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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
Commission File Number 000-24737
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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(b) of the Name of Exchange
Securities Exchange Act of 1934 on Which Registered
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Common Stock, $.01 par value New York Stock Exchange
Rights to Purchase Series A Participating New York Stock Exchange
Cumulative Preferred Stock
Securities Registered Pursuant to Section 12(g) 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 $935.4 million as of March 15, 2002 based on
the New York Stock Exchange closing price of $7.60 per share.
Applicable Only to Corporate Registrants
As of March 15, 2002, there were 219,842,529 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 "2002 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, 2001.
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CROWN CASTLE INTERNATIONAL CORP.
TABLE OF CONTENTS
Page
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PART I
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 32
Item 3. Legal Proceedings............................................. 32
Item 4. Submissions of Matters to a Vote of Security Holders.......... 32
PART II
Market for Registrant's Common Equity and Related Stockholder
Item 5. Matters....................................................... 33
Item 6. Selected Financial Data....................................... 34
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations..................................... 36
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.... 54
Item 8. Financial Statements and Supplementary Data................... 56
Changes in and Disagreements with Accountants on Accounting
Item 9. and Financial Disclosure...................................... 92
PART III
Item 10. Directors and Executive Officers of the Registrant............ 92
Item 11. Executive Compensation........................................ 92
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................... 92
Item 13. Certain Relationships and Related Transactions................ 92
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form
Item 14. 8-K........................................................... 92
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 (including via lessee/sublessee and
management arrangements) of towers (including co-locatable rooftops) and
transmission networks for wireless communications and broadcast transmission
companies. As of December 31, 2001, we owned, leased or managed 15,116 towers
and rooftops, including 10,638 sites in the United States and Puerto Rico,
3,087 sites in the United Kingdom and 1,391 sites in Australia. Our customers
currently include many of the world's major wireless communications and
broadcast companies, including Verizon, Cingular, Nextel, VoiceStream, Sprint
PCS, AT&T Wireless, SingTel Optus, Vodafone, BT Cellnet (an mmO2 company), One
2 One, Hutchison 3G UK Limited and the British Broadcasting Corporation (the
"BBC").
Our strategy is to use our leading domestic and international position to
increase our revenue per site by increasing the utilization of our sites by
wireless and broadcast companies for antenna space, and to continue to build,
acquire and operate new towers and wireless and transmission networks and
infrastructure through opportunities 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
network capacity;
. the additional demand for towers and wireless infrastructure created by
new entrants into the wireless communications industry; and
. the introduction of wireless technologies including broadband data, or
"3G" technology.
Our main businesses are leasing (including licensing) antenna space on
wireless and broadcast towers that can accommodate multiple tenants ("co-
location") 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 project management, antenna installation and network
management and maintenance. We believe that our service capabilities and asset
portfolio are key competitive advantages in capturing a significant share of
the antenna demand by wireless communications carriers and the demand for
broadcast transmission network management.
Our primary business in the United States is the leasing of antenna space
on our sites to wireless carriers. Our tower portfolio consists primarily of
concentrations of towers in various metropolitan areas, or "tower clusters."
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 and coverage plans across particular markets or regions. As of
December 31, 2001, 52% of our towers were located in the 50 largest basic
trading areas, or "BTAs", in the U.S., and 70% of our towers were located in
the 100 largest BTAs.
Our primary businesses in the United Kingdom, which is conducted through
our wholly owned subsidiary Crown Castle UK Limited, or "CCUK", are 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. CCUK has executed agreements with certain 3G license holders in
the UK pursuant to which such license holders will lease space on certain CCUK
sites which are expected to be used in connection with such companies' 3G
network rollout. See "Business--The Company--U.K. Operations--Significant
Contracts--Hutchison 3G Agreement" and "--BT Cellnet Agreement".
1
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. CCAL is owned 77.6% by us and 22.4% by Permanent Nominees (Aust) Ltd
on behalf of a group of professional and institutional investors led by Jump
Capital Limited. We currently operate 1,391 towers in Australia, of which 716
were purchased from Cable & Wireless Optus (now SingTel Optus Pty Limited), or
"Optus", during 2000, and 643 were purchased from Vodafone Australia in April
2001. These towers provide CCAL with a strategic presence in all of
Australia's licensed regions, including Sydney, Melbourne, Brisbane, Adelaide
and Perth. CCAL is now the largest independent tower owner in Australia. See
"Business--The Company--Australia Operations".
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, 3G,
paging, and fixed microwave, as well as radio and television broadcasting. In
the United States our major customers include Verizon, Cingular, VoiceStream,
Nextel, Sprint PCS and AT&T Wireless. In the United Kingdom our major
customers include the BBC, BT Cellnet (an mmO2 company), NTL, ITVdigital
(formerly called ONdigital), One 2 One, Orange and Hutchison 3G. Our principal
customers in Australia are Optus, Vodafone Australia and Hutchison.
We are continuing our ongoing construction program to strategically expand
our tower portfolios. In 2001, we constructed 1,464 towers. In 2002, we plan
to construct approximately 900 to 1,100 towers, at an estimated aggregate cost
of approximately $185 million (excluding payments under our British Telecom
agreement), for lease to wireless carriers such as Verizon, Cingular, Nextel,
Hutchison 3G and BT Cellnet (an mmO2 company). The actual number of towers
built may vary depending on acquisition opportunities and potential build-to-
suit contracts from our wireless customers.
Growth Strategy
Our objective is to become the premier owner and operator of tower
(including co-locatable rooftop sites) 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:
. Grow Revenue Organically. We are seeking to increase the utilization of
our strategically located communications sites by increasing the number
of antenna leases on our owned and managed communications sites. Many of
our towers have capacity available for additional antenna space rental.
We believe there is demand for such co-location capacity both from
existing carriers and broadcasters and from new carriers and
broadcasters. New entrants are able to launch service quickly and
efficiently by designing the deployment of their networks based on our
existing tower portfolios. We intend to continue to use targeted sales
and marketing techniques to increase utilization of and investment
return on our constructed and acquired towers.
. Grow EBITDA. We are seeking to take advantage of the operating leverage
afforded by the relatively fixed nature of the operating costs
associated with our site rental business. The majority of the operating
costs of our site rental business consist of ground lease expense,
property taxes, repair and maintenance, utilities and salaries, which
tend to escalate at approximately the rate of inflation. Consequently,
if increased utilization of tower capacity is achieved at low
incremental cost, our site rental business should experience operating
margin expansion and growth in site-level "EBITDA", or earnings before
interest, taxes and depreciation.
. Allocate Capital Efficiently. We seek to expand our existing tower
portfolios through the selective acquisition and build of strategically
located towers that will improve the coverage of our existing tower
portfolios and increase their attractiveness. With respect to tower
acquisitions, we may seek to acquire such sites from major wireless
carriers to assume ownership of their existing towers directly or
through
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joint ventures (such as our two joint ventures with Verizon
Communications) or to control their towers through contractual
arrangements. We may also acquire towers from other companies in the
tower industry, either through direct acquisitions, tower exchanges or
other means. With respect to tower builds, leveraging on our ability to
offer a wide range of related services, we intend to selectively build
new towers for wireless carriers as they expand and fill in their service
areas and deploy new technologies requiring additional communications
sites. Our decisions to invest additional capital in selective
acquisitions or build activities are generally based upon whether such
investments are expected to achieve our risk-adjusted return on
investment hurdle rates.
. Extend Revenue Around Our Existing Assets. 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 growth opportunities, as evidenced by our transactions
with the BBC, One 2 One, Verizon Communications, BellSouth, Powertel,
Optus and Vodafone Australia. With our wireless communications and
broadcast transmission network design and radio frequency engineering
expertise, we are well positioned to extend our services beyond the
leasing of tower space to other potentially shareable activities, such
as antenna and base station maintenance, shared microwave backhaul and
network monitoring.
The Company
We operate our business through our subsidiaries primarily in three
geographic areas--the United States, the United Kingdom and Australia. We
conduct our U.S. operations principally through certain wholly owned
subsidiaries of Crown Castle Operating Company and our two joint ventures with
Verizon Communications. CCUK is our principal U.K. operating subsidiary, and
CCAL, a joint venture between us and Permanent Nominees (Aust) Ltd, 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 have
engaged or may engage in from time to time.
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, including network design and site
selection, site acquisition, site development and project management 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 are typically five years with renewal
options. Our U.S. customers include such companies as Verizon, Cingular,
VoiceStream, Nextel, Sprint PCS and AT&T Wireless. 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, 2001, we owned 10,638 sites in the United States and Puerto
Rico. These towers 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
three years. In addition, we may consider and enter into arrangements with
other wireless carriers and independent tower operators to acquire additional
towers or tower portfolios.
Through the Powertel acquisition, which closed in June 1999, we control and
operate approximately 670 towers. These towers represented substantially all
of the towers owned by Powertel (now a part of VoiceStream)
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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
Mobility's 850 MHz tower portfolio in the southeast and have minimal coverage
overlap. Substantially all of the Powertel towers are over 100 feet tall and
can accommodate multiple tenants.
Through the BellSouth Mobility and BellSouth DCS (now part of Cingular)
transactions, which were substantially completed in September 2000, we control
and operate approximately 2,700 towers. These towers represented (1)
substantially all of the towers in BellSouth Mobility'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 Verizon Communications relating to the Bell Atlantic
Mobile towers (the "Bell Atlantic JV") controlled and operated approximately
2,010 towers as of December 31, 2001. Through our joint venture with Verizon
Communications relating to the GTE Wireless towers (the "GTE JV"), we
controlled and operated approximately 2,930 towers as of December 31, 2001.
These towers represent substantially all the towers now used in the 850 MHz
wireless network of Verizon Wireless in the eastern, midwestern, southwestern
and Pacific coast areas of the 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, Phoenix and San Francisco. A
substantial majority of these towers are over 100 feet tall and can
accommodate multiple tenants. We currently own 56.9% of the Bell Atlantic JV,
and Verizon Communications owns the remaining 43.1%. We currently own 82.2% of
the GTE JV, and Verizon Communications owns the remaining 17.8%.
The agreements relating to our joint ventures with Verizon Communications
provide that upon a dissolution of either venture and following satisfaction
(or adequate provision for satisfaction) of such venture's liabilities, we
will receive all the assets of the dissolved venture, other than any shares of
our common stock then held by the venture that were contributed by us as
capital contributions, all of which shares will be distributed to the
applicable Verizon Communications partner. In exchange for the distribution of
the venture's assets to us, we will pay to the applicable Verizon
Communications partner the then fair market value of such partner's interest
in the venture, excluding an agreed venture interest relating to the common
stock held by the venture and distributed to such partner. A dissolution of
either venture may be triggered (1) by the Verizon Communications partner at
any time following the third anniversary of the formation of the applicable
venture and (2) by us at any time following the fourth anniversary of such
venture's formation (subject to certain penalties if prior to the seventh
anniversary in the case of the Bell Atlantic JV). As of December 31, 2001,
assuming the distribution of the shares of common stock held by the ventures
to the Verizon Communications partner, the interest of the Verizon
Communications partner in the GTE JV and the Bell Atlantic JV would have been
approximately 11.0% and 24.1%, respectively. As payment to our venture
partner, the dissolution of the GTE JV would require us to deliver cash, and
the dissolution of the Bell Atlantic JV would require us to deliver cash or
common stock at our option; such payments may negatively impact our liquidity
or cause dilution of our common stock. The GTE JV was formed on January 31,
2000, and the Bell Atlantic JV was formed on March 31, 1999. Additional
information regarding the joint venture dissolution terms can be found in the
text of our prior filings with the Securities and Exchange Commission ("SEC")
and in the relevant joint venture agreements, which have been filed as
exhibits to certain of our prior SEC filings.
Each of our 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 communications business
of Bell Atlantic Mobile and GTE Wireless, which now does business as Verizon
Wireless, over a five-year period. In addition, following the building of such
500 sites, the Bell Atlantic JV will have a right of first refusal to
construct up to the next 200 towers to be built for Verizon Wireless. The
number
4
of towers built under the GTE JV build-to-suit agreement is reduced by the
number of towers built under the Bell Atlantic JV build-to-suit agreement in
excess of 700 and certain other leases on our towers. Further, we have entered
into similar agreements with BellSouth, as part of the BellSouth transaction,
to construct certain 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 December 31, 2001, we had built approximately 122, 170
and 318 towers under each of the build-to-suit agreements with or for the GTE
JV, the Bell Atlantic JV and BellSouth, respectively. We are currently in
discussions with Verizon Communicatioins and BellSouth Mobility regarding
amendments to various terms of each of the build-to-suit agreements with or
for the GTE JV, the Bell Atlantic JV and BellSouth Mobility. There can be no
assurances as to the outcome of any of these discussions.
We also seek to capitalize on our network design and project management
expertise to construct new towers. We plan to continue to selectively build
towers in areas where carriers' signals fail to transmit in their coverage
areas. 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 tower sites are also designed to easily
add additional customers.
Site Rental
In the United States, we rent antenna space on our towers to a variety of
carriers operating cellular, personal communication services, specialized
mobile radio, enhanced specialized mobile radio, paging and other networks.
We lease space to our customers on our 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 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 primarily on the Consumer
Price Index. The average monthly rental payment of a new tenant added to a
tower is approximately $1,500 per month. The lease agreements relating to
tower network acquisitions generally have a base term of ten years, with
multiple renewal options, each typically ranging from five to ten years. We
have existing master lease agreements with most major wireless carriers,
including AT&T Wireless, Cingular, Verizon, VoiceStream, Nextel and Sprint
PCS, which provide certain terms (including economic terms) that govern leases
on our towers entered into by such parties during the term of their master
lease agreements.
We have site rental opportunities in connection with our larger tower
acquisition transactions as a result of the fact that such transactions
typically 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 Mobility and BellSouth DCS
transactions, we are paid a monthly site maintenance fee from BellSouth for
its use or maintenance of its reserve 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 industry. Because we are basically a provider of total
systems with "end-to-end" design, project management and operating expertise,
we offer our customers the flexibility of choosing between the provision of a
ready-to-operate network infrastructure or any
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of the component services involved therein. Such services include network
design and site selection, site acquisition, site development and project
management 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
2001, we provided network design services primarily for our own portfolios and
also for certain customers, including AT&T Fixed Wireless and Cricket
Communications. 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 project
management department takes over the process of constructing the site.
We have provided site acquisition services to numerous customers, including
Verizon, Cingular, AT&T Fixed Wireless, AT&T Wireless and Cricket
Communications. These customers engage us for such site acquisition services
on either a fixed price contract or a time-and-materials basis.
Site Development and Project Management and Antenna Installation. We
provide site development and project management and antenna installation
services to the U.S. communications industry. We have extensive experience in
the development and construction of tower sites and the installation of
antenna, microwave dishes and associated equipment. Our site development and
project management services include clearing sites, laying foundations,
provision of 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 site development, project
management and antenna installation. We generally set prices for each site
development or project management service separately. Customers are billed for
these services on a fixed price 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 and microwave customers. As this
service is performed, we use our technical expertise to substantiate that
there is no interference with other tenants. We typically bill for our antenna
installation services on a fixed price basis.
Our project management capabilities reflect our extensive experience in the
managing the construction of networks and towers. For example, during 2001, we
were instrumental in launching a multi-state network for Cricket
Communications. In addition, in 2001, we provided site development and project
management 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 most of the major
wireless carriers, among others.
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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 and paging. We work
primarily with large national carriers such as Verizon, Cingular, AT&T
Wireless, Sprint PCS, VoiceStream and Nextel. For the year ended December 31,
2001, Verizon Communications and its subsidiaries accounted for 14.3% 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
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Cellular/Personal Communications AT&T Wireless, Verizon, Sprint PCS,
Services............................. Cingular, VoiceStream, Nextel
Specialized Mobile Radio/Enhanced
Specialized Mobile Radio............. Nextel
Governmental Agencies................. INS, Coast Guard, FBI, U.S. Postal
Service, FAA, DEA, IRS, Puerto Rico
Police
Private Industrial Users.............. Federal Express, Laidlaw Transit, BFI
Data.................................. Cingular, Itron, Ardis
Paging................................ WebLink Wireless, Metrocall, SkyTel (a
division of WorldCom), Acquis, Arch
Utilities............................. Peco Energy Corporation, Nevada Power,
Reliant Energy Entex
Other................................. XM Satellite Radio
Sales and Marketing
Our marketing department maintains our profile within the industry through
regular advertising, public relations, trade shows, press releases,
newsletters, targeted mailings, and our 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.
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 sales opportunities, including
turnkey network deployments 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 personal
communications services, cellular, microwave and two-way radio, paging, 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.
For example, in 2001 we provided emergency communications services and
dispatched crank up towers, nighttime lighting and other equipment to assist
the recovery efforts in New York City and at the Pennsylvania crash site
associated with the terrorist events of September 11, 2001.
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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 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, broadcasters and building owners, 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, deployment speed 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 certain strategic acquisition and new tower construction
opportunities with wireless carriers, site developers and other independent
tower operating companies. We believe that competition for such tower site
acquisitions may increase and that additional competitors may 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 us and Wireless
Facilities, Inc., SBA Communications, Whalen & Company (a subsidiary of Tetra
Tech, Inc.) and Gearon & Company (a subsidiary of American Tower Corp.). 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 criteria such as 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.
U.K. Operations
Overview
We own and operate, through CCUK, one of the world's most established
television and radio transmission networks. In addition, we are expanding our
leasing of antenna space on our U.K. 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
UK-wide BBC radio services on FM, AM and DAB (the first digital audio
broadcast service in the United Kingdom), 5 BBC regional radio services for
Scotland, Wales and Northern Ireland, 39 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 sites, more than half of which we own or control and the
balance of which are either licensed to us under a site-sharing agreement with
National Transcommunications Limited, or NTL, our principal broadcast
competitor in the United Kingdom, or other third party site operators. We have
also secured long-term contracts to provide digital television transmission
services to the BBC and ITVdigital (formerly ONdigital). See "Business--The
Company--U.K. Operations--Significant Contracts". In April 2001, we launched a
new wireless carrier network service for One 2 One in Northern Ireland. In
addition to providing transmission services, we also lease antenna
8
space on our 3,087 communications sites 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 TV contract was added
in 1998 as described below. For the 12 months ended December 31, 2001,
approximately 39.4% of CCUK's consolidated revenues were derived from the
provision of transmission services to the BBC.
At December 31, 2001, we owned or managed 3,087 sites in the United
Kingdom. Our sites are located throughout England, Wales, Scotland and
Northern Ireland.
We expect to expand our existing portfolios in the United Kingdom by
building and acquiring additional sites. Many of these new sites will be
developed on British Telecom exchange sites under our agreement with British
Telecom. See "Business--The Company--U.K. Operations--Significant Contracts--
British Telecom Agreement". 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 3G) as compared to
broadcast signals, wireless communications providers require a denser
portfolio of sites to cover a given area. Using our team of engineers who have
state-of-the-art network design and radio frequency engineering expertise, we
locate sites and design locations that will be attractive to multiple tenants.
We seek to leverage such expertise by entering into new construction contracts
with various carriers, such as BT Cellnet, Vodafone, Hutchison 3G, One 2 One
and Orange, thereby securing an anchor tenant for a site before incurring
capital expenditures for the site build-out.
In March 1999, CCUK completed the One 2 One transaction. Through this
transaction, CCUK has added an aggregate of 1,676 towers (including towers
built pursuant to a build-to-suit agreement with One 2 One) to its portfolio.
These towers represent substantially all the towers in One 2 One's nationwide
900 MHZ wireless network in the United Kingdom. These towers form part of
CCUK's nationwide network of towers to be marketed to wireless carriers in the
United Kingdom. See "Business--The Company--U.K. Operations--Significant
Contracts--One 2 One Northern Ireland Network".
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. These sites are principally rooftop facilities owned by
British Telecom in urban areas. We spent approximately $99.1 million in 2001
developing the British Telecom site portfolio for the deployment of wireless
services, including second generation ("2G") and 3G services. We expect to
invest an aggregate of approximately $325 million developing the British
Telecom site portfolio. 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
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. As of December 31, 2001, we had
developed 326 sites under this agreement. We are currently in discussions with
British Telecom regarding the deferral of certain payments that would
otherwise be owed by us to them in 2002 under this agreement. There can be no
assurances as to the outcome of these discussions. See "Business--The
Company--U.K. Operations--Significant Contracts--British Telecom Agreement".
In February 2001, CCUK signed a definitive agreement with Hutchison 3G UK
Limited whereby Hutchison 3G will lease space on a minimum of 4,000 CCUK sites
throughout the United Kingdom. See "Business--The Company--U.K. Operations--
Significant Contracts--Hutchison 3G Agreement". In addition, in February 2001,
CCUK signed an initial agreement with its existing customer BT Cellnet
pursuant to which BT Cellnet will lease
9
additional space on CCUK sites throughout the United Kingdom, with a minimum
take up of 500 additional sites per year for each of the years 2001, 2002 and
2003. See "Business--The Company--U.K. Operations--Significant Contracts--BT
Cellnet Agreement".
Transmission Business
Analog. For the 12 months ended December 31, 2001, CCUK generated
approximately 32.4% 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--The
Company--U.K. Operations--Significant Contracts--BBC Analog Transmission
Contract". For the 12 months ended December 31, 2001, the BBC Analog
Transmission Contract generated revenues of approximately (Pounds)53.4 million
($76.9 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 talkSPORT (formerly Talk Radio). In July
2001, the Virgin Radio contract was renewed for a period expiring April 30,
2008. The talkSPORT 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 in the U.K., whether located on one of
CCUK's sites or on an NTL or other third-party site. As of December 31, 2001,
CCUK had 3,847 transmitters, of which 2,546 were for television broadcasting
and 1,301 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)............................................. 20.0%
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 25 bases located across the United
Kingdom. The Site-Sharing Agreement provides us with reciprocal access rights
to NTL's broadcast transmission sites on which we have equipment.
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 January 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 or controlled by us, and the
remainder are on NTL owned or controlled towers pursuant to a site sharing
arrangement. Our costs to add new transmitters and associated systems was
approximately (Pounds)105.5 million ($154 million). For the 12 months ended
December 31,
10
2001, our digital transmission contracts with the BBC and ITVdigital generated
aggregate revenues of approximately (Pounds)30.2 million ($43.4 million) for
us.
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 is expected to 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, 2001, the overlapping coverage for all six
multiplexes was improved from the initial 56% to 68% of the national
population as a result of coverage equalization projects which we initiated
and completed 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)2.17 million ($3.16 million) per year.
In 1997, the Independent Television Commission awarded ITVdigital (formerly
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 ITVdigital to build and operate its digital television
transmission network. The contract provides for approximately (Pounds)19.0
million ($27.6 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. On March 27, 2002, a U.K. court approved an
application by ITVdigital to be placed into administration (a proceeding,
similar to a Chapter 11 bankruptcy proceeding in the United States, designed
to protect the applicant from the claims of its creditors while it reorganizes
its business). There can be no assurances as to the outcome of this action or
its effect on us. Our primary concern will be any modification to our
ITVdigital transmission contract resulting from these administration
proceedings. We contemplate that ITVdigital or its successor will continue to
honor its commitments under the transmission contract in order to continue
providing programming and services to its subscribers; however, any decisions
regarding the continuation of the transmission contract or payments by
ITVdigital will involve the administrators. ITVdigital accounted for
approximately 3.4% of our revenues for the twelve-month period ended December
31, 2001. The loss of ITVdigital as a customer or the modification of the
ITVdigital transmission contract could have an adverse effect on our results
of operations. See "Business--The Company--U.K. Operations--Significant
Contracts--ITVdigital Transmission Contract".
We currently provide transmission services for digital radio broadcasts in
the United Kingdom. In 1995, the BBC launched, over our transmission network,
its initial national digital radio service, and this service is now broadcast
to approximately 65% 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 towers and antennas
at 30 transmission sites for Digital One services. In addition, local digital
radio licenses have been awarded since 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. Since that time, CCUK has
been awarded two additional 12 year contracts by other Switchdigital
consortia, covering two areas of Scotland. Site sharing for other Digital
Radio multiplexes provides additional revenues at 20 transmission sites.
Site Rental
The BBC transmission network provides a valuable initial portfolio for the
creation of wireless communications networks. As of December 31, 2001,
approximately 209 companies rented antenna space on CCUK's 3,087 towers. These
site rental agreements have normally been for three to twelve 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)12.5 million ($18.2 million) of site rental revenue for
the year ended December 31, 2001.
11
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 an enhanced 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 (an mmO2 company), One 2 One,
Orange and Vodafone. Revenues from these non-BBC sources continue to become an
increasing portion of CCUK's total U.K. revenue base. 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, in the United Kingdom, as
demonstrated by our multi-site rental commitment contracts with Hutchison 3G
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, One 2 One, Orange and Vodafone. 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.
Network Services
CCUK provides broadcast and telecommunications engineering services to
various customers in the United Kingdom. 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 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 would establish a turnkey mobile network for One 2 One in Northern
Ireland. In April 2001, CCUK launched the network, covering 94.7% of the
population of Northern Ireland. CCUK provides 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 200 tower sites in Northern Ireland, and One 2 One
is 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.
In March 2001, CCUK was awarded a further contract with Manx Telecom for the
second and third phases. The network, comprised of approximately 28 sites, was
built by NEC and Siemens for Manx Telecom, a wholly owned subsidiary of mmO2
plc, and was completed in September 2001. CCUK provided turnkey project
management, installation and commissioning of the 3G radio access network,
including site planning, design, build and radio frequency planning. Service
on the network was launched in December 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 utilize 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 project management, ensuring
12
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 project managed by our own 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
ITVdigital (formerly 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, talkSPORT and
Switchdigital. In addition, CCUK has several agreements with telecommunication
providers, including leases, site management contracts and independent
contractor agreements. The agreements with Hutchison 3G and BT Cellnet
announced in February 2001 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 and
Vodafone, 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 ($67.6 million) to be payable by the BBC to CCUK each year 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 (approximately $436,000) 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 (approximately $727,000) 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 incurred
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).
It is contemplated that the BBC Analog Transmission Contract will be
amended and extended in some manner. However, there can be no assurances that
any such modifications or extensions will come to pass.
13
BBC Commitment Agreement. On February 28, 1997, in connection with the
acquisition of the BBC home service transmission business, the BBC, the
Company, TeleDiffusion de France International S.A. ("TdF") and France Telecom
(TdF's 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 the ownership interest of TdF 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 France Telecom to the
Competition Commission, TdF should undertake to dispose of its shareholding in
CCUK and the Company. Concurrently with the disposition by TdF of its
remaining interest in CCUK, CCUK became a wholly owned subsidiary of ours.
ITVdigital Digital Transmission Contract. In 1997, the Independent
Television Commission awarded ITVdigital (formerly 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 ITVdigital to
build and operate its digital television transmission network. The contract
provides for approximately (Pounds)19.0 million ($27.6 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. On March 27, 2002,
a U.K. court approved an application by ITVdigital to be placed into
administration (a proceeding, similar to a Chapter 11 bankruptcy proceeding in
the United States, designed to protect the applicant from the claims of its
creditors while it reorganizes its business). There can be no assurances as to
the outcome of this action or its effect on us. Our primary concern will be
any modification to our ITVdigital transmission contract resulting from these
administration proceedings. We contemplate that ITVdigital or its successor
will continue to honor its commitments under the transmission contract in
order to continue providing programming and services to its subscribers;
however, any decisions regarding the continuation of the transmission contract
or payments by ITVdigital will involve the administrators. ITVdigital
accounted for approximately 3.4% of our revenues for the twelve-month period
ended December 31, 2001. The loss of ITVdigital as a customer or the
modification of the ITVdigital transmission contract could have an adverse
effect on our results of operations. See "Business--Risk Factors--A
Substantial Portion Of Our Revenues Is Derived From a Small Number of
Customers, Including the BBC, NTL, ITVdigital And Verizon".
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 ($15.3 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 ITVdigital digital transmission contract, in addition to
providing digital terrestrial transmission services, CCUK has agreed to
provide for the distribution of the BBC's and ITVdigital'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.
14
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 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. In December 1999, CCUK and One 2 One
entered into an agreement under which CCUK would establish a turnkey mobile
network for One 2 One in Northern Ireland. In April 2001, CCUK launched the
network, covering 94.7% of the population of Northern Ireland. CCUK provides
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 200 tower sites in
Northern Ireland, and One 2 One is 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 spent approximately $99.1
million in 2001 developing the British Telecom site portfolio for the
deployment of wireless services, including 2G and 3G services. We expect to
invest an aggregate of approximately $325 million developing the British
Telecom site portfolio. 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 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. As of December 31,
2001, we had developed 326 sites under this agreement. We are currently in
discussions with British Telecom regarding certain amendments to the agreement,
including the deferral of certain payments that would otherwise be owed by us
to them in 2002. There can be no assurances as to the outcome of these
discussions. In June 2001, CCUK signed a management services agreement to
manage the pre-existing British Telecom site sharing customers on the sites
subject to this agreement.
Hutchison 3G Agreement. In February 2001, CCUK signed a definitive agreement
with Hutchison 3G UK Limited whereby Hutchison 3G 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. We are currently in discussions
with Hutchison 3G regarding several potential amendments to this agreement,
including one such amendment which may result in the deferral of Hutchison 3G's
take or pay commitment for a period of up to six months. CCUK is also currently
reviewing its standard terms of business and site share process, including
establishing a definitive staged payment program as work on sites reaches
certain milestones. This exercise is
15
also under discussion with Hutchison 3G and is expected to result in a further
contract amendment to update the Hutchison 3G agreement in-line with the CCUK
standard process.
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 through 2003 (a minimum take up of 500 sites per
year for each of 2001, 2002 and 2003). BT Cellnet did not satisfy the minimum
take up requirements in 2001. We are currently in discussions with BT Cellnet
and mmO2 regarding certain terms of the agreement which may result in the
deferral of BT Cellnet's take or pay commitments. There can be no assurances
as to the outcome of these discussions.
Third Generation Technology
During April 2000, the United Kingdom auctioned five licenses relating to
3G mobile communications, 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.) acquired 3G
licenses through these 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 3G license holders in order to
provide the outsourcing of network operations and management and the site
sharing of network towers, equipment and other communications infrastructure
as a solution to many of the commercial and technical challenges and costs
which the 3G license holders will face.
In first quarter 2001, CCUK executed agreements with certain of the 3G
license holders in the U.K. (Hutchison 3G UK Limited and BT Cellnet) pursuant
to which such license holders will lease space on certain CCUK sites which are
expected to be used in connection with such companies' 3G network rollout. See
"Business--The Company--U.K. Operations--Significant Contracts--Hutchison 3G
Agreement" and "--BT Cellnet Agreement".
During 2000 and 2001, CCUK provided turnkey project management,
installation and commissioning of the 3G radio access network (including site
planning, design, build and radio frequency planning) with respect to the
network rollout of Europe's first 3G network on the Isle of Man. The network,
comprised of approximately 28 sites, was built by NEC and Siemens for Manx
Telecom, a wholly owned subsidiary of mmO2 plc, and was launched in December
2001. See "Business--The Company--U.K. Operations--Network Services--Network
Design and Site Selection".
There can be no assurances that 3G or other new wireless technologies will
be introduced or deployed as rapidly or in the manner previously or presently
projected by the wireless industry. The deployment of 3G has already been
delayed as to prior projections. In addition, demand and customer adoption
rates of 3G and other technologies may be lower or slower than anticipated for
numerous reasons. As a result, growth opportunities and demand for site rental
as a result of such technologies may not be realized at the times or to the
extent previously or presently anticipated.
Customers
For the 12 months ended December 31, 2001, the BBC accounted for
approximately 39.4% of CCUK's consolidated revenues. This percentage has
decreased from 50.4% and 44.2% for the 12 months ended December 31, 1999 and
December 31, 2000, 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) with infrastructure services and also provides fixed
telecommunications operators, such as British Telecom, Cable & Wireless
Communications and
16
Energis, 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, ITVdigital, Switchdigital
PMR/TETRA............................. mmO2 Airwave
Personal Communications Network....... Orange, One 2 One
Data.................................. RAM Mobile Data, Cognito
Paging................................ Hutchinson, Page One
Governmental Agencies................. Ministry of Defense
Cellular.............................. Vodafone, BT Cellnet
Third Generation...................... Hutchison 3G, BT Cellnet, Orange
Public Telecommunications............. British Telecom, Cable & Wireless
Communications
Utilities............................. Welsh Water, Southern Electric
Sales and Marketing
We have a staff of 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.
Competition
NTL is CCUK's primary competitor 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, the national digital radio
license holder. NTL retains partial ownership of both the S4C digital
television multiplex and Digital One, the national independent digital radio
licensee. NTL has also been awarded the transmission contract for two of the
six digital terrestrial television multiplexes. CCUK has been awarded
transmission contracts for the other four multiplexes.
Although CCUK and NTL are broadcast 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. See "Business--The Company--U.K.
Operations--Significant Contracts--Site-Sharing Agreement."
NTL also offers site rental on approximately 1,500 of its sites, some of
which are managed on behalf of third parties. Like CCUK, NTL offers a broad
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.
CCUK faces competition from a large number of companies in the provision of
network services. The companies include NTL, 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 77.6% by us and 22.4%
by Permanent Nominees (Aust) Ltd, acting on behalf of a group of professional
and institutional investors led by Jump Capital Limited, is our principal
Australian operating
17
subsidiary. Our interest in CCAL increased from 66.7% to 77.6% in connection
with the funding and closing of the Vodafone Australia tower portfolio
acquisition in April 2001.
CCAL is the largest independent tower operator in Australia with a
nationwide tower portfolio providing sites for cellular coverage for over 92%
of the population in Australia. CCAL currently operates 1,391 towers, with a
strategic presence in all of Australia's licensed regions including Sydney,
Melbourne, Brisbane, Adelaide and Perth. 716 of CCAL's towers were purchased
from Optus during 2000 for approximately $135 million (Australian $220
million) in cash. As part of this transaction, Optus agreed to lease space on
these towers for an initial term of 15 years. The agreement also provides CCAL
with an exclusive right to develop all future tower sites for Optus through
April 2006. We are currently in discussions with Optus as to various
amendments to certain terms of the build-to-suit provisions of the agreement.
An additional 643 towers were acquired from Vodafone Australia in April
2001 for approximately $121 million (Australia $240 million). As part of this
transaction, Vodafone Australia has agreed to lease space on these towers for
an initial period of 10 years, and we have the exclusive right to acquire up
to 600 additional tower sites that Vodafone may construct through April 2007.
The Vodafone Australia acquisition was funded 85.1% by us and 14.9% by the
Jump Capital group, which resulted in our interest in CCAL being increased
from 66.7% to 77.6%.
As of December 31, 2001, CCAL also provided maintenance services on 1,150
customer sites and 1,799 customer shelters and provided property management
services on 721 customer sites.
Employees
At December 31, 2001, we employed approximately 1,966 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
Theatrical 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 tower and antenna structures based upon the
height and location, including proximity to airports, of proposed tower and
antenna structures. Proposals to construct or to modify existing tower and
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
requires its licensees to operate communications devices only on towers that
comply with FAA rules and are registered with the FCC, if required by its
regulations. Where tower lighting is required by FAA regulation, tower owners
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,
18
. zoning restrictions, and
. restrictive covenants imposed by community developers.
These regulations vary greatly, but typically require us 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, certain 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 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.
During 2001, OFTEL agreed to certain amendments to CCUK's
Telecommunications Act Transmission License to ensure that the price controls
in such license accommodate the provision by CCUK of additional
19
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 With Which We Could Fail to Comply Regulate Our
Business".
The U.K. 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. ITVdigital is obligated under the ITVdigital 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.
20
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 Federal Telecommunications Act 1997 grants certain exemptions
from planning laws for the installation of "low impact facilities," towers are
expressly excluded from the definition of "low impact facilities."
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 could also 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.
As licensees, we are also subject to regulations and guidelines that impose
a variety of operational requirements relating to radio frequency emissions.
As employers, we are subject to OSHA and similar guidelines regarding employee
protection from RF exposure. 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 have compliance programs and monitoring projects to help assure that we
are in substantial compliance with 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.
2001 Events
Set forth below is a description of certain other significant events which
took place during 2001 and involved or affected our business or operations.
The description of the terms of transactions and agreements set forth below
are summaries and do not describe significant terms and conditions contained
in the complete text of the relevant agreements.
21
January 2001 Offering
In January 2001, we sold 13,445,200 shares of our common stock in an
underwritten public offering. The shares were sold to the public at a price of
$26.25 per share, and we received proceeds of $342.9 million (after
underwriting discounts of $10.1 million).
Listing on New York Stock Exchange
Our Common Stock was listed and began trading on the New York Stock
Exchange on April 25, 2001 under the symbol "CCI". Prior to that date and
since our initial public offering on August 18, 1998, the Common Stock was
listed and traded on the Nasdaq under the symbol "TWRS". Concurrent with the
New York Stock Exchange listing, the listing of our Common Stock on the Nasdaq
was withdrawn.
Announcement and Rescission of RaiWay Transaction
In April 2001, we entered into a Share Purchase Agreement for the
acquisition of 49% of the outstanding capital stock of RaiWay S.p.A.
("RaiWay"). RaiWay is a subsidiary of RAI Radio Televisione Italiana S.p.A.
("RAI"), the Italian state-owned television and radio broadcaster. RaiWay
manages over 2,300 broadcast transmission sites across Italy. The cost of our
investment in RaiWay amounted to approximately $383.8 million in cash, and
such amount was deposited into a Euro-denominated escrow account upon
execution of the Share Purchase Agreement. The transaction was subject to
approval by certain Italian regulatory authorities and, in October 2001, we
were notified that the Italian Minister of Communication had declined to
approve the transaction. Pursuant to the terms of the agreement, the escrow
deposit was returned to us in November 2001.
May 2001 Debt Offering
On May 10, 2001, we issued $450.0 million aggregate principal amount of our
9 3/8% senior notes for proceeds of $441.0 million (after underwriting
discounts of $9.0 million).
Restructuring
In July 2001, we announced a restructuring of our business in order to
increase operational efficiency and better align costs with anticipated
revenues. As part of the restructuring, we reduced our global staff by
approximately 312 full-time employees. In addition, we have closed several
offices in the United States, and we have closed our development offices in
Brazil and Europe. The actions taken for the restructuring were substantially
completed as of the end of 2001. In connection with the restructuring, we
recorded non-recurring cash charges of approximately $19.4 million during 2001
related to employee severance payments and costs of office closures.
In addition, on March 1, 2002, we announced plans to record a non-recurring
restructuring charge estimated to be between approximately $7.0 million and
$13.0 million with respect to staff redundancies and the disposition of
certain service lines in connection with our United Kingdom operations. The
charge is expected to be reflected in our results of operations for the first
quarter 2002.
Senior Management and Board of Directors Changes
Our Board of Directors appointed John P. Kelly as President and Chief
Executive Officer effective August 20, 2001. Ted B. Miller, Jr., our former
Chief Executive Officer and co-founder, remains a director and non-executive
Chairman of our Board. In addition, Lee W. Hogan, age 56, and Dale N.
Hatfield, age 63, were appointed to our Board of Directors in March 2001 and
July 2001, respectively, to fill vacancies on the Board. Carl Ferenbach
resigned from our Board of Directors effective as of May 2, 2001.
22
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.
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,
2001 (dollars in thousands).
Total indebtedness............................................ $3,423,097
Redeemable preferred stock.................................... 878,861
Stockholders' equity.......................................... 2,364,648
Debt and redeemable preferred stock to equity ratio 1.82x
In addition, our earnings for the twelve months ended December 31, 2001
were insufficient to cover fixed charges by $351.0 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 in
our industry with less debt.
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.
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, our 10 3/4% senior notes and our 9 3/8% senior notes
require annual cash interest payments of approximately $16.2 million, $11.9
million, $53.8 million and $42.2 million, respectively. Prior to November 15,
2002, May 15, 2004 and August 1, 2004, the interest expense on our 10 5/8%
discount notes, our 10 3/8% discount notes and our 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
23
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 ($16.4 million). In
addition, our various credit facilities will require periodic interest
payments on amounts borrowed thereunder.
Our Business Depends on the Demand for Wireless Communications and Towers--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;
. the availability of equipment to wireless carriers;
. 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. A slowdown
in the deployment of equipment for new wireless technology, the consolidation
of wireless carriers or the sharing of networks by wireless carriers could
also adversely affect the demand for our sites. 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.
In recent years, all of the above factors have occurred to some extent with an
adverse effect on our business, and such factors are likely to persist in the
future. The occurrence of any of these factors could have a material adverse
effect on our financial condition and results of operations.
Continuation of the Current Economic and Telecommunications Industry
Slowdown--This slowdown could materially and adversely affect our business
(including reducing demand for our towers and services) and the business of
our customers.
The significant general slowdown in the U.S. and certain international
economies, particularly in the wireless and telecommunications industries, has
negatively affected the factors described in the immediately preceding risk
factor, influencing demand for tower space and tower related services. This
slowdown could reduce consumer demand for wireless services, or negatively
impact the debt and equity markets, thereby causing carriers to delay or
abandon implementation of new systems and technologies, including 3G and other
wireless broadband services.
We believe that the current economic slowdown, particularly in the wireless
and telecommunications industries, has already harmed, and may continue to
harm, the financial condition of some wireless service providers, certain of
which, including customers of ours, have filed or may file for bankruptcy.
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
24
on our financial condition and results of operations. We have grown
significantly over the past three years, and such growth continues to be an
important part of our business plan. The addition of over 13,000 towers and
approximately 30,000 tenants to our operations over the past three years has
and will continue to increase our current business considerably and adds
significant operational complexities. Further, we will be integrating the
additional sites relating to the British Telecom Agreement into our
portfolios. See "Business--The Company--U.K. Operations--Significant
Contracts--British Telecom Agreement". Successful integration of these
transactions and assets will depend primarily on our ability to manage these
combined operations. Our net loss increased to $366.2 million for the twelve
months ended December 31, 2001 from $204.8 million for the twelve months ended
December 31, 2000, an increase of 78.8%, as a result of our expanded business
operations and the financing thereof, including a 37.6% increase in
depreciation and amortization and a 23.3% increase in interest expense as
compared to the twelve months ended December 31, 2000. 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 any future acquisitions may impose significant strains on
our management, operating systems and financial resources. 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 certain acquisitions and joint
venture opportunities may require substantial attention from our senior
management, which will limit the amount of time they would otherwise be able
to devote to our existing operations.
A Substantial Portion Of Our Revenues Is Derived From a Small Number of
Customers, Including the BBC, NTL, ITVdigital And Verizon--The loss or
consolidation of any of our limited number of customers could materially
decrease revenues.
Approximately 61.6% or our revenues are derived from 10 customers. The loss
of any one of our large customers as a result of bankruptcy, merger,
consolidation with others customers of ours or otherwise could materially
decrease our revenues and have other adverse effects on our business.
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.
If we were to lose our contracts with the BBC or ITVdigital or our site
sharing agreement with NTL, we would likely lose a substantial portion of our
revenues. The BBC accounted for approximately 10.4% of our revenues for the
twelve-month period ended December 31, 2001. Further, ITVdigital and NTL have
recently been experiencing some financial difficulties, and there can be no
assurances that we will not experience adverse effects relating to the
financial difficulties of either such company. On March 27, 2002, a U.K. court
approved an application by ITVdigital to be placed into administration (a
proceeding, similar to a Chapter 11 bankruptcy proceeding in the United
States, designed to protect the applicant from the claims of its creditors
while it reorganizes its business). There can be no assurances as to the
outcome of this action or its effect on us. Our primary concern will be any
modification to our ITVdigital transmission contract resulting from these
administration proceedings. ITVdigital accounted for approximately $30.7
million, or 3.4%, of our revenues for the twelve-month period ended December
31, 2001. The loss of ITVdigital as a customer or the modification of the
ITVdigital transmission contract could have an adverse effect on our results
of operations.
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,
25
2010. In addition, the BBC can terminate our digital transmission contract
with them after October 31, 2003 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.
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 or from proceeds of debt or
equity offerings. 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".
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.
We Operate Our Business In an Increasingly Competitive Industry and Some 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.
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;
. site development companies that acquire antenna space on existing towers
for wireless carriers and manage new tower construction;
26
. traditional local independent tower operators; and
. alternative facilities such as billboards, weather balloons, utility
poles and rooftops.
Wireless carriers that own and operate their own tower portfolios generally
are substantially larger and have greater financial resources than we have.
Further, the weak financial status of certain of our competitors could lead to
increased competition in certain areas. Competition for tenants on towers
could adversely affect lease rates and service income.
New Technologies Could Make Our Tower Antenna Leasing Services Less Desirable
to Potential Tenants and Result in Decreasing Revenues--Such new technologies
could decrease demand for tower leases and negatively impact our revenues.
The development and implementation of signal combining technologies ("dual-
band" technologies), which permit one antenna to service two different
transmission frequencies and, thereby, two customers, may reduce the need for
tower-based broadcast transmission and hence demand for our antenna space.
Mobile satellite systems and other new technologies could compete with
land-based wireless communications systems, thereby reducing the demand for
tower lease space and other services we provide. The FCC has granted license
applications for several low-earth orbiting satellite systems that are
intended to provide mobile voice or data services. The growth in delivery of
video services by direct broadcast satellites could also adversely affect
demand for our antenna space.
Other technologies which may be developed and emerge could serve as
substitutes and alternatives to leasing which might otherwise be anticipated
or expected on our sites and towers had such technologies not existed. Any
reduction in tower leasing demand resulting from dual band, satellite or other
technologies could negatively impact our revenues or otherwise have a material
adverse effect on our business, financial condition or results of operations.
Agreements Among Our Customers May Act as Alternatives to Leasing Sites From
Us--The proliferation of such agreements could have a material adverse effect
on our revenues and operations.
Wireless service providers frequently enter into agreements with
competitors allowing them to utilize one another's wireless communications
facilities to accommodate customers who are out of range of their home
providers' services. In addition, wireless service providers have also entered
into agreements allowing two or more carriers to share a single wireless
network. Such agreements may be viewed by wireless service providers as a
superior alternative to leasing space for their own antennas on our
communication sites. The proliferation of these roaming and network sharing
agreements could have a material adverse effect on our business, financial
condition or results of operations.
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 certain contractual obligations, or we could lose
opportunities to lease space on our towers.
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.
27
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.
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;
. the availability of equipment to wireless carriers;
. 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 Anticipate Significant Capital Expenditures and May Need Additional
Financing Which May Not Be Available--If we are unable to raise capital in the
future when needed, we may not be able to fund our operations and future
growth.
Over time, we will continue to require significant capital expenditures for
the construction and strategic acquisition of sites. We have agreed to lease
space on and develop as many as 4,000 British Telecom exchange sites
throughout the United Kingdom. We expect to invest an aggregate of
approximately $325 million developing the British Telecom site portfolio. See
"Business--The Company--U.K. Operations--Significant Contracts--British
Telecom Agreement". Under our build-to-suit agreements with certain wireless
carriers, we are required to construct certain towers and incur capital
expenditures. Our partners in our two joint ventures with Verizon
Communications will have the right (after January 31, 2003 in the case of the
GTE JV and after March 31, 2002, in the case of the Bell Atlantic JV) to
dissolve those joint ventures and require us to purchase (for cash, in the
case of the GTE JV, and for cash or common stock, at our option, in the case
of the Bell Atlantic JV) their interests in the joint ventures; such action
may negatively impact our liquidity or cause dilution of our common stock. See
"Business--The Company--U.S. Operations." In addition, some of the other
opportunities that we are currently investigating could require significant
additional capital.
28
We had cash, cash equivalents and marketable securities of $1,006 million
at December 31, 2001. We also had approximately $1,172 million in outstanding
borrowings under our credit facilities at that date. The remaining borrowing
availability of approximately $589 million under the credit facilities was
undrawn. Our ability to borrow under the credit facilities is limited by the
financial covenants contained in those agreements, including covenants
regarding the ratio of total debt to EBITDA and interest and fixed charge
coverage ratios relating to us and our subsidiaries. Under the terms of the
credit facilities, we could draw the available $589 million in additional
borrowings as of December 31, 2001 while remaining in compliance with these
covenants.
We may need additional sources of debt or equity capital in the future.
Additional financing may not be available or may be restricted by the terms of
our credit facilities and the terms of our other outstanding indebtedness.
Additional sales of equity securities will dilute our existing stockholders.
If we are unable to raise capital when our needs arise, we may not be able to
fund our operations and future growth.
We Generally Lease or Sublease the Land Under Our Towers and May Not Be Able
to Maintain These Leases--If we fail to protect our rights against persons
claiming superior rights in our sites, our business may be adversely affected.
Our real property interests relating to our sites consist primarily of fee
interests, leasehold and sub-leasehold interests, easements, licenses and
rights-of-way. A loss of these interests, including losses arising from the
bankruptcy of one or more of our lessors or from the default by one or more of
our lessors under their mortgage financing, could interfere with our ability
to conduct our business and generate revenues. For various reasons, we may not
always have the ability to access, analyze and verify all information
regarding titles and other issues prior to completing an acquisition of sites.
Further, we may not be able to renew ground leases on commercially viable
terms. Our inability to protect our rights to the land under our towers could
have a material adverse affect on our business, financial condition and
results of operations.
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.
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. The BBC has agreed to pay additional
charges to us for these service enhancements. These additional charges
required a revision amendment to that part of CCUK's transmission
telecommunications license dealing with price regulation of analog
broadcasting services to the BBC. The BBC and OFTEL, the relevant regulatory
authority in the United Kingdom, have agreed to modify the license regulatory
provisions to take into account these agreed additional payments.
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 FCC and other government agencies impose requirements and other
guidelines on its licensees 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.
29
Public perception of possible health risks associated with cellular and
other wireless communications could slow the growth of wireless companies,
which could in turn slow our growth. In particular, negative public perception
of, and regulations regarding, these perceived health risks could slow the
market acceptance of wireless communications services.
Our exposure to the potential risk of harm due to radio frequency emissions
may increase as the number of rooftop sites in our portfolios, including the
sites we acquire on rooftops of British Telecom exchange sites pursuant to our
agreement with British Telecom, increases. See "Business--The Company--U.K.
Operations--Significant Contracts--British Telecom Agreement". Rooftop sites
may tend to be more accessible to a wider range of personnel (including
personnel with little or no knowledge of wireless communications equipment)
than tower sites, increasing the number of persons who may be potentially
exposed to emissions emanating from equipment located on such rooftops.
If a connection between radio emissions and possible negative health
effects were established, our operations, costs and revenues would be
materially and adversely affected. We do not maintain any significant
insurance with respect to these matters.
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. For the twelve months
ended December 31, 2001, approximately 28.7% of our consolidated revenues
originated outside the United States, all of which were denominated in
currencies other than U.S. dollars, principally British 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. We cannot
guarantee that we will be successful in retaining the services of these or
other key personnel. Most of our executives, including our chief executive
officer, have not 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.
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;
. a shareholder rights agreement;
. 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.
30
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. Further, 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, 2002,
we had 219,842,529 shares of common stock outstanding. In addition, we have
reserved 32,435,557 shares of common stock for issuance under our various
stock option 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 our outstanding convertible preferred stock.
A small number of shareholders owns a significant percentage of our
outstanding common stock. If any one of these shareholders, or any group of
our shareholders, sells a large quantity of shares of our common stock, or the
public market perceives that existing shareholders might sell shares of common
stock, the market price of our common stock could significantly decline.
Pursuant to a disposition agreement which we entered into with France
Telecom, on July 5, 2000 France Telecom sold its remaining interest in us
(approximately 17.7 million shares of common stock) to Salomon Brothers
International Limited, or "SBIL", which agreed to hold such shares for a lock-
up period which expired on June 8, 2001. After such date, SBIL is entitled to
sell these shares, and after June 8, 2002, we will have the right to require
SBIL to sell any such remaining shares. The sale of all or a portion of these
shares held by SBIL could adversely affect the market price of our common
stock.
The holders of our 8 1/4% Convertible Preferred Stock and our 6.25%
Convertible Preferred Stock are entitled to receive cumulative dividends at
the rate of 8 1/4% per annum and 6.25% per annum, respectively, payable on a
quarterly basis. We have the option to pay the dividends on such series of
preferred stock in cash or in shares of our common stock. We have historically
paid such dividends with shares of our common stock, and we expect to continue
to do so. The number of shares of our common stock required to be issued to
pay such dividends is dependent upon the current market value of our common
stock at the time such dividend is required to be paid. For the years ended
December 31, 2000 and 2001, dividends on our 8 1/4% Convertible Preferred
Stock were paid with 579,000 and 1,400,000 shares of common stock,
respectively, and dividends on our 6.25% Convertible Preferred Stock were paid
with 281,968 and 1,781,764 shares of common stock, respectively. The shares of
common stock issued to pay such dividends will continue to have a dilutive
effect upon the shares of our common stock otherwise outstanding, and further
declines in the fair market value of our common stock will increase the
effective dilution.
Disputes With Customers and Suppliers Have Recently Increased--Such disputes
could lead to increased tensions, damaged relationships or litigation which
could result in the loss of a key customer or supplier.
We have recently experienced a rise in the number of conflicts or disputes
between ourselves and some of our customers and service providers. Most of
these disputes relate to the interpretation of terms in our contracts. While
we seek to resolve such conflicts amicably and have generally resolved
customer and supplier disputes on commercially reasonable terms, such disputes
could lead to increased tensions and damaged relationships between ourselves
and these entities, some of whom are key customers or suppliers of ours. In
addition, if we are unable to resolve these differences amicably, we may be
forced to litigate these disputes in order to enforce or defend our rights.
There can be no assurances as to the outcome of these disputes. Damaged
relationships or litigation with our key customers or suppliers could lead to
decreased revenues (including as a result of losing a customer) or increased
costs, which would have a material adverse effect on our business, operations
or financial condition.
31
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 124,000 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 13 additional regional offices in the United States and Puerto Rico
throughout our tower coverage areas, including Albany, Alpharetta (Georgia),
Birmingham, Boca Raton, Canonsburg (Pennsylvania), Charlotte, Houston,
Indianapolis, Louisville, Franklin (Tennessee), Phoenix, Pleasanton
(California) and San Juan. 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. We also own a 48,500 square foot building in Canonsburg,
Pennsylvania which is currently vacant and for sale or lease.
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"
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, 2001, we had
approximately 8,500 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 shelters 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, 2001, we had approximately 2,070 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, 2001, we owned or
managed a portfolio of approximately 1,391 towers in Australia. For
approximately 1,322 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.
32
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 New York Stock Exchange
("NYSE") under the symbol "CCI". Prior to April 25, 2001, the Common Stock was
listed and traded on The Nasdaq Stock Market's National MarketSM ("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 NYSE and Nasdaq.
High Low
------ ------
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
2001:
First Quarter................................................ $30.13 $13.88
Second Quarter............................................... 25.76 11.19
Third Quarter................................................ 16.15 7.40
Fourth Quarter............................................... 12.50 8.14
As of March 15, 2002, there were approximately 561 holders of record of the
Common Stock.
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.
The holders of our 8 1/4% Convertible Preferred Stock and our 6.25%
Convertible Preferred Stock are entitled to receive cumulative dividends at
the rate of 8 1/4% per annum and 6.25% per annum, respectively, payable on a
quarterly basis. We have the option to pay the dividends on such series of
preferred stock in cash or in shares of our common stock. We have historically
paid such dividends with shares of our common stock, and we expect to continue
to do so. The number of shares of our common stock required to be issued to
pay such dividends is dependent upon the current market value of our common
stock at the time such dividend is required to be paid. For the years ended
December 31, 2000 and 2001, dividends on our 8 1/4% Convertible Preferred
Stock were paid with 579,000 and 1,400,000 shares of common stock,
respectively, and dividends on our 6.25% Convertible Preferred Stock were paid
with 281,968 and 1,781,764 shares of common stock, respectively. The shares of
common stock issued to pay such dividends will continue to have a dilutive
effect upon the shares of our common stock otherwise outstanding, and further
declines in the fair market value of our common stock will increase the
effective dilution.
Issuance of Unregistered Securities
Except as described below, we made no unregistered sales of equity
securities during 2001.
33
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 Securities Act of 1933, as amended (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, 2001, and as of December 31, 1997, 1998, 1999, 2000 and 2001,
have been derived from the consolidated financial statements of the Company,
which have been audited by KPMG LLP, independent accountants. The results of
operations for the year ended December 31, 2001 are not comparable to the year
ended December 31, 2000, the results 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 as a result of business and tower acquisitions consummated in 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".
34
Years Ended December 31,
-----------------------------------------------------------
1997 1998 1999 2000 2001
--------- ---------- ----------- ----------- ----------
(In thousands of dollars, except per share amounts)
Statement of Operations
Data:
Net revenues:
Site rental and
broadcast
transmission.......... $ 11,010 $ 75,028 $ 267,894 $ 446,039 $ 575,961
Network services and
other................. 20,395 38,050 77,865 203,126 322,990
--------- ---------- ----------- ----------- ----------
Total net revenues... 31,405 113,078 345,759 649,165 898,951
--------- ---------- ----------- ----------- ----------
Costs of operations:
Site rental and
broadcast
transmission.......... 2,213 26,254 114,436 194,424 238,748
Network services and
other................. 13,137 21,564 42,312 120,176 228,485
--------- ---------- ----------- ----------- ----------
Total costs of
operations.......... 15,350 47,818 156,748 314,600 467,233
--------- ---------- ----------- ----------- ----------
General and
administrative......... 6,824 23,571 43,823 76,944 102,539
Corporate
development(a)......... 5,731 4,625 5,403 10,489 12,337
Restructuring charges... -- -- 5,645 -- 19,416
Asset write-down
charges................ -- -- -- -- 24,922
Non-cash general and
administrative
compensation
charges(b)............. -- 12,758 2,173 3,127 6,112
Depreciation and
amortization........... 6,952 37,239 130,106 238,796 328,491
--------- ---------- ----------- ----------- ----------
Operating income
(loss)................. (3,452) (12,933) 1,861 5,209 (62,099)
Equity in earnings
(losses) of
unconsolidated
affiliate.............. (1,138) 2,055 -- -- --
Interest and other
income (expense)(c).... 1,951 4,220 17,731 33,761 8,548
Interest expense and
amortization of
deferred financing
costs.................. (9,254) (29,089) (110,908) (241,294) (297,444)
--------- ---------- ----------- ----------- ----------
Loss before income
taxes, minority
interests,
extraordinary item and
cumulative effect of
change in accounting
principle.............. (11,893) (35,747) (91,316) (202,324) (350,995)
Provision for income
taxes.................. (49) (374) (275) (246) (16,478)
Minority interests...... -- (1,654) (2,756) (721) 1,306
--------- ---------- ----------- ----------- ----------
Loss before
extraordinary item and
cumulative
effect of change in
accounting principle... (11,942) (37,775) (94,347) (203,291) (366,167)
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................ (11,942) (37,775) (96,761) (204,786) (366,167)
Dividends on preferred
stock.................. (2,199) (5,411) (28,881) (59,469) (79,028)
--------- ---------- ----------- ----------- ----------
Net loss after deduction
of dividends on
preferred stock........ $ (14,141) $ (43,186) $ (125,642) $ (264,255) $ (445,195)
========= ========== =========== =========== ==========
Per common share--basic
and diluted:
Loss before
extraordinary item
and cumulative effect
of change in
accounting
principle............. $ (2.27) $ (1.02) $ (0.94) $ (1.47) $ (2.08)
Extraordinary item..... -- -- -- (0.01) --
Cumulative effect of
change in accounting
principle............. -- -- (0.02) -- --
--------- ---------- ----------- ----------- ----------
Net loss............... $ (2.27) $ (1.02) $ (0.96) $ (1.48) $ (2.08)
========= ========== =========== =========== ==========
Common shares
outstanding--basic and
diluted (in
thousands)............. 6,238 42,518 131,466 178,588 214,246
========= ========== =========== =========== ==========
Other Data:
EBITDA(d)............... $ 3,500 $ 37,064 $ 139,785 $ 247,132 $ 316,842
Summary cash flow
information:
Net cash provided by
(used for) operating
activities............ (624) 44,976 92,608 165,495 131,930
Net cash used for
investing
activities............ (111,484) (149,248) (1,509,146) (1,957,687) (895,136)
Net cash provided by
financing
activities............ 159,843 345,248 1,670,402 1,707,091 1,109,309
Ratio of earnings to
fixed charges(e)....... -- -- -- -- --
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 55,078 $ 296,450 $ 549,328 $ 453,833 $ 804,602
Property and equipment,
net.................... 81,968 592,594 2,468,101 4,303,037 4,844,912
Total assets............ 371,391 1,523,230 3,836,650 6,401,885 7,375,458
Total debt.............. 156,293 429,710 1,542,343 2,602,687 3,423,097
Redeemable preferred
stock(f)............... 160,749 201,063 422,923 842,718 878,861
Total stockholders'
equity................. 41,792 737,562 1,617,747 2,420,862 2,364,648
35
- --------
(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,
asset write-down 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, minority interests,
extraordinary item, cumulative effect of change in accounting principle,
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, 1997, 1998, 1999, 2000 and 2001, earnings were
insufficient to cover fixed charges by $10.8 million, $37.8 million, $91.3
million, $202.3 million and $351.0 million, respectively.
(f) The 1997 amount represents (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 initial public offering of common stock (the "IPO"). The 1998
amount represents the 12 3/4% exchangeable preferred stock. The 1999
amount represents the 12 3/4% exchangeable preferred stock and the 8 1/4%
convertible preferred stock. The 2000 and 2001 amounts represent the 12
3/4% exchangeable preferred stock, the 8 1/4% convertible preferred stock
and the 6.25% convertible preferred stock.
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, 2001 and our consolidated
results of operations for each year in the three-year period ended December
31, 2001. 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
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, 2001 are not comparable to the year ended December 31, 2000, and
the results for the year ended December 31, 2000 are not comparable to the
year ended December 31, 1999.
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
36
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
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
demonstrated ability to manage the assets.
Further, we believe that wireless carriers and broadcasters will continue
to seek to outsource the operation of their towers and may, eventually,
outsource 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;
. technological changes affecting the number of communications sites needed
to provide wireless communications services to a given geographic area;
and
. our ability to efficiently satisfy their service requirements.
Our revenues that are derived from the provision of transmission services to
the broadcasting industry will be affected by, among other things:
. the timing of the rollout of digital television broadcasts from tower-
mounted antenna systems, or "digital terrestrial television broadcasts",
principally in the United Kingdom;
. 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 to:
(1) maximize utilization of our tower capacity,
(2) utilize the expertise of U.S., U.K. and Australian personnel to capture
global growth opportunities,
(3) partner with wireless carriers to assume ownership of their existing
towers, and
(4) build new towers for wireless carriers.
37
Critical Accounting Policies
The following is a discussion of the accounting policies that we believe
(1) are most important to the portrayal of our financial condition and results
of operations and (2) require our most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
Revenue Recognition
Site rental and broadcast transmission revenues are recognized on a monthly
basis over the term of the relevant lease, agreement or contract. These
revenues are recognized on a straight-line basis, regardless of whether the
payments from the customer are received in equal monthly amounts. Some
agreements provide for rent-free periods at the beginning of the lease term,
while others call for rent to be prepaid for some period. If the payment terms
call for fixed escalations (as in fixed dollar or fixed percentage increases),
the effect of such increases is spread evenly over the term of the agreement.
As a result of this accounting method, a portion of the revenue recognized in
a given period represents cash collected in other periods. For 2001, the non-
cash portion of our site rental and broadcast transmission revenues amounted
to approximately $23.6 million.
Network services revenues are generally recognized under (1) the completed
contract method or (2) the percentage-of-completion method. Under the
completed contract method, revenues and costs for a particular project are
recognized in total at the completion date. Under the percentage-of-completion
method, costs are recognized as incurred and revenues are recognized based on
the proportion of contract costs incurred compared to the estimated total
contract costs. The completed contract method is used for projects that
require relatively short periods of time to complete (primarily antenna
installations, which generally require three months or less). The percentage-
of-completion method is used for projects that require longer periods to
complete.
When using the completed contract method of accounting for network services
revenues, we must accurately determine the completion date for the project in
order to record the revenues and costs in the proper period. For antenna
installations, we consider the project complete when the customer can begin
transmitting its signal through the antenna. When using the percentage-of-
completion method, we must be able to accurately estimate the total costs we
expect to incur on a project in order to record the proper amount of revenues
for the period. Under both methods, we must be able to estimate losses on
uncompleted contracts, as such losses must be recognized as soon as they are
known. We do not believe that our use of the completed contract method for
short-term projects produces operating results that differ substantially from
the percentage-of-completion method.
Allowance for Doubtful Accounts Receivable
As part of our normal accounting procedures, we must evaluate our
outstanding accounts receivable to estimate whether they will be collected.
This is a subjective process that involves making judgments about our
customers' ability and willingness to pay these accounts. An allowance for
doubtful accounts is recorded as an offset to accounts receivable in order to
present a net balance that we believe will be collected. In estimating the
appropriate balance for this allowance, we consider (1) specific reserves for
accounts we believe may prove to be uncollectible and (2) additional reserves,
based on historical collections, for the remainder of our accounts. Additions
to the allowance for doubtful accounts are charged to operating expenses, and
deductions from the allowance are recorded when specific accounts receivable
are written off as uncollectible. If our estimate of uncollectible accounts
should prove to be inaccurate at some future date, the results of operations
for the period could be materially effected by any necessary correction to the
allowance for doubtful accounts.
Valuation of Long-Lived Assets
We review the carrying values of property and equipment and other long-
lived assets, including goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying amounts may not be
38
recoverable. If the sum of the estimated future cash flows (undiscounted) from
the asset is less than its carrying amount, an impairment loss is recognized.
Measurement of an impairment loss is based on the fair value of the asset. Our
determination that an adverse event or change in circumstance has occurred
will generally involve (1) a deterioration in an asset's financial performance
compared to historical results, (2) a shortfall in an asset's financial
performance compared to forecasted results or (3) a change in strategy
affecting the utility of the asset. Our measurement of the fair value of an
impaired asset will generally be based on an estimate of discounted future
cash flows.
On January 1, 2002, we will adopt the new accounting standard for goodwill
and intangible assets (see "--Impact of Recently Issued Accounting
Standards"). In accordance with that new standard, we will review goodwill for
impairment on an annual basis, regardless of whether adverse events or changes
in circumstances have occurred.
Deferred Income Taxes
We record deferred income tax assets and liabilities on our balance sheet
related to events that impact our financial statements and tax returns in
different periods. In order to compute these deferred tax balances, we first
analyze the differences between the book basis and tax basis of our assets and
liabilities (referred to as "temporary differences"). These temporary
differences are then multiplied by current tax rates to arrive at the balances
for the deferred income tax assets and liabilities. If deferred tax assets
exceed deferred tax liabilities, we must estimate whether those net deferred
asset amounts will be realized in the future. A valuation allowance is then
provided for the net deferred asset amounts that are not likely to be
realized.
The change in our net deferred income tax balances during a period results
in a deferred income tax provision or benefit in our statement of operations.
If our expectations about the future tax consequences of past events should
prove to be inaccurate, the balances of our deferred income tax assets and
liabilities could require significant adjustments in future periods. Such
adjustments could cause a material effect on our results of operations for the
period of the adjustment.
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, including the installation of antennas on
our sites as well as third party sites.
Site rental revenues in the U.S. are received primarily from wireless
communications companies, including those operating in the following
categories of wireless communications:
. cellular;
. personal communications services, a digital service operating at a higher
frequency range than cellular;
. microwave;
. 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 SMR
frequency range using enhanced technology.
39
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 ITVdigital (formerly 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. On March 27, 2002, a U.K. court approved an application by
ITVdigital to be placed into administration (a proceeding, similar to a
Chapter 11 bankruptcy proceeding in the United States, designed to protect the
applicant from the claims of its creditors while it reorganizes its business).
There can be no assurances as to the outcome of this action or its effect on
us. ITVdigital accounted for approximately $30.7 million, or 3.4%, of our
revenues for the twelve-month period ended December 31, 2001. The loss of
ITVdigital as a customer or the modification of the ITVdigital transmission
contract could have an adverse effect on our results of operations. 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) antenna installation,
(2) site acquisition,
(3) site development and construction,
(4) network design and site selection, 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 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) Hutchison as part of their deployment of 3G sevices in the U.K.
40
These services are often subject to a competitive bid, and 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;
. employee compensation and related benefits costs;
. utilities;
. insurance;
. property taxes;
. monitoring costs; and
. in the case of our few 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 sites 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, maintenance and leases of
land or rooftop sites. With the exception of land and rooftop leases, 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. Generally, leases of land and
rooftop sites have a revenue sharing component that averages 20% to 30% of
additional revenues added from subsequent tenants.
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
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 attract
wireless service providers to our sites.
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.
41
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 is
generally computed with useful lives of 10 years and 5 years, respectively.
In March 1999, we completed the formation of Crown Atlantic, our joint
venture with Bell Atlantic Mobile. In June and December of 1999, we completed
the acquisition of towers from Powertel. During 1999, 2000 and 2001 we
completed the transactions with BellSouth and BellSouth DCS. In 2000, we
completed the transaction with 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, 2001 are not comparable to the year ended December 31, 2000, and
the results for the year ended December 31, 2000 are not comparable to the
year ended December 31, 1999.
42
The following information is derived from our historical Consolidated
Statements of Operations for the periods indicated.
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 2000 December 31, 2001
------------------ ------------------- -------------------
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.......... $267,894 77.5% $ 446,039 68.7% $ 575,961 64.1%
Network services and
other................. 77,865 22.5 203,126 31.3 322,990 35.9
-------- ----- --------- ----- --------- -----
Total net
revenues.......... 345,759 100.0 649,165 100.0 898,951 100.0
-------- ----- --------- ----- --------- -----
Operating expenses:
Costs of operations:
Site rental and
broadcast
transmission........ 114,436 42.7 194,424 43.6 238,748 41.5
Network services and
other............... 42,312 54.3 120,176 59.2 228,485 70.7
-------- --------- ---------
Total costs of
operations........ 156,748 45.4 314,600 48.5 467,233 52.0
General and
administrative........ 43,823 12.7 76,944 11.8 102,539 11.4
Corporate
development........... 5,403 1.6 10,489 1.6 12,337 1.4
Restructuring
charges............... 5,645 1.6 -- -- 19,416 2.1
Asset write-down
charges............... -- -- -- -- 24,922 2.8
Non-cash general and
administrative
compensation
charges............... 2,173 0.6 3,127 0.5 6,112 0.7
Depreciation and
amortization.......... 130,106 37.6 238,796 36.8 328,491 36.5
-------- ----- --------- ----- --------- -----
Operating income
(loss)................. 1,861 0.5 5,209 0.8 (62,099) (6.9)
Other income (expense):
Interest and other
income (expense)...... 17,731 5.1 33,761 5.2 8,548 1.0
Interest expense and
amortization of
deferred
financing costs....... (110,908) (32.0) (241,294) (37.2) (297,444) (33.1)
-------- ----- --------- ----- --------- -----
Loss before income
taxes, minority
interests,
extraordinary item and
cumulative effect of
change in accounting
principle.............. (91,316) (26.4) (202,324) (31.2) (350,995) (39.0)
Provision for income
taxes.................. (275) (0.1) (246) -- (16,478) (1.8)
Minority interests...... (2,756) (0.8) (721) (0.1) 1,306 0.1
-------- ----- --------- ----- --------- -----
Loss before
extraordinary item and
cumulative effect of
change in accounting
principle.............. (94,347) (27.3) (203,291) (31.3) (366,167) (40.7)
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................ $(96,761) (28.0)% $(204,786) (31.5)% $(366,167) (40.7)%
======== ===== ========= ===== ========= =====
Comparison of Years Ended December 31, 2001 and 2000
Consolidated revenues for 2001 were $899.0 million, an increase of $249.8
million from 2000. This increase was primarily attributable to:
(1) a $129.9 million, or 29.1%, increase in site rental and broadcast
transmission revenues, of which $13.3 million was attributable to CCUK,
$18.4 million was attributable to Crown Atlantic, $11.5 million was
attributable to CCAL and $86.6 million was attributable to CCUSA,
(2) a $108.0 million increase in network services and other revenues from
CCUSA,
(3) a $6.7 million increase in network services and other revenues from
CCUK,
(4) a $3.5 million increase in network services and other revenues from
Crown Atlantic, and
(5) $1.6 million in network services and other revenues from CCAL.
43
The following is a summary of tenant leasing activity on our tower sites
for the year ended December 31, 2001:
New tenants added on existing, newly constructed and acquired
tower sites, net:
CCUSA......................................................... 3,772
Crown Atlantic................................................ 710
CCUK.......................................................... 2,887
CCAL.......................................................... 1,448
------
8,817
======
Average monthly lease rate per new tenant added on existing
tower sites:
CCUSA and Crown Atlantic...................................... $1,481
CCUK.......................................................... 779
CCAL.......................................................... 607
The increases in site rental and broadcast transmission revenues reflect the
new tenant additions on our tower sites. The increases in network services and
other revenues reflect continued demand for antenna installation from our
tenants along with increased third party service work.
Costs of operations for 2001 were $467.2 million, an increase of $152.6
million from 2000. This increase was primarily attributable to:
(1) a $44.3 million increase in site rental and broadcast transmission
costs, of which $8.7 million was attributable to CCUK, $5.7 million was
attributable to Crown Atlantic, $3.6 million was attributable to CCAL
and $26.3 million was attributable to CCUSA,
(2) a $94.4 million increase in network services costs related to CCUSA,
(3) a $9.2 million increase in network services costs from CCUK,
(4) a $3.8 million increase in network services costs from Crown Atlantic,
and
(5) $1.0 million in network services costs from CCAL.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues decreased to 41.5% for 2001
from 43.6% for 2000 because of higher margins attributable to incremental
revenues from the Crown Atlantic, CCAL and CCUSA operations. Costs of
operations for network services and other as a percentage of network services
and other revenues increased to 70.7% for 2001 from 59.2% for 2000 because of
lower margins from the CCUSA, CCUK and Crown Atlantic operations. Network
services revenues for 2001 included a greater proportion of third party
service work than in 2000, and third party services typically produce lower
margins than tenant antenna installation services.
General and administrative expenses for 2001 were $102.5 million, an
increase of $25.6 million from 2000. This increase was primarily attributable
to:
(1) an $11.4 million increase in expenses related to the CCUSA operations,
(2) a $9.4 million increase in expenses at our corporate office,
(3) a $3.3 million increase in expenses at CCUK, and
(4) a $1.8 million increase in expenses at CCAL, partially offset by
(5) a $0.3 million decrease in expenses at Crown Atlantic.
44
The increases in general and administrative expenses resulted primarily from
higher staffing levels to support the growth of our business. General and
administrative expenses as a percentage of revenues decreased for 2001 to
11.4% from 11.8% for 2000 because of lower overhead costs as a percentage of
revenues for CCUSA, CCAL and Crown Atlantic.
Corporate development expenses for 2001 were $12.3 million, compared to
$10.5 million for 2000. This increase was primarily attributable to an
increase in expenses at our corporate office.
For 2001, we recorded non-recurring cash charges of $19.4 million in
connection with a restructuring of our business announced in July 2001. Such
charges related to employee severance payments and costs of office closures.
In addition, we announced in March 2002 that we plan to record a non-recurring
restructuring charge estimated to be between approximately $7.0 million and
$13.0 million with respect to staff redundancies and the disposition of
certain service lines in connection with our U.K. operations. We expect the
charge to be reflected in our results of operations for 2002. See "--
Restructuring Charges and Asset Write-Down Charges".
For 2001, we recorded asset write-down charges of $24.9 million in
connection with the restructuring of our business announced in July 2001. Such
non-cash charges related to write-downs of certain inventories, property and
equipment, and other assets. We are also undertaking a review of our
construction in process, which may result in certain open projects being
abandoned in 2002. A non-cash charge will be recorded in 2002 for the write-
down of such abandoned projects. The total amount of construction in process
being reviewed is approximately $38 million. See "--Restructuring Charges and
Asset Write-Down Charges".
For 2001, we recorded non-cash general and administrative compensation
charges of $6.1 million related to the issuance of stock and stock options to
certain employees and executives, compared to $3.1 million for 2000. See "--
Compensation Charges Related to Stock Option Grants and Acquisitions".
Depreciation and amortization for 2001 was $328.5 million, an increase of
$89.7 million from 2000. This increase was primarily attributable to:
(1) a $16.3 million increase in depreciation and amortization related to
the property and equipment and goodwill from CCUK,
(2) a $10.9 million increase in depreciation and amortization related to
the property and equipment and goodwill from Crown Atlantic,
(3) a $5.9 million increase in depreciation and amortization related to
property and equipment from CCAL, and
(4) a $56.3 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 2001 resulted primarily from:
(1) the investment of the net proceeds from our recent offerings (see "--
Liquidity and Capital Resources"), offset by
(2) costs incurred in connection with unsuccessful acquisition attempts and
(3) our share of losses incurred by unconsolidated affiliates.
Interest expense and amortization of deferred financing costs for 2001 was
$297.4 million, an increase of $56.2 million, or 23.3%, from 2000. This
increase was primarily attributable to interest on indebtedness at CCUSA, CCUK
and Crown Atlantic, and interest on the 10 3/4% senior notes and the 9 3/8%
senior notes.See "--Liquidity and Capital Resources".
The provision for income taxes of $16.5 million for 2001 consists primarily
of a non-cash deferred tax liability recognized by CCUK. CCUK's deferred tax
liability resulted from an excess of basis differences for its property and
equipment over its available tax net operating losses.
45
Minority interests represent the minority partner's 43.1% interest in Crown
Atlantic's operations, the minority partner's 17.8% interest in the operations
of the GTE joint venture and the minority shareholder's 22.4% interest in the
CCAL operations.
Comparison of 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.
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".
46
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) a $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.
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".
Liquidity and Capital Resources
Our business strategy contemplates substantial capital expenditures in
connection with the expansion of our tower portfolios by pursuing build-to-
suit opportunities in the markets in which we currently operate.
Since its inception, CCIC has generally funded its activities, other than
acquisitions and investments, through excess proceeds from contributions of
equity capital and cash provided by operations. CCIC has financed acquisitions
and investments with the proceeds from equity contributions, borrowings under
our senior credit facilities and issuances of debt securities. Since its
inception, CCUK has generally funded its activities, other than the
acquisition of the BBC home service transmission business, through cash
provided by operations and borrowings under CCUK's credit facility. CCUK
financed the acquisition of the BBC home service transmission business with
the proceeds from equity contributions and the issuance of the CCUK bonds.
For the years ended December 31, 1999, 2000 and 2001, our net cash provided
by operating activities was $92.6 million, $165.5 million and $131.9 million,
respectively. For the years ended December 31, 1999, 2000 and 2001, our net
cash provided by financing activities was $1,670.4 million, $1,707.1 million
and $1,109.3 million, respectively. Our primary financing-related activities
in 2001 included the following:
January 2001 Offering
In January 2001, we sold 13,445,200 shares of our common stock in an
underwritten public offering. The shares were sold to the public at a price of
$26.25 per share and we 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.
47
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.
May 2001 Debt Offering
On May 10, 2001, we issued $450.0 million aggregate principal amount of our
9 3/8% senior notes for proceeds of $441.0 million (after underwriting
discounts of $9.0 million). The proceeds from the sale of these securities
will be used to fund the initial interest payments on the 9 3/8% senior notes
and for general corporate purposes.
Capital expenditures were $683.1 million for the year ended December 31,
2001, of which $3.8 million were for CCIC, $363.8 million were for CCUSA,
$94.2 million were for Crown Atlantic, $219.0 million were for CCUK and $2.3
million were for CCAL. We anticipate that we will build, through the end of
2002, approximately 450 to 550 towers in the United States at a cost of
approximately $135 million and approximately 450 to 550 towers in the United
Kingdom at a cost of approximately $50 million. In addition, we are obligated
to pay a site access fee to British Telecom in the amount of (Pounds)100.0
million ($145.4 million). We are currently in discussions regarding the
deferral of a portion of this payment, but there can be no assurance as to the
outcome of these discussions. We also expect to spend approximately $125
million in the United States for tower improvements, including enhancements to
the structural capacity of our domestic towers in order to support the
anticipated leasing.
In April 2001, we entered into a Share Purchase Agreement for the
acquisition of 49% of the outstanding capital stock of RaiWay S.p.A.
("RaiWay"). RaiWay is a subsidiary of RAI Radio Televisione Italiana S.p.A.
("RAI"), the Italian state-owned television and radio broadcaster. RaiWay
manages over 2,300 broadcast transmission sites across Italy. The cost of our
investment in RaiWay amounted to approximately $383.8 million in cash, and
such amount was deposited into a Euro-denominated escrow account upon
execution of the Share Purchase Agreement. The transaction was subject to
approval by the Italian regulatory authorities and, in October 2001, we were
notified that the Italian Minister of Communication had declined to approve
the transaction. Pursuant to the terms of the agreement, the escrow deposit
was returned to us in November 2001.
We expect that 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 new towers will have a positive impact on liquidity, but
will require some period of time to offset the initial adverse impact on
liquidity. In addition, we believe that as new towers become operational and
we begin to add tenants, they should result in a long-term increase in
liquidity.
To fund the execution of our business strategy, including the construction
of new towers, we expect to use the net proceeds of our recent offerings and
cash provided by operations. We do not currently expect to utilize further
borrowings available under our U.S. and U.K. credit facilities in any
significant amounts. We will have additional cash needs to fund our operations
in the future. We may also have additional cash needs in the future if
additional tower acquisitions or build-to-suit opportunities arise. If we do
not otherwise have cash available, or borrowings under our credit facilities
have otherwise been utilized, when our cash need arises, we would be 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, 2001, we had consolidated cash and cash equivalents of
$804.6 million (including $5.9 million at CCUSA, $169.0 million at CCUK, $13.1
million at Crown Atlantic, $15.0 million at CCAL, $389.5 million in an
unrestricted investment subsidiary and $212.1 million at CCIC and a restricted
investment subsidiary), consolidated liquid investments (consisting of
marketable securities) of $201.5 million, consolidated
48
long-term debt of $3,423.1 million, consolidated redeemable preferred stock of
$878.9 million and consolidated stockholders' equity of $2,364.6 million.
As of March 15, 2002, Crown Atlantic had unused borrowing availability
under its amended credit facility of approximately $45.0 million, and CCUK had
unused borrowing availability under its credit facility of approximately
(Pounds)30.0 million ($43.6 million). As of March 15, 2002, our restricted
U.S. and Australian subsidiaries had approximately $500.0 million of unused
borrowing availability under the 2000 credit facility. Our various credit
facilities require our subsidiaries to maintain certain financial covenants
and place restrictions on the ability of our subsidiaries to, among other
things, incur debt and liens, pay dividends, make capital expenditures,
undertake transactions with affiliates and make investments. These facilities
also limit the ability of the borrowing subsidiaries to pay dividends to CCIC.
The primary factors that determine our subsidiaries' ability to comply with
their debt covenants are (1) their current financial performance (based on
earnings before interest, taxes, depreciation and amortization, or "EBITDA"),
(2) their levels of indebtedness and (3) their debt service requirements.
Since we do not currently expect that our subsidiaries will need to utilize
significant additional borrowings under their credit facilities, the primary
risk of a debt covenant violation would result from a deterioration of a
subsidiary's EBITDA performance. In addition, certain of the credit facilities
will require that EBITDA increase in future years as covenant calculations
become more restrictive. Should a covenant violation occur in the future as a
result of a shortfall in EBITDA performance (or for any other reason), we
might be required to make principal payments earlier than currently scheduled
and may not have access to additional borrowings under these facilities as
long as the covenant violation continues. Any such early principal payments
would have to be made from our existing cash balances.
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, our 10 3/4% senior notes and our 9 3/8% senior notes
require annual cash interest payments of approximately $16.2 million, $11.9
million, $53.8 million and $42.2 million, respectively. Prior to November 15,
2002, May 15, 2004 and August 1, 2004, the interest expense on our 10 5/8%
discount notes, our 10 3/8% discount notes and our 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 12
3/4% exchangeable preferred stock or, if issued, cash interest on the exchange
debentures. Thereafter, assuming all dividends or interest have been paid-in-
kind, our exchangeable preferred stock or, if issued, the exchange debentures
will require annual cash dividend or interest payments of approximately $47.8
million. Annual cash interest payments on the CCUK bonds are (Pounds)11.25
million ($16.4 million). In addition, our various credit facilities will
require periodic interest payments on amounts borrowed thereunder, which
amounts could be substantial.
As a holding company, CCIC will require distributions or dividends from its
subsidiaries, or will be forced to use capital raised in debt and equity
offerings, to fund its debt obligations, including interest payments on the
cash-pay notes and eventually the 10 5/8% discount notes, the 10 3/8% discount
notes and the 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.
49
The following table summarizes our contractual cash obligations as of
December 31, 2001:
Years Ending December 31,
-------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Totals
-------- -------- -------- -------- -------- ---------- ----------
(in thousands of dollars)
Long-term debt.......... $ 29,086 $ 43,336 $134,711 $200,336 $282,081 $2,930,288 $3,619,838
Interest payments on
long-term debt (a)..... 197,373 222,347 242,098 289,116 275,923 1,058,880 2,285,737
Capital lease
obligations............ 4,139 2,587 1,173 25 26 15 7,965
Operating lease
obligations............ 118,372 103,836 95,364 87,091 76,078 393,372 874,113
Site access fee to
British Telecom,
secured by letter of
credit(b).............. 145,430 -- -- -- -- -- 145,430
Redeemable preferred
stock.................. -- -- -- -- -- 977,103 977,103
Dividend payments on
exchangeable preferred
stock.................. -- -- 47,762 47,762 47,762 191,048 334,334
-------- -------- -------- -------- -------- ---------- ----------
$494,400 $372,106 $521,108 $624,330 $681,870 $5,550,706 $8,244,520
======== ======== ======== ======== ======== ========== ==========
- --------
(a) Interest payments on floating rate debt are estimated based on rates in
effect during the first quarter of 2002.
(b) We are currently in discussions regarding the deferral of a portion of
this payment. There can be no assurances as to the outcome of these
discussions.
Our joint venture agreements with Bell Atlantic Mobile and GTE (both now
part of Verizon Communications) provide that, upon dissolution of either
venture, Verizon Communications will receive (1) the shares of our common
stock contributed to the venture and (2) a payment equal to a percentage of
the fair market value (at the dissolution date) of the venture's other net
assets. As of December 31, 2001, such percentages would be approximately 24.1%
for the Bell Atlantic Mobile venture and 11.0% for the GTE venture. The 24.1%
payment for the Bell Atlantic Mobile venture could be paid either in cash or
shares of our common stock, at our election. The 11.0% payment for the GTE
venture could only be paid in cash. A dissolution of either venture may be
triggered (1) by Verizon Communications at any time following the third
anniversary of the formation of the applicable venture and (2) by us at any
time following the fourth anniversary of such venture's formation (subject to
certain penalties if prior to the seventh anniversary). Our joint venture with
Bell Atlantic Mobile was formed on March 31, 1999, and our joint venture with
GTE was formed on January 31, 2000. See "Item 1. Business--The Company--
Overview".
Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any such debt
obligations, will depend on our future performance, which, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. In addition, our
ability to refinance any indebtedness in the future would depend in part on
our maintaining adequate credit ratings from the commercial rating agencies.
Such credit ratings are dependent on all the liquidity and performance factors
discussed above, as well as general expectations that the rating agencies have
regarding the outlook for our business and our industry. We anticipate that we
may need to refinance a substantial portion of our indebtedness on or prior to
its scheduled maturity. There can be no assurance that we will be able to
effect any required refinancings of our indebtedness on commercially
reasonable terms or at all. 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.
50
We have designated CCUK, Crown Atlantic and certain investment subsidiaries
as Unrestricted Subsidiaries. Summarized financial information for (1) CCIC and
our Restricted Subsidiaries and (2) our Unrestricted Subsidiaries is as
follows:
December 31, 2001
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash
equivalents............. $ 233,027 $ 571,575 $ -- $ 804,602
Other current assets..... 291,976 119,483 -- 411,459
Property and equipment,
net..................... 3,354,557 1,490,355 -- 4,844,912
Investments.............. 128,500 -- -- 128,500
Investments in
Unrestricted
Subsidiaries............ 2,079,694 -- (2,079,694) --
Goodwill and other
intangible assets, net.. 178,540 872,891 -- 1,051,431
Other assets, net........ 117,277 17,277 -- 134,554
---------- ---------- ----------- ----------
$6,383,571 $3,071,581 $(2,079,694) $7,375,458
========== ========== =========== ==========
Current liabilities...... $ 239,039 $ 172,414 $ -- $ 411,453
Long-term debt, less
current maturities...... 2,773,646 620,365 -- 3,394,011
Other liabilities........ 34,564 122,985 -- 157,549
Minority interests....... 92,813 76,123 -- 168,936
Redeemable preferred
stock................... 878,861 -- -- 878,861
Stockholders' equity..... 2,364,648 2,079,694 (2,079,694) 2,364,648
---------- ---------- ----------- ----------
$6,383,571 $3,071,581 $(2,079,694) $7,375,458
========== ========== =========== ==========
Three Months Ended December 31, 2001 Year Ended December 31, 2001
-------------------------------------- --------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues............ $142,934 $ 95,252 $ 238,186 $ 543,777 $355,174 $ 898,951
Costs of operations
(exclusive of
depreciation
and amortization)...... 74,535 47,300 121,835 288,705 178,528 467,233
General and
administrative......... 20,958 3,763 24,721 83,005 19,534 102,539
Corporate development... 1,945 502 2,447 10,502 1,835 12,337
Restructuring charges... 164 -- 164 16,608 2,808 19,416
Asset write-down
charges................ 799 8,113 8,912 12,257 12,665 24,922
Non-cash general and
administrative
compensation charges... 872 516 1,388 3,488 2,624 6,112
Depreciation and
amortization........... 61,522 39,597 101,119 190,761 137,730 328,491
-------- -------- --------- --------- -------- ---------
Operating income
(loss)................. (17,861) (4,539) (22,400) (61,549) (550) (62,099)
Interest and other
income
(expense).............. (5,726) 8,100 2,374 (2,333) 10,881 8,548
Interest expense and
amortization of
deferred
financing costs........ (67,454) (11,069) (78,523) (250,115) (47,329) (297,444)
Provision for income
taxes.................. (465) (4,226) (4,691) (465) (16,013) (16,478)
Minority interests...... 430 (239) 191 2,833 (1,527) 1,306
-------- -------- --------- --------- -------- ---------
Net loss................ $(91,076) $(11,973) $(103,049) $(311,629) $(54,538) $(366,167)
======== ======== ========= ========= ======== =========
51
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, the 10 3/4% Senior Notes
and the 9 3/8% Senior Notes (the "1999, 2000 and 2001 Securities"):
1997 and 1998 1999, 2000 and
Securities 2001 Securities
------------- ---------------
(In thousands of dollars)
Tower Cash Flow, for the three months ended
December 31, 2001.............................. $ 44,603 $ 44,603
========= =========
Consolidated Cash Flow, for the twelve months
ended December 31, 2001........................ $ 161,565 $ 172,067
Less: Tower Cash Flow, for the twelve months
ended December 31, 2001........................ (152,188) (152,188)
Plus: four times Tower Cash Flow, for the three
months ended December 31, 2001................. 178,412 178,412
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve
months ended December 31, 2001................. $ 187,789 $ 198,291
========= =========
Related Party Transactions
For the years ended December 31, 1999, 2000 and 2001, the Bell Atlantic
Mobile joint venture had revenues from Verizon Communications of $29.1
million, $44.1 million and $44.0 million, respectively. For the years ended
December 31, 2000 and 2001, the GTE joint venture had revenues from Verizon
Communications of $46.2 million and $61.8 million, respectively. Verizon
Communications is our joint venture partner in both of these ventures.
Restructuring Charges and Asset Write-Down Charges
In July 2001, we announced a restructuring of our business in order to
increase operational efficiency and better align costs with anticipated
revenues. As part of the restructuring, we reduced our global staff by
approximately 312 full-time employees, closed five offices in the United
States and closed our development offices in Brazil and Europe. The actions
taken for the restructuring were substantially completed as of the end of
2001. In connection with the restructuring, we recorded non-recurring cash
charges of approximately $19.4 million during 2001 related to employee
severance payments and costs of office closures.
We have recorded asset write-down charges of $24.9 million during 2001 in
connection with the restructuring of our business announced in July 2001. Such
non-cash charges related to the write-down of certain inventories, property
and equipment, and other assets.
In March 2002, we announced that we plan to record a non-recurring
restructuring charge estimated to be between approximately $7.0 million and
$13.0 million with respect to staff redundancies and the disposition of
certain service lines in connection with our U.K. operations. We expect the
charge to be reflected in our results of operations for 2002. We are also
undertaking a review of our construction in process, which may result in
certain open projects being abandoned in 2002. A non-cash charge will be
recorded in 2002 for the write-down of such abandoned projects. The total
amount of construction in process being reviewed is approximately $38 million.
Compensation Charges Related to Stock Option Grants and Acquisitions
We are recognizing non-cash general and administrative compensation charges
related to certain stock options granted to employees and executives prior to
our IPO. Such charges amount to approximately $1.4 million per year, and will
be recognized through the second quarter of 2003.
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 remained 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.
52
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
remained 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 July 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141"), and Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 prohibits the use
of the pooling-of-interests method of accounting for business combinations,
and requires that the purchase method be used for all business combinations
after June 30, 2001. SFAS 141 also changes the manner in which acquired
intangible assets are identified and recognized apart from goodwill. Further,
SFAS 141 requires additional disclosures regarding the reasons for business
combinations, the allocation of the purchase price to recognized assets and
liabilities and the recognition of goodwill and other intangible assets. We
have used the purchase method of accounting since our inception, so the
adoption of SFAS 141 will not change our method of accounting for business
combinations. We will adopt the other recognition and disclosure requirements
of SFAS 141 for any future business combinations. The transition provisions of
SFAS 141 require that the carrying amounts for goodwill and other intangible
assets acquired in prior purchase method business combinations be reviewed and
reclassified in accordance with the new recognition rules; such
reclassifications are to be made in conjunction with the adoption of SFAS 142.
We will apply these transition provisions of SFAS 141 as of January 1, 2002,
and do not believe that they will have any effect on our consolidated
financial statements.
SFAS 142 changes the accounting and disclosure requirements for acquired
goodwill and other intangible assets. The most significant provision of SFAS
142 is that goodwill and other intangible assets with indefinite useful lives
will no longer be amortized, but rather will be tested for impairment on an
annual basis. This annual impairment test will involve (1) a step to identify
potential impairment at a reporting unit level based on fair values, and (2) a
step to measure the amount of the impairment, if any. Intangible assets with
finite useful lives will continue to be amortized over such lives, and tested
for impairment in accordance with our existing policies. SFAS 142 requires
disclosures about goodwill and other intangible assets in the periods
subsequent to their acquisition, including (1) changes in the carrying amount
of goodwill, in total and by operating segment, (2) the carrying amounts of
intangible assets subject to amortization and those which are not subject to
amortization, (3) information about impairment losses recognized, and (4) the
estimated amount of intangible asset amortization expense for the next five
years. The provisions of SFAS 142 are effective for fiscal years beginning
after December 15, 2001. We will adopt the requirements of SFAS 142 as of
January 1, 2002. In addition, the nonamortization provisions of SFAS 142 are
to be immediately applied for goodwill and other intangible assets acquired in
business combinations subsequent to June 30, 2001. SFAS 142 requires that
transitional impairment tests be performed at its adoption, and provides that
resulting impairment losses for goodwill and other intangible assets be
reported as the effect of a change in accounting principle. We have not yet
completed our transitional impairment tests but, based on preliminary results
of those tests, do not currently believe that an impairment loss for goodwill
and other intangible assets will be recorded upon the adoption of SFAS 142. We
expect that our depreciation and amortization expense will decrease by
approximately $62.1 million per year as a result of the adoption of SFAS 142.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("SFAS 144"). SFAS 144 supersedes Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("SFAS 121"), but retains many of its
fundamental provisions. SFAS 144 also clarifies certain measurement and
classification issues from SFAS 121. In addition, SFAS 144 supersedes the
accounting and reporting provisions for the disposal of a business segment as
found in Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
("APB 30"). However, SFAS 144 retains the requirement in APB 30 to separately
report discontinued operations, and broadens the scope of such
53
requirement to include more types of disposal transactions. The scope of SFAS
144 excludes goodwill and other intangible assets that are not to be
amortized, as the accounting for such items is prescribed by SFAS 142. The
provisions of SFAS 144 are effective for fiscal years beginning after December
15, 2001, and are to be applied prospectively. We will adopt the requirements
of SFAS 144 as of January 1, 2002.
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.
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. A fluctuation in market interest rates of one
percentage point in 2002 would impact our interest expense by approximately
$10.2 million. As of December 31, 2001, we have approximately $1,172.1 million
of floating rate indebtedness, of which approximately $150.0 million has been
effectively converted to fixed rate indebtedness through the use of interest
rate swap agreements.
The majority of our foreign currency transactions are denominated in the
British pound sterling or the Australian dollar, which are the functional
currencies of CCUK and CCAL, respectively. As a result of CCUK's and CCAL's
transactions being denominated and settled in such functional currencies, the
risks associated with currency fluctuations are generally limited to foreign
currency translation adjustments. We do not currently hedge against foreign
currency translation risks and believe that foreign currency exchange risk is
not significant to our operations.
54
As discussed in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources", we had
deposited approximately $383.8 million in cash into a Euro-denominated escrow
account in connection with the RaiWay transaction. At the time of the deposit,
the funds were exchanged at an average rate of Euro 1.00 = $0.8984. Since
approval of the transaction was not received from the Italian regulatory
authorities, the escrow deposit was returned to us in November 2001. As a
result, we recognized a foreign exchange gain in the fourth quarter of 2001 of
approximately $0.3 million in our results of operations as other income
(expense).
55
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.................................. 57
Consolidated Balance Sheet as of December 31, 2000 and 2001............... 58
Consolidated Statement of Operations and Comprehensive Loss for each of
the three years in the period ended December 31, 2001.................... 59
Consolidated Statement of Cash Flows for each of the three years in the
period ended December 31, 2001........................................... 60
Consolidated Statement of Stockholders' Equity for each of the three years
in the period ended December 31, 2001.................................... 61
Notes to Consolidated Financial Statements................................ 62
56
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, 2000 and 2001,
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, 2001. 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, 2000 and 2001,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for derivative instruments and
hedging activities in 2001.
KPMG LLP
Houston, Texas
February 28, 2002
57
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
December 31,
----------------------
2000 2001
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 453,833 $ 804,602
Receivables:
Trade, net of allowance for doubtful accounts of $18,722
and $24,785 at December 31, 2000 and 2001,
respectively........................................... 168,184 188,496
Other................................................... 4,942 2,364
Short-term investments.................................... 38,000 72,963
Inventories............................................... 40,684 102,771
Prepaid expenses and other current assets................. 28,535 44,865
---------- ----------
Total current assets.................................. 734,178 1,216,061
Property and equipment, net................................. 4,303,037 4,844,912
Investments................................................. 137,000 128,500
Goodwill and other intangible assets, net of accumulated
amortization of $101,085 and $163,934 at December 31, 2000
and 2001, respectively..................................... 1,112,876 1,051,431
Deferred financing costs and other assets, net of
accumulated amortization of $10,733 and $21,376 at December
31, 2000 and 2001, respectively............................ 114,794 134,554
---------- ----------
$6,401,885 $7,375,458
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 100,766 $ 104,149
Accrued interest.......................................... 47,604 60,081
Accrued compensation and related benefits................. 11,901 13,553
Deferred rental revenues and other accrued liabilities.... 126,649 204,584
Long-term debt, current maturities........................ -- 29,086
---------- ----------
Total current liabilities............................. 286,920 411,453
Long-term debt, less current maturities..................... 2,602,687 3,394,011
Other liabilities........................................... 93,354 157,549
---------- ----------
Total liabilities..................................... 2,982,961 3,963,013
---------- ----------
Commitments and contingencies (Note 11)
Minority interests.......................................... 155,344 168,936
Redeemable preferred stock.................................. 842,718 878,861
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares
authorized; shares issued: December 31, 2000--198,912,094
and December 31, 2001--218,804,363....................... 1,989 2,188
Additional paid-in capital................................ 2,894,095 3,301,023
Accumulated other comprehensive loss...................... (25,100) (43,246)
Accumulated deficit....................................... (450,122) (895,317)
---------- ----------
Total stockholders' equity............................ 2,420,862 2,364,648
---------- ----------
$6,401,885 $7,375,458
========== ==========
See notes to consolidated financial statements.
58
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,
-------------------------------
1999 2000 2001
--------- --------- ---------
Net revenues:
Site rental and broadcast transmission...... $ 267,894 $ 446,039 $ 575,961
Network services and other.................. 77,865 203,126 322,990
--------- --------- ---------
345,759 649,165 898,951
--------- --------- ---------
Operating expenses:
Costs of operations (exclusive of
depreciation and amortization):
Site rental and broadcast transmission.... 114,436 194,424 238,748
Network services and other................ 42,312 120,176 228,485
General and administrative.................. 43,823 76,944 102,539
Corporate development....................... 5,403 10,489 12,337
Restructuring charges....................... 5,645 -- 19,416
Asset write-down charges.................... -- -- 24,922
Non-cash general and administrative
compensation charges....................... 2,173 3,127 6,112
Depreciation and amortization............... 130,106 238,796 328,491
--------- --------- ---------
343,898 643,956 961,050
--------- --------- ---------
Operating income (loss)...................... 1,861 5,209 (62,099)
Other income (expense):
Interest and other income (expense)......... 17,731 33,761 8,548
Interest expense and amortization of
deferred financing costs................... (110,908) (241,294) (297,444)
--------- --------- ---------
Loss before income taxes, minority interests,
extraordinary item and
cumulative effect of change in accounting
principle................................... (91,316) (202,324) (350,995)
Provision for income taxes................... (275) (246) (16,478)
Minority interests........................... (2,756) (721) 1,306
--------- --------- ---------
Loss before extraordinary item and cumulative
effect of change in accounting principle.... (94,347) (203,291) (366,167)
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..................................... (96,761) (204,786) (366,167)
Dividends on preferred stock................. (28,881) (59,469) (79,028)
--------- --------- ---------
Net loss after deduction of dividends on
preferred stock............................. $(125,642) $(264,255) $(445,195)
========= ========= =========
Net loss..................................... $ (96,761) $(204,786) $(366,167)
Other comprehensive income (loss):
Foreign currency translation adjustments.... (4,703) (22,087) (10,154)
Derivative instruments:
Net change in fair value of cash flow
hedging instruments...................... -- -- (10,336)
Amounts reclassified into results of
operations............................... -- -- 2,166
--------- --------- ---------
Comprehensive loss before cumulative effect
of change in accounting principle........... (101,464) (226,873) (384,491)
Cumulative effect of change in accounting
principle for derivative financial
instruments................................. -- -- 178
--------- --------- ---------
Comprehensive loss........................... $(101,464) $(226,873) $(384,313)
========= ========= =========
Per common share--basic and diluted:
Loss before extraordinary item and
cumulative effect of change in accounting
principle.................................. $ (0.94) $ (1.47) $ (2.08)
Extraordinary item.......................... -- (0.01) --
Cumulative effect of change in accounting
principle.................................. (0.02) -- --
--------- --------- ---------
Net loss.................................... $ (0.96) $ (1.48) $ (2.08)
========= ========= =========
Common shares outstanding--basic and diluted
(in thousands).............................. 131,466 178,588 214,246
========= ========= =========
See notes to consolidated financial statements.
59
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
Years Ended December 31,
------------------------------------
1999 2000 2001
----------- ----------- ----------
Cash flows from operating activities:
Net loss................................ $ (96,761) $ (204,786) $ (366,167)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization.......... 130,106 238,796 328,491
Amortization of deferred financing
costs and discounts on long-term
debt.................................. 49,937 81,003 91,753
Asset write-down charges............... -- -- 24,922
Non-cash general and administrative
compensation charges.................. 2,173 3,127 6,112
Minority interests..................... 2,756 721 (1,306)
Extraordinary loss on early
extinguishment of debt................ -- 1,495 --
Cumulative effect of change in
accounting principle.................. 2,414 -- --
Changes in assets and liabilities,
excluding the effects of acquisitions:
Increase in deferred rental revenues
and other liabilities................. 75,277 143,999 140,649
Increase in accrued interest........... 5,518 26,803 12,668
Increase in accounts payable........... 889 55,466 4,175
Increase in inventories, prepaid
expenses and other assets............. (36,788) (89,110) (88,681)
Increase in receivables................ (42,913) (92,019) (20,686)
----------- ----------- ----------
Net cash provided by operating
activities........................... 92,608 165,495 131,930
----------- ----------- ----------
Cash flows from investing activities:
Maturities of investments............... -- -- 311,000
Capital expenditures.................... (293,801) (636,506) (683,102)
Purchases of investments................ -- (175,000) (337,463)
Acquisitions of businesses and assets,
net of cash acquired................... (1,208,466) (1,143,682) (155,651)
Investments in affiliates and other..... (6,879) (2,499) (29,920)
----------- ----------- ----------
Net cash used for investing
activities........................... (1,509,146) (1,957,687) (895,136)
----------- ----------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt................................... 757,206 1,015,020 450,000
Proceeds from issuance of capital
stock.................................. 805,771 743,290 358,207
Net borrowings under revolving credit
agreements............................. 136,993 78,000 296,829
Proceeds from issuance of subsidiary
stock to minority shareholder.......... -- -- 16,434
Incurrence of financing costs........... (28,330) (47,219) (12,161)
Principal payments on long-term debt.... -- (82,000) --
Dividends on preferred stock............ (1,238) -- --
----------- ----------- ----------
Net cash provided by financing
activities........................... 1,670,402 1,707,091 1,109,309
----------- ----------- ----------
Effect of exchange rate changes on cash.. (986) (10,394) 4,666
----------- ----------- ----------
Net increase (decrease) in cash and cash
equivalents............................. 252,878 (95,495) 350,769
Cash and cash equivalents at beginning of
year.................................... 296,450 549,328 453,833
----------- ----------- ----------
Cash and cash equivalents at end of
year.................................... $ 549,328 $ 453,833 $ 804,602
=========== =========== ==========
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..................... $ 1,750,506 $ 2,005,935 $ 157,458
Escrow deposits for acquisitions....... 50,000 (50,000) --
Issuance of common stock............... 397,710 707,389 1,807
Minority interests..................... 14,330 104,864 --
Issuance of long-term debt............. 180,000 -- --
Supplemental disclosure of cash flow
information:
Interest paid........................... $ 54,514 $ 128,996 $ 194,927
Income taxes paid....................... 301 257 492
See notes to consolidated financial statements.
60
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands of dollars, except share amounts)
Accumulated Other
Comprehensive Income
(Loss)
-----------------------
Class A Common
Common Stock Stock Foreign
------------------ ------------------ Additional Currency
($.01 ($.01 Paid-In Translation Derivative Accumulated
Shares Par) Shares Par) Capital Adjustments Instruments Deficit Total
----------- ------ ----------- ----- ---------- ----------- ----------- ----------- ----------
Balance, January 1,
1999................... 83,123,873 $ 831 11,340,000 $ 113 $ 795,153 $ 1,690 $ -- $ (60,225) $ 737,562
Issuances of capital
stock and warrants.... 62,951,032 630 -- -- 1,007,947 -- -- -- 1,008,577
Non-cash general and
administrative
compensation
charges............... -- -- -- -- 1,953 -- -- -- 1,953
Foreign currency
translation
adjustments........... -- -- -- -- -- (4,703) -- -- (4,703)
Dividends on
preferred stock....... -- -- -- -- -- -- -- (28,881) (28,881)
Net loss.............. -- -- -- -- -- -- -- (96,761) (96,761)
----------- ------ ----------- ----- ---------- -------- ------- --------- ----------
Balance, December 31,
1999................... 146,074,905 1,461 11,340,000 113 1,805,053 (3,013) -- (185,867) 1,617,747
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 -- -- -- 1,062,267
Non-cash general and
administrative
compensation
charges............... -- -- -- -- 2,248 -- -- -- 2,248
Foreign currency
translation
adjustments........... -- -- -- -- -- (22,087) -- -- (22,087)
Dividends on
preferred stock....... 860,968 9 -- -- 24,933 -- -- (59,469) (34,527)
Net loss.............. -- -- -- -- -- -- -- (204,786) (204,786)
----------- ------ ----------- ----- ---------- -------- ------- --------- ----------
Balance, December 31,
2000................... 198,912,094 1,989 -- -- 2,894,095 (25,100) -- (450,122) 2,420,862
Issuances of capital
stock................. 16,710,505 167 -- -- 359,847 -- -- -- 360,014
Non-cash general and
administrative
compensation
charges............... -- -- -- -- 4,228 -- -- -- 4,228
Foreign currency
translation
adjustments........... -- -- -- -- -- (10,154) -- -- (10,154)
Derivative
instruments:
Net change in fair
value of cash flow
hedging
instruments......... -- -- -- -- -- -- (10,336) -- (10,336)
Amounts reclassified
into results of
operations.......... -- -- -- -- -- -- 2,166 -- 2,166
Cumulative effect of
change in accounting
principle for
derivative financial
instruments......... -- -- -- -- -- -- 178 -- 178
Dividends on
preferred stock....... 3,181,764 32 -- -- 42,853 -- -- (79,028) (36,143)
Net loss.............. -- -- -- -- -- -- -- (366,167) (366,167)
----------- ------ ----------- ----- ---------- -------- ------- --------- ----------
Balance, December 31,
2001................... 218,804,363 $2,188 -- $ -- $3,301,023 $(35,254) $(7,992) $(895,317) $2,364,648
=========== ====== =========== ===== ========== ======== ======= ========= ==========
See notes to consolidated financial statements.
61
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. Certain
reclassifications have been made to the prior year's financial statements to
be consistent with the presentation in the current year.
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 and 2001, 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 and $425,000 at December 31,
2000 and 2001, respectively. 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. Inventories include work in
process amounting $22,082,000 and $83,804,000 at December 31, 2000 and 2001,
respectively.
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,
62
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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.
63
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Corporate Development Expenses
Corporate development expenses represent costs incurred in connection with
acquisitions and development of new business initiatives.
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,
-------------------------------
1999 2000 2001
--------- --------- ---------
(In thousands of dollars,
except per share amounts)
Loss before extraordinary item and cumulative
effect of change in
accounting principle......................... $ (94,347) $(203,291) $(366,167)
Dividends on preferred stock.................. (28,881) (59,469) (79,028)
--------- --------- ---------
Loss before extraordinary item and cumulative
effect of change in accounting principle
applicable to common stock for basic and
diluted computations......................... (123,228) (262,760) (445,195)
Extraordinary item............................ -- (1,495) --
Cumulative effect of change in accounting
principle.................................... (2,414) -- --
--------- --------- ---------
Net loss applicable to common stock for basic
and diluted computations..................... $(125,642) $(264,255) $(445,195)
========= ========= =========
Weighted-average number of common shares
outstanding during the period for basic and
diluted computations (in thousands).......... 131,466 178,588 214,246
========= ========= =========
Per common share--basic and diluted:
Loss before extraordinary item and
cumulative effect of change in accounting
principle.................................. $ (0.94) $ (1.47) $ (2.08)
Extraordinary item.......................... -- (0.01) --
Cumulative effect of change in accounting
principle.................................. (0.02) -- --
--------- --------- ---------
Net loss.................................... $ (0.96) $ (1.48) $ (2.08)
========= ========= =========
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of December 31, 2001: (1)
options to purchase 23,873,337 shares of common stock at exercise prices
ranging from $-0- to $39.75 per share, (2) warrants to purchase 639,990 shares
of common stock at an
64
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
7) 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 7) 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, 2001.
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, 2000 December 31, 2001
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
(In thousands of dollars)
Cash and cash equivalents.. $ 453,833 $ 453,833 $ 804,602 $ 804,602
Short-term investments (to
be held to
maturity)................. 38,000 38,015 72,963 73,224
Investments (to be held to
maturity)................. 137,000 137,141 128,500 128,664
Long-term debt............. (2,602,687) (2,593,615) (3,423,097) (3,236,191)
Interest rate swap
agreements, net........... -- 178 (7,992) (7,992)
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 8). 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 8 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
65
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
On January 1, 2001, the Company adopted the requirements of Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires that derivative
instruments be recognized as either assets or liabilities in the consolidated
balance sheet based on their fair values. Changes in the fair values of such
derivative instruments are recorded either in results of operations or in
other comprehensive income (loss), depending on the intended use of the
derivative instrument. The initial application of SFAS 133 is reported as the
effect of a change in accounting principle. The adoption of SFAS 133 resulted
in a net transition adjustment gain of approximately $178,000 in accumulated
other comprehensive income (loss), the recognition of approximately $363,000
of derivative instrument assets and the recognition of approximately $185,000
of derivative instrument liabilities. The amounts for this transition
adjustment are based on current fair value measurements at the date of
adoption of SFAS 133. The Company expects that the adoption of SFAS 133 will
increase the volatility of other comprehensive income (loss) as reported in
its future financial statements.
The derivative instruments recognized upon the Company's adoption of SFAS
133 consist of interest rate swap agreements. Such agreements are used to
manage interest rate risk on a portion of the Company's floating rate
indebtedness, and are designated as cash flow hedging instruments in
accordance with SFAS 133. The interest rate swap agreements have notional
amounts aggregating $150,000,000 and effectively convert the interest payments
on an equal amount of debt from a floating rate to a fixed rate. As such, the
Company is protected from future increases in market interest rates on that
portion of its indebtedness. To the extent that the interest rate swap
agreements are effective in hedging the Company's interest rate risk, the
changes in their fair values are recorded as other comprehensive income
(loss). Amounts recorded as other comprehensive income (loss) are reclassified
into results of operations in the same periods that the hedged interest costs
are recorded in interest expense. The Company estimates that such reclassified
amounts will be approximately $5,700,000 for the year ending December 31,
2002. To the extent that any portions of the interest rate swap agreements are
deemed ineffective, the related changes in fair values are recognized in
results of operations. As of December 31, 2001, the accumulated other
comprehensive loss in consolidated stockholders' equity includes $7,992,000 in
losses related to derivative instruments.
In July 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141"), and Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 prohibits the use
of the pooling-of-interests method of accounting for business combinations,
and requires that the purchase method be used for all business combinations
after June 30, 2001. SFAS 141 also changes the manner in which acquired
intangible assets are identified and recognized apart from goodwill. Further,
SFAS 141 requires additional disclosures regarding the reasons for business
combinations, the allocation of the purchase price to recognized assets and
liabilities and the recognition of goodwill and other intangible assets. The
Company has used the purchase method of accounting since its inception, so the
adoption of SFAS 141 will not change its method of accounting for business
combinations. The Company will adopt the other recognition and disclosure
requirements of SFAS 141 as of July 1, 2001 for any future business
combinations. The transition provisions of SFAS 141 require that the carrying
amounts for goodwill and other intangible assets acquired in prior purchase
method business combinations be reviewed and reclassified in accordance with
the new recognition rules; such
66
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
reclassifications are to be made in conjunction with the adoption of SFAS 142.
The Company will apply these transition provisions of SFAS 141 as of January
1, 2002, and does not believe that they will have any effect on its
consolidated financial statements.
SFAS 142 changes the accounting and disclosure requirements for acquired
goodwill and other intangible assets. The most significant provision of SFAS
142 is that goodwill and other intangible assets with indefinite useful lives
will no longer be amortized, but rather will be tested for impairment on an
annual basis. This annual impairment test will involve (1) a step to identify
potential impairment at a reporting unit level based on fair values, and (2) a
step to measure the amount of the impairment, if any. Intangible assets with
finite useful lives will continue to be amortized over such lives, and tested
for impairment in accordance with the Company's existing policies. SFAS 142
requires disclosures about goodwill and other intangible assets in the periods
subsequent to their acquisition, including (1) changes in the carrying amount
of goodwill, in total and by operating segment, (2) the carrying amounts of
intangible assets subject to amortization and those which are not subject to
amortization, (3) information about impairment losses recognized, and (4) the
estimated amount of intangible asset amortization expense for the next five
years. The provisions of SFAS 142 are effective for fiscal years beginning
after December 15, 2001. The Company will adopt the requirements of SFAS 142
as of January 1, 2002. In addition, the nonamortization provisions of SFAS 142
are to be immediately applied for goodwill and other intangible assets
acquired in business combinations subsequent to June 30, 2001. SFAS 142
requires that transitional impairment tests be performed at its adoption, and
provides that resulting impairment losses for goodwill and other intangible
assets be reported as the effect of a change in accounting principle. The
Company has not yet completed its transitional impairment tests but, based on
preliminary results of those tests, does not currently believe that an
impairment loss for goodwill and other intangible assets will be recorded upon
the adoption of SFAS 142. The Company expects that its depreciation and
amortization expense will decrease by approximately $62,068,000 per year as a
result of the adoption of SFAS 142.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("SFAS 144"). SFAS 144 supersedes Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("SFAS 121"), but retains many of its
fundamental provisions. SFAS 144 also clarifies certain measurement and
classification issues from SFAS 121. In addition, SFAS 144 supersedes the
accounting and reporting provisions for the disposal of a business segment as
found in Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
("APB 30"). However, SFAS 144 retains the requirement in APB 30 to separately
report discontinued operations, and broadens the scope of such requirement to
include more types of disposal transactions. The scope of SFAS 144 excludes
goodwill and other intangible assets that are not to be amortized, as the
accounting for such items is prescribed by SFAS 142. The provisions of SFAS
144 are effective for fiscal years beginning after December 15, 2001, and are
to be applied prospectively. The Company will adopt the requirements of SFAS
144 as of January 1, 2002.
2. Acquisitions
During the three years in the period ended December 31, 2001, 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.
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
67
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 4); 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 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 (at the dissolution
date) 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 (now
part of Cingular) 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, 2000 and 2001, the Company closed on a revised total of 1,942 towers and
paid $463,681,000 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.
BellSouth DCS
In July 1999, the Company entered into an agreement with certain affiliates
of BellSouth ("BellSouth DCS", now part of Cingular) 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, 2000 and 2001, the Company closed
on 745 of these towers and paid $307,015,000 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
68
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 in cash equal to approximately 11.0% of the
fair market value (at the dissolution date) 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 4).
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 77.6% 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 towers was
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.
The substantial portion of the remaining payments to Optus have been made by
CCAL during 2000 and 2001.
CCUK
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 8). 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 $493,751,000 in connection with this transaction.
69
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
The major classes of property and equipment are as follows:
Estimated December 31,
Useful ----------------------
Lives 2000 2001
---------- ---------- ----------
(In thousands of
dollars)
Land and buildings...................... 0-50 years $ 141,791 $ 168,252
Telecommunications towers and broadcast
transmission equipment................. 5-20 years 4,404,443 5,182,050
Transportation and other equipment...... 3-10 years 23,775 12,378
Office furniture and equipment.......... 3-7 years 38,548 49,069
---------- ----------
4,608,557 5,411,749
Less: accumulated depreciation.......... (305,520) (566,837)
---------- ----------
$4,303,037 $4,844,912
========== ==========
Depreciation expense for the years ended December 31, 1999, 2000 and 2001
was $96,556,000, $190,610,000 and $265,395,000 respectively. Accumulated
depreciation on telecommunications towers and broadcast transmission equipment
was $204,855,000 and $406,607,000 at December 31, 2000 and 2001, respectively.
At December 31, 2001, minimum rentals receivable under existing operating
leases for towers are as follows: years ending December 31, 2002--
$564,980,000; 2003--$542,559,000; 2004--$525,192,000; 2005--$489,547,000;
2006--$440,528,000; thereafter--$988,376,000.
4. Long-term Debt
Long-term debt consists of the following:
December 31,
---------------------
2000 2001
---------- ----------
(In thousands of
dollars)
2000 Credit Facility................................ $ 500,000 $ 700,000
CCUK Credit Facility................................ 138,932 172,050
Crown Atlantic Credit Facility...................... 239,000 300,000
9% Guaranteed Bonds due 2007........................ 181,820 177,401
10 5/8% Senior Discount Notes due 2007, net of
discount........................................... 206,768 229,321
10 3/8% Senior Discount Notes due 2011, net of
discount........................................... 355,482 393,320
9% Senior Notes due 2011............................ 180,000 180,000
11 1/4% Senior Discount Notes due 2011, net of
discount........................................... 175,685 196,005
9 1/2% Senior Notes due 2011........................ 125,000 125,000
10 3/4% Senior Notes due 2011....................... 500,000 500,000
9 3/8% Senior Notes due 2011........................ -- 450,000
---------- ----------
2,602,687 3,423,097
Less: current maturities............................ -- (29,086)
---------- ----------
$2,602,687 $3,394,011
========== ==========
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
70
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$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 a prior 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, 2001, approximately
$500,000,000 of borrowings was available under the 2000 Credit Facility, of
which $25,000,000 was available for letters of credit. There were no letters
of credit outstanding as of December 31, 2001. 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 prior 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 one of the term loans 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% (6.50% and 4.66%,
respectively, at December 31, 2001). 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") which comprises (1) a (Pounds)100,000,000
(approximately $145,430,000) revolving loan facility and (2) a
(Pounds)50,000,000 (approximately $72,715,000) 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, 2001, unused borrowing availability under the
CCUK Credit Facility amounted to approximately (Pounds)30,000,000
(approximately $43,629,000).
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.
71
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
4.98% at December 31, 2001). 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.
Crown Atlantic Credit Facility
Crown Atlantic has a credit agreement with a syndicate of banks (as
amended, the "Crown Atlantic Credit Facility") which consists of a
$345,000,000 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, 2001, approximately $45,000,000 of borrowings was
available under the Crown Atlantic Credit Facility, of which $25,000,000 was
available for letters of credit. There were no letters of credit outstanding
as of December 31, 2001.
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 March 31, 2003 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% (4.75%
and 3.76%, respectively, at December 31, 2001). The interest rate margins may
be reduced by up to 1.25% (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 $181,788,000) 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
72
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
10 5/8% Senior Discount Notes due 2007 (the "10 5/8% Discount Notes")
The Company has issued $251,000,000 aggregate principal amount (at
maturity) of the 10 5/8% Discount Notes. 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
$44,232,000 and $21,679,000 at December 31, 2000 and 2001, 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 $144,518,000 and $106,680,000 at December 31, 2000 and
2001, 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.
73
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
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 $84,315,000 and $63,995,000 at December 31, 2000 and
2001, 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.
74
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9 3/8% Senior Notes due 2011 (the "9 3/8% Senior Notes")
On May 10, 2001, the Company issued $450,000,000 aggregate principal amount
of its 9 3/8% Senior Notes for proceeds of $441,000,000 (after underwriting
discounts of $9,000,000). The proceeds from the sale of these securities will
be used to fund the initial interest payments on the 9 3/8% Senior Notes and
for general corporate purposes. Semi-annual interest payments for the 9 3/8%
Senior Notes are due on each February 1 and August 1, commencing on August 1,
2001. The maturity date of the 9 3/8% Senior Notes is August 1, 2011.
The 9 3/8% Senior Notes are redeemable at the option of the Company, in
whole or in part, on or after August 1, 2006 at a price of 104.688% of the
principal amount plus accrued interest. The redemption price is reduced
annually until August 1, 2009, after which time the 9 3/8% Senior Notes are
redeemable at par. Prior to August 1, 2004, the Company may redeem up to 35%
of the aggregate principal amount of the 9 3/8% Senior Notes, at a price of
109.375% 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, the 10 3/4% Senior
Notes and the 9 3/8% 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 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, 2001, 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.
75
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has designated CCUK, Crown Atlantic and certain investment
subsidiaries 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, 2001
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash
equivalents............. $ 233,027 $ 571,575 $ -- $ 804,602
Other current assets..... 291,976 119,483 -- 411,459
Property and equipment,
net..................... 3,354,557 1,490,355 -- 4,844,912
Investments.............. 128,500 -- -- 128,500
Investments in
Unrestricted
Subsidiaries............ 2,079,694 -- (2,079,694) --
Goodwill and other
intangible assets, net.. 178,540 872,891 -- 1,051,431
Other assets, net........ 117,277 17,277 -- 134,554
----------- ---------- ----------- ----------
$ 6,383,571 $3,071,581 $(2,079,694) $7,375,458
=========== ========== =========== ==========
Current liabilities...... $ 239,039 $ 172,414 $ -- $ 411,453
Long-term debt, less
current maturities...... 2,773,646 620,365 -- 3,394,011
Other liabilities........ 34,564 122,985 -- 157,549
Minority interests....... 92,813 76,123 -- 168,936
Redeemable preferred
stock................... 878,861 -- -- 878,861
Stockholders' equity..... 2,364,648 2,079,694 (2,079,694) 2,364,648
----------- ---------- ----------- ----------
$6,383,571 $3,071,581 $(2,079,694) $7,375,458
=========== ========== =========== ==========
Three Months Ended December 31, 2001
(Unaudited) Year Ended December 31, 2001
-------------------------------------- --------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues............ $142,934 $ 95,252 $ 238,186 $ 543,777 $355,174 $ 898,951
Costs of operations
(exclusive of
depreciation and
amortization).......... 74,535 47,300 121,835 288,705 178,528 467,233
General and
administrative......... 20,958 3,763 24,721 83,005 19,534 102,539
Corporate development... 1,945 502 2,447 10,502 1,835 12,337
Restructuring charges... 164 -- 164 16,608 2,808 19,416
Asset write-down
charges................ 799 8,113 8,912 12,257 12,665 24,922
Non-cash general and
administrative
compensation charges... 872 516 1,388 3,488 2,624 6,112
Depreciation and
amortization........... 61,522 39,597 101,119 190,761 137,730 328,491
-------- -------- --------- --------- -------- ---------
Operating income
(loss)................. (17,861) (4,539) (22,400) (61,549) (550) (62,099)
Interest and other
income (expense)....... (5,726) 8,100 2,374 (2,333) 10,881 8,548
Interest expense and
amortization of
deferred financing
costs.................. (67,454) (11,069) (78,523) (250,115) (47,329) (297,444)
Provision for income
taxes.................. (465) (4,226) (4,691) (465) (16,013) (16,478)
Minority interests...... 430 (239) 191 2,833 (1,527) 1,306
-------- -------- --------- --------- -------- ---------
Net loss................ $(91,076) $(11,973) $(103,049) $(311,629) $(54,538) $(366,167)
======== ======== ========= ========= ======== =========
76
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, the 10 3/4% Senior Notes
and the 9 3/8% Senior Notes (the "1999, 2000 and 2001 Securities"):
1997 and 1999, 2000
1998 and 2001
Securities Securities
---------- ----------
(In thousands of
dollars)
(Unaudited)
Tower Cash Flow, for the three months ended December
31, 2001.............................................. $ 44,603 $ 44,603
========= =========
Consolidated Cash Flow, for the twelve months ended
December 31, 2001..................................... $ 161,565 $ 172,067
Less: Tower Cash Flow, for the twelve months ended
December 31, 2001..................................... (152,188) (152,188)
Plus: four times Tower Cash Flow, for the three months
ended December 31, 2001............................... 178,412 178,412
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve months
ended December 31, 2001............................... $ 187,789 $ 198,291
========= =========
Maturities
Scheduled maturities of long-term debt outstanding at December 31, 2001 are
as follows: years ending December 31, 2002--$29,086,000; 2003--$43,336,000;
2004--$134,711,000; 2005--$200,336,000; 2006--$282,081,000; thereafter--
$2,930,288,000.
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 $3,601,630,000 at December 31,
2001.
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.
77
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 April 2001, 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)100,000,000
(approximately $145,430,000) and expires on April 16, 2002.
5. 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,
------------------------------
1999 2000 2001
-------- --------- ---------
(In thousands of dollars)
Domestic................................... $(93,578) $(186,551) $(275,329)
Foreign.................................... 2,262 (15,773) (75,666)
-------- --------- ---------
$(91,316) $(202,324) $(350,995)
======== ========= =========
The provision for income taxes consists of the following:
Years Ended December 31,
------------------------------
1999 2000 2001
-------- --------- ---------
(In thousands of dollars)
Current:
State.................................... $ 55 $ 225 $ 33
Foreign.................................. 220 21 459
-------- --------- ---------
275 246 492
-------- --------- ---------
Deferred:
Foreign.................................. -- -- 15,986
-------- --------- ---------
$ 275 $ 246 $ 16,478
======== ========= =========
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,
------------------------------
1999 2000 2001
-------- --------- ---------
(In thousands of dollars)
Benefit for income taxes at statutory
rate...................................... $(31,047) $ (71,337) $(122,849)
Amortization of intangible assets.......... 7,321 12,808 15,606
Depreciation on basis differences in joint
ventures.................................. 1,012 1,131 1,116
Stock-based compensation................... 477 468 973
Expenses for which no federal tax benefit
was recognized............................ 186 238 115
State taxes, net of federal tax benefit.... 36 146 21
Losses for which no tax benefit was
recognized................................ 22,265 55,190 118,628
Other...................................... 25 1,602 2,868
-------- --------- ---------
$ 275 $ 246 $ 16,478
======== ========= =========
78
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,
------------------
2000 2001
-------- --------
(In thousands of
dollars)
Deferred income tax liabilities:
Property and equipment................................. $ 49,767 $124,723
Basis differences in joint ventures.................... 222 4,548
Other.................................................. 66 54
-------- --------
Total deferred income tax liabilities................ 50,055 129,325
-------- --------
Deferred income tax assets:
Net operating loss carryforwards....................... 138,877 324,220
Foreign losses......................................... 4,096 12,163
Receivables allowance.................................. 5,932 6,280
Accrued liabilities.................................... 472 5,145
Intangible assets...................................... 692 3,233
Puerto Rico losses..................................... 147 408
Noncompete agreement................................... 193 164
Other.................................................. 54 663
Valuation allowances................................... (100,408) (238,937)
-------- --------
Total deferred income tax assets, net................ 50,055 113,339
-------- --------
Net deferred income tax liabilities...................... $ -- $ 15,986
======== ========
Valuation allowances of $100,408,000 and $238,937,000 were recognized to
offset net deferred income tax assets as of December 31, 2000 and 2001,
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........................... $214,507,000
Additional paid-in capital..................................... 24,430,000
------------
$238,937,000
============
At December 31, 2001, the Company had net operating loss carryforwards of
approximately $926,343,000 which are available to offset future federal
taxable income. These loss carryforwards will expire in 2010 through 2021. The
utilization of the loss carryforwards is subject to certain limitations.
6. Minority Interests
Minority interests represent the minority shareholder's 20% interest in
CCUK (prior to July 2000), the minority partner's 43.1% interest in Crown
Atlantic, the minority partner's 17.8% interest in Crown Castle GT and the
minority shareholder's 22.4% interest in CCAL.
79
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Redeemable Preferred Stock
Redeemable preferred stock ($.01 par value, 20,000,000 shares authorized)
consists of the following:
December 31,
-----------------
2000 2001
-------- --------
(In thousands of
dollars)
12 3/4% Senior Exchangeable Preferred Stock; shares issued:
December 31, 2000--257,067 and December 31, 2001--291,444
(stated at mandatory redemption and aggregate liquidation
value)................................................... $258,433 $292,992
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)................................................ 195,383 195,793
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)................................................ 388,902 390,076
-------- --------
$842,718 $878,861
======== ========
Exchangeable Preferred Stock
The Company has 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 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,
2000 and 2001, 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. 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 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
80
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 years ended December 31, 2000 and 2001,
dividends were paid with 579,000 and 1,400,000 shares of common stock,
respectively. 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 8.
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 years ended December 31, 2000 and 2001,
dividends were paid with 281,968 and 1,781,764 shares of common stock,
respectively. The Company is required to redeem all 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.
81
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
8. Stockholders' Equity
Common Stock
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 4). 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
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 7). 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).
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.
Class A Common Stock
All of the outstanding shares of the Company's Class A Common Stock were
held by an affiliate of TdF. 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
82
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
The Company is recognizing non-cash general and administrative compensation
charges related to certain stock options granted to employees and executives
prior to its initial public offering of common stock (the "IPO"). Such charges
amount to approximately $1,360,000 per year, and will be recognized through
the second quarter of 2003.
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 remained 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
remained 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 a share exchange agreement with CCUK's shareholders in
1998, 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.
In 2001, the Company adopted the Crown Castle International Corp. 2001
Stock Incentive Plan (the "2001 Stock Incentive Plan"). Up to 8,000,000 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 awards will vest over periods to be
determined by the Company's Board of Directors, and will have a maximum term
of 10 years from the date of the grant.
83
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of awards granted under the various stock option plans is as
follows for the years ended December 31, 1999, 2000 and 2001:
1999 2000 2001
--------------------- --------------------- ---------------------
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...... 16,585,197 $ 7.06 19,226,076 $ 9.89 21,183,816 $14.50
Options granted......... 4,661,649 18.68 4,878,783 28.48 7,269,509 14.76
Options exercised....... (1,482,066) 5.82 (2,540,569) 5.16 (3,200,901) 5.14
Options forfeited....... (538,704) 9.17 (380,474) 22.62 (1,379,087) 21.29
---------- ---------- ----------
Options outstanding at
end of year............ 19,226,076 9.89 21,183,816 14.50 23,873,337 15.45
========== ========== ==========
Options exercisable at
end of year............ 11,590,217 8.14 13,692,081 10.21 13,569,588 14.06
========== ========== ==========
A summary of options outstanding as of December 31, 2001 is as follows:
Weighted-
Average
Number of Remaining Number of
Options Contractual Options
Exercise Prices Outstanding Life Exercisable
--------------- ----------- ----------- -----------
$-0-to $1.60............................. 227,252 4.2 years 211,194
2.31 to 3.90............................. 1,089,686 5.1 years 1,089,686
4.01 to 5.97............................. 613,314 4.4 years 613,314
7.50 to 7.77............................. 3,660,250 6.4 years 3,253,981
8.50 to 10.00............................ 4,148,100 9.8 years --
10.04 to 12.50........................... 459,500 8.5 years 163,500
13.00.................................... 2,725,000 6.7 years 2,725,000
13.40 to 17.63........................... 1,607,500 6.6 years 720,400
18.00 to 19.99........................... 1,897,539 7.3 years 1,563,939
20.06 to 22.56........................... 1,889,228 7.7 years 1,431,861
22.69 to 25.63........................... 2,186,203 8.5 years 495,085
26.19 to 29.50........................... 1,539,542 6.2 years 529,480
29.88 to 31.88........................... 1,376,547 8.2 years 636,040
32.09 to 39.75........................... 453,676 8.3 years 136,108
---------- ----------
23,873,337 13,569,588
========== ==========
The weighted-average fair value of options granted during the years ended
December 31, 1999, 2000 and 2001 was $6.76, $11.39, and $4.54, 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:
Years Ended December 31,
-----------------------------
1999 2000 2001
--------- --------- ---------
Risk-free interest rate........................ 5.41% 6.37% 4.22%
Expected life.................................. 4.9 years 5.0 years 4.5 years
Expected volatility............................ 30% 30% 30%
Expected dividend yield........................ 0% 0% 0%
84
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 2000 and 2001, CCAL
granted 3,218,000 and 2,029,062 options, respectively, with an exercise price
of Australian $1.00 per share (approximately $0.51). Options forfeited during
2001 amounted to 738,000. At December 31, 2001, there were 4,509,062 options
outstanding, of which 680,000 were exercisable. The estimated fair value of
options granted was approximately $0.14 and $0.17 per share in 2000 and 2001,
respectively, based on the Black-Scholes option pricing model using the
following weighted-average assumptions: (1) a risk-free interest rate of 5.88%
and 4.49% in 2000 and 2001, respectively, (2) an expected life of 5.0 years
and 4.7 years in 2000 and 2001, respectively, (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, 2000 and 2001 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 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, 1999, 2000 and 2001 would have been $113,633,000 ($1.08 per
share), $226,997,000 ($1.60 per share) and $395,916,000 ($2.22 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, 2001, the Company had the following shares reserved for
future issuance:
Common Stock:
Convertible Preferred Stock..................................... 18,357,114
Stock option plans.............................................. 32,589,140
Warrants........................................................ 1,639,990
----------
52,586,244
==========
9. Employee Benefit Plans
The Company and its subsidiaries have various defined contribution savings
plans covering substantially all employees. Employees may elect to contribute
a portion of their eligible compensation, subject to limits imposed by the
various plans. Certain of the plans provide for partial matching of such
contributions. The cost to the Company for these plans amounted to $836,000,
$1,951,000 and $3,678,000 for the years ended December 31, 1999, 2000 and
2001, 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 years ended December 31, 1999, 2000 and 2001 was $3,592,000,
$2,516,000 and $2,362,000, respectively. As of December 31, 2000 and 2001, (1)
the projected benefit obligation amounted to $21,505,000 and $28,970,000,
respectively; (2) the fair value of the plan's assets amounted to $23,599,000
and $23,240,000, respectively; and (3) the prepaid pension cost attributable
to this plan amounted to $1,825,000 and $2,181,000, respectively.
85
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Related Party Transactions
Included in other receivables at December 31, 2000 and 2001 are amounts due
from employees of the Company totaling $342,000 and $416,000, respectively.
For the years ended December 31, 1999, 2000 and 2001, Crown Atlantic had
revenues from Verizon Communications of $29,113,000, $44,053,000 and
$43,988,000, respectively. For the years ended December 31, 2000 and 2001,
Crown Castle GT had revenues from Verizon Communications of $46,163,000 and
$61,793,000, respectively. Verizon Communications is the Company's joint
venture partner in both Crown Atlantic and Crown Castle GT (see Note 2).
11. Commitments and Contingencies
At December 31, 2001, minimum rental commitments under operating leases are
as follows: years ending December 31, 2002--$118,372,000; 2003--$103,836,000;
2004--$95,364,000; 2005--$87,091,000; 2006--$76,078,000; thereafter--
$393,372,000. Rental expense for operating leases was $47,300,000, $92,101,000
and $96,113,000 for the years ended December 31, 1999, 2000 and 2001,
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.
12. Operating Segments and Concentrations of Credit Risk
Operating Segments
The Company's reportable operating segments for 2000 and 2001 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.
86
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, asset write-down 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, 2001
-------------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
---------- -------- ---------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission......... $ 270,113 $ 18,341 $ 205,523 $ 81,984 $ -- $ 575,961
Network services and
other................ 253,674 1,649 32,193 35,474 -- 322,990
---------- -------- ---------- -------- --------- ----------
523,787 19,990 237,716 117,458 -- 898,951
---------- -------- ---------- -------- --------- ----------
Costs of operations
(exclusive of
depreciation and
amortization).......... 280,519 8,186 124,329 54,199 -- 467,233
General and
administrative......... 61,108 6,255 11,365 8,169 15,642 102,539
Corporate development... -- -- 48 -- 12,289 12,337
---------- -------- ---------- -------- --------- ----------
EBITDA.................. 182,160 5,549 101,974 55,090 (27,931) 316,842
Restructuring charges... 7,142 -- 1,839 969 9,466 19,416
Asset write-down
charges................ 6,501 -- 11,898 767 5,756 24,922
Non-cash general and
administrative
compensation charges... 2,127 -- 2,624 -- 1,361 6,112
Depreciation and
amortization........... 177,999 11,091 93,453 44,277 1,671 328,491
---------- -------- ---------- -------- --------- ----------
Operating income
(loss)................. (11,609) (5,542) (7,840) 9,077 (46,185) (62,099)
Interest and other
income
(expense).............. 1,378 403 5,373 309 1,085 8,548
Interest expense and
amortization of
deferred financing
costs.................. (53,293) (2,442) (26,678) (20,651) (194,380) (297,444)
Provision for income
taxes.................. (33) (432) (16,013) -- -- (16,478)
Minority interests...... (316) 3,149 -- (1,527) -- 1,306
---------- -------- ---------- -------- --------- ----------
Net loss................ $ (63,873) $ (4,864) $ (45,158) $(12,792) $(239,480) $ (366,167)
========== ======== ========== ======== ========= ==========
Capital expenditures.... $ 363,825 $ 2,283 $ 218,971 $ 94,194 $ 3,829 $ 683,102
========== ======== ========== ======== ========= ==========
Total assets (at year
end)................... $3,534,495 $257,492 $1,793,746 $886,126 $ 903,599 $7,375,458
========== ======== ========== ======== ========= ==========
87
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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)................... $3,310,475 $151,437 $1,559,558 $822,365 $ 558,050 $6,401,885
========== ======== ========== ======== ========= ==========
Year Ended December 31, 1999
-----------------------------------------------------
Corporate
Crown Office and Consolidated
CCUSA CCUK Atlantic 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
======== ======== ======= ======== ========
88
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,
--------------------------
1999 2000 2001
-------- -------- --------
(In thousands of dollars)
United States....................................... $147,679 $419,392 $632,779
Puerto Rico......................................... 2,915 5,256 8,466
-------- -------- --------
Total domestic operations......................... 150,594 424,648 641,245
-------- -------- --------
Australia........................................... -- 6,810 19,990
United Kingdom...................................... 193,655 217,570 237,616
Other foreign countries............................. 1,510 137 100
-------- -------- --------
Total for all foreign countries................... 195,165 224,517 257,706
-------- -------- --------
$345,759 $649,165 $898,951
======== ======== ========
A summary of long-lived assets by country of location is as follows:
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
========== ======== ========== ======= ========== ==========
December 31, 2001
-----------------------------------------------------------------
United
States and Other Total
Puerto United Foreign Foreign Consolidated
Rico Australia Kingdom Countries Countries Total
---------- --------- ---------- --------- ---------- ------------
(In thousands of dollars)
Property and equipment,
net.................... $3,909,100 $231,261 $ 704,551 $ -- $ 935,812 $4,844,912
Other long-lived assets,
net.................... 484,269 957 822,304 6,955 830,216 1,314,485
---------- -------- ---------- ------ ---------- ----------
$4,393,369 $232,218 $1,526,855 $6,955 $1,766,028 $6,159,397
========== ======== ========== ====== ========== ==========
Major Customers
For the year ended December 31, 1999, CCUSA had revenues from a single
customer amounting to $16,872,000. During 2000, a merger took place between
two customers of CCUSA and Crown Atlantic; revenues from these two customers
aggregated $99,070,000 and $128,493,000 for the years ended December 31, 2000
and 2001, respectively. For the years ended December 31, 1999, 2000, and 2001,
consolidated net revenues include $97,520,000, $96,083,000 and $93,698,000,
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.
89
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.
13. Restructuring Charges and Asset Write-Down 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, 2000 and 2001, other accrued liabilities includes $171,000 and $-
0-, 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, 2000 and 2001, other accrued liabilities
includes $317,000 and $-0-, respectively, related to these charges.
In July 2001, the Company announced a restructuring of its business in
order to increase operational efficiency and better align costs with
anticipated revenues. As part of the restructuring, the Company reduced its
global staff by approximately 312 full-time employees, closed five offices in
the United States and closed its development offices in Brazil and Europe. The
actions taken for the restructuring were substantially completed as of the end
of 2001. In connection with the restructuring, the Company recorded non-
recurring cash charges of $19,416,000 during 2001 related to employee
severance payments and costs of office closures. At December 31, 2001, other
accrued liabilities includes $6,591,000 related to these charges.
The Company has recorded asset write-down charges of $24,922,000 during
2001 in connection with the restructuring of its business announced in July
2001. Such non-cash charges related to the write-down of certain inventories,
property and equipment, and other assets.
90
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Quarterly Financial Information (Unaudited)
Summary quarterly financial information for the years ended December 31,
2000 and 2001 is as follows:
Three Months Ended
--------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(In thousands of dollars, except per share
amounts)
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)
2001:
Net revenues.................... $212,953 $229,416 $ 218,396 $ 238,186
Operating income (loss)......... (5,076) (16,321) (18,302) (22,400)
Net loss........................ (68,055) (84,733) (110,330) (103,049)
Per common share--basic and
diluted:
Net loss...................... (0.41) (0.49) (0.60) (0.57)
91
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 2002 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 2002 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 2002 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 2002 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 56.
(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.
92
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Crown Castle International Corp.:
Under date of February 28, 2002, we reported on the consolidated balance
sheets of Crown Castle International Corp. and subsidiaries as of December 31,
2001 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, 2001 as contained in the annual
report on Form 10-K for the year ended 2001. The audit report covering the
December 31, 2001 financial statements refers to a change in the method of
accounting for derivative instruments and hedging activities in 2001. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules as listed under Item 14.(a)(2). 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 28, 2002
93
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET (Unconsolidated)
(In thousands of dollars, except share amounts)
December 31,
----------------------
2000 2001
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............................ $ 252,365 $ 211,651
Receivables and other current assets................. 5,345 3,121
Short-term investments............................... 38,000 72,963
---------- ----------
Total current assets............................... 295,710 287,735
Property and equipment, net of accumulated depreciation
of $3,275 and $4,349 at December 31, 2000 and 2001,
respectively.......................................... 3,920 2,757
Investments............................................ 137,000 128,500
Investment in and net advances to subsidiaries......... 4,353,764 4,873,891
Deferred financing costs and other assets, net of
accumulated amortization of $6,535 and $11,994 at
December 31, 2000 and 2001, respectively.............. 57,324 82,198
---------- ----------
$4,847,718 $5,375,081
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities....... $ 6,609 $ 10,982
Accrued interest..................................... 34,594 46,944
---------- ----------
Total current liabilities.......................... 41,203 57,926
Long-term debt......................................... 1,542,935 2,073,646
---------- ----------
Total liabilities.................................. 1,584,138 2,131,572
---------- ----------
Redeemable preferred stock............................. 842,718 878,861
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares
authorized; shares issued: December 31, 2000--
198,912,094 and December 31, 2001--218,804,363....... 1,989 2,188
Additional paid-in capital............................ 2,894,095 3,301,023
Accumulated other comprehensive loss.................. (25,100) (43,246)
Accumulated deficit................................... (450,122) (895,317)
---------- ----------
Total stockholders' equity......................... 2,420,862 2,364,648
---------- ----------
$4,847,718 $5,375,081
========== ==========
See notes to consolidated financial statements and accompanying notes.
94
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued)
STATEMENT OF OPERATIONS (Unconsolidated)
(In thousands of dollars)
Years Ended December 31,
-------------------------------
1999 2000 2001
--------- --------- ---------
Interest and other income (expense).......... $ 12,852 $ 28,216 $ (862)
General and administrative expenses.......... (5,002) (6,234) (15,370)
Corporate development expenses............... (4,579) (7,841) (7,950)
Restructuring charges........................ -- -- (7,908)
Asset write-down charges..................... -- -- (3,067)
Non-cash general and administrative
compensation charges........................ (1,337) (1,361) (1,361)
Depreciation and amortization................ (1,178) (1,238) (1,254)
Interest expense and amortization of deferred
financing costs............................. (66,222) (148,331) (194,380)
--------- --------- ---------
Loss before income taxes, equity in earnings
(losses) of subsidiaries and cumulative
effect of change in accounting principle.... (65,466) (136,789) (232,152)
Equity in earnings (losses) of subsidiaries.. (30,985) (67,997) (134,015)
--------- --------- ---------
Loss before cumulative effect of change in
accounting principle........................ (96,451) (204,786) (366,167)
Cumulative effect of change in accounting
principle for costs of start-up activities.. (310) -- --
--------- --------- ---------
Net loss..................................... (96,761) (204,786) (366,167)
Dividends on preferred stock................. (28,881) (59,469) (79,028)
--------- --------- ---------
Net loss after deduction of dividends on
preferred stock............................. $(125,642) $(264,255) $(445,195)
========= ========= =========
See notes to consolidated financial statements and accompanying notes.
95
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,
---------------------------------
1999 2000 2001
---------- ---------- ---------
Cash flows from operating activities:
Net loss................................... $ (96,761) $ (204,786) $(366,167)
Adjustments to reconcile net loss to net
cash used for operating activities:
Equity in losses of subsidiaries.......... 30,985 67,997 134,015
Amortization of deferred financing costs
and discounts on long-term debt.......... 46,703 76,764 86,164
Asset write-down charges.................. -- -- 3,067
Non-cash general and administrative
compensation charges..................... 1,337 1,361 1,361
Depreciation and amortization............. 1,178 1,238 1,254
Cumulative effect of change in accounting
principle................................ 310 -- --
Increase in accrued interest.............. 6,907 27,687 12,350
Decrease (increase) in receivables and
other assets............................. (10,052) 4,441 8,721
Increase (decrease) in accounts payable
and other accrued liabilities............ 2,273 (874) 4,373
---------- ---------- ---------
Net cash used for operating activities.. (17,120) (26,172) (114,862)
---------- ---------- ---------
Cash flows from investing activities:
Sale of investments........................ -- -- 311,000
Net advances to subsidiaries............... (84,309) (181,611) (421,980)
Purchase of investments.................... -- (175,000) (337,463)
Investment in subsidiaries................. (930,082) (1,071,433) (245,634)
Sale of (investments in) affiliates........ 739 (2,488) (30,067)
Capital expenditures....................... (963) (1,158) (593)
Escrow deposit for acquisition............. (50,000) -- --
---------- ---------- ---------
Net cash used for investing activities.. (1,064,615) (1,431,690) (724,737)
---------- ---------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt... 757,206 500,000 450,000
Proceeds from issuance of capital stock.... 805,771 743,290 358,207
Incurrence of financing costs.............. (28,025) (22,949) (9,322)
Dividends on preferred stock............... (1,238) -- --
---------- ---------- ---------
Net cash provided by financing
activities............................. 1,533,714 1,220,341 798,885
---------- ---------- ---------
Net increase (decrease) in cash and cash
equivalents................................ 451,979 (237,521) (40,714)
Cash and cash equivalents at beginning of
year....................................... 37,907 489,886 252,365
---------- ---------- ---------
Cash and cash equivalents at end of year.... $ 489,886 $ 252,365 $ 211,651
========== ========== =========
Supplementary schedule of non-cash investing
and financing activities:
Issuance of common stock in connection with
acquisitions.............................. $ 397,710 $ 707,389 $ 1,807
Supplemental disclosure of cash flow
information:
Interest paid.............................. $ 12,612 $ 43,878 $ 95,848
Income taxes paid.......................... -- -- --
See notes to consolidated financial statements and accompanying notes.
96
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued)
NOTES TO FINANCIAL STATEMENTS (Unconsolidated)
1. Investment in and Net Advances to 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 $3,601,630,000 at December 31,
2001.
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.
97
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000 AND 2001
(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:
2000..................... $ 3,218 $16,781 $(1,230) $(47) $18,722
======= ======= ======= ==== =======
2001..................... $18,722 $10,542 $(4,446) $(33) $24,785
======= ======= ======= ==== =======
98
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
#####3.5 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
99
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 20411 (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 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
100
Exhibit No. Description
----------- -----------
##10.4 Digital Terrestrial Television Transmission Agreement between The
British Broadcasting Corporation and Castle Transmission
International Ltd. dated February 10, 1998
##10.5 Contract between British Telecommunications PLC and Castle
Transmission International Inc. for the Provision of Digital
Terrestrial Television Network Distribution Service dated May 13,
1998
##10.6 Amending Agreement between the British Broadcasting Corporation
and Castle Transmission International Limited dated July 16, 1998
##10.7 Commitment Agreement between the British Broadcasting Corporation,
Castle Tower Holding Corp., TeleDiffusion de France International
S.A. and TeleDiffusion de France S.A.
**10.8 Global Lease Agreement dated March 31, 1999 between Crown Atlantic
Company LLC and Cellco Partnership, doing business as Bell
Atlantic Mobile
**10.9 Master Build to Suit Agreement dated March 31, 1999 between Cellco
Partnership, doing business as BellAtlantic Mobile, and Crown
Atlantic Company LLC
***10.10 Agreement to Build to Suit dated June 1, 1999 by and among
BellSouth Mobility Inc., Crown Castle International Corp. and
Crown Castle South Inc.
#10.11 Castle Tower Holding Corp. 1995 Stock Option Plan (Third
Restatement)
##10.12 Crown Castle International Corp. 1995 Stock Option Plan (Fourth
Restatement)
##10.13 Castle Transmission Services (Holdings) Ltd. All Employee Share
Option Scheme dated as of January 23, 1998
##10.14 Rules of the Castle Transmission Services (Holdings) Ltd. Bonus
Share Plan
###10.15 Employee Benefit Trust between Castle Transmission Services
(Holdings) Ltd. and Castle Transmission (Trustees) Limited
##10.16 Castle Transmission Services (Holdings) Ltd. Unapproved Share
Option Scheme dated as of January 23, 1998
##10.17 Deed of Grant of Option between Castle Transmission Series
(Holdings) Ltd. and George Reese dated January 23, 1998
##10.18 Deed of Grant of Option between Castle Transmission Services
(Holdings) Ltd. and Ted B. Miller, Jr., dated April 23, 1998
##10.19 Deed of Grant of Option between Castle Transmission Services
(Holdings) Ltd. and Ted B. Miller, Jr., dated January 23, 1998
###10.20 Form of Severance Agreement entered into between Crown Castle
International Corp. and John P. Kelly, W. Benjamin Moreland,
Robert E. Giles and E. Blake Hawk
#####10.21 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.
++++10.22 Amended and Restated Rights Agreement dated as of September 18,
2000, between Crown Castle International Corp. and ChaseMellon
Shareholder Services L.L.C.
**10.23 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
++10.24 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
101
Exhibit
No. Description
------- -----------
++10.25 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
++10.26 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
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 in the Registration Statement
on Form S-3 previously filed by the Registrant (Registration No. 333-
83395).
# Incorporated by reference to the exhibits in the Registration Statement
on Form S-4 previously filed by the Registrant (Registration No. 333-
43873).
## Incorporated by reference to the exhibits 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 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 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 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.
102
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 28th day of March, 2002.
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, 2001 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 28th day of March, 2002.
Signature Title
--------- -----
/s/ John P. Kelly President, Chief Executive Officer and
___________________________________________ Director (Principal Executive
John P. Kelly Officer)
/s/ W. Benjamin Moreland Senior Vice President, Chief Financial
___________________________________________ Officer and Treasurer (Principal
W. Benjamin Moreland Financial Officer)
/s/ Wesley D. Cunningham Senior Vice President, Chief
___________________________________________ Accounting Officer and Corporate
Wesley D. Cunningham Controller
(Principal Accounting Officer)
/s/ Randall A. Hack Director
___________________________________________
Randall A. Hack
/s/ Dale N. Hatfield Director
___________________________________________
Dale N. Hatfield
103
Signature Title
--------- -----
/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
Chairman of the Board
___________________________________________
Ted B. Miller, Jr.
/s/ William D. Strittmatter Director
___________________________________________
William D. Strittmatter
104