<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
-----------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File Number 333-43873
-----------------------
CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0470458
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
510 BERING DRIVE 77057
SUITE 500 (Zip Code)
HOUSTON, TEXAS
(Address of principal executive offices)
(713) 570-3000
(Registrant's telephone number, including area code)
-----------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Number of shares of common stock outstanding at August 1, 1998:
Class A Common Stock - 1,041,565
Class B Common Stock - 19,026,790
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<PAGE>
CROWN CASTLE INTERNATIONAL CORP.
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 1997 and June 30, 1998....... 3
Consolidated Statement of Operations and Comprehensive Loss for the
three and six months ended June 30, 1997 and 1998..................... 4
Consolidated Statement of Cash Flows for the six months ended
June 30, 1997 and 1998................................................ 5
Condensed Notes to Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.............. 18
Item 6. Exhibits and Reports on Form 8-K................................. 18
Signatures................................................................ 19
2
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------- --------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 55,078 $ 51,258
Receivables:
Trade, net of allowance for doubtful accounts of $177 and $212 at December 31,
1997 and June 30, 1998, respectively 9,264 10,150
Other 811 1,390
Inventories 1,322 1,233
Prepaid expenses and other current assets 681 1,350
-------- --------
Total current assets 67,156 65,381
Property and equipment, net of accumulated depreciation of $4,852 and $7,882 at
December 31, 1997 and June 30, 1998, respectively 81,968 131,492
Investments in affiliates 59,082 61,432
Goodwill and other intangible assets, net of accumulated amortization of $3,997 and
$8,574 at December 31, 1997 and June 30, 1998, respectively 152,541 148,336
Deferred financing costs and other assets, net of accumulated amortization of $743
and $1,134 at December 31, 1997 and June 30, 1998, respectively 10,644 12,189
-------- --------
$371,391 $418,830
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,760 $ 6,311
Accrued compensation and related benefits 1,792 847
Other accrued liabilities 2,398 2,379
-------- --------
Total current liabilities 11,950 9,537
Long-term debt 156,293 216,869
Other liabilities 607 822
-------- --------
Total liabilities 168,850 227,228
-------- --------
Commitments and contingencies
Redeemable preferred stock, $.01 par value; 6,435,228 shares authorized:
Senior Convertible Preferred Stock; 657,495 shares issued (stated at redemption
value; aggregate liquidation value of $68,916 and $74,866, respectively) 67,948 72,080
Series A Convertible Preferred Stock; 1,383,333 shares issued (stated at redemption
and aggregate liquidation value) 8,300 8,300
Series B Convertible Preferred Stock; 864,568 shares issued (stated at redemption
and aggregate liquidation value) 10,375 10,375
Series C Convertible Preferred Stock; 3,529,832 shares issued (stated at redemption
and aggregate liquidation value) 74,126 74,126
-------- --------
Total redeemable preferred stock 160,749 164,881
-------- --------
Stockholders' equity:
Common stock, $.01 par value; 12,800,000 shares authorized:
Class A Common Stock; 1,041,565 shares issued 2 2
Class B Common Stock; 9,367,165 shares issued 19 19
Additional paid-in capital 58,248 58,584
Cumulative foreign currency translation adjustment 562 2,319
Accumulated deficit (17,039) (34,203)
-------- --------
Total stockholders' equity 41,792 26,721
-------- --------
$371,391 $418,830
======== ========
</TABLE>
See condensed notes to consolidated financial statements.
3
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1998 1997 1998
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net revenues:
Site rental $ 1,674 $ 5,387 $ 3,341 $ 10,448
Network services and other 3,097 6,143 3,424 12,919
------- ------- ------- --------
4,771 11,530 6,765 23,367
------- ------- ------- --------
Operating expenses:
Costs of operations (exclusive of depreciation and
amortization):
Site rental 347 1,246 605 2,418
Network services and other 2,166 2,734 2,171 7,155
General and administrative 980 4,965 1,491 8,768
Corporate development 1,677 691 3,782 2,022
Depreciation and amortization 522 4,091 930 7,695
------- ------- ------- --------
5,692 13,727 8,979 28,058
------- ------- ------- --------
Operating loss (921) (2,197) (2,214) (4,691)
Other income (expense):
Equity in earnings (losses) of unconsolidated
affiliate (418) 624 (221) 525
Interest and other income 207 664 1,508 1,370
Interest expense and amortization of deferred
financing costs (570) (5,321) (1,196) (10,027)
------- ------- ------- --------
Loss before income taxes (1,702) (6,230) (2,123) (12,823)
Provision for income taxes (4) (196) (26) (209)
------- ------- ------- --------
Net loss (1,706) (6,426) (2,149) (13,032)
Dividends on Senior Convertible Preferred Stock - (2,077) - (4,132)
------- ------- ------- --------
Net loss after deduction of dividends on Senior
Convertible Preferred Stock $(1,706) $(8,503) $(2,149) $(17,164)
======= ======= ======= ========
Net loss $(1,706) $(8,503) $(2,149) $(17,164)
Other comprehensive income:
Foreign currency translation adjustments 693 1,086 1,078 1,757
------- ------- ------- --------
Comprehensive loss $(1,013) $(7,417) $(1,071) $(15,407)
======= ======= ======= ========
Loss per common share - basic and diluted $(0.51) $(0.78) $(0.64) $(1.57)
======= ======= ======= ========
Common shares outstanding - basic and diluted (in
thousands) 3,362 10,954 3,381 10,954
======= ======= ======= ========
</TABLE>
See condensed notes to consolidated financial statements.
4
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,149) $(13,032)
Adjustments to reconcile net loss to net cash provided by (used for) operating
activities:
Amortization of deferred financing costs and discount on long-term debt 67 8,538
Depreciation and amortization 930 7,695
Equity in losses (earnings) of unconsolidated affiliate 221 (525)
Changes in assets and liabilities, excluding the effects of acquisitions:
Increase (decrease) in other liabilities (212) 411
Decrease in accounts payable (2,109) (1,449)
Decrease (increase) in receivables 4,134 (1,465)
Increase in inventories, prepaid expenses and other assets (421) (2,145)
Decrease in accrued interest (65) -
-------- --------
Net cash provided by (used for) operating activities 396 (1,972)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (918) (52,752)
Investments in affiliates (59,482) -
Acquisition of business, net of cash acquired (6,094) -
-------- --------
Net cash used for investing activities (66,494) (52,752)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreements 1,920 52,550
Incurrence of financing costs (553) (1,646)
Proceeds from issuance of capital stock 74,183 -
Principal payments on long-term debt (2,441) -
Purchase of capital stock (2,132) -
-------- --------
Net cash provided by financing activities 70,977 50,904
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,879 (3,820)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,343 55,078
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,222 $ 51,258
======== ========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of stockholder's Convertible Secured Subordinated Notes to Series $ 3,657 $ -
A Convertible Preferred Stock
Amounts recorded in connection with acquisition:
Fair value of net assets acquired, including goodwill 10,216 -
Issuance of long-term debt 1,872 -
Issuance of Class B Common Stock 2,250 -
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,179 $ 1,464
Income taxes paid 9 249
</TABLE>
See condensed notes to consolidated financial statements.
5
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements for the fiscal year ended December 31, 1997,
and related notes thereto, included in the Registration Statement on Form S-1,
as amended (Reg. No. 333-57283), 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, 1998, the
consolidated results of operations for the three and six months ended June 30,
1997 and 1998 and consolidated cash flows for the six months ended June 30, 1997
and 1998. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the entire year.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, Earnings per Share
("SFAS 128"). SFAS 128 establishes new standards for computing and presenting
earnings per share ("EPS") amounts for companies with publicly held common stock
or potential common stock. The new standards require the presentation of both
basic and diluted EPS amounts for companies with complex capital structures.
Basic EPS is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period, and
excludes the effect of potentially dilutive securities (such as options,
warrants and convertible securities) which are convertible into common stock.
Dilutive EPS reflects the potential dilution from such convertible securities.
SFAS 128 is effective for periods ending after December 15, 1997. The Company
has adopted the requirements of SFAS 128 in its financial statements for the
year ended December 31, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income in a company's
financial statements. Comprehensive income includes all changes in a company's
equity accounts (including net income or loss) except investments by, or
distributions to, the company's owners. Items which are components of
comprehensive income (other than net income or loss) include foreign currency
translation adjustments, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. The
components of comprehensive income must be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
130 is effective for fiscal years beginning after December 15, 1997. The Company
has adopted the requirements of SFAS 130 in its financial statements for the
three months ended March 31, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the way that public companies
report, in their annual financial statements, certain information about their
operating segments, their products and services, the geographic areas in which
they operate and their major customers. SFAS 131 also requires that certain
information about operating segments be reported in interim financial
statements. SFAS 131 is effective for periods beginning after December 15, 1997.
The Company will adopt the requirements of SFAS 131 in its financial statements
for the year ending December 31, 1998.
6
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and broadly
defines such costs. The Company has deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 will require that such deferred costs be charged to results of
operations upon its adoption. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998. The Company will adopt the requirements of SOP 98-5 as
of January 1, 1999. The cumulative effect of the change in accounting principle
for the adoption of SOP 98-5 will result in a charge to results of operations in
the Company's financial statements for the three months ended March 31, 1999; it
is currently estimated that such charge will amount to approximately $2,000,000.
2. ACQUISITIONS
On May 12, 1997, the Company acquired all of the common stock of TEA Group
Incorporated and TeleStructures, Inc. (collectively, "TEA"). On August 15,
1997, the Company acquired (i) substantially all of the assets, net of
outstanding liabilities, of Crown Communications ("CCM") and (ii) all of the
outstanding common stock of Crown Network Systems, Inc. ("CNS") and Crown Mobile
Systems, Inc. ("CMS") (collectively, "Crown"). These business acquisitions were
accounted for using the purchase method. Results of operations and cash flows
of the acquired businesses are included in the consolidated financial statements
for the periods subsequent to the respective dates of acquisition. On a pro
forma basis as if the TEA and Crown acquisitions and the investment in Castle
Transmission Services (Holdings) Ltd ("CTI") had been consummated as of January
1, 1997, the Company had consolidated net revenues and a consolidated net loss
for the six months ended June 30, 1997 of $30,362,000 and $4,487,000 (a loss of
$0.41 per common share), respectively. Such pro forma results reflect
appropriate adjustments for depreciation and amortization, interest expense,
amortization of deferred financing costs, income taxes and certain nonrecurring
income and expenses recorded by the Company in connection with the investment in
CTI. The pro forma information does not necessarily reflect the actual results
that would have been achieved, not is it necessarily indicative of future
consolidated results for the Company.
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ --------
(In thousands of
dollars)
<S> <C> <C>
Senior Credit Facility $ 4,700 $ 57,250
10 5/8% Senior Discount Notes due 2007, net of discount 151,593 159,619
-------- --------
$156,293 $216,869
======== ========
</TABLE>
Reporting Requirements Under the Indenture Governing the 10 5/8% Senior
Discount Notes due 2007 (the "Indenture")
As of June 30, 1998, the Company does not have any Unrestricted
Subsidiaries (as defined in the Indenture). The following information (as such
capitalized terms are defined in the Indenture) is presented solely for the
purpose of measuring compliance with respect to the terms of the Indenture; such
information is not intended as an alternative measure of 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.
7
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
(In
thousands
of dollars)
--------
<S> <C>
Tower Cash Flow, for the three months ended June 30, 1998 $ 3,792
========
Consolidated Cash Flow, for the twelve months ended June 30, 1998 $ 9,240
Less: Tower Cash Flow, for the twelve months ended June 30, 1998 (14,212)
Plus: four times Tower Cash Flow, for the three months ended June 30, 1998 15,168
--------
Adjusted Consolidated Cash Flow, for the twelve months ended June 30, 1998 $ 10,196
========
</TABLE>
4. PER SHARE INFORMATION
Per share information is based on the weighted-average number of common
shares outstanding during each period for the basic computation and, if
dilutive, the weighted-average number of potential common shares resulting from
the assumed conversion of outstanding stock options, warrants and convertible
preferred stock for the diluted computation.
A reconciliation of the numerators and denominators of the basic and
diluted per share computations is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1997 1998 1997 1998
------- ------- ------- --------
<S> <C> <C> <C> <C>
(In thousands of dollars, except per share amounts)
Net loss $(1,706) $(6,426) $(2,149) $(13,032)
Dividends on Senior Convertible Preferred
Stock - (2,077) - (4,132)
------- ------- ------- --------
Net loss applicable to common stock for basic $(1,706) $(8,503) $(2,149) $(17,164)
and diluted computations ======= ======= ======= ========
Weighted-average number of common shares
outstanding during the period for basic and
diluted computations (in thousands) 3,362 10,954 3,381 10,954
======= ======= ======= ========
Loss per common share - basic and diluted $ (0.51) $ (0.78) $ (0.64) $ (1.57)
======= ======= ======= ========
</TABLE>
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of June 30, 1998: (i) options
to purchase 5,280,510 shares of common stock at exercise prices ranging from
$.40 to $7.50 per share; (ii) warrants to purchase 1,314,990 shares of common
stock at an exercise price of $7.50 per share; (iii) shares of Senior
Convertible Preferred Stock which are convertible into 9,600,430 shares of
common stock; and (iv) shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Series C Convertible Preferred Stock which are
convertible into 28,888,665 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.
5. 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
8
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
6. SUBSEQUENT EVENTS
On April 24, 1998, the Company entered into a share exchange agreement with
certain shareholders of CTI pursuant to which certain of CTI's shareholders have
agreed to exchange their shares of CTI for shares of the Company. Upon the
consummation of the exchange, the Company's ownership of CTI will increase from
approximately 34.3% to approximately 80%. Consummation of the share exchange is
subject to a number of significant conditions, including certain third party
consents and the consummation of an initial public offering of common stock by
the Company.
In connection with the share exchange, the Company intends to offer shares
of its common stock in an underwritten initial public offering during the summer
of 1998. On June 19, 1998, a registration statement in respect of such initial
public offering was filed with the Securities and Exchange Commission (as
amended, the "Registration Statement") and any securities offered in such
initial public offering will only be offered by means of a prospectus forming a
part of such Registration Statement.
In anticipation of such initial public offering, the Company (i) amended
and restated the 1995 Stock Option Plan to, among other things, authorize the
issuance of up to 18,000,000 shares of common stock pursuant to awards made
thereunder and (ii) approved an amendment to its certificate of incorporation to
increase the number of authorized shares of common and preferred stock to
690,000,000 shares and 10,000,000 shares, respectively, and to effect a
five-for-one stock split for the shares of common stock then outstanding. The
effect of the stock split has been presented retroactively in the Company's
consolidated financial statements for all periods presented.
During the period from April 24, 1998 through July 15, 1998, the Company
granted options to employees and executives for the purchase of 3,236,980 shares
of its common stock at an exercise price of $7.50 per share. Of such options,
options for 1,810,730 shares will vest upon consummation of the initial public
offering and the remaining options for 1,426,250 shares will vest at 20% per
year over five years, beginning one year from the date of grant. In addition,
the Company has assigned its right to repurchase shares of its common stock from
a stockholder (at a price of $6.26 per share) to two individuals (including an
expected director nominee) with respect to 100,000 of such shares. Since the
granting of these options and the assignment of these rights to repurchase
shares occurred subsequent to the date of the share exchange agreement with
CTI's shareholders and at prices substantially below the expected price to the
public in the initial public offering, the Company will record a non-cash
compensation charge related to these options and shares based upon the
difference between the respective exercise and purchase prices and the price to
the public in the initial public offering. Such compensation charge will total
approximately $35.1 million, of which approximately $20.2 million will be
recognized upon consummation of the initial public offering (for such options
and shares which vest upon consummation of the initial public offering), and the
remaining $14.9 million will be recognized over five years (approximately $3.0
million per year) through the second quarter of 2003.
In July 1998, all of the holders of the Company's Senior Convertible
Preferred Stock converted such shares into an aggregate of 9,629,200 shares of
the Company's common stock.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the
Company's consolidated financial condition as of June 30, 1998 and its results
of operations for the three- and six-month periods ended June 30, 1997 and 1998.
The statements in this discussion regarding the industry outlook, the Company's
expectations regarding the future performance of its businesses, and the other
nonhistorical statements in this discussion are forward-looking statements.
These forward-looking statements are subject to numerous risks and
uncertainties, including but not limited to the uncertainties relating to
capital expenditures decisions to be made in the future by wireless
communications carriers and broadcasters and the risks and uncertainties
described in "Risk Factors" in the Company's Registration Statement on Form S-1,
as amended (Reg. No. 333-57283) (the "Registration Statement") filed with the
Securities and Exchange Commission. This discussion should be read in
conjunction with the response to Part I, Item 1 of this report and the
consolidated financial statements of the Company, including the notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Registration Statement. Any capitalized terms used
but not defined in this Item have the same meaning given to them in the
Registration Statement.
RESULTS OF OPERATIONS
In May 1997, the Company consummated the TEA Acquisition and the
TeleStructures Acquisition. In August 1997, the Company consummated the Crown
Merger. Results of operations of these acquired businesses are included in the
Company's consolidated financial statements for the periods subsequent to the
respective dates of acquisition. As such, the Company's results of operations
for the three and six months ended June 30, 1997 are not comparable to the
results of operations for the three and six months ended June 30, 1998.
Discussion of Three Months Ended June 30, 1998 and March 31, 1998
As discussed above, the historical financial statements included elsewhere
herein do not reflect the results of operations of the businesses of CCIC and
Crown (the "Businesses") on an aggregate basis for all of the periods presented.
As a result, management believes that the historical financial statements
included elsewhere herein do not, by themselves, provide investors with
sufficient information to adequately assess the recent trends of the Businesses.
The Company is providing the following discussion of the last two quarters'
results of operations, therefore, to supplement the historical financial
information included elsewhere herein to assist investors in evaluating the
Businesses' historical results of operations.
Consolidated site rental revenues for the three months ended June 30, 1998
were $5.4 million, an increase of 6.4% from the three months ended March 31,
1998. This increase was primarily attributable to the addition of 34 owned and
managed tower sites between March 31, 1998 and June 30, 1998. Included in these
34 additional sites are 5 towers acquired, and 2 towers constructed pursuant to
the Nextel Agreement and 13 towers constructed in the greater Pittsburgh area.
The Company also installed antennae for 23 new tenants on existing towers during
the second quarter of 1998.
Consolidated network services and other revenues for the three months ended
June 30, 1998 were $6.1 million, a decrease of 9.3% from the three months ended
March 31, 1998. This decrease was primarily attributable to lower network
services revenues from TEA, partially offset by an increase in the number of
completed tenant antennae installations. The Company completed 58 such
installations during the second quarter of 1998, as compared to 48 during the
first quarter of 1998. The Company expects demand for third-party site
acquisition services to continue to decline. In addition, demand for the
Company's network services fluctuates from period to period and within periods.
These fluctuations are caused by a number of factors, including the timing of
customers' capital expenditures, annual budgetary considerations of customers,
the rate and volume of wireless communications carriers' tower build-outs,
timing of existing customer contracts and general economic conditions. While
such demand fluctuates, the Company must incur certain costs, such as
maintaining a staff of network services employees in anticipation of future
contracts, even when there may be no current business. Consequently, the
operating results of the Company's network services businesses for any
10
<PAGE>
particular period may vary significantly, and should not be considered as
necessarily being indicative of longer-term results.
Costs of operations for site rental for the three months ended June 30,
1998 were $1.2 million, an increase of 6.3% from the three months ended March
31, 1998. This increase was primarily attributable to the additional owned and
managed towers discussed above. As a percentage of site rental revenues, such
costs were 23.1% for the second quarter of 1998 as compared to 23.2% for the
first quarter of 1998. Costs of operations for network services for the three
months ended June 30, 1998 were $2.7 million, a decrease of 38.2% from the three
months ended March 31, 1998. As a percentage of network services revenues, such
costs decreased to 44.5% for the second quarter of 1998 as compared to 65.2% for
the first quarter of 1998. A larger proportion of the tenant antennae
installations in the second quarter were on the Company's owned towers (as
opposed to managed or third party towers) as compared to the first quarter,
resulting in higher margins from those installations.
General and administrative expenses for the three months ended June 30,
1998 were $5.0 million, an increase of 30.6% from the three months ended March
31, 1998. This increase was primarily attributable to higher personnel and
overhead costs associated with the hiring of new employees. The Company has been
increasing the size of its workforce in order to be positioned to take advantage
of new business opportunities.
Corporate development expenses for the three months ended June 30, 1998
were $0.7 million, a decrease of 48.1% from the three months ended March 31,
1998. Corporate development expenses for the three months ended March 31, 1998
include discretionary bonuses related to the Company's performance totaling
approximately $0.8 million for certain members of the Company's management.
Discussion of Historical Operations
The following information is derived from the Company's Consolidated
Statements of Operations for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998
----------------------- ----------------------- ----------------------- -----------------------
Percent of Percent of Percent of Percent of
Amount Net Revenues Amount Net Revenues Amount Net Revenues Amount Net Revenues
------- ------------ ------- ------------ ------- ------------ -------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Site rental $ 1,674 35.1% $ 5,387 46.7% $ 3,341 49.4% $ 10,448 44.7%
Network services and other 3,097 64.9 6,143 53.3 3,424 50.6 12,919 55.3
------- ----- ------- ----- ------- ----- -------- -----
Total net revenues 4,771 100.0 11,530 100.0 6,765 100.0 23,367 100.0
------- ----- ------- ----- ------- ----- -------- -----
Operating expenses:
Costs of operations:
Site rental 347 20.7 1,246 23.1 605 18.1 2,418 23.1
Network services and other 2,166 69.9 2,734 44.5 2,171 63.4 7,155 55.4
------- ------- ------- --------
Total costs of operations 2,513 52.7 3,980 34.5 2,776 41.0 9,573 41.0
General and administrative 980 20.5 4,965 43.1 1,491 22.0 8,768 37.5
Corporate development 1,677 35.2 691 6.0 3,782 55.9 2,022 8.7
Depreciation and amortization 522 10.9 4,091 35.5 930 13.8 7,695 32.9
------- ----- ------- ----- ------- ----- -------- -----
Operating loss (921) (19.3) (2,197) (19.1) (2,214) (32.7) (4,691) (20.1)
Other income (expense):
Equity in earnings (losses)
of unconsolidated affiliate (418) (8.8) 624 5.4 (221) (3.3) 525 2.2
Interest and other income 207 4.3 664 5.8 1,508 22.3 1,370 5.9
Interest expense and
amortization of deferred
financing costs (570) (11.9) (5,321) (46.1) (1,196) (17.7) (10,027) (42.9)
------- ----- ------- ----- ------- ----- -------- -----
Loss before income taxes (1,702) (35.7) (6,230) (54.0) (2,123) (31.4) (12,823) (54.9)
Provision for income taxes (4) (0.1) (196) (1.7) (26) (0.4) (209) (0.9)
------- ----- ------- ----- ------- ----- -------- -----
Net loss $(1,706) (35.8)% $(6,426) (55.7)% $(2,149) (31.8)% $(13,032) (55.8)%
======= ===== ======= ===== ======= ===== ======== =====
</TABLE>
Comparison of Three Months Ended June 30, 1998 and 1997
Consolidated revenues for the three months ended June 30, 1998 were $11.5
million, an increase of $6.8 million from the three months ended June 30, 1997.
This increase was primarily attributable to (i) a $3.7 million, or 221.8%,
increase in site rental revenues which was primarily attributable to the Crown
operations; and (ii) $3.5 million in network services revenues from the Crown
operations, partially offset by a decrease in network services revenues from
TEA.
11
<PAGE>
Costs of operations for the three months ended June 30, 1998 were $4.0
million, an increase of $1.5 million from the three months ended June 30, 1997.
This increase was primarily attributable to (i) $1.7 million of network services
costs related to the Crown operations and (ii) $0.9 million in site rental costs
attributable to the Crown operations, partially offset by a decrease in network
services costs from TEA. Costs of operations for site rental as a percentage of
site rental revenues increased to 23.1% for the three months ended June 30, 1998
from 20.7% for the three months ended June 30, 1997 because of higher costs
attributable to the Crown operations. Costs of operations for network services
as a percentage of network services revenues decreased to 44.5% for the three
months ended June 30, 1998 from 69.9% for the three months ended June 30, 1997,
reflecting higher margins that are inherent in the network services business
acquired with the Crown operations in August 1997 as compared to that acquired
with the TEA operations in May 1997.
General and administrative expenses for the three months ended June 30,
1998 were $5.0 million, an increase of $4.0 million from the three months ended
June 30, 1997. This increase was primarily attributable to $2.7 million of
expenses related to the Crown operations and $0.2 million of expenses related to
the TEA operations, along with an increase in costs of $0.8 million at the
Company's corporate office. General and administrative expenses as a percentage
of revenues increased for the three months ended June 30, 1998 to 43.1% from
20.5% for the three months ended June 30, 1997 because of higher overhead costs
as a percentage of revenues for Crown and the increase in costs at the Company's
corporate office.
Corporate development expenses for the three months ended June 30, 1998
were $0.7 million, a decrease of $1.0 million from the three months ended June
30, 1997. Corporate development expenses for the three months ended June 30,
1997 include a $1.3 million nonrecurring compensation charge associated with the
CTI Investment resulting from the repurchase of shares of the Company's common
stock from a member of its Board of Directors.
Depreciation and amortization for the three months ended June 30, 1998 was
$4.1 million, an increase of $3.6 million from the three months ended June 30,
1997. This increase was primarily attributable to $3.3 million of depreciation
and amortization related to the property and equipment, goodwill and other
intangible assets acquired in the Crown Merger.
The equity in earnings (losses) of unconsolidated affiliate represents the
Company's 34.3% share of CTI's net earnings (losses) for the periods beginning
in March 1997. For the three months ended June 30, 1998, after making
appropriate adjustments to CTI's results of operations for such period to
conform to generally accepted accounting principles of the United States, CTI
had net revenues, operating income, interest expense (including amortization of
deferred financing costs) and net income of $37.6 million, $6.7 million, $5.1
million and $1.9 million, respectively. Included in CTI's results of operations
for such period are noncash compensation charges for approximately $0.3 million
related to the issuance of stock options to certain members of CTI's management.
If successful, the consummation of a share exchange agreement with certain
shareholders of CTI (see "--Liquidity and Capital Resources") would accelerate
the vesting of certain options granted to CTI's management and employees,
resulting in additional noncash compensation charges of approximately $0.7
million.
Interest and other income for the three months ended June 30, 1998 resulted
primarily from the investment of excess proceeds from the sale of the Company's
10 5/8% Senior Discount Notes due 2007 (the "Notes") in November 1997 (the "1997
Notes Offering"). Interest and other income for the three months ended June 30,
1997 resulted primarily from the investment of excess proceeds from the sale of
the Company's Series C Convertible Preferred Stock in February 1997.
Interest expense and amortization of deferred financing costs for the three
months ended June 30, 1998 was $5.3 million, an increase of $4.8 million, or
833.5%, from the three months ended June 30, 1997. This increase was primarily
attributable to amortization of the original issue discount on the Notes.
12
<PAGE>
Comparison of Six Months Ended June 30, 1998 and 1997
Consolidated revenues for the six months ended June 30, 1998 were $23.4
million, an increase of $16.6 million from the six months ended June 30, 1997.
This increase was primarily attributable to (i) a $7.1 million, or 212.7%,
increase in site rental revenues which was primarily attributable to the Crown
operations; (ii) $0.9 million in network services revenues from TEA; and (iii)
$6.8 million in network services revenues from the Crown operations.
Costs of operations for the six months ended June 30, 1998 were $9.6
million, an increase of $6.8 million from the six months ended June 30, 1997.
This increase was primarily attributable to (i) $0.4 million of network services
costs related to the TEA operations; (ii) $3.7 million of network services costs
related to the Crown operations; and (iii) $1.8 million in site rental costs
attributable to the Crown operations. Costs of operations for site rental as a
percentage of site rental revenues increased to 23.1% for the six months ended
June 30, 1998 from 18.1% for the six months ended June 30, 1997 because of
higher costs attributable to the Crown operations. Costs of operations for
network services as a percentage of network services revenues decreased to 55.4%
for the six months ended June 30, 1998 from 63.4% for the six months ended June
30, 1997, reflecting higher margins that are inherent in the network services
business acquired with the Crown operations in August 1997 as compared to that
acquired with the TEA operations in May 1997.
General and administrative expenses for the six months ended June 30, 1998
were $8.8 million, an increase of $7.3 million from the six months ended June
30, 1997. This increase was primarily attributable to $4.9 million of expenses
related to the Crown operations and $0.8 million of expenses related to the TEA
operations, along with an increase in costs of $1.3 million at the Company's
corporate office. General and administrative expenses as a percentage of
revenues increased for the six months ended June 30, 1998 to 37.5% from 22.0%
for the six months ended June 30, 1997 because of higher overhead costs as a
percentage of revenues for Crown and the increase in costs at the Company's
corporate office.
Corporate development expenses for the six months ended June 30, 1998 were
$2.0 million, a decrease of $1.8 million from the six months ended June 30,
1997. Corporate development expenses for the six months ended June 30, 1997
include nonrecurring compensation charges associated with the CTI Investment of
(i) $0.9 million for certain executive bonuses and (ii) the repurchase of shares
of the Company's common stock from a member of its Board of Directors, which
resulted in compensation charges of $1.3 million. Corporate development
expenses for the six months ended June 30, 1998 include discretionary bonuses
related to the Company's performance totaling approximately $0.8 million for
certain members of the Company's management. The Company expects to record non-
cash compensation charges related to the issuance of stock options to certain
employees and executives. Such charges are expected to amount to $20.2 million
in 1998, recognized upon completion of the Company's initial public offering
(see "--Liquidity and Capital Resources"), and approximately $3.0 million per
year thereafter through 2003. See "--Compensation Charges Related to Stock
Option Grants."
Depreciation and amortization for the six months ended June 30, 1998 was
$7.7 million, an increase of $6.8 million from the six months ended June 30,
1997. This increase was primarily attributable to (i) $6.2 million of
depreciation and amortization related to the property and equipment, goodwill
and other intangible assets acquired in the Crown Merger; and (ii) $0.3 million
of depreciation and amortization related to the property and equipment and
goodwill acquired in the TEA and TeleStructures Acquisitions.
The equity in earnings (losses) of unconsolidated affiliate represents the
Company's 34.3% share of CTI's net earnings (losses) for the periods beginning
in March 1997. For the six months ended June 30, 1998, after making appropriate
adjustments to CTI's results of operations for such period to conform to
generally accepted accounting principles of the United States, CTI had net
revenues, operating income, interest expense (including amortization of deferred
financing costs) and net income of $71.8 million, $11.2 million, $10.3 million
and $1.5 million, respectively. Included in CTI's results of operations for
such period are noncash compensation charges for approximately $3.2 million
related to the issuance of stock options to certain members of CTI's management.
If successful, the consummation of a share exchange agreement with certain
shareholders of CTI (see "--Liquidity and Capital Resources") would accelerate
the vesting of certain options granted to CTI's
13
<PAGE>
management and employees, resulting in additional noncash compensation charges
of approximately $0.7 million.
Interest and other income for the six months ended June 30, 1997 includes a
$1.2 million fee received in March 1997 as compensation for leading the
investment consortium which provided the equity financing for CTI. Interest
income for the six months ended June 30, 1998 resulted primarily from the
investment of excess proceeds from the sale of the Notes in November 1997.
Interest expense and amortization of deferred financing costs for the six
months ended June 30, 1998 was $10.0 million, an increase of $8.8 million, or
738.4%, from the six months ended June 30, 1997. This increase was primarily
attributable to amortization of the original issue discount on the Notes.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had consolidated cash and cash equivalents
of $51.3 million, consolidated long-term debt of $216.9 million, invested
capital from the issuance of its redeemable preferred stock of $164.9 million
and consolidated stockholders' equity of $26.7 million.
The Company's business strategy contemplates substantial capital
expenditures in connection with (i) the expansion of its tower footprints by
partnering with wireless communications carriers to assume ownership of their
existing towers and by pursuing build-to-suit opportunities and (ii) to acquire
existing transmission networks globally as opportunities arise. The exact amount
of such capital expenditures will depend on the number of such opportunities
that the Company is able to successfully consummate. The Company is currently
pursuing a number of potential significant acquisitions, investments and joint
venture opportunities that could require the Company to use all of the proceeds
of its initial public offering and its existing cash on hand prior to the end of
1998. In connection with a site marketing agreement recently entered into
between the Company and BellSouth Mobility, the Company and BellSouth have
agreed to explore future arrangements relating to the ownership, utilization and
management of BellSouth's tower sites throughout the United States. The Company
is also intending to submit a bid in connection with an auction by a major
Regional Bell Operating Company of its U.S. wireless communications
infrastructure. Similarly, the Company has bid on the tower assets, which
encompass more than 250 U.S. tower sites, currently being auctioned by Vanguard
Cellular. In addition to these U.S. opportunities, the Company is pursuing
acquisition opportunities in Australia and New Zealand, including in certain
instances together with other partners. For example, the Company, together with
Fay Richwhite & Company Limited and Berkshire Partners LLC, has submitted a bid
in respect of a wireless communications network, including its tower
infrastructure and radio frequency spectrum. If the bid is successful and the
transaction is consummated, the Company anticipates that it would invest up to
approximately $50.0 million for a substantial minority interest in the acquired
business. The Company is also pursuing acquisition opportunities in connection
with privatizations of state-owned networks. Any of the foregoing could result
in an agreement with respect to a significant acquisition, investment or joint
venture in the near term. However, the Company has not entered into any
agreements in respect of, and believes that there are a number of competing
bidders for, these opportunities. As a result, the Company does not believe that
any of these acquisition opportunities have become probable. Therefore, there
can be no assurance that the Company will consummate any of the foregoing
transactions in the near term or at all. In addition, the Company anticipates
that it will build or acquire, through the end of 1999, approximately 1,000
towers in the United States at a cost of approximately $237.0 million.
To fund the execution of the Company's business strategy, the Company and
its subsidiaries expect to use the net proceeds of the initial public offering,
the borrowings available under the Senior Credit Facility and the remaining net
proceeds from the 1997 Notes Offering. Whether the Company utilizes the Senior
Credit Facility to finance expansion opportunities will depend upon a number of
factors, including (i) the attractiveness of the opportunities, (ii) the time
frame in which they are identified, (iii) the number of pre-existing projects to
which the Company is committed and (iv) the Company's liquidity at the time of
any potential opportunity. In the event the Company does not otherwise have cash
available (from the net proceeds of the 1997 Notes Offering, the net proceeds of
the initial public offering or otherwise), or borrowings under the Senior Credit
Facility have otherwise been utilized, when an opportunity arises, the Company
would be forced to seek additional debt or
14
<PAGE>
equity financing or to forego the opportunity. In the event the Company
determines to seek additional debt or equity financing, there can be no
assurance that any such financing will be available (on commercially acceptable
terms or at all) or permitted by the terms of the Company's existing
indebtedness. To the extent the Company is unable to finance future capital
expenditures, it will be unable to achieve its currently contemplated business
strategy.
For the six months ended June 30, 1997 and 1998, the Company's net cash
provided by (used for) operating activities was $0.4 million and $(2.0) million,
respectively. Since its inception, the Company has generally funded its
activities (other than its acquisitions and investments) through excess proceeds
from contributions of equity capital. The Company has financed its acquisitions
and investments with the proceeds from equity contributions, borrowings under
the Senior Credit Facility and the issuance of promissory notes to sellers.
Capital expenditures were $52.8 million for the six months ended June 30,
1998, of which $1.5 million was for CCIC and $51.3 million was for Crown.
As of August 1, 1998, the Company's subsidiaries had unused borrowing
availability under the Senior Credit Facility of approximately $25.0 million.
The Senior Credit Facility requires the Company to maintain certain financial
covenants and places restrictions on the ability of the Company and its
subsidiaries to, among other things, incur debt and liens, pay dividends, make
capital expenditures, undertake transactions with affiliates and make
investments.
Prior to May 15, 2003, the Company's interest expense on the Notes will be
comprised solely of the accretion of original issue discount. Thereafter, the
Notes will require annual cash interest payments of approximately $26.7 million.
In addition, the Senior Credit Facility will require periodic interest payments
on amounts borrowed thereunder. The Company's ability to make scheduled
payments of principal of, or to pay interest on, its debt obligations, and its
ability to refinance any such debt obligations (including the Notes), will
depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. As discussed above, the Company's business
strategy contemplates substantial acquisitions and capital expenditures in
connection with the expansion of its tower footprints. There can be no
assurance that the Company will generate sufficient cash flow from operations in
the future, that anticipated revenue growth will be realized or that future
borrowings, equity contributions or loans from affiliates will be available in
an amount sufficient to service its indebtedness and make anticipated capital
expenditures. The Company anticipates that it may need to refinance all or a
portion of its indebtedness (including the Notes) on or prior to its scheduled
maturity. There can be no assurance that the Company will be able to effect any
required refinancings of its indebtedness (including the Notes) on commercially
reasonable terms or at all.
On April 24, 1998, the Company entered into a share exchange agreement with
certain shareholders of CTI pursuant to which certain of CTI's shareholders have
agreed to exchange their shares of CTI for shares of the Company. Upon the
consummation of the exchange, the Company's ownership of CTI will increase from
approximately 34.3% to approximately 80%. Consummation of the share exchange is
subject to a number of significant conditions, including certain third party
consents and the consummation of an initial public offering of common stock by
the Company.
In connection with the share exchange, the Company intends to offer shares
of its common stock in an underwritten initial public offering during the summer
of 1998. On June 19, 1998, the Registration Statement in respect of such initial
public offering was filed with the Securities and Exchange Commission and any
securities offered in such initial public offering will only be offered by means
of a prospectus forming a part of such Registration Statement.
In July 1998, all of the holders of the Company's Senior Convertible
Preferred Stock converted such shares into an aggregate of 9,629,200 shares of
the Company's common stock.
15
<PAGE>
REPORTING REQUIREMENTS UNDER THE INDENTURE GOVERNING THE NOTES (THE "INDENTURE")
As of June 30, 1998, the Company does not have any Unrestricted
Subsidiaries (as defined in the Indenture). The following information (as such
capitalized terms are defined in the Indenture) is presented solely for the
purpose of measuring compliance with respect to the terms of the Indenture; such
information is not intended as an alternative measure of 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.
<TABLE>
<CAPTION>
(In thousands
of dollars)
-------------
<S> <C>
Tower Cash Flow, for the three months ended June 30, 1998 $ 3,792
========
Consolidated Cash Flow, for the twelve months ended June 30, 1998 $ 9,240
Less: Tower Cash Flow, for the twelve months ended June 30, 1998 (14,212)
Plus: four times Tower Cash Flow, for the three months ended June 30, 1998 15,168
--------
Adjusted Consolidated Cash Flow, for the twelve months ended June 30, 1998 $ 10,196
========
</TABLE>
COMPENSATION CHARGES RELATED TO STOCK OPTION GRANTS
During the period from April 24, 1998 through July 15, 1998, the Company
granted options to employees and executives for the purchase of 3,236,980 shares
of its common stock at an exercise price of $7.50 per share. Of such options,
options for 1,810,730 shares will vest upon consummation of the initial public
offering and the remaining options for 1,426,250 shares will vest at 20% per
year over five years, beginning one year from the date of grant. In addition,
the Company has assigned its right to repurchase shares of its common stock from
a stockholder (at a price of $6.26 per share) to two individuals (including an
expected director nominee) with respect to 100,000 of such shares. Since the
granting of these options and the assignment of these rights to repurchase
shares occurred subsequent to the date of the share exchange agreement with
CTI's shareholders and at prices substantially below the expected price to the
public in the initial public offering, the Company will record a non-cash
compensation charge related to these options and shares based upon the
difference between the respective exercise and purchase prices and the price to
the public in the initial public offering. Such compensation charge will total
approximately $35.1 million, of which approximately $20.2 million will be
recognized upon consummation of the initial public offering (for such options
and shares which vest upon consummation of the initial public offering), and the
remaining $14.9 million will be recognized over five years (approximately $3.0
million per year) through the second quarter of 2003.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, Earnings per Share
("SFAS 128"). SFAS 128 establishes new standards for computing and presenting
earnings per share ("EPS") amounts for companies with publicly held common stock
or potential common stock. The new standards require the presentation of both
basic and diluted EPS amounts for companies with complex capital structures.
Basic EPS is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period, and
excludes the effect of potentially dilutive securities (such as options,
warrants and convertible securities) which are convertible into common stock.
Dilutive EPS reflects the potential dilution from such convertible securities.
SFAS 128 is effective for periods ending after December 15, 1997. The Company
has adopted the requirements of SFAS 128 in its financial statements for the
year ended December 31, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income in a company's
financial statements. Comprehensive income includes all changes in a company's
equity accounts (including net income or loss) except investments by, or
distributions to, the company's owners. Items which are components of
comprehensive income (other than net income or loss) include foreign currency
translation adjustments, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. The
components of comprehensive income must
16
<PAGE>
be reported in a financial statement that is displayed with the same prominence
as other financial statements. SFAS 130 is effective for fiscal years beginning
after December 15, 1997. The Company has adopted the requirements of SFAS 130 in
its financial statements for the three months ended March 31, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the way that public companies
report, in their annual financial statements, certain information about their
operating segments, their products and services, the geographic areas in which
they operate and their major customers. SFAS 131 also requires that certain
information about operating segments be reported in interim financial
statements. SFAS 131 is effective for periods beginning after December 15, 1997.
The Company will adopt the requirements of SFAS 131 in its financial statements
for the year ending December 31, 1998.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and broadly
defines such costs. The Company has deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 will require that such deferred costs be charged to results of
operations upon its adoption. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998. The Company will adopt the requirements of SOP 98-5 as
of January 1, 1999. The cumulative effect of the change in accounting principle
for the adoption of SOP 98-5 will result in a charge to results of operations in
the Company's financial statements for the three months ended March 31, 1999; it
is currently estimated that such charge will amount to approximately $2,000,000.
YEAR 2000 COMPLIANCE
The Company is in the process of conducting a comprehensive review of its
computer systems to identify which of its systems will have to be modified,
upgraded or converted to recognize and process dates after December 31, 1999
(the "Year 2000 Issue"), and is in the initial stages of developing an
implementation plan to resolve the issue. The Company expects to incur internal
staff costs, as well as other expenses, related to testing and updating its
systems to prepare for the Year 2000. The Company presently believes that, with
modifications and upgrades to existing software and successful conversion to new
software, the Year 2000 Issue will not pose significant operational problems for
the Company's systems as so modified, upgraded or converted. Although the
Company is in the initial phases of determining the impact of the Year 2000
Issue, the Company anticipates it will be fully Year 2000 compliant by September
1, 1999; however, any delays or omissions by the Company or its customers,
suppliers or contractors to resolve the Year 2000 Issue could materially
adversely affect the Company's business, financial condition or results of
operations. There can be no assurance that amounts to be spent on addressing
the Year 2000 Issue will not be material.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 1, 1998, the stockholders of the Company unanimously approved the
following matters: (i) an amendment to the Crown Castle International Corp. 1995
Stock Option Plan to increase the number of shares of Class B Common Stock
reserved for awards from 1,153,000 to 2,300,000; (ii) an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of common stock from 11,511,109 to 12,800,000; and (iii) the re-election
of the eleven existing members of the Company's Board of Directors.
On April 24, 1998, the stockholders of the Company unanimously approved the
following matters: (i) various terms and agreements related to the share
exchange agreement with certain shareholders of CTI; and (ii) all necessary
actions on the part of the Company in order to consummate the initial public
offering of its common stock and the share exchange agreement.
On August 7, 1998, the stockholders of the Company unanimously approved the
following matters: (i) various terms of the share exchange agreement with
certain shareholders of CTI in relation to shares and options held by certain
officers of the Company and CTI; (ii) the Company's restated Certificate of
Incorporation to take effect upon consummation of the initial public offering
and the share exchange agreement; (iii) a five-for-one stock split for
outstanding shares of the Company's common stock; and (iv) an amendment to the
Crown Castle International Corp. 1995 Stock Option Plan to, among other things,
authorize the issuance of up to 18,000,000 shares of common stock pursuant to
awards made thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
11.1 Computation of Net Loss Per Common Share
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
The Registrant filed a Current Report on Form 8-K dated April 27, 1998 and
filed with the Securities and Exchange Commission on May 6, 1998 reporting under
Item 5 thereof the execution of a share exchange agreement with certain
shareholders of CTI.
The Registrant filed a Current Report on Form 8-K dated June 19, 1998 and
filed with the Securities and Exchange Commission on June 22, 1998 reporting
under Item 5 thereof the filing of the Registration Statement for the initial
public offering of the Registrant's common stock.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWN CASTLE INTERNATIONAL CORP.
Date: August 11, 1998 By: /s/ CHARLES C. GREEN, III
--------------------------------
Charles C. Green, III
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 1998 By: /s/ WESLEY D. CUNNINGHAM
--------------------------------
Wesley D. Cunningham
Vice President, Corporate Controller
and Chief Accounting Officer
(Principal Accounting Officer)
19
<PAGE>
EXHIBIT 11.1
CROWN CASTLE INTERNATIONAL CORP.
COMPUTATION OF NET LOSS PER COMMON SHARE
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1997 1998 1997 1998
------- ------- ------- --------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
Net loss $(1,706) $(6,426) $(2,149) $(13,032)
Dividends on Senior Convertible Preferred Stock - (2,077) - (4,132)
------- ------- ------- --------
Net loss applicable to common stock for basic and
diluted computations $(1,706) $(8,503) $(2,149) $(17,164)
======= ======= ======= ========
Weighted-average number of common shares
outstanding during the period for basic and diluted 3,362 10,954 3,381 10,954
computations (in thousands) ======= ======= ======= ========
Loss per common share - basic and diluted $ (0.51) $ (0.78) $ (0.64) $ (1.57)
======= ======= ======= ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of operations
and is qualified in its entirety by reference to such consolidated financial
statements together with the related footnotes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 51,258
<SECURITIES> 0
<RECEIVABLES> 10,362
<ALLOWANCES> 212
<INVENTORY> 1,233
<CURRENT-ASSETS> 65,381
<PP&E> 139,374
<DEPRECIATION> 7,882
<TOTAL-ASSETS> 418,830
<CURRENT-LIABILITIES> 9,537
<BONDS> 216,869
72,080
92,801
<COMMON> 21
<OTHER-SE> 26,700
<TOTAL-LIABILITY-AND-EQUITY> 418,830
<SALES> 0
<TOTAL-REVENUES> 23,367
<CGS> 0
<TOTAL-COSTS> 9,573
<OTHER-EXPENSES> 18,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,027
<INCOME-PRETAX> (12,823)
<INCOME-TAX> 209
<INCOME-CONTINUING> (13,032)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,032)
<EPS-PRIMARY> (1.57)
<EPS-DILUTED> (1.57)
</TABLE>
