assets. We have used the purchase method of accounting since our inception, so the adoption of SFAS 141 will not change our method of accounting for business combinations. We have adopted the other recognition and disclosure requirements of SFAS 141 as of July 1, 2001 for any future business combinations. The transition provisions of SFAS 141 require that the carrying amounts for goodwill and other intangible assets acquired in prior purchase method business combinations be reviewed and reclassified in accordance with the new recognition rules; such reclassifications are to be made in conjunction with the adoption of SFAS 142. The application of these transition provisions of SFAS 141 as of January 1, 2002 resulted in a reclassification of other intangible assets with finite useful lives (the value of site rental contracts from the acquisition of Crown Communication) to deferred financing costs and other assets on our consolidated balance sheet. The gross carrying amount, accumulated amortization and net book value of such reclassified intangible assets were approximately $26.0 million, $11.5 million and $14.5 million at January 1, 2002, respectively, and $26.0 million, $12.2 million and $13.8 million at June 30, 2002, respectively. The net book value of these intangible assets will be amortized using a revised life of 10 years, resulting in amortization expense of approximately $1.5 million for each of the years ending December 31, 2002 through 2006. We have no other intangible assets from prior business combinations. SFAS 142 changes the accounting and disclosure requirements for acquired goodwill and other intangible assets. The most significant provision of SFAS 142 is that goodwill and other intangible assets with indefinite useful lives will no longer be amortized, but rather will be tested for impairment on an annual basis. This annual impairment test will involve (1) a step to identify potential impairment at a reporting unit level based on fair values, and (2) a step to measure the amount of the impairment, if any. Intangible assets with finite useful lives will continue to be amortized over such lives, and tested for impairment in accordance with our existing policies. SFAS 142 requires disclosures about goodwill and other intangible assets in the periods subsequent to their acquisition, including (1) changes in the carrying amount of goodwill, in total and by operating segment, (2) the carrying amounts of intangible assets subject to amortization and those which are not subject to amortization, 32
(3) information about impairment losses recognized, and (4) the estimated amount of intangible asset amortization expense for the next five years. The provisions of SFAS 142 are effective for fiscal years beginning after December 15, 2001. In addition, the nonamortization provisions of SFAS 142 were to be immediately applied for goodwill and other intangible assets acquired in business combinations subsequent to June 30, 2001. We have adopted the requirements of SFAS 142 as of January 1, 2002. SFAS 142 requires that transitional impairment tests be performed at its adoption, and provides that resulting impairment losses for goodwill and other intangible assets with indefinite useful lives be reported as the effect of a change in accounting principle. We have completed our transitional impairment tests and have determined that no impairment losses for goodwill and other intangible assets will be recorded as a result of the adoption of SFAS 142. We expect that our depreciation and amortization expense will decrease by approximately $60.6 million per year as a result of the adoption of SFAS 142. If amortization of goodwill had not been recorded, and if amortization of other intangible assets had been recorded using the revised life, our net loss and loss per share for the three and six months ended June 30, 2001 would have been $69.4 million ($0.42 per share) and $122.1 million ($0.76 per share), respectively. 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. A fluctuation in market interest rates of one percentage point in 2002 would impact our interest expense by approximately $10.2 million. As of June 30, 2002, we have approximately $1,165.4 million of floating rate indebtedness, of which approximately $150.0 million has been effectively converted to fixed rate indebtedness through the use of interest rate swap agreements. 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 currencies, 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. 33
PART II-- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of the stockholders of the Company was held on May 29, 2002, at which meeting the stockholders voted to elect Dale N. Hatfield, Lee W. Hogan and Robert F. McKenzie as Class I Directors and ratified the appointment of KPMG LLP as independent public accountants for 2002. The voting results for each proposal submitted to a vote is listed below. Election of Class I Directors Dale N. Hatfield--184,499,212 votes for and 1,225,890 votes withheld. Lee W. Hogan--185,127,206 votes for and 597,896 votes withheld. Robert F. McKenzie--183,159,452 votes for and 2,565,650 votes withheld. Ratification of Appointment of KPMG LLP as Independent Auditors for 2002 184,090,930 votes for, 1,598,600 votes against and 35,572 votes abstaining. The holders of the Company's 8 1/4% Convertible Preferred Stock were entitled to vote on an as converted basis on each of the proposals with the common stock, voting as a single class, and such votes are included in the voting results of the common stock set forth for each of the proposals above. ITEM 5. OTHER INFORMATION From 1999 to March 2002, pursuant to a digital transmission contract with an original term of twelve years, CCUK was responsible for the transmission of the ITV Digital ("ITVD") signal through the CCUK-owned digital terrestrial television ("DTT") network to approximately 1.2 million subscribers in the U.K. In April 2002, after a U.K. court approved an application by ITVD to be placed into administration (similar to a Chapter 11 bankruptcy proceeding in the United States) and unsuccessful efforts by the administrator to sell the ITVD business as a going concern, ITVD announced plans to liquidate its assets and returned its DTT licenses to the UK Independent Television Commission ("ITC"). CCUK had gross revenues of approximately $27.6 million annually under the ITVD transmission contract. ITVD represented approximately 12% of the 2001 gross revenues of CCUK and approximately 3% of the 2001 consolidated gross revenues of the Company. Following the return of the licenses by ITVD, the ITC announced a process for reawarding the three digital multiplex licenses which ITVD previously held. In June 2002, CCUK and the BBC submitted linked applications for these licenses. On July 4, 2002, the ITC conditionally awarded the license for one multiplex to the BBC and the license for two multiplexes to CCUK. No license fees were paid to the UK government with respect to the award of the multiplex licenses other than an approximately $38,000 application fee per multiplex. CCUK has entered into a preliminary agreement with the BBC to provide a transmission and distribution service for the multiplex awarded to the BBC. CCUK has also entered into a preliminary agreement with BSkyB to provide a transmission, distribution and multiplexing service in relation to 75% of the available capacity of one of the multiplexes awarded to CCUK. CCUK expects to enter into additional agreements to provide transmission, distribution and multiplexing services to channel providers for the other multiplex capacity awarded to CCUK. Starting in the first quarter of 2003, CCUK expects to generate annual revenues from the BBC, BSkyB and other broadcasters of between approximately $26 million and $30 million from the provision of transmission, distribution and multiplexing services related to the new multiplex licenses. 34
CCUK has already invested, as a result of its previous contract with ITVD, substantially all of the capital required to provide the services described above. CCUK expects to invest approximately an additional $3 million to increase the power of the transmission network at a number of sites. CCUK is already incurring, again by virtue of its previous contract with ITVD, substantially all of the operating costs required to provide these services (including payments to British Telecom for distribution circuits and payments to NTL for site rental). In total, CCUK is incurring annual operating expenses of between approximately $20 million and $23 million from the provision of transmission, distribution and multiplexing services to the BBC, BSkyB and other broadcasters related to the new multiplex licenses. The termination of the ITVD transmission contract is a Termination Event (a defined event of default) under the CCUK credit facility. We have entered into discussions with the banks in order to obtain an amendment to the CCUK credit facility such that the Termination Event would be cured. Based on these preliminary discussions, we do not currently believe that we will be required to prepay the outstanding borrowings under the CCUK credit facility as a result of this event of default. However, there can be no assurance that such an amendment can be obtained. As a result, we have reclassified all the outstanding borrowings under the CCUK credit facility as current liabilities on our consolidated balance sheet as of June 30, 2002. If we are unable to obtain an amendment to the CCUK credit facility as discussed above, the uncured Termination Event would result in an event of default under the trust deed governing the CCUK bonds. As a result, we have also reclassified the principal amount of the CCUK bonds as a current liability on our consolidated balance sheet as of June 30, 2002. None of our other debt instruments, including the public debt securities and the two U.S. bank credit facilities, contain default provisions related to the ITVD transmission contract. Furthermore, none of these other debt instruments contain cross default provisions with either of the CCUK debt instruments. As such, the events of default under the two CCUK debt instruments do not constitute events of default under any of our other debt instruments. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 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 (b) Reports on Form 8-K: The Registrant filed a Current Report on Form 8-K dated May 1, 2002 with the SEC on May 3, 2002 furnishing under Item 9 further details and a press release dated May 1, 2002 regarding the potential impact on its U.K. subsidiary, Crown Castle UK Limited, of liquidation plans of ITVdigital. The Registrant filed a Current Report on Form 8-K dated May 9, 2002 with the SEC on May 15, 2002 furnishing under Item 9 revised guidance through 2004 as disclosed in a press release dated May 9, 2002 setting forth the Registrant's financial results for the first quarter 2002. 35
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: August 13, 2002 By: /s/ W. BENJAMIN MORELAND ------------------------------------- W. Benjamin Moreland Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Date: August 13, 2002 By: /s/ WESLEY D. CUNNINGHAM --------------------------------------- Wesley D. Cunningham Senior Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer) Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of Crown Castle International Corp., a Delaware Corporation (the "Company"), for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of such officer's knowledge: 1) the Report complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of June 30, 2002 (the last date of the period covered by the Report). /s/ JOHN P. KELLY ----------------------------- John P. Kelly President and Chief Executive Officer August 13, 2002 /s/ W. BENJAMIN MORELAND ----------------------------- W. Benjamin Moreland Senior Vice President, Chief Financial Officer and Treasurer August 13, 2002 36
EXHIBIT 11.1 CROWN CASTLE INTERNATIONAL CORP. COMPUTATION OF NET LOSS PER COMMON SHARE (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, -------------------- --------------------- 2001 2002 2001 2002 -------- -------- -------- --------- Net loss.......................................... $ (84,733) $ (68,598) $(152,788) $(171,991) Dividends on preferred stock.................. (20,265) (20,861) (39,770) (40,966) --------- --------- --------- --------- Net loss applicable to common stock for basic and diluted computations..................... $(104,998) $ (89,459) $(192,558) $(212,957) ========= ========= ========= ========= Weighted-average number of common shares outstanding during the period for basic and diluted computations (in thousands).......... 214,059 220,897 212,627 220,159 ========= ========= ========= ========= Loss per common share - basic and diluted.... $ (0.49) $ (0.41) $ (0.91) $ (0.97) ========= ========= ======== =========
EXHIBIT 12.1 CROWN CASTLE INTERNATIONAL CORP. COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (DOLLARS IN THOUSANDS) SIX MONTHS ENDED JUNE 30, -------------------- 2001 2002 ---- ---- Computation of Earnings: Income (loss) before income taxes and minority interests $(153,591) $(170,070) Add: Fixed charges (as computed below) 155,180 168,725 --------- --------- $ 1,589 $ (1,345) ========= ========= Computation of Fixed Charges and Combined Fixed Charges and Preferred Stock Dividends: Interest expense $ 94,952 $ 103,510 Amortization of deferred financing costs and discounts on long-term debt 44,878 49,197 Interest component of operating lease expense 15,350 16,018 -------- --------- Fixed charges 155,180 168,725 Preferred stock dividends 39,770 40,966 --------- --------- Combined fixed charges and preferred stock dividends $ 194,950 $ 209,691 ========= ========= Ratio of Earnings to Fixed Charges -- -- ========= ========= Deficiency of Earnings to Cover Fixed Charges $ 153,591 $ 170,070 ========= ========= Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends -- -- ========= ========= Deficiency of Earnings to Cover Combined Fixed Charges and Preferred Stock Dividends $ 193,361 $ 211,036 ========= =========