================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K/A-1
-----------------
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
-----------------
CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 76-0470458
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization) 77057-1457
(Zip Code)
510 Bering Drive
Suite 500
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
Securities Exchange Act Name of Exchange on Which
of 1934 Registered
----------------------- -------------------------
Common Stock, $.01 par
value New York Stock Exchange
Rights to Purchase Series New York Stock Exchange
A Participating
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.
================================================================================
PART II
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".
1
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:
Adjusted 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' equityst........................................ 41,792 737,562 1,617,747 2,420,862 2,364,648
2
--------
(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) Adjusted 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. Adjusted 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 Adjusted 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
3
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.
4
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
5
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.
6
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.
7
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.
8
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.
9
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--Operating Segments
CCUSA. CCUSA's revenues for 2001 were $523.8 million, an increase of $194.6
million from 2000. This increase was attributable to an $86.6 million, or
47.2%, increase in site rental revenues and a $108.0 million increase in
network services and other revenues. The increase in site rental revenues
reflects the new tenant additions on our tower sites. The increase in network
services and other revenues reflects continued demand for antenna installation
from our tenants along with increased third party service work. Costs of
operations for 2001 were $280.5 million, an increase of $120.7 million from
2000. This increase was attributable to a $26.3 million increase in site rental
costs and a $94.4 million increase in network services costs. Costs of
operations for site rental as a percentage of site rental revenues decreased to
38.2% for 2001 from 41.9% for 2000. Costs of operations for network services
and other as a percentage of network services and other revenues increased to
69.9% for 2001 from 57.0% for 2000. General and administrative expenses for
2001 were $61.1 million, an increase of $11.4 million from 2000. General and
administrative expenses as a percentage of revenues decreased to 11.7% for 2001
from 15.1% for 2000. For 2001, CCUSA recorded restructuring charges and asset
write-down charges of $7.1 million and $6.5 million, respectively (see
"--Restructuring Charges and Asset Write-Down
10
Charges"). For 2001, CCUSA recorded non-cash general and administrative
compensation charges of $2.1 million, compared to $0.8 million for 2000 (see
"--Compensation Charges Related to Stock Option Grants and Acquisitions").
Depreciation and amortization for 2001 was $178.0 million, an increase of $56.3
million from 2000. Interest and other income (expense) for 2001 was $1.4
million, a decrease of $2.8 million from 2000. Interest expense and
amortization of deferred financing costs for 2001 was $53.3 million, an
increase of $10.3 million from 2000.
CCAL. CCAL's revenues for 2001 were $20.0 million, an increase of $13.2
million from 2000. This increase was attributable to an $11.5 million, or
169.3%, increase in site rental revenues and $1.6 million in network services
and other revenues. The increase in site rental revenues reflects the impact of
tower acquisitions along with the new tenant additions on our tower sites.
Costs of operations for 2001 were $8.2 million, an increase of $4.6 million
from 2000. This increase was attributable to a $3.6 million increase in site
rental costs and $1.0 million in network services costs. Costs of operations
for site rental as a percentage of site rental revenues decreased to 39.1% for
2001 from 52.5% for 2000. Costs of operations for network services and other as
a percentage of network services and other revenues were 62.0% for 2001.
General and administrative expenses for 2001 were $6.3 million, an increase of
$1.8 million from 2000. General and administrative expenses as a percentage of
revenues decreased to 31.3% for 2001 from 65.3% for 2000. Depreciation and
amortization for 2001 was $11.1 million, an increase of $5.9 million from 2000.
Interest and other income (expense) for 2001 was $0.4 million, an increase of
$0.2 million from 2000. Interest expense and amortization of deferred financing
costs for 2001 was $2.4 million, an increase of $2.3 million from 2000.
CCUK. CCUK's revenues for 2001 were $237.7 million, an increase of $20.0
million from 2000. This increase was attributable to a $13.3 million, or 6.9%,
increase in site rental and broadcast transmission revenues and a $6.7 million
increase in network services and other revenues. The increase in site rental
and broadcast transmission revenues reflects the new tenant additions on our
tower sites. The increase in network services and other revenues reflects
continued demand for antenna installation from our tenants along with increased
third party service work. Costs of operations for 2001 were $124.3 million, an
increase of $17.9 million from 2000. This increase was attributable to an $8.7
million increase in site rental and broadcast transmission costs and a $9.2
million increase in network services costs. Costs of operations for site rental
and broadcast transmission as a percentage of site rental and broadcast
transmission revenues increased to 47.0% for 2001 from 45.7% for 2000. Costs of
operations for network services and other as a percentage of network services
and other revenues increased to 86.3% for 2001 from 73.2% for 2000. General and
administrative expenses for 2001 were $11.4 million, an increase of $3.3
million from 2000. General and administrative expenses as a percentage of
revenues increased to 4.8% for 2001 from 3.7% for 2000. For 2001, CCUK recorded
restructuring charges and asset write-down charges of $1.8 million and $11.9
million, respectively (see "--Restructuring Charges and Asset Write-Down
Charges"). For 2001, CCUK recorded non-cash general and administrative
compensation charges of $2.6 million, compared to $1.0 million for 2000 (see
"--Compensation Charges Related to Stock Option Grants and Acquisitions").
Depreciation and amortization for 2001 was $93.5 million, an increase of $16.3
million from 2000. Interest and other income (expense) for 2001 was $5.4
million, an increase of $5.1 million from 2000. Interest expense and
amortization of deferred financing costs for 2001 was $26.7 million, a decrease
of $5.3 million from 2000. CCUK's provision for income taxes of $16.0 million
for 2001 consists of a non-cash deferred tax liability. This deferred tax
liability resulted from an excess of basis differences for its property and
equipment over its available tax net operating losses.
Crown Atlantic. Crown Atlantic's revenues for 2001 were $117.5 million, an
increase of $22.0 million from 2000. This increase was attributable to an $18.4
million, or 29.0%, increase in site rental revenues and a $3.5 million increase
in network services and other revenues. The increase in site rental revenues
reflects the new tenant additions on our tower sites. The increase in network
services and other revenues reflects continued demand for antenna installation
from our tenants along with increased third party service work. Costs of
operations for 2001 were $54.2 million, an increase of $9.5 million from 2000.
This increase was attributable to a $5.7 million increase in site rental costs
and a $3.8 million increase in network services costs. Costs of operations for
site rental as a percentage of site rental revenues decreased to 39.0% for 2001
from 41.3% for 2000. Costs of
11
operations for network services and other as a percentage of network services
and other revenues increased to 62.7% for 2001 from 57.8% for 2000. General and
administrative expenses for 2001 were $8.2 million, a decrease of $0.3 million
from 2000. General and administrative expenses as a percentage of revenues
decreased to 7.0% for 2001 from 8.8% for 2000. For 2001, Crown Atlantic
recorded restructuring charges and asset write-down charges of $1.0 million and
$0.8 million, respectively (see "--Restructuring Charges and Asset Write-Down
Charges"). Depreciation and amortization for 2001 was $44.3 million, an
increase of $10.9 million from 2000. Interest and other income (expense) for
2001 was $0.3 million, a decrease of $0.6 million from 2000. Interest expense
and amortization of deferred financing costs for 2001 was $20.7 million, an
increase of $2.8 million from 2000.
Corporate Office and Other. General and administrative expenses for 2001
were $15.6 million, an increase of $9.4 million from 2000. Corporate
development expenses for 2001 were $12.3 million, compared to $9.7 million for
2000. For 2001, the corporate office recorded restructuring charges and asset
write-down charges of $9.5 million and $5.8 million, respectively (see
"--Restructuring Charges and Asset Write-Down Charges"). For 2001 and 2000, the
corporate office recorded non-cash general and administrative compensation
charges of $1.4 million (see "--Compensation Charges Related to Stock Option
Grants and Acquisitions"). Depreciation and amortization for 2001 was $1.7
million, an increase of $0.4 million from 2000. Interest and other income
(expense) for 2001 was $1.1 million, a decrease of $27.1 million from 2000.
Interest expense and amortization of deferred financing costs for 2001 was
$194.4 million, an increase of $46.0 million from 2000.
Comparison of Years Ended December 31, 2001 and 2000--Consolidated
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.
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.
12
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.
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 would be recorded in 2002 for the
write-down of any 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".
13
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.
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--Operating Segments
CCUSA. CCUSA's revenues for 2000 were $329.2 million, an increase of $226.5
million from 1999. This increase was attributable to a $125.2 million, or
214.7%, increase in site rental revenues and a $101.3 million increase in
network services and other revenues. Costs of operations for 2000 were $159.8
million, an increase of $118.2 million from 1999. This increase was
attributable to a $56.1 million increase in site rental costs and a $62.1
million increase in network services costs. Costs of operations for site rental
as a percentage of site rental revenues increased to 41.9% for 2000 from 35.5%
for 1999. Costs of operations for network services and other as a percentage of
network services and other revenues increased to 57.0% for 2000 from 47.2% for
1999. General and administrative expenses for 2000 were $49.7 million, an
increase of $21.7 million from 1999. General and administrative expenses as a
percentage of revenues decreased to 15.1% for 2000 from 27.3% for 1999. For
2000, CCUSA recorded non-cash general and administrative compensation charges
of $0.8 million, compared to $0.1 million for 1999 (see "--Compensation Charges
Related to Stock Option Grants and Acquisitions"). Depreciation and
amortization for 2000 was $121.7 million, an increase of $80.5 million from
1999. Interest and other income (expense) for 2000 was $4.2 million, an
increase of $4.3 million from 1999. Interest expense and amortization of
deferred financing costs for 2000 was $43.0 million, an increase of $38.9
million from 1999.
CCUK. CCUK's revenues for 2000 were $217.7 million, an increase of $24.0
million from 1999. This increase was attributable to a $20.2 million, or 11.8%,
increase in site rental and broadcast transmission revenues and a $3.8 million
increase in network services and other revenues. Costs of operations for 2000
were $106.4
14
million, an increase of $13.4 million from 1999. This increase was attributable
to a $10.4 million increase in site rental and broadcast transmission costs and
a $3.0 million increase in network services costs. Costs of operations for site
rental and broadcast transmission as a percentage of site rental and broadcast
transmission revenues increased to 45.7% for 2000 from 45.0% for 1999. Costs of
operations for network services and other as a percentage of network services
and other revenues increased to 73.2% for 2000 from 72.0% for 1999. General and
administrative expenses for 2000 were $8.1 million, an increase of $2.4 million
from 1999. General and administrative expenses as a percentage of revenues
increased to 3.7% for 2000 from 2.9% for 1999. For 2000, CCUK recorded non-cash
general and administrative compensation charges of $1.0 million, compared to
$0.8 million for 1999 (see "--Compensation Charges Related to Stock Option
Grants and Acquisitions"). Depreciation and amortization for 2000 was $77.2
million, an increase of $13.6 million from 1999. Interest and other income
(expense) for 2000 was $0.3 million, a decrease of $0.1 million from 1999.
Interest expense and amortization of deferred financing costs for 2000 was
$32.0 million, an increase of $3.6 million from 1999.
Crown Atlantic. Crown Atlantic's revenues for 2000 were $95.5 million, an
increase of $47.6 million from 1999. This increase was attributable to a $25.9
million, or 68.9%, increase in site rental revenues and a $21.7 million
increase in network services and other revenues. Costs of operations for 2000
were $44.7 million, an increase of $23.7 million from 1999. This increase was
attributable to a $9.9 million increase in site rental costs and a $13.8
million increase in network services costs. Costs of operations for site rental
as a percentage of site rental revenues decreased to 41.3% for 2000 from 43.3%
for 1999. Costs of operations for network services and other as a percentage of
network services and other revenues increased to 57.8% for 2000 from 45.3% for
1999. General and administrative expenses for 2000 were $8.4 million, an
increase of $3.3 million from 1999. General and administrative expenses as a
percentage of revenues decreased to 8.8% for 2000 from 10.7% for 1999.
Depreciation and amortization for 2000 was $33.4 million, an increase of $9.2
million from 1999. Interest and other income (expense) for 2000 was $0.9
million, a decrease of $3.7 million from 1999. Interest expense and
amortization of deferred financing costs for 2000 was $17.9 million, an
increase of $5.7 million from 1999.
Corporate Office and Other. General and administrative expenses for 2000
were $6.3 million, an increase of $1.2 million from 1999. Corporate development
expenses for 2000 were $9.7 million, compared to $4.6 million for 1999. For
2000 and 1999, the corporate office recorded non-cash general and
administrative compensation charges of $1.4 million and $1.3 million,
respectively (see "--Compensation Charges Related to Stock Option Grants and
Acquisitions"). Depreciation and amortization for 2000 was $1.3 million, an
increase of $0.1 million from 1999. Interest and other income (expense) for
2000 was $28.2 million, an increase of $15.2 million from 1999. Interest
expense and amortization of deferred financing costs for 2000 was $148.3
million, an increase of $82.1 million from 1999.
Comparison of Years Ended December 31, 2000 and 1999--Consolidated
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,
15
(2)a $62.1 million increase in network services costs related to CCUSA,
(3)a $3.0 million increase in network services costs from CCUK, and
(4)a $13.8 million increase in network services costs from Crown Atlantic.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues increased to 43.6% for 2000
from 42.7% for 1999 because of lower margins attributable to the CCUK, CCAL and
CCUSA operations. Costs of operations for network services and other as a
percentage of network services and other revenues increased to 59.2% for 2000
from 54.3% for 1999, primarily due to lower margins from the CCUSA, CCUK and
Crown Atlantic operations.
General and administrative expenses for 2000 were $76.9 million, an increase
of $33.1 million from 1999. This increase was primarily attributable to:
(1)a $21.7 million increase in expenses related to the CCUSA operations,
(2)a $1.2 million increase in expenses at our corporate office,
(3)a $3.3 million increase in expenses at Crown Atlantic,
(4)a $2.4 million increase in expenses at CCUK, and
(5)$4.4 million in expenses at CCAL.
General and administrative expenses as a percentage of revenues decreased for
2000 to 11.8% from 12.7% for 1999 because of lower overhead costs as a
percentage of revenues for CCUSA and Crown Atlantic.
Corporate development expenses for 2000 were $10.5 million, compared to $5.4
million for 1999. This increase was primarily attributable to an increase in
expenses at our corporate office.
For 2000, we recorded non-cash general and administrative compensation
charges of $3.1 million related to the issuance of stock and stock options to
certain employees and executives, compared to $2.2 million for 1999. See
"--Compensation Charges Related to Stock Option Grants and Acquisitions".
Depreciation and amortization for 2000 was $238.8 million, an increase of
$108.7 million from 1999. This increase was primarily attributable to:
(1)a $13.6 million increase in depreciation and amortization related to the
property and equipment and goodwill from CCUK,
(2)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".
16
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.
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
17
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 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
18
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.
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
19
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.
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
========== ========== =========== ==========
20
Three Months Ended December 31, 2001 Year Ended December 31, 2001
------------------------------------- -------------------------------------
Company Company
and 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)
======== ======== ========= ========= ======== =========
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 1999, 2000
1998 and 2001
Securities 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
21
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 ($13.9 million) and
costs of office closures ($5.5 million).
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 ($11.9
million), property and equipment ($8.5 million), and other assets ($4.5
million) that were deemed to have no value as a result of the restructuring.
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 would be recorded in 2002
for the write-down of any 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.
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.
22
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 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.
23
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."
24
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............................................................. 26
Consolidated Balance Sheet as of December 31, 2000 and 2001.......................................... 27
Consolidated Statement of Operations and Comprehensive Loss for each of the three years in the period
ended December 31, 2001............................................................................ 28
Consolidated Statement of Cash Flows for each of the three years in the period ended December 31,
2001............................................................................................... 29
Consolidated Statement of Stockholders' Equity for each of the three years in the period ended
December 31, 2001.................................................................................. 30
Notes to Consolidated Financial Statements........................................................... 31
25
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
26
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.
27
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.
28
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.
29
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands of dollars, except share amounts)
Class A Common
Common Stock Stock
------------------ ------------------ Additional
($.01 ($.01 Paid-In
Shares Par) Shares Par) Capital
----------- ------ ----------- ----- ----------
Balance, January 1, 1999.......................................... 83,123,873 $ 831 11,340,000 $ 113 $ 795,153
Issuances of capital stock and warrants........................ 62,951,032 630 -- -- 1,007,947
Non-cash general and administrative compensation
charges........................................................ -- -- -- -- 1,953
Foreign currency translation adjustments....................... -- -- -- -- --
Dividends on preferred stock................................... -- -- -- -- --
Net loss....................................................... -- -- -- -- --
----------- ------ ----------- ----- ----------
Balance, December 31, 1999........................................ 146,074,905 1,461 11,340,000 113 1,805,053
Conversion of Class A Common Stock to Common Stock............. 11,340,000 113 (11,340,000) (113) --
Issuances of capital stock..................................... 40,636,221 406 -- -- 1,061,861
Non-cash general and administrative compensation
charges........................................................ -- -- -- -- 2,248
Foreign currency translation adjustments....................... -- -- -- -- --
Dividends on preferred stock................................... 860,968 9 -- -- 24,933
Net loss....................................................... -- -- -- -- --
----------- ------ ----------- ----- ----------
Balance, December 31, 2000........................................ 198,912,094 1,989 -- -- 2,894,095
Issuances of capital stock..................................... 16,710,505 167 -- -- 359,847
Non-cash general and administrative compensation
charges........................................................ -- -- -- -- 4,228
Foreign currency translation adjustments....................... -- -- -- -- --
Derivative instruments:
Net change in fair value of cash flow hedging
instruments................................................ -- -- -- -- --
Amounts reclassified into results of operations.............. -- -- -- -- --
Cumulative effect of change in accounting principle for
derivative financial instruments........................... -- -- -- -- --
Dividends on preferred stock................................... 3,181,764 32 -- -- 42,853
Net loss....................................................... -- -- -- -- --
----------- ------ ----------- ----- ----------
Balance, December 31, 2001........................................ 218,804,363 $2,188 -- $ -- $3,301,023
=========== ====== =========== ===== ==========
Accumulated Other
Comprehensive Income
(Loss)
----------------------
Foreign
Currency
Translation Derivative Accumulated
Adjustments Instruments Deficit Total
----------- ----------- ----------- ----------
Balance, January 1, 1999.......................................... $ 1,690 $ -- $ (60,225) $ 737,562
Issuances of capital stock and warrants........................ -- -- -- 1,008,577
Non-cash general and administrative compensation
charges........................................................ -- -- -- 1,953
Foreign currency translation adjustments....................... (4,703) -- -- (4,703)
Dividends on preferred stock................................... -- -- (28,881) (28,881)
Net loss....................................................... -- -- (96,761) (96,761)
-------- -------- --------- ----------
Balance, December 31, 1999........................................ (3,013) -- (185,867) 1,617,747
Conversion of Class A Common Stock to Common Stock............. -- -- -- --
Issuances of capital stock..................................... -- -- -- 1,062,267
Non-cash general and administrative compensation
charges........................................................ -- -- -- 2,248
Foreign currency translation adjustments....................... (22,087) -- -- (22,087)
Dividends on preferred stock................................... -- -- (59,469) (34,527)
Net loss....................................................... -- -- (204,786) (204,786)
-------- -------- --------- ----------
Balance, December 31, 2000........................................ (25,100) -- (450,122) 2,420,862
Issuances of capital stock..................................... -- -- -- 360,014
Non-cash general and administrative compensation
charges........................................................ -- -- -- 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................................... -- -- (79,028) (36,143)
Net loss....................................................... -- -- (366,167) (366,167)
-------- -------- --------- ----------
Balance, December 31, 2001........................................ $(35,254) $ (7,992) $(895,317) $2,364,648
======== ======== ========= ==========
See notes to consolidated financial statements.
30
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,
31
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.
32
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
33
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
34
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
35
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 BAM's
36
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
37
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.
38
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:
December 31,
Estimated ------------------------
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
39
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.
40
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
41
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.
42
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.
43
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.
44
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)
======== ======== ========= ========= ======== =========
45
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.
46
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
======== ========= =========
47
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 $926,343,000 which are available to offset future federal taxable
income. These loss carryforwards will expire in 2010 through 2021. The
utilization of the loss carryforwards is subject to certain limitations.
6. Minority Interests
Minority interests represent the minority shareholder's 20% interest in CCUK
(prior to July 2000), the minority partner's 43.1% interest in Crown Atlantic,
the minority partner's 17.8% interest in Crown Castle GT and the minority
shareholder's 22.4% interest in CCAL.
48
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Redeemable Preferred Stock
Redeemable preferred stock ($.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
49
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.
50
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
51
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.
52
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%
53
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. A summary of information concerning the plan is as
follows:
54
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended
December 31,
----------------
2000 2001
------- -------
(In thousands of
dollars)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year. $18,169 $21,505
Service cost...................................... 2,835 2,621
Interest cost..................................... 1,122 1,267
Participant contributions......................... 940 864
Actuarial (gain) loss............................. -- 3,327
Benefit payments.................................. (152) (101)
Effect of exchange rate changes................... (1,409) (513)
------- -------
Projected benefit obligation at end of year....... 21,505 28,970
------- -------
Change in fair value of plan assets:
Fair value of plan assets at beginning of year.... 22,449 23,599
Actual return on plan assets...................... (728) (3,067)
Employer contributions............................ 2,789 2,592
Participant contributions......................... 940 864
Benefit payments.................................. (152) (101)
Effect of exchange rate changes................... (1,699) (647)
------- -------
Fair value of plan assets at end of year.......... 23,599 23,240
------- -------
Funded status:
Funded status at end of year...................... 2,094 (5,730)
Unrecognized actuarial (gain) loss................ (269) 7,911
------- -------
Prepaid pension cost.............................. $ 1,825 $ 2,181
======= =======
Years Ended December 31,
-------------------------
1999 2000 2001
------- ------- -------
(In thousands of dollars)
Components of net periodic pension cost:
Service cost............................ $ 3,802 $ 3,032 $ 2,808
Interest cost........................... 906 1,137 1,267
Expected return on plan assets.......... (1,116) (1,608) (1,713)
Amortization of actuarial (gain) loss... -- (45) --
------- ------- -------
Net periodic pension cost............... $ 3,592 $ 2,516 $ 2,362
======= ======= =======
Assumptions used:
Discount rate........................... 5.00% 6.00% 5.75%
Expected rate of return on plan assets.. 6.00% 7.00% 7.00%
Rate of increase in compensation levels. 3.50% 4.00% 3.75%
55
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.
56
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, as adjusted ("Adjusted
EBITDA"). The Company defines Adjusted EBITDA as operating income (loss) plus
depreciation and amortization, non-cash general and administrative compensation
charges, asset write-down charges and restructuring charges. Adjusted EBITDA is
not intended as an alternative measure of operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles), and the Company's measure of Adjusted EBITDA may not be comparable
to similarly titled measures of other companies. There are no significant
revenues resulting from transactions between the Company's operating segments.
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 and Consolidated
CCUSA CCAL CCUK Atlantic 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
---------- -------- ---------- -------- --------- ----------
Adjusted 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
========== ======== ========== ======== ========= ==========
57
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Year Ended December 31, 2000
------------------------------------------------------------------
Corporate
Crown Office and Consolidated
CCUSA CCAL CCUK Atlantic 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
---------- -------- ---------- -------- --------- ----------
Adjusted 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 Consolidated
CCUSA CCUK Atlantic and Other Total
-------- -------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast transmission................... $ 58,293 $171,981 $ 37,620 $ -- $ 267,894
Network services and other............................... 44,413 21,713 10,268 1,471 77,865
-------- -------- -------- -------- ---------
102,706 193,694 47,888 1,471 345,759
-------- -------- -------- -------- ---------
Costs of operations (exclusive of depreciation and
amortization)............................................... 41,648 93,058 20,953 1,089 156,748
General and administrative................................... 27,988 5,625 5,146 5,064 43,823
Corporate development........................................ -- 819 -- 4,584 5,403
-------- -------- -------- -------- ---------
Adjusted 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
======== ======== ======== ======== =========
58
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 Other Total
States and United Foreign Foreign Consolidated
Puerto 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 Other Total
States and United Foreign Foreign Consolidated
Puerto 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.
59
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. A summary of the restructuring
charges by operating segment is as follows:
Year Ended December 31, 2001
-------------------------------------------------
Corporate
Crown Office and Consolidated
CCUSA CCUK Atlantic Other Total
------- ------- -------- ---------- ------------
(In thousands of dollars)
Amounts charged to expense:
Employee severance................ $ 2,672 $ 1,839 $ 665 $ 8,730 $ 13,906
Costs of office closures and other 4,470 -- 304 736 5,510
------- ------- ----- ------- --------
Total restructuring charges..... 7,142 1,839 969 9,466 19,416
------- ------- ----- ------- --------
Amounts paid:
Employee severance................ (1,546) (1,482) (435) (5,162) (8,625)
Costs of office closures and other (3,395) -- (69) (736) (4,200)
------- ------- ----- ------- --------
(4,941) (1,482) (504) (5,898) (12,825)
------- ------- ----- ------- --------
Amounts accrued at end of year:
Employee severance................ 1,126 357 230 3,568 5,281
Costs of office closures and other 1,075 -- 235 -- 1,310
------- ------- ----- ------- --------
$ 2,201 $ 357 $ 465 $ 3,568 $ 6,591
======= ======= ===== ======= ========
60
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 that were deemed to have no value as a
result of the restructuring. A summary of the asset write-down charges by
operating segment is as follows:
Year Ended December 31, 2001
-----------------------------------------------
Corporate
Crown Office and Consolidated
CCUSA CCUK Atlantic Other Total
------ ------- -------- ---------- ------------
(In thousands of dollars)
Inventories........... $ -- $11,898 $ -- $ -- $11,898
Property and equipment 6,501 -- 767 1,226 8,494
Other assets.......... -- -- -- 4,530 4,530
------ ------- ----- ------ -------
$6,501 $11,898 $ 767 $5,756 $24,922
====== ======= ===== ====== =======
61
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
--------------------------------------------------
September December
March 31 June 30 30 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)
62
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/A-1 to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 12th day of August, 2002.
CROWN CASTLE INTERNATIONAL CORP.
By: /s/ W. BENJAMIN MORELAND
-----------------------------
W. Benjamin Moreland
Senior Vice President, Chief
Financial Officer and Treasurer
POWER OF ATTORNEY
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/A-1 has been
signed below by the following persons in the capacities indicated below on this
12th day of August, 2002.
Signature Title
--------- -----
/s/ JOHN P. KELLY President, Chief Executive
----------------------------- Officer and Director
John P. Kelly (Principal Executive
Officer)
/s/ W. BENJAMIN MORELAND Senior Vice President,
----------------------------- Chief Financial
W. Benjamin Moreland Officer and Treasurer
(Principal Financial
Officer)
/s/ WESLEY D. CUNNINGHAM Senior Vice President,
----------------------------- Chief Accounting Officer
Wesley D. Cunningham and Corporate
Controller (Principal
Accounting Officer)
----------------------------- Director
Carl Ferenbach
/s/ RANDALL A. HACK Director
-----------------------------
Randall A. Hack
/s/ DALE N. HATFIELD Director
-----------------------------
Dale N. Hatfield
63
Signature Title
--------- -----
/s/ LEE W. HOGAN Director
-----------------------------
Lee W. Hogan
/s/ EDWARD C. HUTCHESON, JR. Director
-----------------------------
Edward C. Hutcheson, Jr.
/s/ J. LANDIS MARTIN Chairman of the Board
-----------------------------
J. Landis Martin
/s/ ROBERT F. MCKENZIE Director
-----------------------------
Robert F. McKenzie
/s/ WILLIAM D. STRITTMATTER Director
-----------------------------
William D. Strittmatter
Certification Pursuant to
18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K/A of Crown Castle
International Corp., a Delaware Corporation (the "Company"), for the period
ending December 31, 2001 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), each of the undersigned officers of the
Company hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of
such officer's knowledge:
1) the Report complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company as of December 31, 2001 (the last date of the period covered by
the Report).
/s/ JOHN P. KELLY
-----------------------------
John P. Kelly
President and Chief Executive
Officer
August 12, 2002
/s/ W. BENJAMIN MORELAND
-----------------------------
W. Benjamin Moreland
Senior vice President, Chief
Financial
Officer and Treasurer
August 12, 2002
64