Back to GetFilings.com
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
----------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
Commission File Number 000-24737
----------------
CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 76-0470458
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
510 Bering Drive 77057-1457
Suite 500 (Zip Code)
Houston, Texas
(Address of principal executive
offices)
(713) 570-3000
(Registrant's telephone number, including area code)
Title of Each Class of
Securities Registered
Pursuant to Section 12(g) of
the Securities Exchange Act
of 1934 Name of Exchange on Which Registered
---------------------------- -----------------------------------------
Common Stock, $.01 par value The NASDAQ Stock Market's National Market
Rights to Purchase Series A The NASDAQ Stock Market's National Market
Participating
Cumulative Preferred Stock
Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act
of 1934: NONE.
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $3,263.9 million as of March 15, 2001 based
on the NASDAQ closing price of $17.00 per share.
Applicable Only to Corporate Registrants
As of March 15, 2001, there were 213,363,148 shares of Common Stock
outstanding and 0 shares of Class A Common Stock outstanding.
Documents Incorporated by Reference
The information required to be furnished pursuant to Part III of this Form
10-K will be set forth in, and incorporated by reference from, the
registrant's definitive proxy statement for the annual meeting of stockholders
(the "2001 Proxy Statement"), which will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
ended December 31, 2000.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CROWN CASTLE INTERNATIONAL CORP.
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 30
Item 3. Legal Proceedings............................................. 31
Item 4. Submissions of Matters to a Vote of Security Holders.......... 31
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 31
Item 6. Selected Financial Data....................................... 32
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 34
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.... 50
Item 8. Financial Statements and Supplementary Data................... 51
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 87
PART III
Item 10. Directors and Executive Officers of the Registrant............ 87
Item 11. Executive Compensation........................................ 87
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 87
Item 13. Certain Relationships and Related Transactions................ 87
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.......................................................... 87
PRELIMINARY NOTE: This Annual Report on Form 10-K contains forward-looking
statements as defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements should be read in conjunction with the cautionary
statements and other important factors included in this Form 10-K. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations--Cautionary Statement for Purposes of Forward-Looking Statements"
and "Item 1. Business--Risk Factors" for descriptions of important factors
which could cause actual results to differ materially from those contained in
the forward-looking statements.
PART I
Item 1. Business
Overview
We are a leading owner and operator of towers and transmission networks for
wireless communications and broadcast transmission companies. As of December
31, 2000, we owned, leased or managed 12,918 towers and rooftops, including
9,872 sites in the United States and Puerto Rico, 2,330 sites in the United
Kingdom and 716 sites in Australia. Our customers currently include many of
the world's major wireless communications and broadcast companies, including
Verizon, Cingular, Nextel, Sprint PCS, AT&T Wireless, Cable & Wireless Optus,
Vodafone, BT Cellnet, One 2 One, Hutchison and the British Broadcasting
Corporation.
Our strategy is to use our leading domestic and international position to
capture the growing opportunities to consolidate ownership and management of
existing towers and other wireless and transmission infrastructure and to
build and operate new towers and wireless and transmission networks and
infrastructure created by:
. the transfer to third parties, or outsourcing, of tower ownership and
management by major wireless carriers;
. the need for existing wireless carriers to expand coverage and improve
capacity;
. the additional demand for towers and wireless infrastructure created by
new entrants into the wireless communications industry;
. the privatization of state-run broadcast transmission networks; and
. the introduction of wireless technologies including broadband data, or
"3G" technology.
Our main businesses are leasing antenna space on wireless and broadcast
towers that can accommodate multiple tenants and operating analog and digital
broadcast transmission networks and wireless networks. We also provide related
services to our customers, including network design, radio frequency
engineering, site acquisition, site development and construction, antenna
installation and network management and maintenance. We believe that our full
service capabilities are a key competitive advantage in forming strategic
partnerships to acquire large concentrations of towers, or tower clusters, and
in winning contracts for tower acquisitions, management and construction along
with wireless and transmission network management.
Our primary business in the United States is the leasing of antenna space
to wireless carriers. We believe that by owning and managing large tower
clusters we are able to offer customers the ability to fulfill rapidly and
efficiently their network expansion plans across particular markets or
regions. Our acquisition strategy has been focused on adding tower clusters to
our tower portfolio. As of December 31, 2000, we had tower clusters in 34 of
the 50 largest U.S. metropolitan areas, and 68 of the 100 largest U.S.
metropolitan areas.
Our primary business in the United Kingdom, which is conducted through our
subsidiary Crown Castle UK Holdings Limited, or "CCUK", is the operation of
television and radio broadcast transmission networks and the leasing of
antenna space to wireless carriers. Following our 1997 acquisition of the
BBC's broadcast and tower infrastructure, we were awarded long-term contracts
to provide the BBC and other broadcasters analog and digital transmission
services. We also lease antenna space to wireless operators in the United
Kingdom on the towers we acquired from the BBC, as well as on various towers
that we acquired from wireless carriers or that we have constructed. We have
nationwide broadcast and wireless coverage in the United Kingdom.
In November 2000, CCUK entered into an agreement with British
Telecommunications plc, or "British Telecom", to lease space on as many as
4,000 British Telecom exchange sites throughout the United Kingdom. We expect
to invest approximately $325 million over the next two years developing the
British Telecom site portfolio for the deployment of 3G wireless services. See
"Business--Recent and Agreed to Transactions--British Telecom Agreement".
1
In February 2001, CCUK signed a definitive agreement with Hutchison 3G UK
Limited, or "Hutchison", whereby Hutchison will lease space on a minimum of
4,000 CCUK sites throughout the United Kingdom. See "Business--Recent and
Agreed to Transactions--Hutchison 3G UK Limited Agreement". In addition, in
February 2001, CCUK signed an initial agreement with its existing customer BT
Cellnet pursuant to which BT Cellnet will lease additional space on CCUK sites
throughout the United Kingdom with a minimum take up of 1,500 additional sites
by the end of 2003. See "Business--Recent and Agreed to Transactions--BT
Cellnet Agreement".
Our primary business in Australia, which is conducted through Crown Castle
Australia Pty Limited, or "CCAL", is the leasing of antenna space to wireless
carriers. We currently operate 716 towers in Australia that we purchased from
Cable & Wireless Optus during 2000. Further, in December 2000, CCAL entered
into a definitive agreement to purchase approximately 670 wireless
communications towers from Vodafone Australia for approximately $130 million
(Australian $240 million). The transaction is expected to close during 2001.
Giving effect to this transaction, CCAL will operate approximately 1,380
towers in Australia with a strategic presence in all of Australia's licensed
regions including Sydney, Melbourne, Brisbane, Adelaide and Perth. CCAL is
owned 66.7% by us and 33.3% by Permanent Nominees (Aust) Ltd on behalf of a
group of professional and institutional investors lead by Jump Capital
Limited. See "Business--Recent and Agreed to Transactions--Vodafone
Transaction".
We believe our towers are attractive to a diverse range of wireless
communications industries, including personal communications services,
cellular, enhanced specialized mobile radio, specialized mobile radio, paging,
and fixed microwave, as well as radio and television broadcasting. In the
United States our major customers include Verizon, Cingular, Powertel, Nextel,
Sprint PCS and AT&T Wireless. In the United Kingdom our major customers
include the BBC, BT Cellnet, NTL, ONdigital, One 2 One, Orange, Virgin Radio
and Hutchison. Our principal customers in Australia are Cable & Wireless
Optus, Vodafone Australia, OneTel and Hutchison Australia.
We are continuing our ongoing construction program to enhance our tower
portfolios. In 2000, we constructed 1,178 towers. In 2001, we plan to
construct approximately 1,500 towers, at an estimated aggregate cost of
approximately $330 million, for lease to wireless carriers such as Verizon,
Cingular, Nextel, Hutchison and BT Cellnet. The actual number of towers built
may vary depending on acquisition opportunities and potential build-to-suit
contracts from large wireless carriers.
Growth Strategy
Our objective is to become the premier global owner and operator of tower
and transmission networks for wireless communications and broadcast companies.
We believe our experience in expanding and marketing our tower clusters, as
well as our experience in owning and operating analog and digital transmission
networks, positions us to accomplish this objective. The key elements of our
business strategy are to:
. Maximize Utilization of Our Tower Capacity. We are seeking to take
advantage of the substantial operating leverage of our site rental
business by increasing the number of antenna leases on our owned and
managed communications sites. Many of our towers have significant
capacity available for additional antenna space rental, and increased
utilization of that tower capacity can be achieved at low incremental
cost. We believe there is substantial demand for such capacity both
from existing carriers and broadcasters and from new carriers and
broadcasters. We also believe that the extra capacity on our tower
portfolios will be highly desirable to new entrants into the wireless
communications industry. Such carriers are able to launch service
quickly and relatively inexpensively by designing the deployment of
their networks based on our attractive existing tower portfolios.
Further, we intend to continue to selectively build and acquire
additional towers to improve the coverage of our existing tower
portfolios to further increase their attractiveness. We intend to
continue to use targeted sales and marketing techniques to increase
utilization of and investment return on our existing, newly constructed
and acquired towers.
2
. Utilize the Expertise of our U.S., U.K. and Australian Personnel to
Capture Global Growth Opportunities. We are seeking to leverage the
skills of our personnel in the United States, the United Kingdom and
Australia. We believe that our ability to manage networks, including
the transmission of signals, will be an important competitive advantage
in our pursuit of global growth opportunities, as evidenced by our
transactions with the BBC, One 2 One, Verizon Communications,
BellSouth, Powertel and Cable & Wireless Optus and our agreement to
acquire and operate the tower network of Vodafone Australia. With our
wireless communications and broadcast transmission network design and
radio frequency engineering expertise, we are well positioned to (1)
partner with major wireless carriers to assume ownership of their
existing towers, (2) provide build-to-suit towers for wireless carriers
and broadcasters, (3) acquire existing broadcast transmission networks
that are being privatized around the world, (4) manage and operate
wireless networks, and (5) deploy new wireless technologies.
. Partner with Wireless Carriers to Assume Ownership of their Existing
Towers. In addition to our two joint ventures with Verizon
Communications (via its indirect subsidiaries Bell Atlantic Mobile,
Inc. and GTE Wireless, Inc.) and the BellSouth and BellSouth DCS
transactions, we continue to seek partnership opportunities with other
major wireless carriers to assume ownership of their existing towers
directly or through joint ventures or to control their towers through
contractual arrangements. We believe the primary criteria of such
carriers in selecting a company to own and operate their wireless
communications infrastructure is the company's perceived capability to
maintain the integrity of their networks, including their transmission
signals. Therefore, we believe that those companies with a proven track
record of providing end-to-end services will be best positioned to
successfully acquire access to such wireless communications
infrastructure. We believe that similar opportunities exist globally as
the wireless communications industry further expands, as evidenced by
our acquisition and operation of the tower networks of Cable & Wireless
Optus and Vodafone Australia in Australia and the turnkey deployment of
One 2 One's wireless network in Northern Ireland.
. Build New Towers for Wireless Carriers. As wireless carriers continue
to expand and fill in their service areas and to deploy new
technologies, they will require additional communications sites and
will have to build new towers where multi-tenant towers are not
available. We are pursuing these build-to-suit opportunities to build
new towers for wireless carriers, leveraging on our ability to offer a
wide range of related services.
. Acquire Existing Broadcast Transmission Networks. In 1997, CCUK
successfully acquired the privatized U.K. broadcast transmission
network of the BBC. In addition, we have implemented the roll-out of
digital television transmission services throughout the United Kingdom.
As a result of this experience, we are well positioned to acquire other
state-owned analog and digital broadcast transmission networks globally
when opportunities arise. These state-owned broadcast transmission
networks typically enjoy premier sites giving an acquiror the ability
to offer unused antenna capacity to new and existing radio and
television broadcasters and wireless carriers, as well as to install
new technologies such as digital terrestrial transmission services. In
addition, our experience in broadcast transmission services allows us
to consider, when attractive opportunities arise, acquiring wireless
transmission networks as well as associated wireless communications
infrastructure. We are currently pursuing certain international
acquisition and privatization opportunities.
The Company
We operate our business through our subsidiaries. Crown Castle Operating
Company and its wholly owned subsidiaries, together with our two joint
ventures with Verizon Communications are our principal U.S. operating
subsidiaries. CCUK is our principal U.K. operating subsidiary, and CCAL, which
is owned 66.7% by us and 33.3% by Permanent Nominees (Aust) Ltd on behalf of a
group of professional and institutional investors lead by Jump Capital
Limited, is our principal Australian operating subsidiary. We also use
subsidiaries to hold the assets we acquire or control as a result of various
transactions we may engage in from time to time.
3
U.S. Operations
Overview
Our primary business in the United States is the leasing of antenna space
on multiple tenant towers to a variety of wireless carriers under long-term
lease contracts. Supporting our competitive position in the site rental
business, we maintain in-house expertise in, and offer our customers,
infrastructure and network support services that include network design and
site selection, site acquisition, site development and construction and
antenna installation.
We lease antenna space to our customers on our owned, leased and managed
towers. We generally receive fees for installing customers' equipment and
antennas on a tower and also receive monthly rental payments from customers
payable under site rental leases that generally range in length from three to
five years. Our U.S. customers include such companies as Verizon, Cingular,
Powertel, Nextel, Sprint PCS, AT&T Wireless, Motorola and Skytel. We also
provide tower space to private network operators and various federal and local
government agencies, such as the FBI, the IRS, the DEA and the U.S. Postal
Service.
At December 31, 2000, we owned or managed 9,872 sites, including 107
rooftop sites, in the United States and Puerto Rico. These towers and rooftop
sites are located predominantly in the eastern, midwestern and southwestern
United States, along with Puerto Rico. A substantial number of our towers were
acquired through transactions consummated within the past two years.
Through the Powertel acquisition, which closed in June 1999, we control and
operate 672 towers. These towers represent substantially all of Powertel's
owned towers in its 1.9 GHz wireless network in the southeastern and
midwestern United States. Approximately 90% of these towers are clustered in
seven southeastern states providing coverage of such metropolitan areas as
Atlanta, Birmingham, Jacksonville, Memphis and Louisville, and a number of
major connecting highway corridors in the southeast. These towers are
complementary to BellSouth's 850 MHZ tower portfolio in the southeast and have
minimal coverage overlap. Substantially all of these towers are over 100 feet
tall and can accommodate multiple tenants.
Through the BellSouth and BellSouth DCS transactions, which were
substantially completed in September 2000, we control and operate 2,703
towers. These towers represent (1) substantially all of the towers in
BellSouth's 850 MHZ wireless network in the southeastern and midwestern United
States providing coverage of 12 of the top 50 U.S. metropolitan areas,
including Miami, Atlanta, Tampa, Nashville and Indianapolis and (2)
substantially all of the towers in BellSouth DCS's 1.9 GHz wireless network in
North Carolina, South Carolina, east Tennessee and parts of Georgia. A
substantial majority of these towers are over 100 feet tall and can
accommodate multiple tenants.
Our joint venture with Bell Atlantic Mobile (an indirect subsidiary of
Verizon Communications) controlled and operated 1,921 towers as of December
31, 2000. Through our joint venture with GTE Wireless (also an indirect
subsidiary of Verizon Communications), we now control and operate 2,843
towers, including 497 towers which had been acquired by GTE Wireless from
Ameritech Corp. These towers represent substantially all the towers now used
in the 850 MHz wireless network of Verizon Communications' wireless business
in the eastern, midwestern and southwestern United States and provide coverage
of 22 of the top 50 U.S. metropolitan areas, including New York, Chicago,
Houston, Washington, D.C., Philadelphia, Boston, and Phoenix. A substantial
majority of these towers are over 100 feet tall and can accommodate multiple
tenants. We currently own 56.87% of the joint venture with Bell Atlantic
Mobile, and Bell Atlantic Mobile owns the remaining 43.13%. We currently own
81.98% of the joint venture with GTE Wireless, and GTE Wireless owns the
remaining 18.02%. GTE Wireless has the right to contribute certain additional
towers to the joint venture on terms substantially similar to the formation
agreement, including (1) currently owned towers not contributed pursuant to
the formation agreement or (2) towers subsequently acquired in cellular or PCS
markets east of the Mississippi.
Each of the joint ventures with Verizon Communications entered into master
build-to-suit agreements under which each joint venture will build and own up
to 500 additional towers to be built for the wireless
4
communications business of Verizon Communications, which does business as
Verizon Wireless, over a five-year period. In addition, following the building
of such 500 sites, the Bell Atlantic Mobile joint venture will have a right of
first refusal to construct up to the next 200 towers to be built for Verizon
Wireless. The number of towers built under the GTE Wireless build-to-suit
agreement is reduced by the number of certain towers built under the build-to-
suit agreement with the Bell Atlantic Mobile joint venture and certain other
tower builds. Further, we have entered into similar agreements with BellSouth,
as part of the BellSouth transaction, to construct at least 500 towers on
behalf of BellSouth in the region covered by that transaction over the five
year period following the initial closing of that transaction. As of March 1,
2001, we had built approximately 70, 273 and 113 towers under each of the
build-to-suit agreements with the GTE Wireless joint venture, the Bell
Atlantic Mobile joint venture and BellSouth, respectively.
We are seeking to enter into arrangements with other wireless carriers and
independent tower operators to acquire additional tower portfolios. However,
we believe that acquisitions from major carriers in the United States are
substantially complete.
We also seek to capitalize on our network design expertise to construct new
towers. We plan to continue to build towers in areas where carriers' signals
fail to transmit in their coverage area. The areas, commonly known as "dead
zones," are attractive tower locations. When population density and perceived
demand are such that we believe the economics of constructing such towers are
justified, we build towers that can accommodate multiple tenants. The multiple
tenant design of these towers obviates the need for expensive and time
consuming modifications to upgrade undersized towers, saving critical capital
and time for carriers facing time-to-market constraints. The towers are also
designed to easily add additional customers, and the equipment shelters are
built to accommodate another floor for new equipment and air conditioning
units when additional capacity is needed. The tower site is zoned for multiple
carriers at the time the tower is constructed to allow new carriers to quickly
utilize the site. In addition, the towers, equipment shelters and site
compounds are engineered to protect and maintain the structural integrity of
the site.
Site Rental
In the United States, we rent antenna space on our owned and managed towers
and rooftops to a variety of carriers operating cellular, personal
communication services, specialized mobile radio, enhanced specialized mobile
radio, paging and other networks.
Tower Site Rental. We lease space to our customers on our owned and managed
towers. We generally receive fees for installing customers' equipment and
antennas on a tower and also receive monthly rental payments from customers
payable under site leases. In the United States, the majority of our
outstanding customer leases, and the new leases typically entered into by us,
have original terms of five years (with three or four optional renewal periods
of five years each) and provide for annual price increases based on the
Consumer Price Index. The lease agreements relating to network acquisitions
generally have a base term of ten years, with multiple renewal options, each
typically ranging from five to ten years.
We also provide a range of site maintenance services in order to support
and enhance our site rental business. We believe that by offering services
such as antenna, base station and tower maintenance and security monitoring,
we are able to offer quality services to retain our existing customers and
attract future customers to our communication sites. We were the first site
management company in the United States selected by a major wireless
communications company to exclusively manage its tower network and market the
network to other carriers for multi-tenant use of their towers.
We have existing master lease agreements with most major wireless carriers,
including AT&T Wireless, Cingular, Verizon, Nextel and Sprint PCS, which
provide certain terms (including economic terms) that govern new leases
entered into by such parties during the term of their master lease agreements.
We believe that our strategic clusters of towers will cause the master lease
agreements to cover numerous towers as both incumbent and insurgent carriers
expand. These master lease agreements typically have an initial lease term of
ten years, with multiple renewal options, each typically ranging from five to
ten years.
5
We have significant site rental opportunities in connection with our larger
tower acquisition transactions as a result of the fact that such transactions
usually involve a master lease agreement of some type with the transferring
carrier and the opportunity to lease additional space with other carriers. For
example, in connection with each of the joint ventures with Verizon
Communications, we entered into a master lease agreement under which its
domestic wireless businesses lease antenna space on the towers transferred to
the joint ventures, as well as the towers built under the build-to-suit
agreements. Also, in connection with the BellSouth and BellSouth DCS
transactions, we are paid a monthly site maintenance fee from BellSouth for
its use or maintenance of space on the towers we control. Further, in
connection with the Powertel acquisition, we entered into an agreement under
which the sellers rent space on the towers we acquired from them. In each of
these transactions, we are permitted to lease additional space on the towers
to third parties.
Network Services
We design, build and operate our own communication sites. We have developed
an in-house expertise in certain value-added services that we offer to the
wireless communications and broadcasting industries. Because we are a provider
of total systems with "end-to-end" design, construction and operating
expertise, we offer our customers the flexibility of choosing between the
provision of a full ready-to-operate network infrastructure or any of the
component services involved therein. Such services include network design and
site selection, site acquisition, site development and construction and
antenna installation.
Network Design and Site Selection. We have extensive experience in network
design and engineering and site selection. While we maintain sophisticated
network design services primarily to support the location and construction of
our multiple tenant towers, we do from time to time provide network design and
site selection services to carriers and other customers on a consulting
contract basis. Our network design and site selection services provide our
customers with relevant information, including recommendations regarding
location and height of towers, appropriate types of antennas, transmission
power and frequency selection and related fixed network considerations. In
2000, we provided network design services primarily for our own portfolios and
also for certain customers, including Verizon, AT&T Wireless, Sprint PCS and
Nextel. These customers were typically charged on a time-and-materials basis.
Site Acquisition. In the United States, we are engaged in site acquisition
services for our own purposes and for third parties. Based on data generated
in the network design and site selection process, a "search ring," generally
of a one-mile radius, is issued to the site acquisition department for
verification of possible land purchases or leases within the search ring.
Within each search ring, Geographic Information Systems specialists select the
most suitable sites, based on demographics, traffic patterns and signal
characteristics. Once a site is selected and the terms of an option to
purchase or lease the site are completed, a survey is prepared and the
resulting site plan is created. The plan is then submitted to the local
zoning/planning board for approval. If the site is approved, our construction
department takes over the process of constructing the site.
We have provided site acquisition services to numerous customers, including
Verizon, Cingular, AT&T Wireless, Sprint PCS and Nextel. These customers
engage us for such site acquisition services on either a fixed price contract
or a time-and-materials basis.
Site Development and Construction and Antenna Installation. We have
provided site development and construction and antenna installation services
to the U.S. communications industry for over 19 years. We have extensive
experience in the development and construction of tower sites and the
installation of antenna, microwave dishes and electrical and
telecommunications lines. Our site development and construction services
include clearing sites, laying foundations and electrical and
telecommunications lines, and constructing equipment shelters and towers. We
have designed and built and presently maintain tower sites for a number of our
wireless communications customers and also for a substantial part of our own
tower network. We can provide cost-effective and timely completion of
construction projects in part because our site development personnel are
cross-trained in all areas of site development, construction and antenna
installation. We generally set prices for each site development or
construction service separately. Customers are billed for these services on a
fixed price
6
or time-and-materials basis, and we may negotiate fees on individual sites or
for groups of sites. We have the capability, expertise and contractual
arrangements to install antenna systems for our paging, cellular, personal
communications services, specialized mobile radio, enhanced specialized mobile
radio, microwave and broadcasting customers. As this service is performed, we
use our technical expertise to ensure that there is no interference with other
tenants. We typically bill for our antenna installation services on a fixed
price basis.
Our construction management capabilities reflect our extensive experience
in the construction of networks and towers. For example, we were instrumental
in launching networks for Sprint PCS, Nextel and Aerial Communications in the
Pittsburgh metropolitan area. In addition, we supplied these carriers with all
of their project management and engineering services, which included antenna
design and interference analyses.
In 2000, we provided site development and construction or antenna
installation services to a majority of our new tower site tenants in the
United States, including Verizon, Cingular, AT&T Wireless, Sprint PCS and
Nextel.
Significant Contracts
We have many agreements with telecommunications providers in the United
States, including leases, site management contracts and independent contractor
agreements. We currently have significant contracts with, among others,
Verizon, Cingular, and Powertel.
Customers
In both our site rental and network services businesses, we work with a
number of customers in a variety of businesses including cellular, personal
communications services, enhanced specialized mobile radio, paging and
broadcasting. We work primarily with large national carriers such as Verizon,
Cingular, AT&T Wireless, Sprint PCS and Nextel. For the year ended December
31, 2000, Verizon Communications and its subsidiaries (after taking into
account the merger of GTE and Bell Atlantic Corporation) accounted for 15.3%
of our consolidated revenues. No other single customer in the United States
accounted for more than 10.0% of our consolidated revenues.
Industry Representative Customers
-------- ------------------------
Cellular/Personal AT&T Wireless, Verizon, Sprint PCS, Cingular,
Communications Services....... Powertel
Broadcasting................... Hearst Argyle Television, Trinity Broadcasting
Specialized Mobile
Radio/Enhanced Specialized
Mobile Radio.................. Nextel
Governmental Agencies.......... Puerto Rico Police, INS, Coast Guard, FBI,U.S.
Postal Service, FAA, DEA, IRS
Private Industrial Users....... Federal Express, Laidlaw Transit, BFI
Data........................... Cingular, Itron, Ardis
Paging......................... PageNet, Motorola, Arch Communications
Utilities...................... Peco Energy Corporation, Nevada Power, Entex
Other.......................... Teligent, XM Satellite Radio
Sales and Marketing
The Company's marketing department maintains our profile within the
industry through regular advertising, public relations, trade shows, press
releases, newsletters, targeted mailings, and our award-winning website at
www.crowncastle.com. We use numerous public and proprietary databases to
develop targeted marketing programs focused on regional network build-outs,
new sites and services. Information about existing sites, demographics,
licenses and deployment status, and actual signal strength measurements taken
in the field are combined to predict the service area of a particular radio
signal from any given transmission point. This allows our sales and marketing
personnel to target specific carriers with specific sites.
7
A team of national account managers maintains and enhances our close
relationships with our largest customers. These managers work to develop new
tower construction, site leasing services and site management opportunities,
as well as to ensure that customers' emerging needs are translated into new
products and services. This group also manages major sales opportunities,
including turnkey network deployments, broadcast networks, and backhaul
transmission services.
Sales personnel in our regional offices develop and maintain close local
relationships with carriers that are expanding their networks, entering new
markets, bringing new technologies to market or requiring maintenance or add-
on business. All types of wireless carriers are targeted including broadcast,
cellular, paging, personal communications services, microwave and two-way
radio, 911, government agencies, and utility and transportation companies. Our
objective is to pre-sell capacity on our new towers prior to construction and
to lease space on existing towers. We seek to maintain good public and
community relations at a local level through efforts including community
events, sponsorships and charitable work.
In addition to our full-time sales and marketing staff, a number of senior
managers spend a significant portion of their time on sales and marketing
activities. These managers call on existing and prospective customers and also
seek greater visibility in the industry through speaking engagements and
articles in national publications. Furthermore, many of these managers have
been recognized as industry experts, are regularly quoted in articles, are
called on to testify at local hearings and are asked to draft local zoning
ordinances.
Competition
In the United States, we compete with other independent tower owners, some
of which also provide site rental and network services; wireless carriers,
which own and operate their own tower networks; service companies that provide
engineering and site acquisition services; and other potential competitors,
such as utilities, outdoor advertisers and broadcasters, some of which have
already entered the tower industry. Wireless carriers that own and operate
their own tower networks generally are substantially larger and have greater
financial resources than we have. We believe that tower location, capacity,
price, quality of service and density within a geographic market historically
have been and will continue to be the most significant competitive factors
affecting tower rental companies. We also compete for acquisition and new
tower construction opportunities with wireless carriers, site developers and
other independent tower operating companies. We believe that competition for
tower site acquisitions will increase and that additional competitors will
enter the tower market, some of which may have greater financial resources
than us.
The following is a list of the larger independent tower companies that we
compete with in the United States: American Tower Corp., SpectraSite, Pinnacle
Towers, and SBA Communications.
We believe that the majority of our competitors in the site acquisition
business operate within local market areas exclusively, while a small minority
of firms appear to offer their services nationally, including SBA
Communications, Whalen & Company and Gearon & Company (a subsidiary of
American Tower Corp.). We offer our services nationwide, and we believe we are
currently one of the largest providers of site development services to the
U.S. and international markets. The market includes participants from a
variety of market segments offering individual, or a combination of, competing
services. The field of competitors includes site acquisition consultants,
zoning consultants, real estate firms, right-of-way consulting firms,
construction companies, tower owners/managers, radio frequency engineering
consultants, telecommunications equipment vendors (which provide turnkey site
development services through multiple subcontractors) and carriers' internal
staff. We believe that carriers base their decisions on site development
services on certain criteria, including a company's experience, track record,
local reputation, price and time for completion of a project. We believe that
we compete favorably in these areas.
8
U.K. Operations
Overview
We own and operate, through CCUK, one of the world's most established
television and radio transmission networks and are expanding our leasing of
antenna space on our towers to a variety of wireless carriers. We provide
transmission services for four of the six digital terrestrial television
multiplexes in the U.K., two BBC analog television services, six national BBC
radio services (including the first digital audio broadcast service in the
United Kingdom), 44 local BBC radio stations and two national commercial radio
services through our network of transmitters, which reach 99.4% of the U.K.
population. These transmitters are located on approximately 1,300 towers, more
than half of which we own and the balance of which are licensed to us under a
site-sharing agreement with National Transcommunications Limited, or NTL, our
principal broadcast competitor in the United Kingdom. We have also secured
long-term contracts to provide digital television transmission services to the
BBC and ONdigital. See "Business--U.K. Operations--Significant Contracts". In
December 1999, we entered into a contract to develop a new wireless carrier
network service for One 2 One in Northern Ireland. In addition to providing
transmission services, we also lease antenna space on our transmission
infrastructure and on our over 1,500 communications towers in the United
Kingdom to various communications service providers, including One 2 One, BT
Cellnet, Orange and Vodafone, and provide telecommunications network
installation and maintenance services and engineering consulting services.
Our core revenue generating activity in the United Kingdom is the analog
and digital terrestrial transmission of radio and television programs
broadcast by the BBC. CCUK's transmission business, which was formerly owned
by the BBC, was privatized under the Broadcasting Act 1996 and sold to CCUK in
February 1997. At the time the BBC home service transmission business was
acquired, CCUK entered into a 10-year transmission contract with the BBC for
the provision of terrestrial analog television and analog and digital radio
transmission services in the United Kingdom. The digital contract was added in
1998 as described below. For the 12 months ended December 31, 2000,
approximately 44.2% of CCUK's consolidated revenues were derived from the
provision of services to the BBC.
At December 31, 2000, we owned or managed 2,330 sites, including 51 rooftop
sites, in the United Kingdom. The 51 revenue producing rooftop sites are
occupied by CCUK-owned transmitters from which we provide services to our
broadcast network contract customers, but these sites are not otherwise
available for leasing to our customers. Our sites are located throughout
England, Wales, Scotland and Northern Ireland.
We expect to significantly expand our existing tower portfolios in the
United Kingdom by building and acquiring additional towers. We believe our
existing tower network encompasses many of the most desirable tower locations
in the United Kingdom for wireless communications. However, due to the shorter
range over which communications signals carry (especially newer technologies
such as personal communications networks) as compared to broadcast signals,
wireless communications providers require a denser portfolio of towers to
cover a given area. Therefore, in order to increase the attractiveness of our
tower portfolios to wireless communications providers, we will seek to build
or acquire new communications towers. Using our team of over 300 engineers
with state-of-the-art network design and radio frequency engineering
expertise, we locate sites and design towers that will be attractive to
multiple tenants. We seek to leverage such expertise by entering into new
tower construction contracts with various carriers, such as BT Cellnet,
Dolphin, Vodafone, Energis, Highway One, One 2 One, Orange and Scottish
Telecom, thereby securing an anchor tenant for a site before incurring capital
expenditures for the site build-out.
On March 31, 1999, CCUK completed the One 2 One transaction, under which
CCUK acquired 821 towers. These towers represent substantially all the towers
in One 2 One's nationwide 900 MHZ wireless network in the United Kingdom. In
addition, pursuant to a build to suit agreement with One 2 One, we have added
an additional 482 towers to our CCUK portfolio. These towers form part of
CCUK's nationwide network of towers to be marketed to 3G wireless carriers in
the United Kingdom. See "Business--U.K. Operations--Significant Contracts--One
2 One Northern Ireland Network".
9
In November 2000, CCUK entered into an agreement with British Telecom to
lease space on as many as 4,000 British Telecom exchange sites throughout the
United Kingdom. We expect to invest approximately $325 million over the next
two years developing the British Telecom site portfolio for the deployment of
3G wireless services. We intend to integrate the new sites into our existing
portfolio of sites in the U.K. to provide a network that will offer operators
immediate coverage of large population areas. Together with British Telecom,
we will also make available our technical expertise to help operators plan,
construct, operate and maintain their wireless networks. See "Business--Recent
and Agreed to Transactions--British Telecom Agreement".
In February 2001, CCUK signed a definitive agreement with Hutchison 3G UK
Limited whereby Hutchison will lease space on a minimum of 4,000 CCUK sites
throughout the United Kingdom. See "Business--Recent and Agreed to
Transactions--Hutchison 3G UK Limited Agreement". In addition, in February
2001, CCUK signed an initial agreement with its existing customer BT Cellnet
pursuant to which BT Cellnet will lease additional space on CCUK sites
throughout the United Kingdom, with a minimum take up of 1,500 sites by the
end of 2003. See "Business--Recent and Agreed to Transactions--BT Cellnet
Agreement".
Transmission Business
Analog. For the 12 months ended December 31, 2000, CCUK generated
approximately 36.3% of its revenues from the provision of analog broadcast
transmission services to the BBC. Under the BBC analog transmission contract,
we provide terrestrial transmission services for the BBC's analog television
and radio programs and certain other related services (including BBC digital
radio) for an initial 10-year term through March 31, 2007. See "Business--U.K.
Operations--Significant Contracts". For the 12 months ended December 31, 2000,
the BBC Analog Transmission Contract generated revenues of approximately
(Pounds)52.1 million ($79.0 million) for us.
In addition to the BBC analog transmission contract, we have separate
contracts to provide maintenance and transmission services for two national
radio stations, Virgin Radio and Talk Radio. The Virgin Radio contract is for
a period of eight years expiring March 31, 2001; extension terms are currently
being negotiated with Virgin Radio. The Talk Radio contract commenced on
February 4, 1995 and expires on December 31, 2008.
We own all of the transmission equipment used for broadcasting the BBC's
U.K. radio and television programs, whether located on one of CCUK's sites or
on an NTL or other third-party site. As of December 31, 2000, CCUK had 3,787
transmitters, of which 2,507 were for television broadcasting and 1,280 were
for radio.
A few of our most powerful television transmitters together cover the
majority of the U.K. population. The coverage achieved by the less powerful
transmitters is relatively low, but is important to the BBC's ambition of
attaining universal coverage in the United Kingdom. This is illustrated by the
following analysis of the population coverage of our analog television
transmitters:
Combined
Population
Number of Sites (ranked by coverage) Coverage
------------------------------------ ----------
1 (Crystal Palace)............................................. 21.0%
top 16......................................................... 79.0
top 26......................................................... 86.0
top 51......................................................... 92.0
all............................................................ 99.4
All of our U.K. transmitters are capable of unmanned operation and are
maintained by mobile maintenance teams from 27 bases located across the United
Kingdom. Access to the sites is strictly controlled for operational and
security reasons, and buildings at 227 of the sites are protected by security
alarms connected to CCUK's Technical Operations Centre at Warwick. The Site-
Sharing Agreement provides us with reciprocal access rights to NTL's broadcast
transmission sites on which we have equipment.
10
Certain of our transmitters that serve large populations or important
geographic areas have been designated as priority transmitters. These
transmitters have duplicated equipment so that a single failure should not
result in total loss of service, but will merely result in an output-power
reduction that does not significantly degrade the service to most viewers and
listeners.
Digital. In 2000, we completed the rollout of the 80 station network
required under our contracts with the holders (including the BBC) of four of
the six licenses issued in the U.K. for digital terrestrial television
services (DTT). We are required as part of our DTT contracts to provide new
transmission and distribution infrastructure networks and multiplex equipment
for our DTT customers, including site upgrades, new transmitters and
associated systems. Of these sites, 49 are owned by us, and the remainder are
on NTL towers pursuant to a site sharing arrangement. Our costs to add new
transmitters and associated systems was approximately (Pounds)100.0 million
($150 million).
We successfully began commercial operation of the digital terrestrial
television networks from an initial 22 transmission sites on November 15,
1998. We completed the 80 transmission site upgrade in January 2000. This
launch and the subsequent upgrade marked the first stage of the project to
introduce the digital broadcast system that will eventually replace
conventional analog television services in the United Kingdom. Initially, in
January 2000, these first 80 sites achieved a national U.K. population
coverage (in accordance with the revised definition of "coverage" by the
Independent Television Commission) of 56% of the U.K. population where service
from all six multiplexes overlap, with an 81% coverage of the U.K. population
for the best individual multiplex We have accepted an invitation from the U.K.
television regulator, the Independent Television Commission, to play a role in
planning further digital terrestrial television network extensions. In
addition, as of December 31, 2000, the overlapping coverage for all six
multiplexes was improved from 56% to 61% of the national population as result
of frequency equalization projects which we initiated and consummated in
consultation with our customers and U.K. government regulators; as a result of
these projects, our digital contract revenues have increased by approximately
(Pounds)700,000 ($1.047 million) per year.
We currently provide transmission services for digital radio broadcasts in
the United Kingdom. In September 1995, the BBC launched, over our transmission
network, its initial national digital radio service, and this service is now
broadcast to approximately 60% of the U.K. population. A license for an
independent national digital radio network was awarded to the Digital One
consortium during 1998. We are providing accommodation and access to masts
(towers) and antennas at 24 transmission sites to Digital One. In addition,
local digital radio licenses were awarded during 1999, and on July 14, 2000 we
were awarded a 12 year contract with Switchdigital (London) Limited to provide
their London local digital radio network service.
Site Rental
The BBC transmission network provides a valuable initial portfolio for the
creation of wireless communications networks. As of December 31, 2000,
approximately 245 companies rented antenna space on approximately 2,090 of
CCUK's 2,330 towers and rooftops. These site rental agreements have normally
been for three to 12 years and are generally subject to rent reviews every
three years. Site sharing customers are generally charged annually in advance,
according to ratecards that are based on the antenna size and position on the
tower. Our largest site rental customer in the United Kingdom is NTL under the
Site-Sharing Agreement and the digital broadcasting site sharing agreement.
These agreements generated approximately (Pounds)10.9 million ($16.5 million)
of site rental revenue for the year ended December 31, 2000.
As in the United States, we provide a range of site maintenance services in
the United Kingdom in order to support and enhance our site rental business.
We complement our U.K. transmission experience with our site management
experience in the United States to provide customers with a top-of-the-line
package of service and technical support.
Other than NTL, CCUK's largest (by revenue) site rental customers consist
mainly of wireless carriers such as BT Cellnet, One 2 One, Orange and
Vodafone. Revenues from these non-BBC sources are becoming an
11
increasing portion of CCUK's total U.K. revenue base, as the acquired BBC home
service transmission business is no longer constrained by governmental
restrictions on the BBC's commercial activities. We believe that the demand
for site rental from communication service providers will increase in line
with the expected growth of these communication services along with the
deployment of new technologies, such as 3G mobile communications, in the
United Kingdom, as demonstrated by our recent multi-site rental commitment
contracts with Hutchison and BT Cellnet.
We have master lease agreements with all of the major U.K.
telecommunications site users, including British Telecom, Cable & Wireless
Communications, BT Cellnet, Dolphin, Energis, Highway One, One 2 One, Orange,
Scottish Telecom and Vodafone AirTouch. These agreements typically specify the
terms and conditions (including pricing and volume discount plans) under which
these customers have access to all sites within our U.K. portfolio. Customers
make orders for specific sites using the standard terms included in the master
lease agreements. As of December 31, 2000, there were approximately 866
applications in process for installations at existing sites under such
agreements.
Network Services
CCUK provides broadcast and telecommunications engineering services to
various customers in the United Kingdom. We retained substantially all of the
BBC home service transmission business employees when we acquired that
business. Accordingly, we have engineering and technical staff of the caliber
and experience necessary not only to meet the requirements of our current
customer base, but also to meet the challenges of developing digital
technology. Within the United Kingdom, CCUK has worked with several
telecommunications operators on design and build projects as they rollout
their networks. With the expertise of our engineers and technical staff, we
are a provider of complete systems to the wireless communications and
broadcast industries.
Network Design and Site Selection. We have extensive experience in network
design and engineering and site selection. Our U.K. customers, therefore, also
receive the benefit of our sophisticated network design and site selection
services.
In December 1999, CCUK and One 2 One entered into an agreement under which
CCUK will establish a turnkey mobile network for One 2 One in Northern
Ireland. The majority of the network is expected to be completed by the end of
2001. CCUK will provide all cell planning, acquisition, design, build,
operation and maintenance services related to the network. The agreement with
One 2 One is for an initial term of 11 years. We currently own and operate
approximately 130 tower sites in Northern Ireland, and we expect that One 2
One will be a tenant on substantially all of these sites as part of the
network.
In June 2000, CCUK was awarded a contract for the first phase of a three-
phase network rollout of Europe's first planned 3G network on the Isle of Man.
The network is being built by NEC and Siemens for Manx Telecom, a wholly-owned
subsidiary of British Telecom. CCUK's role is to provide turnkey project
management, installation and commissioning of the 3G radio access network,
including site planning, design and build. In March 2001, CCUK was awarded a
further contract with Manx Telecom for the second and third phases, with
additional responsibility for radio frequency planning as well as site
planning, design, build and installation. The network will contain
approximately 30 sites and service is expected to be launched in July 2001.
Site Acquisition. As in the United States, in the United Kingdom we are
involved in site acquisition services for our own purposes and for third
parties. We recognize that the site acquisition phase often carries the
highest risk for a project. To ensure the greatest possible likelihood of
success and timely acquisition, we combine a desktop survey of potential
barriers to development with a physical site search with relevant analyses,
assessments and, where necessary, surveys. We seek to take advantage of our
experience in site acquisition and co-location when meeting with local
planning authorities.
Site Development and Antenna Installation. We use a combination of external
and internal resources for site construction. Our engineers are experienced in
both construction techniques and construction management,
12
ensuring an efficient and simple construction phase. Selected civil
contractors are managed by CCUK staff for the ground works phase. Specialist
erection companies, with whom we have a long association, are used for tower
installation. Final antenna installation is undertaken by our own experienced
teams.
Significant Contracts
CCUK's principal analog broadcast transmission contract is the BBC analog
transmission contract. CCUK also has entered into two digital television
transmission contracts, the BBC digital transmission contract and the
ONdigital digital transmission contract. Under the site-sharing agreement,
CCUK also gives NTL access to facilities to provide broadcast transmission to
non-CCUK customers. CCUK also has long-term service agreements with broadcast
customers such as Virgin Radio, Talk Radio and Switchdigital. In addition,
CCUK has several agreements with telecommunication providers, including
leases, site management contracts and independent contractor agreements. The
recently announced agreements with Hutchison and BT Cellnet contain additional
lease commitments for a minimum of 5,500 CCUK sites. CCUK has also entered
into contracts to design and build infrastructure for customers such as BT
Cellnet, One 2 One, Orange, Scottish Telecom and Vodafone AirTouch, including
the turnkey network contract for One 2 One in Northern Ireland.
BBC Analog Transmission Contract. CCUK entered into a 10-year transmission
contract with the BBC for the provision of terrestrial analog television and
analog and digital radio transmission services in the United Kingdom at the
time the BBC home service transmission business was acquired. The BBC analog
transmission contract provides for charges of approximately (Pounds)46.5
million ($69.5 million) to be payable by the BBC to CCUK for the year ended
March 31, 1998 and each year thereafter through the termination date, adjusted
annually at the inflation rate less 1%. In addition, for the duration of the
contract, an annual payment of (Pounds)300,000 ($448,650) is payable by the
BBC for additional broadcast-related services. At the BBC's request, since
October 1997, the number of television broadcast hours has been increased to
24 hours per day for the BBC's two national television services, which has
added over (Pounds)500,000 ($748,000) annually to the payments made by the BBC
to us. On July 16, 1999, the BBC and CCUK amended the transmission contract to
allow CCUK to provide certain liaison services to the BBC.
The BBC analog transmission contract also provides for CCUK to be liable to
the BBC for "service credits" (i.e., rebates of its charges) in the event that
certain standards of service are not attained as a result of what the contract
characterizes as "accountable faults" or the failure to meet certain "response
times" in relation to making repairs at certain key sites. We believe that
CCUK is well-equipped to meet the BBC's service requirements by reason of the
collective experience its existing management gained while working with the
BBC. CCUK is subject to periodic performance reviews and to date has achieved
a 100% "clean sheet" performance, incurring no service credit penalties.
The initial term of the BBC Analog Transmission Contract ends on March 31,
2007. Thereafter, the BBC Analog Transmission Contract may be terminated with
12 months' prior notice by either of the parties, expiring on March 31 in any
contract year, from and including March 31, 2007. It may also be terminated
earlier:
. by mutual agreement between CCUK and the BBC,
. by one party upon the bankruptcy or insolvency of the other party
within the meaning of section 123 of the Insolvency Act 1986,
. upon certain force majeure events with respect to the contract as a
whole or with respect to any site (in which case the termination will
relate to that site only),
. by the non-defaulting party upon a material breach by the other party,
and
. upon the occurrence of certain change of control events (as defined in
the BBC Analog Transmission Contract).
13
BBC Commitment Agreement. On February 28, 1997, in connection with the
acquisition of the BBC home service transmission business, the BBC, the
Company, TdF and its parent company entered into a commitment agreement,
whereby we and TdF agreed to maintain various minimum ownership interests in
CCUK for periods ranging from three to five years commencing February 28,
1997.
In July 1998, the BBC consented to the reduction of TdF's ownership
interest in CCUK to 20%. In addition, on July 5, 2000, with the BBC's consent,
TdF divested its remaining interest in CCUK and relinquished all of its
governance rights in CCUK, as a result of recommendations by the Department of
Trade and Industry in the United Kingdom to the Office of Fair Trading that,
as a condition to not referring a proposed 25% equity investment in NTL by
TdF's parent (France Telecom) to the Competition Commission, TdF should
undertake to dispose of its shareholding in CCUK and the Company.
ONdigital Digital Transmission Contract. In 1997, the Independent
Television Commission awarded ONdigital three of the five available commercial
digital terrestrial television "multiplexes" for new program services. We bid
for and won the 12-year contract from ONdigital to build and operate its
digital television transmission network. The contract provides for
approximately (Pounds)20.0 million ($29.9 million) of revenue per year from
2001 to 2008, with lesser amounts payable before and after these years and
with service credits repayable for performance below agreed thresholds.
Additional revenues are also being paid in relation to multiplex frequency
equalization projects initiated by CCUK in 2000.
BBC Digital Transmission Contract. In 1998, we bid for and won the 12-year
contract from the BBC to build and operate its digital terrestrial television
transmission network. The BBC has committed to the full digital terrestrial
television roll-out contemplated by the contract providing for approximately
(Pounds)10.5 million ($15.7 million) of revenue per year during the 12-year
period, with service credits repayable for performance below agreed
thresholds. There is a termination provision during the three-month period
following the fifth anniversary of our commencement of digital terrestrial
transmission services for the BBC exercisable by the BBC, but only if the
BBC's Board of Governors determines, in its sole discretion, that digital
television in the United Kingdom does not have sufficient viewership to
justify continued digital television broadcasts. Under this provision, the BBC
will pay us a termination fee in cash that substantially recovers our capital
investment in the network, and any residual ongoing operating costs and
liabilities. Like the BBC analog transmission contract, the contract is
terminable upon the occurrence of certain change of control events. Additional
revenues are also being paid in relation to multiplex frequency equalization
projects initiated by CCUK in 2000.
BT Digital Distribution Contract. Under the BBC digital transmission
contract and the ONdigital digital transmission contract, in addition to
providing digital terrestrial transmission services, CCUK has agreed to
provide for the distribution of the BBC's and ONdigital's broadcast signals
from their respective television studios to CCUK's transmission network.
Consequently, in May 1998, CCUK entered into a 12-year distribution contract
with British Telecommunications plc (with provisions for extending the term),
in which British Telecom has agreed to provide fully duplicated, fiber-based,
digital distribution services, with penalties for late delivery and service
credits for failure to deliver 99.99% availability.
Site-Sharing Agreement. In order to optimize service coverage for
television and radio services and to enable viewers to receive all analog UHF
television services using one receiving antenna, the BBC, as the predecessor
to CCUK, and NTL made arrangements to share certain broadcast sites. This
arrangement was introduced in the 1960s when UHF television broadcasting began
in the United Kingdom. In addition to service coverage advantages, the
arrangement also minimizes costs and avoids the difficulties of obtaining
additional sites.
On September 10, 1991, the BBC and NTL entered into the Site Sharing
Agreement which set out the commercial site sharing terms under which the
parties were entitled to share each other's sites for any television and radio
services.
Under the Site-Sharing Agreement, the party that is the owner, lessee or
licensee of each site is defined as the "Station Owner". The other party, the
"Sharer", is entitled to request a license to use certain facilities at
14
that site. The Site Sharing Agreement and each site license provide for the
Station Owner to be paid a commercial license fee in accordance with the Site
Sharing Agreement ratecard and for the Sharer to be responsible, in normal
circumstances, for the costs of accommodation and equipment used exclusively
by it. The Site Sharing Agreement may be terminated with five years' prior
notice on December 31, 2005 or on any tenth anniversary of that date. As no
notice was served in 2000, the next termination date is December 31, 2015. It
may also be terminated:
. following a material breach by either party that, if remediable, is not
remedied within 30 days of notice of such breach by the non-breaching
party,
. on the bankruptcy or insolvency of either party, and
. if either party ceases to carry on a broadcast transmission business or
function.
Similar site sharing arrangements have been entered into between NTL and us
for the build-out of digital transmission sites and equipment, including a
supplementary ratecard related to site sharing fees for new digital facilities
and revised operating and maintenance procedures related to digital equipment.
One 2 One Northern Ireland Network. On December 29, 1999, CCUK and One 2
One entered into an agreement under which CCUK will establish a turnkey mobile
network for One 2 One in Northern Ireland. The majority of the network is
expected to be completed by the end of 2001. CCUK will provide all cell
planning, acquisition, design, build, operation and maintenance services
related to the network. The agreement with One 2 One is for an initial term of
11 years. We currently own and operate approximately 130 tower sites in
Northern Ireland, and we expect that One 2 One will be a tenant on
substantially all of these sites as part of the network.
British Telecom Agreement. In November 2000, CCUK entered into an agreement
with British Telecom to lease space on as many as 4,000 British Telecom
exchange sites throughout the United Kingdom. We expect to invest
approximately $325 million over the next two years developing the British
Telecom site portfolio for the deployment of 3G wireless services. We intend
to integrate the new sites into our existing portfolio of sites in the United
Kingdom to provide a network that will offer operators immediate coverage of
large population areas. Together with British Telecom, we will also make
available our technical expertise to help operators plan, construct, operate
and maintain their wireless networks. See "Business--Recent and Agreed to
Transactions--British Telecom Agreement".
Hutchison Agreement. In February 2001, CCUK signed a definitive agreement
with Hutchison 3G UK Limited whereby Hutchison will lease space on a minimum
of 4,000 CCUK sites (a minimum take up of 1,000 sites per year for each of
2001 through 2004) throughout the United Kingdom. See "Business--Recent and
Agreed to Transactions--Hutchison 3G UK Limited Agreement".
BT Cellnet Agreement. In February 2001, CCUK signed an initial agreement
with its existing customer BT Cellnet pursuant to which BT Cellnet will lease
additional space on CCUK sites throughout the United Kingdom, with a minimum
take up of 1,500 additional sites by the end of 2003. See "Business--Recent
and Agreed to Transactions--BT Cellnet Agreement".
Third Generation Technology
During April 2000, the United Kingdom auctioned five licenses relating to
3G mobile communications, with the license with the largest amount of spectrum
being reserved for an insurgent carrier. Vodafone, British Telecom (via BT3G
Limited), One 2 One, Orange and Hutchison 3G UK Limited (via TIW UMTS UK Ltd.)
were the successful bidders on these license auctions.
In anticipation of the deployment of 3G services in the United Kingdom,
CCUK has prepared models for the rollout and operation of 3G networks in the
United Kingdom. We contemplate working with the successful bidders for 3G
licenses in order to provide the outsourcing of network operation and
management and the site
15
sharing of network towers, equipment and other communications infrastructure,
such as base stations, as a solution to many of the commercial and technical
challenges and costs which such 3G license holders will face.
In June 2000, CCUK was awarded a contract for the first phase of a three-
phase network rollout of Europe's first planned 3G network on the Isle of Man.
The network is being built by NEC and Siemens for Manx Telecom, a wholly-owned
subsidiary of British Telecom. CCUK's role is to provide turnkey project
management, installation and commissioning of the 3G radio access network,
including site planning, design and build. In March 2001, CCUK was awarded a
further contract with Manx Telecom for the second and third phases, with
additional responsibility for radio frequency planning as well as site
planning, design, build and installation. The network will contain
approximately 30 sites, and service is expected to be launched in July 2001.
In November 2000, CCUK entered into an agreement with British Telecom to
lease space on as many as 4,000 British Telecom exchange sites throughout the
United Kingdom. We expect to invest approximately $325 million over the next
two years developing the British Telecom site portfolio for the deployment of
3G wireless services. We intend to integrate the new sites into our existing
portfolio of sites in the U.K. to provide a network that will offer operators
immediate coverage of large population areas. Together with British Telecom,
we will also make available our technical expertise to help operators plan,
construct, operate and maintain their wireless networks. See "Business--Recent
and Agreed to Transactions--British Telecom Agreement".
In February 2001, CCUK signed a definitive agreement with Hutchison 3G UK
Limited whereby Hutchison will lease space on a minimum of 4,000 CCUK sites (a
minimum take up of 1,000 sites per year for each of 2001 through 2004)
throughout the United Kingdom. Hutchison has announced plans to use the space
on such sites to deploy its 3G wireless network in the United Kingdom. See
"Business--Recent and Agreed to Transactions--Hutchison 3G UK Limited
Agreement".
In addition, in February 2001, CCUK signed an initial agreement with its
existing customer BT Cellnet pursuant to which BT Cellnet will lease
additional space on CCUK sites throughout the United Kingdom, with a minimum
take up of 1,500 additional sites by the end of 2003. The sites are expected
to be used in connection with BT Cellnet's 3G rollout over the next three
years. See "Business--Recent and Agreed to Transactions--BT Cellnet
Agreement".
Customers
For the 12 months ended December 31, 2000, the BBC accounted for
approximately 44.2% of CCUK's consolidated revenues. This percentage has
decreased from 58.9% and 50.4% for the 12 months ended December 31, 1998 and
December 31, 1999, respectively, and is expected to continue to decline as
CCUK continues to expand its site rental business. CCUK provides all four U.K.
personal communications network/cellular operators (BT Cellnet, One 2 One,
Orange and Vodafone AirTouch) with infrastructure services and also provides
fixed telecommunications operators, such as British Telecom, Cable & Wireless
Communications, Energis and Scottish Telecom, with microwave links and
backhaul infrastructure. The following is a list of some of CCUK's leading
site rental customers by industry segment.
Industry Representative Customers
-------- ------------------------
Broadcasting................. BBC, NTL, Virgin Radio, Talk Radio, XFM,
Ondigital, Switchdigital
PMR/TETRA.................... National Band 3, Dolphin
Personal Communications Orange, One 2 One
Network.....................
Data......................... RAM Mobile Data, Cognito
Paging....................... Hutchinson, Page One
Governmental Agencies........ Ministry of Defense
Cellular..................... Vodafone AirTouch, BT Cellnet, Hutchison
Public Telecommunications.... British Telecom, Cable & Wireless Communications
Utilities.................... Welsh Water, Southern Electric
16
Sales and Marketing
We have about 43 sales and marketing personnel in the United Kingdom who
identify new revenue-generating opportunities, develop and maintain key
account relationships, and tailor service offerings to meet the needs of
specific customers. An excellent relationship has been maintained with the
BBC, and successful new relationships have been developed with many of the
major broadcast and wireless communications carriers in the United Kingdom. We
have begun to actively cross-sell our products and services so that, for
example, site rental customers are also offered build-to-suit services.
Competition
NTL is CCUK's primary competition in the terrestrial broadcast transmission
market in the United Kingdom. NTL provides analog transmission services to
ITV, Channels 4 and 5, and S4C digital television networks, a number of local
analog commercial radio stations and Digital One national radio. NTL has also
been awarded the transmission contract for two of the six digital terrestrial
television multiplexes. CCUK has been awarded service contracts for the other
four multiplexes. Since its creation in 1991, NTL has diversified from its
core television and radio broadcasting business to enter into the cable and
telecommunications sectors.
Although CCUK and NTL are direct competitors, they have reciprocal rights
to the use of each others' sites for broadcast transmission usage in order to
enable each of them to achieve the necessary country-wide coverage. This
relationship is formalized by the Site-Sharing Agreement entered into in 1991,
the time at which NTL was privatized.
NTL also offers site rental on approximately 1,000 of its sites, some of
which are managed on behalf of third parties. Like CCUK, NTL offers a full
range of site-related services to its customers, including installation and
maintenance.
Four U.K. mobile operators own site infrastructure and lease space to other
users. Their openness to sharing with direct competitors varies by operator.
BT Cellnet and Vodafone have agreed to cut site costs by jointly developing
and acquiring sites in the Scottish Highlands. British Telecom and Cable &
Wireless Communications are both major site sharing customers but also compete
by leasing their own sites to third parties. British Telecom's position in the
market is even larger when considered in combination with its interest in BT
Cellnet.
CCUK faces competition from a large number of companies in the provision of
network services. The companies include NTL, SpectraSite, specialty
consultants and equipment manufacturers such as Nortel and Ericsson.
Australia Operations
Our primary business in Australia is the leasing of antenna space to
wireless carriers. CCAL, a joint venture which is owned 66.7% by us and 33.3%
by Permanent Nominees (Aust) Ltd, acting on behalf of a group of professional
and institutional investors lead by Jump Capital Limited, is our principal
Australian operating subsidiary.
CCAL is the largest independent tower operator in Australia with a
nationwide tower portfolio covering over 90 percent of the population in
Australia. CCAL currently operates 716 towers in Australia that we purchased
from Cable & Wireless Optus during 2000 for approximately $135 million
(Australia $220 million) in cash. Cable & Wireless Optus has agreed to lease
space on each of these towers for an initial term of 15 years. Our agreement
with Cable & Wireless Optus also provides us with an exclusive right to
develop all future tower sites for Cable & Wireless Optus in Australia through
April 2006.
In December 2000, Crown Castle Australia entered into a definitive
agreement to purchase approximately 670 wireless communications towers from
Vodafone Australia for approximately $130 million (Australian $240 million).
The transaction is expected to close during 2001 and includes an exclusive
arrangement whereby CCAL
17
will have the option to acquire from Vodafone Australia up to 600 additional
towers that Vodafone Australia constructs over the next six years. Giving
effect to this transaction, CCAL will operate 1,380 towers in Australia with a
strategic presence in all of Australia's licensed regions including Sydney,
Melbourne, Brisbane, Adelaide and Perth. We will fund 66.7% of the purchase
price of the Vodafone Australia towers and anticipate that the Jump Capital
group will fund the remaining 33.3%. Any of the remaining 33.3% not funded by
the Jump Capital group will be funded by us.
Employees
At December 31, 2000, we employed approximately 2,100 people worldwide.
Other than in the United Kingdom, we are not a party to any collective
bargaining agreements. In the United Kingdom, we are party to a collective
bargaining agreement with the Broadcast, Entertainment, Cinematographic and
Technicians Union. This agreement establishes bargaining procedures relating
to the terms and conditions of employment for all of CCUK's non-management
staff. We have not experienced any strikes or work stoppages, and management
believes that our employee relations are satisfactory.
Regulatory Matters
United States
Federal Regulations
Both the FCC and FAA regulate towers used for wireless communications
transmitters and receivers. Such regulations control the siting and marking of
towers and may, depending on the characteristics of particular towers, require
the registration of tower facilities and the issuance of determinations of no
hazard. Wireless communications devices operating on towers are separately
regulated and independently licensed based upon the particular frequency used.
In addition, the FCC and the FAA have developed standards to consider
proposals for new or modified antenna structures based upon the height and
location, including proximity to airports, of proposed antenna structures.
Proposals to construct or to modify existing antenna structures above certain
heights are reviewed by the FAA to ensure the structure will not present a
hazard to aviation, which determination may be conditioned upon compliance
with lighting and marking requirements. The FCC will not license the operation
of communications devices on towers unless the tower complies with the FAA
rules and is registered with the FCC, if necessary. Tower owners may also bear
the responsibility of notifying the FAA of any tower lighting outage. The
Company generally indemnifies its customers against any failure to comply with
applicable regulatory standards. Failure to comply with the applicable
requirements may lead to civil penalties.
Local Regulations
Local regulations include:
. city and other local ordinances,
. zoning restrictions, and
. restrictive covenants imposed by community developers.
These regulations vary greatly, but typically require tower owners to
obtain approval from local officials or community standards organizations
prior to tower construction. Local zoning authorities generally have been
hostile to construction of new transmission towers in their communities
because of the height and visibility of the towers.
Other Regulations
We hold, through certain of our subsidiaries, licenses for radio
transmission facilities granted by the FCC, including licenses for common
carrier microwave and commercial mobile radio services, including specialized
mobile radio and paging facilities, as well as private mobile radio services
including industrial/business radio
18
facilities, which are subject to additional regulation by the FCC. We are
required to obtain the FCC's approval prior to the transfer of control of any
of our FCC licenses.
United Kingdom
Telecommunications systems and equipment used for the transmission of
signals over radio frequencies have to be licensed in the United Kingdom.
These licenses are issued on behalf of the British Government by the Secretary
of State for Trade and Industry under the Telecommunications Act 1984 and the
Wireless Telegraphy Acts 1949, 1968 and 1998. CCUK has a number of such
licenses under which it runs the telecommunications distribution and
transmission systems which are necessary for the provision of its transmission
services.
Licenses under the Telecommunications Act 1984
CCUK has the following three licenses under the Telecommunications Act
1984:
Transmission License. The Transmission License is a renewable license to
run telecommunications systems for the transmission via wireless telegraphy, a
type of data transmissions technique, of broadcasting services. This license
is for a period of at least 25 years from January 23, 1997, and is CCUK's
principal license. Its main provisions include:
. A price control condition covering the provision of all analog radio
and television transmission services to the BBC under the BBC analog
transmission agreement, establishing an initial price at approximately
(Pounds)44 million for regulated elements of the services provided by
CCUK under the BBC analog transmission agreement in the year ended
March 31, 1997, with an increase cap which is 1% below the rate of
increase in the Retail Price Index over the previous calendar year. The
current price control condition applies until March 31, 2006.
. A change of control provision which requires notification of
acquisitions of interest in CCUK of more than 20% by a public
telecommunications operator or any Channel 3 or Channel 5 licensee,
which acquisitions entitle the Secretary of State to revoke the
license.
. A site sharing requirement requiring CCUK to provide space on its
towers to analog and digital broadcast transmission operators and
including a power for the Director General of Telecommunications
("OFTEL"), as the regulator, to determine prices if there is failure
between the site owner and the prospective site sharer to agree to a
price.
. A fair trading provision enabling OFTEL to act against anti-competitive
behavior by the licensee.
. A prohibition on undue preference or discrimination in the provision of
the services it is required to provide third parties under the
transmission license.
A complaint made by Classic FM and NTL in respect of certain charges,
imposed previously by the BBC under the Site Sharing Agreement for NTL's use
of BBC radio antennas for its Classic FM customer, was the subject of judicial
review proceedings to ascertain the right of OFTEL to intervene and determine
the appropriate rate under the "applicable rate" mechanism in CCUK's
transmission license. CCUK was the applicant in those proceedings. Financial
provision was made in CCUK's accounts in respect of the proceedings and the
dispute in general. On June 22, 2000 the matter was settled prior to any
judicial review taking place. Settlement was by written agreement, and the
proceedings were abandoned. The settlement was made within the financial
provision made in CCUK's accounts in respect of the settlement.
CCUK is discussing with OFTEL certain amendments to CCUK's
Telecommunications Act Transmission License to ensure that the price control
condition accommodates the provision by CCUK of additional contractually
agreed upon services to the BBC in return for additional agreed upon payments.
See "Business--Risk Factors--Extensive Regulations Which Could Change at Any
Time and Which We Could Fail to Comply With Regulate Our Business".
19
The Secretary of State has designated the transmission license a public
telecommunications operator license in order to reserve to himself certain
emergency powers for the protection of national security. This designation is,
however, limited to this objective. CCUK does not have a full U.K. public
telecommunications license and does not require one for its current
activities. The Department of Trade and Industry has, nevertheless, indicated
that it would be willing to issue CCUK such a license. As a result, CCUK would
gain wider powers to provide services to non-license holding third parties
including public switched voice telephony and satellite uplink and would grant
CCUK powers to build out its network over public property (so-called "code
powers").
General Telecom License. The general telecom license is a general license
to run telecommunications systems and authorizes CCUK to run all the necessary
telecommunications systems to convey messages to its transmitter sites (e.g.,
via leased circuits or using its own microwave links). The license does not
cover the provision of public switched telephony networks (which would require
a public telecommunications license as described above).
Satellite License. The satellite license is a license to run
telecommunications systems for the provision of satellite telecommunication
services and allows the conveyance via satellite of messages, including data
and radio broadcasting. The license excludes television broadcasting direct to
the home via satellite although distribution via satellite of television
broadcasting services which are to be transmitted terrestrially is permitted.
Licenses under the Wireless Telegraphy Acts 1949, 1968 and 1998
CCUK has a number of licenses under the Wireless Telegraphy Acts 1949, 1968
and 1998, authorizing the use of radio equipment for the provision of certain
services over allocated radio frequencies including:
. a broadcasting services license in relation to the transmission
services provided to the BBC, Virgin Radio and Talk Radio,
. a fixed point-to-point radio links license,
. two bandwidth test and development licenses, and
. digital terrestrial television test and development licenses.
All the existing licenses under the Wireless Telegraphy Acts 1949, 1968 and
1998 have to be renewed annually with the payment of a significant fee. The
BBC, Virgin Radio and Talk Radio have each contracted to pay their portion of
these fees. ONdigital is obligated under the ONdigital digital transmission
contract to pay most of their portion of these fees.
Australia
Federal Regulation
Carrier licenses and nominated carrier declarations issued under the
Federal Telecommunications Act 1997 authorize the use of network units for the
supply of telecommunications services to the public. The definition of
"network units" includes line links and base stations used for wireless
telephony services but does not include tower infrastructure. Accordingly,
CCAL as a tower owner and operator does not require a carrier license.
Similarly, because CCAL does not own any transmitters or spectrum, it does not
currently require any apparatus or spectrum licenses issued under the Federal
Radiocommunications Act 1992.
Carriers have a statutory obligation to provide other carriers with access
to tower facilities and sites and, if there is a dispute (including as to
pricing), the matter may be referred to the Australian Competition and
Consumer Commission for resolution. As a non-carrier, CCAL is not currently
subject to this regime and negotiates site access on a commercial basis.
While the Telecommunications Act 1997 grants certain exemptions from
planning laws for the installation to "low impact facilities," towers are
expressly excluded from the definition of "low impact facilities."
20
Accordingly, in connection with the construction of new tower facilities, CCAL
is subject to State and local planning laws which vary on a site by site
basis. For a limited number of sites, CCAL is also required to install
aircraft warning lighting in compliance with federal aviation regulations.
Local Regulations
In Australia there are various Local, State and Territory laws and
regulations which relate to, among other things:
. town planning and zoning restrictions,
. standards applicable to the design and construction of structures and
facilities,
. approval for the construction or alteration of a structure or facility,
. the protection of the environment, and
. city and other local government ordinances.
As in the United States, these laws vary greatly, but typically require
tower owners to obtain approval from government bodies prior to tower
construction and for ongoing compliance with environmental laws.
Environmental Matters
Our operations are subject to foreign, federal, state and local laws and
regulations relating to the management, use, storage, disposal, emission, and
remediation of, and exposure to, hazardous and nonhazardous substances,
materials and wastes. As an owner and operator of real property, we are
subject to certain environmental laws that impose strict, joint-and-several
liability for the cleanup of on-site or off-site contamination relating to
existing or historical operations, and we also could be subject to personal
injury or property damage claims relating to such contamination. We are
potentially subject to environmental and cleanup liabilities in the United
States, the United Kingdom and Australia.
We are also subject to regulations and guidelines that impose a variety of
operational requirements relating to radio frequency emissions. The potential
connection between radio frequency emissions and certain negative health
effects, including some forms of cancer, has been the subject of substantial
study by the scientific community in recent years. To date, the results of
these studies have been inconclusive. In addition to general observance of
industry guidelines and health and safety legislation requirements, we have
also established detailed operating procedures designed to reduce employee
exposures to radio frequency emissions and are continually evaluating certain
of our towers and transmission equipment to determine whether radio frequency
emission reductions are economically possible and feasible.
We believe that we are in substantial compliance with all applicable
environmental laws. Nevertheless, there can be no assurance that the costs of
compliance with existing or future environmental laws will not have a material
adverse effect on our business, results of operations, or financial condition.
Recent and Agreed to Transactions
We have recently completed or entered into agreements for the transactions
described below. Completion of these transactions has and will continue to
result in a significant increase in the size of our operations and the number
of towers that we own and manage plus a need for capital. We cannot guarantee
that we will consummate any of the agreed to transactions on the terms
currently contemplated or at all. The descriptions of the terms of these
transactions set forth below are summaries and do not contain all of the terms
and conditions contained in the complete text of the relevant agreements.
21
British Telecom Agreement
In November 2000, CCUK entered into an agreement with British Telecom to
lease space on as many as 4,000 British Telecom exchange sites throughout the
United Kingdom. We expect to invest approximately $325 million over the next
two years developing the British Telecom site portfolio for the deployment of
3G wireless services. We intend to integrate the new sites into our existing
portfolio of sites in the United Kingdom to provide a network that will offer
operators immediate coverage of large population areas. Together with British
Telecom, we will also make available our technical expertise to help operators
plan, construct, operate and maintain their wireless networks.
Hutchison 3G UK Limited Agreement
In February 2001, CCUK signed a definitive agreement with Hutchison 3G UK
Limited whereby Hutchison will lease space on a minimum of 4,000 CCUK sites (a
minimum take up of 1,000 sites per year for each of 2001 through 2004)
throughout the United Kingdom. The lease term at each site will be 25 years,
with a termination option exercisable by Hutchison at the end of the 20th
year, and with provisions for annual rental rate increases and periodic open
market rent reviews. Hutchison has announced plans to use the space on such
sites to deploy its 3G wireless network in the United Kingdom.
BT Cellnet Agreement
In February 2001, CCUK signed an initial agreement with its existing
customer BT Cellnet pursuant to which BT Cellnet will lease additional space
on CCUK sites throughout the United Kingdom, with a minimum take up of 1,500
additional sites by the end of 2003. The sites are expected to be used in
connection with BT Cellnet's 3G rollout over the next three years.
Vodafone Transaction
In December 2000, CCAL entered into a definitive agreement to purchase
approximately 670 wireless communications towers from Vodafone Australia for
approximately $130 million (Australian $240 million). The transaction is
expected to close in the second quarter of 2001 and includes an exclusive
arrangement whereby CCAL will have the option to acquire from Vodafone
Australia up to 600 additional towers that Vodafone Australia constructs over
the next six years. In addition, Vodafone entered into a tower access
agreement, under which Vodafone has agreed to lease space on the towers
acquired pursuant to the transaction for an initial term of ten years. Giving
effect to this transaction, CCAL will operate 1,380 towers in Australia with a
strategic presence in all of Australia's licensed regions including Sydney,
Melbourne, Brisbane, Adelaide and Perth. We will fund 66.7% of the purchase
price of the Vodafone Australia towers and anticipate that the Jump Capital
group, our CCAL joint venture partner, will fund the remaining 33.3%. Any of
the remaining 33.3% not funded by the Jump Capital group will be funded by us.
France Telecom Separation Agreement
On May 10, 2000, France Telecom reached an agreement with the Office of
Fair Trading in the United Kingdom to sell all of its interest in us and
relinquish its governance rights in us. On May 17, 2000, we entered into a
disposition agreement with France Telecom providing for a plan of disposition
of France Telecom's interest in us. Under this plan, France Telecom agreed to
sell shares of our common stock that would reduce its interests in us below
10% on a fully-diluted basis. On June 8, 2000, France Telecom completed the
sale of 24,942,360 shares of our common stock, following which their interest
in us was reduced to approximately 8.4% on a fully diluted basis. In
connection with the offering of these shares by France Telecom, France Telecom
relinquished all governance rights with respect to our businesses. In
addition, France Telecom's representatives resigned as directors from our
board of directors and from the boards of directors of our subsidiaries,
including CCUK.
In addition, on July 5, 2000, pursuant to the disposition agreement, France
Telecom sold its remaining interest in us (17,713,536 shares of common stock
after conversion of all shares of Class A common stock and
22
capital stock of CCUK) to Salomon Brothers International Limited, or "SBIL",
which must hold these shares for at least one year, provided, however, that
SBIL may sell the shares (1) to certain permitted transferees or (2) at any
time beginning 91 days after the June 8, 2000 offering in the event of certain
bankruptcy or liquidation events involving France Telecom. France Telecom also
entered into a swap agreement with SBIL, pursuant to which France Telecom will
continue to bear the economic risks and benefits associated with any
disposition of the shares by SBIL. SBIL is required to vote the shares
acquired from France Telecom on any matter submitted to our stockholders in
the same proportion as the votes cast with respect to all other outstanding
shares of our common stock. After one year, SBIL will be entitled to sell
these shares, and after two years, we will have the right to require SBIL to
sell any such remaining shares. We have agreed to provide shelf registration
rights in respect of the shares acquired by SBIL from France Telecom.
Consolidation of U.K. Subsidiary
Substantially concurrently with the closing of the France Telecom offering
and the transfer by France Telecom of its remaining interest in our company to
certain financial institutions, the portion of France Telecom's ownership
interest that comprised equity securities of CCUK were converted into shares
of our common stock. Accordingly, at that time, CCUK became a wholly-owned
subsidiary of ours.
2000 Credit Facility
In March 2000, a subsidiary of ours entered into a credit agreement with a
syndicate of banks which consists of two term loan facilities and a revolving
line of credit aggregating $1.2 billion of borrowing availability (the "2000
Credit Facility"). Available borrowings under the 2000 Credit Facility are
generally to be used for the construction and purchase of towers and for the
general corporate purposes of certain of our subsidiaries along with the
discharge of the then existing credit facility of such subsidiaries. The
amount of available borrowings will be determined based upon the then current
financial performance of the assets of those subsidiaries. Up to $25 million
of borrowing availability under the 2000 Credit Facility can be used for
letters of credit. On March 15, 2000, we used $83.4 million in borrowings
under the 2000 Credit Facility to repay outstanding borrowings and accrued
interest under our senior credit facility to such subsidiaries. Additional
proceeds of approximately $316.6 million in borrowings were used in April 2000
to fund a portion of the purchase price of the GTE Wireless transaction and
for general corporate purposes.
Cable & Wireless Optus Transaction
On March 9, 2000, CCAL entered into an agreement with Cable & Wireless
Optus pursuant to which Cable & Wireless Optus sold to CCAL 716 wireless
communications towers located in Australia for approximately $135 million
(Australia $220 million) in cash. The agreement also provides Crown Castle
Australia with an exclusive right to develop all future tower sites for Cable
& Wireless Optus through April 2006. In addition, Cable & Wireless Optus
entered into a tower access agreement, under which Cable & Wireless Optus has
agreed to lease space on the 716 towers for an initial term of 15 years. As a
result of the transaction, CCAL is the largest independent tower operator in
Australia.
Risk Factors
You should carefully consider the risks described below, as well as the
other information contained in this document, when evaluating your investment
in our securities.
Failure to Properly Manage Our Growth--If we are unable to successfully
integrate acquired operations or manage our existing operations as we grow,
our business will be adversely affected, and we may not be able to continue
our current business strategy.
We cannot guarantee that we will be able to successfully integrate acquired
businesses and assets into our business or implement our growth plans without
delay. If we fail to do so it could have a material adverse effect
23
on our financial condition and results of operations. We have grown
significantly over the past two years through acquisitions, and such growth
continues to be an important part of our business plan. The addition of over
10,000 towers to our operations over the past two years has and will continue
to increase our current business considerably and adds significant operational
complexities. Successful integration of these transactions will depend
primarily on our ability to manage these combined operations and to integrate
new management and employees with and into our existing operations. For the
twelve months ended December 31, 2000, our net loss increased from $96.8
million to $204.8 million, an increase of 111.6%, as a result of our expanded
business operations and the financing thereof, including an 83.5% increase in
depreciation and amortization and a 117.6% increase in interest expense as
compared to the twelve months ended December 31, 1999. We expect that such net
losses, at least in the near term, will continue to exceed those of comparable
prior-year periods as a result of our growth and the financing thereof.
Implementation of our acquisition strategy may impose significant strains
on our management, operating systems and financial resources. We regularly
evaluate potential acquisition and joint venture opportunities and are
currently evaluating potential transactions that could involve substantial
expenditures, possibly in the near term. If we fail to manage our growth or
encounter unexpected difficulties during expansion, it could have a material
adverse effect on our financial condition and results of operations. The
pursuit and integration of acquisitions and joint venture opportunities will
require substantial attention from our senior management, which will limit the
amount of time they are able to devote to our existing operations.
Substantial Level of Indebtedness--Our substantial level of indebtedness could
adversely affect our ability to react to changes in our business. We may also
be limited in our ability to use debt to fund future capital needs.
We have a substantial amount of indebtedness. The following chart sets
forth certain important credit information and is presented as of December 31,
2000, both on an actual basis as well as on a pro forma basis giving effect to
our common stock offering on January 17, 2001 of 13,445,200 shares.
Actual Pro Forma
----------- ------------
(Dollars in thousands)
Total indebtedness................................. $ 2,602,687 $ 2,602,687
Redeemable preferred stock......................... 842,718 842,718
Stockholders' equity............................... 2,420,862 2,763,715
Debt and redeemable preferred stock to equity
ratio............................................. 1.42x 1.25x
In addition, our earnings for the twelve months ended December 31, 2000
were insufficient to cover fixed charges by $202.3 million.
As a result of our substantial indebtedness:
. we could be more vulnerable to general adverse economic and industry
conditions;
. we may find it more difficult to obtain additional financing to fund
future working capital, capital expenditures and other general
corporate requirements;
. we will be required to dedicate a substantial portion of our cash flow
from operations to the payment of principal and interest on our debt,
reducing the available cash flow to fund other projects;
. we may have limited flexibility in planning for, or reacting to,
changes in our business and in the industry; and
. we will have a competitive disadvantage relative to other companies
with less debt in our industry.
We cannot guarantee that we will be able to generate enough cash flow from
operations or that we will be able to obtain enough capital to service our
debt, pay our obligations under our convertible preferred stock or fund our
planned capital expenditures. In addition, we may need to refinance some or
all of our indebtedness on or before maturity. We cannot guarantee, however,
that we will be able to refinance our indebtedness on commercially reasonable
terms or at all.
24
As a Holding Company, We Require Dividends from Subsidiaries to Meet Cash
Requirements or Pay Dividends--If our subsidiaries are unable to dividend cash
to us when we need it, we may be unable to pay dividends or satisfy our
obligations, including interest and principal payments, under our debt
instruments.
Crown Castle International Corp., or "CCIC", is a holding company with no
business operations of its own. CCIC's only significant asset is the
outstanding capital stock of its subsidiaries. CCIC conducts all of its
business operations through its subsidiaries. Accordingly, CCIC's only source
of cash to pay dividends or make other distributions on its capital stock or
to pay interest and principal on its outstanding indebtedness is distributions
relating to its ownership interest in its subsidiaries from the net earnings
and cash flow generated by such subsidiaries. We currently expect that the
earnings and cash flow of CCIC's subsidiaries will be retained and used by
such subsidiaries in their operations, including the service of their
respective debt obligations. Even if we did determine to make a distribution
in respect of the capital stock of CCIC's subsidiaries, there can be no
assurance that CCIC's subsidiaries will generate sufficient cash flow to pay
or distribute such a dividend or funds, or that applicable state law and
contractual restrictions, including negative covenants contained in the debt
instruments of such subsidiaries, would permit such dividends, distributions
or payments. Furthermore, the terms of our credit facilities place
restrictions on our principal subsidiaries' ability to pay dividends or to
make distributions, and in any event, such dividends or distributions may only
be paid if no default has occurred under the applicable instrument. Moreover,
CCIC's subsidiaries are permitted under the terms of their existing debt
instruments to incur additional indebtedness that may restrict or prohibit the
making of distributions, the payment of dividends or the making of loans by
such subsidiaries to CCIC. See "Business--Risk Factors--Substantial Level of
Indebtedness" and "Business--Risk Factors--Ability to Service Debt".
Ability to Service Debt--To service our indebtedness, we will require a
significant amount of cash from our subsidiaries. An inability to access our
subsidiaries' cash flow may lead to an acceleration of our indebtedness,
including our notes. Currently, the instruments governing our subsidiaries'
indebtedness do not allow sufficient funds to be distributed to CCIC to
service its indebtedness.
If CCIC is unable to refinance its subsidiary debt or renegotiate the terms
of such debt, CCIC may not be able to meet its debt service requirements,
including interest payments on our notes, in the future. Our 9% senior notes,
our 9 1/2% senior notes and our 10 3/4% senior notes require annual cash
interest payments of approximately $16.2 million, $11.9 million and $53.8
million, respectively. Prior to November 15, 2002, May 15, 2004 and August 1,
2004, the interest expense on our 10 5/8% discount notes, our 10 3/8% discount
notes and our 11 1/4% discount notes, respectively, will be comprised solely
of the amortization of original issue discount. Thereafter, the 10 5/8%
discount notes, the 10 3/8% discount notes and the 11 1/4% discount notes will
require annual cash interest payments of approximately $26.7 million, $51.9
million and $29.3 million, respectively. Prior to December 15, 2003, we do not
expect to pay cash dividends on our exchangeable preferred stock or, if
issued, cash interest on the exchange debentures. Thereafter, assuming all
dividends or interest have been paid-in-kind, our exchangeable preferred stock
or, if issued, the exchange debentures will require annual cash dividend or
interest payments of approximately $47.8 million. Annual cash interest
payments on the CCUK bonds are (Pounds)11.25 million ($16.8 million). In
addition, our various credit facilities will require periodic interest
payments on amounts borrowed thereunder.
Restrictive Debt Covenants--The terms of our debt instruments limit our
ability to take a number of actions that our management might otherwise
believe to be in our best interests. In addition, if we fail to comply with
our covenants, our debt could be accelerated.
Currently we have debt instruments in place that restrict our ability to
incur more indebtedness, pay dividends, create liens, sell assets and engage
in certain mergers and acquisitions. Our subsidiaries, under their debt
instruments, are also required to maintain specific financial ratios. Our
ability to comply with the restrictions of these instruments and to satisfy
our debt obligations will depend on our future operating performance. If we
fail to comply with the debt restrictions, we will be in default under those
instruments, which in some cases would cause the maturity of substantially all
of our long-term indebtedness to be accelerated.
25
We Require Significant Capital to Fund Our Operations and Make Acquisitions--
If we are unable to raise capital in the future, we will be unable to achieve
our currently contemplated business strategy and may not be able to fund our
operations.
We will require substantial capital as we increase the number of towers we
own and manage by partnering with wireless carriers, by pursuing opportunities
to build new towers, or build-to-suit opportunities, for wireless carriers and
by pursuing other tower acquisition opportunities. We will also require
substantial capital to acquire existing transmission networks globally as
opportunities arise. If we are unable to raise capital when our needs arise,
we will be unable to pursue our current business strategy and may not be able
to fund our operations.
To fund the execution of our business strategy, including the construction
of new towers that we have agreed to build, we expect to use the remaining net
proceeds of our recent offerings and borrowings available under our credit
facilities. We will have additional cash needs to fund our operations and
acquisitions in the future. We may also have additional cash needs in the near
term if additional tower acquisitions or build-to-suit opportunities arise.
Some of the opportunities that we are currently pursuing could require
significant additional capital. If we do not otherwise have cash available, or
borrowings under our credit facilities have otherwise been utilized, when our
cash need arises, we would be forced to seek additional 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.
We May Not Be Able To Construct Or Acquire New Towers At The Pace And In The
Locations That We Desire--If we are unable to do so, we may not be able to
satisfy our current agreements to build new towers and we may have difficulty
finding tenants to lease space on our new towers.
Our growth strategy depends in part on our ability to construct and operate
towers in conjunction with expansion by wireless carriers. If we are unable to
build new towers when wireless carriers require them, or we are unable to
build new towers where we believe the best opportunity to add tenants exists,
we could fail to meet our contractual obligations under build-to-suit
agreements, and we could lose opportunities to lease space on our towers.
During 2000, we completed construction of 1,178 towers. We currently have
plans to commence construction on approximately 1,500 additional towers during
2001. Our ability to construct these new towers could be affected by a number
of factors beyond our control, including:
. zoning and local permitting requirements and national regulatory
approvals;
. availability of construction equipment and skilled construction
personnel; and
. bad weather conditions.
In addition, as the concern over tower proliferation has grown in recent
years, certain communities have placed restrictions on new tower construction
or have delayed granting permits required for construction. You should
consider that:
. the barriers to new construction may prevent us from building towers
where we want;
. we may not be able to complete the number of towers planned for
construction in accordance with the requirements of our customers; and
. we cannot guarantee that there will be a significant need for the
construction of new towers once the wireless carriers complete their
tower networks.
All of the above factors could affect both our domestic and international
operations. In addition, competition laws could prevent us from acquiring or
constructing towers or tower networks in certain geographical areas.
26
Our Business Depends on the Demand for Wireless Communications--We will be
adversely affected by any slowdown in the growth of, or reduction in demand
for, wireless communications.
Demand for our site rentals depends on demand for communication sites from
wireless carriers, which, in turn, depends on the demand for wireless
services. The demand for our sites depends on many factors which we cannot
control, including:
. the level of demand for wireless services generally;
. the financial condition and access to capital of wireless carriers;
. the strategy of carriers relating to owning or leasing communication
sites;
. changes in telecommunications regulations; and
. general economic conditions.
A slowdown in the growth of, or reduction in, demand in a particular
wireless segment could adversely affect the demand for communication sites.
Moreover, wireless carriers often operate with substantial indebtedness, and
financial problems for our customers could result in accounts receivable going
uncollected, the loss of a customer (and associated lease revenue) or a
reduced ability of these customers to finance expansion activities. Finally,
advances in technology, such as the development of new satellite and antenna
systems, could reduce the need for land-based, or terrestrial, transmission
networks. The occurrence of any of these factors could have a material adverse
effect on our financial condition and results of operations.
Variability In Demand For Network Services May Reduce The Predictability Of
Our Results--Our network services business has historically experienced
significant volatility in demand. As a result, the operating results of our
network services business for any particular period may vary significantly and
should not be considered as necessarily being indicative of longer-term
results.
Demand for our 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 carriers' tower build-outs;
. timing of existing customer contracts; and
. general economic conditions.
While demand for our network services fluctuates, we 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.
Furthermore, as wireless carriers complete their build-outs, the need for the
construction of new towers and the demand for our network services could
decrease significantly and could result in fluctuations and, possibly,
significant declines in our operating performance.
We Operate Our Business In An Increasingly Competitive Industry And Many Of
Our Competitors Have Significantly More Resources--As a result of this
competition, we may find it more difficult to achieve favorable lease rates on
our towers and we may be forced to pay more for future tower acquisitions.
We face competition for site rental customers from various sources,
including:
. other large independent tower owners;
. wireless carriers that own and operate their own towers and lease
antenna space to other carriers;
27
. site development companies that acquire antenna space on existing
towers for wireless carriers and manage new tower construction; and
. traditional local independent tower operators.
Wireless carriers that own and operate their own tower portfolios generally
are substantially larger and have greater financial resources than we have.
Competition for tenants on towers could adversely affect lease rates and
service income.
In addition, competition for the acquisition of towers is intense, and we
expect it to continue to grow. We not only compete against other independent
tower owners and operators, but also against wireless carriers, broadcasters
and site developers. As competition consolidates, we may be faced with fewer
acquisition opportunities, as well as higher acquisition prices. While we
regularly explore acquisition opportunities, we cannot guarantee that we will
be able to identify suitable towers to acquire in the future.
A Substantial Portion Of Our Revenues Is Dependent Upon Agreements With the
BBC, NTL, Verizon, Cingular And Powertel
If we were to lose our contracts with the BBC or our site sharing agreement
with NTL, we would likely lose a substantial portion of our revenues. The BBC
accounted for approximately 14.8% of our revenues for the twelve-month period
ended December 31, 2000.
Our broadcast business is substantially dependent on our contracts with the
BBC. We cannot guarantee that the BBC will renew our contracts or that they
will not attempt to negotiate terms that are not as favorable to us as those
in place now. If we were to lose these BBC contracts, our business, results of
operations and financial condition would be materially adversely affected. The
initial term of our analog transmission contract with the BBC will expire on
March 31, 2007, and our digital transmission contract with the BBC expires on
October 31, 2010. In addition, our digital transmission contract with the BBC
may be terminated by the BBC after five years if the BBC's board of governors
does not believe that digital television in the United Kingdom has enough
viewers.
A substantial portion of our U.K. broadcast transmission operations is
conducted using sites owned by NTL, our principal broadcast competitor in the
United Kingdom. NTL also utilizes our sites for their broadcast operations.
This site sharing arrangement with NTL may be terminated on December 31, 2015,
or any 10-year anniversary of that date, with five years' prior notice by
either us or NTL, and may be terminated sooner if there is a continuing breach
of the agreement. We cannot guarantee that this agreement will not be
terminated, which could have a material adverse effect on our business,
results of operations and financial condition.
In addition, a substantial portion of our revenues are received from a few
major wireless carriers, particularly carriers that have transferred their
tower assets to us. We cannot guarantee that the lease or management service
agreements with such carriers will not be terminated or that these carriers
will renew such agreements.
Extensive Regulations Which Could Change At Any Time And With Which We Could
Fail To Comply Regulate Our Business--If we fail to comply with applicable
regulations, we could be fined or even lose our right to conduct some of our
business.
A variety of foreign, federal, state and local regulations apply to our
business. Failure to comply with applicable requirements may lead to civil
penalties or require us to assume costly indemnification obligations or breach
contractual provisions. We cannot guarantee that existing regulatory policies
will not adversely affect the timing or cost of new tower construction or that
additional regulations will not be adopted which increase delays or result in
additional costs. These factors could have a material adverse effect on our
financial condition and results of operations.
28
Since we signed our analog transmission contract with the BBC, the BBC has
increased its service requirements to include 24-hour broadcasting on our
transmission network for the BBC's two national television services and a
requirement for us to add a number of additional analog stations and service
enhancements to existing analog stations. As of December 31, 2000, the BBC has
agreed to increases of approximately (Pounds)4.9 million (approximately $7.3
million) per year in the charges payable by the BBC to us for these service
enhancements. These additional charges may require a revision amendment to
that part of CCUK's transmission telecommunications license dealing with price
regulation of analog broadcasting services to the BBC. We are in discussions
with the BBC and OFTEL, the relevant regulatory authority in the United
Kingdom, regarding wording which will modify the license regulatory provisions
to take into account these agreed additional payments. There can be no
assurances that such modification will be achieved as a result of these
discussions with OFTEL.
If we fail to complete any or all of our previously agreed-to transactions, we
will not recognize all of the benefits of such transactions.
If one or more of our previously agreed-to transactions is not fully
completed or is completed on significantly different terms than those
currently contemplated, it could substantially affect the implementation of
our business strategy. As a result, our future site rental revenue would be
adversely affected. The agreements relating to these agreed-to transactions
contain many conditions that must be satisfied before we can consummate such
agreed-to transactions. In addition, each of the agreements relating to these
agreed-to transactions includes provisions that could result in our purchasing
or building fewer towers pursuant to such agreements.
Emissions from our Antennas May Create Health Risks--We could suffer from
future claims if the radio frequency emissions from equipment on our towers is
demonstrated to cause negative health effects.
The government imposes requirements and other guidelines on our towers
relating to radio frequency emissions. The potential connection between radio
frequency emissions and certain negative health effects, including some forms
of cancer, has been the subject of substantial study by the scientific
community in recent years. To date, the results of these studies have been
inconclusive. We cannot guarantee that claims relating to radio frequency
emissions will not arise in the future.
Our International Operations Expose Us to Changes in Foreign Currency Exchange
Rates--If we fail to properly match or hedge the currencies in which we
conduct business, we could suffer losses as a result of changes in currency
exchange rates.
We conduct business in countries outside the United States, which exposes
us to fluctuations in foreign currency exchange rates. We also intend to
expand our international operations in the future. For the twelve months ended
December 31, 2000, approximately 34.6% of our consolidated revenues originated
outside the United States, all of which were denominated in currencies other
than U.S. dollars, principally pounds sterling and Australian dollars. We have
not historically engaged in significant hedging activities relating to our
non-U.S. dollar operations, and we could suffer future losses as a result of
changes in currency exchange rates.
We Are Heavily Dependent on Our Senior Management--If we lose members of our
senior management, we may not be able to find appropriate replacements on a
timely basis and our business could be adversely affected.
Our existing operations and continued future development depend to a
significant extent upon the performance and active participation of certain
key individuals as employees, including our chief executive officer and our
president. We cannot guarantee that we will be successful in retaining the
services of these or other key personnel. None of our executives have signed
noncompetition agreements. If we were to lose any of these individuals, we may
not be able to find appropriate replacements on a timely basis and our
financial condition and results of operations could be materially adversely
affected.
29
Anti-Takeover Provisions in Our Certificate of Incorporation Could Have
Effects That Conflict with the Interests of Our Stockholders--Certain
provisions of our certificate of incorporation, by-laws and operative
agreements could make it more difficult for a third party to acquire control
of us even if such a change in control would be beneficial to you.
We have a number of anti-takeover devices in place that will hinder
takeover attempts and could reduce the market value of our common stock. Our
anti-takeover provisions include:
. a staggered board of directors;
. the authority of the board of directors to issue preferred stock
without approval of the holders of common stock; and
. advance notice requirements for director nominations and actions to be
taken at annual meetings.
In addition, our by-laws permit special meetings of the stockholders to be
called only upon the request of a majority of the board of directors, and deny
stockholders the ability to call such meetings. In addition, our BBC contracts
may be terminated upon the occurrence of certain change of control events
described in such contracts. Such provisions, as well as the provisions of
Section 203 of the Delaware General Corporation Law, could impede a merger,
consolidation, takeover or other business combination or discourage a
potential acquiror from making a tender offer or otherwise attempting to
obtain control of us.
Shares Eligible For Future Sale--Sales of a substantial number of shares of
common stock could adversely affect the market price of the common stock.
Future sales of a substantial number of shares of our common stock could
adversely affect the market price of our common stock. As of March 15, 2001,
we had 213,363,148 shares of common stock outstanding. In addition, we have
reserved 27,249,272 shares of common stock for issuance under our various
stock options plans, 1,639,990 shares of common stock upon exercise of
outstanding warrants and 18,357,114 shares of common stock for the conversion
of the outstanding convertible preferred stock.
Item 2. Properties
Our principal corporate offices are located in Houston, Texas; Canonsburg,
Pennsylvania; Warwick, United Kingdom; and Sydney, Australia.
Size
Location Title (Sq. Ft.) Use
-------- ------ --------- ---
Houston, TX................................ Owned 19,563 Corporate office
Canonsburg, PA............................. Owned 48,500 Corporate office
Warwick, U.K............................... Owned 50,000 Corporate office
Warwick, U.K............................... Leased 18,775 Corporate office
Sydney, Australia.......................... Leased 10,500 Corporate office
We have 18 additional regional offices in the United States and Puerto Rico
throughout our tower coverage areas, including Albany, Atlanta, Baton Rouge,
Birmingham, Boca Raton, Boston, Charlotte, Chicago, Houston, Indianapolis,
Louisville, Nashville, Philadelphia, Phoenix, Pittsburgh, Pleasanton, San Juan
and Washington, D.C. The principal responsibilities of these offices are to
manage the leasing of tower space on a regional basis, maintain the towers
already located in the region and implement our build-to-suit commitments in
the area.
In the United States, our interests in our tower sites are comprised of a
variety of ownership interests, leases created by long-term lease agreements,
private easements and easements, licenses or rights-of-way granted by
government entities. In rural areas, a tower site typically consists of a
three- to five-acre tract, which supports towers, equipment shelters and guy
wires to stabilize the structure. Less than 3,000 square feet are required for
a self-supporting tower structure of the kind typically used in metropolitan
areas. Our land leases generally have five- or ten-year terms and frequently
contain one or more renewal options. Some land leases provide "trade-out"
30
arrangements whereby we allow the landlord to use tower space in lieu of
paying all or part of the land rent. As of December 31, 2000, we had
approximately 7,836 land leases in the United States. Under the 2000 Credit
Facility, our senior lenders have liens on a substantial number of our land
leases and other property interests in the United States.
In the United Kingdom, tower sites range from less than 400 square feet for
a small rural TV booster station to over 50 acres for a high-power radio
station. As in the United States, the site accommodates the towers, equipment
buildings or cabins and, where necessary, guy wires to support the structure.
Land is either owned freehold, which is usual for the larger sites, or is held
on long-term leases that generally have terms of 21 years or more. As of
December 31, 2000, we had approximately 1,660 land leases in the U.K.
In Australia, our interests in tower sites are comprised of mainly leases
and licenses granted by private, governmental and semi-governmental entities
and individuals. The tower sites range from approximately 430 square feet to
2,400 square feet. Our land leases generally have terms up to 15 years through
sequential leases and options to renew. As of December 31, 2000, we owned or
managed a portfolio of approximately 716 towers in Australia. For
approximately 680 of these towers, site tenure takes the form of a land lease
or occupation license. For the balance, tenure on the land is currently
secured by statutory access rights.
Item 3. Legal Proceedings
We are occasionally involved in legal proceedings that arise in the
ordinary course of business. Most of these proceedings are appeals by
landowners of zoning and variance approvals of local zoning boards. While the
outcome of these proceedings cannot be predicted with certainty, management
does not expect any pending matters to have a material adverse effect on our
financial condition or results of operations.
Item 4. Submissions of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
The Common Stock is listed and traded on The Nasdaq Stock Market's National
Market(SM) ("Nasdaq") under the symbol "TWRS". The following table sets forth
for the calendar periods indicated the high and low sales prices per share of
the Common Stock as reported by Nasdaq.
High Low
------ ------
1999:
First Quarter................................................ $23.50 $16.63
Second Quarter............................................... 21.50 16.38
Third Quarter................................................ 25.50 14.69
Fourth Quarter............................................... 33.50 15.44
2000:
First Quarter................................................ $44.75 $28.19
Second Quarter............................................... 40.38 23.06
Third Quarter................................................ 39.69 24.50
Fourth Quarter............................................... 32.25 21.38
As of March 15, 2001, there were approximately 527 holders of record of the
Common Stock.
31
Dividend Policy
We have never declared nor paid any cash dividends on our capital stock and
do not anticipate paying cash dividends on our capital stock in the
foreseeable future. It is our current policy to retain earnings to finance the
expansion of our operations. Future declaration and payment of cash dividends,
if any, will be determined in light of the then-current conditions, including
our earnings, operations, capital requirements, financial condition and other
factors deemed relevant by the Board of Directors. In addition, our ability to
pay dividends is limited by the terms of our debt instruments and the terms of
the certificates of designations in respect of our exchangeable preferred
stock and our convertible preferred stock.
Issuance of Unregistered Securities
Except as described below or otherwise disclosed in Quarterly Reports on
Form 10-Q filed during 2000, we made no unregistered sales of equity
securities during 2000.
On December 15, 2000, we issued an additional 68,744 shares of common stock
to an affiliate of BellSouth Corporation in connection with a closing relating
to the BellSouth transaction. The agreement of sublease relating to the
BellSouth transaction closed in a series of closings, with approximately 30%
of the consideration being paid with our common stock. As of March 15, 2001,
we have issued a total of 9,084,025 shares of common stock to BellSouth in
connection with closings relating to the BellSouth transaction. The shares
were issued in exempt transactions pursuant to Section 4(2) of the Securities
Act of 1933, as amended (the "Act").
On January 3, 2001, we issued 64,404 shares of unregistered common stock to
the prior majority shareholder of Millennium Communications Limited in
connection with the acquisition of Millennium by CCUK, which originally closed
on October 8, 1998. The shares were issued in an exempt transaction pursuant
to Section 4(2) of the Act.
Item 6. Selected Financial Data
The selected historical consolidated financial and other data for the
Company set forth below for each of the five years in the period ended
December 31, 2000, and as of December 31, 1996, 1997, 1998, 1999 and 2000,
have been derived from the consolidated financial statements of the Company,
which have been audited by KPMG LLP, independent certified public accountants.
The results of operations for the year ended December 31, 2000 are not
comparable to the year ended December 31, 1999, the results for the year ended
December 31, 1999 are not comparable to the year ended December 31, 1998, and
the results for the year ended December 31, 1998 are not comparable to the
year ended December 31, 1997 as a result of business and tower acquisitions
consummated in 1997, 1998, 1999 and 2000. Results of operations of these
acquired businesses and towers are included in the Company's consolidated
financial statements for the periods after the respective dates of
acquisition. The information set forth below should be read in conjunction
with "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Item 8. Financial Statements and Supplementary
Data".
32
Years Ended December 31,
---------------------------------------------------------
1996 1997 1998 1999 2000
-------- --------- ---------- ----------- -----------
(In thousands of dollars, except per share amounts)
Statement of Operations
Data:
Net revenues:
Site rental and
broadcast
transmission......... $ 5,615 $ 11,010 $ 75,028 $ 267,894 $ 446,039
Network services and
other................ 592 20,395 38,050 77,865 203,126
-------- --------- ---------- ----------- -----------
Total net revenues... 6,207 31,405 113,078 345,759 649,165
-------- --------- ---------- ----------- -----------
Costs of operations:
Site rental and
broadcast
transmission......... 1,292 2,213 26,254 114,436 194,424
Network services and
other................ 8 13,137 21,564 42,312 120,176
-------- --------- ---------- ----------- -----------
Total costs of
operations.......... 1,300 15,350 47,818 156,748 314,600
-------- --------- ---------- ----------- -----------
General and
administrative......... 1,678 6,824 23,571 43,823 76,944
Corporate
development(a)......... 1,324 5,731 4,625 5,403 10,489
Restructuring charges... -- -- -- 5,645 --
Non-cash general and
administrative
compensation
charges(b)............. -- -- 12,758 2,173 3,127
Depreciation and
amortization........... 1,242 6,952 37,239 130,106 238,796
-------- --------- ---------- ----------- -----------
Operating income
(loss)................. 663 (3,452) (12,933) 1,861 5,209
Equity in earnings
(losses) of
unconsolidated
affiliate.............. -- (1,138) 2,055 -- --
Interest and other
income (expense)(c).... 193 1,951 4,220 17,731 33,761
Interest expense and
amortization of
deferred financing
costs.................. (1,803) (9,254) (29,089) (110,908) (241,294)
-------- --------- ---------- ----------- -----------
Loss before income
taxes, minority
interests,
extraordinary item and
cumulative effect of
change in accounting
principle.............. (947) (11,893) (35,747) (91,316) (202,324)
Provision for income
taxes.................. (10) (49) (374) (275) (246)
Minority interests...... -- -- (1,654) (2,756) (721)
-------- --------- ---------- ----------- -----------
Loss before
extraordinary item and
cumulative effect of
change in accounting
principle.............. (957) (11,942) (37,775) (94,347) (203,291)
Extraordinary item--loss
on early extinguishment
of debt................ -- -- -- -- (1,495)
Cumulative effect of
change in accounting
principle for costs of
start-up activities.... -- -- -- (2,414) --
-------- --------- ---------- ----------- -----------
Net loss................ (957) (11,942) (37,775) (96,761) (204,786)
Dividends on preferred
stock.................. -- (2,199) (5,411) (28,881) (59,469)
-------- --------- ---------- ----------- -----------
Net loss after deduction
of dividends on
preferred stock........ $ (957) $ (14,141) $ (43,186) $ (125,642) $ (264,255)
======== ========= ========== =========== ===========
Per common share--basic
and diluted:
Loss before
extraordinary item
and cumulative effect
of change in
accounting
principle............ $ (0.27) $ (2.27) $ (1.02) $ (0.94) $ (1.47)
Extraordinary item.... -- -- -- -- (0.01)
Cumulative effect of
change in accounting
principle............ -- -- -- (0.02) --
-------- --------- ---------- ----------- -----------
Net loss.............. $ (0.27) $ (2.27) $ (1.02) $ (0.96) $ (1.48)
======== ========= ========== =========== ===========
Common shares
outstanding--basic and
diluted (in
thousands)............. 3,503 6,238 42,518 131,466 178,588
======== ========= ========== =========== ===========
Other Data:
EBITDA(d)............... $ 1,905 $ 3,500 $ 37,064 $ 139,785 $ 247,132
Summary cash flow
information:
Net cash provided by
(used for) operating
activities........... (530) (624) 44,976 92,608 165,495
Net cash used for
investing
activities........... (13,916) (111,484) (149,248) (1,509,146) (1,957,687)
Net cash provided by
financing
activities........... 21,193 159,843 345,248 1,670,402 1,707,091
Ratio of earnings to
fixed charges(e)....... -- -- -- -- --
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 7,343 $ 55,078 $ 296,450 $ 549,328 $ 453,833
Property and equipment,
net.................... 26,753 81,968 592,594 2,468,101 4,303,037
Total assets............ 41,226 371,391 1,523,230 3,836,650 6,439,841
Total debt.............. 22,052 156,293 429,710 1,542,343 2,602,687
Redeemable preferred
stock(f)............... 15,550 160,749 201,063 422,923 842,718
Total stockholders'
equity (deficit)....... (210) 41,792 737,562 1,617,747 2,420,862
33
- --------
(a) Corporate development expenses represent costs incurred in connection with
acquisitions and development of new business initiatives. These expenses
consist primarily of allocated compensation, benefits and overhead costs
that are not directly related to the administration or management of
existing towers. For the year ended December 31, 1997, such expenses
include (1) nonrecurring cash bonuses of $0.9 million paid to certain
executive officers in connection with CCIC's initial investment in CCUK
(the "CCUK Investment"); and (2) a nonrecurring cash charge of $1.3
million related to the purchase by CCIC of shares of common stock from
CCIC's former chief executive officer in connection with the CCUK
Investment.
(b) Represents charges related to the issuance of stock options to certain
employees and executives, and the issuance of common stock and stock
options in connection with certain acquisitions.
(c) Includes a $1.2 million fee received in March 1997 as compensation for
leading the investment consortium which provided the equity financing for
CCUK in connection with the CCUK Investment.
(d) EBITDA is defined as operating income (loss) plus depreciation and
amortization, non-cash general and administrative compensation charges and
restructuring charges. EBITDA is presented as additional information
because management believes it to be a useful indicator of our ability to
meet debt service and capital expenditure requirements. It is not,
however, intended as an alternative measure of operating results or cash
flow from operations (as determined in accordance with generally accepted
accounting principles). Furthermore, our measure of EBITDA may not be
comparable to similarly titled measures of other companies.
(e) For purposes of computing the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes, fixed charges and equity in
earnings (losses) of unconsolidated affiliate. Fixed charges consist of
interest expense, the interest component of operating leases and
amortization of deferred financing costs. For the years ended December 31,
1996, 1997, 1998, 1999 and 2000, earnings were insufficient to cover fixed
charges by $0.9 million, $10.8 million, $37.8 million, $91.3 million and
$202.3 million, respectively.
(f) The 1996 and 1997 amounts represent (1) the senior convertible preferred
stock privately placed by CCIC in August 1997 and October 1997, all of
which has been converted into shares of common stock; and (2) the Series A
convertible preferred stock, the Series B convertible preferred stock and
the Series C convertible preferred stock privately placed by CCIC in April
1995, July 1996 and February 1997, respectively, all of which has been
converted into shares of common stock in connection with the consummation
of our IPO. The 1998 amount represents the 12 3/4% Senior Exchangeable
Preferred Stock due 2010.
Item 7. 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 December 31, 2000 and our consolidated
results of operations for each year in the three-year period ended December
31, 2000. The statements in this discussion regarding the industry outlook,
our expectations regarding the future performance of our businesses and the
other nonhistorical statements in this discussion are forward-looking
statements. See "--Cautionary Statement for Purposes of Forward-Looking
Statements". This discussion should be read in conjunction with "Selected
Historical Financial Data" and the consolidated financial statements and
related notes included elsewhere in this document. Results of operations of
the acquired businesses and towers that are wholly and majority owned 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 year ended December 31, 2000 are not comparable to the year ended December
31, 1999, and the results for the year ended December 31, 1999 are not
comparable to the year ended December 31, 1998.
Overview
The continued growth of our business depends substantially on the condition
of the wireless communications and broadcast industries. We believe that the
demand for communications sites will continue to grow and expect that, due to
increased competition, wireless carriers will continue to seek operating and
capital efficiencies by (1) outsourcing certain network services and the
build-out and operation of new and existing
34
infrastructure; and (2) planning to use a tower site as a common location, or
"co-locating", for the placement of their antennas and transmission equipment
alongside the equipment of other communications providers. In addition, we
believe that more wireless carriers will seek to sell their wireless
communications infrastructure to, or establish joint ventures with,
experienced infrastructure providers, such as the Company, that have the
ability to manage networks.
Further, we believe that wireless carriers and broadcasters will continue
to seek to outsource the operation of their towers and, eventually, their
transmission networks, including the transmission of their signals. Management
believes that our ability to manage towers and transmission networks and our
proven track record of providing services addressing all aspects of signaling
systems from the originating station to the terminating receiver, or "end-to-
end" services, to the wireless communications and broadcasting industries
position our company to capture such business.
The willingness of wireless carriers to utilize our infrastructure and
related services is affected by numerous factors, including:
. consumer demand for wireless services;
. interest rates;
. cost of capital;
. availability of capital to wireless carriers;
. tax policies;
. willingness to co-locate equipment;
. local restrictions on the proliferation of towers;
. cost of building towers; and
. technological changes affecting the number of communications sites
needed to provide wireless communications services to a given
geographic area.
Our revenues that are derived from the provision of transmission services
to the broadcasting industry will be affected by:
. the timing of the rollout of digital television broadcasts from tower-
mounted antenna systems, or "digital terrestrial television
broadcasts", in the United Kingdom, as well as in the United States and
other countries around the world;
. consumer demand for digital terrestrial broadcasting;
. interest rates;
. cost of capital;
. zoning restrictions on towers; and
. the cost of building towers.
As an important part of our business strategy, we will seek:
(1) to maximize utilization of our tower capacity,
(2) to utilize the expertise of U.S., U.K. and Australian personnel to
capture global growth opportunities,
(3) to partner with wireless carriers to assume ownership of their existing
towers,
(4) to build new towers for wireless carriers, and
(5) to acquire existing broadcast transmission networks globally as
opportunities arise.
35
Results of Operations
Our primary sources of revenues are from:
(1) renting antenna space on towers and rooftops sites,
(2) providing analog and digital broadcast transmission services, and
(3) providing network services.
Site rental revenues in the U.S. are received primarily from wireless
communications companies, including those operating in the following
categories of wireless communications:
. microwave;
. cellular;
. personal communications services, a digital service operating at a
higher frequency range than cellular;
. paging;
. specialized mobile radio, a service operating in the frequency range
used for two-way radio communication by public safety, trucking
companies, and other dispatch service users; and
. enhanced specialized mobile radio, a service operating in the frequency
range typically used for digital communications.
Site rental revenues are generally recognized on a monthly basis under lease
agreements, which typically have original terms of five years (with three or
four optional renewal periods of five years each).
Broadcast transmission services revenues in the U.K. are received for both
analog and digital transmission services. Monthly analog transmission revenues
are principally received from the BBC under a contract with an initial 10-year
term through March 31, 2007. Digital transmission services revenues from the
BBC and ONdigital are recognized under contracts with initial terms of 12
years through November 15, 2010. Monthly revenues from these digital
transmission contracts increase over time as the network rollout progresses.
See "Item 1. Business--U.K. Operations--Significant Contracts".
Site rental revenues in the U.K. are received from other broadcast
transmission service providers (primarily NTL) and wireless communications
companies, including all four U.K. cellular operators (BT Cellnet, Vodafone,
One 2 One and Orange). Site rental revenues are generally recognized on a
monthly basis under lease agreements with original terms of three to 12 years.
Such lease agreements generally require annual payments in advance, and
include rental rate adjustment provisions between one and three years from the
commencement of the lease. Site rental revenues are expected to become an
increasing portion of CCUK's total U.K. revenue base, and we believe that the
demand for site rental from communication service providers will increase in
line with the expected growth of these communication services in the United
Kingdom.
Network services revenues in the U.S. consist of revenues from:
(1) network design and site selection,
(2) site acquisition,
(3) site development and construction,
(4) antenna installation, and
(5) other services.
Network services revenues are received primarily from wireless communications
companies. Network services revenues in the U.S. are recognized under service
contracts which provide for billings on either a fixed price
36
basis or a time and materials basis. Demand for our network services
fluctuates from period to period and within periods. See "Item 1. Business--
Risk Factors--Variability in Demand for Network Services May Reduce the
Predictability of Our Results". Consequently, the operating results of our
network services businesses for any particular period may vary significantly,
and should not be considered as indicative of longer-term results. We also
derive revenues from the ownership and operation of microwave radio and
specialized mobile radio networks in Puerto Rico where we own radio wave
spectrum in the 2,000 MHz and 6,000 MHz range (for microwave radio) and the
800 MHz range (for specialized mobile radio). These revenues are generally
recognized under monthly management or service agreements.
Network services revenues in the U.K. consist of (1) network design and
site selection, site acquisition, site development and antenna installation
and (2) site management and other services. Network design and development and
related services are provided to:
(1) a number of broadcasting and related organizations, both in the United
Kingdom and other countries,
(2) all four U.K. cellular operators, and
(3) a number of other wireless communications companies, including Dolphin
and Highway One.
These services are usually subject to a competitive bid, although a
significant proportion result from an operator coming onto an existing CCUK
site. Revenues from such services are recognized on either a fixed price or a
time and materials basis. Site management and other services, consisting of
both network monitoring and equipment maintenance, are carried out in the
United Kingdom for a number of emergency service organizations. CCUK receives
revenues for such services under contracts with original terms of between
three and five years. Such contracts provide fixed prices for network
monitoring and variable pricing dependent on the level of equipment
maintenance carried out in a given period.
Costs of operations for site rental in the U.S. primarily consist of:
. land leases;
. repairs and maintenance;
. utilities;
. insurance;
. property taxes;
. monitoring costs; and
. in the case of managed sites, rental payments.
For any given tower, such costs are relatively fixed over a monthly or an
annual time period. As such, operating costs for owned towers do not generally
increase significantly as additional customers are added. However, rental
expenses at certain managed towers increase as additional customer antennas
are added, resulting in higher incremental revenues but lower incremental
margins than on owned towers.
Costs of operations for broadcast transmission services in the U.K. consist
primarily of employee compensation and related benefits costs, utilities,
rental payments under the Site-Sharing Agreement with NTL, circuit costs and
repairs and maintenance on both transmission equipment and structures. Site
rental operating costs in the U.K. consist primarily of employee compensation
and related benefits costs, utilities and repairs and maintenance. The
majority of such costs are relatively fixed in nature, with increases in
revenue from new installations on existing sites generally being achieved
without a corresponding increase in costs.
Costs of operations for network services consist primarily of employee
compensation and related benefits costs, subcontractor services, consulting
fees, and other on-site construction and materials costs. We incur these
network services costs (1) to support our internal operations, including
maintenance of our owned towers, and (2) to maintain the employees necessary
to provide end-to-end services to third parties regardless of the level of
37
such business at any time. We believe that our experienced staff enables us to
provide the type of end-to-end services that enhance our ability to acquire
access to the infrastructure of wireless carriers and to attract significant
build-to-suit contracts.
General and administrative expenses consist primarily of:
. employee compensation, training, recruitment and related benefits
costs;
. advertising;
. professional and consulting fees;
. office rent and related expenses; and
. travel costs.
Corporate development expenses represent costs incurred in connection with
acquisitions and development of new business initiatives. These expenses
consist primarily of:
. allocated compensation and external professional fees;
. benefits; and
. overhead costs that are not directly related to the administration or
management of existing towers.
Depreciation and amortization charges relate to our property and equipment
(which consists primarily of towers, broadcast transmission equipment,
associated buildings, construction equipment and vehicles), goodwill and other
intangible assets recorded in connection with business acquisitions.
Depreciation of towers, depreciation of broadcast transmission equipment and
amortization of goodwill are computed with a useful life of 20 years.
Amortization of other intangible assets (principally the value of existing
site rental contracts at Crown Communication) is computed with a useful life
of 10 years. Depreciation of buildings is computed with useful lives ranging
from 20 to 50 years. Depreciation of construction equipment and vehicles are
generally computed with useful lives of 10 years and 5 years, respectively.
In August 1998, we completed a share exchange with the shareholders of
CCUK, under which our ownership of CCUK increased from approximately 34.3% to
80%. In October 1998, CCUK completed the acquisition of Millennium. In March
1999, we completed the formation of Crown Atlantic. In June and December of
1999, we completed the acquisition of towers from Powertel. During 1999 and
2000 we completed the transactions with BellSouth, BellSouth DCS and GTE.
Additionally, during 2000 Crown Atlantic acquired the Frontier towers from
Bell Atlantic Mobile, and CCAL completed the substantial portion of the
transaction with Cable & Wireless Optus. Results of operations of these
acquired businesses and towers are included in our consolidated financial
statements for the periods subsequent to the respective dates of acquisition.
As such, our results of operations for the year ended December 31, 2000 are
not comparable to the year ended December 31, 1999, and the results for the
year ended December 31, 1999 are not comparable to the year ended December 31,
1998.
38
The following information is derived from our historical Consolidated
Statements of Operations for the periods indicated.
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1999 December 31, 2000
------------------ ------------------- -------------------
Percent Percent Percent
of Net of Net of Net
Amount Revenues Amount Revenues Amount Revenues
-------- -------- --------- -------- --------- --------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission......... $ 75,028 66.4% $ 267,894 77.5% $ 446,039 68.7%
Network services and
other................ 38,050 33.6 77,865 22.5 203,126 31.3
-------- ----- --------- ----- --------- -----
Total net revenues... 113,078 100.0 345,759 100.0 649,165 100.0
-------- ----- --------- ----- --------- -----
Operating expenses:
Costs of operations:
Site rental and
broadcast
transmission......... 26,254 35.0 114,436 42.7 194,424 43.6
Network services and
other................ 21,564 56.7 42,312 54.3 120,176 59.2
-------- --------- ---------
Total costs of
operations.......... 47,818 42.3 156,748 45.4 314,600 48.5
General and
administrative......... 23,571 20.8 43,823 12.7 76,944 11.8
Corporate development... 4,625 4.1 5,403 1.6 10,489 1.6
Restructuring charges... -- -- 5,645 1.6 -- --
Non-cash general and
administrative
compensation charges... 12,758 11.3 2,173 0.6 3,127 0.5
Depreciation and
amortization........... 37,239 32.9 130,106 37.6 238,796 36.8
-------- ----- --------- ----- --------- -----
Operating income
(loss)................. (12,933) (11.4) 1,861 0.5 5,209 0.8
Other income (expense):
Equity in earnings of
unconsolidated
affiliate............ 2,055 1.8 -- -- -- --
Interest and other
income (expense)..... 4,220 3.7 17,731 5.1 33,761 5.2
Interest expense and
amortization of
deferred financing
costs................ (29,089) (25.7) (110,908) (32.0) (241,294) (37.2)
-------- ----- --------- ----- --------- -----
Loss before income
taxes, minority
interests,
extraordinary item and
cumulative effect of
change in accounting
principle.............. (35,747) (31.6) (91,316) (26.4) (202,324) (31.2)
Provision for income
taxes.................. (374) (0.3) (275) (0.1) (246) --
Minority interests...... (1,654) (1.5) (2,756) (0.8) (721) (0.1)
-------- ----- --------- ----- --------- -----
Loss before
extraordinary item and
cumulative effect of
change in accounting
principle.............. (37,775) (33.4) (94,347) (27.3) (203,291) (31.3)
Extraordinary item--loss
on early extinguishment
of debt................ -- -- -- -- (1,495) (0.2)
Cumulative effect of
change in accounting
principle for costs of
start-up activities.... -- -- (2,414) (0.7) -- --
-------- ----- --------- ----- --------- -----
Net loss................ $(37,775) (33.4)% $ (96,761) (28.0)% $(204,786) (31.5)%
======== ===== ========= ===== ========= =====
Comparison of Years Ended December 31, 2000 and 1999
Consolidated revenues for 2000 were $649.2 million, an increase of $303.4
million from 1999. This increase was primarily attributable to:
(1) a $178.1 million, or 66.5%, increase in site rental and broadcast
transmission revenues, of which $20.2 million was attributable to CCUK,
$25.9 million was attributable to Crown Atlantic, $6.8 million was
attributable to CCAL and $125.2 million was attributable to CCUSA,
(2) a $101.3 million increase in network services and other revenues from
CCUSA,
(3) a $3.8 million increase in network services and other revenues from
CCUK, and
(4) a $21.7 million increase in network services and other revenues from
Crown Atlantic.
39
Costs of operations for 2000 were $314.6 million, an increase of $157.9
million from 1999. This increase was primarily attributable to:
(1) an $80.0 million increase in site rental and broadcast transmission
costs, of which $10.4 million was attributable to CCUK, $9.9 million
was attributable to Crown Atlantic, $3.6 million was attributable to
CCAL and $56.1 million was attributable to CCUSA,
(2) a $62.1 million increase in network services costs related to CCUSA,
(3) a $3.0 million increase in network services costs from CCUK, and
(4) a $13.8 million increase in network services costs from Crown Atlantic.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues increased to 43.6% for 2000
from 42.7% for 1999 because of lower margins attributable to the CCUK, CCAL
and CCUSA operations. Costs of operations for network services and other as a
percentage of network services and other revenues increased to 59.2% for 2000
from 54.3% for 1999, primarily due to lower margins from the CCUSA, CCUK and
Crown Atlantic operations.
General and administrative expenses for 2000 were $76.9 million, an
increase of $33.1 million from 1999. This increase was primarily attributable
to:
(1) a $21.7 million increase in expenses related to the CCUSA operations,
(2) a $1.2 million increase in expenses at our corporate office,
(3) a $3.3 million increase in expenses at Crown Atlantic,
(4) a $2.4 million increase in expenses at CCUK, and
(5) $4.4 million in expenses at CCAL.
General and administrative expenses as a percentage of revenues decreased for
2000 to 11.8% from 12.7% for 1999 because of lower overhead costs as a
percentage of revenues for CCUSA and Crown Atlantic.
Corporate development expenses for 2000 were $10.5 million, compared to
$5.4 million for 1999. This increase was primarily attributable to an increase
in expenses at our corporate office.
For 2000, we recorded non-cash general and administrative compensation
charges of $3.1 million related to the issuance of stock and stock options to
certain employees and executives, compared to $2.2 million for 1999. See "--
Compensation Charges Related to Stock Option Grants and Acquisitions".
Depreciation and amortization for 2000 was $238.8 million, an increase of
$108.7 million from 1999. This increase was primarily attributable to:
(1) a $13.6 million increase in depreciation and amortization related to
the property and equipment and goodwill from CCUK,
(2) $9.2 million increase in depreciation and amortization related to the
property and equipment and goodwill from Crown Atlantic,
(3) $5.2 million of depreciation and amortization related to property and
equipment from CCAL, and
(4) an $80.5 million increase in depreciation and amortization related to
the property and equipment, goodwill and other intangible assets
related to the CCUSA operations.
Interest and other income (expense) for 2000 resulted primarily from:
(1) the investment of the net proceeds from our recent offerings (see "--
Liquidity and Capital Resources") and
(2) a gain recognized upon the disposition of an investment in an
affiliate, partially offset by
(3) costs incurred in connection with unsuccessful acquisition attempts.
40
Interest expense and amortization of deferred financing costs for 2000 was
$241.3 million, an increase of $130.4 million, or 117.6%, from 1999. This
increase was primarily attributable to interest on indebtedness at CCUSA, CCUK
and Crown Atlantic, amortization of the original issue discount on the 10 3/8%
discount notes and the 11 1/4% discount notes, interest on the 9% senior
notes, the 9 1/2% senior notes and the 10 3/4% senior notes, and the write-off
of unamortized deferred financing costs related to the term loans. See "--
Liquidity and Capital Resources".
Minority interests represent the minority shareholder's 20% interest in
CCUK's operations (prior to July 2000), the minority partner's 43.1% interest
in Crown Atlantic's operations, the minority partner's 18.0% interest in the
operations of the GTE joint venture and the minority shareholder's 33.3%
interest in the CCAL operations.
The extraordinary loss on early extinguishment of debt for 2000 represents
the write-off of unamortized deferred financing costs related to the senior
credit facility. See "--Liquidity and Capital Resources".
Comparison of Years Ended December 31, 1999 and 1998
Consolidated revenues for 1999 were $345.8 million, an increase of $232.7
million from 1998. This increase was primarily attributable to:
(1) a $192.9 million, or 257.1%, increase in site rental and broadcast
transmission revenues, of which $119.5 million was attributable to
CCUK, $37.6 million was attributable to Crown Atlantic and $35.8
million was attributable to CCUSA,
(2) a $12.9 million increase in network services and other revenues from
CCUSA,
(3) a $16.1 million increase in network services and other revenues from
CCUK, and
(4) $10.3 million in network services and other revenues from Crown
Atlantic.
Costs of operations for 1999 were $156.7 million, an increase of $108.9
million from 1998. This increase was primarily attributable to:
(1) an $88.2 million increase in site rental and broadcast transmission
costs, of which $57.3 million was attributable to CCUK, $16.3 million
was attributable to Crown Atlantic and $14.6 million was attributable
to CCUSA,
(2) a $4.0 million increase in network services costs related to CCUSA,
(3) an $11.4 million increase in network services costs from CCUK, and
(4) $4.7 million in network services costs from Crown Atlantic.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues increased to 42.7% for 1999
from 35.0% for 1998 because of higher costs attributable to the CCUK, Crown
Atlantic and CCUSA operations. Costs of operations for network services and
other as a percentage of network services and other revenues decreased to
54.3% for 1999 from 56.7% for 1998, primarily due to higher margins from the
CCUK, Crown Atlantic and CCUSA operations.
General and administrative expenses for 1999 were $43.8 million, an
increase of $20.3 million from 1998. This increase was primarily attributable
to:
(1) a $10.1 million increase in expenses related to the CCUSA operations,
(2) $1.8 million increase in expenses at our corporate office,
(3) a $3.2 million increase in expenses at CCUK, and
(4) $5.1 million in expenses at Crown Atlantic.
41
General and administrative expenses as a percentage of revenues decreased for
1999 to 12.7% from 20.8% for 1998 because of lower overhead costs as a
percentage of revenues for CCUK, Crown Atlantic and CCUSA.
Corporate development expenses for 1999 were $5.4 million, compared to $4.6
million for 1998. This increase was attributable to $0.8 million in expenses
at CCUK. Corporate development expenses for 1998 include discretionary bonuses
related to our performance totaling approximately $1.8 million for certain
members of our management.
In connection with the formation of Crown Atlantic, we completed a
restructuring of our United States operations during the first quarter of
1999. The objective of this restructuring was to transition from a centralized
organization to a regionally-based organization in the United States. In the
first quarter of 1999, we recorded one-time charges of $1.8 million related to
severance payments for staff reductions, as well as costs related to non-
cancelable leases of excess office space.
We completed a restructuring of the operations of our subsidiary,
TeleStructures, Inc., in December 1999. The objective of this restructuring
was to reduce the size of the TeleStructures, Inc. staff to a level which
could be justified by its operating volume. In the fourth quarter of 1999, we
recorded one-time charges totaling $3.8 million related to severance payments
for the staff reductions, the recognition of an impairment loss for the
remaining goodwill from the acquisition and other related costs.
For 1999, we recorded non-cash general and administrative compensation
charges of $2.2 million related to the issuance of stock options to certain
employees and executives, compared to $12.8 million for 1998. See "--
Compensation Charges Related to Stock Option Grants".
Depreciation and amortization for 1999 was $130.1 million, an increase of
$92.9 million from 1998. This increase was primarily attributable to:
(1) a $43.3 million increase in depreciation and amortization related to
the property and equipment and goodwill from CCUK,
(2) $24.2 million of depreciation and amortization related to the property
and equipment and goodwill from Crown Atlantic, and
(3) a $25.0 million increase in depreciation and amortization related to
the property and equipment, goodwill and other intangible assets
related to the CCUSA operations.
The equity in earnings of unconsolidated affiliate represents our 34.3%
share of CCUK's net earnings for the periods prior to August 1998, at which
time the share exchange with CCUK's shareholders was completed. For the eight
months ended August 31, 1998, after making appropriate adjustments to CCUK's
results of operations for such period to conform to generally accepted
accounting principles of the United States, CCUK had net revenues, operating
income, interest expense (including amortization of deferred financing costs)
and net income of $97.2 million, $18.6 million, $13.4 million and $6.0
million, respectively. Included in CCUK's results of operations for such
period are non-cash compensation charges for approximately $3.8 million
related to the issuance of stock options to certain members of CCUK's
management.
Interest and other income (expense) for 1999 resulted primarily from:
(1) the investment of the net proceeds from our initial public offering of
common stock in August 1998,
(2) the investment of the excess proceeds from the sale of our 12 3/4%
senior exchangeable preferred stock in December 1998,
(3) the investment of the excess proceeds from the sale of our common
stock, 10 3/8% discount notes and 9% senior notes in May 1999,
(4) the investment of the proceeds from the sale of our common stock to TdF
in June and July of 1999,
42
(5) the investment of the net proceeds from the sale of our 11 1/4%
discount notes and 9 1/2% senior notes in July 1999, and
(6) the investment of the net proceeds from the sale of our 8 1/4%
convertible preferred stock in November 1999, partially offset by costs
incurred in connection with unsuccessful acquisition attempts, costs
incurred in connection with an offering of common stock by one of our
shareholders, a loss incurred upon the disposition of an investment in
an affiliate and costs incurred in connection with a solicitation of
consents from certain of our bond and preferred stock holders.
Interest and other income (expense) for 1998 resulted primarily from (1) the
investment of the excess proceeds from the sale of the 10 5/8% discount notes
in November 1997; and (2) the investment of the net proceeds from the initial
public offering in August 1998. See "--Liquidity and Capital Resources".
Interest expense and amortization of deferred financing costs for 1999 was
$110.9 million, an increase of $81.8 million, or 281.3%, from 1998. This
increase was primarily attributable to interest on indebtedness at CCUK and
Crown Atlantic, amortization of the original issue discount on the 10 3/8%
discount notes and the 11 1/4% discount notes, interest on the 9 1/2% senior
notes and the 9 1/2% senior notes, and interest and fees on the term loans
used to finance the BellSouth and Powertel escrow payments.
Minority interests represent the minority shareholder's 20% interest in
CCUK's operations and the minority partner's 38.5% interest in Crown
Atlantic's operations.
The cumulative effect of the change in accounting principle for costs of
start-up activities represents the charge we recorded upon the adoption of SOP
98-5 on January 1, 1999.
Liquidity and Capital Resources
Our business strategy contemplates substantial capital expenditures:
(1) in connection with the expansion of our tower portfolios by partnering
with wireless carriers to assume ownership or control of their existing
towers, by pursuing build-to-suit opportunities, and by pursuing other
tower acquisition opportunities, and
(2) to acquire existing transmission networks globally as opportunities
arise.
Since its inception, CCIC has generally funded its activities, other than
acquisitions and investments, through excess proceeds from contributions of
equity capital and cash provided by operations. CCIC has financed acquisitions
and investments with the proceeds from equity contributions, borrowings under
our senior credit facilities, issuances of debt securities and the issuance of
promissory notes to sellers. Since its inception, CCUK has generally funded
its activities, other than the acquisition of the BBC home service
transmission business, through cash provided by operations and borrowings
under CCUK's credit facility. CCUK financed the acquisition of the BBC home
service transmission business with the proceeds from equity contributions and
the issuance of the CCUK bonds.
For the years ended December 31, 1998, 1999 and 2000, our net cash provided
by operating activities was $45.0 million, $92.6 million and $165.5 million,
respectively. For the years ended December 31, 1998, 1999 and 2000, our net
cash provided by financing activities was $345.2 million, $1,670.4 million and
$1,707.1 million, respectively. Our primary financing-related activities in
2000 and the first quarter of 2001 included the following:
2000 Credit Facility
In March 2000, a subsidiary of CCIC entered into a credit agreement with a
syndicate of banks which consists of two term loan facilities and a revolving
line of credit aggregating $1,200.0 million. Available borrowings under the
2000 credit facility are generally to be used for the construction and
purchase of towers and for general corporate purposes of CCUSA, Crown Castle
GT and CCAL. The amount of available
43
borrowings will be determined based on the current financial performance (as
defined) of those subsidiaries' assets. In addition, up to $25.0 million of
borrowing availability under the 2000 credit facility can be used for letters
of credit. On March 15, 2000, we used $83.4 million in borrowings under the
2000 credit facility to repay outstanding borrowings and accrued interest
under the Crown Communication senior credit facility. The net proceeds from
$316.6 million in additional borrowings were used to fund a portion of the
purchase price for the GTE joint venture and for general corporate purposes.
During the remainder of 2000 and the first quarter of 2001, we borrowed an
additional $150.0 million under the 2000 credit facility for general corporate
purposes.
Term Loans due 2011
On April 3, 2000, we borrowed $400.0 million under a term loan agreement
with a group of lenders. The net proceeds from this borrowing, which amounted
to $395.9 million, were used to fund a portion of the cash contribution for
the second closing of towers at the GTE joint venture (as discussed below).
The term loans were repaid in June 2000 with proceeds from the sale of our
10 3/4% senior notes.
June 2000 Debt Offering
On June 21, 2000, we issued $500.0 million aggregate principal amount of
our 10 3/4% senior notes for proceeds of $483.7 million (after underwriting
discounts of $16.3 million). A portion of the proceeds from the sale of these
securities were used to repay the term loans (as discussed above), and the
remaining proceeds are being used to fund the initial interest payments on the
10 3/4% senior notes and for general corporate purposes.
July 2000 Offerings
On July 27, 2000, we sold shares of our common stock and preferred stock in
concurrent underwritten public offerings (the "July 2000 Offerings"). We had
granted the underwriters for the July 2000 Offerings over-allotment options to
purchase additional shares in both offerings. On August 1, 2000, the over-
allotment option for the common stock offering was partially exercised and the
over-allotment option for the preferred stock offering was exercised in full.
As a result, we sold (1) a total of 12,084,200 shares of our common stock at a
price of $29.50 per share and received proceeds of $342.2 million (after
underwriting discounts of $14.3 million) and (2) a total of 8,050,000 shares
of our 6.25% convertible preferred stock at a price of $50.00 per share and
received proceeds of $388.4 million (after underwriting discounts of $14.1
million). The proceeds from the July 2000 Offerings will be used for general
corporate purposes.
January 2001 Offering
On January 11, 2001, we sold shares of our common stock in an underwritten
public offering. We had granted the underwriters an over-allotment option to
purchase additional shares in the offering. On January 12, 2001, the over-
allotment option was partially exercised. As a result, we sold a total of
13,445,200 shares of our common stock at a price of $26.25 per share and
received proceeds of $342.9 million (after underwriting discounts of $10.1
million). The proceeds from this offering will be used for general corporate
purposes.
Crown Atlantic Credit Facility
In March 2001, the Crown Atlantic credit facility was amended to increase
the available borrowings to $345.0 million. Under the amended facility, the
amount of available borrowings will begin to decrease on March 31, 2003.
During the first quarter of 2001, Crown Atlantic borrowed an additional $31.0
million under the Crown Atlantic credit facility for general corporate
purposes.
Capital expenditures were $636.5 million for the year ended December 31,
2000, of which $10.9 million were for CCIC, $422.4 million were for CCUSA,
$99.1 million were for Crown Atlantic, $102.4 million were for CCUK and $1.7
million were for CCAL. We anticipate that we will build, through the end of
2001, approximately 1,000 towers in the United States at a cost of
approximately $230.0 million and approximately
44
500 towers in the United Kingdom at a cost of approximately $100.0 million. We
also expect to spend approximately $120.0 million in the United States to
improve the structural capacity of our domestic towers.
In addition to capital expenditures in connection with build-to-suits, we
have applied a significant amount of capital to finance the remaining cash
portion of the consideration paid in connection with the recent transactions
discussed below.
In connection with the BellSouth transaction, through December 2000, we
have issued approximately 9.1 million shares of our common stock and paid
BellSouth $438.1 million in cash.
In connection with the BellSouth DCS transaction, through December 2000, we
have paid BellSouth DCS $301.5 million in cash.
On November 7, 1999, we entered into an agreement with GTE (now part of
Verizon Communications) to form a joint venture to own and operate a
significant majority of GTE's towers. The agreement contemplated that the
transaction would be completed in multiple closings during 2000. On January
31, 2000, the formation of the joint venture took place in connection with the
first such closing of towers. During the course of the multiple closings, (1)
we contributed an aggregate of approximately $815.3 million (of which
approximately $94.5 million was in shares of our common stock, with the
balance in cash) in exchange for a majority ownership interest in the joint
venture, and (2) GTE contributed approximately 2,300 towers in exchange for
cash distributions aggregating approximately $695.8 million from the joint
venture and a minority ownership interest in the joint venture. Upon
dissolution of the joint venture, GTE will receive (1) the 5.1 million shares
of our common stock contributed to the joint venture and (2) a payment equal
to approximately 11.1% of the fair market value of the joint venture's other
net assets; we will then receive the remaining assets and liabilities of the
joint venture. We have accounted for our investment in the GTE joint venture
as a purchase of tower assets, and have included the joint venture's results
of operations and cash flows in our consolidated financial statements for
periods subsequent to formation.
Upon entering into the agreement with GTE, we placed $50.0 million into an
escrow account. At the April 3, 2000 closing for the GTE joint venture, the
funds in the escrow account were used to pay $50.0 million of our cash
contribution. A portion of the remaining cash contribution for this closing
was financed with the net proceeds from borrowings under the Term Loans due
2011 (as discussed above).
In addition to the approximately 2,300 towers contributed pursuant to the
formation agreement, GTE had the right to contribute certain additional towers
to the GTE joint venture, including towers acquired by GTE from Ameritech
Corp. ("Ameritech"), on terms substantially similar to those in the formation
agreement. In April 2000, we agreed with GTE that the Ameritech towers would
be contributed to the joint venture. In August and September 2000, we
contributed $181.6 million in cash, and GTE contributed 497 of the Ameritech
towers in exchange for a cash distribution of $181.6 million from the joint
venture.
In March 2000, CCAL (our 66.7% owned subsidiary) entered into an agreement
to purchase approximately 700 towers in Australia from Cable & Wireless Optus.
The total purchase price for the towers will be approximately $135.0 million
in cash (Australian $220.0 million). We have accounted for our investment in
CCAL as a purchase of tower assets, and have included CCAL's results of
operations and cash flows in our consolidated financial statements for periods
subsequent to the purchase date. On April 3, 2000, the first closing took
place for CCAL. We contributed $90.8 million in cash (Australian $147.5
million) to CCAL. The largest portion of this amount, along with a capital
contribution from CCAL's minority shareholder, was used to pay $103.5 million
(Australian $168.1 million) to Optus. During the remainder of 2000, CCAL made
additional payments to Optus amounting to $15.4 million (Australian $27.5
million).
We expect that the completion of the recent transactions and the execution
of our new tower build, or build-to-suit program, will have a material impact
on our liquidity. We expect that once integrated, these transactions will have
a positive impact on liquidity, but will require some period of time to offset
the initial adverse impact
45
on liquidity. In addition, we believe that as new towers become operational
and we begin to add tenants, they should result in a long-term increase in
liquidity.
To fund the execution of our business strategy, including the recent
transactions described above and the construction of new towers that we have
agreed to build, we expect to use the net proceeds of our recent offerings and
borrowings available under our U.S. and U.K. credit facilities. We will have
additional cash needs to fund our operations in the future. We may also have
additional cash needs in the future if additional tower acquisitions or build-
to-suit opportunities arise. Some of the opportunities that we are currently
pursuing could require significant additional capital. If we do not otherwise
have cash available, or borrowings under our credit facilities have otherwise
been utilized, when our cash need arises, we would be forced to seek
additional 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 December 31, 2000, we had consolidated cash and cash equivalents of
$453.8 million (including $62.1 million at CCUSA, $79.6 million at CCUK, $1.1
million at Crown Atlantic and $6.8 million at CCAL), consolidated long-term
debt of $2,602.7 million, consolidated redeemable preferred stock of $842.7
million and consolidated stockholders' equity of $2,420.9 million.
As of March 15, 2001, Crown Atlantic had unused borrowing availability
under its amended credit facility of approximately $75.0 million, and CCUK had
unused borrowing availability under its credit facility of approximately
(Pounds)57.1 million ($85.4 million). As of March 15, 2001, our subsidiaries
had approximately $404.1 million of unused borrowing availability under the
2000 credit facility. Our various credit facilities require our subsidiaries
to maintain certain financial covenants and place restrictions on the ability
of our subsidiaries to, among other things, incur debt and liens, pay
dividends, make capital expenditures, undertake transactions with affiliates
and make investments. These facilities also limit the ability of the borrowing
subsidiaries to pay dividends to CCIC.
If we are unable to refinance our subsidiary debt or renegotiate the terms
of such debt, we may not be able to meet our debt service requirements,
including interest payments on the notes, in the future. Our 9% senior notes,
our 9 1/2% senior notes and our 10 3/4% senior notes require annual cash
interest payments of approximately $16.2 million, $11.9 million and $53.8
million, respectively. Prior to November 15, 2002, May 15, 2004 and August 1,
2004, the interest expense on our 10 5/8% discount notes, our 10 3/8% discount
notes and our 11 1/4% discount notes, respectively, will be comprised solely
of the amortization of original issue discount. Thereafter, the 10 5/8%
discount notes, the 10 3/8% discount notes and the 11 1/4% discount notes will
require annual cash interest payments of approximately $26.7 million, $51.9
million and $29.3 million, respectively. Prior to December 15, 2003, we do not
expect to pay cash dividends on our exchangeable preferred stock or, if
issued, cash interest on the exchange debentures. Thereafter, assuming all
dividends or interest have been paid-in-kind, our exchangeable preferred stock
or, if issued, the exchange debentures will require annual cash dividend or
interest payments of approximately $47.8 million. Annual cash interest
payments on the CCUK bonds are (Pounds)11.25 ($16.8 million). In addition, our
various credit facilities will require periodic interest payments on amounts
borrowed thereunder.
As a holding company, CCIC will require distributions or dividends from its
subsidiaries, or will be forced to use capital raised in debt and equity
offerings, to fund its debt obligations, including interest payments on the
cash-pay notes and eventually the 10 5/8% discount notes, the 10 3/8% discount
notes and the 11 1/4% discount notes. The terms of the indebtedness of our
subsidiaries significantly limit their ability to distribute cash to CCIC. As
a result, we will be required to apply a portion of the net proceeds from the
recent debt offerings to fund interest payments on the cash-pay notes. If we
do not retain sufficient funds from the offerings or any future financing, we
may not be able to make our interest payments on the cash-pay notes.
Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any such debt
obligations, will depend on our future performance, which, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond
46
our control. We anticipate that we may need to refinance all or a portion of
our indebtedness on or prior to its scheduled maturity. There can be no
assurance that we will be able to effect any required refinancings of our
indebtedness on commercially reasonable terms or at all. See "Item 1.
Business--Risk Factors".
Reporting Requirements Under the Indentures Governing the Company's Debt
Securities (the "Indentures") and the Certificate of Designations Governing
the Company's 12 3/4% Senior Exchangeable Preferred Stock (the "Certificate")
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
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.
We have designated CCUK and Crown Atlantic as Unrestricted Subsidiaries.
Summarized financial information for (1) CCIC and our Restricted Subsidiaries;
and (2) our Unrestricted Subsidiaries is as follows:
December 31, 2000
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash
equivalents............. $ 322,206 $ 131,627 $ -- $ 453,833
Other current assets..... 228,755 89,546 -- 318,301
Property and equipment,
net..................... 3,025,354 1,277,683 -- 4,303,037
Investments.............. 137,000 -- -- 137,000
Investments in
Unrestricted
Subsidiaries............ 1,618,813 -- (1,618,813) --
Goodwill and other
intangible assets, net.. 188,822 924,054 -- 1,112,876
Other assets, net........ 98,671 16,123 -- 114,794
---------- ---------- ----------- ----------
$5,619,621 $2,439,033 $(1,618,813) $6,439,841
========== ========== =========== ==========
Current liabilities...... $ 205,444 $ 119,432 $ -- $ 324,876
Long-term debt........... 2,042,935 559,752 -- 2,602,687
Other liabilities........ 26,914 66,440 -- 93,354
Minority interests....... 80,748 74,596 -- 155,344
Redeemable preferred
stock................... 842,718 -- -- 842,718
Stockholders' equity..... 2,420,862 1,618,813 (1,618,813) 2,420,862
---------- ---------- ----------- ----------
$5,619,621 $2,439,033 $(1,618,813) $6,439,841
========== ========== =========== ==========
47
Three Months Ended December 31, 2000 Year Ended December 31, 2000
-------------------------------------- --------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues............ $117,065 $84,908 $201,973 $ 336,012 $313,153 $ 649,165
Costs of operations
(exclusive of
depreciation and
amortization).......... 62,471 41,995 104,466 163,454 151,146 314,600
General and
administrative......... 18,590 5,810 24,400 60,426 16,518 76,944
Corporate development... 3,951 123 4,074 9,706 783 10,489
Non-cash general and
administrative
compensation charges... 983 525 1,508 2,153 974 3,127
Depreciation and
amortization........... 39,598 31,833 71,431 128,204 110,592 238,796
-------- ------- -------- --------- -------- ---------
Operating income
(loss)................. (8,528) 4,622 (3,906) (27,931) 33,140 5,209
Interest and other
income (expense)....... 11,094 81 11,175 32,525 1,236 33,761
Interest expense and
amortization of
deferred financing
costs.................. (54,887) (12,420) (67,307) (191,447) (49,847) (241,294)
Provision for income
taxes.................. (79) (4) (83) (97) (149) (246)
Minority interests...... 1,489 (404) 1,085 3,833 (4,554) (721)
Extraordinary item...... -- -- -- (1,495) -- (1,495)
-------- ------- -------- --------- -------- ---------
Net loss................ $(50,911) $(8,125) $(59,036) $(184,612) $(20,174) $(204,786)
======== ======= ======== ========= ======== =========
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 11 1/4% Discount Notes, the 9 1/2% Senior Notes and the 10 3/4% Senior
Notes (the "1999 and 2000 Securities"):
1997 and 1998 1999 and 2000
Securities Securities
------------- -------------
(In thousands of dollars)
Tower Cash Flow, for the three months ended
December 31, 2000................................ $ 27,781 $ 27,781
======== ========
Consolidated Cash Flow, for the twelve months
ended December 31, 2000.......................... $102,426 $112,132
Less: Tower Cash Flow, for the twelve months ended
December 31, 2000................................ (88,512) (88,512)
Plus: four times Tower Cash Flow, for the three
months ended December 31, 2000................... 111,124 111,124
-------- --------
Adjusted Consolidated Cash Flow, for the twelve
months ended December 31, 2000................... $125,038 $134,744
======== ========
Compensation Charges Related to Stock Option Grants and Acquisitions
During the period from April 24, 1998 through July 15, 1998, we granted
options to employees and executives for the purchase of 3,236,980 shares of
our common stock at an exercise price of $7.50 per share. Of such options,
options for 1,810,730 shares vested upon consummation of the IPO, and the
remaining options for 1,426,250 shares are vesting at 20% per year over five
years, beginning one year from the date of grant. In addition, we assigned our
right to repurchase shares of our common stock from a stockholder (at a price
of $6.26 per share) to two individuals (including a former director) 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 CCUK's shareholders and at prices
substantially below the price to the public in the IPO, we have recorded a
non-cash general and administrative 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 IPO. Such compensation
charge will total approximately $18.4 million, of which approximately $10.6
million was recognized upon consummation of the IPO (for such options and
shares which
48
vested upon consummation of the IPO), and the remaining $7.8 million is being
recognized over five years (approximately $1.6 million per year) through the
second quarter of 2003. An additional $1.6 million in non-cash general and
administrative compensation charges will be recognized through the third
quarter of 2001 for stock options issued to certain members of CCUK's
management prior to the consummation of the share exchange.
In July 2000, we issued (1) 199,473 shares of our common stock and (2)
options to purchase 17,577 shares of our common stock with an exercise price
of $.01 per share in connection with an acquisition by CCUK. Such shares and
options were deemed to be compensation to the former shareholders of the
acquired company (who remain employed by the Company). As a result, CCUK will
recognize non-cash general and administrative compensation charges of
approximately $8.4 million over five years.
In September 2000, we issued 336,600 shares of our common stock in
connection with an acquisition by CCUSA. Of such shares, 170,710 were deemed
to be compensation to the former shareholders of the acquired company (who
remain employed by the Company). As a result, CCUSA will recognize non-cash
general and administrative compensation charges of approximately $5.9 million
over four years.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that
derivative instruments be recognized as either assets or liabilities in the
consolidated balance sheet based on their fair values. Changes in the fair
values of derivative instruments will be recorded either in results of
operations or in other comprehensive income, depending on the intended use of
the derivative instrument. The initial application of SFAS 133 will be
reported as the effect of a change in accounting principle. The Company will
adopt the requirements of SFAS 133 as of January 1, 2001. The adoption of SFAS
133 will result in a net transition adjustment gain of approximately $0.2
million in accumulated other comprehensive income, the recognition of
approximately $0.4 million of derivative instrument assets and the recognition
of approximately $0.2 million 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 also expects
that the adoption of SFAS 133 will increase the volatility of other
comprehensive income as reported in its future financial statements.
Cautionary Statement for Purposes of Forward-Looking Statements
Certain information contained in this Annual Report on Form 10-K (including
statements contained in "Item 1. Business", "Item 3. Legal Proceedings" and
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations"), as well as other written and oral statements made or
incorporated by reference from time to time by the Company and its
representatives in other reports, filings with the Securities and Exchange
Commission, press releases, conferences, conference calls, or otherwise, may
be deemed to be forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934 and are subject to the "Safe Harbor"
provisions of that section. This information includes, without limitation,
statements concerning future results of operations, future revenues, future
costs and expenses and future margins; anticipated timing of capital
expenditures made by wireless carriers and broadcasters; further applications
and revenue sources for the Company's properties and acquisitions; anticipated
releases and technological advances; the effects of and expected benefits from
acquisitions and strategic alliances; the effect of changes in accounting
standards on our results of operations and financial condition; the effect of
the Euro's introduction; the inherent unpredictability of adversarial
proceedings and other contingent liabilities; future capital expenditures and
future financial condition; future wireless and broadcast industry conditions;
and world economic conditions. These statements are based on current
expectations and involve a number of risks and uncertainties, including those
set forth below and elsewhere in this Annual Report on Form 10-K. Although we
believe that the expectations reflected in such forward-looking statements are
reasonable, there can be no assurance that such expectations will prove
correct.
49
When used in this report, the words "anticipate," "estimate," "expect,"
"may," "project" and similar expressions are intended to be among the
statements that identify forward-looking statements. Important factors which
could affect actual results and cause actual results to differ materially from
those results which might be projected, forecast, estimated or budgeted in
such forward-looking statements include, but are not limited to the factors
set forth in "--Overview" above and "Item 1. Business--Risk Factors."
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a result of our international operating, investing and financing
activities, we are exposed to market risks, which include changes in foreign
currency exchange rates and interest rates which may adversely affect our
results of operations and financial position. In attempting to minimize the
risks and/or costs associated with such activities, we seek to manage exposure
to changes in interest rates and foreign currency exchange rates where
economically prudent to do so.
Certain of the financial instruments we have used to obtain capital are
subject to market risks from fluctuations in market interest rates. The
majority of our financial instruments, however, are long-term fixed interest
rate notes and debentures. Therefore, fluctuations in market interest rates of
1% in 2001 would not have a material effect on our consolidated financial
results.
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.
50
Item 8. Financial Statements and Supplementary Data
Crown Castle International Corp. and Subsidiaries
Index to Consolidated Financial Statements
Page
----
Report of KPMG LLP, Independent Auditors.................................. 52
Consolidated Balance Sheet as of December 31, 1999 and 2000............... 53
Consolidated Statement of Operations and Comprehensive Loss for each of
the three years in the period ended December 31, 2000.................... 54
Consolidated Statement of Cash Flows for each of the three years in the
period ended December 31, 2000........................................... 55
Consolidated Statement of Stockholders' Equity for each of the three years
in the period ended December 31, 2000.................................... 56
Notes to Consolidated Financial Statements................................ 57
51
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Crown Castle International Corp.:
We have audited the accompanying consolidated balance sheets of Crown
Castle International Corp. and subsidiaries as of December 31, 1999 and 2000,
and the related consolidated statements of operations and comprehensive loss,
cash flows and stockholders' equity for each of the years in the three-year
period ended December 31, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Crown
Castle International Corp. and subsidiaries as of December 31, 1999 and 2000,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Houston, Texas
February 23, 2001
52
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
December 31,
----------------------
1999 2000
ASSETS ---------- ----------
Current assets:
Cash and cash equivalents................................. $ 549,328 $ 453,833
Receivables:
Trade, net of allowance for doubtful accounts of $3,218
and $18,722 at December 31, 1999 and 2000,
respectively........................................... 74,290 168,184
Other................................................... 4,327 4,942
Short-term investments.................................... -- 38,000
Inventories............................................... 19,178 78,640
Prepaid expenses and other current assets................. 14,922 28,535
---------- ----------
Total current assets.................................. 662,045 772,134
Property and equipment, net................................. 2,468,101 4,303,037
Escrow deposit for acquisition.............................. 50,000 --
Investments................................................. -- 137,000
Goodwill and other intangible assets, net of accumulated
amortization of $53,437 and $101,085 at December 31, 1999
and 2000, respectively..................................... 596,147 1,112,876
Deferred financing costs and other assets, net of
accumulated amortization of $4,245 and $10,733 at December
31, 1999 and 2000, respectively............................ 60,357 114,794
---------- ----------
$3,836,650 $6,439,841
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 45,998 $ 100,766
Accrued interest.......................................... 20,912 47,604
Accrued compensation and related benefits................. 4,005 11,901
Deferred rental revenues and other accrued liabilities.... 60,366 164,605
---------- ----------
Total current liabilities............................. 131,281 324,876
Long-term debt.............................................. 1,542,343 2,602,687
Other liabilities........................................... 67,064 93,354
---------- ----------
Total liabilities..................................... 1,740,688 3,020,917
---------- ----------
Commitments and contingencies (Note 12)
Minority interests.......................................... 55,292 155,344
Redeemable preferred stock.................................. 422,923 842,718
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares
authorized:
Common Stock; shares issued: December 31, 1999--
146,074,905 and December 31, 2000--198,912,094.......... 1,461 1,989
Class A Common Stock; shares issued: December 31, 1999--
11,340,000 and December 31, 2000--none.................. 113 --
Additional paid-in capital................................ 1,805,053 2,894,095
Accumulated other comprehensive loss...................... (3,013) (25,100)
Accumulated deficit....................................... (185,867) (450,122)
---------- ----------
Total stockholders' equity............................ 1,617,747 2,420,862
---------- ----------
$3,836,650 $6,439,841
========== ==========
See notes to consolidated financial statements.
53
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands of dollars, except per share amounts)
Years Ended December 31,
------------------------------
1998 1999 2000
-------- --------- ---------
Net revenues:
Site rental and broadcast transmission....... $ 75,028 $ 267,894 $ 446,039
Network services and other................... 38,050 77,865 203,126
-------- --------- ---------
113,078 345,759 649,165
-------- --------- ---------
Operating expenses:
Costs of operations (exclusive of
depreciation and amortization):
Site rental and broadcast transmission..... 26,254 114,436 194,424
Network services and other................. 21,564 42,312 120,176
General and administrative................... 23,571 43,823 76,944
Corporate development........................ 4,625 5,403 10,489
Restructuring charges........................ -- 5,645 --
Non-cash general and administrative
compensation charges........................ 12,758 2,173 3,127
Depreciation and amortization................ 37,239 130,106 238,796
-------- --------- ---------
126,011 343,898 643,956
-------- --------- ---------
Operating income (loss)........................ (12,933) 1,861 5,209
Other income (expense):
Equity in earnings of unconsolidated
affiliate................................... 2,055 -- --
Interest and other income (expense).......... 4,220 17,731 33,761
Interest expense and amortization of deferred
financing costs............................. (29,089) (110,908) (241,294)
-------- --------- ---------
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of
change in accounting principle................ (35,747) (91,316) (202,324)
Provision for income taxes..................... (374) (275) (246)
Minority interests............................. (1,654) (2,756) (721)
-------- --------- ---------
Loss before extraordinary item and cumulative
effect of change in accounting principle...... (37,775) (94,347) (203,291)
Extraordinary item--loss on early
extinguishment of debt........................ -- -- (1,495)
Cumulative effect of change in accounting
principle for costs of start-up activities.... -- (2,414) --
-------- --------- ---------
Net loss....................................... (37,775) (96,761) (204,786)
Dividends on preferred stock................... (5,411) (28,881) (59,469)
-------- --------- ---------
Net loss after deduction of dividends on
preferred stock............................... $(43,186) $(125,642) $(264,255)
======== ========= =========
Net loss....................................... $(37,775) $ (96,761) $(204,786)
Other comprehensive income (loss):
Foreign currency translation adjustments..... 1,128 (4,703) (22,087)
-------- --------- ---------
Comprehensive loss............................. $(36,647) $(101,464) $(226,873)
======== ========= =========
Per common share--basic and diluted:
Loss before extraordinary item and cumulative
effect of change in accounting principle.... $ (1.02) $ (0.94) $ (1.47)
Extraordinary item........................... -- -- (0.01)
Cumulative effect of change in accounting
principle................................... -- (0.02) --
-------- --------- ---------
Net loss..................................... $ (1.02) $ (0.96) $ (1.48)
======== ========= =========
Common shares outstanding--basic and diluted
(in thousands)................................ 42,518 131,466 178,588
======== ========= =========
See notes to consolidated financial statements.
54
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
Years Ended December 31,
-----------------------------------
1998 1999 2000
--------- ----------- -----------
Cash flows from operating activities:
Net loss................................. $ (37,775) $ (96,761) $ (204,786)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization........... 37,239 130,106 238,796
Amortization of deferred financing costs
and discounts on long-term debt........ 17,910 49,937 81,003
Non-cash general and administrative
compensation charges................... 12,758 2,173 3,127
Extraordinary loss on early
extinguishment of debt................. -- -- 1,495
Minority interests...................... 1,654 2,756 721
Cumulative effect of change in
accounting principle................... -- 2,414 --
Equity in earnings of unconsolidated
affiliate.............................. (2,055) -- --
Changes in assets and liabilities,
excluding the effects of acquisitions:
Increase in deferred rental revenues and
other liabilities...................... 5,847 75,277 143,999
Increase in accounts payable............ 15,373 889 55,466
Increase in accrued interest............ 5,835 5,518 26,803
Increase in receivables................. (7,450) (42,913) (92,019)
Increase in inventories, prepaid
expenses and other assets.............. (4,360) (36,788) (89,110)
--------- ----------- -----------
Net cash provided by operating
activities............................ 44,976 92,608 165,495
--------- ----------- -----------
Cash flows from investing activities:
Acquisitions of businesses and assets,
net of cash acquired.................... (10,489) (1,208,466) (1,143,682)
Capital expenditures..................... (138,759) (293,801) (636,506)
Purchase of investments.................. -- -- (175,000)
Investments in affiliates................ -- (6,879) (2,499)
--------- ----------- -----------
Net cash used for investing
activities............................ (149,248) (1,509,146) (1,957,687)
--------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt.................................... -- 757,206 1,015,020
Proceeds from issuance of capital stock.. 339,929 805,771 743,290
Net borrowings under revolving credit
agreements.............................. 9,212 136,993 78,000
Principal payments on long-term debt..... -- -- (82,000)
Incurrence of financing costs............ (3,010) (28,330) (47,219)
Dividends on preferred stock............. -- (1,238) --
Purchase of capital stock................ (883) -- --
--------- ----------- -----------
Net cash provided by financing
activities............................ 345,248 1,670,402 1,707,091
--------- ----------- -----------
Effect of exchange rate changes on cash... 396 (986) (10,394)
--------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.............................. 241,372 252,878 (95,495)
Cash and cash equivalents at beginning of
year..................................... 55,078 296,450 549,328
--------- ----------- -----------
Cash and cash equivalents at end of year.. $ 296,450 $ 549,328 $ 453,833
========= =========== ===========
Supplementary schedule of non-cash
investing and financing activities:
Amounts recorded in connection with
acquisitions (see Note 2):
Fair value of net assets acquired,
including goodwill and other intangible
assets................................. $ 431,453 $ 1,750,506 $ 2,005,935
Escrow deposits for acquisitions........ -- 50,000 (50,000)
Issuance of common stock................ 420,964 397,710 707,389
Minority interests...................... -- 14,330 104,864
Issuance of long-term debt.............. -- 180,000 --
Supplemental disclosure of cash flow
information:
Interest paid............................ $ 6,276 $ 54,514 $ 128,996
Income taxes paid........................ 446 301 257
See notes to consolidated financial statements.
55
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands of dollars, except share amounts)
Accumulated
Other
Class A Class B Class A Comprehensive
Common Stock Common Stock Common Stock Common Stock Income (Loss)
----------------- ----------------- ------------------- ------------------ -------------
Foreign
Additional Currency
($.01 ($.01 ($.01 ($.01 Paid-In Translation
Shares Par) Shares Par) Shares Par) Shares Par) Capital Adjustments
---------- ----- ---------- ----- ----------- ------ ----------- ----- ---------- -------------
Balance, January
1, 1998.......... 1,041,565 $ 2 9,367,165 $19 -- $ -- -- $ -- $ 58,248 $ 562
Conversion of
preferred stock
to Common
Stock........... -- -- -- -- 38,517,865 385 -- -- 164,712 --
Conversion of
Class A Common
Stock and Class
B Common Stock
to Common
Stock........... (1,041,565) (2) (9,367,165) (19) 10,953,625 109 -- -- (88) --
Issuances of
capital stock... -- -- -- -- 33,793,453 338 11,340,000 113 560,779 --
Purchase of
capital stock... -- -- -- -- (141,070) (1) -- -- (882) --
Non-cash general
and
administrative
compensation
charges......... -- -- -- -- -- -- -- -- 12,384 --
Foreign currency
translation
adjustments..... -- -- -- -- -- -- -- -- -- 1,128
Dividends on
preferred
stock........... -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
---------- --- ---------- --- ----------- ------ ----------- ---- ---------- --------
Balance, December
31, 1998......... -- -- -- -- 83,123,873 831 11,340,000 113 795,153 1,690
Issuances of
capital stock
and warrants.... -- -- -- -- 62,951,032 630 -- -- 1,007,947 --
Non-cash general
and
administrative
compensation
charges......... -- -- -- -- -- -- -- -- 1,953 --
Foreign currency
translation
adjustments..... -- -- -- -- -- -- -- -- -- (4,703)
Dividends on
preferred
stock........... -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
---------- --- ---------- --- ----------- ------ ----------- ---- ---------- --------
Balance, December
31, 1999......... -- -- -- -- 146,074,905 1,461 11,340,000 113 1,805,053 (3,013)
Conversion of
Class A Common
Stock to Common
Stock........... -- -- -- -- 11,340,000 113 (11,340,000) (113) -- --
Issuances of
capital stock... -- -- -- -- 40,636,221 406 -- -- 1,061,861 --
Non-cash general
and
administrative
compensation
charges......... -- -- -- -- -- -- -- -- 2,248 --
Foreign currency
translation
adjustments..... -- -- -- -- -- -- -- -- -- (22,087)
Dividends on
preferred
stock........... -- -- -- -- 860,968 9 -- -- 24,933 --
Net loss........ -- -- -- -- -- -- -- -- -- --
---------- --- ---------- --- ----------- ------ ----------- ---- ---------- --------
Balance, December
31, 2000......... -- $-- -- $-- 198,912,094 $1,989 -- $ -- $2,894,095 $(25,100)
========== === ========== === =========== ====== =========== ==== ========== ========
Accumulated
Deficit Total
----------- -----------
Balance, January
1, 1998.......... $ (17,039) $ 41,792
Conversion of
preferred stock
to Common
Stock........... -- 165,097
Conversion of
Class A Common
Stock and Class
B Common Stock
to Common
Stock........... -- --
Issuances of
capital stock... -- 561,230
Purchase of
capital stock... -- (883)
Non-cash general
and
administrative
compensation
charges......... -- 12,384
Foreign currency
translation
adjustments..... -- 1,128
Dividends on
preferred
stock........... (5,411) (5,411)
Net loss........ (37,775) (37,775)
----------- -----------
Balance, December
31, 1998......... (60,225) 737,562
Issuances of
capital stock
and warrants.... -- 1,008,577
Non-cash general
and
administrative
compensation
charges......... -- 1,953
Foreign currency
translation
adjustments..... -- (4,703)
Dividends on
preferred
stock........... (28,881) (28,881)
Net loss........ (96,761) (96,761)
----------- -----------
Balance, December
31, 1999......... (185,867) 1,617,747
Conversion of
Class A Common
Stock to Common
Stock........... -- --
Issuances of
capital stock... -- 1,062,267
Non-cash general
and
administrative
compensation
charges......... -- 2,248
Foreign currency
translation
adjustments..... -- (22,087)
Dividends on
preferred
stock........... (59,469) (34,527)
Net loss........ (204,786) (204,786)
----------- -----------
Balance, December
31, 2000......... $(450,122) $2,420,862
=========== ===========
See notes to consolidated financial statements.
56
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Crown Castle
International Corp. ("CCIC") and its majority and wholly owned subsidiaries,
collectively referred to herein as the "Company". All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company owns, operates and manages wireless communications sites and
broadcast transmission networks. The Company also provides complementary
services to its customers, including network design, radio frequency
engineering, site acquisition, site development and construction, antenna
installation and network management and maintenance. The Company's
communications sites are located throughout the United States, in Puerto Rico,
in the United Kingdom and in Australia. In the United States, Puerto Rico and
Australia, the Company's primary business is the leasing of antenna space to
wireless operators under long-term contracts. In the United Kingdom, the
Company's primary businesses are the operation of television and radio
broadcast transmission networks and the leasing of antenna space to wireless
operators in the United Kingdom.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Summary of Significant Accounting Policies
Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less.
Investments
As of December 31, 2000, all investments (consisting of government agency
debt securities) are classified as held-to-maturity since the Company has the
positive intent and ability to hold such investments until they mature. Held-
to-maturity securities are stated at amortized cost. Gross unrealized holding
gains amounted to $156,000 at December 31, 2000. Investments classified as
current assets mature within one year, while those classified as noncurrent
mature after one year and within three years.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed utilizing the straight-line method at rates based
upon the estimated useful lives of the various classes of assets. Additions,
renewals and improvements are capitalized, while maintenance and repairs are
expensed. Upon the sale or retirement of an asset, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
recognized. The carrying value of property and equipment and other long-lived
assets, including any related goodwill, will be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable. If the sum of the estimated future cash
flows (undiscounted) expected to result from the use and eventual disposition
of an asset is less than the carrying amount of the asset, an impairment loss
is recognized. Measurement of an impairment loss is based on the fair
57
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
value of the asset; such loss would first be charged to the carrying value of
any related goodwill, and then to the carrying value of the impaired assets.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets represents the excess of the purchase
price for an acquired business over the allocated value of the related net
assets (see Note 2). Goodwill is amortized on a straight-line basis over a 20
year life. Other intangible assets (principally the value of existing site
rental contracts at CCUSA) are amortized on a straight-line basis over a 10
year life. The carrying value of goodwill and other intangible assets will be
reviewed for impairment, in connection with impaired long-lived assets as well
as on an enterprise level, whenever events or changes in circumstances
indicate that the carrying amount of the acquired assets may not be
recoverable. If the sum of the estimated future cash flows (undiscounted)
expected to result from the use and eventual disposition of an asset is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss is based on the fair value of the asset. For
enterprise level goodwill, fair value is determined using a discounted cash
flows approach.
Deferred Financing Costs
Costs incurred to obtain financing are deferred and amortized over the
estimated term of the related borrowing.
Revenue Recognition
Site rental revenues are recognized on a monthly basis under lease or
management agreements with terms ranging from 12 months to 25 years. Broadcast
transmission revenues are recognized on a monthly basis under transmission
contracts with terms ranging from 8 years to 12 years.
Network services revenues from site development, construction and antenna
installation activities are recognized under a method which approximates the
completed contract method. This method is used because these services are
typically completed in three months or less and financial position and results
of operations do not vary significantly from those which would result from use
of the percentage-of-completion method. These services are considered complete
when the terms and conditions of the contract or agreement have been
completed. Costs and revenues associated with installations not complete at
the end of a period are deferred and recognized when the installation becomes
operational. Any losses on contracts are recognized at such time as they
become known.
Network services revenues from design, engineering, site acquisition, and
network management and maintenance activities are recognized under service
contracts with customers which provide for billings on a time and materials,
cost plus profit, or fixed price basis. Such contracts typically have terms
from six months to two years. Revenues are recognized as services are
performed with respect to the time and materials contracts. Revenues are
recognized using the percentage-of-completion method for cost plus profit and
fixed price contracts, measured by the percentage of contract costs incurred
to date compared to estimated total contract costs. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses
are determined.
Corporate Development Expenses
Corporate development expenses represent costs incurred in connection with
acquisitions and development of new business initiatives.
58
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
The Company accounts for income taxes using an asset and liability
approach, which requires the recognition of deferred income tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Deferred
income tax assets and liabilities are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.
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:
Years Ended December 31,
------------------------------
1998 1999 2000
-------- --------- ---------
(In thousands of dollars,
except per share amounts)
Loss before extraordinary item and cumulative
effect of change in
accounting principle......................... $(37,775) $ (94,347) $(203,291)
Dividends on preferred stock.................. (5,411) (28,881) (59,469)
-------- --------- ---------
Loss before extraordinary item and cumulative
effect of change in accounting principle
applicable to common stock for basic and
diluted computations......................... (43,186) (123,228) (262,760)
Extraordinary item............................ -- -- (1,495)
Cumulative effect of change in accounting
principle.................................... -- (2,414) --
-------- --------- ---------
Net loss applicable to common stock for basic
and diluted computations..................... $(43,186) $(125,642) $(264,255)
======== ========= =========
Weighted-average number of common shares
outstanding during the period for basic and
diluted computations (in thousands).......... 42,518 131,466 178,588
======== ========= =========
Per common share--basic and diluted:
Loss before extraordinary item and
cumulative effect of change
in accounting principle.................... $ (1.02) $ (0.94) $ (1.47)
Extraordinary item.......................... -- -- (0.01)
Cumulative effect of change in accounting
principle.................................. -- (0.02) --
-------- --------- ---------
Net loss.................................... $ (1.02) $ (0.96) $ (1.48)
======== ========= =========
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of December 31, 2000: (1)
options to purchase 21,183,816 shares of common stock at exercise prices
ranging from $-0- to $39.50 per share, (2) warrants to purchase 639,990 shares
of common stock at an exercise price of $7.50 per share, (3) warrants to
purchase 1,000,000 shares of common stock at an exercise price of $26.875 per
share, (4) shares of the Company's 8 1/4% Cumulative Convertible Redeemable
Preferred Stock (see Note 8) which are convertible into 7,441,860 shares of
common stock and (5) shares of the Company's 6.25% Convertible Preferred Stock
(see Note 8) 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
each of the three years in the period ended December 31, 2000.
59
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency Translation
Crown Castle UK Holdings Limited ("CCUK") and Crown Castle Australia
Holdings Pty Ltd. ("CCAL") use the British pound sterling and the Australian
dollar, respectively, as the functional currencies for their operations. The
Company translates CCUK's and CCAL's results of operations using the average
exchange rates for the period, and translates CCUK's and CCAL's assets and
liabilities using the exchange rates at the end of the period. The cumulative
effect of changes in the exchange rates are recorded as translation
adjustments in stockholders' equity.
Financial Instruments
The carrying amount of cash and cash equivalents approximates fair value
for these instruments. The estimated fair value of the investment securities
is based on quoted market prices. The estimated fair value of the Company's
public debt securities is based on quoted market prices, and the estimated
fair value of the other long-term debt is determined based on the current
rates offered for similar borrowings. The estimated fair value of the interest
rate swap agreements is based on the amount that the Company would receive or
pay to terminate the agreements at the balance sheet date. The estimated fair
values of the Company's financial instruments, along with the carrying amounts
of the related assets (liabilities), are as follows:
December 31, 1999 December 31, 2000
------------------------ ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
(In thousands of dollars)
Cash and cash
equivalents.............. $ 549,328 $ 549,328 $ 453,833 $ 453,833
Short-term investments (to
be held to maturity)..... -- -- 38,000 38,015
Investments (to be held to
maturity)................ -- -- 137,000 137,141
Long-term debt............ (1,542,343) (1,542,500) (2,602,687) (2,593,615)
Interest rate swap
agreements, net.......... -- 5,415 -- 178
The Company's interest rate swap agreements are used to manage interest
rate risk. The net settlement amounts resulting from these agreements are
recognized as adjustments to interest expense. The Company does not currently
hold or issue derivative financial instruments for trading purposes.
Stock Options
The Company uses the "intrinsic value based method" of accounting for its
employee stock option plans (see Note 9). This method does not result in the
recognition of compensation expense when employee stock options are granted if
the exercise price of the options equals or exceeds the fair market value of
the stock at the date of grant. See Note 9 for the disclosures required by
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation.
Recent Accounting Pronouncements
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and
broadly defines such costs. The Company had deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 required that such deferred costs be charged to results of operations
upon its adoption. The Company has adopted the requirements of SOP 98-5 as of
January 1, 1999. The cumulative effect of the change in accounting principle
for the adoption of SOP 98-5 resulted in a charge to results of operations for
$2,414,000 in the Company's financial statements for the year ended December
31, 1999.
60
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that
derivative instruments be recognized as either assets or liabilities in the
consolidated balance sheet based on their fair values. Changes in the fair
values of such derivative instruments will be recorded either in results of
operations or in other comprehensive income, depending on the intended use of
the derivative instrument. The initial application of SFAS 133 will be
reported as the effect of a change in accounting principle. The Company will
adopt the requirements of SFAS 133 as of January 1, 2001. The adoption of SFAS
133 will result in a net transition adjustment gain of approximately $178,000
in accumulated other comprehensive income, 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 also expects that the adoption of SFAS 133
will increase the volatility of other comprehensive income as reported in its
future financial statements.
2. Acquisitions
During the three years in the period ended December 31, 2000, the Company
consummated a number of business and asset acquisitions which were accounted
for using the purchase method. Results of operations and cash flows of the
acquired businesses and assets are included in the consolidated financial
statements for the periods subsequent to the respective dates of acquisition.
CCUK
On April 24, 1998, the Company entered into a share exchange agreement with
certain shareholders of CCUK pursuant to which certain of CCUK's shareholders
agreed to exchange their shares of CCUK for shares of the Company. On August
18, 1998, the exchange was consummated and the Company's ownership of CCUK
increased from approximately 34.3% to 80%. The Company issued 20,867,700
shares of its Common Stock and 11,340,000 shares of its Class A Common Stock,
with such shares valued at an aggregate of $418,700,000 (based on the price
per share to the public in the Company's initial public offering as discussed
in Note 9). The Company recognized goodwill of $344,375,000 in connection with
this transaction, which was accounted for as an acquisition using the purchase
method. CCUK's results of operations and cash flows are included in the
consolidated financial statements for the period subsequent to the date the
exchange was consummated.
On July 5, 2000, TeleDiffusion de France International S.A. ("TdF", a
subsidiary of France Telecom) and an affiliate of TdF sold their remaining
interests in the Company to a third party (see Note 9). In connection with
this disposition, the Company issued 17,443,500 shares of its Common Stock in
exchange for TdF's 20% interest in CCUK. As a result, CCUK became a wholly
owned subsidiary of the Company. The Company recognized additional goodwill of
approximately $492,702,000 in connection with this transaction.
Agreement with Bell Atlantic Mobile ("BAM")
On December 8, 1998, the Company entered into an agreement with BAM (now
part of Verizon Communications) to form a joint venture ("Crown Atlantic") to
own and operate a significant majority of BAM's towers. Upon formation of
Crown Atlantic on March 31, 1999, (1) the Company contributed to Crown
Atlantic $250,000,000 in cash and 15,597,783 shares of its common stock in
exchange for a 61.5% ownership interest in Crown Atlantic, (2) Crown Atlantic
borrowed $180,000,000 under a committed $250,000,000 revolving credit facility
(see Note 5); and (3) BAM contributed to Crown Atlantic approximately 1,458
towers in exchange for a cash distribution of $380,000,000 from Crown Atlantic
and a 38.5% ownership interest in Crown Atlantic. In addition to the towers
originally contributed to Crown Atlantic by BAM, the Company and BAM agreed
that certain additional towers owned by BAM (the "Frontier towers") could be
contributed to
61
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Crown Atlantic. In August and October 2000, BAM contributed 215 of the
Frontier towers in exchange for additional ownership interests in Crown
Atlantic. Upon dissolution of Crown Atlantic, BAM will receive (1) the shares
of the Company's common stock contributed to Crown Atlantic and (2) a payment
(either in cash or in shares of the Company's common stock, at the Company's
election) equal to approximately 24.1% of the fair market value of Crown
Atlantic's other net assets; the Company would then receive the remaining
assets and liabilities of Crown Atlantic. The Company has accounted for its
investment in Crown Atlantic as an acquisition using the purchase method, and
has included Crown Atlantic's results of operations and cash flows in the
Company's consolidated financial statements for periods subsequent to
formation. The Company recognized goodwill of approximately $64,163,000 in
connection with this acquisition.
BellSouth Mobility Inc. and BellSouth Telecommunications Inc. ("BellSouth")
In March 1999, the Company entered into an agreement with BellSouth to
acquire the operating rights for approximately 1,850 of their towers. The
legal form of the transaction is a lease arrangement and will be treated by
BellSouth as a sale of the towers for tax purposes. During 1999 and 2000, the
Company closed on 1,865 of the towers and paid $438,081,000 in cash and issued
9,084,025 shares of its common stock. The Company accounted for this
transaction as a purchase of tower assets.
Powertel, Inc. ("Powertel")
In March 1999, the Company entered into an agreement with Powertel to
purchase 650 of their towers and related assets. The total purchase price for
these towers was $275,000,000 in cash, all of which was paid in 1999. The
Company has accounted for this transaction as an acquisition using the
purchase method.
Pro Forma Results of Operations (Unaudited)
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if (1) the 1999 Crown Atlantic, 1999 BellSouth
and 1999 Powertel acquisitions, along with the related financing transactions,
had been consummated as of January 1, 1999; and (2) the 2000 CCUK transaction
had been consummated as of January 1 for both 1999 and 2000. Appropriate
adjustments have been reflected for depreciation and amortization, interest
expense, amortization of deferred financing costs and minority interests. The
pro forma information does not necessarily reflect the actual results that
would have been achieved, nor is it necessarily indicative of future
consolidated results for the Company.
Years Ended
December 31,
--------------------
1999 2000
--------- ---------
(In thousands of
dollars,
except per share
amounts)
Net revenues........................................... $ 386,999 $ 649,165
Net loss............................................... (235,465) (226,013)
Net loss per common share--basic and diluted........... (1.59) (1.52)
Agreement with Nextel Communications, Inc. ("Nextel")
In 1997, the Company entered into an agreement with Nextel (the "Nextel
Agreement") whereby the Company had the option to purchase up to 50 of
Nextel's existing towers which were located in Texas, Florida and the
metropolitan areas of Denver, Colorado and Philadelphia, Pennsylvania. As of
December 31, 1999, the Company had purchased all 50 of such towers for an
aggregate price of $15,083,000 in cash.
62
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Millennium Communications Limited ("Millennium")
On October 8, 1998, the Company acquired all of the outstanding shares of
Millennium. Millennium develops, owns and operates telecommunications towers
and related assets in the United Kingdom. On the date of acquisition,
Millennium owned 102 tower sites. Millennium is being operated as a subsidiary
of CCUK. The purchase price of $14,473,000 consisted of $9,813,000 in cash,
the repayment of $2,396,000 in outstanding debt and 358,678 shares of the
Company's common stock valued at $2,264,000 (the market value of such common
stock on that date).
BellSouth DCS
In July 1999, the Company entered into an agreement with certain affiliates
of BellSouth ("BellSouth DCS") to acquire the operating rights for
approximately 773 of their towers. The legal form of the transaction is a
lease arrangement and will be treated by BellSouth as a sale of the towers for
tax purposes. During 1999 and 2000, the Company closed on 732 of these towers
and paid $301,468,000 in cash. The Company accounted for this transaction as a
purchase of tower assets.
Agreement With GTE Corporation ("GTE")
On November 7, 1999, the Company entered into an agreement with GTE (now
part of Verizon Communications) to form a joint venture ("Crown Castle GT") to
own and operate a significant majority of GTE's towers. The agreement
contemplated that the transaction would be completed in multiple closings
during 2000. On January 31, 2000, the formation of Crown Castle GT took place
in connection with the first such closing of towers. During the course of the
multiple closings, (1) the Company contributed an aggregate of approximately
$815,266,000 (of which approximately $94,464,000 was in shares of its common
stock, with the balance in cash) in exchange for a majority ownership interest
in Crown Castle GT, and (2) GTE contributed approximately 2,300 towers in
exchange for cash distributions aggregating approximately $695,802,000 from
Crown Castle GT and a minority ownership interest in Crown Castle GT. Upon
dissolution of Crown Castle GT, GTE will receive (1) the 5,063,731 shares of
the Company's common stock contributed to Crown Castle GT and (2) a payment
(either in cash or in shares of the Company's common stock, at the Company's
election) equal to approximately 11.1% of the fair market value of Crown
Castle GT's other net assets; the Company will then receive the remaining
assets and liabilities of Crown Castle GT. The Company has accounted for its
investment in Crown Castle GT as a purchase of tower assets, and has included
Crown Castle GT's results of operations and cash flows in the Company's
consolidated financial statements for periods subsequent to formation.
Upon entering into the agreement with GTE, the Company placed $50,000,000
into an escrow account. At the April 3, 2000 closing, the funds in the escrow
account were used to pay $50,000,000 of the Company's cash contribution. A
portion of the remaining cash contribution for this closing was financed with
the net proceeds from borrowings under the Term Loans due 2011 (see Note 5).
In addition to the approximately 2,300 towers contributed pursuant to the
formation agreement, GTE had the right to contribute certain additional towers
to Crown Castle GT, including towers acquired by GTE from Ameritech Corp.
("Ameritech"), on terms substantially similar to those in the formation
agreement. In April 2000, the Company agreed with GTE that the Ameritech
towers would be contributed to Crown Castle GT. In August and September 2000,
the Company contributed $181,641,000 in cash, and GTE contributed 497 of the
Ameritech towers in exchange for a cash distribution of $181,641,000 from
Crown Castle GT.
Crown Castle Australia Holdings Pty Ltd. ("CCAL")
In March 2000, CCAL (a 66.7% owned subsidiary of the Company) entered into
an agreement to purchase approximately 700 towers in Australia from Cable &
Wireless Optus ("Optus"). The total purchase price for the
63
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
towers will be approximately $135,000,000 in cash (Australian $220,000,000).
The Company has accounted for its investment in CCAL as a purchase of tower
assets, and has included CCAL's results of operations and cash flows in the
Company's consolidated financial statements for periods subsequent to the
purchase date. On April 3, 2000, the first closing took place for CCAL. The
Company contributed $90,786,000 in cash (Australian $147,500,000) to CCAL. The
largest portion of this amount, along with a capital contribution from CCAL's
minority shareholder, was used to pay $103,485,000 (Australian $168,131,000)
to Optus. During the remainder of 2000, CCAL made additional payments to Optus
amounting to $15,444,000 (Australian $27,535,000).
3. Property and Equipment
The major classes of property and equipment are as follows:
Estimated December 31,
Useful ----------------------
Lives 1999 2000
---------- ---------- ----------
(In thousands of
dollars)
Land and buildings......................... 0-50 years $ 89,683 $ 141,791
Telecommunications towers and broadcast
transmission equipment.................... 5-20 years 2,458,741 4,404,443
Transportation and other equipment......... 3-10 years 20,231 23,775
Office furniture and equipment............. 3-7 years 18,919 38,548
---------- ----------
2,587,574 4,608,557
Less: accumulated depreciation............. (119,473) (305,520)
---------- ----------
$2,468,101 $4,303,037
========== ==========
Depreciation expense for the years ended December 31, 1998, 1999 and 2000
was $20,638,000, $96,556,000 and $190,610,000, respectively. Accumulated
depreciation on telecommunications towers and broadcast transmission equipment
was $110,366,000 and $204,855,000 at December 31, 1999 and 2000, respectively.
At December 31, 2000, minimum rentals receivable under existing operating
leases for towers are as follows: years ending December 31, 2001--
$491,530,000; 2002--$483,005,000; 2003--$464,873,000; 2004--$447,471,000;
2005--$409,406,000; thereafter--$1,517,386,000.
4. Investment in Affiliate
In 1997, the Company purchased an ownership interest of approximately 34.3%
in CCUK (a company incorporated under the laws of England and Wales). The
Company led a consortium of investors which provided the equity financing for
CCUK. The funds invested by the consortium were used by CCUK to purchase,
through a wholly owned subsidiary, the domestic broadcast transmission
division of the British Broadcasting Corporation (the "BBC"). The cost of the
Company's investment in CCUK amounted to approximately $57,542,000. The
Company accounted for its investment in CCUK utilizing the equity method of
accounting prior to the consummation of the share exchange agreement with
CCUK's shareholders in August 1998 (see Note 2).
64
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized financial information for CCUK is as follows (for the period in
which the Company accounted for CCUK utilizing the equity method):
Eight Months
Ended
August 31, 1998
----------------
(In thousands
of dollars)
Net revenues.............................................. $ 97,228
Operating expenses........................................ 78,605
--------
Operating income.......................................... 18,623
Interest and other income................................. 725
Interest expense and amortization of deferred financing
costs.................................................... (13,378)
Provision for income taxes................................ --
--------
Net income................................................ $ 5,970
========
5. Long-term Debt
Long-term debt consists of the following:
December 31,
---------------------
1999 2000
---------- ----------
(In thousands of
dollars)
2000 Credit Facility................................. $ -- $ 500,000
Senior Credit Facility............................... 63,000 --
CCUK Credit Facility................................. 133,456 138,932
Crown Atlantic Credit Facility....................... 180,000 239,000
9% Guaranteed Bonds due 2007......................... 195,699 181,820
10 5/8% Senior Discount Notes due 2007, net of
discount............................................ 186,434 206,768
10 3/8% Senior Discount Notes due 2011, net of
discount............................................ 321,284 355,482
9% Senior Notes due 2011............................. 180,000 180,000
11 1/4% Senior Discount Notes due 2011, net of
discount............................................ 157,470 175,685
9 1/2% Senior Notes due 2011......................... 125,000 125,000
10 3/4% Senior Notes due 2011........................ -- 500,000
---------- ----------
$1,542,343 $2,602,687
========== ==========
2000 Credit Facility
In March 2000, a subsidiary of the Company entered into a credit agreement
with a syndicate of banks (the "2000 Credit Facility") which consists of two
term loan facilities and a revolving line of credit aggregating
$1,200,000,000. Available borrowings under the 2000 Credit Facility are
generally to be used for the construction and purchase of towers and for
general corporate purposes of CCUSA, Crown Castle GT and CCAL. The amount of
available borrowings will be determined based on the current financial
performance (as defined) of those subsidiaries' assets. In addition, up to
$25,000,000 of borrowing availability under the 2000 Credit Facility can be
used for letters of credit.
On March 15, 2000, the Company used $83,375,000 in borrowings under one of
the term loan facilities of the 2000 Credit Facility to repay outstanding
borrowings and accrued interest under the Senior Credit Facility. The net
proceeds from $316,625,000 in additional borrowings under this term loan
facility were used to fund a portion of the purchase price for Crown Castle GT
and for general corporate purposes. As of December 31, 2000, approximately
$522,250,000 of borrowings was available under the 2000 Credit Facility, of
which $25,000,000
65
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
was available for letters of credit. There were no letters of credit
outstanding as of December 31, 2000. In the first quarter of 2000, the Company
recorded an extraordinary loss of $1,495,000 consisting of the write-off of
unamortized deferred financing costs related to the Senior Credit Facility.
The amount of available borrowings under the 2000 Credit Facility's term
loans and revolving line of credit will decrease by stated amounts at the end
of each calendar quarter beginning on June 30, 2003. Any remaining borrowings
under the term loan currently outstanding must be repaid on March 15, 2008.
Any remaining borrowings under the other term loan and the revolving line of
credit must be repaid on September 15, 2007. Under certain circumstances, the
Company's subsidiaries may be required to make principal prepayments under the
2000 Credit Facility in an amount equal to 50% of excess cash flow (as
defined), the net cash proceeds from certain asset sales or the net cash
proceeds from certain borrowings.
The 2000 Credit Facility is secured by substantially all of the assets of
CCUSA and CCAL, and the Company's pledge of the capital stock of those
subsidiaries and Crown Castle GT. In addition, the 2000 Credit Facility is
guaranteed by CCIC. Borrowings under the 2000 Credit Facility bear interest at
rates per annum, at the Company's election, equal to the bank's prime rate
plus margins ranging from 1.75% to 2.00% or a Eurodollar interbank offered
rate (LIBOR) plus margins ranging from 2.75% to 3.00% (11.25% and 9.39%,
respectively, at December 31, 2000). The interest rate margins may be reduced
by up to 1.00% (non-cumulatively) based on a financial test, determined
quarterly. Interest on prime rate loans is due quarterly, while interest on
LIBOR loans is due at the end of the period (from one to six months) for which
such LIBOR rate is in effect. The 2000 Credit Facility requires the borrowers
to maintain certain financial covenants and places restrictions on their
ability to, among other things, incur debt and liens, pay dividends, make
capital expenditures, dispose of assets, undertake transactions with
affiliates and make investments.
CCUK Credit Facility
CCUK has a credit agreement with a syndicate of banks (as amended, the
"CCUK Credit Facility"). In June 1999, the CCUK Credit Facility was amended to
(1) increase the available borrowings to (Pounds)150,000,000 (approximately
$224,325,000) and (2) extend the maturity date to June 2006. The amended
facility comprises (1) a seven year (Pounds)100,000,000 (approximately
$149,550,000) revolving loan facility which converts into a term loan facility
on the third anniversary of the amendment date and (2) a seven year
(Pounds)50,000,000 (approximately $74,775,000) revolving loan facility.
Available borrowings under the CCUK Credit Facility are generally to be used
to finance capital expenditures and for working capital and general corporate
purposes. As of December 31, 2000, unused borrowing availability under the
CCUK Credit Facility amounted to approximately (Pounds)57,100,000
(approximately $85,393,000).
In June 2002, the amount drawn under the (Pounds)100,000,000 revolving loan
facility will be converted into a term loan facility and will be amortized in
equal semi-annual installments on June 30 and December 31 of each year, with
the final installment being due in June 2006. The (Pounds)50,000,000 revolving
loan facility expires in June 2006. Under certain circumstances, CCUK may be
required to make principal prepayments from the proceeds of certain asset
sales.
The CCUK Credit Facility is secured by substantially all of CCUK's assets.
Borrowings under the CCUK Credit Facility bear interest at a rate per annum
equal to a Eurodollar interbank offered rate (LIBOR) plus 1.5% (approximately
6.90% at December 31, 2000). The interest rate margin may be reduced by up to
0.875% (non-cumulatively) based on a financial test. Interest is due at the
end of the period (from one to six months) for which such LIBOR rate is in
effect. The CCUK Credit Facility requires CCUK to maintain certain financial
covenants and places restrictions on CCUK's ability to, among other things,
incur debt and liens, pay dividends, make capital expenditures, dispose of
assets, undertake transactions with affiliates and make investments.
66
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Crown Atlantic Credit Facility
Crown Atlantic has a credit agreement with a syndicate of banks (the "Crown
Atlantic Credit Facility") which consists of a $250,000,000 secured revolving
line of credit. Available borrowings under the Crown Atlantic Credit Facility
are generally to be used to construct new towers and to finance a portion of
the purchase price for towers and related assets of Crown Atlantic. The amount
of available borrowings is determined based on the current financial
performance (as defined) of Crown Atlantic's assets. In addition, up to
$25,000,000 of borrowing availability under the Crown Atlantic Credit Facility
can be used for letters of credit.
On March 31, 1999, Crown Atlantic borrowed $180,000,000 under the Crown
Atlantic Credit Facility to fund a portion of the cash payment to BAM (see
Note 2). As of December 31, 2000, approximately $11,000,000 of borrowings was
available under the Crown Atlantic Credit Facility, all of which was available
for letters of credit. There were no letters of credit outstanding as of
December 31, 2000.
The amount of available borrowings under the Crown Atlantic Credit Facility
will decrease by a stated amount at the end of each calendar quarter beginning
on September 30, 2001 until March 31, 2006, at which time any remaining
borrowings must be repaid. Under certain circumstances, Crown Atlantic may be
required to make principal prepayments under the Crown Atlantic Credit
Facility in an amount equal to 50% of excess cash flow (as defined), the net
cash proceeds from certain asset sales or the net cash proceeds from certain
sales of equity or debt securities.
The Crown Atlantic Credit Facility is secured by a pledge of the membership
interest in Crown Atlantic and a security interest in Crown Atlantic's tenant
leases. Borrowings under the Crown Atlantic Credit Facility bear interest at a
rate per annum, at Crown Atlantic's election, equal to the bank's prime rate
plus 1.25% or a Eurodollar interbank offered rate (LIBOR) plus 2.75% (9.50%
and 8.39%, respectively, at December 31, 2000). The interest rate margins may
be reduced by up to 1.75% (non-cumulatively) based on a financial test,
determined quarterly. Interest on prime rate loans is due quarterly, while
interest on LIBOR loans is due at the end of the period (from one to three
months) for which such LIBOR rate is in effect. The Crown Atlantic Credit
Facility requires Crown Atlantic to maintain certain financial covenants and
places restrictions on Crown Atlantic's ability to, among other things, incur
debt and liens, pay dividends, make capital expenditures, dispose of assets,
undertake transactions with affiliates and make investments.
9% Guaranteed Bonds due 2007 ("CCUK Bonds")
CCUK has issued (Pounds)125,000,000 (approximately $186,938,000) aggregate
principal amount of the CCUK Bonds. Interest payments on the CCUK Bonds are
due annually on each March 30. The maturity date of the CCUK Bonds is March
30, 2007. The CCUK Bonds are stated net of unamortized discount.
The CCUK Bonds are redeemable, at the option of CCUK, in whole or in part
at any time, at the greater of their principal amount and such a price as will
provide a gross redemption yield 0.5% per annum above the gross redemption
yield on the benchmark gilt plus, in either case, accrued and unpaid interest.
Under certain circumstances, each holder of the CCUK Bonds has the right to
require CCUK to repurchase all or a portion of such holder's CCUK Bonds at a
price equal to 101% of their aggregate principal amount plus accrued and
unpaid interest.
The CCUK Bonds are guaranteed by CCUK; however, they are unsecured and
effectively subordinate to the outstanding borrowings under the CCUK Credit
Facility. The trust deed governing the CCUK Bonds places restrictions on
CCUK's ability to, among other things, pay dividends and make capital
distributions, make investments, incur additional debt and liens, dispose of
assets and undertake transactions with affiliates.
67
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10 5/8% Senior Discount Notes due 2007 (the "10 5/8% Discount Notes")
On November 25, 1997, the Company issued $251,000,000 aggregate principal
amount (at maturity) of the 10 5/8% Discount Notes for proceeds of
$150,010,000 (net of original issue discount). The Company used a portion of
the proceeds from the sale of the 10 5/8% Discount Notes to (1) repay all of
the outstanding borrowings, including accrued interest thereon, under the
Senior Credit Facility, (2) repay the promissory notes payable, including
accrued interest thereon, to the former stockholders of an acquired
subsidiary, (3) repay certain indebtedness, including accrued interest
thereon, from a prior acquisition; and (4) repay outstanding installment debt
assumed in connection with a prior acquisition.
The 10 5/8% Discount Notes will not pay any interest until May 15, 2003, at
which time semi-annual interest payments will commence and become due on each
May 15 and November 15 thereafter. The maturity date of the 10 5/8% Discount
Notes is November 15, 2007. The 10 5/8% Discount Notes are net of unamortized
discount of $64,566,000 and $44,232,000 at December 31, 1999 and 2000,
respectively.
The 10 5/8% Discount Notes are redeemable at the option of the Company, in
whole or in part, on or after November 15, 2002 at a price of 105.313% of the
principal amount plus accrued interest. The redemption price is reduced
annually until November 15, 2005, after which time the 10 5/8% Discount Notes
are redeemable at par.
10 3/8% Senior Discount Notes due 2011 (the "10 3/8% Discount Notes") and
9% Senior Notes due 2011 (the "9% Senior Notes")
On May 12, 1999, the Company issued (1) $500,000,000 aggregate principal
amount (at maturity) of its 10 3/8% Discount Notes for proceeds of
$292,644,000 (net of original issue discount of $198,305,000 and after
underwriting discounts of $9,051,000) and (2) $180,000,000 aggregate principal
amount of its 9% Senior Notes for proceeds of $174,600,000 (after underwriting
discounts of $5,400,000). The Company used a portion of the proceeds from the
sale of these securities to repay $100,000,000 in outstanding borrowings,
including accrued interest thereon, under a term loan credit facility in
connection with the BellSouth and Powertel transactions (see Note 2). The
remaining proceeds were used to pay the remaining purchase price for such
transactions, to fund the initial interest payments on the 9% Senior Notes and
for general corporate purposes.
The 10 3/8% Discount Notes will not pay any interest until November 15,
2004, at which time semi-annual interest payments will commence and become due
on each May 15 and November 15 thereafter. Semi-annual interest payments for
the 9% Senior Notes are due on each May 15 and November 15, commencing on
November 15, 1999. The maturity date of the 10 3/8% Discount Notes and the 9%
Senior Notes is May 15, 2011. The 10 3/8% Discount Notes are net of
unamortized discount of $178,716,000 and $144,518,000 at December 31, 1999 and
2000, respectively.
The 10 3/8% Discount Notes and the 9% Senior Notes are redeemable at the
option of the Company, in whole or in part, on or after May 15, 2004 at prices
of 105.187% and 104.5%, respectively, of the principal amount plus accrued
interest. The redemption prices are reduced annually until May 15, 2007, after
which time the 10 3/8% Discount Notes and the 9% Senior Notes are redeemable
at par. Prior to May 15, 2002, the Company may redeem up to 35% of the
aggregate principal amount of the 10 3/8% Discount Notes and the 9% Senior
Notes, at prices of 110.375% and 109%, respectively, of the accreted value
thereof, with the net cash proceeds from a public offering of the Company's
common stock.
11 1/4% Senior Discount Notes due 2011 (the "11 1/4% Discount Notes") and 9
1/2% Senior Notes due 2011 (the "9 1/2% Senior Notes")
On July 27, 1999, the Company issued (1) $260,000,000 aggregate principal
amount (at maturity) of its 11 1/4% Discount Notes for proceeds of
$147,501,000 (net of original issue discount of $109,489,000 and after
68
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
underwriting discounts of $3,010,000) and (2) $125,000,000 aggregate principal
amount of its 9 1/2% Senior Notes for proceeds of $122,500,000 (after
underwriting discounts of $2,500,000) (collectively, the "July 1999
Offerings"). The proceeds from the sale of these securities were used to pay
the purchase price for the BellSouth DCS transaction (see Note 2), to fund the
initial interest payments on the 9 1/2% Senior Notes and for general corporate
purposes.
The 11 1/4% Discount Notes will not pay any interest until February 1,
2005, at which time semi-annual interest payments will commence and become due
on each February 1 and August 1 thereafter. Semi-annual interest payments for
the 9 1/2% Senior Notes are due on each February 1 and August 1, commencing on
February 1, 2000. The maturity date of the 11 1/4% Discount Notes and the 9
1/2% Senior Notes is August 1, 2011. The 11 1/4% Discount Notes are net of
unamortized discount of $102,530,000 and $84,315,000 at December 31, 1999 and
2000, respectively.
The 11 1/4% Discount Notes and the 9 1/2% Senior Notes are redeemable at
the option of the Company, in whole or in part, on or after August 1, 2004 at
prices of 105.625% and 104.75%, respectively, of the principal amount plus
accrued interest. The redemption prices are reduced annually until August 1,
2007, after which time the 11 1/4% Discount Notes and the 9 1/2% Senior Notes
are redeemable at par. Prior to August 1, 2002, the Company may redeem up to
35% of the aggregate principal amount of the 11 1/4% Discount Notes and the 9
1/2% Senior Notes, at prices of 111.25% and 109.5%, respectively, of the
accreted value thereof, with the net cash proceeds from a public offering of
the Company's common stock.
Term Loans due 2011
On April 3, 2000, the Company borrowed $400,000,000 under a term loan
agreement with a group of lenders (the "Term Loans"). The net proceeds from
this borrowing, which amounted to $395,875,000, were used to fund a portion of
the cash contribution for the towers at Crown Castle GT (See Note 2). The Term
Loans were repaid in June 2000 with proceeds from the sale of the Company's 10
3/4% Senior Notes.
10 3/4% Senior Notes due 2011 (the "10 3/4% Senior Notes")
On June 21, 2000, the Company issued $500,000,000 aggregate principal
amount of its 10 3/4% Senior Notes for proceeds of $483,674,000 (after
underwriting discounts of $16,326,000). A portion of the proceeds from the
sale of these securities were used to repay the Term Loans (as discussed
above), and the remaining proceeds are being used to fund the initial interest
payments on the 10 3/4% Senior Notes and for general corporate purposes.
Semi-annual interest payments for the 10 3/4% Senior Notes are due on each
February 1 and August 1, commencing on February 1, 2001. The maturity date of
the 10 3/4% Senior Notes is August 1, 2011.
The 10 3/4% Senior Notes are redeemable at the option of the Company, in
whole or in part, on or after August 1, 2005 at a price of 105.375% of the
principal amount plus accrued interest. The redemption price is reduced
annually until August 1, 2008, after which time the 10 3/4% Senior Notes are
redeemable at par. Prior to August 1, 2003, the Company may redeem up to 35%
of the aggregate principal amount of the 10 3/4% Senior Notes, at a price of
110.75% of the principal amount thereof, with the net cash proceeds from a
public offering of the Company's common stock.
Structural Subordination of the Debt Securities
The 10 5/8% Discount Notes, the 10 3/8% Discount Notes, the 9% Senior
Notes, the 11 1/4% Discount Notes, the 9 1/2% Senior Notes and the 10 3/4%
Senior Notes (collectively, the "Debt Securities") are senior indebtedness of
the Company; however, they are unsecured and effectively subordinate to the
liabilities of the Company's
69
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
subsidiaries, which include outstanding borrowings under the 2000 Credit
Facility, the CCUK Credit Facility, the Crown Atlantic Credit Facility and the
CCUK Bonds. The indentures governing the Debt Securities (the "Indentures")
place restrictions on the Company's ability to, among other things, pay
dividends and make capital distributions, make investments, incur additional
debt and liens, issue additional preferred stock, dispose of assets and
undertake transactions with affiliates. As of December 31, 2000, the Company
was effectively precluded from paying dividends on its capital stock under the
terms of the Indentures.
Reporting Requirements Under the Indentures Governing the Company's Debt
Securities and the Certificate of Designations Governing the Company's 12
3/4% Senior Exchangeable Preferred Stock (the "Certificate")
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
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.
The Company has designated CCUK and Crown Atlantic as Unrestricted
Subsidiaries. Summarized financial information for (1) the Company and its
Restricted Subsidiaries; and (2) the Company's Unrestricted Subsidiaries is as
follows:
December 31, 2000
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash
equivalents............. $ 322,206 $ 131,627 $ -- $ 453,833
Other current assets..... 228,755 89,546 -- 318,301
Property and equipment,
net..................... 3,025,354 1,277,683 -- 4,303,037
Investments.............. 137,000 -- -- 137,000
Investments in
Unrestricted
Subsidiaries............ 1,618,813 -- (1,618,813) --
Goodwill and other
intangible assets, net.. 188,822 924,054 -- 1,112,876
Other assets, net........ 98,671 16,123 -- 114,794
---------- ---------- ----------- ----------
$5,619,621 $2,439,033 $(1,618,813) $6,439,841
========== ========== =========== ==========
Current liabilities...... $ 205,444 $ 119,432 $ -- $ 324,876
Long-term debt........... 2,042,935 559,752 -- 2,602,687
Other liabilities........ 26,914 66,440 -- 93,354
Minority interests....... 80,748 74,596 -- 155,344
Redeemable preferred
stock................... 842,718 -- -- 842,718
Stockholders' equity..... 2,420,862 1,618,813 (1,618,813) 2,420,862
---------- ---------- ----------- ----------
$5,619,621 $2,439,033 $(1,618,813) $6,439,841
========== ========== =========== ==========
70
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Three Months Ended December 31, 2000
(Unaudited) Year Ended December 31, 2000
-------------------------------------- --------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues............ $117,065 $84,908 $201,973 $ 336,012 $313,153 $ 649,165
Costs of operations
(exclusive of
depreciation and
amortization).......... 62,471 41,995 104,466 163,454 151,146 314,600
General and
administrative......... 18,590 5,810 24,400 60,426 16,518 76,944
Corporate development... 3,951 123 4,074 9,706 783 10,489
Non-cash general and
administrative
compensation charges... 983 525 1,508 2,153 974 3,127
Depreciation and
amortization........... 39,598 31,833 71,431 128,204 110,592 238,796
-------- ------- -------- --------- -------- ---------
Operating income
(loss)................. (8,528) 4,622 (3,906) (27,931) 33,140 5,209
Interest and other
income (expense)....... 11,094 81 11,175 32,525 1,236 33,761
Interest expense and
amortization of
deferred financing
costs.................. (54,887) (12,420) (67,307) (191,447) (49,847) (241,294)
Provision for income
taxes.................. (79) (4) (83) (97) (149) (246)
Minority interests...... 1,489 (404) 1,085 3,833 (4,554) (721)
Extraordinary item...... -- -- -- (1,495) -- (1,495)
-------- ------- -------- --------- -------- ---------
Net loss................ $(50,911) $(8,125) $(59,036) $(184,612) $(20,174) $(204,786)
======== ======= ======== ========= ======== =========
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 11 1/4% Discount Notes, the 9 1/2% Senior Notes and the 10 3/4% Senior
Notes (the "1999 and 2000 Securities"):
1997 and 1998 1999 and 2000
Securities Securities
------------- -------------
(In thousands of dollars)
(Unaudited)
Tower Cash Flow, for the three months ended
December 31, 2000................................ $ 27,781 $ 27,781
======== ========
Consolidated Cash Flow, for the twelve months
ended December 31, 2000.......................... $102,426 $112,132
Less: Tower Cash Flow, for the twelve months ended
December 31, 2000................................ (88,512) (88,512)
Plus: four times Tower Cash Flow, for the three
months ended December 31, 2000................... 111,124 111,124
-------- --------
Adjusted Consolidated Cash Flow, for the twelve
months ended December 31, 2000................... $125,038 $134,744
======== ========
Maturities
Scheduled maturities of long-term debt outstanding at December 31, 2000 are
as follows: years ending December 31, 2002--$27,786,000; 2003--$58,437,000;
2004--$93,961,000; 2005--$124,737,000; thereafter--$2,575,949,000.
71
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Restricted Net Assets of Subsidiaries
Under the terms of the 2000 Credit Facility, the CCUK Credit Facility, the
Crown Atlantic Credit Facility and the CCUK Bonds, the Company's subsidiaries
are limited in the amount of dividends which can be paid to the Company. Under
the 2000 Credit Facility, the amount of such dividends is generally limited to
(1) $17,500,000 per year; (2) an amount to pay income taxes attributable to
CCIC and the borrowers under the 2000 Credit Facility; and (3) an amount to
pay interest on certain of CCIC's indebtedness. CCUK and Crown Atlantic are
effectively precluded from paying dividends. The restricted net assets of the
Company's subsidiaries totaled approximately $3,602,771,000 at December 31,
2000.
Interest Rate Swap Agreements
In April 1999, the Company entered into an interest rate swap agreement in
connection with amounts borrowed under the Crown Atlantic Credit Facility.
This interest rate swap agreement has an initial notional amount of
$100,000,000, decreasing on a quarterly basis beginning September 30, 2003
until the termination of the agreement on March 31, 2006. The Company pays a
fixed rate of 5.79% on the notional amount and receives a floating rate based
on LIBOR. This agreement effectively changes the interest rate on a portion of
the borrowings under the Crown Atlantic Credit Facility from a floating rate
to a fixed rate of 5.79% plus the applicable margin.
In December 2000, the Company entered into an additional interest rate swap
agreement in connection with amounts borrowed under the Crown Atlantic Credit
Facility. This interest rate swap agreement has a notional amount of
$50,000,000 and terminates on December 31, 2003. The Company pays a fixed rate
of 5.89% on the notional amount and receives a floating rate based on LIBOR.
This agreement effectively changes the interest rate on a portion of the
borrowings under the Crown Atlantic Credit Facility from a floating rate to a
fixed rate of 5.89% plus the applicable margin.
The Company does not believe there is any significant exposure to credit
risk from these interest rate swap agreements due to the creditworthiness of
the counterparty. In the event of nonperformance by the counterparty, the
Company's loss would be limited to any unfavorable interest rate differential.
CCUK Letter of Credit
In December 2000, 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 $74,775,000) and expires on April 16, 2001.
6. Income Taxes
Income (loss) before income taxes, minority interests, extraordinary item
and cumulative effect of change in accounting principle by geographic area is
as follows:
Years Ended December 31,
------------------------------
1998 1999 2000
--------- -------- ---------
(In thousands of dollars)
Domestic..................................... $ (36,549) $(93,578) $(186,551)
Foreign...................................... 802 2,262 (15,773)
--------- -------- ---------
$(35,747) $(91,316) $(202,324)
========= ======== =========
72
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes consists of the following:
Years Ended December 31,
----------------------------
1998 1999 2000
-------- -------- --------
(In thousands of dollars)
Current:
State...................................... $ 365 $ 55 $ 225
Puerto Rico................................ 9 -- --
Foreign.................................... -- 220 21
-------- -------- --------
$ 374 $ 275 $ 246
======== ======== ========
A reconciliation between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate to the loss before
income taxes is as follows:
Years Ended December 31,
----------------------------
1998 1999 2000
-------- -------- --------
(In thousands of dollars)
Benefit for income taxes at statutory rate... $(12,154) $(31,047) $(71,337)
Foreign earnings not subject to tax.......... (584) (781) 6,703
Amortization of intangible assets............ 604 770 2,456
Depreciation on basis difference in joint
venture..................................... -- 1,012 1,131
Stock-based compensation..................... 2,844 477 468
Expenses for which no federal tax benefit was
recognized.................................. 151 152 203
State and foreign taxes, net of federal tax
benefit..................................... 247 182 168
Acquisition costs............................ (675) 34 35
Puerto Rico taxes............................ 9 -- --
Changes in valuation allowances.............. 9,944 29,451 58,817
Other........................................ (12) 25 1,602
-------- -------- --------
$ 374 $ 275 $ 246
======== ======== ========
73
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the net deferred income tax assets and liabilities are as
follows:
December 31,
-------------------
1999 2000
-------- ---------
(In thousands of
dollars)
Deferred income tax liabilities:
Property and equipment................................ $ 30,055 $ 28,075
Other................................................. 14 66
-------- ---------
Total deferred income tax liabilities............... 30,069 28,141
-------- ---------
Deferred income tax assets:
Net operating loss carryforwards...................... 76,826 138,877
Receivables allowance................................. 55 5,808
Intangible assets..................................... 264 692
Deferred compensation................................. -- 248
Noncompete agreement.................................. 348 193
Puerto Rico losses.................................... 238 147
Accrued liabilities................................... 68 77
Other................................................. 45 54
Valuation allowances.................................. (47,775) (117,955)
-------- ---------
Total deferred income tax assets, net............... 30,069 28,141
-------- ---------
Net deferred income tax liabilities..................... $ -- $ --
======== =========
Valuation allowances of $47,775,000 and $117,955,000 were recognized to
offset net deferred income tax assets as of December 31, 1999 and 2000,
respectively. If the benefits related to the valuation allowance are
recognized in the future, such benefits would be allocated as follows in the
Company's consolidated financial statements:
Consolidated statement of operations........................... $101,654,000
Additional paid-in capital..................................... 16,301,000
------------
$117,955,000
============
At December 31, 2000, the Company had net operating loss carryforwards of
approximately $396,792,000 which are available to offset future federal
taxable income. These loss carryforwards will expire in 2010 through 2020. The
utilization of the loss carryforwards is subject to certain limitations.
7. Minority Interests
Minority interests represent the minority shareholder's 20% interest in
CCUK (prior to July 2000), the minority partner's 43.1% interest in Crown
Atlantic, the minority partner's 18.0% interest in Crown Castle GT and the
minority shareholder's 33.3% interest in CCAL.
74
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Redeemable Preferred Stock
Redeemable preferred stock ($.01 par value, 10,000,000 shares authorized)
consists of the following:
December 31,
-----------------
1999 2000
-------- --------
(In thousands of
dollars)
12 3/4% Senior Exchangeable Preferred Stock; shares issued:
December 31, 1999--226,745 and December 31, 2000--257,067
(stated at mandatory redemption and aggregate liquidation
value)................................................... $227,950 $258,433
8 1/4% Cumulative Convertible Redeemable Preferred Stock;
shares issued:
200,000 (stated net of unamortized value of warrants;
mandatory redemption and aggregate liquidation value of
$200,000)................................................ 194,973 195,383
6.25% Convertible Preferred Stock; shares issued:
8,050,000 (stated net of unamortized issuance costs;
mandatory redemption and aggregate liquidation value of
$402,500)................................................ -- 388,902
-------- --------
$422,923 $842,718
======== ========
Exchangeable Preferred Stock
On December 16, 1998, the Company issued 200,000 shares of its 12 3/4%
Senior Exchangeable Preferred Stock due 2010 (the "Exchangeable Preferred
Stock") at a price of $1,000 per share (the liquidation preference per share).
The net proceeds received by the Company from the sale of such shares amounted
to approximately $193,000,000 (after underwriting discounts of $7,000,000 but
before other expenses of the offering, which amounted to approximately
$8,059,000). A portion of the net proceeds was used to repay outstanding
borrowings under the Senior Credit Facility of $73,750,000, and the remaining
net proceeds were used to pay a portion of the purchase price for the Crown
Atlantic transaction (see Note 2).
The holders of the Exchangeable Preferred Stock are entitled to receive
cumulative dividends at the rate of 12 3/4% per share, compounded quarterly on
each March 15, June 15, September 15 and December 15 of each year, beginning
on March 15, 1999. On or before December 15, 2003, the Company has the option
to pay dividends in cash or in additional shares of Exchangeable Preferred
Stock. After December 15, 2003, dividends are payable only in cash. For the
years ended December 31, 1999 and 2000, dividends were paid in additional
shares of Exchangeable Preferred Stock.
The Company is required to redeem all outstanding shares of Exchangeable
Preferred Stock on December 15, 2010 at a price equal to the liquidation
preference plus accumulated and unpaid dividends. On or after December 15,
2003, the shares are redeemable at the option of the Company, in whole or in
part, at a price of 106.375% of the liquidation preference. The redemption
price is reduced on an annual basis until December 15, 2007, at which time the
shares are redeemable at the liquidation preference. Prior to December 15,
2001, the Company may redeem up to 35% of the Exchangeable Preferred Stock, at
a price of 112.75% of the liquidation preference, with the net proceeds from
certain public equity offerings. The shares of Exchangeable Preferred Stock
are exchangeable, at the option of the Company, in whole but not in part, for
12 3/4% Senior Subordinated Exchange Debentures due 2010.
The Company's obligations with respect to the Exchangeable Preferred Stock
are subordinate to all indebtedness of the Company (including the Debt
Securities), and are effectively subordinate to all debt and liabilities of
the Company's subsidiaries (including the 2000 Credit Facility, the CCUK
Credit Facility, the Crown Atlantic Credit Facility and the CCUK Bonds). The
certificate of designations governing the Exchangeable
75
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Preferred Stock places restrictions on the Company's ability to, among other
things, pay dividends and make capital distributions, make investments, incur
additional debt and liens, issue additional preferred stock, dispose of assets
and undertake transactions with affiliates.
8 1/4% Convertible Preferred Stock
On November 19, 1999, the Company issued 200,000 shares of its 8 1/4%
Cumulative Convertible Redeemable Preferred Stock (the "8 1/4% Convertible
Preferred Stock") at a price of $1,000 per share (the liquidation preference
per share) to General Electric Capital Corporation ("GECC"). The Company
received net proceeds of approximately $191,500,000 (after structuring and
underwriting fees of $8,500,000 but before other expenses of the transaction).
The net proceeds were used to pay a portion of the purchase price for the GTE
joint venture (see Note 2).
GECC is entitled to receive cumulative dividends at the rate of 8 1/4% per
annum payable on March 15, June 15, September 15 and December 15 of each year,
beginning on December 15, 1999. The Company has the option to pay dividends in
cash or in shares of its common stock having a current market value equal to
the stated dividend amount. For the year ended December 31, 2000, dividends
were paid with 579,000 shares of common stock. GECC also received warrants to
purchase 1,000,000 shares of the Company's common stock at an exercise price
of $26.875 per share. The warrants will be exercisable, in whole or in part,
at any time for a period of five years following the issue date.
The Company is required to redeem all outstanding shares of the 8 1/4%
Convertible Preferred Stock on March 31, 2012 at a price equal to the
liquidation preference plus accumulated and unpaid dividends. On or after
October 1, 2002, the shares are redeemable at the option of the Company, in
whole or in part, at a price of 104.125% of the liquidation preference. The
redemption price is reduced on an annual basis until October 1, 2005, at which
time the shares are redeemable at the liquidation preference. The shares of 8
1/4% Convertible Preferred Stock are convertible, at the option of GECC, in
whole or in part at any time, into shares of the Company's common stock at a
conversion price of $26.875 per share of common stock.
The Company's obligations with respect to the 8 1/4% Convertible Preferred
Stock are subordinate to all indebtedness and the Exchangeable Preferred Stock
of the Company, and are effectively subordinate to all debt and liabilities of
the Company's subsidiaries. The certificate of designations governing the
Convertible Preferred Stock places restrictions on the Company similar to
those imposed by the Company's Debt Securities and the Exchangeable Preferred
Stock.
6.25% Convertible Preferred Stock
On July 27, 2000, the Company sold shares of its common stock and preferred
stock in concurrent underwritten public offerings (the "July 2000 Offerings").
The Company had granted the underwriters for the July 2000 Offerings over-
allotment options to purchase additional shares in both offerings. On August
1, 2000, the over-allotment option for the preferred stock offering was
exercised in full. As a result, the Company sold a total of 8,050,000 shares
of its 6.25% Convertible Preferred Stock at a price of $50.00 per share and
received proceeds of $388,412,000 (after underwriting discounts of
$14,088,000). The proceeds from the July 2000 Offerings will be used for
general corporate purposes. See Note 9.
The holders of the 6.25% Convertible Preferred Stock are entitled to
receive cumulative dividends at the rate of 6.25% per annum payable on
February 15, May 15, August 15 and November 15 of each year, beginning on
November 15, 2000. The Company has the option to pay dividends in cash or in
shares of its common stock (valued at 95% of the current market value of the
common stock, as defined). For the year ended December 31, 2000, dividends
were paid with 281,968 shares of common stock. The Company is required to
redeem all
76
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
outstanding shares of the 6.25% Convertible Preferred Stock on August 15, 2012
at a price equal to the liquidation preference plus accumulated and unpaid
dividends.
The shares of 6.25% Convertible Preferred Stock are convertible, at the
option of the holder, in whole or in part at any time, into shares of the
Company's common stock at a conversion price of $36.875 per share of common
stock. Beginning on August 15, 2003, under certain circumstances, the Company
will have the right to convert the 6.25% Convertible Preferred Stock, in whole
or in part, into shares of the Company's common stock at the same conversion
price.
The Company's obligations with respect to the 6.25% Convertible Preferred
Stock are subordinate to all indebtedness and the Exchangeable Preferred Stock
of the Company, and are effectively subordinate to all debt and liabilities of
the Company's subsidiaries. The 6.25% Convertible Preferred Stock ranks in
parity with the 8 1/4% Convertible Preferred Stock.
9. Stockholders' Equity
Common Stock
On August 18, 1998, the Company consummated its initial public offering of
common stock at a price to the public of $13.00 per share (the "IPO"). The
Company sold 12,320,000 shares of its common stock and received proceeds of
$151,043,000 (after underwriting discounts of $9,117,000 but before other
expenses of the IPO, which amounted to approximately $4,116,000). The net
proceeds from the IPO were used to pay a portion of the purchase price for the
Crown Atlantic transaction (see Note 2).
In anticipation of the IPO, the Company (1) 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 (2)
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.
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. Upon consummation of the IPO, all of the holders
of the Company's then-existing shares of Class A common stock, Class B common
stock, Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock and Series C Convertible Preferred Stock converted such shares into an
aggregate of 39,842,290 shares of the Company's common stock. In August 1998,
the Company repurchased, and subsequently retired, 141,070 shares of its
common stock from a former employee at a cost of approximately $883,000.
On May 12, 1999, the Company sold shares of its common stock and debt
securities in concurrent underwritten public offerings (collectively, the "May
Offerings") (see Note 5). The Company sold 21,000,000 shares of its common
stock at a price of $17.50 per share and received proceeds of $352,800,000
(after underwriting discounts of $14,700,000). The Company had granted the
underwriters for the May Offerings an over-allotment option to purchase an
additional 3,150,000 shares of the Company's common stock. On May 13, 1999,
the underwriters exercised this over-allotment option in full. As a result,
the Company received additional proceeds of $52,920,000 (after underwriting
discounts of $2,205,000). The proceeds from the May Offerings were used to pay
the remaining purchase price for the BellSouth and Powertel transactions, to
fund the initial interest payments on the 9% Senior Notes and for general
corporate purposes.
On June 15, 1999 the Company sold shares of its common stock to a
subsidiary of TdF pursuant to TdF's preemptive rights related to two recent
acquisitions. The Company sold 5,395,539 shares at $12.63 per share and
77
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
125,066 shares at $13.00 per share. The aggregate proceeds of approximately
$69,772,000 were used for general corporate purposes.
On July 20, 1999, the Company sold shares of its common stock to a
subsidiary of TdF pursuant to TdF's preemptive rights related to the May
Offerings. The Company sold 8,351,791 shares at $16.80 per share. The
aggregate proceeds of approximately $140,310,000 were used for general
corporate purposes.
On July 5, 2000, TdF and an affiliate of TdF sold their remaining interests
in the Company to a third party. In connection with this disposition, the
Company issued 17,443,500 shares of its common stock in exchange for TdF's 20%
interest in CCUK (see Note 2).
On July 27, 2000, the Company sold shares of its common stock in the July
2000 Offerings (see Note 8). On August 1, 2000, the over-allotment option for
the common stock offering was partially exercised. As a result, the Company
sold a total of 12,084,200 shares of its common stock at a price of $29.50 per
share and received proceeds of $342,225,000 (after underwriting discounts of
$14,259,000).
Class A Common Stock
Upon consummation of the share exchange agreement with CCUK's shareholders
(see Note 2), TdF received all of the then-outstanding shares of the Company's
Class A Common Stock. Each share of Class A Common Stock was convertible, at
the option of its holder at any time, into one share of Common Stock. The
holder of the Class A Common Stock was entitled to one vote per share on all
matters presented to a vote of the Company's shareholders, except with respect
to the election of directors. The holder of the Class A Common Stock, voting
as a separate class, had the right to elect up to two members of the Company's
Board of Directors. The shares of Class A Common Stock also provided certain
governance and anti-dilutive rights.
In June 2000, the outstanding shares of the Company's Class A Common Stock
held by an affiliate of TdF were converted into 11,340,000 shares of the
Company's Common Stock in connection with the sale of a portion of TdF's
shares to a third party. Upon conversion of the Class A Common Stock, France
Telecom relinquished its governance rights with respect to the Company and its
subsidiaries.
Compensation Charges Related to Stock Option Grants and Acquisitions
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 vested upon consummation of the IPO, and
the remaining options for 1,426,250 shares are vesting at 20% per year over
five years, beginning one year from the date of grant. In addition, the
Company 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 a
former director) 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 CCUK's
shareholders and at prices substantially below the price to the public in the
IPO, the Company has recorded a non-cash general and administrative
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 IPO. Such compensation charge will total approximately
$18,400,000, of which approximately $10,600,000 was recognized upon
consummation of the IPO (for such options and shares which vested upon
consummation of the IPO), and the remaining $7,800,000 is being recognized
over five years (approximately $1,600,000 per year) through the second quarter
of 2003. An additional $1,600,000 in non-cash general and administrative
compensation charges will be recognized through the third quarter of 2001 for
stock options issued to certain members of CCUK's management prior to the
consummation of the share exchange.
78
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 2000, the Company issued (1) 199,473 shares of its common stock and
(2) options to purchase 17,577 shares of its common stock with an exercise
price of $.01 per share in connection with an acquisition by CCUK. Such shares
and options were deemed to be compensation to the former shareholders of the
acquired company (who remain employed by the Company). As a result, CCUK will
recognize non-cash general and administrative compensation charges of
approximately $8,380,000 over five years.
In September 2000, the Company issued 336,600 shares of its common stock in
connection with an acquisition by CCUSA. Of such shares, 170,710 were deemed
to be compensation to the former shareholders of the acquired company (who
remain employed by the Company). As a result, CCUSA will recognize non-cash
general and administrative compensation charges of approximately $5,889,000
over four years.
Stock Options
In 1995, the Company adopted the Crown Castle International Corp. 1995
Stock Option Plan (as amended, the "1995 Stock Option Plan"). Up to 28,000,000
shares of the Company's common stock have been reserved for awards granted to
certain employees, consultants and non-employee directors of the Company and
its subsidiaries or affiliates. These options generally vest over periods of
up to five years from the date of grant (as determined by the Company's Board
of Directors) and have a maximum term of 10 years from the date of grant.
Upon consummation of the share exchange agreement with CCUK's shareholders
in 1998 (see Note 2), the Company adopted each of the various CCUK stock
option plans. All outstanding options to purchase shares of CCUK under such
plans have been converted into options to purchase shares of the Company's
common stock. Up to 4,392,451 shares of the Company's common stock were
reserved for awards granted under the CCUK plans, and these options generally
vest over periods of up to three years from the date of grant.
A summary of awards granted under the various stock option plans is as
follows for the years ended December 31, 1998, 1999 and 2000:
1998 1999 2000
--------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
---------- --------- ---------- --------- ---------- ---------
Options outstanding at
beginning of year...... 3,694,375 $ 4.69 16,585,197 $ 7.06 19,226,076 $ 9.89
Options granted......... 9,024,720 10.02 4,661,649 18.68 4,878,783 28.48
Options outstanding
under CCUK stock option
plans.................. 4,367,202 2.74 -- -- -- --
Options exercised....... (216,650) 4.89 (1,482,066) 5.82 (2,540,569) 5.16
Options forfeited....... (284,450) 5.72 (538,704) 9.17 (380,474) 22.62
---------- ---------- ----------
Options outstanding at
end of year............ 16,585,197 7.06 19,226,076 9.89 21,183,816 14.50
========== ========== ==========
Options exercisable at
end of year............ 7,615,649 4.75 11,590,217 8.14 13,692,081 10.21
========== ========== ==========
79
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In August 1998, certain outstanding options became fully or partially
vested upon consummation of the IPO. A summary of options outstanding as of
December 31, 2000 is as follows:
Weighted-
Average
Number of Remaining Number of
Options Contractual Options
Exercise Prices Outstanding Life Exercisable
--------------- ----------- ----------- -----------
$-0- to $1.60............................ 610,742 5.0 years 593,165
2.31 to 3.90............................. 2,402,884 5.9 years 2,192,886
4.01 to 5.97............................. 1,241,814 5.9 years 1,236,483
7.50 to 7.77............................. 4,141,900 7.4 years 3,062,261
10.04 to 12.50........................... 320,500 7.9 years 155,500
13.00.................................... 3,262,164 7.7 years 3,262,164
15.13 to 17.63........................... 1,280,000 8.7 years 426,200
18.00 to 19.94........................... 1,970,508 8.2 years 1,634,927
20.06 to 22.56........................... 1,905,828 8.5 years 999,195
23.69 to 25.62........................... 540,199 7.6 years 79,300
26.19 to 29.50........................... 1,680,727 7.3 years --
29.88 to 31.88........................... 1,407,800 9.2 years 20,000
32.09 to 39.50........................... 418,750 9.4 years 30,000
---------- ----------
21,183,816 13,692,081
========== ==========
The weighted-average fair value of options granted during the years ended
December 31, 1998, 1999 and 2000 was $4.54, $6.76 and $11.39, respectively.
The fair value of each option was estimated on the date of grant using the
Black-Scholes option-pricing model and the following weighted-average
assumptions about the options (the minimum value method was used prior to the
IPO):
Years Ended December 31,
-----------------------------
1998 1999 2000
--------- --------- ---------
Risk-free interest rate........................ 5.38% 5.41% 6.37%
Expected life.................................. 3.6 years 4.9 years 5.0 years
Expected volatility............................ 0% to 30% 30% 30%
Expected dividend yield........................ 0% 0% 0%
In 2000, CCAL adopted the Crown Castle Australia Holdings Pty Ltd. Director
and Employee Share Option Scheme (the "CCAL Share Option Scheme"). Under this
plan, CCAL may award options for the purchase of CCAL shares to its employees
and directors. These options generally vest over periods of up to five years
from the date of grant (as determined by CCAL's Board of Directors) and have a
maximum term of seven years from the date of grant. In October and December
2000, CCAL granted 3,218,000 options with an exercise price of approximately
$0.54 (Australian $1.00) per share. All of such options were outstanding as of
December 31, 2000, and none of such options were exercisable. The estimated
fair value of these options was approximately $0.14 per share based on the
Black-Scholes option pricing model using the following assumptions: (1) a
risk-free interest rate of 5.88%, (2) an expected life of 5.0 years, (3) an
expected volatility of 30% and (4) an expected dividend yield of 0%.
The exercise prices for the substantial portion of the options granted
during the years ended December 31, 1999 and 2000 were equal to or in excess
of the estimated fair value of the Company's common stock at the date of
grant. As such, no compensation cost was recognized for the substantial
portion of the stock options granted during those years (see Note 1 and
"Compensation Charges Related to Stock Option Grants and
80
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Acquisitions"). If compensation cost had been recognized for stock options
based on their fair value at the date of grant, the Company's pro forma net
loss for the years ended December 31, 1998, 1999 and 2000 would have been
$75,660,000 ($1.91 per share), $113,633,000 ($1.08 per share) and $226,997,000
($1.60 per share), respectively. The pro forma effect of stock options on the
Company's net loss for those years may not be representative of the pro forma
effect for future years due to the impact of vesting and potential future
awards.
Shares Reserved For Issuance
At December 31, 2000, the Company had the following shares reserved for
future issuance:
Common Stock:
Convertible Preferred Stock.................................. 18,357,114
Stock option plans........................................... 27,790,041
Warrants..................................................... 1,639,990
----------
47,787,145
==========
10. Employee Benefit Plans
The Company and its subsidiaries have various defined contribution savings
plans covering substantially all employees. Depending on the plan, employees
may elect to contribute up to 15% of their eligible compensation. Certain of
the plans provide for partial matching of such contributions. The cost to the
Company for these plans amounted to $197,000, $836,000 and $1,951,000 for the
years ended December 31, 1998, 1999 and 2000, respectively.
CCUK has a defined benefit plan which covers all of its employees hired on
or before March 1, 1997. Employees hired after that date are not eligible to
participate in this plan. The net periodic pension cost attributable to this
plan for the four months ended December 31, 1998, the year ended December 31,
1999 and the year ended December 31, 2000 was $1,115,000, $3,592,000 and
$2,516,000, respectively. As of December 31, 1999 and 2000, (1) the projected
benefit obligation amounted to $18,169,000 and $21,505,000, respectively; (2)
the fair value of the plan's assets amounted to $22,449,000 and $23,599,000,
respectively; and (3) the prepaid pension cost attributable to this plan
amounted to $1,454,000 and $1,825,000, respectively.
11. Related Party Transactions
Included in other receivables at December 31, 1999 and 2000 are amounts due
from employees of the Company totaling $312,000 and $342,000, respectively.
12. Commitments and Contingencies
At December 31, 2000, minimum rental commitments under operating leases are
as follows: years ending December 31, 2001--$93,293,000; 2002--$82,470,000;
2003--$70,687,000; 2004--$59,941,000; 2005--$49,155,000; thereafter--
$356,152,000. Rental expense for operating leases was $9,620,000, $47,300,000
and $92,101,000 for the years ended December 31, 1998, 1999 and 2000,
respectively.
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.
81
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Operating Segments and Concentrations of Credit Risk
Operating Segments
The Company's reportable operating segments for 2000 are (1) the domestic
operations other than Crown Atlantic ("CCUSA"), (2) the Australian operations
of CCAL for periods subsequent to the purchase date (see Note 2), (3) the
United Kingdom operations of CCUK, and (4) the operations of Crown Atlantic.
Financial results for the Company are reported to management and the Board of
Directors in this manner, and much of the Company's current debt financing is
structured along these geographic and organizational lines. See Note 1 for a
description of the primary revenue sources from these segments.
The measurement of profit or loss currently used to evaluate the results of
operations for the Company and its operating segments is earnings before
interest, taxes, depreciation and amortization ("EBITDA"). The Company defines
EBITDA as operating income (loss) plus depreciation and amortization, non-cash
general and administrative compensation charges and restructuring charges.
EBITDA is not intended as an alternative measure of operating results or cash
flow from operations (as determined in accordance with generally accepted
accounting principles), and the Company's measure of EBITDA may not be
comparable to similarly titled measures of other companies. There are no
significant revenues resulting from transactions between the Company's
operating segments. Total assets for the Company's operating segments are
determined based on the separate consolidated balance sheets for CCUSA, CCAL,
CCUK and Crown Atlantic. The results of operations and financial position for
CCUK and CCAL reflect appropriate adjustments for their presentation in
accordance with generally accepted accounting principles in the United States.
The financial results for the Company's operating segments are as follows:
Year Ended December 31, 2000
-------------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
---------- -------- ---------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission......... $ 183,475 $ 6,810 $ 192,211 $ 63,543 $ -- $ 446,039
Network services and
other................ 145,694 -- 25,463 31,936 33 203,126
---------- -------- ---------- -------- --------- ----------
329,169 6,810 217,674 95,479 33 649,165
---------- -------- ---------- -------- --------- ----------
Costs of operations
(exclusive of
depreciation and
amortization).......... 159,827 3,578 106,448 44,698 49 314,600
General and
administrative......... 49,731 4,444 8,072 8,446 6,251 76,944
Corporate development... -- -- 783 -- 9,706 10,489
---------- -------- ---------- -------- --------- ----------
EBITDA.................. 119,611 (1,212) 102,371 42,335 (15,973) 247,132
Non-cash general and
administrative
compensation charges... 792 -- 974 -- 1,361 3,127
Depreciation and
amortization........... 121,667 5,219 77,190 33,402 1,318 238,796
---------- -------- ---------- -------- --------- ----------
Operating income
(loss)................. (2,848) (6,431) 24,207 8,933 (18,652) 5,209
Interest and other
income (expense)....... 4,183 185 322 914 28,157 33,761
Interest expense and
amortization of
deferred financing
costs.................. (42,981) (135) (31,963) (17,884) (148,331) (241,294)
Provision for income
taxes.................. (97) -- (21) (128) -- (246)
Minority interests...... 553 3,280 (2,333) (2,221) -- (721)
Extraordinary item...... (1,495) -- -- -- -- (1,495)
---------- -------- ---------- -------- --------- ----------
Net loss................ $ (42,685) $ (3,101) $ (9,788) $(10,386) $(138,826) $ (204,786)
========== ======== ========== ======== ========= ==========
Capital expenditures.... $ 422,360 $ 1,708 $ 102,372 $ 99,127 $ 10,939 $ 636,506
========== ======== ========== ======== ========= ==========
Total assets (at year
end)................... $3,342,321 $151,437 $1,559,558 $828,475 $ 558,050 $6,439,841
========== ======== ========== ======== ========= ==========
82
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Year Ended December 31, 1999
-------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCUK Atlantic and Other Total
---------- -------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission......... $ 58,293 $171,981 $ 37,620 $ -- $ 267,894
Network services and
other................ 44,413 21,713 10,268 1,471 77,865
---------- -------- -------- -------- ----------
102,706 193,694 47,888 1,471 345,759
---------- -------- -------- -------- ----------
Costs of operations
(exclusive of
depreciation and
amortization).......... 41,648 93,058 20,953 1,089 156,748
General and
administrative......... 27,988 5,625 5,146 5,064 43,823
Corporate development... -- 819 -- 4,584 5,403
---------- -------- -------- -------- ----------
EBITDA.................. 33,070 94,192 21,789 (9,266) 139,785
Restructuring charges... 5,645 -- -- -- 5,645
Non-cash general and
administrative
compensation charges... 67 769 -- 1,337 2,173
Depreciation and
amortization........... 41,174 63,597 24,155 1,180 130,106
---------- -------- -------- -------- ----------
Operating income
(loss)................. (13,816) 29,826 (2,366) (11,783) 1,861
Interest and other
income (expense)....... (155) 377 4,577 12,932 17,731
Interest expense and
amortization of
deferred financing
costs.................. (4,119) (28,334) (12,233) (66,222) (110,908)
Provision for income
taxes.................. (56) -- -- (219) (275)
Minority interests...... -- (3,835) 1,079 -- (2,756)
Cumulative effect of
change in accounting
principle for costs of
start-up activities.... (2,014) -- -- (400) (2,414)
---------- -------- -------- -------- ----------
Net loss................ $ (20,160) $ (1,966) $ (8,943) $(65,692) $ (96,761)
========== ======== ======== ======== ==========
Capital expenditures.... $ 118,961 $150,562 $ 23,287 $ 991 $ 293,801
========== ======== ======== ======== ==========
Total assets (at year
end)................... $1,544,969 $989,060 $712,019 $590,602 $3,836,650
========== ======== ======== ======== ==========
Year Ended December 31, 1998
-----------------------------------------
Corporate
Office Consolidated
CCUSA CCUK and Other Total
------- ------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission..................... $22,541 $52,487 $ -- $ 75,028
Network services and other........ 31,471 5,568 1,011 38,050
------- ------- -------- --------
54,012 58,055 1,011 113,078
------- ------- -------- --------
Costs of operations (exclusive of
depreciation and amortization)..... 23,076 24,372 370 47,818
General and administrative.......... 17,929 2,418 3,224 23,571
Corporate development............... -- -- 4,625 4,625
------- ------- -------- --------
EBITDA.............................. 13,007 31,265 (7,208) 37,064
Non-cash general and administrative
compensation charges............... 132 2,851 9,775 12,758
Depreciation and amortization....... 16,202 20,318 719 37,239
------- ------- -------- --------
Operating income (loss)............. (3,327) 8,096 (17,702) (12,933)
Equity in earnings of unconsolidated
affiliate.......................... -- -- 2,055 2,055
Interest and other income
(expense).......................... (253) 294 4,179 4,220
Interest expense and amortization of
deferred financing costs........... (4,476) (7,362) (17,251) (29,089)
Provision for income taxes.......... (374) -- -- (374)
Minority interests.................. -- (1,654) -- (1,654)
------- ------- -------- --------
Net loss............................ $(8,430) $ (626) $(28,719) $(37,775)
======= ======= ======== ========
Capital expenditures................ $84,911 $50,224 $ 3,624 $138,759
======= ======= ======== ========
83
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Geographic Information
A summary of net revenues by country, based on the location of the
Company's subsidiary, is as follows:
Years Ended December 31,
--------------------------
1998 1999 2000
-------- -------- --------
(In thousands of dollars)
United States.................................... $ 51,807 $147,679 $419,392
Puerto Rico...................................... 2,470 2,915 5,256
-------- -------- --------
Total domestic operations...................... 54,277 150,594 424,648
-------- -------- --------
Australia........................................ -- -- 6,810
United Kingdom................................... 58,055 193,655 217,570
Other foreign countries.......................... 746 1,510 137
-------- -------- --------
Total for all foreign countries................ 58,801 195,165 224,517
-------- -------- --------
$113,078 $345,759 $649,165
======== ======== ========
A summary of long-lived assets by country of location is as follows:
December 31, 1999
----------------------------------------------------
United
States and Other Total
Puerto United Foreign Foreign Consolidated
Rico Kingdom Countries Countries Total
---------- -------- --------- --------- ------------
(In thousands of dollars)
Property and equipment,
net.................... $1,944,487 $523,587 $ 27 $523,614 $2,468,101
Other long-lived assets,
net.................... 297,172 401,837 7,495 409,332 706,504
---------- -------- ------ -------- ----------
$2,241,659 $925,424 $7,522 $932,946 $3,174,605
========== ======== ====== ======== ==========
December 31, 2000
-----------------------------------------------------------------
United
States and Other Total
Puerto United Foreign Foreign Consolidated
Rico Australia Kingdom Countries Countries Total
---------- --------- ---------- --------- ---------- ------------
(In thousands of dollars)
Property and equipment,
net.................... $3,631,125 $126,584 $ 544,376 $ 952 $ 671,912 $4,303,037
Other long-lived assets,
net.................... 474,632 10,141 870,414 9,483 890,038 1,364,670
---------- -------- ---------- ------- ---------- ----------
$4,105,757 $136,725 $1,414,790 $10,435 $1,561,950 $5,667,707
========== ======== ========== ======= ========== ==========
Major Customers
For the years ended December 31, 1998 and 1999, CCUSA had revenues from a
single customer amounting to $14,168,000 and $16,872,000, respectively. During
2000, a merger took place between two customers of CCUSA and Crown Atlantic;
revenues from these two customers aggregated $99,070,000 for the year ended
December 31, 2000. For the years ended December 31, 1998, 1999, and 2000,
consolidated net revenues include $33,044,000, $97,520,000 and $96,083,000,
respectively, from a single customer of CCUK.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash and cash equivalents,
investments and trade receivables. The Company mitigates its risk with respect
to cash and cash equivalents by maintaining such deposits at high credit
quality financial institutions and monitoring the credit ratings of those
institutions.
84
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company derives the largest portion of its revenues from customers in
the wireless telecommunications industry. In addition, the Company has
concentrations of operations in certain geographic areas (including the United
Kingdom and various regions in the United States). The Company mitigates its
concentrations of credit risk with respect to trade receivables by actively
monitoring the creditworthiness of its customers.
14. Restructuring Charges
In connection with the formation of Crown Atlantic (see Note 2), the
Company completed a restructuring of its United States operations during the
first quarter of 1999. The objective of this restructuring was to transition
from a centralized organization to a regionally-based organization in the
United States. Coincident with the restructuring, the Company incurred one-
time charges of $1,814,000 related to severance payments for staff reductions,
as well as costs related to non-cancelable leases of excess office space. At
December 31, 1999 and 2000, other accrued liabilities includes $331,000 and
$171,000, respectively, related to these charges.
The Company completed a restructuring of the operations of its subsidiary,
TeleStructures, Inc., in December 1999. The objective of this restructuring
was to reduce the size of the TeleStructures, Inc. staff to a level which
could be justified by its operating volume. In connection with this
restructuring, the Company incurred one-time charges totaling $3,831,000
related to severance payments for the staff reductions, the recognition of an
impairment loss for the remaining goodwill from the acquisition and other
related costs. At December 31, 1999 and 2000, other accrued liabilities
includes $1,309,000 and $317,000, respectively, related to these charges.
85
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Quarterly Financial Information (Unaudited)
Summary quarterly financial information for the years ended December 31,
1999 and 2000 is as follows:
Three Months Ended
--------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(In thousands of dollars, except per share
amounts)
1999:
Net revenues.................... $ 55,109 $ 77,527 $ 98,927 $114,196
Operating income (loss)......... (1,715) 1,124 202 2,250
Loss before cumulative effect of
change in accounting
principle...................... (13,473) (20,850) (27,067) (32,957)
Cumulative effect of change in
accounting principle........... (2,414) -- -- --
Net loss........................ (15,887) (20,850) (27,067) (32,957)
Per common share--basic and
diluted:
Loss before cumulative effect
of change in accounting
principle.................... (0.21) (0.22) (0.23) (0.27)
Cumulative effect of change in
accounting principle......... (0.03) -- -- --
Net loss...................... (0.24) (0.22) (0.23) (0.27)
2000:
Net revenues.................... $124,244 $148,359 $174,589 $201,973
Operating income (loss)......... 5,549 1,175 2,391 (3,906)
Loss before extraordinary item.. (32,060) (59,230) (52,965) (59,036)
Extraordinary item.............. (1,495) -- -- --
Net loss........................ (33,555) (59,230) (52,965) (59,036)
Per common share--basic and
diluted:
Loss before extraordinary
item......................... (0.27) (0.43) (0.36) (0.40)
Extraordinary item............ (0.01) -- -- --
Net loss...................... (0.28) (0.43) (0.36) (0.40)
16. Subsequent Events
Stockholders' Equity
On January 11, 2001, the Company sold shares of its common stock in an
underwritten public offering. The Company had granted the underwriters an
over-allotment option to purchase additional shares in the offering. On
January 12, 2001, the over-allotment option was partially exercised. As a
result, the Company sold a total of 13,445,200 shares of its common stock at a
price of $26.25 per share and received proceeds of $342,853,000 (after
underwriting discounts of $10,084,000). The proceeds from this offering will
be used for general corporate purposes.
86
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required to be furnished pursuant to this item will be set
forth in the 2001 Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
The information required to be furnished pursuant to this item will be set
forth in the 2001 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required to be furnished pursuant to this item will be set
forth in the 2001 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required to be furnished pursuant to this item will be set
forth in the 2001 Proxy Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements:
The list of financial statements filed as part of this report is
submitted as a separate section, the index to which is located on page 51.
(a)(2) Financial Statement Schedules:
Schedule I--Condensed Financial Information of Registrant and Schedule
II--Valuation and Qualifying Accounts follow this Part IV. All other
schedules are omitted because they are not applicable or because the
required information is contained in the financial statements or notes
thereto included in this Form 10-K.
(a)(3) Exhibits:
The Exhibits listed on the accompanying Index to Exhibits are filed as
part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K:
None.
87
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Crown Castle International Corp.:
Under date of February 23, 2001, we reported on the consolidated balance
sheets of Crown Castle International Corp. and subsidiaries as of December 31,
2000 and 1999 and the related consolidated statements of operations and
comprehensive loss, cash flows and stockholders' equity for each of the years
in the three-year period ended December 31, 2000 as contained in the annual
report on Form 10-K for the year ended 2000. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedules as listed in the
accompanying index. These financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG LLP
Houston, Texas
February 23, 2001
88
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET (Unconsolidated)
(In thousands of dollars, except share amounts)
December 31,
----------------------
1999 2000
ASSETS ---------- ----------
Current assets:
Cash and cash equivalents............................ $ 489,886 $ 252,365
Receivables and other current assets................. 982 5,345
Short-term investments............................... -- 38,000
Advances to subsidiaries, net........................ 98,020 279,631
---------- ----------
Total current assets............................... 588,888 575,341
Property and equipment, net of accumulated depreciation
of $2,053 and $3,275 at December 31, 1999 and 2000,
respectively.......................................... 4,040 3,920
Escrow deposit for acquisition......................... 50,000 --
Investments............................................ -- 137,000
Investment in subsidiaries............................. 2,334,508 4,074,133
Deferred financing costs and other assets, net of
accumulated amortization of $2,609 and $6,535 at
December 31, 1999 and 2000, respectively.............. 44,668 57,324
---------- ----------
$3,022,104 $4,847,718
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities....... $ 4,339 $ 6,609
Accrued interest..................................... 6,907 34,594
---------- ----------
Total current liabilities.......................... 11,246 41,203
Long-term debt......................................... 970,188 1,542,935
---------- ----------
Total liabilities.................................. 981,434 1,584,138
---------- ----------
Redeemable preferred stock............................. 422,923 842,718
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares
authorized:
Common Stock; shares issued: December 31, 1999--
146,074,905 and December 31, 2000--198,912,094...... 1,461 1,989
Class A Common Stock; shares issued: December 31,
1999--11,340,000 and December 31, 2000--none........ 113 --
Additional paid-in capital............................ 1,805,053 2,894,095
Accumulated other comprehensive loss.................. (3,013) (25,100)
Accumulated deficit................................... (185,867) (450,122)
---------- ----------
Total stockholders' equity......................... 1,617,747 2,420,862
---------- ----------
$3,022,104 $4,847,718
========== ==========
See notes to consolidated financial statements and accompanying notes.
89
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued)
STATEMENT OF OPERATIONS (Unconsolidated)
(In thousands of dollars)
Years Ended December 31,
------------------------------
1998 1999 2000
-------- --------- ---------
Other revenues................................. $ 399 $ -- $ --
Interest and other income (expense)............ 1,354 12,852 28,216
General and administrative expenses............ (2,975) (5,002) (6,234)
Corporate development expenses................. (4,404) (4,579) (7,841)
Non-cash general and administrative
compensation charges.......................... (9,775) (1,337) (1,361)
Depreciation and amortization.................. (720) (1,178) (1,238)
Interest expense and amortization of deferred
financing costs............................... (17,251) (66,222) (148,331)
-------- --------- ---------
Loss before income taxes, equity in earnings
(losses) of subsidiaries and unconsolidated
affiliate and cumulative effect of change in
accounting principle.......................... (33,372) (65,466) (136,789)
Equity in earnings (losses) of subsidiaries.... (6,458) (30,985) (67,997)
Equity in earnings of unconsolidated
affiliate..................................... 2,055 -- --
-------- --------- ---------
Loss before cumulative effect of change in
accounting principle.......................... (37,775) (96,451) (204,786)
Cumulative effect of change in accounting
principle for costs of start-up activities.... -- (310) --
-------- --------- ---------
Net loss....................................... (37,775) (96,761) (204,786)
Dividends on preferred stock................... (5,411) (28,881) (59,469)
-------- --------- ---------
Net loss after deduction of dividends on
preferred stock............................... $(43,186) $(125,642) $(264,255)
======== ========= =========
See notes to consolidated financial statements and accompanying notes.
90
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued)
STATEMENT OF CASH FLOWS (Unconsolidated)
(In thousands of dollars)
Years Ended December 31,
----------------------------------
1998 1999 2000
--------- ---------- -----------
Cash flows from operating activities:
Net loss.................................. $ (37,775) $ (96,761) $ (204,786)
Adjustments to reconcile net loss to net
cash used for operating activities:
Amortization of deferred financing costs
and discounts on long-term debt......... 17,251 46,703 76,764
Equity in losses of subsidiaries......... 6,458 30,985 67,997
Non-cash general and administrative
compensation charges.................... 9,775 1,337 1,361
Depreciation and amortization............ 720 1,178 1,238
Cumulative effect of change in accounting
principle............................... -- 310 --
Equity in earnings of unconsolidated
affiliate............................... (2,055) -- --
Increase in accrued interest............. -- 6,907 27,687
Decrease (increase) in receivables and
other assets............................ (1,413) (10,052) 4,441
Increase (decrease) in accounts payable
and other accrued liabilities........... 1,352 2,273 (874)
--------- ---------- -----------
Net cash used for operating
activities............................ (5,687) (17,120) (26,172)
--------- ---------- -----------
Cash flows from investing activities:
Investment in subsidiaries................ (332,065) (930,082) (1,071,433)
Net advances to subsidiaries.............. (11,100) (84,309) (181,611)
Purchase of investments................... -- -- (175,000)
Sale of (investments in) affiliates....... -- 739 (2,488)
Capital expenditures...................... (3,624) (963) (1,158)
Escrow deposit for acquisition............ -- (50,000) --
--------- ---------- -----------
Net cash used for investing
activities............................ (346,789) (1,064,615) (1,431,690)
--------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of capital stock... 339,929 805,771 743,290
Proceeds from issuance of long-term debt.. -- 757,206 500,000
Incurrence of financing costs............. (1,755) (28,025) (22,949)
Dividends on preferred stock.............. -- (1,238) --
Purchase of capital stock................. (883) -- --
--------- ---------- -----------
Net cash provided by financing
activities............................ 337,291 1,533,714 1,220,341
--------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (15,185) 451,979 (237,521)
Cash and cash equivalents at beginning of
year...................................... 53,092 37,907 489,886
--------- ---------- -----------
Cash and cash equivalents at end of year... $ 37,907 $ 489,886 $ 252,365
========= ========== ===========
Supplementary schedule of noncash investing
and financing activities:
Issuance of common stock in connection
with acquisitions........................ $ 420,964 $ 397,710 $ 707,389
Supplemental disclosure of cash flow
information:
Interest paid............................. $ -- $ 12,612 $ 43,878
Income taxes paid......................... -- -- --
See notes to consolidated financial statements and accompanying notes.
91
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued)
NOTES TO FINANCIAL STATEMENTS (Unconsolidated)
1. Investment in Subsidiaries
The Company's investment in subsidiaries is presented in the accompanying
unconsolidated financial statements using the equity method of accounting.
Under the terms of the 2000 Credit Facility, the CCUK Credit Facility, the
Crown Atlantic Credit Facility and the CCUK Bonds, the Company's subsidiaries
are limited in the amount of dividends which can be paid to the Company. Under
the 2000 Credit Facility, the amount of such dividends is generally limited to
(1) $17,500,000 per year; (2) an amount to pay income taxes attributable to
CCIC and the borrowers under the 2000 Credit Facility; and (3) an amount to
pay interest on certain of CCIC's indebtedness. CCUK and Crown Atlantic are
effectively precluded from paying dividends. The restricted net assets of the
Company's subsidiaries totaled approximately $3,602,771,000 at December 31,
2000.
2. Long-term Debt
Long-term debt consists of the Company's Debt Securities.
3. Redeemable Preferred Stock
Redeemable preferred stock consists of the Company's Exchangeable Preferred
Stock, 8 1/4% Convertible Preferred Stock and 6.25% Convertible Preferred
Stock.
4. Income Taxes
Income taxes reported in the accompanying unconsolidated financial
statements are determined by computing income tax assets and liabilities on a
consolidated basis, for the Company and members of its consolidated federal
income tax return group, and then reducing such consolidated amounts for the
amounts recorded by the Company's subsidiaries on a separate tax return basis.
92
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31, 2000
(In thousands of dollars)
Additions Deductions
---------- -----------
Effect
Amounts Amounts of
Balance at Charged to Written Exchange Balance
Beginning Operating Off Against Rate at End
Description of Year Expenses Receivables Changes of Year
----------- ---------- ---------- ----------- -------- -------
Allowance for Doubtful
Accounts Receivable....... $3,218 $16,781 $(1,230) $(47) $18,722
====== ======= ======= ==== =======
93
INDEX TO EXHIBITS
Item 14 (a) (3)
Exhibit
No. Description
------- -----------
*2.1 Formation Agreement, dated December 8, 1998, relating to the
formation of Crown Atlantic Company LLC, Crown Atlantic Holding Sub
LLC, and Crown Atlantic Holding Company LLC
**2.2 Amendment Number 1 to Formation Agreement, dated March 31, 1999,
among Crown Castle International Corp., Cellco Partnership, doing
business as Bell Atlantic Mobile, certain Transferring Partnerships
and CCA Investment Corp.
**2.3 Crown Atlantic Company LLC Operating Agreement entered into as of
March 31, 1999 by and between Cellco Partnership, doing business as
Bell Atlantic Mobile, and Crown Atlantic Holding Sub LLC
***2.4 Agreement to Sublease dated June 1, 1999 by and among BellSouth
Mobility Inc., BellSouth Telecommunications Inc., The Transferring
Entities, Crown Castle International Corp. and Crown Castle South
Inc.
***2.5 Sublease dated June 1, 1999 by and among BellSouth Mobility Inc.,
Certain BMI Affiliates, Crown Castle International Corp. and Crown
Castle South Inc.
++2.6 Agreement to Sublease dated August 1, 1999 by and among BellSouth
Personal Communications, Inc., BellSouth Carolinas PCS, L.P., Crown
Castle International Corp. and Crown Castle South Inc.
++2.7 Sublease dated August 1, 1999 by and among BellSouth Personal
Communications, Inc., BellSouth Carolinas PCS, L.P., Crown Castle
International Corp. and Crown Castle South Inc.
*****2.8 Formation Agreement dated November 7, 1999 relating to the
formation of Crown Castle GT Company LLC, Crown Castle GT Holding
Sub LLC, and Crown Castle GT Holding Company LLC
*****2.9 Letter Agreement dated November 7, 1999 between GTE Wireless
Incorporated and Crown Castle International Corp.
++2.10 Operating Agreement, dated January 31, 2000, by and between Crown
Castle GT Corp. and affiliates of GTE Wireless Incorporated
###3.1 Restated Certificate of Incorporation of Crown Castle International
Corp., dated August 21, 1998
###3.2 Amended and Restated By-laws of Crown Castle International Corp.,
dated August 21, 1998
###3.3 Certificate of Designations, Preferences and Relative,
Participating, Optional and other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions thereof of 12 3/4%
Senior Exchangeable Preferred Stock Due 2010 and 12 3/4% Series B
Senior Exchangeable Preferred Stock Due 2010 of Crown Castle
International Corp. filed with the Secretary of State of the State
of Delaware on December 18, 1998
******3.4 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions thereof of Series
A and Series B Cumulative Convertible Redeemable Preferred Stock of
Crown Castle International Corp. filed with the Secretary of State
of the State of Delaware on November 19, 1999
#####3.50 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions thereof of 6.25%
Cumulative Convertible Redeemable Preferred Stock of Crown Castle
International Corp. filed with the Secretary of State of the State
of Delaware on August 2, 2000
#4.1 Trust Deed related to (Pounds)125,000,000 9% Guaranteed Bonds Due
2007 among Castle Transmission (Finance) PLC, as Issuer, Castle
Transmission International Ltd. and Castle Transmission Services
(Holdings) Ltd., as Guarantors, and The Law Debenture Trust
Corporation p.l.c., as Trustee, dated May 21, 1997
94
Exhibit No. Description
----------- -----------
#4.2 First Supplemental Trust Deed related to (Pounds)125,000,000 9%
Guaranteed Bonds Due 2007 among Castle Transmission (Finance) PLC,
as Issuer, Castle Transmission International Ltd. and Castle
Transmission Services (Holdings) Ltd., as Guarantors, and The Law
Debenture Trust Corporation p.l.c., as Trustee, dated October 17,
1997
#4.3 Indenture, dated as of November 25, 1997, between Crown Castle
International Corp. and United States Trust Company of New York,
as Trustee, relating to the 10 5/8% Senior Discount Notes Due 2007
(including exhibits)
#4.4 Article Fourth of Certificate of Incorporation of Castle Tower
Holding Corp. (included in Exhibit 3.1)
##4.5 Specimen Certificate of Common Stock
###4.6 Indenture, dated as of December 21, 1998, between Crown Castle
International Corp. and the United States Trust Company of New
York, as Trustee, relating to the 12 3/4% Senior Subordinated
Exchange Debentures Due 2010 (including exhibits)
####4.7 Indenture, dated as of May 17, 1999, between Crown Castle
International Corp. and United States Trust Company of New York,
as Trustee, relating to the 9% Senior Notes Due 2011 (including
exhibits)
####4.8 Indenture, dated as of May 17, 1999, between Crown Castle
International Corp. and United States Trust Company of New York,
as Trustee, relating to the 10 3/8% Senior Discount Notes Due 2011
(including exhibits)
***4.9 Registration Rights Agreement dated June 1, 1999 between BellSouth
Mobility Inc. and Crown Castle International Corp.
####4.10 Indenture, dated as of August 3, 1999, between Crown Castle
International Corp. and United States Trust Company of New York,
as Trustee, relating to the 9 1/2% Senior Notes Due 2011
(including exhibits)
####4.11 Indenture, dated as of August 3, 1999, between Crown Castle
International Corp. and United States Trust Company of New York,
as Trustee, relating to the 11 1/4% Senior Discount Notes Due 2011
(including exhibits)
******4.12 Deposit Agreement among Crown Castle International Corp. and the
United States Trust Company of New York dated November 19, 1999
******4.13 Registration Rights Agreement among Crown Castle International
Corp., the United States Trust Company of New York and SFG-P INC.
dated November 19, 1999
******4.14 Warrant Agreement between Crown Castle International Corp. and the
United States Trust Company of New York dated November 19, 1999
*******4.15 Indenture, dated as of June 26, 2000, between Crown Castle
International Corp. and United States Trust Company of New York,
as Trustee, relating to the 10 3/4% Senior Notes due 2011
(including exhibits)
##10.1 Site Sharing Agreement between National Transcommunications
Limited and The British Broadcasting Corporation dated September
10, 1991
##10.2 Transmission Agreement between The British Broadcasting
Corporation and Castle Transmission Services Limited dated
February 27, 1997
#10.3 Services Agreement between Castle Transmission International Ltd.
(formerly known as Castle Transmission Services Ltd.) and Castle
Tower Holding Corp. dated February 28, 1997
##10.4 Agreement for the Provision of Digital Terrestrial Television
Distribution and Transmission Services between British Digital
Broadcasting plc and Castle Transmission International Ltd. dated
December 18, 1997
##10.5 Digital Terrestrial Television Transmission Agreement between The
British Broadcasting Corporation and Castle Transmission
International Ltd. dated February 10, 1998
95
Exhibit
No. Description
------- -----------
##10.6 Contract between British Telecommunications PLC and Castle
Transmission International Inc. for the Provision of Digital
Terrestrial Television Network Distribution Service dated May 13,
1998
##10.7 Amending Agreement between the British Broadcasting Corporation and
Castle Transmission International Limited dated July 16, 1998
##10.8 Commitment Agreement between the British Broadcasting Corporation,
Castle Tower Holding Corp., TeleDiffusion de France International
S.A. and TeleDiffusion de France S.A.
**10.9 Global Lease Agreement dated March 31, 1999 between Crown Atlantic
Company LLC and Cellco Partnership, doing business as Bell Atlantic
Mobile
**10.10 Master Build to Suit Agreement dated March 31, 1999 between Cellco
Partnership, doing business as BellAtlantic Mobile, and Crown
Atlantic Company LLC
***10.11 Agreement to Build to Suit dated June 1, 1999 by and among BellSouth
Mobility Inc., Crown Castle International Corp. and Crown Castle
South Inc.
#10.12 Castle Tower Holding Corp. 1995 Stock Option Plan (Third Restatement)
##10.13 Crown Castle International Corp. 1995 Stock Option Plan (Fourth
Restatement)
##10.14 Castle Transmission Services (Holdings) Ltd. All Employee Share
Option Scheme dated as of January 23, 1998
##10.15 Rules of the Castle Transmission Services (Holdings) Ltd. Bonus Share
Plan
###10.16 Employee Benefit Trust between Castle Transmission Services
(Holdings) Ltd. and Castle Transmission (Trustees) Limited
##10.17 Castle Transmission Services (Holdings) Ltd. Unapproved Share Option
Scheme dated as of January 23, 1998
##10.18 Deed of Grant of Option between Castle Transmission Series (Holdings)
Ltd. and George Reese dated January 23, 1998
##10.19 Deed of Grant of Option between Castle Transmission Services
(Holdings) Ltd. and David Ivy dated January 23, 1998
##10.20 Deed of Grant of Option between Castle Transmission Services
(Holdings) Ltd. and David Ivy dated April 23, 1998
##10.21 Deed of Grant of Option between Castle Transmission Services
(Holdings) Ltd. and Ted B. Miller, Jr., dated April 23, 1998
##10.22 Deed of Grant of Option between Castle Transmission Services
(Holdings) Ltd. and Ted B. Miller, Jr., dated January 23, 1998
##10.23 Agreement among Castle Transmission Services (Holdings) Ltd., Digital
Future Investments B.V., Berkshire Partners LLC and certain
shareholders of Castle Transmission Services (Holdings) Ltd. for the
sale and purchase of certain shares of Castle Transmission Services
(Holdings) Ltd., for the amendment of the Shareholders Agreement in
respect of Castle Transmission Services (Holdings) Ltd. and for the
granting of certain options dated April 24, 1998
###10.24 Form of Severance Agreement entered into between Crown Castle
International Corp. and Ted Miller, George Reese, John Gwyn, Charles
Green, Alan Rees, Blake Hawk and David Ivy
###10.25 Stockholders Agreement between Crown Castle International Corp. and
certain stockholders listed on Schedule 1 thereto, dated as of August
21, 1998 as amended by Amendment No. 1, dated as of the 12th day of
November, 1998
+10.26 Amendment Number Three, dated as of August 11, 1999, to the
Stockholders Agreement between Crown Castle International Corp. and
certain stockholders listed on Schedule 1 thereto, dated as of August
21, 1998
96
Exhibit
No. Description
------- -----------
+10.27 Amendment Number Four, dated as of October 1, 1999, to the
Stockholders Agreement between Crown Castle International Corp. and
certain stockholders listed on Schedule 1 thereto, dated as of
August 21, 1998
#####10.28 Termination Agreement dated as of July 5, 2000, by and between
Crown Castle International Corp., Crown Castle UK Holdings Limited,
France Telecom S.A., Telediffusion de France S.A., and Transmission
Future Networks B.V.
++++10.29 Amended and Restated Rights Agreement dated as of September 18,
2000, between Crown Castle International Corp. and ChaseMellon
Shareholder Services L.L.C.
**10.30 Loan Agreement dated as of March 31, 1999 by and among Crown
Atlantic HoldCo Sub LLC, as the Borrower, Key Corporate Capital
Inc., as Agent, and the Financial Institutions listed therein
++10.31 Amendment to Loan Amendment Agreement, dated June 18, 1999, by and
among Castle Transmission International Ltd., Castle Transmission
Services (Holdings) Ltd., Millennium Communications Limited and the
various banks and lenders listed as parties thereto
++10.32 Credit Agreement dated as of March 15, 2000 among Crown Castle
Operating Company, Crown Castle International Corp., The Chase
Manhattan Bank, Credit Suisse First Boston Corporation, Key
Corporate Capital Inc. and The Bank of Nova Scotia, as Agents, and
the several Lenders which are parties thereto
++10.33 Amendment to Loan Amendment Agreement dated December 23, 1999 by
and among Castle Transmission International, Ltd., Castle
Transmission Services (Holdings) Ltd, Millennium Communications
Limited and the various banks and lenders listed as parties thereto
+++10.34 Term Loan Agreement, dated as of March 30, 2000 among Crown Castle
International Corp., Chase Securities Inc., Goldman Sachs Credit
Partners L.P., Syndicated Loan Funding Trust and the several
Lenders which are parties thereto
11 Statement regarding Computation of Per Share Earnings
12 Computation of Ratios of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends
21 Subsidiaries of Crown Castle International Corp.
23 Consent of KPMG LLP
- --------
@ Incorporated by reference to the exhibits with the corresponding exhibit
numbers in the Registration Statement on Form S-3 previously filed by the
Registrant (Registration No. 333-83395).
# Incorporated by reference to the exhibits with the corresponding exhibit
numbers in the Registration Statement on Form S-4 previously filed by the
Registrant (Registration No. 333-43873).
## Incorporated by reference to the exhibits with the corresponding exhibit
numbers in the Registration Statement on Form S-1 previously filed by the
Registrant (Registration No. 333-57283).
* Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated December 9, 1998.
** Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated March 31, 1999.
### Incorporated by reference to the exhibits with the corresponding exhibit
numbers in the Registration Statement on Form S-4 previously filed by the
Registrant (Registration No. 333-71715).
*** Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated June 9, 1999.
**** Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated July 22, 1999.
+ Incorporated by reference to the exhibit previously filed by the
Registrant on Form 10-Q (Registration No. 0-24737) dated September 30,
1999.
++ Incorporated by reference to the exhibit previously filed by the
Registrant on Form 10-K (Registration No. 000-24737) dated March 30,
2000.
+++ Incorporated by reference to the exhibit previously filed by the
Registrant on Form 10-Q (Registration No. 0-24737) dated March 31, 2000.
#### Incorporated by reference to the exhibits with the corresponding exhibit
numbers in the Registration Statement on Form S-4 previously filed by the
Registrant (Registration No. 333-87765).
***** Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated November 7,
1999.
****** Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated November 19,
1999.
++++ Incorporated by reference to the exhibit filed by the Registrant in the
Registration Statement on Form 8-A12G/A (Registration No. 0-24737) dated
September 19, 2000.
******* Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated June 26, 2000.
##### Incorporated by reference to the exhibit previously filed by the
Registrant on Form 10-Q (Registration No. 0-24737) dated August 11,
2000.
97
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, on this 29th day of March, 2001.
Crown Castle International Corp.
/s/ W. Benjamin Moreland
By: _________________________________
W. Benjamin Moreland
Senior Vice President, Chief
Financial Officer and Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints W. Benjamin Moreland and Wesley D. Cunningham
and each of them, as his or her true and lawful attorneys-in-fact and agents
with full power of substitution and re-substitution for him or her and in his
or her name, place and stead, in any and all capacities, to sign any and all
documents relating to the Annual Report on Form 10-K, including any and all
amendments and supplements thereto, for the year ended December 31, 2000 and
to file the same with all exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been
signed below by the following persons in the capacities indicated below on
this 29th day of March, 2001.
Signature Title
--------- -----
/s/ Ted B. Miller, Jr. Chief Executive Officer and Chairman
______________________________________ of the Board (Principal Executive
Ted B. Miller, Jr. Officer)
/s/ W. Benjamin Moreland Senior Vice President, Chief
______________________________________ Financial Officer and Treasurer
W. Benjamin Moreland (Principal Financial Officer)
/s/ Wesley D. Cunningham Senior Vice President, Chief
______________________________________ Accounting Officer and Corporate
Wesley D. Cunningham Controller (Principal Accounting
Officer)
/s/ John P. Kelly President, Chief Operating Officer
______________________________________ and Director
John P. Kelly
/s/ Carl Ferenbach Director
______________________________________
Carl Ferenbach
98
Signature Title
--------- -----
/s/ Randall A. Hack Director
______________________________________
Randall A. Hack
/s/ Lee W. Hogan Director
______________________________________
Lee W. Hogan
/s/ Edward C. Hutcheson, Jr. Director
______________________________________
Edward C. Hutcheson, Jr.
/s/ David L. Ivy Director
______________________________________
David L. Ivy
/s/ J. Landis Martin Director
______________________________________
J. Landis Martin
/s/ Robert F. McKenzie Director
______________________________________
Robert F. McKenzie
/s/ William D. Strittmatter Director
______________________________________
William D. Strittmatter
99