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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission File Number 000-24737
CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 76-0470458
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
510 BERING DRIVE 77057-1457
SUITE 500 (Zip Code)
HOUSTON, TEXAS
(Address of principal executive offices)
(713) 570-3000
(Registrant's telephone number, including area code)
Title of Each Class of Securities
Registered Pursuant to Section 12(g) Name of Exchange
of the Securities Exchange Act of 1934 on Which Registered
- -------------------------------------------- -----------------------------------------
Common Stock, $.01 par value The NASDAQ Stock Market's National Market
Rights to Purchase Series A Participating The NASDAQ Stock Market's National Market
Cumulative Preferred Stock
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE SECURITIES EXCHANGE ACT
OF 1934: NONE.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $4,054.4 million as of March 15, 2000 based on
the NASDAQ closing price of $40.06 per share.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of March 15, 2000, there were 148,543,682 shares of Common Stock
outstanding and 11,340,000 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 "2000
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, 1999.
CROWN CASTLE INTERNATIONAL CORP.
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business............................................................................... 1
Item 2. Properties............................................................................. 34
Item 3. Legal Proceedings...................................................................... 35
Item 4. Submissions of Matters to a Vote of Security Holders................................... 35
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 36
Item 6. Selected Historical Financial Data..................................................... 36
Item 7. Management's Discussion and Analysis of Results of Operations and Financial
Condition........................................................................... 38
Item 7A. Qualitative and Quantitative Disclosures about Market Risks............................ 54
Item 8. Financial Statements and Supplementary Data............................................ 56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 90
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 91
Item 11. Executive Compensation................................................................. 91
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 91
Item 13. Certain Relationships and Related Transactions......................................... 91
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................... 92
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a leading owner and operator of towers and transmission networks for
wireless communications and broadcast transmission companies. As of December 31,
1999, we owned, leased or managed 7,488 towers, including 5,319 towers in the
United States and Puerto Rico and 2,071 towers in the United Kingdom. We have
entered into agreements, which, when completed, will provide us with over 2,700
additional towers in the United States in 2000. In addition, we have recently
entered into an agreement which is contemplated to close in the second quarter
of 2000 and which will provide us with a tower portfolio of approximately 705
towers in Australia. Our customers currently include many of the world's major
wireless communications and broadcast companies, including Bell Atlantic Mobile,
BellSouth, AT&T Wireless, Nextel, Metricom and the British Broadcasting
Corporation.
Our strategy is to use our leading domestic and international position to
capture the growing opportunities to consolidate ownership and management of
existing towers and other wireless and transmission infrastructure and to build
and operate new towers and wireless and transmission networks and infrastructure
created by:
. the transfer to third parties, or outsourcing, of tower ownership and
management by major wireless carriers;
. the need for existing wireless carriers to expand coverage and improve
capacity;
. the additional demand for towers and wireless infrastructure created by
new entrants into the wireless communications industry;
. the privatization of state-run broadcast transmission networks; and
. the introduction of new digital broadcast transmission technology and
wireless technologies.
Our main businesses are leasing antenna space on wireless and broadcast
towers that can accommodate multiple tenants and operating analog and digital
broadcast transmission networks and wireless networks. We also provide related
services to our customers, including network design, radio frequency
engineering, site acquisition, site development and construction, antenna
installation and network management and maintenance. We believe that our full
service capabilities are a key competitive advantage in forming strategic
partnerships to acquire large concentrations of towers, or tower clusters, and
in winning contracts for tower acquisitions, management and construction along
with wireless and transmission network management.
Our primary business in the United States is the leasing of antenna space to
wireless carriers. We believe that by owning and managing large tower clusters
we are able to offer customers the ability to fulfill rapidly and efficiently
their network expansion plans across particular markets or regions. Our
acquisition strategy has been focused on adding tower clusters to our tower
portfolio. As of December 31, 1999, we had tower clusters in 34 of the 50
largest U.S. metropolitan areas, and 68 of the 100 largest U.S. metropolitan
areas.
Our primary business in the United Kingdom is the operation of television and
radio broadcast transmission networks. Following the 1997 acquisition of the
BBC's broadcast and tower infrastructure, we were awarded long-term contracts to
provide the BBC and other broadcasters analog and digital transmission services.
We also lease antenna space to wireless operators in the United Kingdom on the
towers we acquired from the BBC and from various wireless carriers along with
towers we have constructed. We have nationwide broadcast and wireless coverage
in the United Kingdom.
Upon consummation of the agreement with Cable & Wireless Optus, we anticipate
that our primary business in Australia will be the leasing of antenna space to
wireless carriers. Upon completion of the Cable & Wireless Optus transaction,
Crown Castle Australia will own and operate a nationwide tower portfolio
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of approximately 700 towers in Australia covering over 90 percent of the
population. See "--Recent and Agreed To Transactions--Cable & Wireless Optus
Transaction".
We believe our towers are attractive to a diverse range of wireless
communications industries, including personal communications services, cellular,
enhanced specialized mobile radio, specialized mobile radio, paging, and fixed
microwave, as well as radio and television broadcasting. In the United States
our major customers include AT&T Wireless, Aerial, Bell Atlantic Mobile,
BellSouth, Motorola, Nextel, PageNet, Metricom and Sprint PCS. In the United
Kingdom our major customers include the BBC, Cellnet, Dolphin, NTL, ONdigital,
One2One, Orange, Virgin Radio and Vodafone AirTouch.
We are continuing our ongoing construction program to enhance our tower
portfolios. In 1999, we constructed over 900 towers. In 2000, we plan to
construct approximately 1,170 towers, at an estimated aggregate cost of
approximately $270 million, for lease to wireless carriers such as Bell Atlantic
Mobile, BellSouth, GTE Wireless and Nextel. The actual number of towers built
may be outside that range depending on acquisition opportunities and potential
build-to-suit contracts from large wireless carriers.
GROWTH STRATEGY
Our objective is to become the premier global owner and operator of tower and
transmission networks for wireless communications and broadcast companies. We
believe our experience in expanding and marketing our tower clusters, as well as
our experience in owning and operating analog and digital transmission networks,
positions us to accomplish this objective. The key elements of our business
strategy are to:
. MAXIMIZE UTILIZATION OF OUR TOWER CAPACITY. We are seeking to take
advantage of the substantial operating leverage of our site rental
business by increasing the number of antenna leases on our owned and
managed communications sites. Many of our towers have significant
capacity available for additional antenna space rental and that
increased utilization of our tower capacity can be achieved at low
incremental cost. We believe there is substantial demand for such
capacity from existing carriers and broadcasters and new carriers and
broadcasters. We believe that the extra capacity on our tower portfolios
will be highly desirable to new entrants into the wireless
communications industry. Such carriers are able to launch service
quickly and relatively inexpensively by designing the deployment of
their networks based on our attractive existing tower portfolios.
Further, we intend to continue to selectively build and acquire
additional towers to improve the coverage of our existing tower
portfolios to further increase their attractiveness. We intend to
continue to use targeted sales and marketing techniques to increase
utilization of and investment return on our existing, newly constructed
and acquired towers.
. UTILIZE THE EXPERTISE OF OUR U.S. AND U.K. PERSONNEL TO CAPTURE GLOBAL
GROWTH OPPORTUNITIES. We are seeking to leverage the skills of our
personnel in the United States and the United Kingdom. We believe that
our ability to manage networks, including the transmission of signals,
will be an important competitive advantage in our pursuit of global
growth opportunities, as evidenced by our transactions with the BBC,
One2One, Bell Atlantic Mobile, BellSouth, GTE and Powertel and our
agreement to acquire and operate the tower network of Cable & Wireless
Optus in Australia. With our wireless communications and broadcast
transmission network design and radio frequency engineering expertise,
we are well positioned to (1) partner with major wireless carriers to
assume ownership of their existing towers; (2) provide build-to-suit
towers for wireless carriers and broadcasters; (3) acquire existing
broadcast transmission networks that are being privatized around the
world (4) manage and operate wireless networks; and (5) deploy new
wireless technologies.
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. PARTNER WITH WIRELESS CARRIERS TO ASSUME OWNERSHIP OF THEIR EXISTING
TOWERS. In addition to the joint ventures with Bell Atlantic Mobile and
GTE Wireless and the BellSouth and BellSouth DCS transactions, we are
continuing to seek to partner with other major wireless carriers to
assume ownership of their existing towers directly or through joint
ventures or control their towers through contractual arrangements. We
believe the primary criteria of such carriers in selecting a company to
own and operate their wireless communications infrastructure is the
company's perceived capability to maintain the integrity of their
networks, including their transmission signals. Therefore, we believe
that those companies with a proven track record of providing end-to-end
services will be best positioned to successfully acquire access to such
wireless communications infrastructure. We believe that similar
opportunities will arise globally as the wireless communications
industry further expands, as evidenced by our agreement to acquire and
operate the tower network of with Cable & Wireless Optus in Australia
and the turnkey deployment of One2One's wireless network in Northern
Ireland.
. BUILD NEW TOWERS FOR WIRELESS CARRIERS AND BROADCASTERS. As wireless
carriers continue to expand and fill-in their service areas and deploy
new technologies, they will require additional communications sites and
will have to build new towers where multi-tenant towers are not
available. We are pursuing these build-to-suit opportunities to build
new towers for wireless carriers, leveraging on our ability to offer a
wide range of related services.
. ACQUIRE EXISTING BROADCAST TRANSMISSION NETWORKS. In 1997, Crown Castle
UK Limited successfully acquired the privatized domestic broadcast
transmission network of the BBC. In addition, we are implementing the
roll-out of digital television transmission services throughout the
United Kingdom. As a result of this experience, we are well positioned
to acquire other state-owned analog and digital broadcast transmission
networks globally when opportunities arise. These state-owned broadcast
transmission networks typically enjoy premier sites giving an acquirer
the ability to offer unused antenna capacity to new and existing radio
and television broadcasters and wireless carriers, as well as to install
new technologies such as digital terrestrial transmission services. In
addition, our experience in broadcast transmission services allows us to
consider, when attractive opportunities arise, acquiring wireless
transmission networks as well as associated wireless communications
infrastructure. We are currently pursuing certain international
acquisition and privatization opportunities.
. CONTINUE TO DECENTRALIZE OUR MANAGEMENT FUNCTIONS. In order to better
manage our tower lease-up efforts and build-out programs, and in
anticipation of the continued growth of our tower footprint throughout
the United States, we have begun and plan to continue decentralizing
some management and operational functions. To that end, in addition to
our Pittsburgh operating headquarters and regional office, we have
opened and staffed 17 regional offices, including Boston, Washington
D.C., Philadelphia, Atlanta, Birmingham, Boca Raton, Charlotte, Houston,
Louisville, Phoenix, Albany and Puerto Rico. The principal
responsibilities of these offices are to manage the leasing of tower
space on a regional basis through a dedicated local sales force, to
maintain the towers already located in the region and to implement our
build-to-suit commitments in the area. We believe that by moving a
significant amount of our operating personnel to regional offices we
will be better able to strengthen our relationship with regional
carriers, serve our customers more effectively and identify additional
build-to-suit opportunities with local and regional carriers.
THE COMPANY
We operate our business through our subsidiaries. Crown Communication, Crown
Castle South, Crown Castle PT and the Bell Atlantic and GTE Wireless joint
ventures are our principal U.S. operating subsidiaries and Crown Castle UK
Limited is our principal U.K. operating subsidiary. Crown Castle Australia, a
joint venture between us and an investment group lead by Fay, Richwhite
Communications
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Ltd. is anticipated to be our principal operating subsidiary in Australia. We
also use subsidiaries to hold the assets we acquire or control as a result of
various transactions we may engage in from time to time.
U.S. OPERATIONS
Overview
Our primary business focus in the United States is the leasing of antenna
space on multiple tenant towers to a variety of wireless carriers under long-
term lease contracts. Supporting our competitive position in the site rental
business, we maintain in-house expertise in, and offer our customers,
infrastructure and network support services that include network design and site
selection, site acquisition, site development and construction and antenna
installation.
We lease antenna space to our customers on our owned, leased and managed
towers. We generally receive fees for installing customers' equipment and
antennas on a tower and also receive monthly rental payments from customers
payable under site rental leases that generally range in length from three to
five years. Our U.S. customers include such companies as AT&T Wireless, Aerial
Communications, AirTouch Cellular, Arch Communications, Bell Atlantic Mobile,
BellSouth Mobility, BellSouth DCS Cellular One, Federal Express, Lucent
Technologies, Motorola, Nextel, Nokia, PageNet, Powertel, Skytel, Sprint PCS,
Metricom, GTE Wireless and TSR Wireless. We also provide tower space to private
network operators and various federal and local government agencies, such as the
FBI, the IRS and the U.S. Postal Service.
At December 31, 1999, we owned or managed 5,319 towers and 98 rooftop sites
in the United States and Puerto Rico. These towers and rooftop sites are
located predominantly in the eastern, midwestern and southwestern United States,
along with Puerto Rico. We have recently acquired and will acquire a substantial
number of towers through our recent and agreed to transactions. See "--Recent
and Agreed to Transactions."
The joint venture with Bell Atlantic controls and operates 1,531 towers as of
December 31, 1999. These towers represent substantially all the towers in Bell
Atlantic's 850 MHz wireless network in the eastern and southwestern United
States and provide coverage of 11 of the top 50 U.S. metropolitan areas
including New York, Philadelphia, Boston, Washington, D.C. and Phoenix. A
substantial majority of these towers are over 100 feet tall and can accommodate
multiple tenants.
After completion of the BellSouth transaction, we will control and operate
approximately 1,850 towers in the BellSouth tower portfolio. As of February 2,
2000, we had acquired control of 1,664 of these towers, and we expect to close
on the balance by June 30, 2000. These towers represent substantially all the
towers in BellSouth's 850 MHZ wireless network in the southeastern and
midwestern United States and provide coverage of 12 of the top 50 U.S.
metropolitan areas, including Miami, Atlanta, Tampa, Nashville and Indianapolis.
A substantial majority of these towers are over 100 feet tall and can
accommodate multiple tenants.
Through the Powertel acquisition, we now control and operate 650 towers.
These towers represent substantially all of Powertel's owned towers in its 1.9
GHz wireless network in the southeastern and midwestern United States.
Approximately 90% of these towers are clustered in seven southeastern states
providing coverage of such metropolitan areas as Atlanta, Birmingham,
Jacksonville, Memphis and Louisville, and a number of major connecting highway
corridors in the southeast. These towers are complementary to BellSouth's 850
MHZ tower portfolio in the southeast and have minimal coverage overlap.
Substantially all of these towers are over 100 feet tall, were built within the
last three years and can accommodate multiple tenants.
After completion of the BellSouth DCS transaction, we will control and
operate approximately 773 communications towers out of the BellSouth DCS
portfolio located in North Carolina, South Carolina, east Tennessee and parts of
Georgia. As of February 2, 2000, we had acquired control of 674 of these towers,
and we expect to close on the balance by June 30, 2000. These towers represent
substantially all of the towers in BellSouth DCS's 1.9
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GHz wireless network. The towers are complementary to the towers we have
acquired or are in the process of acquiring through the BellSouth transaction
and the Powertel acquisition. Substantially all of these towers are over 100
feet tall and can accommodate multiple tenants.
Upon completion of all of the anticipated closings for the GTE Wireless
transaction, the GTE joint venture will control and operate approximately 2,300
towers. As of January 31, 2000, the GTE joint venture had acquired control of
637 of these towers. We contemplate closing with respect to approximately 1,600
additional towers effective as of April 1, 2000. These towers represent a
significant majority of the wireless communications towers of GTE Wireless. See
"--Recent and Agreed to Transactions".
We are seeking to enter into arrangements with other wireless carriers and
independent tower operators to acquire additional tower portfolios. However, we
believe that acquisitions from major carriers in the United States, such as the
Bell Atlantic Mobile, BellSouth, Powertel and GTE Wireless transactions, are
substantially complete.
We also seek to capitalize on our network design expertise to construct new
towers. We plan to continue to build towers in areas where carriers' signals
fail to transmit in their coverage area. The areas, commonly known as "dead
zones," are attractive tower locations. When population density and perceived
demand are such that we believe the economics of constructing such towers are
justified, we build towers that can accommodate multiple tenants. The multiple
tenant design of these towers obviates the need for expensive and time consuming
modifications to upgrade undersized towers, saving critical capital and time for
carriers facing time-to-market constraints. The towers are also designed to
easily add additional customers, and the equipment shelters are built to
accommodate another floor for new equipment and air conditioning units when
additional capacity is needed. The tower site is zoned for multiple carriers at
the time the tower is constructed to allow new carriers to quickly utilize the
site. In addition, the towers, equipment shelters and site compounds are
engineered to protect and maintain the structural integrity of the site.
In connection with the Bell Atlantic joint venture and GTE joint venture,
each of those joint ventures entered into master build-to-suit agreements under
which the joint venture will build and own the next 500 towers to be built for
the wireless communications business of Bell Atlantic and GTE Wireless,
respectively, over a five-year period. In addition, following the building of
such 500 sites, the Bell Atlantic joint venture will have a right of first
refusal to construct the next 200 towers to be built for Bell Atlantic. The
number of towers built under the GTE build-to-suit agreement is reduced by the
number of certain towers built for Bell Atlantic and other carriers. Further, we
have entered into similar agreements with BellSouth, as part of the BellSouth
transaction, to construct at least 500 towers on behalf of BellSouth in the
region covered by that transaction over the next five years, and we have a
build-to-suit agreement with Powertel through 2000 as to a minimum of 40 towers.
Site Rental
In the United States, we rent antenna space on our owned and managed towers
and rooftops to a variety of carriers operating cellular, personal
communication services, specialized mobile radio, enhanced specialized mobile
radio, paging and other networks.
Tower Site Rental. We lease space to our customers on our owned and managed
towers. We generally receive fees for installing customers' equipment and
antennas on a tower and also receive monthly rental payments from customers
payable under site leases. In the United States, the majority of our outstanding
customer leases, and the new leases typically entered into by us, have original
terms of five years (with three or four optional renewal periods of five years
each) and provide for annual price increases based on the Consumer Price Index.
The lease agreements relating to network acquisitions generally have a base term
of 10 years, with multiple renewal options, each typically ranging from five to
ten years.
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We also provide a range of site maintenance services in order to support and
enhance our site rental business. We believe that by offering services such as
antenna, base station and tower maintenance and security monitoring, we are able
to offer quality services to retain our existing customers and attract future
customers to our communication sites. We were the first site management company
in the United States selected by a major wireless communications company to
exclusively manage its tower network and market the network to other carriers
for multi-tenant use of their towers.
We have existing master lease agreements with most major wireless carriers,
including AT&T Wireless, Aerial Communications, Bell Atlantic Mobile, Nextel,
Metricom, GTE Wireless and Sprint PCS, which provide certain terms (including
economic terms) that govern new leases entered into by such parties during the
term of their master lease agreements. We believe that our strategic clusters of
towers will cause the master lease agreements to cover numerous towers as both
incumbent and insurgent carriers expand. These master lease agreements typically
have an initial lease term of ten years, with multiple renewal options, each
typically ranging from five to ten years.
We have significant site rental opportunities in connection with our recent
transactions as a result of the fact that such transactions usually involve a
master lease agreement of some type with the transferring carrier and the
opportunity to lease additional space with other carriers. In connection with
each of the Bell Atlantic and GTE joint ventures, we entered into a global lease
under which Bell Atlantic and GTE Wireless lease antenna space on the towers
transferred to the joint ventures, as well as the towers built under the build-
to-suit agreement. In connection with the BellSouth and BellSouth DCS
transactions, we are paid a monthly site maintenance fee from BellSouth for its
use or maintenance of space on the towers we control. Further, in connection
with the Powertel acquisition, we entered into an agreement under which the
sellers rent space on the towers we acquired from them. In each of these
transactions, we are permitted to lease additional space on the towers to third
parties. See "--Recent and Agreed to Transactions".
Rooftop Site Rental. We are a leading rooftop site management company in the
United States. Through our subsidiary, Spectrum, we develop new sources of
revenue for building owners by effectively managing all technical aspects of
rooftop telecommunications, including two-way radio systems, microwave
facilities, fiber optics, wireless cable, paging, rooftop infrastructure
services and optimization of equipment location. We also handle billing and
collections and all calls and questions regarding the site, totally relieving
the building's management of this responsibility. In addition to the technical
aspects of site management, we provide operational support for both wireless
carriers looking to build out their wireless networks, and building owners
seeking to out source their site rental activities. We generally enter into
management agreements with building owners and receive a percentage of the
revenues generated from the tenant license agreements.
Network Services
We design, build and operate our own communication sites. We have developed
an in-house expertise in certain value-added services that we offer to the
wireless communications and broadcasting industries. Because we are a provider
of total systems with "end-to-end" design, construction and operating expertise,
we offer our customers the flexibility of choosing between the provision of a
full ready-to-operate network infrastructure or any of the component services
involved therein. Such services include network design and site selection, site
acquisition, site development and construction and antenna installation.
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Network Design and Site Selection. We have extensive experience in network
design and engineering and site selection. While we maintain sophisticated
network design services primarily to support the location and construction of
our multiple tenant towers, we do from time to time provide network design and
site selection services to carriers and other customers on a consulting contract
basis. Our network design and site selection services provide our customers with
relevant information, including recommendations regarding location and height of
towers, appropriate types of antennas, transmission power and frequency
selection and related fixed network considerations. In 1999, we provided network
design services primarily for our own portfolios and also for certain customers,
including Triton Communications, Nextel, Aerial Communications, Bell Atlantic
and Sprint PCS. These customers were typically charged on a time and materials
basis.
To capitalize on the growing concerns over tower proliferation, we have
developed a program through which we are attempting to form strategic alliances
with local governments to create a single communications network in their
communities. To date our efforts have focused on select locations in the eastern
United States, where we have formed alliances with three municipalities. These
alliances are intended to accommodate wireless carriers and local public safety,
emergency services and municipal services groups as part of an effort to
minimize tower proliferation. By promoting towers designed for multiple tenants,
these alliances will reduce the number of towers in communities while serving
the needs of wireless carriers and wireless customers.
Site Acquisition. In the United States, we are engaged in site acquisition
services for our own purposes and for third parties. Based on data generated in
the network design and site selection process, a "search ring," generally of a
one-mile radius, is issued to the site acquisition department for verification
of possible land purchase or lease deals within the search ring. Within each
search ring, Geographic Information Systems specialists select the most suitable
sites, based on demographics, traffic patterns and signal characteristics. Once
a site is selected and the terms of an option to purchase or lease the site are
completed, a survey is prepared and the resulting site plan is created. The
plan is then submitted to the local zoning/planning board for approval. If the
site is approved, our construction department takes over the process of
constructing the site.
We have provided site acquisition services to numerous customers, including
AT&T Wireless, Aerial Communications, AirTouch Cellular, Bell Atlantic Mobile,
BellSouth, GTE, Nextel, Omnipoint, Pagemart, Sprint PCS and Teligent. These
customers engage us for such site acquisition services on either a fixed price
contract or a time and materials basis.
Site Development and Construction and Antenna Installation. We have provided
site development and construction and antenna installation services to the U.S.
communications industry for over 18 years. We have extensive experience in the
development and construction of tower sites and the installation of antenna,
microwave dishes and electrical and telecommunications lines. Our site
development and construction services include clearing sites, laying foundations
and electrical and telecommunications lines, and constructing equipment shelters
and towers. We have designed and built and presently maintain tower sites for a
number of our wireless communications customers and a substantial part of our
own tower network. We can provide cost-effective and timely completion of
construction projects in part because our site development personnel are cross-
trained in all areas of site development, construction and antenna installation.
We generally set prices for each site development or construction service
separately. Customers are billed for these services on a fixed price or time and
materials basis and we may negotiate fees on individual sites or for groups of
sites. We have the capability, expertise and contractual arrangements to install
antenna systems for our paging, cellular, personal communications services,
specialized mobile radio, enhanced specialized mobile radio, microwave and
broadcasting customers. As this service is performed, we use our technical
expertise to ensure that there is no interference with other tenants. We
typically bill for our antenna installation services on a fixed price basis.
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Our construction management capabilities reflect our extensive experience in
the construction of networks and towers. For example, Crown Communication was
instrumental in launching networks for Sprint PCS, Nextel and Aerial
Communications in the Pittsburgh major trading area. In addition, Crown
Communication supplied these carriers with all project management and
engineering services which included antenna design and interference analyses.
In 1999, we provided site development and construction and antenna
installation services to a majority of our new tower site tenants in the United
States, including AT&T Wireless, Bell Atlantic Mobile, Nextel and Sprint PCS.
Broadcast Site Rental and Services
We also provide site rental and related services to customers in the
broadcasting industry in the United States. The launch of digital terrestrial
television in the United States will require significant expansion and
modification of the existing broadcast infrastructure. Because of the
significant cost involved and expertise required in the construction or
modification of broadcast towers, and the large capital expenditures
broadcasters will incur in acquiring digital broadcast equipment, we believe
that the television broadcasting industry will seek to outsource significant
services relating to digital broadcasting and potentially tower ownership. We
believe that our experience in providing digital transmission services in the
United Kingdom will make us an attractive provider of certain digital broadcast
services to the major networks and their affiliates.
Electronic news gathering systems benefit from the towers and services we
offer. The electronic news gathering trucks, often in the form of local
television station news vans with telescoping antennas on their roofs, send live
news transmission back to the studio from the scene of an important event.
Typically, these vans cannot transmit signals beyond about 25 miles. In
addition, if they are shielded from the television transmitter site, they cannot
make the connection even at close range. We have developed a repeater system for
such news gathering that can be used on many of our towers and which is
currently in use on towers located in western Pennsylvania. This system allows
the van to send a signal to one of our local towers where the signal is
retransmitted back to the television transmitter site. The retransmission of the
signal from our tower to the various television transmitter sites is done via a
microwave link. We charge the station for the electronic news gathering receiver
system at the top of our tower and also charge them for the microwave dish they
place on our tower. Our electronic news gathering customers are affiliates of
the NBC, ABC, CBS and Fox television networks.
We also have employees with considerable direct construction experience and
market knowledge in the U.S. broadcasting industry, having worked with numerous
television networks around the United States, and a number of other local
broadcasting companies. We have installed master FM and television systems on
buildings across the country. We have supervised the construction and operation
of the largest master FM antenna facility in the United States along with the
antenna facilities on the John Hancock Building in Chicago and have engineered
and installed two 2,000 foot broadcast towers with master FM antennas.
Significant Contracts
We have many agreements with telecommunications providers in the United
States, including leases, site management contracts and independent contractor
agreements. We currently have important contracts with, among others, Bell
Atlantic Mobile, BellSouth, Mobility, BellSouth DCS, GTE Wireless, Powertel and
Nextel.
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Customers
In both our site rental and network services businesses, we work with a
number of customers in a variety of businesses including cellular, personal
communications services, enhanced specialized mobile radio, paging and
broadcasting. We work primarily with large national carriers such as Bell
Atlantic Mobile, BellSouth, Sprint PCS, Nextel and AT&T Wireless. For the year
ended December 31, 1999, no customer in the United States accounted for more
than 10.0% of our consolidated revenues.
Industry Selected Customers
------------ -------------------------
Cellular........................................... AT&T Wireless, Bell Atlantic Mobile,
BellSouth, Mobility, GTE Wireless
Personal Communications Services................... Sprint PCS, Western Wireless, Powertel,
BellSouth DCS
Broadcasting....................................... Hearst Argyle Television, Trinity Broadcasting
Specialized Mobile Radio / Enhanced Specialized
Mobile Radio...................................... Nextel, SMR Direct
Governmental Agencies.............................. FBI, INS, Puerto Rico Police
Private Industrial Users........................... IBM, Phillips Petroleum
Data............................................... Ardis, RAM Mobile Data
Paging............................................. AirTouch, PageNet, TSR Wireless
Utilities.......................................... Equitable Resources, Nevada Power
Other.............................................. WinStar, Teligent
Sales and Marketing
Our sales and marketing personnel, located in our regional offices, target
carriers expanding their networks, entering new markets, bringing new
technologies to market and requiring maintenance or add-on business. All types
of wireless carriers are targeted including broadcast, cellular, paging,
personal communications services, microwave and two-way radio. We are also
interested in attracting 9-1-1, federal, state, and local government agencies,
as well as utility and transportation companies to locate on existing sites. Our
objective is to pre-sell capacity on our towers by promoting sites prior to
construction. Rental space on existing towers is also aggressively marketed and
sold.
We utilize numerous public and proprietary databases to develop detailed
target marketing programs directed at awardees of bandwidth licenses auctioned
by the government, existing tenants and specific market groups. Mailings focus
on regional build outs, new sites and services. The use of databases, such as
those with information regarding sites, demographic data, licenses and
deployment status, coupled with actual signal strength measurements taken in the
field and specialized computer programs that accurately predict the service area
of a particular radio signal from any given transmission point, allows our sales
and marketing personnel to target specific carriers' needs for specific sites.
To foster productive relationships with our major existing tenants and potential
tenants, we have formed a team of account relationship managers. These managers
work to develop new tower construction, site leasing services and site
management opportunities, as well as ensure that customers' emerging needs are
translated into new site products and services.
The marketing department maintains our visibility within the wireless
communications industry through regular advertising and public relations efforts
including sponsorship of a third generation wireless communication showcase,
actively participating in trade shows and generating regular press releases,
newsletters and targeted mailings (including promotional flyers). Our
promotional activities range from advertisements and site listings in industry
publications to maintaining a presence at national trade shows. Potential
clients are referred to our Web site, which contains Company information as well
as site listings. In addition, our sites are listed on the Cell Site Express
Web site. This Web site enables potential tenants to locate existing structures
by latitude, longitude or address. Clients can easily contact us via e-mail
through our Web site or Cell Site Express. Our network services capabilities
are marketed in conjunction with our tower portfolios.
9
To follow up on targeted mailings and to cold-call on potential clients, we
have established a telemarketing department. Telemarketers field inbound and
outbound calls and forward leads to local sales representatives or relationship
managers for closure. Local sales representatives are stationed in each cluster
to develop and foster close business relationships with decision-makers in each
customer organization. Sales professionals work with marketing specialists to
develop sales presentations targeting specific client demands.
In addition to a dedicated, full-time sales and marketing staff, a number of
senior managers spend a significant portion of their efforts on sales and
marketing activities. These managers call on existing and prospective customers
and also seek greater visibility in the industry through speaking engagements
and articles in national publications. Furthermore, many of these managers have
been recognized as industry experts, are regularly quoted in articles and are
called on to testify at local hearings and to draft local zoning ordinances.
Public and community relations efforts include coordinating community events,
such as working with amateur radio clubs to supply emergency and disaster
recovery communications, charitable event sponsorship, and promoting charitable
donations through press releases.
Competition
In the United States, we compete with other independent tower owners, some of
which also provide site rental and network services; wireless carriers, which
own and operate their own tower networks; service companies that provide
engineering and site acquisition services; and other potential competitors, such
as utilities, outdoor advertisers and broadcasters, some of which have already
entered the tower industry. Wireless carriers that own and operate their own
tower networks generally are substantially larger and have greater financial
resources than we have. We believe that tower location, capacity, price,
quality of service and density within a geographic market historically have been
and will continue to be the most significant competitive factors affecting tower
rental companies. We also compete for acquisition and new tower construction
opportunities with wireless carriers, site developers and other independent
tower operating companies. We believe that competition for tower site
acquisitions will increase and that additional competitors will enter the tower
market, some of which may have greater financial resources than us.
The following is a list of the larger independent tower companies that we
compete with in the United States: American Tower Corp., Pinnacle Towers,
SpectraSite and SBA Communications.
The following companies are primarily competitors for our rooftop site
management activities in the United States: AAT Communications, American Tower
Corp., APEX Site Management, Commsite International, Pinnacle Towers, JJS
Leasing, Inc., Signal One, Subcarrier Communications and Tower Resources
Management.
We believe that the majority of our competitors in the site acquisition
business operate within local market areas exclusively, while a small minority
of firms appear to offer their services nationally, including SBA Communications
Corporation, Whalen & Company and Gearon & Company (a subsidiary of American
Tower Corp.). We offer our services nationwide and we believe we are currently
one of the largest providers of site development services to the U.S. and
international markets. The market includes participants from a variety of
market segments offering individual, or combinations of, competing services.
The field of competitors includes site acquisition consultants, zoning
consultants, real estate firms, right-of-way consulting firms, construction
companies, tower owners/managers, radio frequency engineering consultants,
telecommunications equipment vendors (which provide turnkey site development
services through multiple subcontractors) and carriers' internal staff. We
believe that carriers base their decisions on site development services on
certain criteria, including a company's experience, track record, local
reputation, price and time for completion of a project. We believe that we
compete favorably in these areas.
10
U.K. OPERATIONS
Overview
We own and operate, through our 80% interest in Crown Castle UK Limited
(formerly known as "Castle Transmission International Ltd."), one
of the world's most established television and radio transmission networks and
are expanding our leasing of antenna space on our towers to a variety of
wireless carriers. We provide transmission services for four of the six digital
terrestrial television services in the U.K., two BBC analogue television
services, six national BBC radio services (including the first digital audio
broadcast service in the United Kingdom), 37 local BBC radio stations and two
national commercial radio services through our network of transmitters, which
reach 99.4% of the U.K. population. These transmitters are located on
approximately 1,300 towers, more than half of which we own and the balance of
which are licensed to us under a site-sharing agreement with NTL, our principal
competitor in the United Kingdom. We have also secured long-term contracts to
provide digital television transmission services to the BBC and ONdigital. See
"--Significant Contracts." In addition to providing transmission services, we
also lease antenna space on our transmission infrastructure and over 770
communications towers in the United Kingdom to various communications service
providers, including One2One, Cellnet, Orange and Vodafone, and provide
telecommunications network installation and maintenance services and engineering
consulting services.
Our core revenue generating activity in the United Kingdom is the analog and
digital terrestrial transmission of radio and television programs broadcast by
the BBC. Crown Castle UK Limited's business, which was formerly owned by the
BBC, was privatized under the Broadcasting Act 1996 and sold to Crown Castle UK
Limited in February 1997. At the time the BBC home service transmission business
was acquired, Crown Castle UK Limited entered into a 10-year transmission
contract with the BBC for the provision of terrestrial analog television and
analog and digital radio transmission services in the United Kingdom. The
digital contract was added in 1998 as described below. In the 12 months ended
December 31, 1999, approximately 50% of Crown Castle UK Limited's consolidated
revenues were derived from the provision of services to the BBC.
At December 31, 1999, we owned, leased or licensed 1,942 transmission sites
(excluding rooftops) on which we operated 2,020 towers (excluding rooftops). In
addition, as of December 31, 1999, we were constructing two new towers on
existing sites and had approximately 12 site acquisition projects in process for
new tower sites. We have 51 revenue producing rooftop sites that are occupied by
our transmitters but are not available for leasing to our customers. Our sites
are located throughout England, Wales, Scotland and Northern Ireland.
We expect to significantly expand our existing tower portfolios in the United
Kingdom by building and acquiring additional towers. We believe our existing
tower network encompasses many of the most desirable tower locations in the
United Kingdom for wireless communications. However, due to the shorter range
over which communications signals carry (especially newer technologies such as
personal communications networks) as compared to broadcast signals, wireless
communications providers require a denser portfolio of towers to cover a given
area. Therefore, in order to increase the attractiveness of our tower
portfolios to wireless communications providers, we will seek to build or
acquire new communications towers. Using our team of over 300 engineers with
state-of-the-art network design and radio frequency engineering expertise, we
locate sites and design towers that will be attractive to multiple tenants. We
seek to leverage such expertise by entering into new tower construction
contracts with various carriers, such as British Telecom, Cable & Wireless
Communications, Cellnet, Dolphin, Energis, Highway One, One2One, Orange and
Scottish Telecom, thereby securing an anchor tenant for a site before incurring
capital expenditures for the site build-out. As of December 31, 1999, we were
building 14 towers that we will own. In addition, we expect to make some
strategic acquisitions of existing communications sites.
On March 31, 1999, Crown Castle UK Limited completed the One2One transaction,
under which Crown Castle UK Limited will manage, develop and, at its option,
acquire 821 towers. These towers represent substantially all the towers in
One2One's nationwide 900 MHz wireless network in the United Kingdom. These
towers will allow Crown Castle UK Limited to market a nationwide network of
towers to third generation
11
wireless carriers in the United Kingdom following the completion of the pending
auction of such licenses by the U.K. government.
We believe that we generally have significant capacity on our towers in the
United Kingdom. Although approximately 206 of our towers are poles with
limited capacity, we typically will be able to build new towers that will
support multiple tenants on these sites (subject to the applicable planning
process). We intend to upgrade these limited capacity sites where we believe we
can achieve appropriate returns to merit the necessary capital expenditure.
Approximately 60 of our sites are used for medium frequency broadcast
transmissions. At this frequency, the entire tower is used as the transmitting
antenna and is therefore electrically "live." Such towers are therefore
unsuitable for supporting other tenant's communications equipment. However,
medium frequency sites generally have substantial ground area available for the
construction of new multiple tenant towers.
Transmission Business
Analog. For the 12 months ended December 31, 1999, Crown Castle UK Limited
generated approximately 42% of its revenues from the provision of analog
broadcast transmission services to the BBC. Under the BBC analog transmission
contract, we provide terrestrial transmission services for the BBC's analog
television and radio programs and certain other related services (including BBC
digital radio) for an initial 10-year term through March 31, 2007. See
"--Significant Contracts." For the 12 months ended December 31, 1999, the BBC
Analog Transmission Contract generated revenues of approximately (Pounds)50.8
million ($82.1 million) for us.
In addition to the BBC analog transmission contract, we have separate
contracts to provide maintenance and transmission services for two national
radio stations, Virgin Radio and Talk Radio. The Virgin Radio contract is for a
period of eight years commencing on March 31, 1993. The Talk Radio Contract
commenced on February 4, 1995 and expires on December 31, 2008.
We own all of the transmission equipment used for broadcasting the BBC's
domestic radio and television programs, whether located on one of Crown Castle
UK Limited's sites or on an NTL or other third-party site. As of December 31,
1999, Crown Castle UK Limited had 3,777 transmitters, of which 2,497 were for
television broadcasting and 1,280 were for radio.
A few of our most powerful television transmitters together cover the
majority of the U.K. population. The coverage achieved by the less powerful
transmitters is relatively low, but is important to the BBC's ambition of
attaining universal coverage in the United Kingdom. This is illustrated by the
following analysis of the population coverage of our analog television
transmitters:
Combined
Number of Sites Population
(ranked by coverage) Coverage
----------------------- -----------
1 (Crystal Palace)........... 21.0%
top 16....................... 79.0
top 26....................... 86.0
top 51....................... 92.0
all.......................... 99.4
All of our U.K. transmitters are capable of unmanned operation and are
maintained by mobile maintenance teams from 27 bases located across the United
Kingdom. Access to the sites is strictly controlled for operational and
security reasons, and buildings at 140 of the sites are protected by security
alarms connected to Crown Castle UK Limited's Technical Operations Centre at
Warwick. The Site-Sharing Agreement provides us with reciprocal access rights
to NTL's broadcast transmission sites on which we have equipment.
Certain of our transmitters that serve large populations or important
geographic areas have been designated as priority transmitters. These
transmitters have duplicated equipment so that a single failure will not result
in
12
total loss of service but will merely result in an output-power reduction
that does not significantly degrade the service to most viewers and listeners.
Digital. In 2000, we have completed contracts with the holders (including the
BBC) of four of the six DTT multiplexes allocated by the U.K. government to
design, build and operate their digital transmission networks. In connection
with the implementation of digital terrestrial television, new transmission
infrastructure was required. The multiplexes required 81 transmission sites to
be upgraded with new transmitters and associated systems to support digital
terrestrial television and provide digital coverage to approximately 93% of the
U.K. population. Of these new transmitters and associated systems, 49 are owned
by us and the remainder are on NTL towers pursuant to a site sharing
arrangement. Our costs to add the new transmitters and associated systems was
approximately (Pounds) 100.0 million ($170.0 million).
We successfully began commercial operation of the digital terrestrial
television networks from an initial 22 transmission sites on November 15, 1998.
This launch marks the first stage of the project to introduce the digital
broadcast system that will eventually replace conventional analog television
services in the United Kingdom. We have accepted an invitation from the U.K.
television regulator, the Independent Television Commission, to play a major
role in planning further digital terrestrial television network extensions to be
built in the year 2000 and beyond.
We currently provide transmission services for digital radio broadcasts in
the United Kingdom. In September 1995, the BBC launched, over our transmission
network, its initial bandwidth scheme for transmission equipment with the
ability to compensate for varying data rates by automatically adjusting the
amount of frequency band used, and this service is now broadcast to
approximately 60% of the U.K. population. A license for an independent national
digital radio network was awarded to the Digital One consortium during 1998. We
are in negotiations to provide accommodation and access to masts (towers) and
antennas at 24 transmission sites to Digital One. In addition, local digital
radio licenses were awarded during 1999. We believe we are well positioned to
become the transmission service provider to the winners of such licenses.
Site Rental
The BBC transmission network provides a valuable initial portfolio for the
creation of wireless communications networks. As of December 31, 1999,
approximately 200 companies rented antenna space on approximately 1,665 of Crown
Castle UK Limited's 2,071 towers and rooftops. These site rental agreements have
normally been for three to 12 years and are generally subject to rent reviews
every three years. Site sharing customers are generally charged annually in
advance, according to rate cards that are based on the antenna size and position
on the tower. Our largest site rental customer in the United Kingdom is NTL
under the Site-Sharing Agreement and the digital broadcasting site sharing
agreement. This agreement generated approximately (Pounds) 9.1 million ($14.7
million) of site rental revenue for the year ended December 31, 1999.
As in the United States, we provide a range of site maintenance services in
the United Kingdom in order to support and enhance our site rental business. We
complement our U.K. transmission experience with our site management experience
in the United States to provide customers with a top-of-the-line package of
service and technical support.
Other than NTL, Crown Castle UK Limited's largest (by revenue) site rental
customers consist mainly of wireless carriers such as Cellnet, One2One, Orange
and Vodafone. Revenues from these non-BBC sources are expected to become an
increasing portion of Crown Castle UK Limited's total U.K. revenue base, as the
acquired BBC home service transmission business is no longer constrained by
governmental restrictions on the
13
BBC's commercial activities. We believe that the demand for site rental from
communication service providers will increase in line with the expected growth
of these communication services along with the deployment of new technologies
such as third generation mobile communications, or 3G, in the United Kingdom.
We have master lease agreements with all of the major U.K. telecommunications
site users including British Telecom, Cable & Wireless Communications, Cellnet,
Dolphin, Energis, Highway One, One2One, Orange, Scottish Telecom and Vodafone
AirTouch. These agreements typically specify the terms and conditions
(including pricing and volume discount plans) under which these customers have
access to all sites within our U.K. portfolio. Customers make orders for
specific sites using the standard terms included in the master lease agreements.
As of December 31, 1999, there were approximately 911 applications in process
for installations at existing sites under such agreements.
Network Services
Crown Castle UK Limited provides broadcast and telecommunications engineering
services to various customers in the United Kingdom. We retained substantially
all of the BBC home service transmission business employees when we acquired
Crown Castle UK Limited. Accordingly, we have engineering and technical staff of
the caliber and experience necessary not only to meet the requirements of our
current customer base, but also to meet the challenges of developing digital
technology. Within the United Kingdom, Crown Castle UK Limited has worked with
several telecommunications operations on design and build projects as they roll-
out their networks. Crown Castle UK Limited has had success in bidding for
broadcast consulting contracts, including, over the last four years, in
Thailand, Taiwan, Poland and Sri Lanka. With the expertise of our engineers and
technical staff, we are a provider of complete systems to the wireless
communications and broadcast industries.
Network Design and Site Selection. We have extensive experience in network
design and engineering and site selection. Our U.K. customers, therefore, also
receive the benefit of our sophisticated network design and site selection
services.
Site Acquisition. As in the United States, in the United Kingdom we are
involved in site acquisition services for our own purposes and for third
parties. We recognize that the site acquisition phase often carries the highest
risk for a project. To ensure the greatest possible likelihood of success and
timely acquisition, we combine a desktop survey of potential barriers to
development with a physical site search with relevant analyses, assessments and,
where necessary, surveys. We seek to take advantage of our experience in site
acquisition and co-location when meeting with local planning authorities.
Site Development and Antenna Installation. We use a combination of external
and internal resources for site construction. Our engineers are experienced in
both construction techniques and construction management, ensuring an efficient
and simple construction phase. Selected civil contractors are managed by Crown
Castle UK Limited staff for the ground works phase. Specialist erection
companies, with whom we have a long association, are used for tower
installation. Final antenna installation is undertaken by our own experienced
teams.
Site Management and Other Services. We provide complete site management,
preventive maintenance, fault repair and system management services to the
Scottish Ambulance Service. We also maintain a mobile radio system for the
Greater Manchester Police and provide maintenance and repair services for
transmission equipment and site infrastructure.
Significant Contracts
Crown Castle UK Limited's principal analog broadcast transmission contract is
the BBC analog transmission contract. Crown Castle UK Limited also has entered
into two digital television transmission contracts, the BBC digital transmission
contract and the ONdigital digital transmission contract. Under the site-
sharing agreement, Crown Castle UK Limited also gives NTL access to facilities
to provide broadcast transmission to non-Crown Castle UK Limited customers.
Crown Castle UK Limited also has long-term service agreements with broadcast
customers such as Virgin Radio and Talk Radio. In addition, Crown Castle UK
14
Limited has several agreements with telecommunication providers, including
leases, site management contracts and independent contractor agreements. Crown
Castle UK Limited has entered into contracts to design and build infrastructure
for customers such as Cellnet, One2One, Orange, Scottish Telecom and Vodafone
AirTouch, including the turnkey network contract for One2One in Northern
Ireland.
BBC Analog Transmission Contract. Crown Castle UK Limited entered into a
10-year transmission contract with the BBC for the provision of terrestrial
analog television and analog and digital radio transmission services in the
United Kingdom at the time the BBC home service transmission business was
acquired. The BBC analog transmission contract provides for charges of
approximately (Pounds)46.5 million ($77.3 million) to be payable by the BBC to
Crown Castle UK Limited for the year ended March 31, 1998 and each year
thereafter through the termination date, adjusted annually at the inflation rate
less 1%. In addition, for the duration of the contract an annual payment of
(Pounds)300,000 ($498,840) is payable by the BBC for additional broadcast-
related services. At the BBC's request, since October 1997, the number of
television broadcast hours has been increased to 24 hours per day for the BBC's
two national television services, which has added over (Pounds)500,000
($831,400) annually to the payments made by the BBC to us. On July 16, 1999, the
BBC and Crown Castle UK Limited amended the transmission contract to allow Crown
Castle UK Limited to provide certain liaison services to the BBC.
The BBC analog transmission contract also provides for Crown Castle UK
Limited to be liable to the BBC for "service credits" (i.e., rebates of its
charges) in the event that certain standards of service are not attained as a
result of what the contract characterizes as "accountable faults" or the failure
to meet certain "response times" in relation to making repairs at certain key
sites. We believe that Crown Castle UK Limited is well-equipped to meet the
BBC's service requirements by reason of the collective experience its existing
management gained while working with the BBC. Following completion of formal
six-month performance reviews, Crown Castle UK Limited achieved a 100% "clean
sheet" performance, incurring no service credit penalties.
The initial term of the BBC Analog Transmission Contract ends on March 31,
2007. Thereafter, the BBC Analog Transmission Contract may be terminated with
12 months' prior notice by either of the parties, expiring on March 31 in any
contract year, from and including March 31, 2007. It may also be terminated
earlier:
(1) by mutual agreement between Crown Castle UK Limited and the BBC,
(2) by one party upon the bankruptcy or insolvency of the other party within
the meaning of section 123 of the Insolvency Act 1986,
(3) upon certain force majeure events with respect to the contract as a whole
or with respect to any site (in which case the termination will relate to
that site only),
(4) by the non-defaulting party upon a material breach by the other party;
and
(5) upon the occurrence of certain change of control events (as defined in
the BBC Analog Transmission Contract).
BBC Commitment Agreement. On February 28, 1997, in connection with the
acquisition of the BBC home service transmission business, the Company, TdF,
TeleDiffusion de France S.A., which is the parent company of TdF and DFI, and
the BBC entered into the BBC commitment agreement, whereby we and TdF agreed
(1) not to dispose of any shares in Crown Castle UK Holdings Limited (formerly
known as "Castle Transmission Services (Holdings) Limited") or any interest in
such shares, or enter into any agreement to do so, until February 28, 2000; and
(2) to maintain various minimum indirect ownership interests in Crown Castle UK
Limited and Crown Castle UK Holdings Limited for periods ranging from three to
five years commencing February 28, 1997. These provisions restrict our ability
and the ability of TdF to sell, transfer or otherwise dispose of their
respective Crown Castle UK Holdings Limited shares, and, indirectly, their Crown
Castle UK Limited shares. The restrictions do not apply to disposals of which
the BBC has been notified in advance and to which the BBC has given its prior
written consent, which, subject to certain exceptions, consent shall not be
unreasonably withheld or delayed. On July 17, 1999, in return
15
for the provision of liaison services by Crown Castle UK Limited to the BBC
described above, the BBC consented to the recent amendment to the TdF
agreements.
The BBC commitment agreement also required TdF's parent and us to enter into
a services agreements with Crown Castle UK Limited. The original services
agreement entered into by TdF's parent and Crown Castle UK Limited on February
28, 1997, under which TdF makes available certain technical consultants,
executives and engineers to Crown Castle UK Limited, was amended on August 21,
1998 to extend the original minimum term of services provided from three years
to seven years, commencing February 28, 1997, thereafter terminable on 12-
months' prior notice given by Crown Castle UK Limited to TdF after February 28,
2003.
Further, the Department of Trade and Industry in the United Kingdom, or DTI,
in December 1999 recommended to the Office of Fair Trading that as a condition
to not referring a proposed 25% equity investment in NTL by TdF's parent (France
Telecom) to the Competition Commission, TdF should be required to undertake to
dispose of its investment in Crown Castle UK Holdings Limited and us. The
publicly-announced purpose of the investment by France Telecom in NTL is to
finance NTL's acquisition of Cable and Wireless Communications, which
acquisition was recently approved by the Competition Commission. A draft of the
recommended undertakings was published on March 29, 2000 and essentially
requires TdF to (1) sell all of its interest in us (including Crown Castle UK
Holdings Limited) within four months following the date on which the UK
Secretary of State announced the UK Competition Commission's approval of NTL's
acquisition of the cable business of Cable and Wireless Communications (March
23, 2000, unless a later date is approved by the UK Director General), and (2)
relinquish certain significant governance rights with respect to us. The comment
period deadline for the published, recommended undertakings is April 12, 2000.
We cannot predict what undertakings, if any, will ultimately be executed by TdF,
when TdF might undertake such undertakings or what effect such undertakings
might have on us. See "--Risk Factors--Our Agreements with TdF Give TdF
Substantial Governance and Economic Rights."
ONdigital Digital Transmission Contract. In 1997, the Independent Television
Commission awarded ONdigital three of the five available commercial digital
terrestrial television "multiplexes" for new program services. We bid for and
won the 12 year contract from ONdigital to build and operate its digital
television transmission network. The contract provides for approximately
(Pounds)20.0 million ($34.0 million) of revenue per year from 2001 to 2008, with
lesser amounts payable before and after these years and with service credits
repayable for performance below agreed thresholds.
BBC Digital Transmission Contract. In 1998, we bid for and won the 12-year
contract from the BBC to build and operate its digital terrestrial television
transmission network. The BBC has committed to the full digital terrestrial
television roll-out contemplated by the contract providing for approximately
(Pounds)10.5 million ($17.8 million) of revenue per year during the 12 year
period, with service credits repayable for performance below agreed thresholds.
There is a termination provision during the three-month period following the
fifth anniversary of our commencement of digital terrestrial transmission
services for the BBC exercisable by the BBC but only if the BBC's Board of
Governors determines, in its sole discretion, that digital television in the
United Kingdom does not have sufficient viewership to justify continued digital
television broadcasts. Under this provision, the BBC will pay us a termination
fee in cash that substantially recovers our capital investment in the network,
and any residual ongoing operating costs and liabilities. Like the BBC analog
transmission contract, the contract is terminable upon the occurrence of certain
change of control events.
BT Digital Distribution Contract. Under the BBC digital transmission
contract and the ONdigital digital transmission contract, in addition to
providing digital terrestrial transmission services, Crown Castle UK Limited has
agreed to provide for the distribution of the BBC's and ONdigital's broadcast
signals from their respective television studios to Crown Castle UK Limited's
transmission network. Consequently, in May 1998, Crown Castle UK Limited
entered into a 12 year distribution contract with British Telecommunications plc
(with provisions for extending the term), in which British Telecom has agreed to
provide fully duplicated, fiber-based, digital distribution services, with
penalties for late delivery and service credits for failure to deliver 99.99%
availability.
Site-Sharing Agreement. In order to optimize service coverage and enable
viewers to receive all analog UHF television services using one receiving
antenna, the BBC, as the predecessor to Crown Castle UK Limited, and NTL made
arrangements to share all UHF television sites. This arrangement was introduced
in the 1960s when UHF television broadcasting began in the United Kingdom. In
addition to service coverage advantages, the arrangement also minimizes costs
and avoids the difficulties of obtaining additional sites.
On September 10, 1991, the BBC and NTL entered into the site sharing
agreement which set out the commercial site sharing terms under which the
parties were entitled to share each others' sites for any television and radio
services.
Under the Site-Sharing Agreement, the party that is the owner, lessee or
licensee of each site is defined as the "Station Owner." The other party, the
"Sharer", is entitled to request a license to use certain facilities at that
site. The Site-Sharing Agreement and each site license provide for the Station
Owner to be paid a commercial license fee in accordance with the Site-Sharing
Agreement ratecard and for the Sharer to be responsible, in
16
normal circumstances, for the costs of accommodation and equipment used
exclusively by it. The Site-Sharing Agreement may be terminated with five years'
prior notice by either of the parties and expires on December 31, 2005 or on any
tenth anniversary of that date. It may also be terminated:
(1) following a material breach by either party which, if remediable, is not
remedied within 30 days of notice of such breach by the non-breaching
party,
(2) on the bankruptcy or insolvency of either party, and
(3) if either party ceases to carry on a broadcast transmission business or
function.
Similar site sharing agreements have been entered into between NTL and us for
the build-out of digital transmission sites and equipment, including a new rate
card related to site sharing fees for new digital facilities and revised
operating and maintenance procedures related to digital equipment.
Vodafone AirTouch. On April 16, 1998, under Vodafone AirTouch's master lease
agreement with us, Vodafone AirTouch agreed to locate antennas on 122 of our
existing communication sites in the United Kingdom. The first 96 sites had been
completed by the end of December 1999. This included 39 sites at which a new
tower had been constructed to replace an existing structure of limited capacity.
The remaining sites are expected to be completed by the end of July 2000 and
will include the construction of a further 29 replacement towers. After their
upgrade, these sites will be able to accommodate additional tenants.
One2One Northern Ireland Network. On December 29, 1999, Crown Castle UK
Limited and One2One entered into an agreement under which Crown Castle UK
Limited will establish a turnkey mobile network for One2One in Northern Ireland.
The majority of the network is expected to be completed by mid 2000. Crown
Castle UK Limited will provide all cell planning, acquisition, design, build,
operation and maintenance services related to the network. The agreement with
One2One is for an initial term of eleven years. We currently own and operate
approximately 100 tower sites in Northern Ireland, and we expect that One2One
will be a tenant on substantially all of these sites as part of the network.
Third Generation Technology
The United Kingdom is currently auctioning four licenses relating to third
generation ("3G") mobile communications, the license with the largest amount of
spectrum reserved for an insurgent carrier.
In anticipation of the deployment of the 3G auctions in the United Kingdom,
Crown Castle UK Limited has prepared models for the deployment and operation of
3G networks in the United Kingdom. We contemplate working with the successful
bidders for 3G licenses in order to provide the outsourcing of network operation
and management and site sharing of network towers, equipment and other
communications infrastructure, such as base stations, as a solution to many of
the commercial and technical challenges and costs which such 3G license holders
will face. There can be no assurances that we will be successful in marketing
our asset and services to winners of the 3G auctions in the United Kingdom.
Customers
For the 12 months ended December 31, 1999, the BBC accounted for
approximately 50% of Crown Castle UK Limited's consolidated revenues. This
percentage has decreased from 58.9% for the 12 months ended December 31, 1998
and is expected to continue to decline as Crown Castle UK Limited continues to
expand its site rental business. Crown Castle UK Limited provides all four U.K.
personal communications network/cellular operators (Cellnet, One2One, Orange and
Vodafone AirTouch) with infrastructure services and also provides fixed
telecommunications operators, such as British Telecom, Cable & Wireless
Communications, Energis and Scottish Telecom, with microwave links and backhaul
infrastructure. The following is a list of some of Crown Castle UK Limited's
leading site rental customers by industry segment.
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Industry Selected Customers
---------------- -------------------------
Broadcasting........................ BBC, NTL, Virgin Radio, Talk Radio,
XFM, ONdigital
PMR/TETRA........................... National Band 3, Dolphin
Personal Communications Network..... Orange, One2One
Data................................ RAM Mobile Data, Cognito
Paging.............................. Hutchinson, Page One
Governmental Agencies............... Ministry of Defense
Cellular............................ Vodafone AirTouch, Cellnet
Public Telecommunications........... British Telecom, Cable & Wireless
Communications
Other............................... Aerial Sites, Health Authorities
Utilities........................... Welsh Water, Southern Electric
Sales and Marketing
We have about 20 sales and marketing personnel in the United Kingdom who
identify new revenue-generating opportunities, develop and maintain key account
relationships, and tailor service offerings to meet the needs of specific
customers. An excellent relationship has been maintained with the BBC, and
successful new relationships have been developed with many of the major
broadcast and wireless communications carriers in the United Kingdom. We have
begun to actively cross-sell our products and services so that, for example,
site rental customers are also offered build-to-suit services.
Competition
NTL is Crown Castle UK Limited's primary competition in the terrestrial
broadcast transmission market in the United Kingdom. NTL provides analog
transmission services to ITV, Channels 4 and 5, and S4C Digital Networks. It
also has been awarded the transmission contract for the new digital terrestrial
television multiplex service from Digital 3 & 4 Limited, and a similar contract
for the digital terrestrial television service for S4C.
Although Crown Castle UK Limited and NTL are direct competitors, they have
reciprocal rights to the use of each others' sites for broadcast transmission
usage in order to enable each of them to achieve the necessary country-wide
coverage. This relationship is formalized by the Site-Sharing Agreement entered
into in 1991, the time at which NTL was privatized.
NTL also offers site rental on approximately 1,000 of its sites, some of
which are managed on behalf of third parties. Like Crown Castle UK Limited, NTL
offers a full range of site-related services to its customers, including
installation and maintenance. Crown Castle UK Limited believes its towers to be
at least as well situated as NTL's and that it will be able to expand its own
third-party site-sharing penetration.
All four U.K. mobile operators own site infrastructure and lease space to
other users. Their openness to sharing with direct competitors varies by
operator. Cellnet and Vodafone have agreed to cut site costs by jointly
developing and acquiring sites in the Scottish Highlands. British Telecom and
Cable & Wireless Communications are both major site sharing customers but also
compete by leasing their own sites to third parties. British Telecom's position
in the market is even larger when considered in combination with its interest in
Cellnet.
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Several other companies compete in the market for site rental. These include
British Gas, Racal Network Systems, Aerial Sites Plc, Relcom Aerial Services and
the Royal Automobile Club. Some companies own sites initially developed for
their own networks, while others are developing sites specifically to exploit
this market.
Crown Castle UK Limited faces competition from a large number of companies in
the provision of network services. The companies include NTL, specialty
consultants and equipment manufacturers such as Nortel and Ericsson.
AUSTRALIA OPERATIONS
In March 2000, we entered into an agreement with Cable & Wireless Optus
pursuant to which Cable & Wireless Optus will sell to Crown Castle Australia
approximately 705 wireless communications towers located in Australia for
approximately $135 million in cash. In addition, Cable & Wireless Optus has
agreed to lease space on each of such towers for an initial term of 15 years.
The agreement also provides us with an exclusive right to develop all future
tower sites for Cable & Wireless Optus in Australia over the next six years.
Crown Castle Australia is two-thirds owned by us and one-third owned by an
investor group lead by Fay, Richwhite Communications Ltd., a New Zealand-based
investment firm.
The Cable & Wireless Optus transaction is expected to close in the second
quarter of 2000. Following the completion of the transaction, Crown Castle
Australia will be the largest independent tower operator in Australia. Upon
completion of the transaction, Crown Castle Australia will own and operate a
nationwide tower portfolio covering over 90 percent of the population in
Australia. See "--Recent and Agreed to Transactions--Cable & Wireless Optus
Transaction." There can be no assurances that the transaction with Cable &
Wireless Optus will be completed or that we will be successful in transacting
operations in Australia.
EMPLOYEES
At March 1, 2000, we employed approximately 1,250 people worldwide. Other
than in the United Kingdom, we are not a party to any collective bargaining
agreements. In the United Kingdom, we are party to a collective bargaining
agreement with the Broadcast, Entertainment, Cinematographic and Technicians
Union. This agreement establishes bargaining procedures relating to the terms
and conditions of employment for all of Crown Castle UK Limited's non-management
staff. We have not experienced any strikes or work stoppages, and management
believes that our employee relations are satisfactory.
REGULATORY MATTERS
UNITED STATES
Federal Regulations
Both the FCC and FAA regulate towers used for wireless communications
transmitters and receivers. Such regulations control the siting and marking of
towers and may, depending on the characteristics of particular towers, require
registration of tower facilities. Wireless communications devices operating on
towers are separately regulated and independently licensed based upon the
particular frequency used.
The FCC, in conjunction with the FAA, has developed standards to consider
proposals for new or modified antenna structures. These standards mandate that
the FCC and the FAA consider the height of proposed antenna structures, the
relationship of the structure to existing natural or man-made obstructions and
the proximity of the antenna structures to runways and airports. Proposals to
construct or to modify existing antenna structures above certain heights are
reviewed by the FAA to ensure the structure will not present a hazard to
aviation. The FAA may condition its issuance of a determination that the
structure will not present a hazard to aviation upon compliance with specified
lighting and/or marking requirements. The FCC will not license the operation of
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wireless telecommunications devices on towers unless the tower is in compliance
with the FAA's rules and is registered with the FCC, if necessary. The FCC will
not register a tower unless it has been cleared by the FAA. The FCC may also
enforce special lighting and painting requirements. Owners of wireless
transmissions towers may have an obligation to maintain painting and lighting to
conform to FAA and FCC standards. Tower owners may also bear the responsibility
of notifying the FAA of any tower lighting outage. The Company generally
indemnifies its customers against any failure to comply with applicable
regulatory standards. Failure to comply with the applicable requirements may
lead to civil penalties.
The 1996 Telecom Act limits certain state and local zoning authorities'
jurisdiction over the construction, modification and placement of towers. The
law prohibits any action that would (1) discriminate between different providers
of personal wireless services or (2) prohibit or have the effect of prohibiting
the provision of personal wireless service. Finally, the 1996 Telecom Act
requires the federal government to help licensees for wireless communications
services gain access to preferred sites for their facilities. This may require
that federal agencies and departments work directly with licensees to make
federal property available for tower facilities.
Local Regulations
Local regulations include:
. city and other local ordinances;
. zoning restrictions; and
. restrictive covenants imposed by community developers.
These regulations vary greatly, but typically require tower owners to obtain
approval from local officials or community standards organizations prior to
tower construction. Local zoning authorities generally have been hostile to
construction of new transmission towers in their communities because of the
height and visibility of the towers.
Licenses Under the Communications Act of 1934
We hold, through certain of our subsidiaries, licenses for radio transmission
facilities granted by the FCC, including licenses for common carrier microwave
and commercial mobile radio services, including specialized mobile radio and
paging facilities, as well as private mobile radio services including
industrial/business radio facilities, which are subject to additional regulation
by the FCC. We are required to obtain the FCC's approval prior to the transfer
of control of any of our FCC licenses.
We, as the parent company of the licensees of common carrier and commercial
mobile radio services facilities, are also subject to Section 310(b)(4) of the
Communications Act of 1934, as amended, which would limit us to a maximum of 25%
foreign ownership absent a ruling from the FCC that foreign ownership in excess
of 25% is in the public interest. In light of the World Trade Organization
Agreement on Basic Telecommunications Services, which took effect on February 5,
1998, the FCC has determined that such investments are generally in the public
interest if made by individuals and entities from WTO-member nations. We are
over 25% foreign owned by companies headquartered in France, the United Kingdom
and New Zealand. Each of these nations is a signatory to the WTO agreement. The
FCC has granted approval of up to 49.9% foreign ownership of us, at least 25% of
which will be from WTO-member nations.
UNITED KINGDOM
Telecommunications systems and equipment used for the transmission of signals
over radio frequencies have to be licensed in the United Kingdom. These
licenses are issued on behalf of the British Government by the Secretary of
State for Trade and Industry under the Telecommunications Act 1984 and the
Wireless Telegraphy Acts 1949, 1968 and 1998. Crown Castle UK Limited has a
number of such licenses under which it runs the telecommunications distribution
and transmission systems which are necessary for the provision of
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its transmission services. Crown Castle UK Limited's operations are subject to
comprehensive regulation under the laws of the United Kingdom.
Licenses under the Telecommunications Act 1984
Crown Castle UK Limited has the following three licenses under the
Telecommunications Act 1984:
Transmission License. The Transmission License is a renewable license to run
telecommunications systems for the transmission via wireless telegraphy, a type
of data transmissions technique, of broadcasting services. This license is for
a period of at least 25 years from January 23, 1997, and is Crown Castle UK
Limited's principal license. Its main provisions include:
(1) a price control condition covering the provision of all analog radio and
television transmission services to the BBC under the BBC analog
transmission agreement, establishing an initial price at approximately
(Pounds)44 million for regulated elements of the services provided by
Crown Castle UK Limited under the BBC analog transmission agreement in
the year ended March 31, 1997, with an increase cap which is 1% below the
rate of increase in the Retail Price Index over the previous calendar
year. The current price control condition applies until March 31, 2006,
(2) a change of control provision which requires notification of acquisitions
of interest in Crown Castle UK Limited of more than 20% by a public
telecommunications operator or any Channel 3 or Channel 5 licensee, which
acquisitions entitle the Secretary of State to revoke the license,
(3) a site sharing requirement requiring Crown Castle UK Limited to provide
space on its towers to analog and digital broadcast transmission
operators and including a power for the Director General of
Telecommunications ("OFTEL"), as the regulator, to determine prices if
there is failure between the site owner and the prospective site sharer
to agree to a price,
(4) a fair trading provision enabling OFTEL to act against anti-competitive
behavior by the licensee, and
(5) a prohibition on undue preference or discrimination in the provision of
the services it is required to provide third parties under the
transmission license.
On August 11, 1998, OFTEL determined that it had jurisdiction to make a
determination with respect to a complaint made by Classic FM and NTL in respect
of certain charges, imposed previously by the BBC under the Site-Sharing
Agreement with NTL for the use by Classic FM of BBC radio antennas and passed on
to Classic FM by NTL. OFTEL's position as of March 1999 is that the Site-Sharing
Agreement did not cover charges for new services to customers such as Classic
FM, thereby enabling OFTEL to intervene and determine the appropriate rate under
the "applicable rate" mechanism in Crown Castle UK Limited's transmission
license. This procedure could result in the fees NTL pays to Crown Castle UK
Limited for site sharing facilities for Classic FM, currently calculated under
the site-sharing agreement, being determined at a reduced rate and otherwise not
being covered by the terms of any existing contract which could lead to a
diminution of Crown Castle UK Limited's income of approximately (Pounds)300,000
per annum, or approximately 0.4% of revenues and 1.0% of EBITDA for the fiscal
year ended March 31, 1997. Crown Castle UK Limited has challenged OFTEL's right
to make a determination and on April 28, 1999, Crown Castle UK Limited was given
leave by the High Court to apply for a judicial review of that determination.
Meanwhile, Crown Castle UK Limited is also seeking to negotiate a settlement
with Classic FM and NTL and has made a provision of approximately (Pounds)2.9
million relating to any rate adjustment imposed by OFTEL with respect to
previous charges for Classic FM under the Site-Sharing Agreement.
Crown Castle UK Limited is discussing with OFTEL certain amendments to Crown
Castle UK Limited's Telecommunications Act Transmission License to ensure that
the price control condition accommodates the provision by Crown Castle UK
Limited of additional contractually agreed upon services to the BBC in return
for additional agreed upon payments. See "--Risk Factors--Extensive Regulations
Which Could Change at Any Time and Which We Could Fail to Comply With Regulate
Our Business."
The Secretary of State has designated the transmission license a public
telecommunications operator license in order to reserve to himself certain
emergency powers for the protection of national security. This designation is,
however, limited to this objective. Crown Castle UK Limited does not have a
full domestic
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public telecommunications license and does not require one for its current
activities. The Department of Trade and Industry has, nevertheless, indicated
that it would be willing to issue Crown Castle UK Limited such a license. As a
result, Crown Castle UK Limited would gain wider powers to provide services to
non-license holding third parties including public switched voice telephony and
satellite uplink and would grant Crown Castle UK Limited powers to build out its
network over public property (so-called "code powers").
General Telecom License. The general telecom license is a general license to
run telecommunications systems and authorizes Crown Castle UK Limited to run all
the necessary telecommunications systems to convey messages to its transmitter
sites (e.g., via leased circuits or using its own microwave links). The license
does not cover the provision of public switched telephony networks (which would
require a public telecommunications license as described above).
Satellite License. The satellite license is a license to run
telecommunications systems for the provision of satellite telecommunication
services and allows the conveyance via satellite of messages, including data and
radio broadcasting. The license excludes television broadcasting direct to the
home via satellite although distribution via satellite of television
broadcasting services which are to be transmitted terrestrially is permitted.
Licenses under the Wireless Telegraphy Acts 1949, 1968 and 1998
Crown Castle UK Limited has a number of licenses under the Wireless
Telegraphy Acts 1949, 1968 and 1998, authorizing the use of radio equipment for
the provision of certain services over allocated radio frequencies including:
(1) a broadcasting services license in relation to the transmission services
provided to the BBC, Virgin Radio and Talk Radio,
(2) a fixed point-to-point radio links license;
(3) two bandwidth test and development licenses, and
(4) digital terrestrial television test and development licenses.
All the existing licenses under the Wireless Telegraphy Acts 1949, 1968 and
1998 have to be renewed annually with the payment of a significant fee. The
BBC, Virgin Radio and Talk Radio have each contracted to pay their portion of
these fees. ONdigital is obligated under the ONdigital digital transmission
contract to pay most of their portion of these fees.
ENVIRONMENTAL MATTERS
Our operations are subject to foreign, federal, state and local laws and
regulations relating to the management, use, storage, disposal, emission, and
remediation of, and exposure to, hazardous and nonhazardous substances,
materials and wastes. As an owner and operator of real property, we are subject
to certain environmental laws that impose strict, joint and several liability
for the cleanup of on-site or off-site contamination relating to existing or
historical operations, and also could be subject to personal injury or property
damage claims relating to such contamination. We are potentially subject to
cleanup liabilities in both the United States and the United Kingdom and
environmental exposure will extend to Australia once we commence operations
there.
We are also subject to regulations and guidelines that impose a variety of
operational requirements relating to radio frequency emissions. The potential
connection between radio frequency emissions and certain negative health
effects, including some forms of cancer, has been the subject of substantial
study by the scientific community in recent years. To date, the results of
these studies have been inconclusive. Although we have not been subject to any
claims relating to radio frequency emissions, we have established operating
procedures designed to reduce employee exposures to radio frequency emissions
and are continually evaluating certain of our towers and transmission equipment
in the United States and the United Kingdom to determine whether radio frequency
emission reductions are economically possible and feasible.
22
In addition, we are subject to licensing, registration and related
requirements concerning tower siting, construction and operation. In the United
States, the FCC's decision to license a proposed tower may be subject to
environmental review pursuant to the National Environmental Policy Act of 1969,
which requires federal agencies to evaluate the environmental impacts of their
decisions under certain circumstances. The FCC regulations implementing the Act
place responsibility on each applicant to investigate any potential
environmental effects of a proposed operation and to disclose any significant
effects on the environment in an environmental assessment prior to commencing
construction. In the event the FCC determines that a proposed tower would have
a significant environmental impact, the FCC would be required to prepare an
environmental impact statement. This process could significantly delay or
prevent the registration or construction of a particular tower, or make tower
construction more costly. In certain jurisdictions, local laws or regulations
may impose similar requirements.
We believe that we are in substantial compliance with all applicable
environmental laws. Nevertheless, there can be no assurance that the costs of
compliance with existing or future environmental laws will not have a material
adverse effect on our business, results of operations, or financial condition.
RECENT AND AGREED TO TRANSACTIONS
We have recently completed or entered into agreements for the transactions
described below. Completion of these transactions has and will continue to
result in a significant increase in the size of our operations and the number of
towers that we own and manage plus our need for capital. The agreements
governing the transactions that have not yet been closed or that are closing
over a series of closings include a number of important conditions agreed to.
Therefore, we cannot guarantee that we will consummate any of the agreed to
transactions on the terms currently contemplated or at all. The descriptions of
the terms of these transactions set forth below are summaries and are qualified
in their entirety by reference to the complete text of the relevant agreements.
Bell Atlantic Joint Venture
On March 31, 1999, we completed the formation of a joint venture with Bell
Atlantic Mobile to own and operate approximately 1,458 towers. These towers
represent substantially all the towers in Bell Atlantic's wireless network in
the eastern and southwestern United States, including markets such as New York,
Philadelphia, Boston, Washington, D.C. and Phoenix. The joint venture will also
build and own the next 500 towers to be built for Bell Atlantic's wireless
communications business. In addition, upon completion of such 500 towers, the
Bell Atlantic joint venture will have a right of first refusal to construct the
next 200 towers for Bell Atlantic. Bell Atlantic leases antenna space on the
1,458 towers transferred to the joint venture and will lease antenna space on
the towers that the joint venture builds for Bell Atlantic.
BellSouth Transaction
On June 1, 1999, we entered into an agreement with BellSouth to control and
operate, through a sublease, approximately 1,850 towers. These towers represent
substantially all the towers in BellSouth's wireless network in the southeastern
and midwestern United States, including markets such as Miami, Atlanta, Tampa,
Nashville and Indianapolis. We will be responsible for managing and leasing the
available space on BellSouth's towers. We will have the right to build, control
and operate the next 500 towers to be built for BellSouth's wireless
communications business. BellSouth will pay a management fee for its retained
antenna space on the towers effectively equivalent to lease payments, as well
as on the towers we build for BellSouth. The BellSouth transaction will close in
a series of closings which commenced on June 1, 1999 and is expected to be
substantially completed by June 30, 2000. As of February 2, 2000, we had
subleased and acquired control of 1,664 of these towers.
Powertel Acquisition
In 1999, we completed the purchase of 620 towers from Powertel.
These towers represent substantially all of Powertel's owned towers in its
wireless network in the southeastern and midwestern United States, including
such markets as Atlanta, Birmingham, Jacksonville, Memphis and Louisville, and a
number of major connecting highway corridors in the southeast. These towers are
complementary to BellSouth's towers
23
in the southeast and have minimal coverage overlap. We subsequently acquired in
2000, 30 additional towers from Powertel which were incomplete at the time of
the initial closing. Powertel leases antenna space on the 650 towers we acquired
from them. We also have a build-to-suit agreement through 2000 as to a minimum
of 40 towers.
One2One Transaction
On March 31, 1999, Crown Castle UK Limited acquired the rights to manage,
develop and, at its option, acquire up to 821 towers. These towers represent
substantially all the towers in One2One's nationwide wireless network in the
United Kingdom. We are responsible for managing and leasing available space on
the towers and receive all the income from any such third party leases.
BellSouth DCS Transaction
On July 23, 1999, we entered into an agreement with BellSouth DCS to control
and operate, through a sublease, approximately 773 personal communications
towers from BellSouth DCS. The towers are located in North Carolina, South
Carolina, east Tennessee and parts of Georgia. The terms of the BellSouth DCS
transaction are substantially the same as the BellSouth transaction described
above. The towers are complementary to the towers we have acquired or are in the
process of acquiring through the BellSouth transaction, the Powertel acquisition
and the GTE Wireless joint venture. BellSouth DCS will effectively lease space
from us on the towers we acquire from them through a management arrangement and
fee. As of February 2, 2000, we had closed on 674 of these towers.
GE Capital Transaction
On November 19, 1999, GE Capital Structured Finance Group, or SFG, made a
$200,000,000 strategic investment in us in exchange for 200,000 shares of our 8
1/4% manditorily redeemable, convertible preferred stock and warrants to
purchase 1,000,000 shares of our common stock. The warrants have an exercise
price of $26.875 per share and are exercisable, in whole or in part, at any time
for a period of five years following the issue date. The net proceeds of this
investment will be used to pay a portion of the purchase price for the GTE
transaction described below.
One2One Northern Ireland Network
On December 29, 1999, Crown Castle UK Limited and One2One entered into an
agreement pursuant to which Crown Castle UK Limited will establish a turnkey
mobile network for One2One in Northern Ireland. The majority of the network is
expected to be completed by mid 2000. We will provide all cell planning,
acquisition, design, build, operation and maintenance services related to the
network. The agreement with One2One is for an initial term of eleven years. We
currently own and operate approximately 100 tower sites in Northern Ireland, and
we expect that One2One will be a tenant on substantially all of these sites as
part of the network.
GTE Transaction
On November 7, 1999 we entered into a formation agreement with GTE Wireless
Incorporated and certain affiliates of GTE Wireless to form a joint venture to
own and operate a significant majority of the wireless communications
towers of GTE Wireless. We will own up to an 88.65% equity interest in
the joint venture, and the day-to-day operations of the joint venture will be
managed by us.
The transaction will be completed in multiple closings, each of which is
subject to a number of conditions which could prevent it from occurring. At each
closing, in exchange for interests in the joint venture, GTE Wireless will
contribute to the joint venture towers and liabilities relating thereto, and we
will contribute consideration proportionate to the number of towers being
transferred. It is currently contemplated that up to 2,322 towers will be
transferred. If all such towers are transferred, we will be required to
contribute up to approximately $825.0 million (of which up to $100.0 million can
be in shares of our common stock valued at $18.655 per share) to the joint
venture. Of this amount, $25 million will be retained by the joint venture for
working capital, and the balance will be distributed to GTE Wireless. In
addition, the joint venture may borrow up to $200 million of indebtedness,
subject to certain limitations, which borrowing will reduce our contribution
requirement. The proceeds of any such borrowing will be distributed to GTE
Wireless. The initial closing took
24
place on January 31, 2000 at which time we contributed $223.9 million in cash to
the joint venture, and GTE Wireless contributed 637 towers in exchange for a
cash distribution of $198.9 million from the joint venture. We anticipate
closing with respect to approximately 1,600 additional towers effective as of
April 1, 2000. In connection with the transaction, we deposited $50 million into
an escrow account; such funds would be forfeited to GTE Wireless in the event
that any closing does not occur as a result of our inability to obtain adequate
financing. We contemplate that the April 1, 2000 closing will involve all cash
(including the $50 million in escrow) being contributed to the joint venture.
In connection with the formation of the joint venture, GTE Wireless and the
joint venture entered into a master build-to-suit agreement, pursuant to which,
subject to certain conditions, the next 500 towers to be built for GTE Wireless
will be constructed and owned by the joint venture. The 500 tower amount will
be reduced for certain towers built for third parties, including towers built
for Bell Atlantic in excess of 500 towers. In addition, the parties
entered into a global lease, under which GTE Wireless will lease space on
all of the towers acquired by the joint venture from GTE Wireless and all towers
constructed under the build-to-suit agreement. The average monthly rent
on the 2,322 towers contributed to the joint venture by GTE Wireless will be
approximately $1,400, subject to certain adjustments, including a 4% per year
increase for the initial 10-year period. For all sites, the initial lease term
is 10 years, with an option for four additional five-year terms at the election
of GTE Wireless.
Upon a dissolution of the joint venture we will receive all the assets and
liabilities of the joint venture, other than any shares of our common stock held
by the joint venture, which would be distributed to GTE Wireless. GTE Wireless
will transfer its equity interests in the joint venture to us, and we will pay
to GTE Wireless the fair market value of such interests. A dissolution may be
triggered (1) by GTE Wireless at any time following the third anniversary of the
formation of the joint venture and (2) by us at any time following the fourth
anniversary of its formation.
We also entered into a letter agreement dated November 7, 1999 with GTE
Wireless, whereby GTE Wireless has the right to contribute additional towers on
terms substantially similar to the formation agreement. These additional towers
may be (1) currently owned towers not contributed pursuant to the formation
agreement, (2) towers subsequently acquired in cellular or personal
communications services markets east of the Mississippi, or (3) towers acquired
by GTE Wireless recently from Ameritech Corp. Conversely, the joint venture
also has the right to require the Ameritech towers to be contributed by GTE
Wireless to the joint venture in a manner that is substantively identical to GTE
Wireless' right to contribute the Ameritech towers described above.
Consideration paid for these additional towers will be in the form of cash and
additional ownership interests for GTE Wireless in the joint venture. The
Ameritech towers are limited to 600 towers, and the towers which GTE Wireless
currently owns or subsequently acquires are limited to 100 towers in any twelve
month period. The rights with respect to the Ameritech towers must be exercised
no later than May 1. The letter agreement terminates, with respect to the
towers which GTE Wireless currently owns or subsequently acquires, 18 months
after the final closing under the formation agreement. All of these towers are
subject to the global lease.
Cable & Wireless Optus Transaction
On March 9, 2000, Crown Castle Australia entered into an agreement with Cable
& Wireless Optus. Pursuant to the agreement, Cable & Wireless Optus will sell to
Crown Castle Australia approximately 705 wireless communications towers located
in Australia for approximately $135 million (A$220 million) in cash. The
agreement also provides Crown Castle Australia with an exclusive right to
develop all future tower sites for Cable & Wireless Optus over the next six
years. In addition, Cable & Wireless Optus has entered into a tower access
agreement, under which Cable & Wireless Optus has agreed to lease space on the
705 towers for an initial term of 15 years. Crown Castle Australia is two-thirds
owned by us and one-third owned by an investment group lead by Fay, Richwhite
Communications Ltd., a New Zealand-based investment firm. The transaction is
expected to close in the second quarter of 2000. Following the completion of the
transaction, Crown Castle Australia will be the largest independent tower
operator in Australia.
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2000 Credit Facility
In March 2000, a subsidiary of ours entered into a credit agreement with a
syndicate of banks which consists of two term loan facilities and a revolving
line of credit aggregating $1.2 billion (the "2000 Credit Facility"). Available
borrowings under the 2000 Credit Facility are generally to be used for the
construction and purchase of towers and for the general corporate purposes of
certain of our subsidiaries along with the discharge of the then existing credit
facility of such subsidiaries. The amount of available borrowings will generally
be determined based upon the then current financial performance of the assets of
those subsidiaries. Up to $25 million of borrowing availability under the 2000
Credit Facility can be used for letters of credit. On March 15, 2000, we used
$83.4 million in borrowings under the 2000 Credit Facility to repay outstanding
borrowings and accrued interest under our senior credit facility to such
subsidiaries. Additional proceeds of approximately $317 million in borrowings
will be promptly used to fund a portion of the purchase price of the GTE
Wireless transaction and for general corporate purposes.
RISK FACTORS
You should carefully consider the risks described below, as well as the other
information contained in this document, when evaluating your investment in our
securities.
FAILURE TO PROPERLY MANAGE OUR GROWTH
If we are unable to successfully integrate acquired operations or to manage
our existing operations as we grow, our business will be adversely affected and
we may not be able to continue our current business strategy.
We cannot guarantee that we will be able to successfully integrate acquired
businesses and assets into our business or implement our plans without delay. If
we fail to do so it could have a material adverse effect on our financial
condition and results of operations. We have grown significantly over the past
two years through acquisitions, and such growth continues to be an important
part of our business plan. The addition of over 8,500 towers to our operations
through our recent and agreed to transactions has increased and will continue to
increase our current business considerably and adds operating complexities.
Successful integration of these transactions will depend primarily on our
ability to manage these combined operations and to integrate new management and
employees with and into our existing operations.
Implementation of our acquisition strategy may impose significant strains on
our management, operating systems and financial resources. We regularly
evaluate potential acquisition and joint venture opportunities and are currently
evaluating potential transactions that could involve substantial expenditures,
possibly in the near term. If we fail to manage our growth or encounter
unexpected difficulties during expansion, it could have a material adverse
effect on our financial condition and results of operations. The pursuit and
integration of acquisitions and joint venture opportunities will require
substantial attention from our senior management, which will limit the amount of
time they are able to devote to our existing operations.
WE MAY NOT COMPLETE THE AGREED TO TRANSACTIONS
If we fail to complete any or all of the agreed to transactions described in
this document, we may incur liquidated damages and will not recognize all of
the benefits of such transactions.
If one or more of the agreed to transactions we describe in this document is
not completed or is completed on significantly different terms than those
currently contemplated, it could substantially affect the implementation of our
business strategy. If we fail to close these transactions, our ability to offer
tower clusters in major U.S. markets will be impaired. As a result, our future
site rental revenue would be adversely affected. We cannot guarantee that we
will complete any or all of these agreed to transactions. The agreements
relating to these agreed to transactions contain many conditions that must be
satisfied before we can close such agreed to transactions.
26
In addition, we cannot assure you that the transactions, if and when
completed, will be done so on the terms currently contemplated. For example,
each of the agreements relating to these agreed to transactions includes
provisions that could result in our purchasing fewer towers at closing.
Our initial transaction with GTE Wireless is closing in a series of closings.
If any closing does not occur as a result of our inability to obtain adequate
financing, GTE wireless may retain a $50.0 million liquidated damages payment
which we have deposited into escrow.
SUBSTANTIAL LEVEL OF INDEBTEDNESS
Our substantial level of indebtedness could adversely affect our ability to
react to changes in our business. We may also be limited in our ability to use
debt to fund future capital needs.
We have a substantial amount of indebtedness. The following chart sets forth
certain important credit information and is presented as of December 31, 1999.
(Dollars in
thousands)
Total indebtedness........................................ $1,542,345
Redeemable preferred stock................................ 422,923
Stockholders' equity...................................... 1,617,747
Debt and redeemable preferred stock to equity ratio....... 1.21x
In addition, our earnings for the twelve months ended December 31, 1999 were
insufficient to cover fixed charges by $91.3 million.
Given our substantial indebtedness, we could be affected in the following
ways:
. we could be more vulnerable to general adverse economic and industry
conditions;
. we may find it more difficult to obtain additional financing to fund
future working capital, capital expenditures and other general corporate
requirements;
. we will be required to dedicate a substantial portion of our cash flow
from operations to the payment of principal and interest on our debt,
reducing the available cash flow to fund other projects;
. we may have limited flexibility in planning for, or reacting to, changes
in our business and in the industry; and
. we will have a competitive disadvantage relative to other companies with
less debt in our industry.
We cannot guarantee that we will be able to generate enough cash flow from
operations or that we will be able to obtain enough capital to service our debt
or fund our planned capital expenditures. In addition, we may need to refinance
some or all of our indebtedness on or before maturity. We cannot guarantee,
however, that we will be able to refinance our indebtedness on commercially
reasonable terms or at all.
AS A HOLDING COMPANY, WE REQUIRE DIVIDENDS FROM SUBSIDIARIES TO MEET CASH
REQUIREMENTS OR PAY DIVIDENDS
If our subsidiaries are unable to dividend cash to us when we need it, we may
be unable to pay dividends or satisfy our obligations, including interest and
principal payments, under our debt instruments.
27
Crown Castle International Corp., or CCIC, is a holding company with no
business operations of its own. CCIC's only significant asset is the outstanding
capital stock of its subsidiaries. CCIC conducts all its business operations
through its subsidiaries. Accordingly, CCIC's only source of cash to pay
dividends or make other distributions on its capital stock or to pay interest
and principal on its outstanding indebtedness is distributions relating to its
ownership interest in its subsidiaries from the net earnings and cash flow
generated by such subsidiaries. We currently expect that the earnings and cash
flow of CCIC's subsidiaries will be retained and used by such subsidiaries in
their operations, including to service their respective debt obligations. Even
if we did determine to make a distribution in respect of the capital stock of
CCIC's subsidiaries, there can be no assurance that CCIC's subsidiaries will
generate sufficient cash flow to pay or distribute such a dividend or funds, or
that applicable state law and contractual restrictions, including negative
covenants contained in the debt instruments of such subsidiaries, would permit
such dividends, distributions or payments. Furthermore, the terms of our U.S.
and U.K. credit facilities place restrictions on our principal subsidiaries'
ability to pay dividends or to make distributions, and in any event, such
dividends or distributions may only be paid if no default has occurred under the
applicable instrument. Moreover, CCIC's subsidiaries are permitted under the
terms of their existing debt instruments to incur additional indebtedness that
may restrict or prohibit the making of distributions, the payment of dividends
or the making of loans by such subsidiaries to CCIC. See "--Substantial Level of
Indebtedness" and "--Ability to Service Debt".
ABILITY TO SERVICE DEBT
To service our indebtedness, we will require a significant amount of cash
from our subsidiaries. An inability to access our subsidiaries' cash flow may
lead to an acceleration of our indebtedness, including our notes. Currently,
the instruments governing our subsidiaries' indebtedness do not allow sufficient
funds to be distributed to CCIC to service its indebtedness.
If CCIC is unable to refinance its subsidiary debt or renegotiate the terms
of such debt, CCIC may not be able to meet its debt service requirements,
including interest payments on our notes, in the future. Our 9% senior notes and
our 9 1/2% senior notes will require annual cash interest payments of
approximately $16.2 million and $11.9 million, respectively. Prior to November
15, 2002, May 15, 2004 and August 1, 2004, the interest expense on our 10 5/8%
discount notes, our 10 3/8% discount notes and our 11 1/4% discount notes,
respectively, will be comprised solely of the amortization of original issue
discount. Thereafter, the 10 5/8% discount notes, the 10 3/8% discount notes and
the 11 1/4% discount notes will require annual cash interest payments of
approximately $26.7 million, $51.9 million and $29.3 million, respectively.
Prior to December 15, 2003, we do not expect to pay cash dividends on our
exchangeable preferred stock or, if issued, cash interest on the exchange
debentures. Thereafter, assuming all dividends or interest have been paid-in-
kind, our exchangeable preferred stock or, if issued, the exchange debentures
will require annual cash dividend or interest payments of approximately $47.8
million.
RESTRICTIVE DEBT COVENANTS
The terms of our debt instruments impose significant restrictions on our
ability to take a number of actions that our management might otherwise believe
to be in your best interests. In addition, if we fail to comply with our
covenants, our debt could be accelerated.
Currently we have debt instruments in place that restrict our ability to
incur more indebtedness, pay dividends, create liens, sell assets and engage in
certain mergers and acquisitions. Our subsidiaries, under their debt
instruments, are also required to maintain specific financial ratios. Our
ability to comply with the restrictions of these instruments and to satisfy our
debt obligations will depend on our future operating performance. If we fail to
comply with the debt restrictions, we will be in default under those
instruments, which in some cases would cause the maturity of substantially all
of our long-term indebtedness to be accelerated.
28
OUR AGREEMENTS WITH TDF GIVE TDF SUBSTANTIAL GOVERNANCE AND ECONOMIC RIGHTS
The exercise of these rights by TdF could have a material adverse effect on
our business.
We have entered into agreements with TeleDiffusion de France International
S.A., or TdF, an affiliate of France Telecom, that give TdF substantial rights.
The agreements were entered into in order to induce TdF to participate in the
roll-up of our U.K. business, the transaction in which we exchanged shares of
our common stock for shares of Crown Castle UK Holdings Limited common stock,
held by Crown Castle UK Holdings Limited stockholders and, as a result,
increased our ownership in Crown Castle UK Holdings Limited to 80%. The TdF
agreements give TdF significant rights relating to the governance of CCIC and
our U.K. business. Our U.K. business currently accounts for a substantial
majority of our revenues. TdF retains significant governance rights even if we
acquire the remaining 20% interest of our U.K. business held by TdF.
Further, the Department of Trade and Industry in the United Kingdom, or DTI,
in December 1999 recommended to the Office of Fair Trading that as a
condition to not referring a proposed 25% equity investment in NTL by TdF's
parent (France Telecom) to the Competition Commission, TdF should be required to
undertake to dispose of its investment in Crown Castle UK Holdings Limited and
us. The publicly-announced purpose of the investment by France Telecom in NTL is
to finance NTL's acquisition of Cable and Wireless Communications which
acquisition was recently approved by the Competition Commission. A draft of the
recommended undertakings was published on March 29, 2000 and essentially
requires TdF to (1) sell all of its interest in us (including Crown Castle UK
Holdings Limited) within four months following the date on which the UK
Secretary of State announced the UK Competition Commission's approval of NTL's
acquisition of the cable business of Cable and Wireless Communications (March
23, 2000, unless a later date is approved by the UK Director General), and (2)
relinquish certain significant governance rights with respect to us. The comment
period deadline for the published, recommended undertakings is April 12, 2000.
We cannot predict what undertakings, if any, will ultimately be executed by TdF,
when TdF might undertake such undertakings or what effect such undertakings
might have on us.
TdF's Governance Rights May Restrict Us From Taking Actions Our Board of
Directors Consider to Be in Your Best Interests
We have granted TdF the ability to govern some of our activities, including
the ability to:
. prohibit us from entering into material acquisitions, issuing new equity
securities and incurring significant indebtedness;
. elect up to two members of our board of directors; and
. elect at least one director to the executive and nominating and
corporate governance committees of our board of directors.
In addition, TdF has significant governance rights over our U.K. business.
Although TdF, through its subsidiary, DFI, currently has only a 20% equity
interest in Crown Castle UK Holdings Limited, TdF has the right to restrict a
number of corporate actions at Crown Castle UK Holdings Limited.
TdF's exercise of these rights could be contrary to your interests.
TdF Will Be Able to Buy Our Interest, or Require Us to Buy Their Interest, in
Our U.K. Business in Connection with a Sale of CCIC
Under the circumstances described below, TdF will have the right to acquire
all of our shares in Crown Castle UK Holdings Limited or to require us to
purchase all of TdF's shares in Crown Castle UK Holdings Limited, at fair market
value in either case. This right will be triggered under the following
circumstances:
. the sale of all or substantially all of our assets;
. a merger, consolidation or similar transaction that would result in any
person owning more than 50% of our voting power or equity securities;
. an unsolicited acquisition by any person of more than 25% of our voting
power or equity securities; or
. other circumstances arising from an acquisition by any person that would
give rise to a right of the BBC to terminate our analog or digital
transmission contracts with the BBC.
Further, immediately before any of these events occur, TdF will have the
right to require us to purchase 50% of their Class A common stock in cash at the
same price we would have to pay once the event occurs.
If we were required to sell our shares in Crown Castle UK Holdings Limited to
TdF, we would no longer own our U.K. business and would lose all the benefits of
owning such business. On the other hand, if we were required to purchase all of
TdF's shares in Crown Castle UK Holdings Limited and/or purchase 50% of their
29
Class A common stock, we cannot guarantee that we would have the necessary funds
to do so or that we would be permitted to do so at the time under our debt
instruments. If we did not have sufficient funds, we would have to seek
additional financing. We cannot guarantee, however, that such financing would
be available on commercially reasonable terms or at all. If such financing were
not available, we might be forced to sell assets at unfavorable prices in order
to generate the cash needed to buy the shares from TdF. In addition, our
obligation to purchase TdF's shares could result in an event of default under
our debt instruments.
TdF Has an Option to Put to Us Its Interest in Our U.K. Business Following
the Second Anniversary of the Roll-Up of Our U.K. Business; This Could Result
in A Default Under Our Debt Instruments or Substantial Dilution to Our Other
Stockholders
If TdF has not exchanged its interest in Crown Castle UK Holdings Limited for
additional interest in CCIC by the second anniversary of the roll-up of our U.K.
business, TdF will have the right to require us to purchase all of their shares
in Crown Castle UK Holdings Limited, at fair market value. We may elect to pay
either (1) in cash or (2) with our common stock at a discount of 15% to its
market value. We cannot guarantee that we will have sufficient funds to
purchase such shares for cash if TdF were to require us to purchase their shares
of capital stock of Crown Castle UK Holdings Limited. If we did not have
sufficient funds, we would either need to seek additional financing or purchase
the shares with our common stock. We cannot guarantee that we could obtain such
financing on terms acceptable to us. In addition, the purchase of these shares
for cash could result in an event of default under our debt instruments. If we
were to issue shares of common stock to effect the purchase, this:
. would result in substantial dilution to our other stockholders;
. could adversely affect the market prices of the common stock; and
. could impair our ability to raise additional capital through the sale of
our equity securities.
TdF Has Preemptive Rights to Acquire Our Common Stock When We Otherwise Issue
Common Stock; This Could Result in Substantial Dilution to Our Other
Stockholders
Except in limited circumstances, if we issue any equity securities to any
person, including the closings of the GTE Wireless transaction, we must offer
TdF the right to purchase, at the same cash price, up to an amount of such
equity securities as would be necessary for TdF and its affiliates to maintain
their consolidated ownership percentage in us before such issuance. TdF
exercised these preemptive rights as a result of our acquisition of Millennium
Communications Limited in the United Kingdom on October 8, 1998, as a result of
our contribution of shares of our common stock to the Bell Atlantic joint
venture on March 31, 1999 and as a result of our equity offering in May 1999.
The further exercise of these rights by TdF could result in substantial dilution
to our other stockholders.
WE REQUIRE SIGNIFICANT CAPITAL TO FUND OUR OPERATIONS AND MAKE ACQUISITIONS
If we are unable to raise capital in the future, we will be unable to achieve
our currently contemplated business strategy and may not be able to fund our
operations.
We will require substantial capital (1) as we increase the number of towers
we own and manage by partnering with wireless carriers to assume ownership or
control of their existing towers, by pursuing opportunities to build new towers,
or build-to-suit opportunities, for wireless carriers and by pursuing other
tower acquisition opportunities and (2) to acquire existing transmission
networks globally as opportunities arise. If we are unable to raise capital when
our needs arise, we will be unable to pursue our current business strategy and
may not be able to fund our operations.
To fund the execution of our business strategy, including the agreed to
transactions described in this document and the construction of new towers
that we have agreed to build, we expect to use the net proceeds of our recent
offerings and borrowings available under our U.S. and U.K. credit facilities.
We will have
30
additional cash needs to fund our operations and acquisitions in the future,
including some of the agreed to transactions. We may also have additional cash
needs in the near term if additional tower acquisitions or build-to-suit
opportunities arise. Some of the opportunities that we are currently pursuing
could require significant additional capital. If we do not otherwise have cash
available, or borrowings under our credit facilities have otherwise been
utilized, when our cash need arises, we would be forced to seek additional debt
or equity financing or to forego the opportunity. In the event we determine to
seek additional debt or equity financing, there can be no assurance that any
such financing will be available, on commercially acceptable terms or at all, or
permitted by the terms of our existing indebtedness.
WE MAY NOT BE ABLE TO CONSTRUCT OR ACQUIRE NEW TOWERS AT THE PACE AND IN THE
LOCATIONS THAT WE DESIRE
If we are unable to construct new towers at the pace and in the locations
that we desire, we may not be able to satisfy our current agreements to build
new towers, and we may have difficulty finding tenants to lease space on our new
towers. If we are unable to acquire new towers at the pace and in the locations
that we desire, our growth may be adversely affected.
Our growth strategy depends in part on our ability to construct and operate
towers in conjunction with expansion by wireless carriers. If we are unable to
build new towers when wireless carriers require them, or we are unable to build
new towers where we believe the best opportunity to add tenants exists, we could
fail to meet our contractual obligations under build-to-suit agreements, and we
could lose opportunities to lease space on our towers.
We currently have plans to commence construction on approximately 1,170
additional towers during fiscal 2000. Our ability to construct these new towers
can be affected by a number of factors beyond our control, including:
. zoning and local permitting requirements and national regulatory
approvals;
. availability of construction equipment and skilled construction
personnel; and
. bad weather conditions.
In addition, as the concern over tower proliferation has grown in recent
years, certain communities have placed restrictions on new tower construction or
have delayed granting permits required for construction. You should consider
that:
. the barriers to new construction may prevent us from building towers
where we want;
. we may not be able to complete the number of towers planned for
construction in accordance with the requirements of our customers; and
. we cannot guarantee that there will be a significant need for the
construction of new towers once the wireless carriers complete their
tower networks.
All of the above factors could affect both our domestic and international
operations. In addition, competition laws could prevent us from acquiring or
constructing towers or tower networks in certain geographical areas.
OUR BUSINESS DEPENDS ON THE DEMAND FOR WIRELESS COMMUNICATIONS
We will be adversely affected by any slowdown in the growth of, or reduction
in demand for, wireless communications.
Demand for our site rentals depends on demand for communication sites from
wireless carriers, which, in turn, depends on the demand for wireless services.
The demand for our sites depends on many factors which we cannot control,
including:
. the level of demand for wireless services generally;
. the financial condition and access to capital of wireless carriers;
31
. the strategy of carriers relating to owning or leasing communication
sites;
. changes in telecommunications regulations; and
. general economic conditions.
A slowdown in the growth of, or reduction in, demand in a particular wireless
segment could adversely affect the demand for communication sites. Moreover,
wireless carriers often operate with substantial indebtedness, and financial
problems for our customers could result in accounts receivable going
uncollected, in the loss of a customer and the associated lease revenue or in a
reduced ability of these customers to finance expansion activities. Finally,
advances in technology, such as the development of new satellite and antenna
systems, could reduce the need for land-based, or terrestrial, transmission
networks. The occurrence of any of these factors could have a material adverse
effect on our financial condition and results of operations.
VARIABILITY IN DEMAND FOR NETWORK SERVICES MAY REDUCE THE PREDICTABILITY OF OUR
RESULTS
Our network services business has historically experienced significant
volatility in demand. As a result, the operating results of our network
services business for any particular period may vary significantly, and should
not be considered as necessarily being indicative of longer-term results.
Demand for our network services fluctuates from period to period and within
periods. These fluctuations are caused by a number of factors, including:
. the timing of customers' capital expenditures;
. annual budgetary considerations of customers;
. the rate and volume of wireless carriers' tower build-outs;
. timing of existing customer contracts; and
. general economic conditions.
While demand for our network services fluctuates, we must incur certain
costs, such as maintaining a staff of network services employees in anticipation
of future contracts, even when there may be no current business. Furthermore, as
wireless carriers complete their build-outs, the need for the construction of
new towers and the demand for our network services could decrease significantly
and could result in fluctuations and, possibly, significant declines in our
operating performance.
WE OPERATE OUR BUSINESS IN AN INCREASINGLY COMPETITIVE INDUSTRY AND MANY OF OUR
COMPETITORS HAVE SIGNIFICANTLY MORE RESOURCES
As a result of this competition, we may find it more difficult to achieve
favorable lease rates on our towers and we may be forced to pay more for future
tower acquisitions.
We face competition for site rental customers from various sources,
including:
. other large independent tower owners;
. wireless carriers that own and operate their own towers and lease
antenna space to other carriers;
. site development companies that acquire antenna space on existing towers
for wireless carriers and manage new tower construction; and
. traditional local independent tower operators.
32
Wireless carriers that own and operate their own tower portfolios generally
are substantially larger and have greater financial resources than we have.
Competition for tenants on towers could adversely affect lease rates and service
income.
In addition, competition for the acquisition of towers is keen, and we expect
it to continue to grow. We not only compete against other independent tower
owners and operators, but also against wireless carriers, broadcasters and site
developers. As competition consolidates, we may be faced with fewer acquisition
opportunities, as well as higher acquisition prices. While we regularly explore
acquisition opportunities, we cannot guarantee that we will be able to identify
suitable towers to acquire in the future.
A SUBSTANTIAL PORTION OF OUR REVENUES IS DEPENDENT UPON AGREEMENTS WITH THE
BBC, NTL, BELL ATLANTIC, MOBILITY, BELL SOUTH DCS, GTE WIRELESS AND POWERTEL
If we were to lose our contracts with the BBC or our site sharing agreement
with NTL, we would likely lose a substantial portion of our revenues. The BBC
accounted for approximately 28% of our revenues for the twelve-month period
ended December 31, 1999.
Our broadcast business is substantially dependent on our contracts with the
BBC. We cannot guarantee that the BBC will renew our contracts or that they
will not attempt to negotiate terms that are not as favorable to us as those in
place now. If we were to lose these BBC contracts, our business, results of
operations and financial condition would be materially adversely affected. The
initial term of our analog transmission contract with the BBC will expire on
March 31, 2007, and our digital transmission contract with the BBC expires on
October 31, 2010. In addition, our digital transmission contract with the BBC
may be terminated by the BBC after five years if the BBC's board of governors
does not believe that digital television in the United Kingdom has enough
viewers.
A substantial portion of our U.K. broadcast transmission operations are
conducted using sites owned by National Transmission Limited, or NTL, our major
competitor in the United Kingdom. NTL also utilizes our sites for their
broadcast operations. This site sharing arrangement with NTL may be terminated
with five years' notice by either us or NTL, and may be terminated sooner upon a
continuing breach of the agreement. The agreement is set to expire on December
31, 2005. We cannot guarantee that this agreement will not be terminated, which
could have a material adverse effect on our business, results of operations and
financial condition. Further, a substantial portion of our revenues are received
from wireless carriers, particularly carriers which transfer their tower assets
to us. We cannot guaranty that the lease or management agreements with such
carriers will not be terminated or any carrier will renew such agreements.
EXTENSIVE REGULATIONS WHICH COULD CHANGE AT ANY TIME AND WHICH WE COULD FAIL TO
COMPLY WITH REGULATE OUR BUSINESS
If we fail to comply with applicable regulations, we could be fined or even
lose our right to conduct some of our business.
A variety of foreign, federal, state and local regulations apply to our
business. Failure to comply with applicable requirements may lead to civil
penalties or require us to assume costly indemnification obligations or breach
contractual provisions. We cannot guarantee that existing regulatory policies
will not adversely affect the timing or cost of new tower construction or that
additional regulations will not be adopted which increase delays or result in
additional costs. These factors could have a material adverse effect on our
financial condition and results of operations.
Since we signed our analog transmission contract with the BBC, the BBC has
increased its service requirements to include 24-hour broadcasting on our
transmission network for the BBC's two national television services and a
requirement for us to add a number of additional stations to our network to
extend existing BBC services. The BBC has agreed to increases of approximately
(Pounds)800,000 ($1,261,200) per year in the charges payable by the BBC to us
for these service enhancements. The additional charges, however, may necessitate
an amendment to Crown Castle UK Limited's transmission telecommunications
license. We are discussing with
33
OFTEL, the relevant regulatory authority in the United Kingdom, the most
appropriate way to rectify this situation in order to allow the additional
services to be provided to the BBC in return for the additional agreed payments.
There can be no assurance that we will achieve a favorable resolution of these
issues with OFTEL.
EMISSIONS FROM OUR ANTENNAS MAY CREATE HEALTH RISKS
We could suffer from future claims if the radio frequency emissions from
equipment on our towers is demonstrated to cause negative health effects.
The government imposes requirements and other guidelines on our towers
relating to radio frequency emissions. The potential connection between radio
frequency emissions and certain negative health effects, including some forms of
cancer, has been the subject of substantial study by the scientific community in
recent years. To date, the results of these studies have been inconclusive. We
cannot guarantee that claims relating to radio frequency emissions will not
arise in the future.
OUR INTERNATIONAL OPERATIONS EXPOSE US TO CHANGES IN FOREIGN CURRENCY EXCHANGE
RATES
If we fail to properly match or hedge the currencies in which we conduct
business, we could suffer losses as a result of changes in currency exchange
rates.
We conduct business in countries outside the United States, which exposes us
to fluctuations in foreign currency exchange rates. We also intend to expand
our international operations in the future. For the twelve-month period ended
December 31, 1999, approximately 56% of our consolidated revenues originated
outside the United States, all of which were denominated in currencies other
than U.S. dollars, principally pounds sterling. We have not historically
engaged in significant hedging activities relating to our non-U.S. dollar
operations, and we could suffer future losses as a result of changes in currency
exchange rates.
WE ARE HEAVILY DEPENDENT ON OUR SENIOR MANAGEMENT
If we lose members of our senior management, we may not be able to find
appropriate replacements on a timely basis and our business could be adversely
affected.
Our existing operations and continued future development are dependent to a
significant extent upon the performance and active participation of certain key
individuals, including our chief executive officer and the chief operating
officers of our principal U.S. and U.K. subsidiaries. We cannot guarantee that
we will be successful in retaining the services of these, or other key
personnel. None of our executives have signed noncompetition agreements. If we
were to lose any of these individuals, we may not be able to find appropriate
replacements on a timely basis and our financial condition and results of
operations could be materially adversely affected.
ITEM 2. PROPERTIES
Our principal corporate offices are located in Canonsburg, Pennsylvania, and
Houston, Texas.
Size
Location Title (Sq. Ft.) Use
----------------- ------ --------- ----------------
Canonsburg, PA.................... Owned 48,500 Corporate office
Houston, TX....................... Leased 19,563 Corporate office
Warwick, UK....................... Owned 50,000 Corporate office
We have approximately 17 additional regional offices in the United States
and Puerto Rico which are located throughout our tower coverage areas to serve
local customers.
34
In the United States, our interests in our tower sites are comprised of a
variety of ownership interests, leases created by long-term lease agreements,
private easements and easements, licenses or rights-of-way granted by government
entities. In rural areas, a tower site typically consists of a three- to five-
acre tract, which supports towers, equipment shelters and guy wires to stabilize
the structure. Less then 3,000 square feet are required for a self-supporting
tower structure of the kind typically used in metropolitan areas. Our land
leases generally have five- or ten-year terms and frequently contain one or more
renewal options. Some land leases provide "trade-out" arrangements whereby we
allow the landlord to use tower space in lieu of paying all or part of the land
rent. As of December 31, 1999, we had approximately 5,463 land leases in the
United States. Under the 2000 Credit Facility, our senior lenders have liens on
a substantial number of our land leases and other property interests in the
United States.
In the United Kingdom, tower sites range from less than 400 square feet for a
small rural TV booster station to over 50 acres for a high-power radio station.
As in the United States, the site accommodates the towers, equipment buildings
or cabins and, where necessary, guy wires to support the structure. Land is
either owned freehold, which is usual for the larger sites, or is held on long-
term leases that generally have terms of 21 years or more. As of December 31,
1999, we had approximately 1,605 land leases in the U.K.
ITEM 3. LEGAL PROCEEDINGS
We are occasionally involved in legal proceedings that arise in the ordinary
course of business. Most of these proceedings are appeals by landowners of
zoning and variance approvals of local zoning boards. While the outcome of
these proceedings cannot be predicted with certainty, management does not expect
any pending matters to have a material adverse effect on our financial condition
or results of operations.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
35
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock was initially offered to the public on August 18, 1998 at a
price of $13.00 per share. The Common Stock is listed and traded on The Nasdaq
Stock Market's National Market(SM) ("Nasdaq") under the symbol "TWRS". The
following table sets forth for the calendar periods indicated the high and low
sales prices per share of the Common Stock as reported by Nasdaq.
High Low
------- -------
1998:
Third Quarter.............................. $ 13.25 $ 6.69
Fourth Quarter............................. 23.50 6.00
1999:
First Quarter.............................. $ 23.50 $ 16.63
Second Quarter............................. 21.50 16.38
Third Quarter.............................. 25.50 14.69
Fourth Quarter............................. 33.50 15.44
2000:
First Quarter (through March 15, 2000)..... $ 42.69 $ 28.19
On March 15, 2000, the last reported sale price of the Common Stock as
reported by Nasdaq was $40.06. As of March 15, 2000, there were approximately
473 holders of record of the Common Stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and do
not anticipate paying cash dividends on our capital stock in the foreseeable
future. It is our current policy to retain earnings to finance the expansion of
our operations. Future declaration and payment of cash dividends, if any, will
be determined in light of the then-current conditions, including our earnings,
operations, capital requirements, financial condition and other factors deemed
relevant by the Board of Directors. In addition, our ability to pay dividends
is limited by the terms of our debt instruments and the terms of the certificate
of designations in respect of our exchangeable preferred stock.
ISSUANCE OF UNREGISTERED SECURITIES
On December 2, 1999, we issued an additional 599,054 unregistered shares of
common stock to an affiliate of BellSouth Corporation, in connection with a
closing relating to the BellSouth transaction. The agreement of sublease
relating to the BellSouth transaction will close in a series of closings, with
approximately 30% of the consideration being paid with our common stock. As of
December 31, 1999, we have issued a total of 7,728,787 shares of common stock to
BellSouth in connection with closings relating to the BellSouth transaction. See
"Business--Recent and Agreed to Transactions." We contemplate that a total of up
to 9.1 million shares of our common stock will be issued to BellSouth in
connection with the BellSouth transaction.
ITEM 6. SELECTED HISTORICAL 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,
1999, and as of December 31, 1995, 1996, 1997, 1998 and 1999, have been derived
from the consolidated financial statements of the Company, which have been
audited by KPMG llp, independent certified public accountants. The results of
operations for the year ended December 31, 1999 are not comparable to the year
ended December 31, 1998, the results for the year ended December 31, 1998 are
not comparable to the year ended December 31, 1997, and the results for the year
ended December 31, 1997 are not comparable to the year ended December 31, 1996
as a result of business acquisitions consummated in 1997, 1998 and 1999.
Results of operations of these acquired businesses 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".
36
Years Ended December 31,
---------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- ---------- ----------- ------------
(In thousands of dollars, except per share amounts)
STATEMENT OF OPERATIONS DATA:
Net revenues:
Site rental and broadcast transmission............... $ 4,052 $ 5,615 $ 11,010 $ 75,028 $ 267,894
Network services and other........................... 6 592 20,395 38,050 77,865
-------- -------- --------- ---------- -----------
Total net revenues................................. 4,058 6,207 31,405 113,078 345,759
-------- -------- --------- ---------- -----------
Costs of operations:
Site rental and broadcast transmission............... 1,226 1,292 2,213 26,254 114,436
Network services and other........................... -- 8 13,137 21,564 42,312
-------- -------- --------- ---------- -----------
Total costs of operations.......................... 1,226 1,300 15,350 47,818 156,748
-------- -------- --------- ---------- -----------
General and administrative............................ 729 1,678 6,824 23,571 43,823
Corporate development/(a)/............................ 204 1,324 5,731 4,625 5,403
Restructuring charges................................. -- -- -- -- 5,645
Non-cash compensation charges/(b)/.................... -- -- -- 12,758 2,173
Depreciation and amortization......................... 836 1,242 6,952 37,239 130,106
-------- -------- --------- ---------- -----------
Operating income (loss)............................... 1,063 663 (3,452) (12,933) 1,861
Equity in earnings (losses) of unconsolidated
affiliate............................................ -- -- (1,138) 2,055 --
Interest and other income (expense)/(c)/.............. 53 193 1,951 4,220 17,731
Interest expense and amortization of deferred
financing costs...................................... (1,137) (1,803) (9,254) (29,089) (110,908)
-------- -------- --------- ---------- -----------
Loss before income taxes, minority interests and
cumulative effect of change in accounting
principle............................................ (21) (947) (11,893) (35,747) (91,316)
Provision for income taxes............................ -- (10) (49) (374) (275)
Minority interests.................................... -- -- -- (1,654) (2,756)
-------- -------- --------- ---------- -----------
Loss before cumulative effect of change in
accounting principle................................. (21) (957) (11,942) (37,775) (94,347)
Cumulative effect of change in accounting
principle for costs of start-up activities........... -- -- -- -- (2,414)
-------- -------- --------- ---------- -----------
Net loss.............................................. (21) (957) (11,942) (37,775) (96,761)
Dividends on preferred stock.......................... -- -- (2,199) (5,411) (28,881)
-------- -------- --------- ---------- -----------
Net loss after deduction of dividends on preferred
stock................................................ $ (21) $ (957) $ (14,141) $ (43,186) $ (125,642)
======== ======== ========= ========== ===========
Per common share - basic and diluted:
Loss before cumulative effect of change in
accounting principle................................ $(0.01) $(0.27) $(2.27) $(1.02) $(0.94)
Cumulative effect of change in accounting
principle........................................... -- -- -- -- (0.02)
-------- -------- --------- ---------- -----------
Net loss............................................. $(0.01) $(0.27) $(2.27) $(1.02) $(0.96)
======== ======== ========= ========== ===========
Common shares outstanding - basic and diluted (in
thousands)........................................... 3,316 3,503 6,238 42,518 131,466
======== ======== ========= ========== ===========
OTHER DATA:
EBITDA/(d)/........................................... $ 1,899 $ 1,905 $ 3,500 $ 37,064 $ 139,785
Summary cash flow information:
Net cash provided by (used for) operating
activities.......................................... 1,672 (530) (624) 44,976 92,608
Net cash used for investing activities............... (16,673) (13,916) (111,484) (149,248) (1,509,146)
Net cash provided by financing activities............ 15,597 21,193 159,843 345,248 1,670,402
Ratio of earnings to fixed charges/(e)/............... -- -- -- -- --
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............................. $ 596 $ 7,343 $ 55,078 $ 296,450 $ 549,328
Property and equipment, net........................... 16,003 26,753 81,968 592,594 2,468,101
Total assets.......................................... 19,875 41,226 371,391 1,523,230 3,836,650
Total debt............................................ 11,182 22,052 156,293 429,710 1,542,343
Redeemable preferred stock/(f)/....................... 5,175 15,550 160,749 201,063 422,923
Total stockholders' equity (deficit).................. 619 (210) 41,792 737,562 1,617,747
37
(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.
(c) Includes a $1.2 million fee received in March 1997 as compensation for
leading the investment consortium which provided the equity financing for
CCUK in connection with the CCUK Investment.
(d) EBITDA is defined as operating income (loss) plus depreciation and
amortization and non-cash compensation charges. EBITDA is presented as
additional information because management believes it to be a useful
indicator of our ability to meet debt service and capital expenditure
requirements. It is not, however, intended as an alternative measure of
operating results or cash flow from operations (as determined in accordance
with generally accepted accounting principles). Furthermore, our measure of
EBITDA may not be comparable to similarly titled measures of other
companies.
(e) For purposes of computing the ratio of earnings to fixed charges, earnings
represent income (loss) before income taxes, fixed charges and equity in
earnings (losses) of unconsolidated affiliate. Fixed charges consist of
interest expense, the interest component of operating leases and
amortization of deferred financing costs. For the years ended December 31,
1995, 1996, 1997, 1998 and 1999, earnings were insufficient to cover fixed
charges by $21,000, $0.9 million, $10.8 million, $37.8 million and $91.3
million, respectively.
(f) The 1995, 1996 and 1997 amounts represent (1) the senior convertible
preferred stock privately placed by CCIC in August 1997 and October 1997,
all of which has been converted into shares of common stock; and (2) the
Series A convertible preferred stock, the Series B convertible preferred
stock and the Series C convertible preferred stock privately placed by CCIC
in April 1995, July 1996 and February 1997, respectively, all of which has
been converted into shares of common stock in connection with the
consummation of our IPO. The 1998 amount represents the 12 3/4% Senior
Exchangeable Preferred Stock due 2010.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding our
consolidated financial condition as of December 31, 1999 and our consolidated
results of operations for each year in the three-year period ended December 31,
1999. The statements in this discussion regarding the industry outlook, our
expectations regarding the future performance of our businesses and the other
nonhistorical statements in this discussion are forward-looking statements.
These forward-looking statements are subject to numerous risks and
uncertainties, including but not limited to the uncertainties relating to
decisions on capital expenditures to be made in the future by wireless carriers
and broadcasters. This discussion should be read in conjunction with "Selected
Historical Financial Data" and the consolidated financial statements and related
notes included elsewhere in this document. Results of operations of the acquired
businesses 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,
1999 are not comparable to the year ended December 31, 1998, and the results for
the year ended December 31, 1998 are not comparable to the year ended December
31, 1997.
OVERVIEW
The continued growth of our business depends substantially on the condition
of the wireless communications and broadcast industries. We believe that the
demand for communications sites will continue to grow and expect that, due to
increased competition, wireless carriers will continue to seek operating and
capital efficiencies by (1) outsourcing certain network services and the build-
out and operation of new and existing infrastructure; and (2) planning to use a
tower site as a common location, or "co-locating", for the placement of their
antennas and transmission equipment alongside the equipment of other
communications providers. In addition, we believe that more wireless carriers
will seek to sell their wireless communications infrastructure to,
or establish joint ventures with, experienced infrastructure providers, such as
the Company, that have the ability to manage networks.
Further, we believe that wireless carriers and broadcasters will continue to
seek to outsource the operation of their towers and, eventually, their
transmission networks, including the transmission of their signals. Management
believes that our ability to manage towers and transmission networks and our
proven track record of providing services addressing all aspects of signaling
systems from the originating station to the terminating
38
receiver, or "end-to-end" services, to the wireless communications and
broadcasting industries position our company to capture such business.
The willingness of wireless carriers to utilize our infrastructure and
related services is affected by numerous factors, including:
. consumer demand for wireless services;
. interest rates;
. cost of capital;
. availability of capital to wireless carriers;
. tax policies;
. willingness to co-locate equipment;
. local restrictions on the proliferation of towers;
. cost of building towers; and
. technological changes affecting the number of communications sites
needed to provide wireless communications services to a given geographic
area.
Our revenues that are derived from the provision of transmission services to the
broadcasting industry will be affected by:
. the timing of the roll-out of digital television broadcasts from tower-
mounted antenna systems, or "digital terrestrial television broadcasts",
in the United Kingdom, as well as in the United States and other
countries around the world;
. consumer demand for digital terrestrial broadcasting;
. interest rates;
. cost of capital;
. zoning restrictions on towers; and
. the cost of building towers.
As an important part of our business strategy, we will seek:
(1) to maximize utilization of our tower capacity,
(2) to utilize the expertise of U.S. and U.K. personnel to capture global
growth opportunities,
(3) to partner with wireless carriers to assume ownership of their existing
towers, and
(4) to acquire existing transmission networks globally as opportunities
arise.
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.
39
Site rental revenues in the U.S. are received primarily from wireless
communications companies, including those operating in the following categories
of wireless communications:
. microwave;
. cellular;
. personal communications services, a digital service operating at a
higher frequency range than cellular and is provided by companies such
as Sprint PCS, OmniPoint and PrimeCo;
. paging;
. specialized mobile radio, a service operating in the frequency range
used for two-way radio communication by public safety, trucking
companies, and other dispatch service users; and
. enhanced specialized mobile radio, a service operating in the frequency
range typically used for digital communications and provided by Nextel
and others.
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). Average revenues for our
managed rooftop sites are significantly less than for the owned and managed
towers because a substantial portion of the revenues from the tenants at rooftop
sites is remitted to the building owner or manager.
Broadcast transmission services revenues in the U.K. are received for both
analog and digital transmission services. Monthly analog transmission revenues
are principally received from the BBC under a contract with an initial 10-year
term through March 31, 2007. Digital transmission services revenues from the BBC
and ONdigital are recognized under contracts with initial terms of 12 years
through November 15, 2010. Monthly revenues from these digital transmission
contracts increase over time as the network rollout progresses. See "Item 1.
Business--U.K. Operations--Significant Contracts".
Site rental revenues in the U.K. are received from other broadcast
transmission service providers (primarily NTL) and wireless communications
companies, including all four U.K. cellular operators (Cellnet, Vodafone,
One2One and Orange). Site rental revenues are generally recognized on a monthly
basis under lease agreements with original terms of three to 12 years. Such
lease agreements generally require annual payments in advance, and include
rental rate adjustment provisions between one and three years from the
commencement of the lease. Site rental revenues are expected to become an
increasing portion of CCUK's total U.K. revenue base, and we believe that the
demand for site rental from communication service providers will increase in
line with the expected growth of these communication services in the United
Kingdom.
Network services revenues in the U.S. consist of revenues from:
(1) network design and site selection,
(2) site acquisition,
(3) site development and construction,
(4) antenna installation, and
(5) other services.
Network services revenues are received primarily from wireless communications
companies. Network services revenues in the U.S. are recognized under service
contracts which provide for billings on either a fixed price 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
40
specialized mobile radio networks in Puerto Rico where we own radio wave
spectrum in the 2,000 MHz and 6,000 MHz range (for microwave radio) and the 800
MHz range (for specialized mobile radio). These revenues are generally
recognized under monthly management or service agreements.
Network services revenues in the U.K. consist of (1) network design and site
selection, site acquisition, site development and antenna installation and (2)
site management and other services. Network design and development and related
services are provided to:
(1) a number of broadcasting and related organizations, both in the United
Kingdom and other countries,
(2) all four U.K. cellular operators, and
(3) a number of other wireless communications companies, including Dolphin
and Highway One.
These services are usually subject to a competitive bid, although a significant
proportion result from an operator coming onto an existing CCUK site. Revenues
from such services are recognized on either a fixed price or a time and
materials basis. Site management and other services, consisting of both network
monitoring and equipment maintenance, are carried out in the United Kingdom for
a number of emergency service organizations. CCUK receives revenues for such
services under contracts with original terms of between three and five years.
Such contracts provide fixed prices for network monitoring and variable pricing
dependent on the level of equipment maintenance carried out in a given period.
Costs of operations for site rental in the U.S. primarily consist of:
. land leases;
. repairs and maintenance;
. utilities;
. insurance;
. property taxes;
. monitoring costs; and
. in the case of managed sites, rental payments.
For any given tower, such costs are relatively fixed over a monthly or an annual
time period. As such, operating costs for owned towers do not generally increase
significantly as additional customers are added. However, rental expenses at
certain managed towers increase as additional customer antennas are added,
resulting in higher incremental revenues but lower incremental margins than on
owned towers.
Costs of operations for broadcast transmission services in the U.K. consist
primarily of employee compensation and related benefits costs, utilities, rental
payments under the Site-Sharing Agreement with NTL, circuit costs and repairs
and maintenance on both transmission equipment and structures. Site rental
operating costs in the U.K. consist primarily of employee compensation and
related benefits costs, utilities and repairs and maintenance. The majority of
such costs are relatively fixed in nature, with increases in revenue from new
installations on existing sites generally being achieved without a corresponding
increase in costs.
Costs of operations for network services consist primarily of employee
compensation and related benefits costs, subcontractor services, consulting
fees, and other on-site construction and materials costs. We incur these network
services costs (1) to support our internal operations, including construction
and 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 acquire
access to the infrastructure of wireless carriers and to attract significant
build-to-suit contracts.
41
General and administrative expenses consist primarily of:
. employee compensation, training, recruitment and related benefits costs;
. advertising;
. professional and consulting fees;
. office rent and related expenses; and
. travel costs.
Corporate development expenses represent costs incurred in connection with
acquisitions and development of new business initiatives. These expenses
consist primarily of:
. allocated compensation and external professional fees;
. benefits; and
. overhead costs that are not directly related to the administration or
management of existing towers.
Depreciation and amortization charges relate to our property and equipment
(which consists primarily of towers, broadcast transmission equipment,
associated buildings, construction equipment and vehicles), goodwill and other
intangible assets recorded in connection with business acquisitions.
Depreciation of towers, broadcast transmission equipment and amortization of
goodwill are computed with a useful life of 20 years. Amortization of other
intangible assets (principally the value of existing site rental contracts at
Crown Communication) is computed with a useful life of 10 years. Depreciation of
buildings is computed with useful lives ranging from 20 to 50 years.
Depreciation of construction equipment and vehicles are generally computed with
useful lives of 10 years and 5 years, respectively.
In May 1997, we completed the acquisition of TEA and the acquisition of
TeleStructures. In August 1997, we completed the acquisition of Crown
Communication. In August 1998, we completed a share exchange with the
shareholders of CCUK, under which our ownership of CCUK increased from
approximately 34.3% to 80%. In October 1998, CCUK completed the acquisition of
Millennium. In March 1999, we completed the formation of Crown Atlantic. In June
and December of 1999, we completed the acquisition of towers from Powertel.
Finally, during 1999 we completed the substantial portions of the transactions
with BellSouth and BellSouth DCS. 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, 1999 are not comparable to
the year ended December 31, 1998, and the results for the year ended December
31, 1998 are not comparable to the year ended December 31, 1997.
The following information is derived from our historical Consolidated
Statements of Operations for the periods indicated.
42
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1998 December 31, 1999
----------------------- ---------------------------- ------------------------
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................... $ 11,010 35.1% $ 75,028 66.4% $ 267,894 77.5%
Network services and other...... 20,395 64.9 38,050 33.6 77,865 22.5
-------- ------ -------- ------ --------- ------
Total net revenues........... 31,405 100.0 113,078 100.0 345,759 100.0
-------- ------ -------- ------ --------- ------
Operating expenses:
Costs of operations:
Site rental and broadcast
transmission................. 2,213 20.1 26,254 35.0 114,436 42.7
Network services and other.... 13,137 64.4 21,564 56.7 42,312 54.3
-------- -------- ---------
Total costs of operations.... 15,350 48.9 47,818 42.3 156,748 45.4
General and administrative...... 6,824 21.7 23,571 20.8 43,823 12.7
Corporate development........... 5,731 18.3 4,625 4.1 5,403 1.6
Restructuring charges........... -- -- -- -- 5,645 1.6
Non-cash compensation charges... -- -- 12,758 11.3 2,173 0.6
Depreciation and amortization... 6,952 22.1 37,239 32.9 130,106 37.6
-------- ------ -------- ------ --------- ------
Operating income (loss).......... (3,452) (11.0) (12,933) (11.4) 1,861 0.5
Other income (expense):
Equity in earnings (losses) of
unconsolidated affiliate........ (1,138) (3.6) 2,055 1.8 -- --
Interest and other income
(expense)...................... 1,951 6.2 4,220 3.7 17,731 5.1
Interest expense and
amortization of deferred
financing costs................ (9,254) (29.5) (29,089) (25.7) (110,908) (32.0)
-------- ------ -------- ------ --------- ------
Loss before income taxes,
minority interests and
cumulative effect of change
in accounting principle......... (11,893) (37.9) (35,747) (31.6) (91,316) (26.4)
Provision for income taxes....... (49) (0.1) (374) (0.3) (275) (0.1)
Minority interests............... -- -- (1,654) (1.5) (2,756) (0.8)
-------- ------ -------- ------ --------- ------
Loss before cumulative
effect of change in
accounting principle............ (11,942) (38.0) (37,775) (33.4) (94,347) (27.3)
Cumulative effect of change in
accounting principle for costs
of start-up activities.......... -- -- -- -- (2,414) (0.7)
-------- ------ -------- ------ --------- ------
Net loss......................... $(11,942) (38.0)% $(37,775) (33.4)% $ (96,761) (28.0)%
======== ====== ======== ====== ========= ======
Comparison of Years Ended December 31, 1999 and 1998
Consolidated revenues for 1999 were $345.8 million, an increase of $232.7
million from 1998. This increase was primarily attributable to:
(1) a $192.9 million, or 257.1%, increase in site rental and broadcast
transmission revenues, of which $119.5 million was attributable to CCUK,
$37.6 million was attributable to Crown Atlantic and $35.8 million was
attributable to CCUSA,
(2) a $12.9 million increase in network services and other revenues from
CCUSA,
(3) a $16.1 million increase in network services and other revenues from
CCUK, and
(4) $10.3 million in network services and other revenues from Crown Atlantic.
Costs of operations for 1999 were $156.7 million, an increase of $108.9
million from 1998. This increase was primarily attributable to:
43
(1) an $88.2 million increase in site rental and broadcast transmission
costs, of which $57.3 million was attributable to CCUK, $16.3 million was
attributable to Crown Atlantic and $14.6 million was attributable to
CCUSA,
(2) a $4.0 million increase in network services costs related to CCUSA,
(3) an $11.4 million increase in network services costs from CCUK, and
(4) $4.7 million in network services costs from Crown Atlantic.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues increased to 42.7% for 1999
from 35.0% for 1998 because of higher costs attributable to the CCUK, Crown
Atlantic and CCUSA operations. Costs of operations for network services and
other as a percentage of network services and other revenues decreased to 54.3%
for 1999 from 56.7% for 1998, primarily due to higher margins from the CCUK,
Crown Atlantic and CCUSA operations.
General and administrative expenses for 1999 were $43.8 million, an increase
of $20.3 million from 1998. This increase was primarily attributable to:
(1) a $10.1 million increase in expenses related to the CCUSA operations,
(2) a $1.8 million increase in expenses at our corporate office,
(3) a $3.2 million increase in expenses at CCUK, and
(4) $5.1 million in expenses at Crown Atlantic.
General and administrative expenses as a percentage of revenues decreased for
1999 to 12.7% from 20.8% for 1998 because of lower overhead costs as a
percentage of revenues for CCUK, Crown Atlantic and CCUSA.
Corporate development expenses for 1999 were $5.4 million, compared to $4.6
million for 1998. This increase was attributable to$0.8 million in expenses at
CCUK. Corporate development expenses for 1998 include discretionary bonuses
related to our performance totaling approximately $0.8 million for certain
members of our management.
In connection with the formation of Crown Atlantic, we completed a
restructuring of our United States operations during the first quarter of 1999.
The objective of this restructuring was to transition from a centralized
organization to a regionally-based organization in the United States. In the
first quarter of 1999, we recorded one-time charges of $1.8 million related to
severance payments for staff reductions, as well as costs related to non-
cancelable leases of excess office space.
We completed a restructuring of our TeleStructures, Inc. operations 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
current operating volume. In the fourth quarter of 1999, we recorded one-time
charges totaling $3.8 million related to severance payments for the staff
reductions, the recognition of an impairment loss for the remaining goodwill
from the acquisition and other related costs.
For 1999, we recorded non-cash compensation charges of $2.2 million related
to the issuance of stock options to certain employees and executives, compared
to $12.8 million for 1998. See "--Compensation Charges Related to Stock Option
Grants".
Depreciation and amortization for 1999 was $130.1 million, an increase of
$92.9 million from 1998. This increase was primarily attributable to:
(1) a $43.3 million increase in depreciation and amortization related to the
property and equipment and goodwill from CCUK,
44
(2) $24.2 million of depreciation and amortization related to the property
and equipment and goodwill from Crown Atlantic, and
(3) a $25.0 million increase in depreciation and amortization related to the
property and equipment, goodwill and other intangible assets related to
the CCUSA operations.
The equity in earnings (losses) of unconsolidated affiliate represents our
34.3% share of CCUK's net earnings (losses) for the periods prior to August
1998, at which time the share exchange with CCUK's shareholders was completed.
For the eight months ended August 31, 1998, after making appropriate adjustments
to CCUK's results of operations for such period to conform to generally accepted
accounting principles of the United States, CCUK had net revenues, operating
income, interest expense (including amortization of deferred financing costs)
and net income of $97.2 million, $18.6 million, $13.4 million and $6.0 million,
respectively. Included in CCUK's results of operations for such period are non-
cash compensation charges for approximately $3.8 million related to the issuance
of stock options to certain members of CCUK's management.
Interest and other income (expense) for 1999 resulted primarily from:
(1) the investment of the net proceeds from our initial public offering of
common stock in August 1998,
(2) the investment of the excess proceeds from the sale of our 12 3/4% senior
exchangeable preferred stock in December 1998,
(3) the investment of the excess proceeds from the sale of our common stock,
10 3/8% discount notes and 9% senior notes in May 1999,
(4) the investment of the proceeds from the sale of our common stock to TdF
in June and July of 1999,
(5) the investment of the net proceeds from the sale of our 11 1/4% discount
notes and 9 1/2% senior notes in July 1999, and
(6) the investment of the net proceeds from the sale of our 8 1/4%
convertible preferred stock in November 1999, partially offset by costs
incurred in connection with unsuccessful acquisition attempts, costs
incurred in connection with an offering of common stock by one of our
shareholders, a loss incurred upon the disposition of an investment in an
affiliate and costs incurred in connection with a solicitation of
consents from certain of our bond and preferred stock holders.
Interest and other income (expense) for 1998 resulted primarily from (1) the
investment of the excess proceeds from the sale of the 10 5/8% discount notes in
November 1997; and (2) the investment of the net proceeds from the initial
public offering in August 1998. See "--Liquidity and Capital Resources".
Interest expense and amortization of deferred financing costs for 1999 was
$110.9 million, an increase of $81.8 million, or 281.3%, from 1998. This
increase was primarily attributable to interest on indebtedness at CCUK and
Crown Atlantic, amortization of the original issue discount on the 10 3/8%
discount notes and the 11 1/4% discount notes, interest on the 9% senior notes
and the 9 1/2% senior notes, and interest and fees on the term loans used to
finance the BellSouth and Powertel escrow payments.
Minority interests represent the minority shareholder's 20% interest in
CCUK's operations and the minority partner's 38.5% interest in Crown Atlantic's
operations.
The cumulative effect of the change in accounting principle for costs of
start-up activities represents the charge we recorded upon the adoption of SOP
98-5 on January 1, 1999.
45
Comparison of Years Ended December 31, 1998 and 1997
Consolidated revenues for 1998 were $113.1 million, an increase of $81.7
million from 1997. This increase was primarily attributable to:
(1) a $64.0 million, or 581.5%, increase in site rental and broadcast
transmission revenues, of which $52.5 million was attributable to CCUK
and $11.5 million was attributable to the CCUSA operations,
(2) an $11.4 million increase in network services revenues from the CCUSA
operations, and
(3) $5.6 million in network services revenues from CCUK.
Costs of operations for 1998 were $47.8 million, an increase of $32.5 million
from 1997. This increase was primarily attributable to:
(1) a $24.0 million increase in site rental and broadcast transmission costs,
of which $20.1 million was attributable to CCUK and $3.9 million was
attributable to the CCUSA operations,
(2) a $3.8 million increase in network services costs related to the CCUSA
operations, and
(3) $4.2 million in network services costs from CCUK.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues increased to 35.0% for 1998
from 20.1% for 1997, primarily due to (1) higher costs attributable to the CCUK
operations which are inherent with CCUK's broadcast transmission business, and
(2) higher costs for the CCUSA operations. Costs of operations for network
services as a percentage of network services revenues decreased to 56.7% for
1998 from 64.4% for 1997, primarily due to improved margins from the CCUSA
operations. Margins from the CCUSA network services operations vary from period
to period, often as a result of increasingly competitive market conditions.
General and administrative expenses for 1998 were $23.6 million, an increase
of $16.7 million from 1997. This increase was primarily attributable to:
(1) an $11.3 million increase in expenses related to the CCUSA operations,
(2) a $2.8 million increase in expenses at our corporate office, and
(3) $2.4 million in expenses at CCUK.
General and administrative expenses as a percentage of revenues decreased for
1998 to 20.8% from 21.7% for 1997 because of lower overhead costs as a
percentage of revenues for CCUK, partially offset by higher overhead costs as a
percentage of revenues for CCUSA and the increase in costs at our corporate
office.
Corporate development expenses for 1998 were $4.6 million, a decrease of $1.1
million from 1997. Corporate development expenses for 1997 included nonrecurring
compensation charges associated with the CCUK investment of (1) $0.9 million for
certain executive bonuses and (2) the repurchase of shares of our common stock
from a member of our board of directors, which resulted in compensation charges
of $1.3 million. Corporate development expenses for 1998 included discretionary
bonuses related to our performance totaling approximately $1.8 million for
certain members of our management.
We have recorded non-cash compensation charges of $12.8 million related to
the issuance of stock options to certain employees and executives. Such charges
are expected to amount to approximately $1.6 million per year through 2002 and
approximately $0.8 million in 2003. See "--Compensation Charges Related to
Stock Option Grants".
Depreciation and amortization for 1998 was $37.2 million, an increase of
$30.3 million from 1997. This increase was primarily attributable to (1) a $9.5
million increase in depreciation and amortization related to the
46
property and equipment, goodwill and other intangible assets acquired in the
Crown Communication acquisition; and (2) $20.3 million of depreciation and
amortization related to the property and equipment and goodwill from CCUK.
The equity in earnings (losses) of unconsolidated affiliate represents our
34.3% share of CCUK's net earnings (losses) for the periods from March 1997
through August 1998, at which time the share exchange with CCUK's shareholders
was completed. For the period from March through December 1997, after making
appropriate adjustments to CCUK's results of operations for such period to
conform to generally accepted accounting principles of the United States, CCUK
had net revenues, operating income, interest expense (including amortization of
deferred financing costs) and net losses of $103.5 million, $16.5 million, $20.4
million and $3.3 million, respectively.
Interest and other income for 1997 includes a $1.2 million fee received in
March 1997 as compensation for leading the investment consortium which provided
the equity financing for CCUK. Interest income for 1998 resulted primarily from
(1) the investment of excess proceeds from the sale of the 10 5/8% discount
notes in November 1997; and (2) the investment of the net proceeds from the
initial public offering in August 1998. See "--Liquidity and Capital Resources".
Interest expense and amortization of deferred financing costs for 1998 was
$29.1 million, an increase of $19.8 million, or 214.3%, from 1997. This
increase was primarily attributable to amortization of the original issue
discount on the 10 5/8% discount notes and interest on CCUK's indebtedness.
Minority interests represent the minority shareholder's 20% interest in
CCUK's operations.
LIQUIDITY AND CAPITAL RESOURCES
Our business strategy contemplates substantial capital expenditures:
(1) in connection with the expansion of our tower portfolios by partnering
with wireless carriers to assume ownership or control of their existing
towers, by pursuing build-to-suit opportunities, and by pursuing other
tower acquisition opportunities, and
(2) to acquire existing transmission networks globally as opportunities
arise.
Since its inception, CCIC has generally funded its activities, other than
acquisitions and investments, through excess proceeds from contributions of
equity capital and cash provided by operations. CCIC has financed acquisitions
and investments with the proceeds from equity contributions, borrowings under
our senior credit facilities, issuances of debt securities and the issuance of
promissory notes to sellers. Since its inception, CCUK has generally funded its
activities, other than the acquisition of the BBC home service transmission
business, through cash provided by operations and borrowings under CCUK's credit
facility. CCUK financed the acquisition of the BBC home service transmission
business with the proceeds from equity contributions and the issuance of the
CCUK bonds.
For the years ended December 31, 1997, 1998 and 1999, our net cash provided
by (used for) operating activities was ($0.6 million), $45.0 million and $92.6
million, respectively. For the years ended December 31, 1997, 1998 and 1999,
our net cash provided by financing activities was $159.8 million, $345.2 million
and $1,670.4 million, respectively. Our primary financing-related activities in
1999 and the first quarter of 2000 included the following:
May Offerings
On May 12, 1999, we completed public offerings of debt and equity securities.
We sold (1) 21,000,000 shares of our common stock at a price of $17.50 per share
and received proceeds of $352.8 million (after
47
underwriting discounts of $14.7 million), (2) $500.0 million aggregate principal
amount at maturity of our 10 3/8% discount notes for proceeds of $292.6 million
(net of original issue discount of $198.3 million and after underwriting
discounts of $9.1 million), and (3) $180.0 million aggregate principle amount of
our 9% senior notes for proceeds of $174.6 million (after underwriting discounts
of $5.4 million). We had granted the underwriters for the offerings an over-
allotment option to purchase an additional 3,150,000 shares of our common stock.
On May 13, 1999, the underwriters exercised this over-allotment option in full.
As a result, we received additional proceeds of $52.9 million (after
underwriting discounts of $2.2 million). A portion of the proceeds from these
offerings was used to repay amounts drawn under the term loans in connection
with the BellSouth and Powertel transactions. The remaining proceeds will be
used to pay the remaining purchase price for the BellSouth and Powertel
transactions, to fund our initial interest payments on the 9% senior notes and
for general corporate purposes.
Sales of Common Stock to TdF
On June 15, 1999, we sold shares of our common stock to a subsidiary of TdF
pursuant to TdF's preemptive rights related to two recent acquisitions. We sold
5,395,539 shares at $12.63 per share and 125,066 shares at $13.00 per share.
The aggregate proceeds of approximately $69.8 million will be used for general
corporate purposes. On July 20, 1999, we sold shares of our common stock to a
subsidiary of TdF pursuant to TdF's preemptive rights related to the May
offerings. We sold 8,351,791 shares at $16.80 per share. The aggregate
proceeds of approximately $140.3 million will be used for general corporate
purposes.
July Offerings
On July 27, 1999, we sold debt securities in a private placement. We sold
(1) $260.0 million aggregate principal amount at maturity of our 11 1/4%
discount notes for proceeds of $147.5 million (net of original issue discount of
$109.5 million and after underwriting discounts of $3.0 million) and (2) $125.0
million aggregate principle amount of our 9 1/2% senior notes for proceeds of
$122.5 million (after underwriting discounts of $2.5 million). The proceeds
from the sale of these securities will be used to pay the remaining purchase
price for the BellSouth DCS transaction, to fund our initial interest payments
on the 9 1/2% senior notes and for general corporate purposes.
Sale of Preferred Stock to GECC
On November 19, 1999, we issued 200,000 shares of our 8 1/4% convertible
preferred stock at a price of $1,000 per share (the liquidation preference per
share) to GECC. We received net proceeds of approximately $191.5 million (after
structuring and underwriting fees of $8.5 million but before other expenses of
the transaction). The net proceeds will be used to pay a portion of the
purchase price for the GTE joint venture. GECC also received warrants to
purchase 1.0 million shares of our common stock at an exercise price of $26.875
per share. The warrants are exercisable, in whole or in part, at any time for a
period of five years following the issue date.
2000 Credit Facility
In March 2000, a subsidiary of CCIC entered into a credit agreement with a
syndicate of banks which consists of two term loan facilities and a revolving
line of credit aggregating $1,200.0 million. Available borrowings under the
2000 credit facility are generally to be used for the construction and purchase
of towers and for general corporate purposes of CCUSA, Crown Castle GT and CCAL.
The amount of available borrowings will be determined based on the current
financial performance (as defined) of those subsidiaries' assets. In addition,
up to $25.0 million of borrowing availability under the 2000 credit facility can
be used for letters of credit. On March 15, 2000, we used $83.4 million in
borrowings under the 2000 credit facility to repay outstanding borrowings and
accrued interest under the Crown Communication senior credit facility. The net
proceeds from $316.6 million in additional borrowings will be used to fund a
portion of the purchase price for the GTE joint venture and for general
corporate purposes. In the first quarter of 2000, Crown Communication will
record an extraordinary loss of approximately $1.7 million consisting of the
write-off of unamortized deferred financing costs related to the senior credit
facility.
48
Capital expenditures were $293.8 million for the year ended December 31,
1999, of which $1.0 million were for CCIC, $119.0 million were for CCUSA, $23.3
million were for Crown Atlantic and $150.5 million were for CCUK. We anticipate
that we will build, through the end of 2000, approximately 900 towers in the
United States at a cost of approximately $225.0 million and approximately 270
towers in the United Kingdom at a cost of approximately $45.0 million. We also
expect that the capital expenditure requirements related to the roll-out of
digital broadcast transmission in the United Kingdom will be approximately
(Pounds)17.5 million ($28.0 million).
In addition to capital expenditures in connection with build-to-suits, we
expect to apply a significant amount of capital to finance the remaining cash
portion of the consideration being paid in connection with the recent and
agreed to transactions discussed below.
In connection with the Bell Atlantic joint venture, we issued approximately
15.6 million shares of our common stock and contributed $250.0 million in cash
to the joint venture. The joint venture borrowed approximately $180.0 million
under the Crown Atlantic credit facility, following which the joint venture made
a $380.0 million cash distribution to Bell Atlantic.
In connection with the BellSouth transaction, through February 2, 2000, we
have issued approximately 8.2 million shares of our common stock and paid
BellSouth $390.6 million in cash. We expect to (1) issue an additional 0.9
million shares of our common stock and (2) use a portion of the net proceeds
from our recent offerings to finance the remaining $39.4 million cash purchase
price for this transaction.
In connection with the Powertel acquisition, we paid Powertel $275.0 million
in cash.
In connection with the BellSouth DCS transaction, through February 2, 2000,
we have paid BellSouth DCS $277.5 million in cash. We expect to use a portion
of the net proceeds from our recent offerings to finance the remaining $39.4
million cash purchase price for this transaction.
On November 7, 1999, we entered into an agreement with GTE to form a joint
venture to own and operate a significant majority of GTE's towers. Upon
formation of the GTE joint venture (which will occur in multiple closings during
2000), (1) we will contribute approximately $825.0 million (of which up to
$100.0 million can be in shares of our common stock, with the balance in cash)
in exchange for a majority ownership interest in the joint venture, and (2) GTE
will contribute approximately 2,300 towers in exchange for a cash distribution
of approximately $800.0 million (less any amount contributed in the form of our
common stock) from the joint venture and a minority ownership interest in the
joint venture. Upon dissolution of the joint venture, GTE would receive (1) any
shares of our common stock contributed to the joint venture and (2) a payment
equal to approximately 11.4% of the fair market value of the joint venture's
other net assets; we would then receive the remaining assets and liabilities of
the joint venture. We will account for our investment in the GTE joint venture
as a purchase of tower assets, and will include the joint venture's results of
operations and cash flows in our consolidated financial statements for periods
subsequent to formation. Upon entering into this agreement, we placed $50.0
million into an escrow account; such funds would be forfeited if we failed to
close this transaction because we were unable to obtain adequate financing. On
January 31, 2000, the formation of the GTE joint venture took place with the
first closing of towers. We contributed $223.9 million in cash to the joint
venture, and GTE contributed 637 towers in exchange for a cash distribution of
$198.9 million from the joint venture. We expect to use borrowings under our
2000 credit facility to finance most of the remaining $601.1 million purchase
price for this transaction.
In March 2000, CCAL (our 66.7% owned subsidiary) entered into an agreement to
purchase approximately 700 towers in Australia from Cable & Wireless Optus. The
total purchase price for the towers will be approximately $135.0 million in cash
(Australian $220.0 million), and the purchase is expected to close in the second
quarter of 2000. We will account for our investment in CCAL as a purchase of
tower assets, and will include CCAL's results of operations and cash flows
49
in our consolidated financial statements for periods subsequent to the purchase
date. We expect to use borrowings under our 2000 credit facility to finance the
cash purchase price for this transaction.
We expect that the completion of the recent and agreed to transactions and
the execution of our new tower build, or build-to-suit program, will have a
material impact on our liquidity. We expect that once integrated, these
transactions will have a positive impact on liquidity, but will require some
period of time to offset the initial adverse impact on liquidity. In addition,
we believe that as new towers become operational and we begin to add tenants,
they should result in a long-term increase in liquidity.
Our liquidity may also be materially impacted if we fail to complete the GTE
joint venture transaction. We expect to finance most of the purchase price for
this transaction with borrowings under the 2000 credit facility, and we are
currently investigating various financing alternatives for the remaining amount.
There can be no assurance, however, that we will be able to obtain any such
financing, and we may be forced to forego a portion of the towers included in
this transaction. If that were to occur, we would likely be forced to forfeit
all or part of the related escrow payment. If we were to fail to complete this
transaction and forfeit all or any significant portion of the $50.0 million
escrow payment made in connection with the transaction, it would have a material
adverse effect on our financial condition, including our ability to implement
our current business strategy. See "Item 1. Business--Risk Factors--We May Not
Complete the Agreed To Transactions".
To fund the execution of our business strategy, including the recent and
agreed to transactions described above and the construction of new towers that
we have agreed to build, we expect to use the net proceeds of our recent
offerings and borrowings available under our U.S. and U.K. credit facilities. We
will have additional cash needs to fund our operations in the future. We may
also have additional cash needs in the near term if additional tower
acquisitions or build-to-suit opportunities arise. Some of the opportunities
that we are currently pursuing could require significant additional capital. If
we do not otherwise have cash available, or borrowings under our credit
facilities have otherwise been utilized, when our cash need arises, we would be
forced to seek additional debt or equity financing or to forego the opportunity.
In the event we determine to seek additional debt or equity financing, there can
be no assurance that any such financing will be available, on commercially
acceptable terms or at all, or permitted by the terms of our existing
indebtedness. We expect to raise additional funds in the near term with bank
loans, debt or equity financing.
As of December 31, 1999, we had consolidated cash and cash equivalents of
$549.3 million (including $14.6 million at CCUK and $40.0 million at Crown
Atlantic), consolidated long-term debt of $1,542.3 million, consolidated
redeemable preferred stock of $422.9 million and consolidated stockholders'
equity of $1,617.7 million.
As of March 1, 2000, Crown Atlantic had unused borrowing availability under
its credit facility of approximately $70.0 million, and CCUK had unused
borrowing availability under its credit facility of approximately (Pounds)65.0
million ($102.6 million). As of March 15, 2000, our subsidiaries had
approximately $100.0 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.
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 and our 9
1/2% senior notes will require annual cash interest payments of approximately
$16.2 million and $11.9 million, respectively. Prior to November 15, 2002, May
15, 2004 and August 1, 2004, the interest expense on our 10 3/8% discount notes,
our 10 5/8% 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
50
approximately $26.7 million, $51.9 million and $29.3 million, respectively.
Prior to December 15, 2003, we do not expect to pay cash dividends on our
exchangeable preferred stock or, if issued, cash interest on the exchange
debentures. Thereafter, assuming all dividends or interest have been paid-in-
kind, our exchangeable preferred stock or, if issued, the exchange debentures
will require annual cash dividend or interest payments of approximately $47.8
million. Annual cash interest payments on the CCUK bonds are (Pounds)11.25
million ($18.2 million). In addition, our various credit facilities will require
periodic interest payments on amounts borrowed thereunder.
As a holding company, CCIC will require distributions or dividends from its
subsidiaries, or will be forced to use capital raised in debt and equity
offerings, to fund its debt obligations, including interest payments on the
cash-pay notes and eventually the 10 5/8% discount notes, the 10 3/8% discount
notes and the 11 1/4% discount notes. The terms of the indebtedness of our
subsidiaries significantly limit their ability to distribute cash to CCIC. As a
result, we will be required to apply a portion of the net proceeds from the
recent debt offerings to fund interest payments on the cash-pay notes. If we do
not retain sufficient funds from the offerings or any future financing, we may
not be able to make our interest payments on the cash-pay notes.
Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any such debt
obligations, will depend on our future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control. We anticipate that we may need
to refinance all or a portion of our indebtedness on or prior to its scheduled
maturity. There can be no assurance that we will be able to effect any required
refinancings of our indebtedness on commercially reasonable terms or at all.
See "Item 1. Business--Risk Factors".
REPORTING REQUIREMENTS UNDER THE INDENTURES GOVERNING THE COMPANY'S DEBT
SECURITIES 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.
Upon consummation of the share exchange with CCUK's shareholders, which
increased our ownership interest in CCUK to 80%, we designated CCUK as an
Unrestricted Subsidiary. In addition, we designated Crown Atlantic as an
Unrestricted Subsidiary. Prior to these transactions, we did not have any
Unrestricted Subsidiaries. Summarized financial information for (1) CCIC and
our Restricted Subsidiaries; and (2) our Unrestricted Subsidiaries is as
follows:
51
December 31, 1999
-----------------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------- ------------ ------------
(In thousands of dollars)
Cash and cash equivalents.................... $ 494,724 $ 54,604 $ -- $ 549,328
Other current assets......................... 59,106 53,611 -- 112,717
Property and equipment, net.................. 1,350,610 1,117,491 -- 2,468,101
Escrow deposit for acquisition............... 50,000 -- -- 50,000
Investments in Unrestricted Subsidiaries..... 991,261 -- (991,261) --
Goodwill and other intangible assets, net.... 132,553 463,594 -- 596,147
Other assets, net............................ 48,578 11,779 -- 60,357
---------- ---------- --------- ----------
$3,126,832 $1,701,079 $(991,261) $3,836,650
========== ========== ========= ==========
Current liabilities.......................... $ 49,905 $ 81,376 $ -- $ 131,281
Long-term debt............................... 1,033,188 509,155 -- 1,542,343
Other liabilities............................ 3,069 63,995 -- 67,064
Minority interests........................... -- 55,292 -- 55,292
Redeemable preferred stock................... 422,923 -- -- 422,923
Stockholders' equity......................... 1,617,747 991,261 (991,261) 1,617,747
---------- ---------- --------- ----------
$3,126,832 $1,701,079 $(991,261) $3,836,650
========== ========== ========= ==========
Three Months Ended December 31, 1999 Year Ended December 31, 1999
--------------------------------------------- ----------------------------------------------------
Company Company
and and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------- ------------- ------------- ------------- ------------- --------------------
(In thousands of dollars)
Net revenues...................... $ 40,694 $ 73,502 $114,196 $104,177 $241,582 $ 345,759
Costs of operations (exclusive of
depreciation and amortization)... 17,327 34,534 51,861 42,737 114,011 156,748
General and administrative........ 10,578 3,169 13,747 33,052 10,771 43,823
Corporate development............. 1,181 88 1,269 4,584 819 5,403
Restructuring charges............. 3,831 -- 3,831 5,645 -- 5,645
Non-cash compensation charges..... 340 161 501 1,404 769 2,173
Depreciation and amortization..... 16,251 24,486 40,737 42,354 87,752 130,106
-------- -------- -------- -------- -------- ---------
Operating income (loss)........... (8,814) 11,064 2,250 (25,599) 27,460 1,861
Interest and other income
(expense)........................ 4,339 590 4,929 9,934 7,797 17,731
Interest expense and amortization
of deferred financing costs....... (25,891) (12,669) (38,560) (70,341) (40,567) (110,908)
Provision for income taxes........ (7) -- (7) (275) -- (275)
Minority interests................ -- (1,569) (1,569) -- (2,756) (2,756)
Cumulative effect of change in
accounting principle for costs of
start-up activities.............. -- -- -- (2,414) -- (2,414)
-------- -------- -------- -------- -------- ---------
Net loss.......................... $(30,373) $ (2,584) $(32,957) $(88,695) $ (8,066) $ (96,761)
======== ======== ======== ======== ======== =========
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
52
1998 Securities") and (2) the indentures governing the 10 3/8% Discount Notes,
the 9% Notes, the 11 1/4% Discount Notes and the 9 1/2% Notes (the "1999
Securities"):
1997 and 1998 1999
Securities Securities
-------------- -----------
(In thousands of dollars)
(Unaudited)
Tower Cash Flow, for the three months ended December 31, 1999................... $ 12,339 $ 12,339
======== ========
Consolidated Cash Flow, for the twelve months ended December 31, 1999........... $ 23,804 $ 28,388
Less: Tower Cash Flow, for the twelve months ended December 31, 1999............ (33,022) (33,022)
Plus: four times Tower Cash Flow, for the three months ended December 31,
1999........................................................................... 49,356 49,356
-------- --------
Adjusted Consolidated Cash Flow, for the twelve months ended December 31,
1999........................................................................... $ 40,138 $ 44,722
======== ========
COMPENSATION CHARGES RELATED TO STOCK OPTION GRANTS
During the period from April 24, 1998 through July 15, 1998, we granted
options to employees and executives for the purchase of 3,236,980 shares of our
common stock at an exercise price of $7.50 per share. Of such options, options
for 1,810,730 shares vested upon consummation of the IPO and the remaining
options for 1,426,250 shares will vest at 20% per year over five years,
beginning one year from the date of grant. In addition, we have assigned our
right to repurchase shares of our common stock from a stockholder (at a price of
$6.26 per share) to two individuals (including a newly-elected director) with
respect to 100,000 of such shares. Since the granting of these options and the
assignment of these rights to repurchase shares occurred subsequent to the date
of the share exchange agreement with CCUK's shareholders and at prices
substantially below the price to the public in the IPO, we have recorded a non-
cash compensation charge related to these options and shares based upon the
difference between the respective exercise and purchase prices and the price to
the public in the IPO. Such compensation charge will total approximately $18.4
million, of which approximately $10.6 million was recognized upon consummation
of the IPO (for such options and shares which vested upon consummation of the
IPO), and the remaining $7.8 million is being recognized over five years
(approximately $1.6 million per year) through the second quarter of 2003. An
additional $1.6 million in non-cash compensation charges will be recognized
through the third quarter of 2001 for stock options issued to certain members of
CCUK's management prior to the consummation of the share exchange.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and broadly
defines such costs. We have deferred certain costs incurred in connection with
potential business initiatives and new geographic markets, and SOP 98-5 requires
that such deferred costs be charged to results of operations upon its adoption.
SOP 98-5 is effective for fiscal years beginning after December 15, 1998. We
have 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 $2.4 million in our financial
statements for the three months ended March 31, 1999.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that
derivative instruments be recognized as either assets or liabilities in the
consolidated balance sheet based on their fair values. Changes in the fair
values of such derivative instruments will be recorded either in results of
operations or in other comprehensive income, depending on the intended use of
the derivative instrument. The initial application of SFAS 133 will be reported
as the effect of a change in accounting principle. SFAS 133, as amended, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
We will adopt the requirements of SFAS 133 in our financial statements for the
three months
53
ending March 31, 2001. We have not yet determined the effect that the adoption
of SFAS 133 will have on our consolidated financial statements.
YEAR 2000 COMPLIANCE
The year 2000 problem is the result of computer programs having been written
using two digits (rather than four) to define the applicable year. Any of our
computer programs that have date-sensitive software might have recognized a date
using "00" as 1900 rather than the year 2000, or might not have recognized the
date at all. This could have resulted in a system failure or miscalculations
causing disruption of operations including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
In 1997 we established a year 2000 project to ensure that the issue received
appropriate priority and that necessary resources were made available. This
project included the replacement of our worldwide business computer systems with
systems that use programs primarily from J.D. Edwards, Inc. The new systems
made approximately 90% of our business computer systems year 2000 compliant and
are in production today. Remaining business software programs, including those
supplied by vendors, were made year 2000 compliant through the year 2000 project
or they were retired. None of our other information technology projects were
delayed due to the implementation of the year 2000 project.
Our year 2000 project was divided into the following phases: (1) inventorying
year 2000 items; (2) assigning priorities to identified items; (3) assessing the
year 2000 compliance of items determined to be material to us; (4) repairing or
replacing material items that are determined not to be year 2000 compliant; (5)
testing material items; and (6) designing and implementing contingency and
business continuation plans for each organization and company location. We
completed all such phases prior to the end of 1999. All critical broadcast
equipment and non-information technology related equipment was tested and was
either year 2000 compliant or was designated as year 2000 ready. A year 2000
ready designation implies the equipment or system will function without adverse
effects beyond year 2000 but may not be aware of the century. All critical
information technology systems were designated year 2000 compliant or were
retired or remediated by the end of 1999.
We expended approximately $7.6 million on the year 2000 project through
December 31, 1999, of which approximately $6.8 million related to the
implementation of the J.D. Edwards Systems and related hardware.
The failure to correct a material year 2000 problem could have resulted in an
interruption in, or a failure of, certain normal business activities or
operations. However, we believe that our efforts to ensure year 2000 compliance
have been successful. To date, we have not suffered any significant year 2000
problems, but we continue to monitor our various computer systems.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our international operating, investing and financing
activities, we are exposed to market risks, which include changes in foreign
currency exchange rates and interest rates which may adversely affect our
results of operations and financial position. In seeking to minimize the risks
and/or costs associated with such activities, we manage exposure to changes in
interest rates and foreign currency exchange rates.
Certain financial instruments used to obtain capital are subject to market
risks from fluctuations in market rates. The majority of our financial
instruments, however, are long-term fixed interest rate notes and debentures.
Therefore, fluctuations in market interest rates of 1% in 2000 would not have a
material effect on our consolidated financial results.
54
The majority of our foreign currency transactions are denominated in the
British pound sterling, which is the functional currency of CCUK. As CCUK's
transactions are denominated and settled in the functional currency, risks
associated with currency fluctuations are minimized to foreign currency
translation adjustments. We do not currently hedge against foreign currency
translation risks and believe that foreign currency exchange risk is not
significant to our operations.
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of KPMG LLP, Independent Auditors............................................................... 57
Consolidated Balance Sheet as of December 31, 1998 and 1999............................................ 58
Consolidated Statement of Operations and Comprehensive Loss for each of the three years in the
period ended December 31, 1999........................................................................ 59
Consolidated Statement of Cash Flows for each of the three years in the period ended December 31,
1999.................................................................................................. 60
Consolidated Statement of Stockholders' Equity (Deficit) for each of the three years in the period
ended December 31, 1999............................................................................... 61
Notes to Consolidated Financial Statements............................................................ 62
56
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Crown Castle International Corp.:
We have audited the accompanying consolidated balance sheets of Crown Castle
International Corp. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations and comprehensive loss, cash flows
and stockholders' equity (deficit) for each of the years in the three-year
period ended December 31, 1999. 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 generally accepted auditing
standards. 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, 1998 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Houston, Texas
February 22, 2000
57
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
December 31,
---------------------------
1998 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 296,450 $ 549,328
Receivables:
Trade, net of allowance for doubtful accounts of $1,535 and $3,218 at
December 31, 1998 and 1999, respectively...................................... 32,130 74,290
Other.......................................................................... 4,290 4,327
Inventories...................................................................... 6,599 19,178
Prepaid expenses and other current assets........................................ 2,647 14,922
---------- ----------
Total current assets.......................................................... 342,116 662,045
Property and equipment, net....................................................... 592,594 2,468,101
Escrow deposit for acquisition.................................................... -- 50,000
Goodwill and other intangible assets, net of accumulated amortization of
$20,419 and $53,437 at December 31, 1998 and 1999, respectively.................. 569,740 596,147
Deferred financing costs and other assets, net of accumulated amortization of
$1,722 and $4,245 at December 31, 1998 and 1999, respectively.................... 18,780 60,357
---------- ----------
$1,523,230 $3,836,650
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 46,020 $ 45,998
Accrued interest................................................................. 15,677 20,912
Accrued compensation and related benefits........................................ 5,188 4,005
Deferred rental revenues and other accrued liabilities........................... 26,002 60,366
---------- ----------
Total current liabilities..................................................... 92,887 131,281
Long-term debt.................................................................... 429,710 1,542,343
Other liabilities................................................................. 22,823 67,064
---------- ----------
Total liabilities............................................................. 545,420 1,740,688
---------- ----------
Commitments and contingencies (Note 12)
Minority interests................................................................ 39,185 55,292
Redeemable preferred stock........................................................ 201,063 422,923
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares authorized:
Common Stock; shares issued: December 31, 1998 - 83,123,873 and
December 31, 1999 - 146,074,905............................................... 831 1,461
Class A Common Stock; shares issued: 11,340,000................................ 113 113
Additional paid-in capital....................................................... 795,153 1,805,053
Cumulative foreign currency translation adjustment............................... 1,690 (3,013)
Accumulated deficit.............................................................. (60,225) (185,867)
---------- ----------
Total stockholders' equity.................................................... 737,562 1,617,747
---------- ----------
$1,523,230 $3,836,650
========== ==========
See notes to consolidated financial statements.
58
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Years Ended December 31,
-------------------------------------
1997 1998 1999
---------- ---------- -----------
Net revenues:
Site rental and broadcast transmission......................... $ 11,010 $ 75,028 $ 267,894
Network services and other..................................... 20,395 38,050 77,865
-------- -------- ---------
31,405 113,078 345,759
-------- -------- ---------
Operating expenses:
Costs of operations (exclusive of depreciation and amortization):
Site rental and broadcast transmission....................... 2,213 26,254 114,436
Network services and other................................... 13,137 21,564 42,312
General and administrative..................................... 6,824 23,571 43,823
Corporate development.......................................... 5,731 4,625 5,403
Restructuring charges.......................................... -- -- 5,645
Non-cash compensation charges.................................. -- 12,758 2,173
Depreciation and amortization.................................. 6,952 37,239 130,106
-------- -------- ---------
34,857 126,011 343,898
-------- -------- ---------
Operating income (loss)......................................... (3,452) (12,933) 1,861
Other income (expense):
Equity in earnings (losses) of unconsolidated affiliate........ (1,138) 2,055 --
Interest and other income (expense)............................ 1,951 4,220 17,731
Interest expense and amortization of deferred financing costs.. (9,254) (29,089) (110,908)
-------- -------- ---------
Loss before income taxes, minority interests and cumulative effect
of change in accounting principle............................. (11,893) (35,747) (91,316)
Provision for income taxes...................................... (49) (374) (275)
Minority interests.............................................. -- (1,654) (2,756)
-------- -------- ---------
Loss before cumulative effect of change in accounting principle. (11,942) (37,775) (94,347)
Cumulative effect of change in accounting principle for costs of
start-up activities............................................ -- -- (2,414)
-------- -------- ---------
Net loss........................................................ (11,942) (37,775) (96,761)
Dividends on preferred stock.................................... (2,199) (5,411) (28,881)
-------- -------- ---------
Net loss after deduction of dividends on preferred stock........ $(14,141) $(43,186) $(125,642)
======== ======== =========
Net loss........................................................ $(11,942) $(37,775) $ (96,761)
Other comprehensive income:
Foreign currency translation adjustments....................... 562 1,128 (4,703)
-------- -------- ---------
Comprehensive loss.............................................. $(11,380) $(36,647) $(101,464)
======== ======== =========
Per common share - basic and diluted:
Loss before cumulative effect of change in accounting principle $(2.27) $(1.02) $(0.94)
Cumulative effect of change in accounting principle............ -- -- (0.02)
-------- -------- ---------
Net loss....................................................... $(2.27) $(1.02) $(0.96)
======== ======== =========
Common shares outstanding - basic and diluted (in thousands).... 6,238 42,518 131,466
======== ======== =========
See notes to consolidated financial statements.
59
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
Years Ended December 31,
--------------------------------------
1997 1998 1999
---------- ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................... $ (11,942) $ (37,775) $ (96,761)
Adjustments to reconcile net loss to net cash provided by (used for) operating
activities:
Depreciation and amortization.................................................. 6,952 37,239 130,106
Amortization of deferred financing costs and discounts on long-term debt....... 2,159 17,910 49,937
Minority interests............................................................. -- 1,654 2,756
Cumulative effect of change in accounting principle............................ -- -- 2,414
Non-cash compensation charges.................................................. -- 12,758 2,173
Equity in losses (earnings) of unconsolidated affiliate........................ 1,138 (2,055) --
Changes in assets and liabilities, excluding the effects of acquisitions:
Increase (decrease) in deferred rental revenues and other liabilities......... (240) 5,847 75,277
Increase (decrease) in accrued interest....................................... (396) 5,835 5,518
Increase in accounts payable.................................................. 1,824 15,373 889
Decrease (increase) in receivables............................................ 1,353 (7,450) (42,913)
Increase in inventories, prepaid expenses and other assets.................... (1,472) (4,360) (36,788)
--------- --------- -----------
Net cash provided by (used for) operating activities........................ (624) 44,976 92,608
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired................................. (33,962) (10,489) (1,208,466)
Capital expenditures............................................................. (18,035) (138,759) (293,801)
Investments in affiliates........................................................ (59,487) -- (6,879)
--------- --------- -----------
Net cash used for investing activities...................................... (111,484) (149,248) (1,509,146)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock.......................................... 139,867 339,929 805,771
Proceeds from issuance of long-term debt......................................... 150,010 -- 757,206
Net borrowings (payments) under revolving credit agreements...................... (6,223) 9,212 136,993
Incurrence of financing costs.................................................... (7,798) (3,010) (28,330)
Dividends on preferred stock..................................................... -- -- (1,238)
Purchase of capital stock........................................................ (2,132) (883) --
Principal payments on long-term debt............................................. (113,881) -- --
--------- --------- -----------
Net cash provided by financing activities................................... 159,843 345,248 1,670,402
--------- --------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH........................................... -- 396 (986)
--------- --------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................................... 47,735 241,372 252,878
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................................... 7,343 55,078 296,450
--------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......................................... $ 55,078 $ 296,450 $ 549,328
========= ========= ===========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of stockholder's Convertible Secured Subordinated Notes to Series A
Convertible Preferred Stock..................................................... $ 3,657 $ -- $ --
Amounts recorded in connection with acquisitions (see Note 2):
Fair value of net assets acquired, including goodwill and other intangible
assets........................................................................ 197,235 431,453 1,750,506
Escrow deposit for acquisition................................................. -- -- 50,000
Issuance of common stock....................................................... 57,189 420,964 397,710
Issuance of long-term debt..................................................... 78,102 -- 180,000
Minority interests............................................................. -- -- 14,330
Assumption of long-term debt................................................... 27,982 -- --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid.................................................................... $ 7,533 $ 6,276 $ 54,514
Income taxes paid................................................................ 26 446 301
See notes to consolidated financial staements.
60
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Class A Class B
Common Stock Common Stock Common Stock
-------------------- -------------------- --------------------
Shares ($.01 Par) Shares ($.01 Par) Shares ($.01 Par)
----------- ------ --------- --------- ---------- ---------
Balance, January 1, 1997......... 1,350,000 $ 3 1,488,330 $ 3 -- $ --
Issuances of capital stock...... -- -- 8,228,835 17 -- --
Purchase of capital stock....... (308,435) (1) (350,000) (1) -- --
Foreign currency
translation adjustments........ -- -- -- -- -- --
Dividends on preferred stock.... -- -- -- -- -- --
Net loss........................ -- -- -- -- -- --
---------- ----- ---------- ---- ----------- ------
Balance, December 31, 1997....... 1,041,565 2 9,367,165 19 -- --
Conversion of preferred
stock to Common Stock.......... -- -- -- -- 38,517,865 385
Conversion of Class A Common
Stock and Class B Common Stock
to Common Stock................ (1,041,565) (2) (9,367,165) (19) 10,953,625 109
Issuances of capital stock...... -- -- -- -- 33,793,453 338
Purchase of capital stock....... -- -- -- -- (141,070) (1)
Non-cash compensation charges... -- -- -- -- -- --
Foreign currency translation
adjustments.................... -- -- -- -- -- --
Dividends on preferred stock.... -- -- -- -- -- --
Net loss........................ -- -- -- -- -- --
---------- ----- ---------- ---- ----------- ------
Balance, December 31, 1998....... -- -- -- -- 83,123,873 831
Issuances of capital stock
and warrants................... -- -- -- -- 62,951,032 630
Non-cash compensation charges... -- -- -- -- -- --
Foreign currency translation
adjustments.................... -- -- -- -- -- --
Dividends on preferred stock.... -- -- -- -- -- --
Net loss........................ -- -- -- -- -- --
---------- ----- ---------- ---- ----------- ------
Balance, December 31, 1999....... -- $ -- -- $ -- 146,074,905 $1,461
========== ===== ========== ==== =========== ======
Cumulative
Class A Foreign
Common Stock Additional Currency
-------------------- Paid-In Translation Accumulated
Shares ($.01 Par) Capital Adjustment Deficit Total
----------- ----------- ----------- ----------- ----------- -----------
Balance, January 1, 1997......... -- $ -- $ 762 $ -- $ (978) $ (210)
Issuances of capital stock...... -- -- 57,696 -- -- 57,713
Purchase of capital stock....... -- -- (210) -- (1,920) (2,132)
Foreign currency translation
adjustments.................... -- -- -- 562 -- 562
Dividends on preferred stock.... -- -- -- -- (2,199) (2,199)
Net loss........................ -- -- -- -- (11,942) (11,942)
---------- ---- ---------- ------- --------- ----------
Balance, December 31, 1997....... -- -- 58,248 562 (17,039) 41,792
Conversion of preferred stock to
Common Stock................... -- -- 164,712 -- -- 165,097
Conversion of Class A Common
Stock and Class B Common Stock
to Common Stock................ -- -- (88) -- -- --
Issuances of capital stock...... 11,340,000 113 560,779 -- -- 561,230
Purchase of capital stock....... -- -- (882) -- -- (883)
Non-cash compensation charges... -- -- 12,384 -- -- 12,384
Foreign currency translation
adjustments.................... -- -- -- 1,128 -- 1,128
Dividends on preferred stock.... -- -- -- -- (5,411) (5,411)
Net loss........................ -- -- -- -- (37,775) (37,775)
---------- ---- ---------- ------- --------- ----------
Balance, December 31, 1998....... 11,340,000 113 795,153 1,690 (60,225) 737,562
Issuances of capital stock
and warrants................... -- -- 1,007,947 -- -- 1,008,577
Non-cash compensation charges... -- -- 1,953 -- -- 1,953
Foreign currency translation
adjustments.................... -- -- -- (4,703) -- (4,703)
Dividends on preferred stock.... -- -- -- -- (28,881) (28,881)
Net loss........................ -- -- -- -- (96,761) (96,761)
---------- ---- ---------- ------- --------- ----------
Balance, December 31, 1999....... 11,340,000 $113 $1,805,053 $(3,013) $(185,867) $1,617,747
========== ==== ========== ======= ========= ==========
See notes to consolidated financial statements.
61
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Crown Castle
International Corp. ("CCIC") and its majority and wholly owned subsidiaries,
collectively referred to herein as the "Company". All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the prior year's financial statements to be
consistent with the presentation in the current year.
The Company owns, operates and manages wireless communications sites and
broadcast transmission networks. The Company also provides complementary
services to its customers, including network design, radio frequency
engineering, site acquisition, site development and construction, antenna
installation and network management and maintenance. The Company's
communications sites are located throughout the United States, in Puerto Rico
and in the United Kingdom. In the United States and Puerto Rico, 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.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is computed utilizing the straight-line method at rates based upon
the estimated useful lives of the various classes of assets. Additions, renewals
and improvements are capitalized, while maintenance and repairs are expensed.
Upon the sale or retirement of an asset, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is recognized.
The carrying value of property and equipment and other long-lived assets 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.
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
62
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
over a 20 year life. Other intangible assets (principally the value of existing
site rental contracts at Crown Communications) 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 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.
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 antennae
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
substantially completed. Costs and revenues associated with installations not
complete at the end of a period are deferred and recognized when the
installation becomes operational. Any losses on contracts are recognized at
such time as they become known.
Network services revenues from design, engineering, site acquisition, and
network management and maintenance activities are recognized under service
contracts with customers which provide for billings on a time and materials,
cost plus profit, or fixed price basis. Such contracts typically have terms
from six months to two years. Revenues are recognized as services are performed
with respect to the time and materials contracts. Revenues are recognized using
the percentage-of-completion method for cost plus profit and fixed price
contracts, measured by the percentage of contract costs incurred to date
compared to estimated total contract costs. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
Corporate Development Expenses
Corporate development expenses represent costs incurred in connection with
acquisitions and development of new business initiatives.
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.
63
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
-------------------------------------
1997 1998 1999
---------- ---------- -----------
(In thousands of dollars,
except per share amounts)
Loss before cumulative effect of change in accounting principle. $(11,942) $(37,775) $ (94,347)
Dividends on preferred stock.................................... (2,199) (5,411) (28,881)
-------- -------- ---------
Loss before cumulative effect of change in accounting principle
applicable to common stock for basic and diluted
computations................................................... (14,141) (43,186) (123,228)
Cumulative effect of change in accounting principle............. -- -- (2,414)
-------- -------- ---------
Net loss applicable to common stock for basic and diluted
computations................................................... $(14,141) $(43,186) $(125,642)
======== ======== =========
Weighted-average number of common shares outstanding during
the period for basic and diluted computations (in thousands)... 6,238 42,518 131,466
======== ======== =========
Per common share - basic and diluted:
Loss before cumulative effect of change in accounting
principle................................................... $ (2.27) $ (1.02) $ (0.94)
Cumulative effect of change in accounting principle.......... -- -- (0.02)
-------- -------- ---------
Net loss..................................................... $ (2.27) $ (1.02) $ (0.96)
======== ======== =========
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of December 31, 1999: (1)
options to purchase 19,226,076 shares of common stock at exercise prices ranging
from $-0- to $25.62 per share; (2) warrants to purchase 1,194,990 shares of
common stock at an exercise price of $7.50 per share; (3) warrants to purchase
1,000,000 shares of common stock at an exercise price of $26.875 per share; (4)
shares of Crown Castle UK Holdings Limited ("CCUK", formerly Castle Transmission
Services (Holdings) Ltd) stock which are convertible into 17,443,500 shares of
common stock; and (5) shares of the Company's 8 1/4% Cumulative Convertible
Redeemable Preferred Stock (see Note 8) which are convertible into 7,441,860
shares of common stock. 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, 1999.
Foreign Currency Translation
CCUK uses the British pound sterling as the functional currency for its
operations. The Company translates CCUK's results of operations using the
average exchange rate for the period, and translates CCUK's assets and
liabilities using the exchange rate at the end of the period. The cumulative
effect of changes in the exchange rate is recorded as a translation adjustment
in stockholders' equity.
64
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financial Instruments
The carrying amount of cash and cash equivalents approximates fair value for
these instruments. 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 agreement
is based on the amount that the Company would receive or pay to terminate the
agreement 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, 1998 December 31, 1999
----------------------- ---------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ------------ ------------------
(In thousands of dollars)
Cash and cash equivalents..... $ 296,450 $ 296,450 $ 549,328 $ 549,328
Long-term debt................ (429,710) (443,379) (1,542,343) (1,542,500)
Interest rate swap agreement.. -- (47) -- 5,415
The Company's interest rate swap agreement is used to manage interest rate
risk. The net settlement amount resulting from this agreement is recognized as
an adjustment to interest expense. The Company does not currently hold or issue
derivative financial instruments for trading purposes.
Stock Options
In October 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 establishes alternative methods of
accounting and disclosure for employee stock-based compensation arrangements.
The Company has elected to continue the use of the "intrinsic value based
method" of accounting for its employee stock option plans (see Note 9). This
method does not result in the recognition of compensation expense when employee
stock options are granted if the exercise price of the options equals or exceeds
the fair market value of the stock at the date of grant. See Note 9 for the
disclosures required by SFAS 123.
Recent Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income in a company's
financial statements. Comprehensive income includes all changes in a company's
equity accounts (including net income or loss) except investments by, or
distributions to, the company's owners. Items which are components of
comprehensive income (other than net income or loss) include foreign currency
translation adjustments, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. The
components of comprehensive income must be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
130 is effective for fiscal years beginning after December 15, 1997. The
Company has adopted the requirements of SFAS 130 in its financial statements for
1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS 131 establishes standards for the way that public companies report,
in their annual financial statements, certain information about their operating
segments, their products and services, the geographic areas in which they
operate and their major customers. SFAS 131 also requires that certain
information about operating segments be reported in interim financial
statements. SFAS 131 is effective for periods beginning after December 15,
1997. The Company has adopted the requirements of SFAS 131 in its financial
statements for the year ended December 31, 1998 (see Note 13).
65
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and broadly
defines such costs. The Company has deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 requires that such deferred costs be charged to results of operations
upon its adoption. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The Company 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.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 requires that derivative instruments be recognized as either assets or
liabilities in the consolidated balance sheet based on their fair values.
Changes in the fair values of such derivative instruments will be recorded
either in results of operations or in other comprehensive income, depending on
the intended use of the derivative instrument. The initial application of SFAS
133 will be reported as the effect of a change in accounting principle. SFAS
133, as amended, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company will adopt the requirements of SFAS 133 in its
financial statements for the year ending December 31, 2001. The Company
has not yet determined the effect that the adoption of SFAS 133 will have on its
consolidated financial statements.
2. ACQUISITIONS
During the three years in the period ended December 31, 1999, 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 are included in the consolidated financial statements for the periods
subsequent to the respective dates of acquisition.
TEA Group Incorporated and TeleStructures, Inc. (collectively, "TEA")
On May 12, 1997, the Company acquired all of the common stock of TEA. TEA
provides telecommunications site selection, acquisition, design and development
services. The purchase price of $14,215,000 consisted of $8,120,000 in cash (of
which $2,001,000 was paid in 1996 as an option payment), promissory notes
payable to the former stockholders of TEA totaling $1,872,000, the assumption of
$1,973,000 in outstanding debt and 535,710 shares of the Company's Class B
Common Stock valued at $2,250,000 (the estimated fair value of such common stock
on that date). The Company recognized goodwill of $9,568,000 in connection with
this acquisition. The Company repaid the promissory notes with a portion of the
proceeds from the issuance of its 10 5/8% Senior Discount Notes (see Note 5).
Crown Communications ("CCM"), Crown Network Systems, Inc. ("CNS") and Crown
Mobile Systems, Inc. ("CMS") (collectively, "Crown")
On July 11, 1997, the Company entered into an asset purchase and merger
agreement with the owners of Crown. On August 15, 1997, such agreement was
amended and restated, and the Company acquired (1) substantially all of the
assets, net of outstanding liabilities, of CCM; and (2) all of the outstanding
common stock of CNS and CMS. Crown provides network services, which includes
site selection and acquisition, antenna installation, site development and
construction, network design and site maintenance, and owns and operates
telecommunications towers and related assets. The purchase price of
$185,021,000 consisted of $27,843,000 in cash, a short-term promissory note
payable to the former owners of Crown for $76,230,000, the assumption of
$26,009,000 in outstanding debt and 7,325,000 shares of the Company's Class B
Common Stock valued at $54,939,000 (the estimated fair value of such common
stock on that date). The Company recognized goodwill
66
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and other intangible assets of $146,103,000 in connection with this acquisition.
The Company financed the cash portion of the purchase price with proceeds from
the issuance of redeemable preferred stock (see Note 8), and repaid the
promissory note with proceeds from the issuance of additional redeemable
preferred stock and borrowings under the Senior Credit Facility (see Note 5).
In 1997, the Company organized Crown Communication Inc. ("CCI", a Delaware
corporation) as a wholly owned subsidiary to own the net assets acquired from
CCM and the common stock of CNS and CMS. In January 1998, the Company merged
Castle Tower Corporation ("CTC", a wholly owned operating subsidiary) with and
into CCI.
CCUK
On April 24, 1998, the Company entered into a share exchange agreement with
certain shareholders of CCUK pursuant to which certain of CCUK's shareholders
agreed to exchange their shares of CCUK for shares of the Company. On August
18, 1998, the exchange was consummated and the Company's ownership of CCUK
increased from approximately 34.3% to 80%. The Company issued 20,867,700 shares
of its Common Stock and 11,340,000 shares of its Class A Common Stock, with such
shares valued at an aggregate of $418,700,000 (based on the price per share to
the public in the Company's initial public offering as discussed in Note 9).
The Company recognized goodwill of $344,375,000 in connection with this
transaction, which was accounted for as an acquisition using the purchase
method. CCUK's results of operations and cash flows are included in the
consolidated financial statements for the period subsequent to the date the
exchange was consummated.
Agreement with Bell Atlantic Mobile ("BAM")
On December 8, 1998, the Company entered into an agreement with Bell Atlantic
Mobile to form a joint venture ("Crown Atlantic") to own and operate a
significant majority of BAM's towers. Upon formation of Crown Atlantic on March
31, 1999, (1) the Company contributed to Crown Atlantic $250,000,000 in cash and
15,597,783 shares of its Common Stock in exchange for a 61.5% ownership interest
in Crown Atlantic; (2) Crown Atlantic borrowed $180,000,000 under a committed
$250,000,000 revolving credit facility (see Note 5); and (3) BAM contributed to
Crown Atlantic approximately 1,458 towers in exchange for a cash distribution of
$380,000,000 from Crown Atlantic and a 38.5% ownership interest in Crown
Atlantic. 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 15.6% of the fair market value of Crown
Atlantic's other net assets; the Company would then receive the remaining assets
and liabilities of Crown Atlantic. The Company has accounted for its investment
in Crown Atlantic as an acquisition using the purchase method, and has included
Crown Atlantic's results of operations and cash flows in the Company's
consolidated financial statements for periods subsequent to formation. The
Company recognized goodwill of approximately $64,163,000 in connection with this
acquisition.
BellSouth Mobility Inc. and BellSouth Telecommunications Inc. ("BellSouth")
In March 1999, the Company entered into an agreement with BellSouth to
acquire the operating rights for approximately 1,850 of their towers. The legal
form of the transaction is a lease arrangement and will be treated by
BellSouth as a sale of the towers for tax purposes. The Company will pay
BellSouth total consideration of $610,000,000, consisting of $430,000,000 in
cash and $180,000,000 in shares of its common stock. As of December 31, 1999,
the Company has closed on 1,574 of the towers and has paid $370,151,000 in cash
and issued 7,728,787 shares of its common stock. The Company is accounting for
this transaction as a purchase of tower assets.
67
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $275,000,000 in cash, all of which has been paid as of December
31, 1999. The Company has accounted for this transaction as an acquisition
using the purchase method.
Pro Forma Results of Operations (Unaudited)
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if (1) the share exchange with CCUK's shareholders
had been consummated as of January 1, 1998; and (2) the Crown Atlantic,
BellSouth and Powertel acquisitions, along with the related financing
transactions, had been consummated as of January 1 for both 1998 and 1999.
Appropriate adjustments have been reflected for depreciation and amortization,
interest expense, amortization of deferred financing costs and minority
interests. The pro forma information does not necessarily reflect the actual
results that would have been achieved, nor is it necessarily indicative of
future consolidated results for the Company.
Years Ended December 31,
------------------------
1998 1999
----------- ----------
(In thousands of
dollars,
except per share
amounts)
Net revenues........................................$ 301,978 $ 386,999
Net loss............................................ (153,192) (144,246)
Net loss per common share - basic and diluted....... (1.25) (1.19)
Agreement with Nextel Communications, Inc. ("Nextel")
On July 11, 1997, the Company entered into an agreement with Nextel (the
"Nextel Agreement") whereby the Company had the option to purchase up to 50 of
Nextel's existing towers which are located in Texas, Florida and the
metropolitan areas of Denver, Colorado and Philadelphia, Pennsylvania. As of
December 31, 1999, the Company had purchased all 50 of such towers for an
aggregate price of $15,083,000 in cash.
Millennium Communications Limited ("Millennium")
On October 8, 1998, the Company acquired all of the outstanding shares of
Millennium. Millennium develops, owns and operates telecommunications towers
and related assets in the United Kingdom. On the date of acquisition,
Millennium owned 102 tower sites. Millennium is being operated as a subsidiary
of CCUK. The purchase price of $14,473,000 consisted of $9,813,000 in cash, the
repayment of $2,396,000 in outstanding debt and 358,678 shares of the Company's
common stock valued at $2,264,000 (the market value of such common stock on that
date).
BellSouth DCS
In July 1999, the Company entered into an agreement with certain affiliates
of BellSouth ("BellSouth DCS") to acquire the operating rights for approximately
773 of their towers. The legal form of the transaction is a lease arrangement
and will be treated by BellSouth as a sale of the towers for tax purposes. The
Company will pay BellSouth DCS total consideration of $316,930,000 in cash. As
of December 31, 1999, the Company has closed on 648 of these towers and has paid
$266,857,000 in cash. The Company is accounting 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 to form a
joint venture ("Crown Castle GT") to own and operate a significant majority of
GTE's towers. Upon formation of Crown Castle GT (which will occur in multiple
closings during 2000), (1) the Company will contribute approximately
$825,000,000 (of which up to $100,000,000 can be in shares of its common stock,
with the balance in cash) in
68
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
exchange for a majority ownership interest in Crown Castle GT, and (2) GTE will
contribute approximately 2,300 towers in exchange for a cash distribution of
approximately $800,000,000 (less any amount contributed in the form of the
Company's common stock) from Crown Castle GT and a minority ownership interest
in Crown Castle GT. Upon dissolution of Crown Castle GT, GTE would receive (1)
any shares of the Company's common stock contributed to Crown Castle GT and (2)
a payment equal to approximately 11.4% of the fair market value of Crown Castle
GT's other net assets; the Company would then receive the remaining assets and
liabilities of Crown Castle GT. The Company will account for its investment in
Crown Castle GT as a purchase of tower assets, and will include 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
this agreement, the Company placed $50,000,000 into an escrow account; such
funds would be forfeited if the Company failed to close this transaction because
it was unable to obtain adequate financing. See Note 16.
3. PROPERTY AND EQUIPMENT
The major classes of property and equipment are as follows:
December 31,
Estimated -------------------------
Useful Lives 1998 1999
------------ ---------- ------------
(In thousands of
dollars)
Land and buildings........................................ 0-50 years $ 58,767 $ 89,683
Telecommunications towers and broadcast transmission
equipment................................................ 5-20 years 532,907 2,458,741
Transportation and other equipment........................ 3-10 years 11,452 20,231
Office furniture and equipment............................ 3-7 years 12,248 18,919
-------- ----------
615,374 2,587,574
Less: accumulated depreciation............................ (22,780) (119,473)
-------- ----------
$592,594 $2,468,101
======== ==========
Depreciation expense for the years ended December 31, 1997, 1998 and 1999 was
$2,886,000, $20,638,000 and $96,556,000, respectively. Accumulated depreciation
on telecommunications towers and broadcast transmission equipment was
$19,583,000 and $110,366,000 at December 31, 1998 and 1999, respectively. At
December 31, 1999, minimum rentals receivable under existing operating leases
for towers are as follows: years ending December 31, 2000 - $352,640,000;
2001 -$342,473,000; 2002 - $337,536,000; 2003 - $324,963,000; 2004 -
$315,142,000; thereafter - $1,118,557,000.
4. INVESTMENT IN AFFILIATE
On February 28, 1997, the Company used a portion of the net proceeds from the
sale of the Series C Convertible Preferred Stock (see Note 8) to purchase an
ownership interest of approximately 34.3% in CCUK (a company incorporated under
the laws of England and Wales). The Company led a consortium of investors which
provided the equity financing for CCUK. The funds invested by the consortium
were used by CCUK to purchase, through a wholly owned subsidiary, the domestic
broadcast transmission division of the British Broadcasting Corporation (the
"BBC"). The cost of the Company's investment in CCUK amounted to approximately
$57,542,000. The Company accounted for its investment in CCUK utilizing the
equity method of accounting prior to the consummation of the share exchange
agreement with CCUK's shareholders in August 1998 (see Note 2).
In March 1997, as compensation for leading the investment consortium, the
Company received a fee from CCUK amounting to approximately $1,165,000. This
fee was recorded as other income by the Company when
69
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
received. In addition, the Company received approximately $1,679,000 from CCUK
as reimbursement for costs incurred prior to the closing of the purchase from
the BBC.
In June 1997, as compensation for the successful completion of the investment
in CCUK and certain other acquisitions and investments, the Company paid bonuses
to two of its executive officers totaling $913,000. These bonuses are included
in corporate development expenses on the Company's consolidated statement of
operations.
Summarized financial information for CCUK is as follows (for periods in which
the Company accounted for CCUK utilizing the equity method):
Ten Months Eight Months
Ended Ended
December 31, August 31,
1997 1998
------------- -------------
(In thousands of dollars)
Net revenues.......................................................... $103,531 $ 97,228
Operating expenses.................................................... 86,999 78,605
-------- --------
Operating income...................................................... 16,532 18,623
Interest and other income............................................. 553 725
Interest expense and amortization of deferred financing costs......... (20,404) (13,378)
Provision for income taxes............................................ -- --
-------- --------
Net income (loss)..................................................... $ (3,319) $ 5,970
======== ========
5. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
-----------------------
1998 1999
--------- -----------
(In thousands of dollars)
Senior Credit Facility................................................ $ 5,500 $ 63,000
CCUK Credit Facility.................................................. 55,177 133,456
Crown Atlantic Credit Facility........................................ -- 180,000
9% Guaranteed Bonds due 2007.......................................... 200,934 195,699
10 5/8% Senior Discount Notes due 2007, net of discount............... 168,099 186,434
10 3/8% Senior Discount Notes due 2011, net of discount............... -- 321,284
9% Senior Notes due 2011.............................................. -- 180,000
11 1/4% Senior Discount Notes due 2011, net of discount............... -- 157,470
9 1/2% Senior Notes due 2011.......................................... -- 125,000
-------- ----------
$429,710 $1,542,343
======== ==========
Senior Credit Facility
CCI has a credit agreement with a syndicate of banks (as amended, the "Senior
Credit Facility") which consists of a $100,000,000 secured revolving line of
credit (see Note 16). Available borrowings under the Senior 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 CCI and its subsidiaries. The
amount of available borrowings is determined based on the current financial
performance (as defined) of CCI's assets. In addition, up to $5,000,000 of
borrowing availability under the Senior Credit Facility can be used for letters
of credit.
On October 31, 1997, additional borrowings under the Senior Credit Facility,
along with the proceeds from the October issuance of Senior Preferred Stock (see
Note 8), were used to repay (1) the promissory note payable
70
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
to the former stockholders of Crown; and (2) the outstanding borrowings under
Crown's bank credit agreement (see Note 2). In November 1997, the Company repaid
all of the outstanding borrowings under the Senior Credit Facility with a
portion of the proceeds from the issuance of its 10 5/8% Senior Discount Notes
(as discussed below). Upon the merger of CTC into CCI in January 1998, CCI
became the primary borrower under the Senior Credit Facility. In December 1998,
the Company again repaid all of the outstanding borrowings under the Senior
Credit Facility with a portion of the proceeds from the issuance of its 12 3/4%
Senior Exchangeable Preferred Stock (see Note 8). As of December 31, 1999,
approximately $19,250,000 of borrowings was available under the Senior Credit
Facility, of which $5,000,000 was available for letters of credit. There were no
letters of credit outstanding as of December 31, 1999.
The amount of available borrowings under the Senior Credit Facility will
decrease by $5,000,000 at the end of each calendar quarter beginning on March
31, 2001 until December 31, 2004, at which time any remaining borrowings must be
repaid. Under certain circumstances, CCI may be required to make principal
prepayments under the Senior 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 by the
Company.
The Senior Credit Facility is secured by substantially all of the assets of
CCI and the Company's pledge of the capital stock of CCI and its subsidiaries.
In addition, the Senior Credit Facility is guaranteed by the Company.
Borrowings under the Senior Credit Facility bear interest at a rate per annum,
at the Company's election, equal to the bank's prime rate plus 1.5% or a
Eurodollar interbank offered rate (LIBOR) plus 3.25% (10.00% and 9.43%,
respectively, at December 31, 1999). The interest rate margins may be reduced
by up to 2.25% (non-cumulatively) based on a financial test, determined
quarterly. As of December 31, 1999, the financial test permitted a reduction of
1.125% in the interest rate margin for prime rate borrowings and 1.625% in the
interest rate margin for LIBOR borrowings. 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 Senior Credit
Facility requires CCI to maintain certain financial covenants and places
restrictions on CCI'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.
CCUK Credit Facility
CCUK has a credit agreement with a syndicate of banks (as amended, the "CCUK
Credit Facility"). In June 1999, the CCUK Credit Facility was amended to (1)
increase the available borrowings to (Pounds)150,000,000 (approximately
$242,250,000) and (2) extend the maturity date to June 2006. The amended
facility comprises (1) a seven year (Pounds)100,000,000 (approximately
$161,500,000) revolving loan facility which converts into a term loan facility
on the third anniversary of the amendment date and (2) a seven year
(Pounds)50,000,000 (approximately $80,750,000) 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, 1999, unused borrowing availability under the CCUK
Credit Facility amounted to approximately (Pounds)65,000,000 (approximately
$104,975,000).
In June 2002, the amount drawn under the (Pounds)100,000,000 revolving loan
facility is converted into a term loan facility and is amortized in equal semi-
annual installments on June 30 and December 31 of each year, with the final
installment being due in June 2006. The (Pounds)50,000,000 revolving loan
facility expires in June 2006. Under certain circumstances, CCUK may be required
to make principal prepayments from the proceeds of certain asset sales.
71
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The CCUK Credit Facility is secured by substantially all of CCUK's assets.
Borrowings under the CCUK Credit Facility bear interest at a rate per annum
equal to a Eurodollar interbank offered rate (LIBOR) plus 1.5% (approximately
7.08% at December 31, 1999). 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 (the "Crown
Atlantic Credit Facility") which consists of a $250,000,000 secured revolving
line of credit. Available borrowings under the Crown Atlantic Credit Facility
are generally to be used to construct new towers and to finance a portion of the
purchase price for towers and related assets of Crown Atlantic. The amount of
available borrowings is determined based on the current financial performance
(as defined) of Crown Atlantic's assets. In addition, up to $25,000,000 of
borrowing availability under the Crown Atlantic Credit Facility can be used for
letters of credit.
On March 31, 1999, Crown Atlantic borrowed $180,000,000 under the Crown
Atlantic Credit Facility to fund a portion of the cash payment to BAM (see Note
2). As of December 31, 1999, approximately $70,000,000 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, 1999.
The amount of available borrowings under the Crown Atlantic Credit Facility
will decrease by a stated amount at the end of each calendar quarter beginning
on September 30, 2001 until March 31, 2006, at which time any remaining
borrowings must be repaid. Under certain circumstances, Crown Atlantic may be
required to make principal prepayments under the Crown Atlantic Credit Facility
in an amount equal to 50% of excess cash flow (as defined), the net cash
proceeds from certain asset sales or the net cash proceeds from certain sales of
equity or debt securities.
The Crown Atlantic Credit Facility is secured by a pledge of the membership
interest in Crown Atlantic and a security interest in Crown Atlantic's tenant
leases. Borrowings under the Crown Atlantic Credit Facility bear interest at a
rate per annum, at Crown Atlantic's election, equal to the bank's prime rate
plus 1.25% or a Eurodollar interbank offered rate (LIBOR) plus 2.75% (9.75% and
8.93%, respectively, at December 31, 1999). The interest rate margins may be
reduced by up to 1.75% (non-cumulatively) based on a financial test, determined
quarterly. As of December 31, 1999, the financial test permitted no reduction in
the interest rate margin for prime rate borrowings or LIBOR borrowings. 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 $201,875,000) aggregate
principal amount of the CCUK Bonds. Interest payments on the CCUK Bonds are due
annually on each March 30. The maturity date of the CCUK Bonds is March 30,
2007. The CCUK Bonds are stated net of unamortized discount.
The CCUK Bonds are redeemable, at the option of CCUK, in whole or in part at
any time, at the greater of their principal amount and such a price as will
provide a gross redemption yield 0.5% per annum above the gross redemption yield
on the benchmark gilt plus, in either case, accrued and unpaid interest. Under
certain
72
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
circumstances, each holder of the CCUK Bonds has the right to require CCUK to
repurchase all or a portion of such holder's CCUK Bonds at a price equal to 101%
of their aggregate principal amount plus accrued and unpaid interest.
The CCUK Bonds are guaranteed by CCUK; however, they are unsecured and
effectively subordinate to the outstanding borrowings under the CCUK Credit
Facility. The trust deed governing the CCUK Bonds places restrictions on CCUK's
ability to, among other things, pay dividends and make capital distributions,
make investments, incur additional debt and liens, dispose of assets and
undertake transactions with affiliates.
10 5/8% Senior Discount Notes due 2007 (the "10 5/8% Discount Notes")
On November 25, 1997, the Company issued $251,000,000 aggregate principal
amount (at maturity) of the 10 5/8% Discount Notes for proceeds of $150,010,000
(net of original issue discount). The Company used a portion of the proceeds
from the sale of the 10 5/8% Discount Notes to (1) repay all of the outstanding
borrowings, including accrued interest thereon, under the Senior Credit
Facility; (2) repay the promissory notes payable, including accrued interest
thereon, to the former stockholders of TEA (see Note 2); (3) repay certain
indebtedness, including accrued interest thereon, from a prior acquisition; and
(4) repay outstanding installment debt assumed in connection with the Crown
acquisition (see Note 2).
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 $82,901,000 and $64,566,000 at December 31, 1998 and 1999,
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. Prior to November 15, 2000, the Company may redeem up to 35%
of the aggregate principal amount of the 10 5/8% Discount Notes, at a price of
110.625% of the accreted value thereof, with the net cash proceeds from a public
offering of the Company's common stock.
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 are being used to
pay the remaining purchase price for such transactions, to fund the initial
interest payments on the 9% Senior Notes and for general corporate purposes.
The 10 3/8% Discount Notes will not pay any interest until November 15, 2004,
at which time semi-annual interest payments will commence and become due on each
May 15 and November 15 thereafter. Semi-annual interest payments for the 9%
Senior Notes are due on each May 15 and November 15, commencing on November 15,
1999. The maturity date of the 10 3/8% Discount Notes and the 9% Senior Notes is
May 15, 2011. The 10 3/8% Discount Notes are net of unamortized discount of
$178,716,000 at December 31, 1999.
73
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The 10 3/8% Discount Notes and the 9% Senior Notes are redeemable at the
option of the Company, in whole or in part, on or after May 15, 2004 at prices
of 105.187% and 104.5%, respectively, of the principal amount plus accrued
interest. The redemption prices are reduced annually until May 15, 2007, after
which time the 10 3/8% Discount Notes and the 9% Senior Notes are redeemable at
par. Prior to May 15, 2002, the Company may redeem up to 35% of the aggregate
principal amount of the 10 3/8% Discount Notes and the 9% Senior Notes, at
prices of 110.375% and 109%, respectively, of the accreted value thereof, with
the net cash proceeds from a public offering of the Company's common stock.
11 1/4% Senior Discount Notes due 2011 (the "11 1/4% Discount Notes") and
9 1/2% Senior Notes due 2011 (the "9 1/2% Senior Notes")
On July 27, 1999, the Company issued (1) $260,000,000 aggregate principal
amount (at maturity) of its 11 1/4% Discount Notes for proceeds of $147,501,000
(net of original issue discount of $109,489,000 and after 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 Offerings"). The proceeds from the sale of
these securities are being used to pay the purchase price for the BellSouth DCS
transaction (see Note 2), to fund the initial interest payments on the 9 1/2%
Senior Notes and for general corporate purposes.
The 11 1/4% Discount Notes will not pay any interest until February 1, 2005,
at which time semi-annual interest payments will commence and become due on each
February 1 and August 1 thereafter. Semi-annual interest payments for the
9 1/2% Senior Notes are due on each February 1 and August 1, commencing on
February 1, 2000. The maturity date of the 11 1/4% Discount Notes and the 9 1/2%
Senior Notes is August 1, 2011. The 11 1/4% Discount Notes are net of
unamortized discount of $102,530,000 at December 31, 1999.
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.
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 and the 9 1/2% 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 Senior 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, 1999, 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
74
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Upon consummation of the share exchange with CCUK's shareholders (see Note
2), which increased the Company's ownership interest in CCUK to 80%, the Company
designated CCUK as an Unrestricted Subsidiary. In addition, the Company has
designated Crown Atlantic as an Unrestricted Subsidiary (see Note 2). Prior to
these transactions, the Company did not have any 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, 1999
-----------------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ -------------- ------------
(In thousands of dollars)
Cash and cash equivalents...................... $ 494,724 $ 54,604 $ -- $ 549,328
Other current assets........................... 59,106 53,611 -- 112,717
Property and equipment, net.................... 1,350,610 1,117,491 -- 2,468,101
Escrow deposit for acquisition................. 50,000 -- -- 50,000
Investments in Unrestricted Subsidiaries....... 991,261 -- (991,261) --
Goodwill and other intangible assets, net...... 132,553 463,594 -- 596,147
Other assets, net.............................. 48,578 11,779 -- 60,357
---------- ---------- --------- ----------
$3,126,832 $1,701,079 $(991,261) $3,836,650
========== ========== ========= ==========
Current liabilities............................ $ 49,905 $ 81,376 $ -- $ 131,281
Long-term debt................................. 1,033,188 509,155 -- 1,542,343
Other liabilities.............................. 3,069 63,995 -- 67,064
Minority interests............................. -- 55,292 -- 55,292
Redeemable preferred stock..................... 422,923 -- -- 422,923
Stockholders' equity........................... 1,617,747 991,261 (991,261) 1,617,747
---------- ---------- --------- ----------
$3,126,832 $1,701,079 $(991,261) $3,836,650
========== ========== ========= ==========
75
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANICAL STATEMENTS (CONTINUED)
Three Months Ended December 31, 1999 Year Ended December 31, 1999
--------------------------------------------- --------------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------- ------------- ------------- ------------- ------------- -------------
(In thousands of dollars)
Net revenues....................... $ 40,694 $ 73,502 $114,196 $104,177 $241,582 $ 345,759
Costs of operations
(exclusive of depreciation
and amortization)................. 17,327 34,534 51,861 42,737 114,011 156,748
General and administrative......... 10,578 3,169 13,747 33,052 10,771 43,823
Corporate development.............. 1,181 88 1,269 4,584 819 5,403
Restructuring charges.............. 3,831 -- 3,831 5,645 -- 5,645
Non-cash compensation charges...... 340 161 501 1,404 769 2,173
Depreciation and amortization...... 16,251 24,486 40,737 42,354 87,752 130,106
-------- -------- -------- -------- -------- ---------
Operating income (loss)............ (8,814) 11,064 2,250 (25,599) 27,460 1,861
Interest and other income
(expense)......................... 4,339 590 4,929 9,934 7,797 17,731
Interest expense and
amortization of deferred
financing costs................... (25,891) (12,669) (38,560) (70,341) (40,567) (110,908)
Provision for income taxes......... (7) -- (7) (275) -- (275)
Minority interests................. -- (1,569) (1,569) -- (2,756) (2,756)
Cumulative effect of change
in accounting principle for
costs of start-up activities...... -- -- -- (2,414) -- (2,414)
-------- -------- -------- -------- -------- ---------
Net loss........................... $(30,373) $ (2,584) $(32,957) $(88,695) $ (8,066) $ (96,761)
======== ======== ======== ======== ======== =========
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 and the 9 1/2% Senior Notes (the "1999 Securities"):
1997 and 1998 1999
Securities Securities
-------------- -----------
(In thousands of dollars)
(Unaudited)
Tower Cash Flow, for the three months ended December 31, 1999...................... $ 12,339 $ 12,339
======== ========
Consolidated Cash Flow, for the twelve months ended December 31, 1999.............. $ 23,804 $ 28,388
Less: Tower Cash Flow, for the twelve months ended December 31, 1999............... (33,022) (33,022)
Plus: four times Tower Cash Flow, for the three months ended December 31,
1999.............................................................................. 49,356 49,356
-------- --------
Adjusted Consolidated Cash Flow, for the twelve months ended December 31,
1999.............................................................................. $ 40,138 $ 44,722
======== ========
76
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Restricted Net Assets of Subsidiaries
Under the terms of the Senior 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. For
CCI, the amount of such dividends is limited to (1) $6,000,000 per year until
October 31, 2002, and $33,000,000 per year thereafter; and (2) an amount to pay
income taxes attributable to the Company's Restricted Subsidiaries. CCUK and
Crown Atlantic are effectively precluded from paying dividends. The restricted
net assets of the Company's subsidiaries totaled approximately $1,003,701,000 at
December 31, 1999.
Interest Rate Swap Agreements
The Company had an interest rate swap agreement in connection with amounts
borrowed under the Senior Credit Facility which terminated on February 24, 1999.
The Company paid a fixed rate of 6.28% on the notional amount and received a
floating rate based on LIBOR. This agreement effectively changed the interest
rate on $17,925,000 of borrowings under the Senior Credit Facility from a
floating rate to a fixed rate of 6.28% plus the applicable margin.
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. The Company does not believe
there is any significant exposure to credit risk 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.
6. INCOME TAXES
The provision for income taxes consists of the following:
Years Ended December 31,
-----------------------------
1997 1998 1999
----- ----- -----
(In thousands of dollars)
Current:
State.................. $ -- $ 365 $ 55
Puerto Rico............ 49 9 --
Foreign................ -- -- 220
----- ----- -----
$ 49 $ 374 $ 275
===== ===== =====
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:
77
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years Ended December 31,
-----------------------------------
1997 1998 1999
--------- ---------- ----------
(In thousands of dollars)
Benefit for income taxes at statutory rate................... $(4,044) $(12,154) $(31,047)
Depreciation on basis difference in joint venture............ -- -- 1,012
Amortization of intangible assets............................ 478 604 770
Stock-based compensation..................................... -- 2,844 477
State and foreign taxes, net of federal tax benefit.......... -- 247 182
Expenses for which no federal tax benefit was recognized..... 28 151 152
Acquisition costs............................................ -- (675) 34
Puerto Rico taxes............................................ 49 9 --
Foreign earnings not subject to tax.......................... -- (584) (781)
Changes in valuation allowances.............................. 3,650 9,944 29,451
Other........................................................ (112) (12) 25
------- -------- --------
$ 49 $ 374 $ 275
======= ======== ========
The components of the net deferred income tax assets and liabilities are as
follows:
December 31,
------------------------
1998 1999
---------- -----------
(In thousands of
dollars)
Deferred income tax liabilities:
Property and equipment...................... $ 6,045 $ 30,055
Other....................................... 84 14
-------- --------
Total deferred income tax liabilities..... 6,129 30,069
-------- --------
Deferred income tax assets:
Net operating loss carryforwards............ 19,071 76,826
Noncompete agreement........................ 464 348
Intangible assets........................... 351 264
Puerto Rico losses.......................... -- 238
Accrued liabilities......................... 68 68
Receivables allowance....................... 41 55
Other....................................... 45 45
Valuation allowances........................ (13,911) (47,775)
-------- --------
Total deferred income tax assets, net..... 6,129 30,069
-------- --------
Net deferred income tax liabilities.......... $ -- $ --
========= ==========
Valuation allowances of $13,911,000 and $47,775,000 were recognized to offset
net deferred income tax assets as of December 31, 1998 and 1999, respectively.
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $225,959,000 which are available to offset future federal taxable
income. These loss carryforwards will expire in 2010 through 2019. The
utilization of the loss carryforwards is subject to certain limitations.
7. MINORITY INTERESTS
Minority interests represent the minority shareholder's 20% interest in CCUK
and the minority partner's 38.5% interest in Crown Atlantic.
78
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. REDEEMABLE PREFERRED STOCK
Redeemable preferred stock ($.01 par value, 10,000,000 shares authorized)
consists of the following:
December 31,
----------------------
1998 1999
---------- ---------
(In thousands of dollars)
12 3/4% Senior Exchangeable Preferred Stock; shares issued:
December 31, 1998 - 200,000 and December 31, 1999 - 226,745 (stated at
mandatory redemption and aggregate liquidation value).......................... $201,063 $227,950
8 1/4% Cumulative Convertible Redeemable Preferred Stock; shares issued:
December 31, 1998 - none and December 31, 1999 - 200,000 (stated net
of unamortized value of warrants; mandatory redemption and aggregate
liquidation value of $200,000)................................................. -- 194,973
-------- --------
$201,063 $422,923
======== ========
Exchangeable Preferred Stock
On December 16, 1998, the Company issued 200,000 shares of its 12 3/4% Senior
Exchangeable Preferred Stock due 2010 (the "Exchangeable Preferred Stock") at a
price of $1,000 per share (the liquidation preference per share). The net
proceeds received by the Company from the sale of such shares amounted to
approximately $193,000,000 (after underwriting discounts of $7,000,000 but
before other expenses of the offering, which amounted to approximately
$8,059,000). A portion of the net proceeds was used to repay outstanding
borrowings under the Senior Credit Facility of $73,750,000, and the remaining
net proceeds were used to pay a portion of the purchase price for the Crown
Atlantic transaction (see Note 2).
The holders of the Exchangeable Preferred Stock are entitled to receive
cumulative dividends at the rate of 12 3/4% per share, compounded quarterly on
each March 15, June 15, September 15 and December 15 of each year, beginning on
March 15, 1999. On or before December 15, 2003, the Company has the option to
pay dividends in cash or in additional shares of Exchangeable Preferred Stock.
After December 15, 2003, dividends are payable only in cash.
The Company is required to redeem all outstanding shares of Exchangeable
Preferred Stock on December 15, 2010 at a price equal to the liquidation
preference plus accumulated and unpaid dividends. On or after December 15, 2003,
the shares are redeemable at the option of the Company, in whole or in part, at
a price of 106.375% of the liquidation preference. The redemption price is
reduced on an annual basis until December 15, 2007, at which time the shares are
redeemable at the liquidation preference. Prior to December 15, 2001, the
Company may redeem up to 35% of the Exchangeable Preferred Stock, at a price of
112.75% of the liquidation preference, with the net proceeds from certain public
equity offerings. The shares of Exchangeable Preferred Stock are exchangeable,
at the option of the Company, in whole but not in part, for 12 3/4% Senior
Subordinated Exchange Debentures due 2010.
The Company's obligations with respect to the Exchangeable Preferred Stock
are subordinate to all indebtedness of the Company (including the Debt
Securities), and are effectively subordinate to all debt and liabilities of the
Company's subsidiaries (including the Senior 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.
79
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Convertible Preferred Stock
On November 19, 1999, the Company issued 200,000 shares of its 8 1/4%
Cumulative Convertible Redeemable Preferred Stock (the "Convertible Preferred
Stock") at a price of $1,000 per share (the liquidation preference per share) to
General Electric Capital Corporation ("GECC"). The Company received net
proceeds of approximately $191,500,000 (after structuring and underwriting fees
of $8,500,000 but before other expenses of the transaction). The net proceeds
will be used to pay a portion of the purchase price for the GTE joint venture
(see Note 2).
GECC will be 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 will have 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. 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 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 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 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.
Senior Preferred Stock
In August 1997, the Company issued 292,995 shares of its Senior Convertible
Preferred Stock (the "Senior Preferred Stock") at a price of $100 per share.
The net proceeds received by the Company from the sale of such shares amounted
to approximately $29,266,000, most of which was used to pay the cash portion of
the purchase price for Crown (see Note 2). In October 1997, the Company issued
an additional 364,500 shares of its Senior Preferred Stock at a price of $100
per share. The net proceeds received by the Company from the sale of such
shares amounted to $36,450,000. This amount, along with borrowings under the
Senior Credit Facility, was used to repay the promissory note from the Crown
acquisition (see Note 2).
The holders of the Senior Preferred Stock were entitled to receive cumulative
dividends at the rate of 12.5% per share, compounded annually. At the option of
the holder, each share of Senior Preferred Stock (plus any accrued and unpaid
dividends) was convertible, at any time, into shares of the Company's common
stock at a conversion price of $7.50 (subject to adjustment in the event of an
underwritten public offering of the Company's common stock). At the date of
issuance of the Senior Preferred Stock, the Company believes that its conversion
price represented the estimated fair value of the common stock on that date. In
July 1998, all of the shares of Senior Preferred Stock were converted into
shares of common stock (see Note 9).
The purchasers of the Senior Preferred Stock were also issued warrants to
purchase an aggregate 1,314,990 shares of the Company's common stock at an
exercise price of $7.50 per share (subject to adjustment in the
80
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
event of an underwritten public offering of the Company's common stock). The
warrants are exercisable, in whole or in part, at any time until August and
October of 2007. At the date of issuance of the warrants, the Company believes
that the exercise price represented the estimated fair value of the common stock
on that date. As such, the Company has not assigned any value to the warrants in
its consolidated financial statements.
Series Preferred Stock
The holders of the Company's Series A Convertible Preferred Stock (the
"Series A Preferred Stock"), the Series B Convertible Preferred Stock (the
"Series B Preferred Stock") and the Series C Convertible Preferred Stock (the
"Series C Preferred Stock") (collectively, the "Series Preferred Stock") were
entitled to receive dividends, if and when declared, at the same rate as
dividends were declared and paid with respect to the Company's common stock.
Each of the outstanding shares of Series Preferred Stock was automatically
converted into five shares of common stock upon consummation of the Company's
initial public offering (see Note 9).
In February and April of 1997, the Company issued 3,529,832 shares of its
Series C Preferred Stock at a price of $21.00 per share. The net proceeds
received by the Company from the sale of the Series C Preferred Stock amounted
to approximately $74,024,000. A portion of this amount was used to purchase the
ownership interest in CCUK (see Note 4).
9. 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 5). The Company sold 21,000,000 shares of its common stock
at a price of $17.50 per share and received proceeds of $352,800,000 (after
underwriting discounts of $14,700,000). The Company had granted the underwriters
for the May Offerings an over-allotment option to purchase an additional
3,150,000 shares of the Company's common stock. On May 13, 1999, the
underwriters exercised this over-allotment option in full. As a result, the
Company received additional proceeds of $52,920,000 (after underwriting
discounts of $2,205,000). The proceeds from the May Offerings are being 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 TeleDiffusion de France International S.A. ("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 will be 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 will be used for general corporate purposes.
On August 18, 1998, the Company consummated its initial public offering of
common stock at a price to the public of $13.00 per share (the "IPO"). The
Company sold 12,320,000 shares of its common stock and received proceeds of
$151,043,000 (after underwriting discounts of $9,117,000 but before other
expenses of the IPO, which amounted to approximately $4,116,000). The net
proceeds from the IPO were used to pay a portion of the purchase price for the
Crown Atlantic transaction (see Note 2).
81
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In anticipation of the IPO, the Company (1) amended and restated the 1995
Stock Option Plan to, among other things, authorize the issuance of up to
18,000,000 shares of common stock pursuant to awards made thereunder; and (2)
approved an amendment to its certificate of incorporation to increase the number
of authorized shares of common and preferred stock to 690,000,000 shares and
10,000,000 shares, respectively, and to effect a five-for-one stock split for
the shares of common stock then outstanding. The effect of the stock split has
been presented retroactively in the Company's consolidated financial statements
for all periods presented.
In July 1998, all of the holders of the Company's Senior Convertible
Preferred Stock converted such shares into an aggregate of 9,629,200 shares of
the Company's common stock. Upon consummation of the IPO, all of the holders of
the Company's then-existing shares of Class A Common Stock, Class B Common
Stock, Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock and Series C Convertible Preferred Stock converted such shares into an
aggregate of 39,842,290 shares of the Company's common stock.
In March 1997, the Company repurchased, and subsequently retired, 814,790
shares of its common stock from a member of the Company's Board of Directors at
a cost of approximately $3,422,000. Of this amount, $1,311,000 was recorded as
compensation cost and is included in corporate development expense on the
Company's consolidated statement of operations. In August 1998, the Company
repurchased, and subsequently retired, 141,070 shares of its common stock from a
former employee at a cost of approximately $883,000.
Class A Common Stock
Upon consummation of the share exchange agreement with CCUK's shareholders
(see Note 2), TdF received all of the currently outstanding shares of the
Company's Class A Common Stock. Each share of Class A Common Stock is
convertible, at the option of its holder at any time, into one share of Common
Stock. The holder of the Class A Common Stock is entitled to one vote per share
on all matters presented to a vote of the Company's shareholders, except with
respect to the election of directors. The holder of the Class A Common Stock,
voting as a separate class, has the right to elect up to two members of the
Company's Board of Directors. The shares of Class A Common Stock also provide
certain governance and anti-dilutive rights.
Compensation Charges Related to Stock Option Grants
During the period from April 24, 1998 through July 15, 1998, the Company
granted options to employees and executives for the purchase of 3,236,980 shares
of its common stock at an exercise price of $7.50 per share. Of such options,
options for 1,810,730 shares vested upon consummation of the IPO and the
remaining options for 1,426,250 shares will vest at 20% per year over five
years, beginning one year from the date of grant. In addition, the Company has
assigned its right to repurchase shares of its common stock from a stockholder
(at a price of $6.26 per share) to two individuals (including a newly-elected
director) with respect to 100,000 of such shares. Since the granting of these
options and the assignment of these rights to repurchase shares occurred
subsequent to the date of the share exchange agreement with CCUK's shareholders
and at prices substantially below the price to the public in the IPO, the
Company has recorded a non-cash compensation charge related to these options and
shares based upon the difference between the respective exercise and purchase
prices and the price to the public in the IPO. Such compensation charge will
total approximately $18,400,000, of which approximately $10,600,000 was
recognized upon consummation of the IPO (for such options and shares which
vested upon consummation of the IPO), and the remaining $7,800,000 is being
recognized over five years (approximately $1,600,000 per year) through the
second quarter of 2003. An additional $1,600,000 in non-cash compensation
charges will be recognized through the third quarter of 2001 for stock options
issued to certain members of CCUK's management prior to the consummation of the
share exchange.
82
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock Options
In 1995, the Company adopted the Crown Castle International Corp. 1995 Stock
Option Plan (as amended, the "1995 Stock Option Plan"). Up to 28,000,000 shares
of the Company's common stock have been reserved for awards granted to certain
employees, consultants and non-employee directors of the Company and its
subsidiaries or affiliates. These options generally vest over periods of up to
five years from the date of grant (as determined by the Company's Board of
Directors) and have a maximum term of 10 years from the date of grant.
Upon consummation of the share exchange agreement with CCUK's shareholders
(see Note 2), the Company adopted each of the various CCUK stock option plans.
All outstanding options to purchase shares of CCUK under such plans have been
converted into options to purchase shares of the Company's common stock. Up to
4,392,451 shares of the Company's common stock were reserved for awards granted
under the CCUK plans, and these options generally vest over periods of up to
three years from the date of grant.
A summary of awards granted under the various stock option plans is as
follows for the years ended December 31, 1997, 1998 and 1999:
1997 1998 1999
---------------------- ---------------------- -----------------------
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...... 1,050,000 $0.89 3,694,375 $ 4.69 16,585,197 $ 7.06
Options granted......... 3,042,500 5.46 9,024,720 10.02 4,661,649 18.68
Options outstanding
under CCUK stock
option plans........... -- -- 4,367,202 2.74 -- --
Options exercised....... (363,125) 0.53 (216,650) 4.89 (1,482,066) 5.82
Options forfeited....... (35,000) 1.20 (284,450) 5.72 (538,704) 9.17
--------- ---------- ----------
Options outstanding at
end of year............ 3,694,375 4.69 16,585,197 7.06 19,226,076 9.89
========= ========== ==========
Options exercisable at
end of year............ 728,875 2.49 7,615,649 4.75 11,590,217 8.14
========= ========== ==========
In August 1998, certain outstanding options became fully or partially vested
upon consummation of the IPO. A summary of options outstanding as of December
31, 1999 is as follows:
83
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (CONTINUED)
Weighted-
Average
Number of Remaining Number of
Exercise Options Contractual Options
Prices Outstanding Life Exercisable
- ----------------------- ----------- ----------- -----------
$ -0- to $ 1.60 729,107 6.0 years 644,415
2.31 to 3.90 3,541,171 6.8 years 1,977,850
4.01 to 5.97 1,616,592 7.7 years 1,535,925
7.50 to 7.77 4,789,021 8.3 years 3,244,029
10.04 to 12.50 436,418 8.9 years 93,084
13.00 3,415,000 8.6 years 3,415,000
15.13 to 17.63 1,286,000 9.7 years 25,000
18.00 to 19.94 2,003,822 9.3 years 546,986
20.06 to 22.28 1,289,111 9.2 years 107,928
23.69 to 25.62 119,834 9.5 years --
--------- ---------
19,226,076 11,590,217
=========== ===========
The weighted-average fair value of options granted during the years ended
December 31, 1997, 1998 and 1999 was $1.30, $4.54 and $6.76, respectively. The
fair value of each option was estimated on the date of grant using the Black-
Scholes option-pricing model and the following weighted-average assumptions
about the options (the minimum value method was used prior to the IPO):
Years Ended December 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
Risk-free interest rate..... 6.1% 5.38% 5.41%
Expected life............... 4.5 years 3.6 years 4.9 years
Expected volatility......... 0% 0% to 30% 30 %
Expected dividend yield..... 0% 0% 0 %
The exercise prices for options granted during the years ended December 31,
1997 and 1999 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 stock options during those years (see Note 1 and "Compensation
Charges Related to Stock Option Grants"). 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, 1997, 1998 and
1999 would have been $12,586,000 ($2.37 per share), $75,660,000 ($1.91 per
share) and $113,633,000 ($1.08 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, 1999, the Company had the following shares reserved for
future issuance:
Common Stock:
Class A Common Stock............................................. 11,340,000
Shares of CCUK stock which are convertible into common stock..... 17,443,500
Convertible Preferred Stock...................................... 7,441,860
Stock option plans............................................... 30,330,610
Warrants......................................................... 2,194,990
----------
68,750,960
==========
84
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have various defined contribution savings
plans covering substantially all employees. Depending on the plan, employees
may elect to contribute up to 15% of their eligible compensation. Certain of
the plans provide for partial matching of such contributions. The cost to the
Company for these plans amounted to $98,000, $197,000 and $836,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.
CCUK has a defined benefit plan which covers all of its employees hired on or
before March 1, 1997. Employees hired after that date are not eligible to
participate in this plan. The net periodic pension cost attributable to this
plan for the four months ended December 31, 1998 and the year ended December 31,
1999 was $1,115,000 and $3,592,000, respectively. As of December 31, 1998 and
1999, (1) the projected benefit obligation amounted to $15,298,000 and
$18,169,000, respectively; (2) the fair value of the plan's assets amounted to
$15,848,000 and $22,449,000, respectively; and (3) the prepaid pension cost
attributable to this plan amounted to $1,704,000 and $1,454,000, respectively.
11. RELATED PARTY TRANSACTIONS
Included in other receivables at December 31, 1998 and 1999 are amounts due
from employees of the Company totaling $368,000 and $312,000, respectively.
12. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, minimum rental commitments under operating leases are
as follows: years ending December 31, 2000 - $70,477,000; 2001 - $67,261,000;
2002 - $61,770,000; 2003 - $54,625,000; 2004 - $49,111,000; thereafter -
$233,217,000. Rental expense for operating leases was $1,712,000, $9,620,000
and $47,300,000 for the years ended December 31, 1997, 1998 and 1999,
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.
13. OPERATING SEGMENTS AND CONCENTRATIONS OF CREDIT RISK
Operating Segments
The Company's reportable operating segments for 1999 are (1) the domestic
operations other than Crown Atlantic ("CCUSA"); (2) the United Kingdom
operations of CCUK; and (3) 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.
As discussed in Note 2, CCUK's and Crown Atlantic's results of operations are
included in the Company's consolidated financial statements beginning in 1998
and 1999, respectively. Prior to that time, the domestic operations of CCUSA
represented the Company's only reportable segment.
85
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The measurement of profit or loss currently used to evaluate the results of
operations for the Company and its operating segments is earnings before
interest, taxes, depreciation and amortization ("EBITDA"). The Company defines
EBITDA as operating income (loss) plus depreciation and amortization, non-cash
compensation charges and restructuring charges. EBITDA is not intended as an
alternative measure of operating results or cash flow from operations (as
determined in accordance with generally accepted accounting principles), and the
Company's measure of EBITDA may not be comparable to similarly titled measures
of other companies. There are no significant revenues resulting from
transactions between the Company's operating segments. Total assets for the
Company's operating segments are determined based on the separate consolidated
balance sheets for CCUSA, CCUK and Crown Atlantic. The results of operations and
financial position for CCUK 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, 1999
-------------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCUK Atlantic and Other Total
------------ ---------- ---------- ------------- ----------
(In thousands of dollars)
Net revenues:
Site rental and broadcast............... $ 58,293 $171,981 $ 37,620 $ -- $ 267,894
transmission
Network services and other.............. 44,413 21,713 10,268 1,471 77,865
---------- -------- -------- -------- ----------
102,706 193,694 47,888 1,471 345,759
---------- -------- -------- -------- ----------
Costs of operations (exclusive of
depreciation and amortization).......... 41,648 93,058 20,953 1,089 156,748
General and administrative............... 27,988 5,625 5,146 5,064 43,823
Corporate development.................... -- 819 -- 4,584 5,403
---------- -------- -------- -------- ----------
EBITDA................................... 33,070 94,192 21,789 (9,266) 139,785
Restructuring charges.................... 5,645 -- -- -- 5,645
Non-cash compensation charges............ 67 769 -- 1,337 2,173
Depreciation and amortization............ 41,174 63,597 24,155 1,180 130,106
---------- -------- -------- -------- ----------
Operating income (loss).................. (13,816) 29,826 (2,366) (11,783) 1,861
Interest and other income (expense)...... (155) 377 4,577 12,932 17,731
Interest expense and amortization of
deferred financing costs................ (4,119) (28,334) (12,233) (66,222) (110,908)
Provision for income taxes............... (56) -- -- (219) (275)
Minority interests....................... -- (3,835) 1,079 -- (2,756)
Cumulative effect of change in
accounting principle for costs of
start-up activities..................... (2,014) -- -- (400) (2,414)
---------- -------- -------- -------- ----------
Net loss................................. $ (20,160) $ (1,966) $ (8,943) $(65,692) $ (96,761)
========== ======== ======== ======== ==========
Capital expenditures..................... $ 118,961 $150,562 $ 23,287 $ 991 $ 293,801
========== ======== ======== ======== ==========
Total assets (at year end)............... $1,544,969 $989,060 $712,019 $590,602 $3,836,650
========== ======== ======== ======== ==========
86
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year Ended December 31, 1998
----------------------------------------------------
Corporate
Office Consolidated
CCUSA CCUK and Other Total
---------- ---------- ------------- ----------
(In thousands of dollars)
Net revenues:
Site rental and broadcast transmission................ $ 22,541 $ 52,487 $ -- $ 75,028
Network services and other............................ 31,471 5,568 1,011 38,050
-------- -------- -------- ----------
54,012 58,055 1,011 113,078
-------- -------- -------- ----------
Costs of operations (exclusive of depreciation and
amortization)......................................... 23,076 24,372 370 47,818
General and administrative............................. 17,929 2,418 3,224 23,571
Corporate development.................................. -- -- 4,625 4,625
-------- -------- -------- ----------
EBITDA................................................. 13,007 31,265 (7,208) 37,064
Non-cash compensation charges.......................... 132 2,851 9,775 12,758
Depreciation and amortization.......................... 16,202 20,318 719 37,239
-------- -------- -------- ----------
Operating income (loss)................................ (3,327) 8,096 (17,702) (12,933)
Equity in earnings of unconsolidated affiliate......... -- -- 2,055 2,055
Interest and other income (expense).................... (253) 294 4,179 4,220
Interest expense and amortization of deferred.......... (4,476) (7,362) (17,251) (29,089)
financing costs
Provision for income taxes............................. (374) -- -- (374)
Minority interests..................................... -- (1,654) -- (1,654)
-------- -------- -------- ----------
Net loss............................................... $ (8,430) $ (626) $(28,719) $ (37,775)
======== ======== ======== ==========
Capital expenditures................................... $ 84,911 $ 50,224 $ 3,624 $ 138,759
======== ======== ======== ==========
Total assets (at year end)............................. $332,555 $887,938 $302,737 $1,523,230
======== ======== ======== ==========
Year Ended December 31, 1997
--------------------------------------
Corporate
Office Consolidated
CCUSA and Other Total
--------- ------------- ----------
(In thousands of dollars)
Net revenues:
Site rental and broadcast transmission.............................. $11,010 $ -- $ 11,010
Network services and other.......................................... 20,066 329 20,395
------- ------- --------
31,076 329 31,405
------- ------- --------
Costs of operations (exclusive of depreciation and amortization)..... 15,350 -- 15,350
General and administrative........................................... 6,675 149 6,824
Corporate development................................................ 1,864 3,867 5,731
------- ------- --------
EBITDA............................................................... 7,187 (3,687) 3,500
Depreciation and amortization........................................ 6,925 27 6,952
------- ------- --------
Operating income (loss).............................................. 262 (3,714) (3,452)
Equity in losses of unconsolidated affiliate......................... -- (1,138) (1,138)
Interest and other income (expense).................................. (77) 2,028 1,951
Interest expense and amortization of deferred financing costs........ (4,660) (4,594) (9,254)
Provision for income taxes........................................... -- (49) (49)
------- ------- --------
Net loss............................................................. $(4,475) $(7,467) $(11,942)
======= ======= ========
Capital expenditures................................................. $17,200 $ 835 $ 18,035
======= ======= ========
87
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,
--------------------------------
1997 1998 1999
-------- --------- ---------
(In thousands of dollars)
United States........................ $29,076 $ 51,807 $147,679
Puerto Rico.......................... 2,329 2,470 2,915
------- -------- --------
Total domestic operations........... 31,405 54,277 150,594
------- -------- --------
United Kingdom....................... -- 58,055 193,655
Other foreign countries.............. -- 746 1,510
------- -------- --------
Total for all foreign countries..... -- 58,801 195,165
------- -------- --------
$31,405 $113,078 $345,759
======= ======== ========
A summary of long-lived assets by country of location is as follows:
December 31,
-------------------------
1998 1999
----------- -----------
(In thousands of dollars)
United States......................... $ 310,953 $2,220,468
Puerto Rico........................... 14,473 21,191
---------- ----------
Total domestic operations............ 325,426 2,241,659
---------- ----------
United Kingdom........................ 855,560 925,424
Other foreign countries............... 128 7,522
---------- ----------
Total for all foreign countries...... 855,688 932,946
---------- ----------
$1,181,114 $3,174,605
========== ==========
Major Customers
For the years ended December 31, 1997, 1998 and 1999, CCUSA had revenues from
a single customer amounting to $5,998,000, $14,168,000 and $16,872,000,
respectively. For the years ended December 31, 1998 and 1999, consolidated net
revenues include $33,044,000 and $97,520,000, 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 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.
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. Historically, the Company has
not incurred any significant credit related losses.
14. RESTRUCTURING CHARGES
In connection with the formation of Crown Atlantic (see Note 2), the Company
completed a restructuring of its United States operations during the first
quarter of 1999. The objective of this restructuring was to transition from a
centralized organization to a regionally-based organization in the United
States. Coincident
88
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with the restructuring, the Company incurred one-time charges of $1,814,000
related to severance payments for staff reductions, as well as costs related to
non-cancelable leases of excess office space. At December 31, 1999, other
accrued liabilities includes $331,000 related to these charges.
The Company completed a restructuring of its TeleStructures, Inc. operations
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
current 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 (see Note 2) and other related costs. At December
31, 1999, other accrued liabilities includes $1,309,000 related to these
charges.
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summary quarterly financial information for the years ended December 31, 1998
and 1999 is as follows:
Three Months Ended
----------------------------------------------------
March 31 June 30 September 30 December 31
--------- --------- ------------- ------------
(In thousands of dollars, except per share amounts)
1998:
Net revenues.................................... $ 11,837 $ 11,530 $ 28,894 $ 60,817
Operating income (loss)......................... (2,494) (2,197) (12,006) 3,764
Net loss........................................ (6,606) (6,426) (17,444) (7,299)
Loss per common share--basic and diluted........ (0.79) (0.78) (0.33) (0.09)
1999:
Net revenues.................................... $ 55,109 $ 77,527 $ 98,927 $114,196
Operating income (loss)......................... (1,715) 1,124 202 2,250
Loss before cumulative effect of change in
accounting principle........................... (13,473) (20,850) (27,067) (32,957)
Cumulative effect of change in accounting
principle...................................... (2,414) -- -- --
Net loss........................................ (15,887) (20,850) (27,067) (32,957)
Per common share - basic and diluted:
Loss before cumulative effect of change in
accounting principle......................... (0.21) (0.22) (0.23) (0.27)
Cumulative effect of change in accounting
principle.................................... (0.03) -- -- --
Net loss...................................... (0.24) (0.22) (0.23) (0.27)
16. SUBSEQUENT EVENTS (UNAUDITED)
Crown Castle GT
On January 31, 2000, the formation of Crown Castle GT took place with the
first closing of towers (see Note 2). The Company contributed $223,870,000 in
cash to Crown Castle GT, and GTE contributed 637 towers in exchange for a cash
distribution of $198,870,000 from Crown Castle GT.
89
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BellSouth and BellSouth DCS
On February 2, 2000, the Company closed on an additional 90 of the BellSouth
towers (see Note 2). In connection with this closing, the Company paid
$20,437,000 in cash and issued 441,925 shares of its common stock. On the same
date, the Company closed on an additional 26 of the BellSouth DCS towers (see
Note 2). In connection with this closing, the Company paid $10,662,000 in cash.
Crown Castle Australia Limited ("CCAL")
In March 2000, CCAL (a 66.7% owned subsidiary of the Company) entered into an
agreement to purchase approximately 700 towers in Australia from Cable &
Wireless Optus. The total purchase price for the towers will be approximately
$135,000,000 in cash (Australian $220,000,000), and the purchase is expected to
close in the second quarter of 2000. The Company will account for its investment
in CCAL as a purchase of tower assets, and will include CCAL's results of
operations and cash flows in the Company's consolidated financial statements for
periods subsequent to the purchase date.
Bank Credit Facility
In March 2000, a subsidiary of the Company entered into a credit agreement
with a syndicate of banks (the "2000 Credit Facility") which consists of two
term loan facilities and a revolving line of credit aggregating $1,200,000,000.
Available borrowings under the 2000 Credit Facility are generally to be used for
the construction and purchase of towers and for general corporate purposes of
CCUSA, Crown Castle GT and CCAL. The amount of available borrowings will be
determined based on the current financial performance (as defined) of those
subsidiaries' assets. In addition, up to $25,000,000 of borrowing availability
under the 2000 Credit Facility can be used for letters of credit. 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. The
2000 Credit Facility requires the borrowers to maintain certain financial
covenants and includes restrictive covenants similar to those in the Senior
Credit Facility (see Note 5).
On March 15, 2000, the Company used $83,375,000 in borrowings under the 2000
Credit Facility to repay outstanding borrowings and accrued interest under the
Senior Credit Facility. The net proceeds from $316,625,000 in additional
borrowing will be used to fund a portion of the purchase price for Crown Castle
GT and for general corporate purposes. In the first quarter of 2000, CCI will
record an extraordinary loss of approximately $1,653,000 consisting of the
write-off of unamortized deferred financing costs related to the Senior Credit
Facility.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
90
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be furnished pursuant to this item will be set
forth in the 2000 Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished pursuant to this item will be set
forth in the 2000 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be furnished pursuant to this item will be set
forth in the 2000 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished pursuant to this item will be set
forth in the 2000 Proxy Statement and is incorporated herein by reference.
91
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS:
The list of financial statements filed as part of this report is submitted
as a separate section, the index to which is located on page 56.
(a)(2) FINANCIAL STATEMENT SCHEDULE:
Schedule I--Condensed Financial Information of Registrant follows this
Part IV. All other schedules are omitted because they are not applicable or
because the required information is contained in the financial statements or
notes thereto included in this Form 10-K.
(a)(3) EXHIBITS:
The Exhibits listed on the accompanying Index to Exhibits are filed as
part of this Annual Report on Form 10-K.
(b) REPORTS ON FORM 8-K:
During the fourth quarter of 1999 we filed the following Reports on Form
8-K:
The Registrant filed a Current Report on Form 8-K dated September 14, 1999
and filed with the SEC on October 12, 1999 reporting (1) under Item 5 thereof
the execution of an agreement with GECC under which GECC has agreed to purchase
shares of the Company's Convertible Preferred Stock, and (2) under Item 7
thereof certain pro forma financial statements for the Company.
The Registrant filed a Current Report on Form 8-K dated November 7, 1999
and filed with the SEC on November 12, 1999 reporting under Item 5 thereof the
execution of an agreement to form a joint venture with GTE.
The Registrant filed a Current Report on Form 8-K dated November 19, 1999
and filed with the SEC on December 13, 1999 reporting under Item 5 thereof the
sale of the Company's Convertible Preferred Stock to GECC.
92
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Crown Castle International Corp.:
Under date of February 22, 2000, we reported on the consolidated balance sheets
of Crown Castle International Corp. and subsidiaries as of December 31, 1999 and
1998 and the related consolidated statements of operations and comprehensive
loss, cash flows and stockholders' equity (deficit) for each of the years in the
three-year period ended December 31, 1999 as contained in the annual report on
Form 10-K for the year ended 1999. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule as listed in the accompanying index.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Houston, Texas
February 22, 2000
93
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
December 31,
---------------------------
1998 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 37,907 $ 489,886
Receivables and other current assets............................................. 957 982
Advances to subsidiaries, net.................................................... 13,711 98,020
---------- ----------
Total current assets.......................................................... 52,575 588,888
Property and equipment, net of accumulated depreciation of $875 and $2,053 at
December 31, 1998 and 1999, respectively......................................... 4,255 4,040
Escrow deposit for acquisition.................................................... -- 50,000
Investment in subsidiaries........................................................ 1,041,788 2,334,508
Deferred financing costs and other assets, net of accumulated amortization of
$814 and $2,609 at December 31, 1998 and 1999, respectively...................... 9,485 44,668
---------- ----------
$1,108,103 $3,022,104
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities................................... $ 1,379 $ 4,339
Accrued interest................................................................. -- 6,907
---------- ----------
Total current liabilities..................................................... 1,379 11,246
Long-term debt.................................................................... 168,099 970,188
---------- ----------
Total liabilities............................................................. 169,478 981,434
---------- ----------
Redeemable preferred stock, $.01 par value; 10,000,000 shares authorized:
12 3/4% Senior Exchangeable Preferred Stock; shares issued: December 31,
1998 - 200,000 and December 31, 1999 - 226,745 (stated at mandatory
redemption and aggregate liquidation value)..................................... 201,063 227,950
8 1/4% Cumulative Convertible Redeemable Preferred Stock; shares issued:
December 31, 1998 - none and December 31, 1999 - 200,000 (stated net of
unamortized value of warrants; mandatory redemption and aggregate
liquidation value of $200,000).................................................. -- 194,973
---------- ----------
Total redeemable preferred stock.............................................. 201,063 422,923
---------- ----------
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares authorized:
Common Stock; shares issued: December 31, 1998 - 83,123,873 and
December 31, 1999 - 146,074,905............................................... 831 1,461
Class A Common Stock; shares issued: 11,340,000................................ 113 113
Additional paid-in capital....................................................... 795,153 1,805,053
Cumulative foreign currency translation adjustment............................... 1,690 (3,013)
Accumulated deficit.............................................................. (60,225) (185,867)
---------- ----------
Total stockholders' equity.................................................. 737,562 1,617,747
---------- ----------
$1,108,103 $3,022,104
========== ==========
See notes to consolidated financial statements and accompanying notes.
94
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF OPERATIONS (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS)
Years Ended December 31,
-------------------------------------
1997 1998 1999
---------- ---------- -----------
Other revenues.................................................... $ 329 $ 399 $ --
Interest and other income (expense)............................... 2,028 1,354 12,852
General and administrative expenses............................... (149) (2,975) (5,002)
Corporate development expenses.................................... (3,867) (4,404) (4,579)
Non-cash compensation charges..................................... -- (9,775) (1,337)
Depreciation and amortization..................................... (27) (720) (1,178)
Interest expense and amortization of deferred financing costs..... (4,594) (17,251) (66,222)
-------- -------- ---------
Loss before income taxes, equity in earnings (losses) of
subsidiaries and unconsolidated affiliate and cumulative effect
of change in accounting principle................................ (6,280) (33,372) (65,466)
Provision for income taxes........................................ (49) -- --
Equity in earnings (losses) of subsidiaries....................... (4,475) (6,458) (30,985)
Equity in earnings (losses) of unconsolidated affiliate........... (1,138) 2,055 --
-------- -------- ---------
Loss before cumulative effect of change in accounting principle... (11,942) (37,775) (96,451)
Cumulative effect of change in accounting principle for costs of
start-up activities.............................................. -- -- (310)
-------- -------- ---------
Net loss.......................................................... (11,942) (37,775) (96,761)
Dividends on preferred stock...................................... (2,199) (5,411) (28,881)
-------- -------- ---------
Net loss after deduction of dividends on preferred stock.......... $(14,141) $(43,186) $(125,642)
======== ======== =========
See notes to consolidated financial statements and accompanying notes.
95
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF CASH FLOWS (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS)
Years Ended December 31,
--------------------------------------
1997 1998 1999
---------- ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................. $ (11,942) $ (37,775) $ (96,761)
Adjustments to reconcile net loss to net cash used for operating
activities:
Amortization of deferred financing costs and discounts on long-
term debt.......................................................... 1,652 17,251 46,703
Equity in losses of subsidiaries.................................... 4,475 6,458 30,985
Non-cash compensation charges....................................... -- 9,775 1,337
Depreciation and amortization....................................... 27 720 1,178
Cumulative effect of change in accounting principle................. -- -- 310
Equity in losses (earnings) of unconsolidated affiliate............. 1,138 (2,055) --
Increase in accrued interest........................................ -- -- 6,907
Increase (decrease) in accounts payable and other accrued
liabilities........................................................ (103) 1,352 2,273
Decrease (increase) in receivables and other assets................. 551 (1,413) (10,052)
--------- --------- -----------
Net cash used for operating activities............................. (4,202) (5,687) (17,120)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiaries............................................ (89,989) (332,065) (930,082)
Net advances to subsidiaries.......................................... (2,223) (11,100) (84,309)
Escrow deposit for acquisition........................................ -- -- (50,000)
Capital expenditures.................................................. (835) (3,624) (963)
Sale of (investments in) affiliates................................... (59,487) -- 739
--------- --------- -----------
Net cash used for investing activities............................. (152,534) (346,789) (1,064,615)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock............................... 139,867 339,929 805,771
Proceeds from issuance of long-term debt.............................. 150,010 -- 757,206
Incurrence of financing costs......................................... (5,908) (1,755) (28,025)
Dividends on preferred stock.......................................... -- -- (1,238)
Purchase of capital stock............................................. (2,132) (883) --
Principal payments on long-term debt.................................. (78,102) -- --
--------- --------- -----------
Net cash provided by financing activities.......................... 203,735 337,291 1,533,714
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................... 46,999 (15,185) 451,979
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................... 6,093 53,092 37,907
--------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 53,092 $ 37,907 $ 489,886
========= ========= ===========
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock in connection with acquisitions.............. $ 57,189 $ 420,964 $ 397,710
Issuance of long-term debt in connection with acquisitions............ 78,102 -- --
Conversion of subsidiary's Convertible Secured Subordinated Notes
to Series A Convertible Preferred Stock.............................. 3,657 -- --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid......................................................... $ 2,943 $ -- $ 12,612
Income taxes paid..................................................... -- -- --
See notes to consoldiated financial statements and accompanying notes.
96
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES TO FINANCIAL STATEMENTS (UNCONSOLIDATED)
1. INVESTMENT IN SUBSIDIARIES
The Company's investment in subsidiaries is presented in the accompanying
unconsolidated financial statements using the equity method of accounting.
Under the terms of the Senior 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. For
CCUSA, the amount of such dividends is limited to (1) $6,000,000 per year until
October 31, 2002, and $33,000,000 per year thereafter; and (2) an amount to pay
income taxes attributable to the Company's Restricted Subsidiaries. CCUK and
Crown Atlantic are effectively precluded from paying dividends. The restricted
net assets of the Company's subsidiaries totaled approximately $1,003,701,000 at
December 31, 1999.
2. LONG-TERM DEBT
Long-term debt consists of the Company's Debt Securities.
3. INCOME TAXES
Income taxes reported in the accompanying unconsolidated financial statements
are determined by computing income tax assets and liabilities on a consolidated
basis, for the Company and members of its consolidated federal income tax return
group, and then reducing such consolidated amounts for the amounts recorded by
the Company's subsidiaries on a separate tax return basis.
97
INDEX TO EXHIBITS
Item 14(a)(3)
Exhibit
No. Description of Exhibit
------- -------------------------------------------------------------------
##2.1 Share Exchange Agreement among Castle Transmission Services
(Holdings) Ltd., Crown Castle International Corp., TeleDiffusion de
France International S.A., Digital Future Investments B.V. and
certain shareholders of Castle Transmission Services (Holdings)
Ltd. dated as of April 24, 1998
*2.2 Formation Agreement, dated December 8, 1998, relating to the
formation of Crown Atlantic Company LLC, Crown Atlantic Holding Sub
LLC, and Crown Atlantic Holding Company LLC
**2.3 Amendment Number 1 to Formation Agreement, dated March 31, 1999,
among Crown Castle International Corp., Cellco Partnership, doing
business as Bell Atlantic Mobile, certain Transferring Partnerships
and CCA Investment Corp.
**2.4 Crown Atlantic Company LLC Operating Agreement entered into as of
March 31, 1999 by and between Cellco Partnership, doing business as
Bell Atlantic Mobile, and Crown Atlantic Holding Sub LLC
***2.5 Agreement to Sublease dated June 1, 1999 by and among BellSouth
Mobility Inc., BellSouth Telecommunications Inc., The Transferring
Entities, Crown Castle International Corp. and Crown Castle South
Inc.
***2.6 Sublease dated June 1, 1999 by and among BellSouth Mobility Inc.,
Certain BMI Affiliates, Crown Castle International Corp. and Crown
Castle South Inc.
2.7 Agreement to Sublease dated August 1, 1999 by and among BellSouth
Personal Communications, Inc., BellSouth Carolinas PCS, L.P., Crown
Castle International Corp. and Crown Castle South Inc.
2.8 Sublease dated August 1, 1999 by and among BellSouth Personal
Communications, Inc., BellSouth Carolinas PCS, L.P., Crown Castle
International Corp. and Crown Castle South Inc.
*****2.9 Formation Agreement dated November 7, 1999 relating to the
formation of Crown Castle GT Company LLC, Crown Castle GT Holding
Sub LLC, and Crown Castle GT Holding Company LLC
*****2.10 Letter Agreement dated November 7, 1999 between GTE Wireless
Incorporated and Crown Castle International Corp.
2.11 Operating Agreement, dated January 31, 2000, by and between Crown
Castle GT Corp. and affiliates of GTE Wireless Incorporated
###3.1 Restated Certificate of Incorporation of Crown Castle International
Corp., dated August 21, 1998
###3.2 Amended and Restated By-laws of Crown Castle International Corp.,
dated August 21, 1998
###3.3 Certificate of Designations, Preferences and Relative,
Participating, Optional and other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions thereof of 12 3/4%
Senior Exchangeable Preferred Stock Due 2010 and 12 3/4% Series B
Senior Exchangeable Preferred Stock Due 2010 of Crown Castle
International Corp. filed with the Secretary of State of the State
of Delaware on December 18, 1998
******3.4 Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions thereof of Series
A and Series B Cumulative Convertible Redeemable Preferred Stock of
Crown Castle International Corp. filed with the Secretary of State
of the State of Delaware on November 19, 1999
#4.1 Trust Deed related to (Pounds)125,000,000 9% Guaranteed Bonds Due
2007 among Castle Transmission (Finance) PLC, as Issuer, Castle
Transmission International Ltd. and Castle Transmission Services
(Holdings) Ltd., as Guarantors, and The Law Debenture Trust
Corporation p.l.c., as Trustee, dated May 21, 1997
#4.2 First Supplemental Trust Deed related to (Pounds)125,000,000 9%
Guaranteed Bonds Due 2007 among Castle Transmission (Finance) PLC,
as Issuer, Castle Transmission International Ltd. and Castle
Transmission Services (Holdings) Ltd., as Guarantors, and The Law
Debenture Trust Corporation p.l.c., as Trustee, dated October 17,
1997
98
Exhibit
No. Description of Exhibit
------- -------------------------------------------------------------------
#4.3 Indenture, dated as of November 25, 1997, between Crown Castle
International Corp. and United States Trust Company of New York, as
Trustee, relating to the 10 5/8% Senior Discount Notes Due 2007
(including exhibits)
#4.4 Article Fourth of Certificate of Incorporation of Castle Tower
Holding Corp. (included in Exhibit 3.1)
##4.5 Specimen Certificate of Common Stock
###4.6 Indenture, dated as of December 21, 1998, between Crown Castle
International Corp. and the United States Trust Company of New
York, as Trustee, relating to the 12 3/4% Senior Subordinated
Exchange Debentures Due 2010 (including exhibits)
####4.7 Indenture, dated as of May 17, 1999, between Crown Castle
International Corp. and United States Trust Company of New York, as
Trustee, relating to the 9% Senior Notes Due 2011 (including
exhibits)
####4.8 Indenture, dated as of May 17, 1999, between Crown Castle
International Corp. and United States Trust Company of New York, as
Trustee, relating to the 10 3/8% Senior Discount Notes Due 2011
(including exhibits)
***4.9 Registration Rights Agreement dated June 1, 1999 between BellSouth
Mobility Inc. and Crown Castle International Corp.
####4.10 Indenture, dated as of August 3, 1999, between Crown Castle
International Corp. and United States Trust Company of New York, as
Trustee, relating to the 9 1/2% Senior Notes Due 2011 (including
exhibits)
####4.11 Indenture, dated as of August 3, 1999, between Crown Castle
International Corp. and United States Trust Company of New York, as
Trustee, relating to the 11 1/4% Senior Discount Notes Due 2011
(including exhibits)
******4.12 Deposit Agreement among Crown Castle International Corp. and the
United States Trust Company of New York dated November 19, 1999
******4.13 Registration Rights Agreement among Crown Castle International
Corp., the United States Trust Company of New York and SFG-P INC.
dated November 19, 1999
******4.14 Warrant Agreement between Crown Castle International Corp. and the
United States Trust Company of New York dated November 19, 1999
##10.1 Site Sharing Agreement between National Transcommunications Limited
and The British Broadcasting Corporation dated September 10, 1991
##10.2 Transmission Agreement between The British Broadcasting Corporation
and Castle Transmission Services Limited dated February 27, 1997
#10.3 Services Agreement between Castle Transmission International Ltd.
(formerly known as Castle Transmission Services Ltd.) and Castle
Tower Holding Corp. dated February 28, 1997
##10.4 Agreement for the Provision of Digital Terrestrial Television
Distribution and Transmission Services between British Digital
Broadcasting plc and Castle Transmission International Ltd. dated
December 18, 1997
##10.5 Digital Terrestrial Television Transmission Agreement between The
British Broadcasting Corporation and Castle Transmission
International Ltd. dated February 10, 1998
##10.6 Contract between British Telecommunications PLC and Castle
Transmission International Inc. for the Provision of Digital
Terrestrial Television Network Distribution Service dated May 13,
1998
##10.7 Amending Agreement between the British Broadcasting Corporation and
Castle Transmission International Limited dated July 16, 1998
##10.8 Commitment Agreement between the British Broadcasting Corporation,
Castle Tower Holding Corp., TeleDiffusion de France International
S.A. and TeleDiffusion de France S.A.
###10.9 Amended and Restated Services Agreement between Castle Transmission
International Limited and TeleDiffusion de France S.A. dated August
1998
**10.10 Global Lease Agreement dated March 31, 1999 between Crown Atlantic
Company LLC and Cellco Partnership, doing business as Bell Atlantic
Mobile
99
Exhibit
No. Description of Exhibit
------- --------------------------------------------------------------------
**10.11 Master Build to Suit Agreement dated March 31, 1999 between Cellco
Partnership, doing business as BellAtlantic Mobile, and Crown
Atlantic Company LLC
***10.12 Agreement to Build to Suit dated June 1, 1999 by and among BellSouth
Mobility Inc., Crown Castle International Corp. and Crown Castle
South Inc.
#10.13 Castle Tower Holding Corp. 1995 Stock Option Plan (Third Restatement)
##10.14 Crown Castle International Corp. 1995 Stock Option Plan (Fourth
Restatement)
##10.15 Castle Transmission Services (Holdings) Ltd. All Employee Share
Option Scheme dated as of January 23, 1998
##10.16 Rules of the Castle Transmission Services (Holdings) Ltd. Bonus
Share Plan
###10.17 Employee Benefit Trust between Castle Transmission Services
(Holdings) Ltd. and Castle Transmission (Trustees) Limited
##10.18 Castle Transmission Services (Holdings) Ltd. Unapproved Share Option
Scheme dated as of January 23, 1998
##10.19 Deed of Grant of Option between Castle Transmission Series
(Holdings) Ltd. and George Reese dated January 23, 1998
##10.20 Deed of Grant of Option between Castle Transmission Services
(Holdings) Ltd. and David Ivy dated January 23, 1998
##10.21 Deed of Grant of Option between Castle Transmission Services
(Holdings) Ltd. and David Ivy dated April 23, 1998
##10.22 Deed of Grant of Option between Castle Transmission Services
(Holdings) Ltd. and Ted B. Miller, Jr., dated April 23, 1998
##10.23 Deed of Grant of Option between Castle Transmission Services
(Holdings) Ltd. and Ted B. Miller, Jr., dated January 23, 1998
##10.24 Agreement among Castle Transmission Services (Holdings) Ltd.,
Digital Future Investments B.V., Berkshire Partners LLC and certain
shareholders of Castle Transmission Services (Holdings) Ltd. for the
sale and purchase of certain shares of Castle Transmission Services
(Holdings) Ltd., for the amendment of the Shareholders Agreement in
respect of Castle Transmission Services (Holdings) Ltd. and for the
granting of certain options dated April 24, 1998
###10.25 Governance Agreement among Crown Castle International Corp.,
TeleDiffusion de France International S.A. and Digital Future
Investments B.V., dated as of August 21, 1998
****10.26 Supplemental Agreement to the Governance Agreement among Crown
Castle International Corp., TeleDiffusion de France International
S.A., Digital Future Investments B.V., dated May 17, 1999
###10.27 Form of Severance Agreement entered into between Crown Castle
International Corp. and Ted Miller, George Reese, John Gwyn, Charles
Green, Alan Rees, Blake Hawk and David Ivy
###10.28 Shareholders Agreement among Crown Castle International Corp.,
TeleDiffusion de France International S.A. and Castle Transmission
Services (Holdings) Limited dated August 1998
###10.29 Stockholders Agreement between Crown Castle International Corp. and
certain stockholders listed on Schedule 1 thereto, dated as of
August 21, 1998 as amended by Amendment No. 1, dated as of the 12th
day of November, 1998
+10.30 Amendment Number Three, dated as of August 11, 1999, to the
Stockholders Agreement between Crown Castle International Corp. and
certain stockholders listed on Schedule 1 thereto, dated as of
August 21, 1998
+10.31 Amendment Number Four, dated as of October 1, 1999, to the
Stockholders Agreement between Crown Castle International Corp. and
certain stockholders listed on Schedule 1 thereto, dated as of
August 21, 1998
###10.32 Rights Agreement dated as of August 21, 1998, between Crown Castle
International Corp. and ChaseMellon Shareholder Services L.L.C.
**10.33 Amendment No. 1 to Rights Agreement dated March 31, 1999, between
Crown Castle International Corp. and ChaseMellon Shareholder
Services L.L.C.
100
Exhibit
No. Description of Exhibit
------- ----------------------------------------------------------------------
**10.34 Loan Agreement dated as of March 31, 1999 by and among Crown Atlantic
HoldCo Sub LLC, as the Borrower, Key Corporate Capital Inc., as Agent,
and the Financial Institutions listed therein
10.35 Amendment to Loan Amendment Agreement, dated June 18, 1999, by and
among Castle Transmission International Ltd., Castle Transmission
Services (Holdings) Ltd., Millennium Communications Limited and the
various banks and lenders listed as parties hereto.
10.36 Credit Agreement dated as of March 15, 2000 among Crown Castle
Operating Company, Crown Castle International Corp., The Chase
Manhattan Bank, Credit Suisse First Boston Corporation, Key Corporate
Capital Inc. and The Bank of Nova Scotia, as Agents, and the several
Lenders which are parties thereto
10.37 Amendment to Loan Amendment Agreement dated December 23, 1999 by and
among Castle Transmission International, Ltd., Castle Transmission
Services (Holdings) Ltd, Millennium Communications Limited and the
various banks and lenders listed as parties thereto.
11 Statement re: Computation of Per Share Earnings
12 Computation of Ratios of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends
21 Subsidiaries of Crown Castle International Corp.
23 Consent of KPMG LLP
27 Financial Data Schedule
- --------
# Incorporated by reference to the exhibits with the corresponding exhibit
numbers in the Registration Statement on Form S-4 previously filed by
the Registrant (Registration No. 333-43873).
## Incorporated by reference to the exhibits with the corresponding exhibit
numbers in the Registration Statement on Form S-1 previously filed by
the Registrant (Registration No. 333-57283).
* Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated December 9,
1998.
** Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated March 31, 1999.
### Incorporated by reference to the exhibits with the corresponding
exhibit numbers in the Registration Statement on Form S-4 previously
filed by the Registrant (Registration No. 333-71715).
*** Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated June 9, 1999.
**** Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated July 22, 1999.
+ Incorporated by reference to the exhibit previously filed by the
Registrant on Form 10-Q (Registration No. 0-24737) dated September 30,
1999.
#### Incorporated by reference to the exhibits with the corresponding exhibit
numbers in the Registration Statement on Form S-4 previously filed by
the Registrant (Registration No. 333-87765).
***** Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated November 7,
1999.
****** Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated November 19,
1999.
101
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, on this 29th day of March, 2000.
CROWN CASTLE INTERNATIONAL CORP.
By: /s/ Charles C. Green, III
----------------------------------
Charles C. Green, III
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been
signed below by the following persons in the capacities indicated below on this
29th day of March, 2000.
Signature Title
--------- -----
/s/ Ted B. Miller, Jr. Chief Executive Officer and
- ------------------------------- Chairman of the Board
Ted B. Miller, Jr. (Principal Executive Officer)
/s/ David L. Ivy President and Director
- -------------------------------
David L. Ivy
/s/ Charles C. Green III Executive Vice President and
- ------------------------------- Chief Financial Officer
Charles C. Green, III (Principal Financial Officer)
/s/ Wesley D. Cunningham Senior Vice President,
- ------------------------------- Chief Accounting Officer and Corporate Controller
Wesley D. Cunningham (Principal Accounting Officer)
/s/ Carl Ferenbach Director
- -------------------------------
Carl Ferenbach
Director
- -------------------------------
Michel Azibert
Director
- -------------------------------
Bruno Chetaille
/s/ J. Landis Martin Director
- -------------------------------
J. Landis Martin
102
Signature Title
--------- -----
/s/ Randall A. Hack Director
- ---------------------------------
Randall A. Hack
/s/ Robert F. McKenzie Director
- ---------------------------------
Robert F. McKenzie
/s/ William A. Murphy Director
- ---------------------------------
William A. Murphy
/s/ Jeffrey H. Schutz Director
- ---------------------------------
Jeffrey H. Schutz
/s/ Edward C. Hutcheson, Jr. Director
- ---------------------------------
Edward C. Hutcheson, Jr.
/s/ William D. Strittmatter Director
- ---------------------------------
William D. Strittmatter
103