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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, 1998
COMMISSION FILE NO. 0-24737
CROWN CASTLE INTERNATIONAL CORP.
(exact name of registrant as specified in its charter)
Delaware 76-0470458
(I.R.S. Employer Identification Number)
(State or other jurisdictionof
incorporation or organization)
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510 Bering Drive
Suite 500
Houston, TX 775057-1457
(Zip Code)
(Address of principal executive office)
(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 on Which Registered
of 1934 ----------------
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The NASDAQ Stock Market's National
Common Stock, $.01 par value Market
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 $349.1 million as of March 15, 1999.
Applicable Only to Corporate Registrants
As of March 15, 1999 there were 94,905,902 shares outstanding (excluding
as of such date 17,044,168 shares of common stock issuable upon exercise of
options with a weighted average price of $7.06 per share).
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 "1999
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, 1998.
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CROWN CASTLE INTERNATIONAL CORP.
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business............................................ 1
Item 2. Properties.......................................... 34
Item 3. Legal Proceedings................................... 34
Submissions of Matters to a Vote of Security
Item 4. Holders............................................. 34
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................. 35
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........................................ 52
Item 8. Financial Statements and Supplementary Data......... 53
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 82
PART III
Item 10. Directors and Executive Officers of the Registrant.. 83
Item 11. Executive Compensation.............................. 83
Item 12. Security Ownership of Certain Beneficial Owners and
Management.......................................... 83
Item 13. Certain Relationships and Related Transactions...... 83
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K......................................... 84
PART I
Item 1. Business
Overview
Crown Castle International Corp. is a leading owner and operator of wireless
communications and broadcast transmission infrastructure. As of December 31,
1998, we owned or managed 1,474 towers, including 609 towers in the United
States and Puerto Rico and 865 towers in the United Kingdom. Our customers
currently include many of the world's major wireless communications and
broadcast companies, including Bell Atlantic Mobile, BellSouth, AT&T Wireless,
Nextel and the BBC.
Our strategy is to use our leading domestic and international position to
capture the growing consolidation and build-out opportunities created by:
. the outsourcing of towers by major wireless carriers;
. the need for existing wireless carriers to expand coverage and improve
capacity;
. the additional demand for towers 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 two main businesses are leasing antenna space on wireless and broadcast
multi-tenant towers and operating broadcast transmission networks. We also
provide complementary 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 end-to-end service capabilities are a key competitive
advantage in forming strategic partnerships to acquire large wireless and
broadcast tower portfolios and in winning tower construction mandates.
Our primary business in the United States is the leasing of antenna space to
wireless carriers under long-term contracts. 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. For example, we have entered into agreements with BAM and BellSouth
that, upon completion, will allow us to control and operate substantially all
the towers in their 850 MHz networks in the eastern, southwestern and
midwestern United States.
Our primary business in the United Kingdom is the operation of television
and radio broadcast transmission networks. Our towers provide broadcast
coverage to 99% of the population and substantially all of the major
metropolitan markets. In 1997, we acquired the BBC's national broadcast
transmission infrastructure and network services. Following the acquisition of
the BBC's 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. We believe
that our broadcast towers are uniquely situated in locations that wireless
carriers seeking to lease antenna space find particularly desirable.
We believe our towers are attractive to a diverse range of wireless
communications industries, including PCS, cellular, ESMR, SMR, paging, and
fixed microwave, as well as radio and television broadcasting. In the United
States our major customers include AT&T Wireless, Aerial, BAM, BellSouth,
Motorola, Nextel, PageNet and Sprint PCS. In the United Kingdom our major
customers include the BBC, Cellnet, Dolphin, NTL, ONdigital, One2One, Orange,
Virgin Radio and Vodafone.
We have embarked on a major construction program for our customers to
enhance our tower footprint. In 1998, we constructed 231 towers at an aggregate
cost of approximately $46.0 million, and had begun construction of an
additional 72 towers as of December 31, 1998. In 1999, we plan to construct
between 800 and 1,100 towers at an estimated aggregate cost between $150.0
million and $200.0 million for wireless
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carriers such as BAM, BellSouth 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. In addition, we were
selected to build and operate the world's first digital terrestrial television
system in the United Kingdom.
Growth Strategy
Our objective is to become the premier global provider of wireless
communications and broadcast transmission infrastructure and related services.
Our experience in establishing and expanding our existing tower footprints, our
experience in owning and operating both analog and digital transmission
networks, our significant relationships with wireless carriers and broadcasters
and our ability to offer customers our in-house technical and operational
expertise, uniquely position us to capitalize on global growth opportunities.
The key elements of our business strategy are to:
. Maximize Utilization of 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. We believe that 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. For example, prior to our purchase of the BBC's
broadcast transmission network in 1997, the rental of available antenna
capacity on the BBC's premier tower sites was not actively marketed to
third parties. We believe there is substantial demand for such capacity.
In addition, we believe that the extra capacity on our tower footprints
in the United States and the United Kingdom 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 footprints. Further, we intend to selectively build and
acquire additional towers to improve the coverage of our existing tower
footprints to further increase their attractiveness. We intend to use
targeted sales and marketing techniques to increase utilization of and
investment return on our existing, newly constructed and acquired
towers.
. Leverage Expertise of U.S. and U.K. Personnel to Capture Global Growth
Strategy. 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 the BBC transaction and the proposed
One2One, BAM, BellSouth and Powertel transactions described herein. With
our wireless communications and broadcast transmission network design
and radio frequency engineering expertise, we are well positioned (1) to
partner with major wireless carriers to assume ownership of their
existing towers, (2) to provide build-to-suit towers for wireless
carriers and broadcasters and (3) to acquire existing broadcast
transmission networks that are being privatized around the world.
. Partner with Wireless Carriers to Assume Ownership of their Existing
Towers. In addition to the proposed joint venture with BAM and the
proposed transaction with BellSouth, 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 will be 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.
. Provide Build-to-Suit Towers for Wireless Carriers and Broadcasters. As
wireless carriers continue to expand and fill-in their service areas,
they will require additional communications sites and will have to build
new towers where co-location is not available. Similarly, the
introduction of
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digital terrestrial television broadcasting in the United States will
require the construction of new broadcast towers to accommodate new
digital transmission equipment and analog transmission equipment
displaced from existing towers. We are aggressively pursuing these
build-to-suit opportunities, leveraging on our ability to offer end-to-
end services.
. Acquire Existing Broadcast Transmission Networks. In 1997, CTI
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 the acquisition of associated wireless
communications infrastructure. We are currently pursuing international
acquisition and privatization opportunities, including a bid in
connection with the state-run auction of Australia's National
Transmission Network.
. Continue to Decentralize 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 five regional offices, including Houston, Louisville,
Phoenix, Albany and Puerto Rico. Upon consummation of the proposed
transactions described herein (the "Proposed Transactions") we plan to
add 10 additional regional offices, five in connection with the Proposed
BAM JV, three in connection with the Proposed BellSouth Transaction and
two in connection with the Proposed Powertel Acquisition (each as
defined below). 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
CCIC is a holding company that conducts all of its business through its
subsidiaries. CCIC's two principal operating subsidiaries are CCI, through
which it conducts its U.S. operations, and CTI, through which it conducts its
U.K. operations.
U.S. Operations
Overview
Our primary business focus in the United States is the leasing of antenna
space on multiple tenant towers and rooftops 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 communication site selection, site acquisition, site development and
construction and antenna installation.
We lease antenna 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 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
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Communications, Bell Atlantic Mobile, BellSouth Mobility, Cellular One, Federal
Express, Lucent Technologies, Motorola, Nextel, Nokia, PageNet, Skytel, Sprint
PCS and TSR Wireless, as well as 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, 1998, without giving effect to the Proposed Transactions, we
owned or managed 609 towers and 78 rooftop sites in the United States and
Puerto Rico. These towers and rooftop sites are located in western Pennsylvania
(primarily in and around the greater Pittsburgh area), in the southwestern
United States (primarily in western Texas), across Puerto Rico and along I-95
in North Carolina and South Carolina.
We are actively seeking to enter into arrangements with other major wireless
carriers and independent tower operators to acquire additional tower
footprints. We believe that, like BAM, BellSouth and Powertel, other wireless
carriers will seek to enter into contractual arrangements with independent
tower carriers, such as us, for the ownership or control of their tower
footprints.
We also plan to leverage CCI's network design expertise to construct new
towers. We plan to build towers in areas where carriers' signals fail to
transmit in their coverage area. The areas, commonly known as "dead zones", are
attractive tower locations. When population density and perceived demand are
such that we believe the economics of constructing such towers are justified,
we build towers that can accommodate multiple tenants. The multiple tenant
design of these towers obviates the need for expensive and time consuming
modifications to upgrade undersized towers, saving critical capital and time
for carriers facing time-to-market constraints. The towers are also designed to
easily add additional customers, and the equipment shelters are built to
accommodate another floor for new equipment and air conditioning units when
additional capacity is needed. The tower site is zoned for multiple carriers at
the time the tower is constructed to allow new carriers to quickly utilize the
site. In addition, the towers, equipment shelters and site compounds are
engineered to protect and maintain the structural integrity of the site.
Site Rental
In the United States, we rent antenna space on our owned and managed towers
and rooftops to a variety of carriers operating cellular, PCS, SMR, ESMR,
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 (as provided in our network services programs) 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.
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 co-location.
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The following table describes, without giving effect to the Proposed
Transactions, our top ten revenue producing towers in the United States and
Puerto Rico:
December
Number of 1998
Tenant Monthly
Name Location Height (ft) Leases Revenue
---- -------- ----------- --------- --------
Crane.............................. Pennsylvania 450 99 $67,372
Bluebell........................... Pennsylvania 300 110 54,555
Monroeville........................ Pennsylvania 500 63 39,315
Lexington.......................... Kentucky 500 89 38,644
Sandia Crest....................... New Mexico 140 16 26,984
Greensburg......................... Pennsylvania 375 40 26,932
Cranberry.......................... Pennsylvania 400 44 26,455
Cerro de Punta..................... Puerto Rico 220 37 24,988
Beaver............................. Pennsylvania 500 43 25,360
El Yunque.......................... Puerto Rico 200 34 23,500
--- --------
Total..................................................... 575 $354,105
=== ========
We have existing master lease agreements with AT&T Wireless, Aerial
Communications, BAM, Nextel and Sprint PCS, among others, which provide certain
terms (including economic terms) that govern new leases entered into by such
parties during the term of their master lease agreements, including the lease
of space on towers in the Pittsburgh major trading area ("Pittsburgh MTA"),
which includes greater Pittsburgh and parts of Ohio, West Virginia and western
Pennsylvania. Each of the Aerial Communications and Sprint PCS agreements has a
10-year master lease term through December 2006, with one 10-year and one five-
year renewal period. Rents are adjusted periodically based on the cumulative
Consumer Price Index. Nextel's master lease agreement with the Company has a
10-year master lease term through October 2006, with two 10-year renewal
options. We have also entered into an independent contractor agreement with
Nextel. The BAM agreement has a 25-year master lease term through December
2020.
We have significant site rental opportunities arising out of our existing
agreements with BAM and Nextel. In our existing lease agreement with BAM, we
have exclusive leasing rights for 117 existing towers and we currently have
sublessees on 58 of these towers in the greater Pittsburgh area. The lease
agreement provides that CCI may sublet space on any of these towers to another
carrier subject to certain approval rights of BAM. To date, BAM has never
failed to approve a sublease proposed by CCI. If the Proposed BAM JV is formed,
it is expected that these 117 towers will be among the 1,427 towers to be
contributed to the joint venture by BAM. Because we would maintain the right to
put sublessees on those 117 towers, revenue resulting from the addition of new
tenants on those towers would continue to be realized by us rather than the
joint venture. In connection with the Nextel Agreement, as of December 31,
1998, we have the option to own and operate up to 96 additional towers.
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.
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Network Services
We design, build and operate our own communication sites. Through CCI, we
have developed an in-house expertise in certain value-added services that we
offer to the wireless communications and broadcasting industries. Because we
view CCI as a turn-key provider with "end-to-end" design, construction and
operating expertise, we offer our customers the flexibility of choosing between
the provision of a full ready-to-operate network infrastructure or any of the
component services involved therein. Such services include network design and
site selection, site acquisition, site development and construction and antenna
installation.
Network Design and Site Selection. We have extensive experience in network
design and engineering and site selection. While we maintain sophisticated
network design services primarily to support the location and construction of
Company-owned 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 1998, we provided network design services primarily for our
own footprints and also for certain customers, including Triton Communications,
Nextel, Aerial Communications 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 called "Network Solutions" through which we will attempt to
form strategic alliances with local governments to create a single
communications network in their communities. To date our efforts have focused
on western Pennsylvania, 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 co-location, 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 ("GIS") 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 several customers, including
AT&T Wireless, Aerial Communications, AirTouch Cellular, BAM, BellSouth, GTE
Mobilnet, 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
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cross-trained in all areas of site development, construction and antenna
installation. A varied inventory of heavy construction equipment and materials
are maintained by us at our 45-acre equipment storage and handling facility in
Pittsburgh, which is used as a staging area for projects in major cities in the
eastern region of the United States. 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 and
expertise to install antenna systems for our paging, cellular, PCS, SMR, ESMR,
microwave and broadcasting customers. As this service is performed, we use our
technical expertise to ensure that there is no interference with other tenants.
We typically bill for our antenna installation services on a fixed price basis.
Our construction management capabilities reflect Crown's extensive
experience in the construction of networks and towers. For example, Crown was
instrumental in launching networks for Sprint PCS, Nextel and Aerial
Communications in the Pittsburgh MTA. In addition, Crown supplied these
carriers with all project management and engineering services which included
antenna design and interference analyses.
In 1998, we provided site development and construction and antenna
installation services to approximately 33 customers in the United States,
including AT&T Wireless, BAM, 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 DTV in the United
States will require significant expansion and modification of the existing
broadcast infrastructure. Because of the significant cost involved in the
construction or modification of tall towers, along with the large capital
expenditures broadcasters will incur in acquiring digital broadcast equipment,
we believe that the television broadcasting industry, which has historically
been opposed to co-location and third party ownership of broadcast
infrastructure, will seek to outsource tower ownership due to cost constraints.
See "Industry Background".
Our objective is to become a leader in the build out of the approximately
200 tall towers expected to be built in the United States over the next five
years. We believe that our experience in providing digital transmission
services in the United Kingdom will make us an attractive provider of broadcast
services to the major networks and their affiliates. In addition, we will seek
to partner with broadcasters and major station ownership groups that own
property zoned for tall towers, but that lack sufficient resources and
expertise to build a tower. We will then attempt to co-locate on the tower the
transmitters of commercial broadcast television stations and high powered FM
radio stations in that market as well as wireless carriers.
Electronic news gathering ("ENG") systems benefit from the towers and
services offered by the Company. The ENG 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 an ENG
repeater system that can be used on many of our towers in western Pennsylvania
and expect to develop similar systems in other markets in which we have or
develop tower footprints. This system allows the ENG 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 ENG receiver system at the top of our tower and also
charge them for the microwave dish they place on our tower. Our ENG customers
are affiliates of the NBC, ABC, CBS and Fox 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
7
buildings across the country. We have supervised the construction and operation
of the largest master FM antenna facility in the United States and have
engineered and installed two 2,000 foot broadcast towers with master FM
antennas. We believe that this experience may help us negotiate favorable
construction contracts for both tower and rooftop sites, and to gain an
expertise in the complex issues surrounding electronic compatibility and RF
engineering.
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, BAM,
Nextel and BellSouth. While these agreements currently are important to us, our
most significant contracts in the U.S. will result from consummation of the
proposed transactions described below. In addition, we are party to a contract
with the State of New York, which we believe to be the first of its kind, to
manage all State-owned real estate for wireless communications purposes for the
next 20 years. This contract includes the rights to more than 16,000 structures
and rooftops, tens of thousands of miles of rights-of-way and millions of acres
of State-owned land.
Customers
In both our site rental and network services businesses, we work with a
number of customers in a variety of businesses including cellular, PCS, ESMR,
paging and broadcasting. We work primarily with large national carriers such as
BAM, BellSouth, Sprint PCS, Nextel and AT&T Wireless. For the year ended
December 31, 1998, no customer in the United States accounted for more than
10.0% of CCI's revenues, other than Nextel, which accounted for approximately
12.5% of CCI's consolidated revenues. Nextel revenues are expected to grow as
we build out Nextel interstate corridor sites.
Industry Selected Customers
-------- ------------------
Cellular..................... AT&T Wireless, BAM
PCS.......................... Sprint PCS, Western Wireless, Powertel
Broadcasting................. Hearst Argyle Television, Trinity Broadcasting
SMR/ESMR..................... 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, PCS,
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 auction block license awardees, 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 on
sites, demographic data, licenses and deployment status, coupled with measured
coverage data and RF coverage prediction software, allows our sales and
marketing personnel to target specific carriers' needs for specific sites.
8
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 build-to-suit, 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 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 the Web site or Cell Site Express. Our network
services capabilities are marketed in conjunction with our tower footprints.
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 us. 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 and 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 independent tower companies that we compete
with in the United States: American Tower Corporation, Pinnacle Towers,
SpectraSite, SBA Communications, WesTower, Unisite, LCC International and
Lodestar Communications.
The following companies are primarily competitors for our rooftop site
management activities in the United States: AAT, APEX, Commsite International,
JJS Leasing, Inc., Motorola, Signal One, Subcarrier Communications, Tower
Resources Management and Unisite.
9
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 Corporation). 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.
U.K. Operations
Overview
We own and operate, through our 80% interest in CTI, 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 (the "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 to various communications service providers and provide
telecommunications network installation and maintenance services and
engineering consulting services.
Our core revenue generating activity in the United Kingdom is the analog
terrestrial transmission of radio and television programs broadcast by the BBC.
CTI's business, which was formerly owned by the BBC, was privatized under the
Broadcasting Act 1996 and sold to CTI in February 1997. At the time the BBC
Home Service Transmission Business was acquired, CTI 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. In the twelve months ended December 31, 1998, approximately 60.6% of
CTI's consolidated revenues were derived from the provision of services to the
BBC.
At December 31, 1998, we owned, leased or licensed 861 transmission sites on
which we operated 865 towers, including the 102 towers we acquired in the
Millennium acquisition. In addition, as of December 31, 1998, we were
constructing eight new towers on existing sites and had 112 site acquisition
projects in process for new tower sites. We have 54 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 footprints 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 PCN) as compared to broadcast signals, wireless communications
providers require a denser footprint of towers to cover a given area.
Therefore, in order to increase the attractiveness of our tower footprints 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 build-to-suit contracts with
10
various carriers, such as BT, 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, 1998, we were building eight towers that
we will own. In addition, we expect to make strategic acquisitions of existing
communications sites (primarily those owned by wireless communications
operators) in order to expand our infrastructure and to further leverage our
site management experience.
We believe that we generally have significant capacity on our towers in the
United Kingdom. Although approximately 133 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. For
example, in connection with a contract with Vodafone, we are upgrading 68 of
these sites with limited capacity. See "--Significant Contracts--Vodafone".
Approximately 59 of our sites are used for Medium Frequency ("MF") 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, MF
sites generally have substantial ground area available for the construction of
new multiple tenant towers.
Transmission Business
Analog. For the twelve months ended December 31, 1998, CTI generated
approximately 52.8% of its revenues from the provision of analog broadcast
transmission services to the BBC. Pursuant to 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 twelve months ended December 31, 1998, the BBC
Analog Transmission Contract generated revenues of approximately (Pounds)49.4
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. These contracts are for periods of
eight years commencing from, respectively, March 31, 1993 and February 4, 1995.
We own all of the transmission equipment used for broadcasting the BBC's
domestic radio and television programs, whether located on one of CTI's sites
or on an NTL or other third-party site. As of December 31, 1998, CTI had 3,465
transmitters, of which 2,196 were for television broadcasting and 1,269 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%
top 16...................................... 79
top 26...................................... 86
top 51...................................... 92
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 CTI'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.
11
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 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. We have entered into 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 DTT, new transmission infrastructure will be required. We
have committed to invest approximately (Pounds)100.0 million ($170.0 million)
for the build out of new infrastructure to support DTT over the next two years,
(Pounds)55.3 million ($92.0 million) of which we had already invested by
December 31, 1998. By the year 2000, 81 transmission sites will need to be
upgraded with new transmitters and associated systems to support DTT. Of these
sites, 49 are owned by us with the remainder owned by NTL. An arrangement
similar to that of the Site-Sharing Agreement is being negotiated to govern the
particular issues arising out of the sharing of digital transmission sites
between NTL and us.
We successfully began commercial operation of the DTT 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. As the network size expands during 1999, the number of viewers who are
able to receive the service will increase significantly. We have accepted an
invitation from the U.K. television regulator, the Independent Television
Commission (ITC), to play a major role in planning further DTT network
extensions to be built in the year 2000 and beyond.
We are currently the sole provider of transmission services for digital
radio broadcasts in the United Kingdom. In September 1995, the BBC launched its
initial DAB scheme over our transmission network, 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 and it is expected that this service will commence
during 1999. We are in negotiations to provide accommodation and access to
masts and antennas at 24 transmission sites to support the launch of Digital
One. In addition, local digital radio licenses will be 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 footprint for the
creation of wireless communications networks. As of December 31, 1998,
approximately 200 companies rented antenna space on approximately 405 of CTI's
919 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. This agreement generated approximately (Pounds)592,000
($984,400) of site rental revenue in December 1998.
We also provide a range of site maintenance services in order to support and
enhance our U.K. site rental business. We believe that by offering services
such as antenna, base station and tower maintenance and monitoring, we are able
to offer quality services to retain our existing customers and attract future
customers to our communications sites. 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.
12
The following table describes our top ten revenue producing towers in the
United Kingdom:
Number of CTI's
Tenant December 1998
Name Location Height(ft) Leases Monthly Revenue
---- ------------ ---------- --------- ------------------------
Brookmans Park.......... S.E. England 147 19 (Pounds) 25,026 $ 41,613
Bow Brickhill........... S.E. England 197 13 17,479 29,064
Mendip.................. S.W. England 924 19 16,534 27,493
Hannington.............. S. England 440 15 12,267 20,398
Crystal Palace.......... London 653 14 11,638 19,352
Wrotham................. S. England 379 14 11,385 18,931
Waltham................. C. England 954 10 10,750 17,875
Redruth................. S.W. England 500 18 10,523 17,498
Heathfield.............. S. England 443 15 10,296 17,120
Oxford.................. C. England 507 14 9,973 16,583
--- --------------- --------
Total......................................... 151 (Pounds)135,871 $225,927
=== =============== ========
Other than NTL, CTI'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 CTI's total U.K. revenue base, as the acquired BBC Home Service
Transmission Business is no longer constrained by governmental restrictions on
the BBC's commercial activities. We believe that the demand for site rental
from communication service providers will increase in line with the expected
growth of these communication services in the United Kingdom.
We have master lease agreements with all of the major U.K.
telecommunications site users including BT, Cable & Wireless Communications,
Cellnet, Dolphin, Energis, Highway One, One2One, Orange, Scottish Telecom and
Vodafone. These agreements typically specify the terms and conditions
(including pricing and volume discount plans) under which these customers have
access to all sites within our U.K. portfolio. Customers make orders for
specific sites using the standard terms included in the master lease
agreements. As of December 31, 1998, there were approximately 400 applications
in process for installations at existing sites under such agreements.
Network Services
CTI provides broadcast and telecommunications engineering services to
various customers in the United Kingdom. We retained all the BBC Home Service
Transmission Business employees upon CTI's acquisition. 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, CTI
has worked with several telecommunications operations on design and build
projects as they roll-out their networks. CTI 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 turn-key
provider to the wireless communications and broadcast industries. We can
provide customers with a 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 antenna installation.
Network Design and Site Selection. We have extensive experience in network
design and engineering and site selection. While we maintain sophisticated
network design services primarily to support the location and construction of
multiple tenant towers that we own, from time to time we do 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.
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Site Acquisition. 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
that includes initial design analyses, CDM assessments and, where necessary,
line-of-sight surveys. We leverage off 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 CTI
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 also 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
CTI's principal analog broadcast transmission contract is the BBC Analog
Transmission Contract. CTI also has entered into two digital television
transmission contracts, the BBC Digital Transmission Contract and the ONdigital
Digital Transmission Contract (as defined). CTI also provides facilities to NTL
(in its capacity as a broadcast transmission provider to non-CTI customers)
under the Site-Sharing Agreement. CTI also has long-term service agreements
with broadcast customers such as Virgin Radio and Talk Radio. In addition, CTI
has several agreements with telecommunications providers, including leases,
site management contracts and independent contractor agreements. CTI has
entered into contracts to design and build infrastructure for customers such as
Cellnet, One2One, Orange, Scottish Telecom and Vodafone.
BBC Analog Transmission Contract
CTI 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, which contract was subsequently amended on
July 16, 1998 (the "BBC Analog Transmission Contract") to incorporate a small
number of minor modifications requested by the BBC. The BBC Analog Transmission
Contract provides for charges of approximately (Pounds)46.5 million ($77.3
million) to be payable by the BBC to CTI for the year ended March 31, 1998 and
each year thereafter to 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 the
Company.
The BBC Analog Transmission Contract also provides for CTI 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 CTI
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 three formal six-month performance reviews, CTI
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
14
on March 31 in any contract year, from and including March 31, 2007. It may
also be terminated earlier (i) by mutual agreement between CTI and the BBC,
(ii) by one party upon the bankruptcy or insolvency of the other party within
the meaning of section 123 of the Insolvency Act 1986, (iii) 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), (iv) by the
non-defaulting party upon a material breach by the other party and (v) 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 ("TdF Parent"), and the BBC entered
into the BBC Commitment Agreement (the "BBC Commitment Agreement"), whereby we
and TdF agreed (i) not to dispose of any shares in CTSH or any interest in such
shares (or enter into any agreement to do so) until February 28, 2000; and (ii)
to maintain various minimum indirect ownership interests in CTI and CTSH 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 CTSH shares (and, indirectly, their CTI
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. The BBC has consented to waive the above restrictions (i)
to enable the Company and TdF to enter into the Governance Agreement and the
CTSH Shareholders' Agreement and (ii) to allow the exercise of rights under
such agreements and (iii) to permit the roll-up of CTI immediately prior to the
IPO.
The BBC Commitment Agreement also required TdF Parent and us to enter into a
services agreements with CTI. The original services agreement entered into by
TdF Parent and CTI on February 28, 1997 (pursuant to which TdF makes available
certain technical consultants, executives and engineers to CTI) 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-month's prior notice given by CTI to TdF after February 28, 2003.
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 "ONdigital
Digital Transmission Contract"). 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
Digital Transmission Contract"). This contract provides for approximately
(Pounds)10.5 million ($17.8 million) of revenue per year (assuming the BBC
commits to the full DTT roll-out contemplated by the BBC Digital Transmission
Contract) 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 DTT in the United Kingdom does not have sufficient viewership to justify
continued DTT broadcasts. Under this provision, the BBC will pay us a
termination fee in cash that substantially recovers the Company's 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 (as defined
in the BBC Digital Transmission Contract).
15
BT Digital Distribution Contract
Under the BBC Digital Transmission Contract and the ONdigital Digital
Transmission Contract, in addition to providing digital terrestrial
transmission services, CTI has agreed to provide for the distribution of the
BBC's and ONdigital's broadcast signals from their respective television
studios to CTI's transmission network. Consequently, in May 1998, CTI entered
into a 12 year distribution contract (the "BT Digital Distribution Contract")
with British Telecommunications plc ("BT") (with provisions for extending the
term), in which BT 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 CTI, 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.
Under the Site-Sharing Agreement, the party that is the owner, lessee or
licensee of each site is defined as the "Station Owner". The other party (the
"Sharer") is entitled to request a license to use certain facilities at that
site. The Site-Sharing Agreement and each site license provide for the Station
Owner to be paid a commercial license fee in accordance with the Site-Sharing
Agreement ratecard and for the Sharer to be responsible, in normal
circumstances, for the costs of accommodation and equipment used exclusively by
it. The Site-Sharing Agreement may be terminated with five years' prior notice
by either of the parties and expires on December 31, 2005 or on any tenth
anniversary of that date. It may also be terminated (i) 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, (ii) on the bankruptcy or
insolvency of either party and (iii) if either party ceases to carry on a
broadcast transmission business or function.
Negotiations are in progress between NTL and us to amend the Site-Sharing
Agreement to account for the build-out of digital transmission sites and
equipment, a new rate card related to site sharing fees for new digital
facilities and revised operating and maintenance procedures related to digital
equipment.
Vodafone
On April 16, 1998, under Vodafone's master lease agreement with us, Vodafone
agreed to locate antennas on 122 of our existing communication sites in the
United Kingdom. The first 39 sites had been completed by the end of December
1998. This included 4 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 end of July 1999 and will include the construction
of a further 60 replacement towers. After their upgrade, these sites will be
able to accommodate additional tenants.
16
Customers
For the twelve months ended December 31, 1998, the BBC accounted for
approximately 60.6% of CTI's consolidated revenues. This percentage has
decreased from 64.6% for the twelve months ended March 31, 1998 and is expected
to continue to decline as CTI continues to expand its site rental business. CTI
provides all four U.K. PCN/cellular operators (Cellnet, One2One, Orange and
Vodafone) with infrastructure services and also provides fixed
telecommunications operators, such as BT, Cable & Wireless Communications,
Energis and Scottish Telecom, with microwave links and backhaul infrastructure.
The following is a list of some of CTI's leading site rental customers by
industry segment.
Industry Selected Customers
-------- ------------------
Broadcasting......................... BBC, NTL, Virgin Radio, Talk Radio, XFM
PMR/TETRA............................ National Band 3, Dolphin
PCN.................................. Orange, One2One
Data................................. RAM Mobile Data, Cognito
Paging............................... Hutchinson, Page One
Governmental Agencies................ Ministry of Defense
Cellular............................. Vodafone, Cellnet
Public Telecommunications............ BT, Cable & Wireless Communications
Other................................ Aerial Sites, Health Authorities
Utilities............................ Welsh Water, Southern Electric
Sales and Marketing
We have 20 sales and marketing personnel in the United Kingdom who identify
new revenue-generating opportunities, develop and maintain key account
relationships, and tailor service offering 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, the privatized engineering division of the IBA and now a subsidiary of
NTL Inc. (formerly International CableTel Inc.), is CTI'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. It
also has been awarded the transmission contract for the new DTT multiplex
service from Digital 3 & 4 Limited, and a similar contract for the DTT service
for SDN (CTI has been awarded similar contracts for the BBC and ONdigital--
serving a total of four multiplexes compared with NTL's two). Since its
creation in 1991, NTL has diversified from its core television broadcasting
business using its transmission infrastructure to enter into the radio
transmission and telecommunications sectors.
Although CTI 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 CTI, NTL offers a full
range of site-related services to its customers, including installation and
maintenance. CTI 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. CTI also believes that its penetration of this market has to date
lagged behind NTL only because of the governmental restrictions on the
commercial activities of CTI's business prior to its privatization.
17
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. BT and Cable &
Wireless Communications are both major site sharing customers but also compete
by leasing their own sites to third parties. BT's position in the market is
even larger when considered in combination with its interest in Cellnet.
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.
CTI 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.
Employees
At March 1, 1999, we employed 928 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 CTI'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 no-hazard determination upon
compliance with specified lighting and/or marking requirements. The FCC will
not license the operation of 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
new law prohibits any action that would (i) discriminate between different
providers of personal wireless services or (ii) 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.
18
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 ("CMRS"), including SMR and paging facilities, as well as
private mobile radio services ("PMRS") 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. Consummation of the IPO and the Roll-Up would have
resulted in a transfer of control of us under the FCC's rules and policies if,
after such transactions, over 50% of our voting stock would have been owned by
new stockholders.
We, as the parent company of the licensees of common carrier and CMRS
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 ("WTO Agreement"), 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. See "Principal and Selling Stockholders". 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. CTI has a number of such licenses
under which it runs the telecommunications distribution and transmission
systems which are necessary for the provision of its transmission services.
CTI's operations are subject to comprehensive regulation under the laws of the
United Kingdom.
Licenses under the Telecommunications Act 1984
CTI 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 of
broadcasting services. This license is for a period of at least twenty-five
years from January 23, 1997, and is CTI's principal license. Its main
provisions include:
(i) a price control condition covering the provision of all analog radio
and television transmission services to the BBC under the BBC Analog
Transmission Agreement (for an initial price of approximately (Pounds)44
million for regulated elements of the services provided by CTI under the
BBC Analog Transmission Agreement in the year ended March 31, 1997,
subject to 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;
19
(ii) a change of control provision which requires notification of
acquisitions of interest in CTI 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;
(iii) a site sharing requirement requiring CTI 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;
(iv) a fair trading provision enabling OFTEL to act against anti-
competitive behavior by the licensee; and
(v) a prohibition on undue preference or discrimination in the provision
of the services it is required to provide third parties under the
Transmission License.
OFTEL has made 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 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 CTI's Transmission License. This
procedure could result in the fees NTL pays to CTI 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 CTI's income of
approximately (Pounds)300,000 per annum (equivalent to approximately 0.4% of
revenues and 1.0% of EBITDA for the fiscal year ended March 31, 1997). CTI has
applied for leave to obtain a judicial review of this decision. In addition,
CTI has made a provision of approximately (Pounds)1.9 million relating to any
rate adjustment imposed by OFTEL with respect to previous charges for Classic
FM under the Site-Sharing Agreement.
CTI is discussing with OFTEL certain amendments to CTI's Telecommunications
Act Transmission License to ensure that the price control condition
accommodates the provision by CTI of additional contractually agreed upon
services to the BBC in return for additional agreed upon payments. See "Risk
Factors--Regulatory Compliance and Approval".
The Secretary of State has designated the Transmission License a public
telecommunications operator ("PTO") license in order to reserve to himself
certain emergency powers for the protection of national security. The PTO
designation is, however, limited to this objective. CTI does not have a full
domestic PTO 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 CTI such a license. As a result CTI would gain wider powers to
provide services to third parties including public switched voice telephony and
satellite uplink and would grant CTI 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 CTI 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 PTO 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.
20
Licenses under the Wireless Telegraphy Acts 1949, 1968 and 1998
CTI 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:
(i) a Broadcasting Services License in relation to the transmission
services provided to the BBC, Virgin Radio and Talk Radio;
(ii) a Fixed Point-to-Point Radio Links License;
(iii) two DAB Test and Development Licenses; and
(iv) DTT Test & 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 ("Environmental Laws"). 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.
We are also subject to regulations and guidelines that impose a variety of
operational requirements relating to RF emissions. The potential connection
between RF 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 RF
emissions, we have established operating procedures designed to reduce employee
exposures to RF emissions and are presently evaluating certain of our towers
and transmission equipment in the United States and the United Kingdom to
determine whether RF emission reductions are possible.
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
("NEPA"), which requires federal agencies to evaluate the environmental impacts
of their decisions under certain circumstances. The FCC regulations
implementing NEPA 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.
21
The Proposed Transactions
The following is a description of certain material transactions that we have
recently entered into agreements to pursue.
Proposed BAM JV
On December 8, 1998, BAM, certain of transferring partnerships, the Company
and CCA Investment Corp., our wholly owned indirect subsidiary ("CCAIC"),
entered into the Formation Agreement to form a joint venture (the "Proposed BAM
JV") to own and operate approximately 1,427 towers. These towers represent
substantially all the towers in BAM'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.
Upon its formation, we will manage the day-to-day operations of the proposed
joint venture. Concurrently with the formation of the joint venture, BAM and
the joint venture will enter into a master build-to-suit agreement pursuant to
which the joint venture will build and own the next 500 towers to be built for
BAM's wireless communications business. The joint venture will have the right
to build an additional 200 towers for BAM thereafter. Pursuant to a global
lease agreement, BAM will lease antenna space on the towers transferred to the
joint venture, as well as the towers built pursuant to the build-to-suit
agreement.
Upon its formation, we will own approximately 62.3% of the joint venture and
BAM and certain of its affiliates will own the other 37.7% along with a 0.001%
interest in the joint venture's operating subsidiary. To form the proposed
joint venture, we will contribute $250.0 million in cash and approximately 15.6
million shares of our common stock (valued at $197.0 million) to the joint
venture. BAM and its affiliates will transfer approximately 1,427 towers along
with related assets and liabilities to the joint venture. The joint venture
expects to borrow $180.0 million under a committed $250.0 million revolving
credit facility, following which the joint venture will make a $380.0 million
cash distribution to BAM. The joint venture initially will have approximately
$46.0 million of cash to fund its operations and pay costs and expenses
associated with building new towers.
Proposed BellSouth Transaction
On March 8, 1999, we entered into a preliminary agreement, which we call the
Letter Agreement, with BellSouth and certain of its affiliates to control and
operate approximately 1,850 towers (the "Proposed BellSouth Transaction").
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.
We will be responsible for managing, maintaining, marketing and leasing the
available space on BellSouth's towers. BellSouth will enter into a master
build-to-suit agreement with us pursuant to which 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 lease antenna space on the
towers subject to the Letter Agreement, as well as the towers built pursuant to
the build-to-suit agreement.
The transaction is structured as a taxable sale pursuant to a master
sublease. While we will have complete responsibility for the towers and will
receive all the economic benefits of leasing available space on the towers,
BellSouth will continue to own the tower infrastructure. We will pay BellSouth
$610.0 million, consisting of $430.0 million in cash and approximately 9.1
million shares of our common stock (valued at $180.0 million), subject to
adjustment. While the transaction is expected to close in a series of closings
beginning in the second quarter of 1999, we will begin marketing all the towers
immediately. In connection with our entering into the Letter Agreement, we have
placed $50.0 million in an escrow account which will be returned to us at the
first closing date. See "Risk Factors--We May Not Consummate the Proposed
Transactions."
22
Proposed Powertel Acquisition
On March 15, 1999, we entered into an agreement, which we call the Asset
Purchase Agreement, with Powertel to purchase approximately 650 towers and
related assets (the "Proposed Powertel Acquisition"). 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
major 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 footprint 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.
Concurrently with the tower acquisition, we will enter into master lease
agreements pursuant to which Powertel will lease antenna space on the towers we
acquire in the acquisition.
We will purchase the 650 towers from Powertel for an aggregate cash purchase
price of $275.0 million. Pursuant to the Asset Purchase Agreement and a related
escrow agreement, we have placed $50.0 million in escrow to be applied to the
purchase price at closing. See "Risk Factors--We May Not Consummate the
Proposed Transactions".
Proposed One2One Transaction
On March 5, 1999, we entered into an agreement, which we call the Framework
Agreement, with One2One, pursuant to which our U.K. operating subsidiary, which
we call CTI, has agreed to manage, develop and, at its option, acquire up to
821 towers. These towers represent substantially all the towers in One2One's
1800 MHz nationwide wireless network in the United Kingdom. We believe this
transaction will position us to capitalize on lease-up and build-out
opportunities provided by the introduction of new wireless technologies such as
UMTS.
CTI will be responsible for managing and leasing available space on the
towers, and will receive all the income from any such third party leases. The
term of the management arrangement will be for up to 25 years. During the
three-year period following the closing, CTI will have the right, at its
option, to acquire for (Pounds)1.00 per site One2One's interest in the 821
towers, to the extent such interests can be assigned. One2One has also agreed
to include as part of the Framework Agreement, including CTI's right to acquire
sites during the three-year period, any new One2One towers constructed during
the term of the agreement.
As consideration for this transaction, CTI has agreed to provide One2One
with free rent on the 821 towers for nine years, free rent on newly constructed
One2One towers assigned to CTI for 15 years and free rent on CTI towers on
which One2One currently leases space for two years.
----------------
Although we expect the Proposed BAM JV, the Proposed Powertel Acquisition
and the Proposed One2One Transaction to be consummated during the first half of
1999, and the first closing of the Proposed BellSouth Transaction to be
consummated by May 31, 1999, the operative agreements governing these
transactions are subject to a number of significant conditions. Therefore, we
cannot guarantee you that we will close any of the proposed transactions on the
terms described in this document or at all. See "Risk Factors--We May Not
Consummate the Proposed Transactions". When we refer to financial information
herein as "after giving effect to" or "pro forma for" the Proposed
Transactions, we mean after giving effect to the proposed transactions
described above, other than the Proposed One2One transaction, which does not
have a material impact on our pro forma financial results.
23
Proposed Offerings
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, in connection with a proposed offering of up to $300 million of
senior discount notes (the "1999 Debt Offering") and a proposed offering of up
to $475 million of the Company's common stock (the "1999 Equity Offering" and,
together with the 1999 Debt Offering, the "Offerings"). Certain shareholders of
the Company intend to sell up to $75 million of the common stock being
registered pursuant to such registration statement. The intended use of
proceeds for the Proposed Offerings is to finance the Proposed BellSouth
Transaction and the Proposed Powertel Acquisition. There can be no assurance,
however, that either the 1999 Debt Offering or the 1999 Equity Offering will be
successfully completed or, if either is completed, that it will be completed on
the terms described herein.
Risk Factors
The following is a description of certain risks that we face, including as a
result of our pursuit of the Proposed Transactions and Proposed Offerings. This
list is not exhaustive: additional risks not presently known to us or that we
currently deem immaterial may also impair our business operations.
We May Not Be Able to Manage the Integration Necessitated by Our Rapid Growth
Our ability to implement our growth strategy depends, in part, on our
successes in integrating our acquisitions, investments, joint ventures and
strategic alliances into our operations. We have grown significantly over the
past two years through acquisitions and, as evidenced by the Proposed
Transactions, such growth continues to be an important part of our business
plan. The addition of approximately 4,748 towers to our tower footprints
through the Proposed Transactions will increase our current business
considerably and will add operating complexities. Successful integration of
these transactions will depend primarily on our ability to manage these
combined operations and to integrate new management with and into our existing
management. We cannot guarantee that we will be able to successfully integrate
these acquired businesses and assets or any future acquisitions 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 regularly evaluate potential acquisition and joint venture opportunities
and are currently evaluating potential transactions that could involve
substantial expenditures, possibly in the near term. Implementation of our
acquisition strategy may impose significant strains on our management,
operating systems and financial resources. If we fail to manage our growth or
encounter unexpected difficulties during expansion it could have a material
adverse effect on our financial condition and results of operations. The
pursuit and integration of acquisitions, investments, joint ventures and
strategic alliances will require substantial attention from our senior
management, which will limit the amount of time they are able to devote to our
existing operations. If we are successful in consummating future acquisitions,
we may have to incur substantial amounts of debt and contingent liabilities and
an increase in amortization expenses related to goodwill and other intangible
assets, all of which could have a material adverse effect on our financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources".
24
Our Substantial Level of Indebtedness Could Adversely Affect Our Financial
Condition
We are a highly leveraged company. The following chart sets forth certain
important credit information and is presented as of December 31, 1998, (1)
assuming we had completed the Proposed Offerings and (2) assuming we had
completed the Proposed Offerings and consummated the Proposed Transactions,
each as of December 31, 1998.
Pro Forma
for the Proposed
Pro Forma Offerings
for the and the
Proposed Proposed
Offerings Transactions
--------- ----------------
(Dollars in thousands)
Total indebtedness.......................... $ 729,710 $ 909,710
Redeemable preferred stock.................. 201,063 201,063
Stockholders' equity........................ 1,114,562 1,491,562
Debt and redeemable preferred stock to
equity ratio............................... 0.84x 0.74x
In addition, assuming we had completed the Proposed Transactions and the
Proposed Offerings on January 1, 1998, for the twelve months ended December 31,
1998, our earnings would have been insufficient to cover fixed charges by
$104.2 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.
. We will have a competitive disadvantage relative to other less
leveraged companies in our industry.
Our ability to service our debt and to fund planned capital expenditures in
connection with our business strategy will depend, to a degree, on factors
beyond our control, including general economic, financial, competitive and
regulatory environments. 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.
Currently we have debt instruments in place which restrict our ability to
incur more indebtedness, pay dividends, create liens, sell assets and engage in
certain mergers and acquisitions. Some of our subsidiaries, under the debt
instruments, are also required to maintain specific financial ratios. Our
ability to comply with the restrictions of these instruments and to satisfy our
debt obligations will depend on our future operating performance. If we fail to
comply with the debt restrictions, we will be in default under those
instruments, which in some cases would cause the maturity of substantially all
of our long-term indebtedness to be accelerated.
We May Not Consummate the Proposed Transactions or the Proposed Offerings
We cannot guarantee that we will complete any or all of the Proposed
Transactions. While we have signed definitive agreements with respect to the
Proposed BAM JV, the Proposed Powertel Acquisition and the Proposed One2One
Transaction, and a preliminary agreement in connection with the Proposed
BellSouth Transaction, there are many conditions that must be satisfied before
we can close these transactions.
25
In addition, we cannot assure you that the transactions, if and when
consummated, will be done so on the terms described herein. The Formation
Agreement relating to the Proposed BAM JV, the Letter Agreement related to the
Proposed BellSouth Acquisition, the Asset Purchase Agreement relating to the
Proposed Powertel Acquisition and the Framework Agreement relating to the
Proposed One2One Transaction include provisions that could result in our
purchasing fewer towers at closing. If one or more of these transactions is not
consummated or is consummated on significantly different terms than those
described in this prospectus, it could substantially affect the implementation
our business strategy. In such an event, we cannot guarantee that we would be
able to identify any other acquisition of comparable value to our business or
that any other acquisition that we did pursue would be on substantially the
same economic terms as any of the proposed transactions we describe herein.
In connection with our entering into the Asset Purchase Agreement with
Powertel, we made a $50.0 million escrow payment, which amount, or some portion
thereof, is subject to our forfeit if the Proposed Powertel Acquisition does
not close as a result of our inability or unwillingness to deliver the balance
of the purchase price at the scheduled closing date. In connection with our
entering into the Letter Agreement with BellSouth, we placed $50.0 million into
an escrow fund. We could be forced to pay this amount to BellSouth if we do not
enter into definitive agreements with respect to the Proposed BellSouth
Transaction, or if we fail to comply with all conditions, covenants and
representations we are required to fulfill in connection with the closings of
the Proposed BellSouth Transaction. The loss of these escrow payments, alone or
together, would significantly affect our available working capital and could
have a material adverse effect on our ability to effect our business strategy.
See "The Proposed Transactions".
We currently intend to finance the Proposed BellSouth Transaction and
Proposed Powertel Acquisition with the net proceeds of the Proposed Offerings.
If we are unable to consummate the Proposed Offerings or if we consummate them
on terms that result in less net proceeds, we would have to seek alternative
financing for the Proposed Transactions. In such an event, we may be forced to
forego these transactions. If we forego these transactions we would likely be
forced to forfeit all or part of the related escrow payments.
We Require Significant Capital to Expand Our Operations and Make Acquisitions
Our business strategy contemplates substantial capital expenditures (1) in
connection with the expansion of our tower footprints 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. We anticipate that we will build, through the end of 1999,
approximately 750 towers in the United States at a cost of approximately $175.0
million and approximately 200 towers in the United Kingdom at a cost of
approximately $23.0 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)100.0 million ($170.0 million). In
addition to capital expenditures in connection with contracted build-to-suits,
we expect to apply a significant amount of capital to finance the cash portion
of the consideration being paid in connection with the Proposed Transactions.
To fund the execution of our business strategy, including the Proposed
Transactions, we expect to use the net proceeds of the Proposed Offerings, the
borrowings available under CCI's senior credit facility, the borrowings
available under CTI's credit facility and the remaining net proceeds from our
IPO and our 12 3/4% exchangeable preferred stock offering. Following
consummation of the Proposed Offerings and assuming all the Proposed
Transactions are consummated, we believe we will have sufficient liquidity to
fund our operations and pursue our business strategy in the near term. Our
business strategy, however, includes the pursuit of additional tower
acquisition and build-out opportunities, and we may have additional cash needs
as opportunities arise. Some of the opportunities that we are currently
pursuing could require significant additional capital. In the event we do not
otherwise have cash available, or borrowings under our credit facilities have
otherwise been utilized, when an opportunity 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. To the
extent we are unable to finance future capital
26
expenditures, we will be unable to achieve our currently contemplated business
strategy. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
We Will Have Broad Discretion in the Application of Proceeds from the Proposed
Offerings
We will allocate a substantial portion of the estimated net proceeds from
the Proposed Offerings to fund the Proposed BellSouth Transaction and the
Proposed Powertel Acquisition and for general corporate purposes. In addition,
we may use these funds for as yet unidentified acquisitions, investments or
joint ventures in the United States or abroad, especially if any or all of the
Proposed Transactions are not consummated. If we do not consummate any or all
of the Proposed Transactions and we do complete the Proposed Offerings, we
could have a significant amount of unallocated net proceeds. Due to the number
and variability of factors that we will analyze before we determine how to use
these net proceeds, we cannot determine now how we would reallocate such
proceeds. In addition, in such case we would have broad discretion in
allocating these net proceeds from the offerings without any action or approval
of our stockholders. Moreover, the indenture governing the issuance of the
notes will not contain any restrictions on the use of proceeds from the
offerings. Accordingly, investors will not have the opportunity to evaluate the
economic, financial and other relevant information that will be considered by
us in determining the application of any such net proceeds.
As a Holding Company, We Depend on Dividends from Subsidiaries to Meet Cash
Requirements or Pay Dividends
Crown Castle International Corp. 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 on its
outstanding indebtedness is distributions with respect to its ownership
interest in its subsidiaries from the net earnings and cash flow generated by
such subsidiaries. We will be required to begin paying cash interest payments
on our 10 5/8% discount notes in May 2003 and on our 12 3/4% exchangeable
preferred stock in March 2004. CCIC currently expects that the earnings and
cash flow of its subsidiaries will be retained and used by such subsidiaries in
their operations, including to service their respective debt obligations. Even
if CCIC determined to pay a dividend on or make a distribution in respect of
the capital stock of its subsidiaries, there can be no assurance that CCIC's
subsidiaries will generate sufficient cash flow to pay such a dividend or
distribute such funds to CCIC or that applicable state law and contractual
restrictions, including negative covenants contained in the debt instruments of
such subsidiaries, would permit such dividends or distributions. Furthermore,
the terms of CCI's senior credit facility and its outstanding notes place
restrictions on CCI's ability, and the terms of CTI's credit facility and its
outstanding bonds place restrictions on CTI's 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. In
addition, CCIC's subsidiaries will be 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 "--Our Substantial Level of
Indebtedness Could Adversely Affect Our Financial Condition".
Our Agreements with TdF Give TdF Substantial Governance and Economic Rights
We have entered into agreements with TdF that give TdF significant
protective rights with respect to the governance of CCIC and CTI, the ownership
of CTI and the disposition of shares in CCIC and CTI. CTI's operations
currently account for a substantial majority of our revenues.
TdF's Governance Rights
We have granted TdF the ability to govern some of our activities, including
the ability to:
. prohibit us from entering into certain material transactions, including
material acquisitions;
. 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.
27
In addition, TdF has significant governance rights over CTI. Although TdF
currently has only a 20% equity interest in CTI, these governance rights give
TdF generally rights characteristic of those that a 50% partner to a joint
venture would have.
TdF's exercise of these rights could be contrary to your interests and could
prevent us from conducting some activities that our Board of Directors consider
to be in our best interests and the best interests of our shareholders.
TdF's CTSH Option
Under the circumstances described below, TdF also will have the right to
acquire all of our shares in CTSH or to require us to purchase all of TdF's
shares in CTSH, 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 occurs, 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 CTSH to TdF, we would no longer
own our U.K. business. On the other hand, if we were required to purchase all
of TdF's shares in CTSH and/or purchase 50% of their 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 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 certain other 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's Liquidity Rights
Under certain other circumstances, TdF will have the right to require us to
purchase all of their shares in CTSH, 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 CTSH. 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. If we were to issue shares of common stock to effect the
purchase, this would result in substantial dilution of 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's Preemptive Rights
Except in certain circumstances, if we issue any equity securities (other
than equity that is mandatorily exchangeable for debt, such as the exchangeable
preferred stock) to any person, including the equity offering and in connection
with the Proposed BAM JV and the Proposed BellSouth Transaction, we must offer
TdF the right to purchase, at the same cash price and on the same other terms
proposed, up to the amount of such
28
equity securities as would be necessary for TdF and its affiliates to maintain
their consolidated ownership percentage in us.
The Construction and Acquisition of Towers Involves Various Risks
Our growth strategy depends on our ability to construct, acquire and operate
towers in conjunction with the expansion of wireless carriers. As of December
31, 1998, we had 72 towers under construction. We currently have plans to
commence construction on approximately 800 to 1,100 additional towers during
fiscal 1999. Our ability to construct 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 the
build-out of their tower network infrastructure.
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 increases for tower acquisitions, 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. In
addition, we may need to seek additional debt or equity financing in order to
fund such acquisitions and for working capital to fund the construction of the
towers we have already planned or have under contract. We cannot, however,
guarantee that such financing will be available or that the proposed financings
will be permitted under our debt instruments. Moreover, we cannot guarantee
that we will be able to identify, finance and complete future construction and
acquisitions on acceptable terms or that we will be able to manage profitably
and market under-utilized capacity on additional towers. The extent to which we
are unable to construct or acquire additional towers, or manage profitably
tower expansion, may have a material adverse effect on our financial condition
and results of operations.
We believe that the time frame for the current wireless build-out cycle may
be limited to the next few years, as many PCS and PCN networks have already
been built out in large markets. If we do not move quickly and aggressively to
obtain growth capital and capture this infrastructure opportunity, our
financial condition and results of operations could be materially adversely
affected.
Our Business Depends on the 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.
Most types of wireless services currently require ground-based network
facilities, including communication sites for transmission and reception. The
demand for our sites depends on certain factors which we cannot control,
including:
. the level of demand for wireless services generally;
. the financial condition and access to capital of wireless carriers;
29
. the strategy of carriers with respect to owning or leasing
communication sites;
. changes in telecommunications regulations; and
. general economic conditions.
The wireless communications industry has experienced significant growth in
recent years. A slowdown in the growth of, or reduction in, demand in a
particular wireless segment could adversely affect the demand for communication
sites. For example, we anticipate that a significant amount of our revenues
over the next several years will be generated from carriers in the PCS and PCN
market and, as such, we will be subject to downturns in PCS and PCN demand.
Moreover, wireless carriers often operate with substantial leverage, 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
systems, could reduce the need for land-based transmission and reception
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
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.
Consequently, the operating results of our network services businesses for any
particular period may vary significantly, and should not be considered as
necessarily being indicative of longer-term results. Furthermore, as wireless
carriers complete their build-outs, the need for the construction of new towers
and the demand for certain 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--Many of Our
Competitors Have Significantly More Resources
We face competition for site rental customers from various sources,
including:
. other large independent tower owners;
. wireless carriers that own and operate their own tower footprints and
lease antenna space to other carriers;
. site development companies which acquire antenna space on existing
towers for wireless carriers and manage new tower construction; and
. traditional local independent tower operators.
Wireless communications carriers that own and operate their own tower
footprints generally are substantially larger and have greater financial
resources than we have. We believe that tower location and 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
the site rental business.
30
We compete for acquisition and new tower construction opportunities with
wireless communications carriers, broadcasters, site developers and other
independent tower operators. We believe that competition for tower acquisitions
will increase and that additional competitors will enter the tower market.
These additional competitors may have greater financial resources than we have.
See "--The Construction and Acquisition of Towers Involves Various Risks".
NTL, which owns the privatized engineering division of the Independent
Broadcasting Authority, is our principal competitor in the terrestrial
broadcast transmission market in the United Kingdom. We could encounter
significant competition from NTL for our transmission business with the BBC or
ONdigital following the expiration of our current contracts with these
broadcasters. See "--We Rely Heavily on Agreements with Several Business
Partners".
We Rely Heavily on Agreements with Several Business Partners
Assuming we had completed the Roll-Up and the Proposed Transactions as of
January 1, 1998, none of our customers would have accounted for more than ten
percent of our revenues except the BBC, which would have accounted for
approximately 25.1% of our revenues, respectively, for the twelve month period
ended December 31, 1998.
Our broadcast transmission business is substantially dependent on contracts
with the BBC. See "Business--U.K. Operations--Significant Contracts". 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, subject to payment to CTI of predetermined cash compensation if this
occurs. We cannot guarantee that the BBC will renew these 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 the BBC contracts, our business, results
of operations and financial condition would be materially adversely affected.
In order to optimize service coverage in the United Kingdom and enable
viewers to receive all analog UHF television services using one receiving
antenna, CTI and NTL have agreed to share all UHF television sites. See
"Business--U.K. Operations--Significant Contracts". We are currently in
negotiations with NTL to amend the agreement to reflect the build-out of
digital transmission sites and equipment, new rates for site sharing fees for
new digital facilities and revised operating and maintenance procedures for the
new equipment. This agreement may be terminated with five years' notice by
either CTI or NTL, and is set to expire on December 31, 2005. Although we do
not believe that the agreement will be terminated, we cannot guarantee that it
will not be, which could have a material adverse effect on our business,
results of operations and financial condition.
We Are Subject to Extensive Regulations Which Could Change at Any Time
We are subject to a variety of foreign, federal, state and local regulation.
In the United States, both the Federal Communications Commission and Federal
Aviation Administration regulate towers and other sites used for wireless
communications transmitters and receivers. Such regulations control siting and
marking of towers and may, depending on the characteristics of the tower,
require registration of tower facilities. Most proposals to construct new
antenna structures or to modify existing antenna structures are reviewed by
both the FCC and the FAA to ensure that a structure will not present a hazard
to aviation. We generally indemnify our customers against any failure to comply
with applicable standards. Failure to comply with applicable requirements may
lead to civil penalties or require us to assume costly indemnification
obligations. Local regulations include city or 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 regulations can delay or prevent new tower construction or
site upgrade projects, thereby limiting our ability to respond to customers'
demands. In
31
addition, such regulations increase the costs associated with new tower
construction. 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 such delays or result
in additional costs. These factors could have a material adverse effect on our
financial condition and results of operations.
In the United Kingdom, both OFTEL and the Radiocommunications Agency
regulate and monitor telecommunications and frequency licensing for sites used
for wireless communications transmitters and receivers. Site rental fees for
broadcasting (but not telecommunications) are also subject to price regulation
by OFTEL. In order to construct or materially alter towers, we must receive
regulatory approvals from the Civil Aviation Authority, which ensures that new
antenna structures do not present a hazard to aviation, and from local
government planning authorities. In addition, we sometimes must receive
international frequency clearance. Our ability to respond to customers' demands
may be delayed or even prevented by the need to seek these approvals. We cannot
guarantee, therefore, 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 such 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 the analog transmission contract with the BBC, the BBC has
increased its service requirements to include 24-hour broadcasting on our
terrestrial transmission network for the BBC's two national television services
and a requirement for CTI to add a number of filler stations to its network to
extend existing BBC services. The BBC has agreed to increases of approximately
(Pounds)800,000 ($1,330,240) per year in the charges payable by the BBC to CTI
for these service enhancements. The additional charges may necessitate an
amendment to CTI's Transmission Telecommunications License. OFTEL, the relevant
regulatory authority in the United Kingdom, has confirmed in initial
discussions with CTI that it is not OFTEL's intention to prevent the provision
of such additional services to the BBC at an additional charge. CTI is
discussing with OFTEL 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. While we expect the license to be amended,
there can be no assurance as to the final resolution of these issues with
OFTEL.
Our customers may also become subject to new regulations or regulatory
policies which adversely affect the demand for communication sites. In
addition, as we pursue international opportunities, we will be subject to
regulation in foreign jurisdictions.
We are also subject to laws and regulations relating to worker health and
safety. If we fail to comply with such laws and regulations, it could have a
material adverse effect on our business, results of operations or financial
condition.
Costs of Compliance with Environmental Laws Could Adversely Affect Our
Financial Condition
Our operations are subject to foreign, federal, state and local laws and
regulations regarding the management, use, storage, disposal, emission, release
and remediation of, and exposure to, hazardous and nonhazardous substances,
materials or wastes. Under certain environmental laws, we could be held liable
for the remediation of hazardous substance contamination at current or former
facilities or at third-party waste disposal sites, and we also could be subject
to personal injury or property damage claims related to such contamination.
Although we believe that we are in substantial compliance with all applicable
environmental laws, we cannot guarantee that costs of compliance with existing
or future environmental laws will not have a material adverse effect on our
financial condition and results of operations. See "Business--Environmental
Matters".
Emissions from Our Antennas May Create Health Risks
Our towers are subject to government requirements and other guidelines
relating to radio frequency emissions. The potential connection between radio
frequency emissions and certain negative health effects,
32
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 cannot guarantee that we will not be
subject to such claims in the future.
We Are Subject to Risks Associated with Our International Operations
We conduct business in countries outside the United States, which exposes us
to fluctuations in foreign currency exchange rates. For the twelve month period
ended December 31, 1998, assuming we had completed the Roll-Up on January 1,
1998, but without giving effect to the Proposed Transactions, approximately
74.3% of our consolidated revenues would have 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 with respect to our non-U.S. dollar operations.
Our international operations are subject to other risks, such as the
imposition of government controls, inflation, tariff or taxes and other trade
barriers, difficulties in staffing and managing international operations,
price, wage and exchange controls, and political, social and economic
instability. We cannot guarantee that these and other factors will not have a
material adverse effect on our financial condition or results of operations.
We Are Heavily Dependent on Our Senior Management
Our existing operations and continued future development are dependent to a
significant extent upon the performance and active participation of certain key
individuals, including senior management. We cannot guarantee that we will be
successful in retaining the services of these, or other key personnel. None of
our employees have signed noncompetition agreements. If we were to lose any of
these individuals, our financial condition and results of operations could be
materially adversely affected.
We are Subject to Year 2000 Compliance Problems
We are in the process of conducting a comprehensive review of our computer
systems to identify which of our systems will need to be modified, upgraded or
converted to recognize dates after December 31, 1999, which is known as the
year 2000 problem. The failure to correct a material year 2000 problem could
result in a system failure, such as the failure of tower lighting or security
monitoring systems, 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 the necessary resources were made available. This
project includes the replacement of our worldwide business computer systems
with systems that use programs that will make approximately 90% of our business
computer systems year 2000 compliant. The testing phase of the year 2000
project is ongoing as hardware or system software is remediated, upgraded or
replaced. Testing as well as remediation is scheduled for completion in June
1999. The final phase of our year 2000 project, contingency planning, will be
completed and tested to the extent possible by September 1999.
However, we cannot assure you that all year 2000 compliance issues will be
resolved without any future disruption or that we will not incur significant
additional expense. In addition, if some of our major suppliers and customers
fail to address their own year 2000 compliance issues, their non-compliance
could have a material adverse effect on us and our operations.
33
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
We have approximately fifteen additional regional offices in the United
States which are located throughout our tower coverage areas to serve local
customers. In addition, we have offices in the United Kingdom and in Puerto
Rico.
In the United States, the Company's interests in its tower sites are
comprised of a variety of fee interests, leasehold interests 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. The Company's 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 the Company allows the landlord to use
tower space in lieu of paying all or part of the land rent. As of December 31,
1998, the Company had approximately 384 land leases. Pursuant to the Senior
Credit Facility, the Company's senior lenders have liens on a substantial
number of the Company's 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.
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. We are currently in discussions with the
Department of Labor (the "DOL") to settle an investigation the DOL has
conducted into employment practices put into place prior to our acquisition of
CCI. Upon notification by the DOL of its investigation, the practices were
ceased. We anticipate the settlement to be approximately $200,000.
Item 4. Submissions Of Matters To A Vote Of Security Holders
None.
34
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 MarketSM ("Nasdaq") under the symbol "TWRS." The
following table sets forth for the periods indicated the high and low sales
prices of the Common Stock as reported by Nasdaq.
1998 High Low
- ---- ------- ------
Third Quarter................................................... $ 13.31 $ 6.00
Fourth Quarter.................................................. 23.50 9.87
1999:
- -----
First Quarter (through March 15, 1999).......................... $ 23.50 $16.63
On March 15, 1999, the last reported sale price of the Common Stock as
reported by Nasdaq was $19.94. As of March 15, 1999, there were approximately
256 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 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.
35
Item 6. Selected Historical Financial Data
CCIC
The selected historical consolidated financial and other data for CCIC set
forth below for each of the four years in the period ended December 31, 1998,
and as of December 31, 1995, 1996, 1997 and 1998, have been derived from the
consolidated financial statements of CCIC, which have been audited by KPMG LLP,
independent certified public accountants. The results of operations 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 and 1998. Results of operations of these acquired
businesses are included in the Company's consolidated financial statements for
the periods subsequent to the respective dates of acquisition. 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".
Years Ended December 31,
-----------------------------------------
1995 1996 1997 1998
-------- -------- --------- ----------
(Dollars in thousands)
Statement of Operations Data:
Net revenues:
Site rental and broadcast
transmission..................... $ 4,052 $ 5,615 $ 11,010 $ 75,028
Network services and other........ 6 592 20,395 38,050
-------- -------- --------- ----------
Total net revenues.............. 4,058 6,207 31,405 113,078
-------- -------- --------- ----------
Costs of operations:
Site rental and broadcast
transmission..................... 1,226 1,292 2,213 26,254
Network services and other........ -- 8 13,137 21,564
-------- -------- --------- ----------
Total costs of operations....... 1,226 1,300 15,350 47,818
-------- -------- --------- ----------
General and administrative......... 729 1,678 6,824 23,571
Corporate development(a)........... 204 1,324 5,731 4,625
Non-cash compensation charges(b)... -- -- -- 12,758
Depreciation and amortization...... 836 1,242 6,952 37,239
-------- -------- --------- ----------
Operating income (loss)............ 1,063 663 (3,452) (12,933)
Equity in earnings (losses) of
unconsolidated affiliate.......... -- -- (1,138) 2,055
Interest and other income
(expense)(c)...................... 53 193 1,951 4,220
Interest expense and amortization
of deferred financing costs....... (1,137) (1,803) (9,254) (29,089)
-------- -------- --------- ----------
Loss before income taxes and
minority interests................ (21) (947) (11,893) (35,747)
Provision for income taxes......... -- (10) (49) (374)
Minority interests................. -- -- -- (1,654)
-------- -------- --------- ----------
Net loss........................... (21) (957) (11,942) (37,775)
Dividends on preferred stock....... -- -- (2,199) (5,411)
-------- -------- --------- ----------
Net loss after deduction of
dividends on preferred stock...... $ (21) $ (957) $ (14,141) $ (43,186)
======== ======== ========= ==========
Loss per common share--basic and
diluted........................... $ (0.01) $ (0.27) $ (2.27) $ (1.02)
======== ======== ========= ==========
Common shares outstanding--basic
and diluted (in thousands)........ 3,316 3,503 6,238 42,518
======== ======== ========= ==========
Other Data:
EBITDA(d).......................... $ 1,899 $ 1,905 $ 3,500 $ 37,064
Summary cash flow information:
Net cash provided by (used for)
operating activities............. 1,672 (530) (624) 44,976
Net cash used for investing
activities....................... (16,673) (13,916) (111,484) (149,248)
Net cash provided by financing
activities....................... 15,597 21,193 159,843 345,248
Ratio of earnings to fixed
charges(e)........................ -- -- -- --
Balance Sheet Data (at period end):
Cash and cash equivalents.......... $ 596 $ 7,343 $ 55,078 $ 296,450
Property and equipment, net........ 16,003 26,753 81,968 592,594
Total assets....................... 19,875 41,226 371,391 1,523,230
Total debt......................... 11,182 22,052 156,293 429,710
Redeemable preferred stock(f)...... 5,175 15,550 160,749 201,063
Total stockholders' equity
(deficit)......................... 619 (210) 41,792 737,562
36
- --------
(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 (i) nonrecurring cash bonuses of $0.9 million paid to certain
executive officers in connection with CCIC's initial investment in CTI (the
"CTI Investment") and (ii) 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 CTI 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
CTI in connection with the CTI 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 CCIC's 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, CCIC's 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 and 1998, earnings were insufficient to cover fixed
charges by $21,000, $0.9 million, $10.8 million and $37.8 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.
37
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion sets forth separately the historical consolidated
results of operations of CCIC and CTI and is intended to assist in
understanding (i) CCIC's consolidated financial condition as of December 31,
1998 and its consolidated results of operations for each year in the three-year
period ended December 31, 1998 and (ii) CTI's consolidated results of
operations for each twelve-month period in the two-year period ended March 31,
1998. The statements in this discussion regarding the industry outlook, the
Company's expectations regarding the future performance of its businesses and
the other nonhistorical statements in this discussion are forward-looking
statements. These forward-looking statements are subject to numerous risks and
uncertainties, including but not limited to the uncertainties relating to
decisions on capital expenditures to be made in the future by wireless carriers
and broadcasters and the risks and uncertainties described in "Risk Factors".
This discussion should be read in conjunction with "Selected Historical
Financial Data--CCIC", "Selected Historical Financial Data--CTI" and the
consolidated financial statements and the notes thereto that are included
elsewhere in this document. Results of operations of the acquired businesses
that are wholly and majority owned are included in the Company's consolidated
financial statements for the periods subsequent to the respective dates of
acquisition. As such, the Company's results of operations for the 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.
Overview
The continued growth of the Company's business depends substantially on the
condition of the wireless communications and broadcast industries. The Company
believes that the demand for communications sites will continue to grow and
expects 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) co-locating antennas and transmission equipment on multiple tenant towers.
In addition, wireless carriers are beginning to 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, the Company believes 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 the Company's ability to manage towers and
transmission networks and its proven track record of providing end-to-end
services to the wireless communications and broadcasting industries position it
to capture such business.
The willingness of wireless carriers to utilize the Company's 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. The
Company's 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 terrestrial television broadcasts in both the United Kingdom and the
United States, as well as in other countries around the world, consumer demand
for digital terrestrial broadcasting, interest rates, cost of capital, zoning
restrictions on tall towers and the cost of building towers.
As an important part of its business strategy, the Company will seek (1) to
take advantage of the operating leverage of its site rental business by
increasing the antenna space leased on its owned or managed communications
sites, (2) to leverage its in-house technical and operational expertise, (3) to
expand its tower footprints by partnering with wireless carriers to assume
ownership of their existing towers and by pursuing build-to-suit opportunities
and (4) to acquire existing transmission networks globally as opportunities
arise.
38
Results of Operations
The Company's primary sources of revenues are from (1) the rental of antenna
space on towers and rooftops sites, (2) the provision of network services and
(3) the provision of analog and digital broadcast transmission services.
CCIC
CCIC's primary sources of revenues are from (1) the rental of antenna space
on towers and rooftop sites and (2) the provision of network services, which
includes network design and site selection, site acquisition, site development
and construction and antenna installation.
Site rental revenues are received primarily from wireless communications
companies, including cellular, PCS, paging, specialized mobile radio/enhanced
specialized mobile radio ("SMR/ESMR") and microwave operators. 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 CCIC's managed
rooftop sites are 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.
Network services revenues 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 are recognized under service contracts which provide for billings on
either a fixed price basis or a time and materials basis. Demand for CCIC's
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 CCIC's network services businesses for any particular period may vary
significantly, and should not be considered as indicative of longer-term
results. CCIC also derives revenues from the ownership and operation of
microwave radio and SMR networks in Puerto Rico where CCIC owns radio wave
spectrum in the 2,000 MHz and 6,000 MHz range (for microwave radio) and the 800
MHz range (for SMR). These revenues are generally recognized under monthly
management or service agreements.
Costs of operations for site rental primarily consist of land leases,
repairs and maintenance, utilities, insurance, property taxes and monitoring
costs as well as, 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 network services consist primarily of
employee compensation and related benefits costs, subcontractor services,
consulting fees, and other on-site construction and materials costs. CCIC
incurs these network services costs (1) to support its internal operations,
including construction and maintenance of its 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. The Company believes that
its experienced staff enables it to provide the type of end-to-end services
that enhance its ability to acquire access to the infrastructure of wireless
carriers and to attract significant build-to-suit contracts.
General and administrative expenses consist primarily of employee
compensation 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, benefits and overhead costs that are not directly
related to the administration or management of existing towers.
Depreciation and amortization charges relate to CCIC's property and
equipment (primarily towers, construction equipment and vehicles), goodwill and
other intangible assets recorded in connection with business
39
acquisitions. Depreciation of towers 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) is computed
with a useful life of 10 years. Depreciation of construction equipment and
vehicles are generally computed with useful lives of 10 years and 5 years,
respectively.
In May 1997, the Company consummated the TEA acquisition and the
TeleStructures acquisition. In August 1997, the Company consummated the
acquisition of Crown Communication. In August 1998, the Company consummated a
share exchange with the shareholders of CTSH, pursuant to which the Company's
ownership of CTSH increased from approximately 34.3% to 80%. In October 1998,
CTI consummated the Millennium acquisition. Results of operations of these
acquired businesses are included in the Company's consolidated financial
statements for the periods subsequent to the respective dates of acquisition.
As such, the Company's results of operations for the 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. See "--CTI" for a description of the revenues and operating
expenses that are included in CCIC's consolidated results of operations
subsequent to the consummation of the share exchange in August 1998.
The following information is derived from CCIC's historical Consolidated
Statements of Operations for the periods indicated.
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1997 December 31, 1998
-------------------- ------------------ ------------------
Percent Percent Percent
of Net of Net of Net
Amount Revenues Amount Revenues Amount Revenues
--------- --------- -------- -------- -------- --------
(Dollars in thousands)
Net revenues:
Site rental and
broadcast
transmission.......... $ 5,615 90.5% $ 11,010 35.1% $ 75,028 66.4%
Network services and
other................. 592 9.5 20,395 64.9 38,050 33.6
--------- ------- -------- ----- -------- -----
Total net revenues... 6,207 100.0 31,405 100.0 113,078 100.0
--------- ------- -------- ----- -------- -----
Operating expenses:
Costs of operations:
Site rental and
broadcast
transmission.......... 1,292 23.0 2,213 20.1 26,254 35.0
Network services and
other................. 8 1.4 13,137 64.4 21,564 56.7
--------- -------- --------
Total costs of
operations.......... 1,300 21.0 15,350 48.9 47,818 42.3
General and
administrative........ 1,678 27.0 6,824 21.7 23,571 20.8
Corporate development.. 1,324 21.3 5,731 18.3 4,625 4.1
Non-cash compensation
charges............... -- -- -- -- 12,758 11.3
Depreciation and
amortization.......... 1,242 20.0 6,952 22.1 37,239 32.9
--------- ------- -------- ----- -------- -----
Operating income
(loss)................. 663 10.7 (3,452) (11.0) (12,933) (11.4)
Other income (expense):
Equity in earnings
(losses) of
unconsolidated
affiliate............. -- -- (1,138) (3.6) 2,055 1.8
Interest and other
income (expense)...... 193 3.1 1,951 6.2 4,220 3.7
Interest expense and
amortization of
deferred financing
costs................. (1,803) (29.0) (9,254) (29.5) (29,089) (25.7)
--------- ------- -------- ----- -------- -----
Loss before income taxes
and minority
interests.............. (947) (15.2) (11,893) (37.9) (35,747) (31.6)
Provision for income
taxes.................. (10) (0.2) (49) (0.1) (374) (0.3)
Minority interests...... -- -- -- -- (1,654) (1.5)
--------- ------- -------- ----- -------- -----
Net loss................ $ (957) (15.4)% $(11,942) (38.0)% $(37,775) (33.4)%
========= ======= ======== ===== ======== =====
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 (i) a $64.0
million, or 581.5%, increase in site rental and broadcast transmission
revenues, of which $52.5 million was attributable to CTI and $11.5 million was
attributable to the
40
Crown operations; (ii) an $11.4 million increase in network services revenues
from the Crown operations; and (iii) $5.6 million in network services revenues
from CTI.
Costs of operations for 1998 were $47.8 million, an increase of $32.5
million from 1997. This increase was primarily attributable to (i) a $24.0
million increase in site rental and broadcast transmission costs, of which
$20.1 million was attributable to CTI and $3.9 million was attributable to the
Crown operations; (ii) a $3.8 million increase in network services costs
related to the Crown operations; and (iii) $4.2 million in network services
costs from CTI. 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 CTI operations which are inherent with CTI's broadcast
transmission business, and (2) higher costs for the Crown 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 Crown operations. Margins from the Crown 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 (i) an
$11.3 million increase in expenses related to the Crown operations; (ii) a $2.8
million increase in expenses at our corporate office; and (iii) $2.4 million in
expenses at CTI. 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 CTI, partially offset by higher
overhead costs as a percentage of revenues for Crown 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 CTI Investment of (i)
$0.9 million for certain executive bonuses and (ii) 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 the Company's 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 property and
equipment, goodwill and other intangible assets acquired in the Crown
acquisition; and (2) $20.3 million of depreciation and amortization related to
the property and equipment and goodwill from CTI.
The equity in earnings (losses) of unconsolidated affiliate represents our
34.3% share of CTI's net earnings (losses) for the periods from March 1997
through August 1998 (at which time the share exchange with CTI's shareholders
was consummated). For the eight months ended August 31, 1998, after making
appropriate adjustments to CTI's results of operations for such period to
conform to generally accepted accounting principles of the United States, CTI
had net revenues, operating income, interest expense (including amortization of
deferred financing costs) and net income of $97.2 million, $18.6 million, $13.4
million and $6.0 million, respectively. Included in CTI'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 CTI's
management.
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 CTI. Interest income for 1998 resulted primarily from
(1) the investment of excess proceeds from the sale of the 10 5/8% discount
notes in
41
November 1997; and (2) the investment of the net proceeds from the IPO 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 CTI's indebtedness.
Minority interests represent the minority shareholder's 20% interest in
CTI's operations.
Comparison of Years Ended December 31, 1997 and 1996
Consolidated revenues for 1997 were $31.4 million, an increase of $25.2
million from 1996. This increase was primarily attributable to (1) a $5.4
million, or 96.1%, increase in site rental revenues, of which $4.2 million was
attributable to the Crown operations and $0.7 million was attributable to the
Puerto Rico operations; (2) $10.4 million in network services revenues from
TEA; and (3) $7.2 million in network services revenues from the Crown
operations. The remainder of the increase was largely attributable to higher
revenues from SMR and microwave radio services in Puerto Rico and the monthly
service fees received from CTI beginning in March 1997.
Costs of operations for 1997 were $15.4 million, an increase of $14.1
million from 1996. This increase was primarily attributable to (1) $8.5 million
of network services costs related to the TEA operations; (2) $3.9 million of
network services costs related to the Crown operations; and (3) $0.9 million in
site rental costs attributable to the Crown operations. Costs of operations for
site rental as a percentage of site rental revenues decreased to 20.1% for 1997
from 23.0% for 1996 because of increased utilization of the towers located in
the southwestern United States and Puerto Rico. Costs of operations for network
services as a percentage of network services revenues were 64.4% for 1997,
reflecting lower margins that are inherent in the network services businesses
acquired in 1997.
General and administrative expenses for 1997 were $6.8 million, an increase
of $5.1 million from 1996. This increase was primarily attributable to $3.0
million of expenses related to the Crown operations and $1.4 million of
expenses related to the TEA operations, along with an increase in costs of $0.2
million at CCIC's corporate office. General and administrative expenses as a
percentage of revenues decreased for 1997 to 21.7% from 27.0% for 1996 because
of lower overhead costs as a percentage of revenues for Crown and TEA.
Corporate development expenses for 1997 were $5.7 million, an increase of
$4.4 million from 1996. A substantial portion of this increase was attributable
to nonrecurring compensation charges associated with the CTI Investment of (1)
$0.9 million for certain executive bonuses and (2) the repurchase of shares of
CCIC's common stock from a member of its Board of Directors, which resulted in
compensation charges of $1.3 million. The remaining $2.2 million of the
increase in corporate development expenses was attributable to a higher
allocation of personnel costs, along with an overall increase in such costs,
associated with an increase in acquisition and business development activities.
Depreciation and amortization for 1997 was $7.0 million, an increase of $5.7
million from 1996. This increase was primarily attributable to (1) $4.7 million
of depreciation and amortization related to the property and equipment,
goodwill and other intangible assets acquired in the Crown acquisition; (2)
$0.5 million of depreciation and amortization related to the property and
equipment and goodwill acquired in the TEA and TeleStructures acquisitions; and
(3) $0.3 million resulting from twelve months of depreciation related to the
property and equipment acquired in the Puerto Rico acquisition.
The equity in losses of unconsolidated affiliate of $1.1 million represents
CCIC's 34.3% share of CTI's net loss for the period from March through December
1997. After making appropriate adjustments to CTI's results of operations for
such period to conform to generally accepted accounting principles of the
United
42
States, CTI 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 CTI, the impact on earnings of which was partially
offset by certain executive bonuses related to the CTI Investment and included
in corporate development expenses. Interest income for 1997 resulted primarily
from the investment of excess proceeds from the sale of CCIC's Series C
convertible preferred stock in February 1997.
Interest expense and amortization of deferred financing costs for 1997 was
$9.3 million, an increase of $7.5 million, or 413.3%, from 1996. This increase
was primarily attributable to (1) commitment fees related to an unfunded
interim loan facility related to the Crown acquisition and an unfunded
revolving credit facility; (2) interest on notes payable to the former
stockholders of Crown for a portion of the purchase price of the Crown
Communication Inc.; (3) amortization of the original issue discount on the 10
5/8% discount notes; (4) interest and fees associated with borrowings under
CCIC's bank credit facility which were used to finance the Crown acquisition on
an interim basis; (5) interest on outstanding borrowings assumed in connection
with the Crown acquisition; and (6) interest on borrowings under CCIC's bank
credit facility which were used to finance the acquisition of the Puerto Rico
system.
CTI
CTI's primary sources of revenues are from (1) the provision of analog and
digital broadcast transmission services to the BBC and commercial broadcasters,
(2) the rental of antenna space on towers and (3) the provision of network
services, which includes broadcast consulting, network design and site
selection, site acquisition, site development and antenna installation and site
management and other services.
Broadcast transmission services revenues 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 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). As of
December 31, 1998, approximately 200 companies rented space on approximately
514 of CTI's 919 towers and rooftops. Site rental revenues are generally
recognized on a monthly basis under lease agreements with original terms of
three to twelve 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 CTI's total U.K. revenue base, and the Company
believes 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 consist of (1) network design and site selection,
site acquisition, site development and antenna installation (collectively,
"network design and development") and (2) site management and other services.
Network design and development 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 CTI 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
43
monitoring and equipment maintenance, are carried out in the United Kingdom for
a number of emergency service organizations. Revenues for such services are
received under contracts with original terms of between three and five years.
They provide for fixed prices with respect to network monitoring and variable
pricing dependent on the level of equipment maintenance carried out in a given
period.
Costs of operations for broadcast transmission services 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 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 and on-site construction and materials
costs.
General and administrative expenses consist primarily of office occupancy
and related expenses, travel costs, professional and consulting fees,
advertising, insurance and employee training and recruitment costs. Corporate
development expenses represent costs incurred in connection with acquisitions
and development of new business initiatives. These expenses consist primarily
of external professional fees related to specific activities and allocated
compensation, benefits and overhead costs that are not directly related to the
administration or management of CTI's existing lines of business.
Depreciation and amortization charges relate to CTI's property and equipment
(primarily towers, broadcast transmission equipment and associated buildings)
and goodwill recorded in connection with the acquisition of the Home Service
Transmission business from the BBC (the "BBC Home Service Transmission
Business"). Depreciation of towers is computed with useful lives of 20 to 25
years; depreciation of broadcast transmission equipment is computed with a
useful life of 20 years; and depreciation of buildings is computed with useful
lives ranging from 20 to 50 years. Amortization of goodwill is computed with a
useful life of 20 years.
The following information is derived from the Consolidated Profit and Loss
Accounts of (i) CTI for periods subsequent to February 28, 1997 (the date of
inception of CTI's operations) and (ii) the BBC Home Service Transmission
Business for periods prior to that date. For purposes of the following
discussion, CTI's results for the month ended March 31, 1997 have been combined
with the results of the BBC Home Service Transmission Business for the eleven
months ended February 27, 1997, and CTI's results for the nine months ended
December 31, 1997 have been combined with its results for the three months
ended March 31, 1998. The following discussion presents an analysis of such
combined results for the twelve-month periods ended March 31, 1998 and 1997.
Results for CTI are not comparable to results from the BBC Home Service
Transmission Business due to differences in the carrying amounts of property
and equipment and goodwill. As of December 31, 1997, CTI changed its fiscal
year end for financial reporting purposes from March 31 to December 31; as
such, the results for the three months ended March 31, 1998 are unaudited.
CTI uses the U.K. pound sterling as the functional currency for its
operations. The following amounts have been translated to U.S. dollars using
the average Noon Buying Rate for each period. The following amounts reflect
certain adjustments to present the results of operations in accordance with
U.S. generally accepted accounting principles ("GAAP"). For the results of the
BBC Home Service Transmission Business, such adjustments affect depreciation
and amortization expense as a result of differences in the carrying amounts for
property and equipment; for CTI, such adjustments affect (1) operating expenses
as a result of differences in the accounting for pension costs, and (2)
interest expense as a result of the capitalization of interest costs in
connection with constructed assets.
44
Twelve Months Ended Twelve Months Ended
March 31, 1997 March 31, 1998
----------------------- -----------------------
Percent Percent
of Net of Net
Amount Revenues Amount Revenues
----------- ---------- ----------- ----------
(Dollars in thousands)
Net revenues:
Site rental and broadcast
transmission............... $ 112,122 91.7% $ 113,558 89.2%
Network services and other.. 10,090 8.3 13,731 10.8
----------- -------- ----------- --------
Total net revenues........ 122,212 100.0 127,289 100.0
----------- -------- ----------- --------
Operating expenses:
Costs of operations:
Site rental and broadcast
transmission.............. 61,339 54.7 53,957 47.5
Network services and oth-
er........................ 5,912 58.6 6,075 44.2
----------- -------- ----------- --------
Total cost of operations.. 67,251 55.0 60,032 47.1
General and administrative.. 7,196 5.9 8,626 6.8
Corporate development....... -- -- 2,303 1.8
Depreciation and
amortization............... 17,256 14.1 37,382 29.4
----------- -------- ----------- --------
Operating income.............. 30,509 25.0 18,946 14.9
Other income (expense):
Interest and other income... 79 0.1 746 0.6
Interest expense and
amortization of deferred
financing costs............ (1,434) (1.2) (24,201) (19.0)
Income (loss) before income
taxes........................ 29,154 23.9 (4,509) (3.5)
Provision for income taxes.. -- -- -- --
----------- -------- ----------- --------
Net income (loss)............. $ 29,154 23.9% $ (4,509) (3.5)%
=========== ======== =========== ========
Comparison of Twelve Months Ended March 31, 1998 and Twelve Months Ended March
31, 1997
Consolidated revenues for the twelve months ended March 31, 1998 were $127.3
million, an increase of $5.1 million from the twelve months ended March 31,
1997. This increase was primarily attributable to (1) a $1.4 million increase
in broadcast transmission services and site rental revenues and (2) a $3.6
million increase in network services and other revenues. Revenues from the BBC
for the twelve months ended March 31, 1998 amounted to $79.5 million, or 62.5%
of total revenues, as compared to $85.5 million, or 70.0% of total revenues,
for the twelve months ended March 31, 1997. Revenues from NTL for the twelve
months ended March 31, 1998 amounted to $11.8 million, or 9.2% of total
revenues. Network services revenues for the twelve months ended March 31, 1998
consisted of $10.6 million from network design and development services and
$3.1 million from site management and other services.
Costs of operations for the twelve months ended March 31, 1998 were $60.0
million, a decrease of $7.2 million from the twelve months ended March 31,
1997. This decrease was primarily attributable to a $7.4 million decrease in
broadcast transmission services and site rental costs, partially offset by a
$0.2 million increase in network services and other costs. Costs of operations
as a percentage of revenues for broadcast transmission services and site rental
were 47.5% for the twelve months ended March 31, 1998, as compared to 54.7% for
the twelve months ended March 31, 1997. This decrease was attributable to (1)
increases in site rental revenues from existing sites with little change in
site operating costs; and (2) the elimination, as of February 28, 1997, of
certain costs recharged to the BBC Home Service Transmission Business by the
BBC. Costs of operations as a percentage of revenues for network services and
other were 44.2% for the twelve months ended March 31, 1998, as compared to
58.6% for the twelve months ended March 31, 1997. This decrease was
attributable to (1) a higher proportion of broadcast consulting revenues, which
result in higher margins than certain other network design and development
services and (2) the elimination, as of February 28, 1997, of certain costs
recharged to the BBC Home Service Transmission Business by the BBC. Costs of
operations for site rental and broadcast transmission for the twelve months
ended March 31, 1998 includes non-cash compensation charges for $1.1 million
related to the issuance of stock options to certain employees.
45
General and administrative expenses for the twelve months ended March 31,
1998 were $8.6 million, an increase of $1.4 million from the twelve months
ended March 31, 1997. As a percentage of revenues, general and administrative
expenses were 6.8% and 5.9% for the twelve months ended March 31, 1998 and
1997, respectively. This increase was attributable to costs incurred by CTI as
a separate enterprise which were not directly incurred by the BBC Home Service
Transmission Business as a part of the BBC.
Corporate development expenses for the twelve months ended March 31, 1998
relate primarily to costs incurred in connection with certain projects in
Australasia and non-cash compensation charges for $1.8 million related to the
issuance of stock options to certain executives.
Depreciation and amortization for the twelve months ended March 31, 1998 was
$37.4 million, an increase of $20.1 million from the twelve months ended March
31, 1997. Monthly charges for depreciation and amortization increased for
periods subsequent to February 28, 1997 due to (i) a decrease in the estimated
useful lives for certain transmission and power plant equipment from 25 to 20
years; and (ii) the amortization of goodwill recorded in connection with the
acquisition of the BBC Home Service Transmission Business.
Interest and other income for the twelve months ended March 31, 1998
resulted primarily from (i) the investment of excess proceeds from amounts
drawn under CTI's bank credit facilities in February 1997; and (ii) the
investment of cash generated from operations during the period.
Interest expense and amortization of deferred financing costs for the twelve
months ended March 31, 1998 was $24.2 million. This amount was comprised of (1)
$4.9 million related to amounts drawn under the CTI Credit Facility; (2) $15.6
million related to the CTI Bonds; and (3) $3.7 million for the amortization of
deferred financing costs. Interest expense and amortization of deferred
financing costs of $1.4 million for the twelve months ended March 31, 1997 was
attributable to amounts drawn under the CTI Credit Facility. The BBC Home
Service Transmission Business did not incur any financing costs as a part of
the BBC prior to February 28, 1997.
Liquidity and Capital Resources
Our business strategy contemplates substantial capital expenditures (1) in
connection with the expansion of our tower footprints 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. 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, CTI has generally funded its
activities (other than the acquisition of the BBC Home Service Transmission
Business) through cash provided by operations and borrowings under CTI's credit
facility. CTI financed the acquisition of the BBC Home Service Transmission
Business with the proceeds from equity contributions and the issuance of CTI's
9% bonds.
For the years ended December 31, 1996, 1997 and 1998, our net cash provided
by (used for) operating activities was ($0.5 million), ($0.6 million) and $45.0
million, respectively. For the years ended December 31, 1996, 1997 and 1998,
our net cash provided by financing activities was $21.2 million, $159.8 million
and $345.2 million, respectively. Our primary financing-related activities in
1998 included the following:
Exchangeable Preferred Stock Offering. On December 16, 1998, we privately
placed 200,000 shares of our 12 3/4% Senior Exchangeable Preferred Stock
due 2010, with a liquidation preference of $1,000 per share, resulting in
net proceeds to us of approximately $193.0 million. We used a portion of
the net proceeds of the exchangeable preferred stock offering to repay our
outstanding indebtedness under CCI's senior credit facility. We intend to
use the remainder of the net proceeds of the exchangeable preferred stock
offering to finance a portion of our investment in the Proposed BAM JV.
46
Initial Public Offering. On August 18, 1998, we consummated our IPO at a
price to the public of $13.00 per share. We sold 12,320,000 shares of our
common stock and received proceeds of $151.0 million (after underwriting
discounts of $9.1 million but before other expenses of the IPO, which
totaled approximately $4.1 million). We intend to use the net proceeds from
the IPO to finance a portion of our investment in the Proposed BAM JV.
Capital expenditures were $138.8 million for the twelve months ended
December 31, 1998, of which $3.7 million were for CCIC, $84.9 million was for
CCI and $50.2 million were for CTI. We anticipate that we will build, through
the end of 1999, approximately 750 towers in the United States at a cost of
approximately $175.0 million and approximately 200 towers in the United Kingdom
at a cost of approximately $23.0 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)40.0 million
($66.5 million).
In addition to capital expenditures in connection with build-to-suits, we
expect to apply a significant amount of capital to finance the cash portion of
the consideration being paid in connection with the Proposed Transactions.
In connection with the Proposed BAM JV, we will contribute, in addition to
other consideration, $250.0 million in cash to the joint venture. The joint
venture expects to borrow $180.0 million under a committed $250.0 million
revolving credit facility, following which the joint venture will make a $380.0
million cash distribution to BAM. We have allocated the net proceeds of our IPO
and a portion of the net proceeds of our 12 3/4% exchangeable preferred stock
offering to finance our cash contribution to the joint venture.
In connection with the Proposed BellSouth Transaction, we will pay
BellSouth, in addition to other consideration, $430.0 million in cash. We have
deposited $50.0 million in an escrow account pending the first closing of the
transaction, which we funded through a loan agreement we entered into on March
15, 1999. We expect to use a portion of the net proceeds of the offerings to
finance this transaction.
In connection with the Proposed Powertel Acquisition, we will pay Powertel
$275.0 million in cash. We have deposited $50.0 million, which we funded
through the March 15, 1999 loan agreement, in an escrow account to be applied
to the purchase price at closing. We expect to use a portion of the net
proceeds of the offerings to finance this transaction.
We expect that the consummation of the Proposed Transactions and the
execution of our 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
build-to-suit 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 consummate any
or all of the Proposed Transactions. In the event we consummate the Proposed
Offerings and subsequently fail to consummate the Proposed BAM JV, the Proposed
BellSouth Transaction or the Proposed Powertel Acquisition, the proceeds of the
offerings or, in the case of the Proposed BAM JV, the proceeds of our prior 12
3/4% exchangeable preferred stock offering, would no longer be required to be
allocated to finance such transaction and would be available to us as
additional liquidity. If the Proposed Transaction giving rise to such
additional liquidity were the Proposed BellSouth Transaction or the Proposed
Powertel Acquisition, the increase in our liquidity could be somewhat offset by
any portion of the escrow payments made in connection with such transactions
that we may forfeit as a result of not closing such transactions. See "Item 1.
Business--Risk Factors--The Proposed Transactions".
47
More importantly, if we fail to consummate the Proposed Offerings or to
consummate them on terms that results in less net proceeds, we would have to
seek alternative financing for the Proposed Transactions. In such event, there
can be no assurance that we could obtain any such alternative financing and we
may be forced to forego these transactions. If we forego either the Proposed
BellSouth Transaction or the Proposed Powertel Acquisition, we would likely be
forced to forfeit all or part of the related escrow payments. If we were to
fail to consummate the Proposed Offerings, fail to consummate the Proposed
Transactions and forfeit all or any significant portion of the $100.0 million
in escrow payment made in connection with the Proposed Transactions, it would
have a material adverse effect on the Company's financial condition, including
its ability to implement its current business strategy.
To fund the execution of the our business strategy, including the Proposed
Transactions, we expect to use the net proceeds of the offerings, the
borrowings available under CCI's senior credit facility, the borrowings
available under CTI's credit facility and the remaining net proceeds from our
IPO and our 12 3/4% exchangeable preferred stock offering. Following
consummation of the offerings and assuming all the Proposed Transactions are
consummated, we believe we will have sufficient liquidity to fund our
operations and pursue our business strategy in the near term. Our business
strategy, however, includes the pursuit of additional tower acquisition and
build-out opportunities, and we may have additional cash needs as opportunities
arise. Some of the opportunities that we are currently pursuing could require
significant additional capital. In the event we do not otherwise have cash
available, or borrowings under our credit facilities have otherwise been
utilized, when an opportunity 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. To the
extent we are unable to finance future capital expenditures, we will be unable
to achieve our currently contemplated business strategy.
As of December 31, 1998, after giving pro forma effect to the offerings, we
would have had consolidated cash and cash equivalents of $962.6 million
(including $6.5 million at CTI), consolidated long-term debt of $729.7 million,
consolidated redeemable preferred stock of $201.1 million and consolidated
stockholders' equity of $1,114.6 million. As of December 31, 1998, after giving
pro forma effect to the offerings and the Proposed Transactions, we would have
had consolidated cash and cash equivalents of $49.6 million (including $6.5
million at CTI and $45.9 million at the Proposed BAM JV), consolidated long-
term debt of $909.7 million, consolidated redeemable preferred stock of $201.1
million and consolidated stockholders' equity of $1,491.6 million.
As of March 1, 1999, CCI and its subsidiaries had unused borrowing
availability under its senior credit facility of approximately $54.0 million,
and CTI had unused borrowing availability under its credit facility of
approximately (Pounds)24.0 million ($39.9 million). As of December 31, 1998,
CCI and its subsidiaries and CTI and its subsidiaries had approximately $77.6
million and (Pounds)30.8 million ($51.2 million) of unused borrowing
availability, respectively, under CCI's senior credit facility and CTI's credit
facility. Upon its formation, the Proposed BAM JV will borrow $180.0 million
under a committed $250.0 million credit facility. CCI's senior credit facility
and CTI's credit facility require, and the Proposed BAM JV credit facility will
require, that the respective borrowers maintain certain financial covenants; in
addition, all three credit facilities place restrictions on the ability of the
borrower and its 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.
Prior to May 15, 2003, the interest expense on our 10 5/8% discount notes
will be comprised solely of the amortization of original issue discount.
Thereafter, the 10 5/8% discount notes will require annual cash interest
payments of approximately $26.7 million. 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,
48
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 CTI Bonds are (Pounds)11.25 million ($18.7 million).
In addition, CCI's senior credit facility and CTI's credit facility will
require periodic interest payments on amounts borrowed thereunder. 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 (including
our 10 5/8% discount notes and the CTI Bonds), 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 (including our 10 5/8% discount notes and the CTI
Bonds) 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 Indenture Governing the 10 5/8% Notes (the 10
5/8% Notes Indenture")
The following information (as such capitalized terms are defined in the
Indenture) is presented solely as a requirement of the Indenture; such
information is not intended as an alternative measure of financial position,
operating results or cash flow from operations (as determined in accordance
with generally accepted accounting principles). Furthermore, the Company's
measure of the following information may not be comparable to similarly titled
measures of other companies.
Upon consummation of the share exchange with CTI's shareholders, which
increased the Company's ownership interest in CTI to 80%, the Company
designated CTI as an Unrestricted Subsidiary. In addition, the net proceeds
from the IPO were placed into a newly formed subsidiary that was also
designated as an Unrestricted Subsidiary. Prior to these transactions, the
Company did not have any Unrestricted Subsidiaries. Summarized financial
information for (i) the Company and its Restricted Subsidiaries and (ii) the
Company's Unrestricted Subsidiaries is as follows:
December 31, 1998
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash
equivalents............ $ 41,785 $ 254,665 $ -- $ 296,450
Other current assets.... 19,585 26,081 -- 45,666
Property and equipment,
net.................... 165,205 427,389 -- 592,594
Investments in
Unrestricted
Subsidiaries........... 744,941 -- (744,941) --
Goodwill and other
intangible assets,
net.................... 143,729 426,011 -- 569,740
Other assets, net....... 15,440 3,340 -- 18,780
---------- ---------- --------- ----------
$1,130,685 $1,137,486 $(744,941) $1,523,230
========== ========== ========= ==========
Current liabilities..... $ 17,653 $ 75,234 $ -- $ 92,887
Long-term debt.......... 173,599 256,111 -- 429,710
Other liabilities....... 808 22,015 -- 22,823
Minority interests...... -- 39,185 -- 39,185
Redeemable preferred
stock.................. 201,063 -- -- 201,063
Stockholders' equity.... 737,562 744,941 (744,941) 737,562
---------- ---------- --------- ----------
$1,130,685 $1,137,486 $(744,941) $1,523,230
========== ========== ========= ==========
49
Three Months Ended December 31, 1998 Year Ended December 31, 1998
-------------------------------------- --------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues............ $ 17,030 $43,787 $60,817 $ 55,023 $58,055 $113,078
Costs of operations
(exclusive of
depreciation and
amortization).......... 7,069 18,117 25,186 23,446 24,372 47,818
General and
administrative......... 6,883 1,666 8,549 21,153 2,418 23,571
Corporate development... 1,787 -- 1,787 4,625 -- 4,625
Non-cash compensation
charges................ 523 874 1,397 9,907 2,851 12,758
Depreciation and
amortization........... 4,879 15,255 20,134 16,921 20,318 37,239
-------- ------- ------- -------- ------- --------
Operating income
(loss)................. (4,111) 7,875 3,764 (21,029) 8,096 (12,933)
Equity in earnings of
unconsolidated
affiliate.............. -- -- -- 2,055 -- 2,055
Interest and other
income (expense)....... (285) 2,212 1,927 1,101 3,119 4,220
Interest expense and
amortization of
deferred financing
costs.................. (5,823) (5,685) (11,508) (21,727) (7,362) (29,089)
Provision for income
taxes (156) -- (156) (374) -- (374)
Minority interests...... -- (1,326) (1,326) -- (1,654) (1,654)
-------- ------- ------- -------- ------- --------
Net loss................ $(10,375) $ 3,076 $(7,299) $(39,974) $ 2,199 $(37,775)
======== ======= ======= ======== ======= ========
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows:
(In
thousands
of
dollars)
---------
Tower Cash Flow, for the three months ended December 31, 1998.... $ 3,868
========
Consolidated Cash Flow, for the twelve months ended December 31,
1998............................................................ $ 6,001
Less: Tower Cash Flow, for the twelve months ended December 31,
1998............................................................ (14,811)
Plus: four times Tower Cash Flow, for the three months ended
December 31, 1998............................................... 15,472
--------
Adjusted Consolidated Cash Flow, for the twelve months ended
December 31, 1998............................................... $ 6,662
========
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 CTI'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
50
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 CTI'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 will require that such deferred costs be charged to results of
operations upon its adoption. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998. We will adopt the requirements of SOP 98-5 as of
January 1, 1999. The cumulative effect of the change in accounting principle
for the adoption of SOP 98-5 will result in a charge to results of operations
in our financial statements for the three months ending March 31, 1999; it is
currently estimated that such charge will amount to approximately $2,300,000.
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 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. We will adopt the requirements of SFAS
133 in our financial statements for the three months ending March 31, 2000. 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 may recognize a
date using "00" as 1900 rather than the year 2000, or may not recognize the
date at all. This could result 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 includes the replacement of our worldwide business
computer systems with systems that use programs primarily from J.D. Edwards,
Inc. The new systems are expected to make approximately 90% of our business
computer systems year 2000 compliant and are in production today. Remaining
business software programs, including those supplied by vendors, will be made
year 2000 compliant through the year 2000 project or they will be retired.
None of our other information technology projects has been delayed due to the
implementation of the year 2000 project.
Our year 2000 project is 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 have completed the inventory and priority assessment
phases and are 90% complete with the assessing compliance phase. The remaining
items include various third party assurances regarding the
51
year 2000 status of their operations. We are now continuing with the testing
phase of the year 2000 project. All critical broadcast equipment and non-
information technology related equipment has been tested and is either year
2000 compliant, has been designated as year 2000 ready, or will be repaired or
replaced by June 1999. 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 have been
designated year 2000 compliant or are scheduled to be retired or remediated by
July 1999. The testing phase is ongoing as hardware or system software is
remediated, upgraded or replaced. Testing as well as remediation is scheduled
for completion in July 1999. The final phase of our year 2000 project,
contingency planning, will be completed and tested to the extent possible by
September 1999.
We have expended $6.9 million on the year 2000 project through December 31,
1998, of which approximately $6.8 million related to the implementation of the
J.D. Edwards Systems and related hardware. Funds for the year 2000 project are
provided from a separate budget of $0.6 million for all items.
The failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect our results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the year 2000 problem, resulting in part from the uncertainty of
the year 2000 readiness of third-party suppliers and customers, we are unable
to determine at this time whether the consequences of year 2000 failures will
have a material impact on our results of operations, liquidity or financial
condition. The year 2000 project is expected to significantly reduce our level
of uncertainty about the year 2000 problem and, in particular, about the year
2000 compliance and readiness of our material business partners. We believe
that, with the implementation of new business systems and completion of the
project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk
The Company, as a result of its international operating, investing and
financing activities, is exposed to market risks, which include changes in
foreign currency exchange rates and interest rates which may adversely affect
its results of operations and financial position. In seeking to minimize the
risks and/or costs associated with such activities, the Company manages
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 1999 would not have a
material effect on the Company's consolidated financial results.
The majority of our foreign currency transactions are denominated in the
British pound sterling, which is the functional currency of CTI, a subsidiary
of the Company. As these contracts are denominated and settled in the
functional currency, risks associated with currency fluctuations are minimized
to foreign currency translation adjustments. The Company does not currently
hedge against foreign currency translation risks and believes that foreign
currency exchange risk is not significant to its operations.
52
Item 8. Financial Statements and Supplementary Data
Crown Castle International Corporation and Subsidiaries
Index to Consolidated Financial Statements
Page
----
Report of KPMG LLP, Independent Certified Public Accountants.............. 54
Consolidated Balance Sheet as of December 31, 1997 and 1998............... 55
Consolidated Statement of Operations and Comprehensive Loss for each of
the three years in the period ended December 31, 1998.................... 56
Consolidated Statement of Cash Flows for each of the three years in the
period ended December 31, 1998........................................... 57
Consolidated Statement of Stockholders' Equity (Deficit) for each of the
three years in the period ended December 31, 1998........................ 58
Notes to Consolidated Financial Statements for each of the three years in
the period ended December 31, 1998....................................... 59
53
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, 1997 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, 1998. 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, 1997 and 1998,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Houston, Texas
February 24, 1999
54
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
December 31,
--------------------
1997 1998
ASSETS -------- ----------
Current assets:
Cash and cash equivalents............................. $ 55,078 $ 296,450
Receivables:
Trade, net of allowance for doubtful accounts of $177
and $1,535 at December 31, 1997 and 1998,
respectively........................................ 9,264 32,130
Other................................................ 811 4,290
Inventories........................................... 1,322 6,599
Prepaid expenses and other current assets............. 681 2,647
-------- ----------
Total current assets................................. 67,156 342,116
Property and equipment, net............................. 81,968 592,594
Investments in affiliates............................... 59,082 2,258
Goodwill and other intangible assets, net of accumulated
amortization of $3,997 and $20,419 at December 31, 1997
and 1998, respectively................................. 152,541 569,740
Deferred financing costs and other assets, net of
accumulated amortization of $743 and $1,722 at December
31, 1997 and 1998, respectively........................ 10,644 16,522
-------- ----------
$371,391 $1,523,230
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 7,760 $ 46,020
Accrued interest...................................... -- 15,677
Accrued compensation and related benefits............. 1,792 5,188
Deferred rental revenues and other accrued
liabilities.......................................... 2,398 26,002
-------- ----------
Total current liabilities............................ 11,950 92,887
Long-term debt.......................................... 156,293 429,710
Other liabilities....................................... 607 22,823
-------- ----------
Total liabilities.................................... 168,850 545,420
-------- ----------
Commitments and contingencies (Note 12)
Minority interests...................................... -- 39,185
Redeemable preferred stock, $.01 par value; 10,000,000
shares authorized:
12 3/4% Senior Exchangeable Preferred Stock; shares
issued: December 31, 1997--none and December 31,
1998--200,000 (stated at mandatory redemption and
aggregate liquidation value)......................... -- 201,063
Senior Convertible Preferred Stock; shares issued:
December 31, 1997--657,495 and December 31, 1998--
none (stated at redemption value; aggregate
liquidation value of $68,916)........................ 67,948 --
Series A Convertible Preferred Stock; shares issued:
December 31, 1997--1,383,333 and December 31, 1998--
none (stated at redemption and aggregate liquidation
value)............................................... 8,300 --
Series B Convertible Preferred Stock; shares issued:
December 31, 1997--864,568 and December 31,
1998--none (stated at redemption and aggregate
liquidation value)................................... 10,375 --
Series C Convertible Preferred Stock; shares issued:
December 31, 1997--3,529,832 and December 31, 1998--
none (stated at redemption and aggregate liquidation
value)............................................... 74,126 --
-------- ----------
Total redeemable preferred stock..................... 160,749 201,063
-------- ----------
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares
authorized:
Class A Common Stock; shares issued: December 31,
1997--1,041,565 and December 31, 1998--none.......... 2 --
Class B Common Stock; shares issued: December 31,
1997--9,367,165 and December 31, 1998--none.......... 19 --
Common Stock; shares issued: December 31, 1997--none
and December 31, 1998--83,123,873.................... -- 831
Class A Common Stock; shares issued: December 31,
1997--none and December 31, 1998--11,340,000......... -- 113
Additional paid-in capital.............................. 58,248 795,153
Cumulative foreign currency translation adjustment...... 562 1,690
Accumulated deficit..................................... (17,039) (60,225)
-------- ----------
Total stockholders' equity........................... 41,792 737,562
-------- ----------
$371,391 $1,523,230
======== ==========
See notes to consolidated financial statements.
55
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,
--------------------------
1996 1997 1998
------ -------- --------
Net revenues:
Site rental and broadcast transmission........... $5,615 $ 11,010 $ 75,028
Network services and other....................... 592 20,395 38,050
------ -------- --------
6,207 31,405 113,078
------ -------- --------
Operating expenses:
Costs of operations (exclusive of depreciation
and amortization):
Site rental and broadcast transmission......... 1,292 2,213 26,254
Network services and other..................... 8 13,137 21,564
General and administrative....................... 1,678 6,824 23,571
Corporate development............................ 1,324 5,731 4,625
Non-cash compensation charges.................... -- -- 12,758
Depreciation and amortization.................... 1,242 6,952 37,239
------ -------- --------
5,544 34,857 126,011
------ -------- --------
Operating income (loss)............................ 663 (3,452) (12,933)
Other income (expense):
Equity in earnings (losses) of unconsolidated
affiliate....................................... -- (1,138) 2,055
Interest and other income (expense).............. 193 1,951 4,220
Interest expense and amortization of deferred
financing costs................................. (1,803) (9,254) (29,089)
------ -------- --------
Loss before income taxes and minority interests.... (947) (11,893) (35,747)
Provision for income taxes......................... (10) (49) (374)
Minority interests................................. -- -- (1,654)
------ -------- --------
Net loss........................................... (957) (11,942) (37,775)
Dividends on preferred stock....................... -- (2,199) (5,411)
------ -------- --------
Net loss after deduction of dividends on preferred
stock............................................. $ (957) $(14,141) $(43,186)
====== ======== ========
Net loss........................................... $ (957) $(11,942) $(37,775)
Other comprehensive income:
Foreign currency translation adjustments......... -- 562 1,128
------ -------- --------
Comprehensive loss................................. $ (957) $(11,380) $(36,647)
====== ======== ========
Loss per common share--basic and diluted........... $(0.27) $ (2.27) $ (1.02)
====== ======== ========
Common shares outstanding--basic and diluted (in
thousands)........................................ 3,503 6,238 42,518
====== ======== ========
See notes to consolidated financial statements.
56
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
Years Ended December 31,
---------------------------
1996 1997 1998
------- -------- --------
Cash flows from operating activities:
Net loss......................................... $ (957) $(11,942) $(37,775)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization................... 1,242 6,952 37,239
Amortization of deferred financing costs and
discounts on long-term debt.................... 55 2,159 17,910
Non-cash compensation charges................... -- -- 12,758
Minority interests.............................. -- -- 1,654
Equity in losses (earnings) of unconsolidated
affiliate...................................... -- 1,138 (2,055)
Changes in assets and liabilities, excluding the
effects of acquisitions:
Increase in accounts payable................... 323 1,824 15,373
Increase (decrease) in deferred rental revenues
and other liabilities......................... 219 (240) 5,847
Increase (decrease) in accrued interest........ 306 (396) 5,835
Decrease (increase) in receivables............. (1,695) 1,353 (7,450)
Increase in inventories, prepaid expenses and
other assets.................................. (23) (1,472) (4,360)
------- -------- --------
Net cash provided by (used for) operating
activities................................... (530) (624) 44,976
------- -------- --------
Cash flows from investing activities:
Capital expenditures............................. (890) (18,035) (138,759)
Acquisitions of businesses, net of cash
acquired........................................ (10,925) (33,962) (10,489)
Investments in affiliates........................ (2,101) (59,487) --
------- -------- --------
Net cash used for investing activities........ (13,916) (111,484) (149,248)
------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of capital stock.......... 10,503 139,867 339,929
Net borrowings (payments) under revolving credit
agreements...................................... 11,000 (6,223) 9,212
Incurrence of financing costs.................... (180) (7,798) (3,010)
Purchase of capital stock........................ -- (2,132) (883)
Proceeds from issuance of long-term debt......... -- 150,010 --
Principal payments on long-term debt............. (130) (113,881) --
------- -------- --------
Net cash provided by financing activities..... 21,193 159,843 345,248
------- -------- --------
Effect of exchange rate changes on cash........... -- -- 396
------- -------- --------
Net increase in cash and cash equivalents......... 6,747 47,735 241,372
Cash and cash equivalents at beginning of year.... 596 7,343 55,078
------- -------- --------
Cash and cash equivalents at end of year.......... $ 7,343 $ 55,078 $296,450
======= ======== ========
Supplementary schedule of noncash 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........... 10,958 197,235 431,453
Issuance of common stock........................ -- 57,189 420,964
Issuance of long-term debt...................... -- 78,102 --
Assumption of long-term debt.................... -- 27,982 --
Amounts due to seller........................... 33 -- --
Supplemental disclosure of cash flow information:
Interest paid.................................... $ 1,442 $ 7,533 $ 6,276
Income taxes paid................................ -- 26 446
See notes to consolidated financial statements.
57
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands of dollars, except share amounts)
Class A Common Stock Class B Common Stock Common Stock Class A Common Stock Additional
---------------------- ---------------------- ---------------------- --------------------- Paid-In
Shares ($.01 Par) Shares ($.01 Par) Shares ($.01 Par) Shares ($.01 Par) Capital
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, January
1, 1996.......... 1,350,000 $ 3 1,433,330 $ 3 -- $ -- -- $ -- $ 634
Issuances of
capital stock... -- -- 55,000 -- -- -- -- -- 128
Net loss........ -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ---------- ---- ---------- ---- --------
Balance, December
31, 1996......... 1,350,000 3 1,488,330 3 -- -- -- -- 762
Issuances of
capital stock... -- -- 8,228,835 17 -- -- -- -- 57,696
Purchase of
capital stock... (308,435) (1) (350,000) (1) -- -- -- -- (210)
Foreign currency
translation
adjustments..... -- -- -- -- -- -- -- -- --
Dividends on
preferred
stock........... -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ---------- ---- ---------- ---- --------
Balance, December
31, 1997......... 1,041,565 2 9,367,165 19 -- -- -- -- 58,248
Conversion of
preferred stock
to Common
Stock........... -- -- -- -- 38,517,865 385 -- -- 164,712
Conversion of
Class A Common
Stock and Class
B Common Stock
to Common
Stock........... (1,041,565) (2) (9,367,165) (19) 10,953,625 109 -- -- (88)
Issuances of
capital stock... -- -- -- -- 33,793,453 338 11,340,000 113 560,779
Purchase of
capital stock... -- -- -- -- (141,070) (1) -- -- (882)
Non-cash
compensation
charges......... -- -- -- -- -- -- -- -- 12,384
Foreign currency
translation
adjustments..... -- -- -- -- -- -- -- -- --
Dividends on
preferred
stock........... -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ---------- ---- ---------- ---- --------
Balance, December
31, 1998......... -- $ -- -- $ -- 83,123,873 $831 11,340,000 $113 $795,153
========== ==== ========== ==== ========== ==== ========== ==== ========
Cumulative
Foreign
Currency
Translation Accumulated
Adjustment Deficit Total
----------- ----------- ---------
Balance, January
1, 1996.......... $ -- $ (21) $ 619
Issuances of
capital stock... -- -- 128
Net loss........ -- (957) (957)
----------- ----------- ---------
Balance, December
31, 1996......... -- (978) (210)
Issuances of
capital stock... -- -- 57,713
Purchase of
capital stock... -- (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......... 562 (17,039) 41,792
Conversion of
preferred stock
to Common
Stock........... -- -- 165,097
Conversion of
Class A Common
Stock and Class
B Common Stock
to Common
Stock........... -- -- --
Issuances of
capital stock... -- -- 561,230
Purchase of
capital stock... -- -- (883)
Non-cash
compensation
charges......... -- -- 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......... $1,690 $(60,225) $737,562
=========== =========== =========
See notes to consolidated financial statements.
58
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. 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 business is
the operation of television and radio broadcast transmission networks; the
Company also leases 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.
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 was effective for fiscal years beginning after December
15, 1995. The adoption of SFAS 121 by the Company in 1996 did not have a
material impact on its consolidated financial statements.
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
59
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
over a twenty 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 ten 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. At December 31, 1997, other accrued
liabilities includes $1,160,000 of such costs related to the issuance of the
Company's 10 5/8% Senior Discount Notes.
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.
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
60
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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,
--------------------------
1996 1997 1998
------ -------- --------
(In thousands of
dollars,
except per share
amounts)
Net loss........................................ $ (957) $(11,942) $(37,775)
Dividends on preferred stock.................... -- (2,199) (5,411)
------ -------- --------
Net loss applicable to common stock for basic
and diluted computations....................... $ (957) $(14,141) $(43,186)
====== ======== ========
Weighted-average number of common shares
outstanding during the period for basic and
diluted computations (in thousands)............ 3,503 6,238 42,518
====== ======== ========
Loss per common share--basic and diluted........ $(0.27) $ (2.27) $ (1.02)
====== ======== ========
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of December 31, 1998: (i)
options to purchase 16,585,197 shares of common stock at exercise prices
ranging from $-0- to $17.625 per share; (ii) warrants to purchase 1,314,990
shares of common stock at an exercise price of $7.50 per share; and (iii)
shares of Castle Transmission Services (Holdings) Ltd ("CTI") stock which are
convertible into 17,443,500 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, 1998.
Foreign Currency Translation
CTI uses the British pound as the functional currency for its operations.
The Company translates CTI's results of operations using the average exchange
rate for the period, and translates CTI'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.
Financial Instruments
The carrying amount of cash and cash equivalents approximates fair value for
these instruments. The estimated fair value of the 10 5/8% Senior Discount
Notes and the 9% Guaranteed Bonds 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, 1997 December 31, 1998
------------------ ------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(In thousands of dollars)
Cash and cash equivalents............ $ 55,078 $ 55,078 $296,450 $296,450
Long-term debt....................... (156,293) (161,575) (429,710) (443,379)
Interest rate swap agreement......... -- (97) -- (47)
61
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 hold or issue
derivative financial instruments for trading purposes.
Stock Options
In October 1995, 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).
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and broadly
defines such costs. The Company has deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 will require that such deferred costs be charged to results of
operations upon its adoption. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998. The Company will adopt the requirements of SOP 98-5 as
of January 1, 1999. The cumulative effect of the change in accounting principle
for the adoption of SOP 98-5 will result in a charge to results of operations
in the Company's financial statements for the three months ending March 31,
1999; it is currently estimated that such charge will amount to approximately
$2,300,000.
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
62
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SFAS 133 will be reported as the effect of a change in accounting principle.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company will adopt the requirements of SFAS 133 in its
financial statements for the three months ending March 31, 2000. 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, 1998, the Company
consummated a number of business 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.
Motorola, Inc. ("Motorola")
On June 28, 1996, the Company acquired fifteen telecommunications towers
and related assets, and assets related to specialized mobile radio and
microwave services, from Motorola in Puerto Rico. The purchase price consisted
of $9,919,000 in cash. Motorola provided certain management services related
to these assets for a period of ninety days after the closing date. Management
fees for such services amounted to $57,000 for the year ended December 31,
1996.
Other Acquisitions
During 1996, the Company acquired a number of other telecommunications
towers and related equipment from various sellers. The aggregate total
purchase price for these acquisitions of $1,039,000 consisted of $1,006,000 in
cash and a $33,000 payable to a seller.
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 (i) substantially all of the
assets, net of outstanding liabilities, of CCM and (ii) 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 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).
63
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, establishing CCI as the principal domestic operating subsidiary of
the Company.
CTI
On April 24, 1998, the Company entered into a share exchange agreement with
certain shareholders of CTI pursuant to which certain of CTI's shareholders
agreed to exchange their shares of CTI for shares of the Company. On August 18,
1998, the exchange was consummated and the Company's ownership of CTI 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 $344,204,000 in connection with this
transaction, which was accounted for as an acquisition using the purchase
method. CTI'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.
Pro Forma Results of Operations (Unaudited)
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if (i) the TEA and Crown acquisitions had been
consummated as of January 1, 1997 and (ii) the share exchange with CTI's
shareholders had been consummated as of January 1 for both 1997 and 1998.
Appropriate adjustments have been reflected for depreciation and amortization,
interest expense, amortization of deferred financing costs, income taxes and
certain nonrecurring income and expenses recorded by the Company in connection
with the investment in CTI in 1997 (see Note 4). 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,
--------------------------
1997 1998
------------ ------------
(In thousands of dollars,
except per share amounts)
Net revenues..................................... $ 180,936 $ 210,041
Net loss......................................... (34,601) (46,517)
Loss per common share--basic and diluted......... (0.60) (0.72)
Agreement with Nextel Communications, Inc. ("Nextel")
On July 11, 1997, the Company entered into an agreement with Nextel (the
"Nextel Agreement") whereby the Company has 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
February 24, 1999, the Company had purchased 49 of such towers for an aggregate
price of $11,019,000 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 CTI. 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).
64
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Agreement with Bell Atlantic Mobile ("BAM")
On December 8, 1998, the Company entered into an agreement with BAM to form
a joint venture ("Crown Atlantic") to own and operate a significant majority of
BAM's towers. Upon formation of Crown Atlantic (which is currently expected to
occur in March 1999), (i) the Company will contribute to Crown Atlantic
$250,000,000 in cash and 15,575,046 shares of its Common Stock in exchange for
a 62.3% ownership interest in Crown Atlantic, (ii) Crown Atlantic will borrow
$180,000,000 under a committed $250,000,000 revolving credit facility, and
(iii) BAM will contribute to Crown Atlantic approximately 1,427 towers in
exchange for a cash distribution of $380,000,000 from Crown Atlantic and a
37.7% ownership interest in Crown Atlantic. Upon dissolution of Crown Atlantic,
BAM would receive (i) the shares of the Company's Common Stock contributed to
Crown Atlantic and (ii) a payment (either in cash or in shares of the Company's
Common Stock, at the Company's election) equal to 14.0% 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 will account
for its investment in Crown Atlantic as an acquisition using the purchase
method, and will include Crown Atlantic's results of operations and cash flows
in the Company's consolidated financial statements for periods subsequent to
formation.
3.Property and Equipment
The major classes of property and equipment are as follows:
Estimated December 31,
Useful -----------------
Lives 1997 1998
---------- ------- --------
(In thousands of dollars)
Land and buildings........................... 0-50 years $ 1,930 $ 58,767
Telecommunications towers and broadcast
transmission equipment...................... 5-20 years 76,847 532,907
Transportation and other equipment........... 3-10 years 4,379 11,452
Office furniture and equipment............... 5-7 years 3,664 12,248
------- --------
86,820 615,374
Less: accumulated depreciation............... (4,852) (22,780)
------- --------
$81,968 $592,594
======= ========
Depreciation expense for the years ended December 31, 1997 and 1998 was
$2,886,000 and $20,638,000, respectively. Accumulated depreciation on
telecommunications towers and broadcast transmission equipment was $4,136,000
and $15,995,000 at December 31, 1997 and 1998, respectively. At December 31,
1998, minimum rentals receivable under existing operating leases for towers are
as follows: years ending December 31, 1999--$183,244,000; 2000--$187,311,000;
2001--$185,097,000; 2002--$179,641,000; 2003--$171,329,000; thereafter--
$667,731,000.
4.Investments in Affiliates
Investment in CTI
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 CTI (a company incorporated
under the laws of England and Wales). The Company led a consortium of investors
which provided the equity financing for CTI. The funds invested by the
consortium were used by CTI 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 CTI amounted
to approximately $57,542,000. The Company accounted for its investment in CTI
utilizing the equity method of
65
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accounting prior to the consummation of the share exchange agreement with CTI's
shareholders in August 1998 (see Note 2).
In March 1997, as compensation for leading the investment consortium, the
Company received a fee from CTI amounting to approximately $1,165,000. This fee
was recorded as other income by the Company when received. In addition, the
Company received approximately $1,679,000 from CTI 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 CTI 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 CTI is as follows (for periods in which
the Company accounted for CTI utilizing the equity method):
December 31,
1997
-------------
(In thousands
of dollars)
-------------
Current assets................................................ $ 37,510
Property and equipment, net................................... 341,737
Goodwill, net................................................. 76,029
---------
$ 455,276
=========
Current liabilities........................................... $ 48,103
Long-term debt................................................ 237,299
Other liabilities............................................. 3,453
Redeemable preferred stock.................................... 174,944
Stockholders' equity (deficit)................................ (8,523)
---------
$ 455,276
=========
Ten Months
Ended Eight Months
December 31, Ended August
1997 31, 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)
======== =======
66
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5.Long-term Debt
Long-term debt consists of the following:
December 31,
-------------------------
1997 1998
------------ ------------
(In thousands of dollars)
Senior Credit Facility........................... $ 4,700 $ 5,500
10 5/8% Senior Discount Notes due 2007, net of
discount........................................ 151,593 168,099
CTI Credit Facility.............................. -- 55,177
9% Guaranteed Bonds due 2007..................... -- 200,934
------------ ------------
$ 156,293 $ 429,710
============ ============
Senior Credit Facility
CTC had a credit agreement with a bank (as amended, the "Bank Credit
Agreement") which consisted of secured revolving lines of credit (the
"Revolving Credit Facility") and a $2,300,000 term note (the "Term Note"). On
January 17, 1997, the Bank Credit Agreement was amended to: (i) increase the
available borrowings under the Revolving Credit Facility to $50,000,000; (ii)
repay the Term Note, along with accrued interest thereon, with borrowings under
the Revolving Credit Facility; and (iii) extend the termination date for the
Bank Credit Agreement to December 31, 2003. Available borrowings under the
Revolving Credit Facility were generally to be used to construct new towers and
to finance a portion of the purchase price for towers and related assets. The
amount of available borrowings was determined based on the current financial
performance (as defined) of: (i) the assets to be acquired; and (ii) assets
acquired in previous acquisitions. In addition, up to $5,000,000 of borrowing
availability under the Revolving Credit Facility could be used for letters of
credit.
In October 1997, the Bank Credit Agreement was amended to (i) increase the
available borrowings to $100,000,000; (ii) include the lending bank under
Crown's bank credit agreement as a participating lender; and (iii) extend the
maturity date to December 31, 2004 (as amended, the "Senior Credit Facility").
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 (i) the promissory note payable to the former
stockholders of Crown and (ii) 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, 1998, approximately
$77,570,000 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, 1998.
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
67
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
election, equal to the bank's prime rate plus 1.5% or a Eurodollar interbank
offered rate (LIBOR) plus 3.25% (9.25% and 8.32%, respectively, at December 31,
1998). 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, 1998, the financial test permitted a reduction of 1.5% in the interest rate
margin for prime rate borrowings and 2.25% 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.
10 5/8% Senior Discount Notes due 2007 (the "Notes")
On November 25, 1997, the Company issued $251,000,000 aggregate principal
amount of the Notes for cash proceeds of $150,010,000 (net of original issue
discount). The Company used a portion of the net proceeds from the sale of the
Notes to (i) repay all of the outstanding borrowings, including accrued
interest thereon, under the Senior Credit Facility; (ii) repay the promissory
notes payable, including accrued interest thereon, to the former stockholders
of TEA (see Note 2); (iii) repay certain indebtedness, including accrued
interest thereon, from a prior acquisition; and (iv) repay outstanding
installment debt assumed in connection with the Crown acquisition (see Note 2).
The 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 Notes is November 15, 2007.
The Notes are net of unamortized discount of $99,407,000 and $82,901,000 at
December 31, 1997 and 1998, respectively.
The 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 Notes are redeemable at par. Prior to November
15, 2000, the Company may redeem up to 35% of the aggregate principal amount of
the 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.
The Notes 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 CTI Credit Facility and the CTI Bonds. The indenture governing
the Notes (the "Indenture") 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. As of December
31, 1998, the Company was effectively precluded from paying dividends on its
capital stock under the terms of the Indenture.
Reporting Requirements Under the Indenture (Unaudited)
The following information (as such capitalized terms are defined in the
Indenture) is presented solely as a requirement of the Indenture; such
information is not intended as an alternative measure of financial position,
operating results or cash flow from operations (as determined in accordance
with generally accepted accounting principles). Furthermore, the Company's
measure of the following information may not be comparable to similarly titled
measures of other companies.
Upon consummation of the share exchange with CTI's shareholders (see Note
2), which increased the Company's ownership interest in CTI to 80%, the Company
designated CTI as an Unrestricted Subsidiary. In addition, the net proceeds
from the Company's initial public offering of common stock (see Note 9) were
68
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
placed into a newly formed subsidiary that was also designated as an
Unrestricted Subsidiary. Prior to these transactions, the Company did not have
any Unrestricted Subsidiaries. Summarized financial information for (i) the
Company and its Restricted Subsidiaries and (ii) the Company's Unrestricted
Subsidiaries is as follows:
December 31, 1998
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash
equivalents............ $ 41,785 $ 254,665 $ -- $ 296,450
Other current assets.... 19,585 26,081 -- 45,666
Property and equipment,
net.................... 165,205 427,389 -- 592,594
Investments in
Unrestricted
Subsidiaries........... 744,941 -- (744,941) --
Goodwill and other
intangible assets,
net.................... 143,729 426,011 -- 569,740
Other assets, net....... 15,440 3,340 -- 18,780
---------- ---------- --------- ----------
$1,130,685 $1,137,486 $(744,941) $1,523,230
========== ========== ========= ==========
Current liabilities..... $ 17,653 $ 75,234 $ -- $ 92,887
Long-term debt.......... 173,599 256,111 -- 429,710
Other liabilities....... 808 22,015 -- 22,823
Minority interests...... -- 39,185 -- 39,185
Redeemable preferred
stock.................. 201,063 -- -- 201,063
Stockholders' equity.... 737,562 744,941 (744,941) 737,562
---------- ---------- --------- ----------
$1,130,685 $1,137,486 $(744,941) $1,523,230
========== ========== ========= ==========
Three Months Ended December 31, 1998 Year Ended December 31, 1998
-------------------------------------- --------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues............ $ 17,030 $43,787 $60,817 $ 55,023 $58,055 $113,078
Costs of operations
(exclusive of
depreciation and
amortization).......... 7,069 18,117 25,186 23,446 24,372 47,818
General and
administrative......... 6,883 1,666 8,549 21,153 2,418 23,571
Corporate development... 1,787 -- 1,787 4,625 -- 4,625
Non-cash compensation
charges................ 523 874 1,397 9,907 2,851 12,758
Depreciation and
amortization........... 4,879 15,255 20,134 16,921 20,318 37,239
-------- ------- ------- -------- ------- --------
Operating income
(loss)................. (4,111) 7,875 3,764 (21,029) 8,096 (12,933)
Equity in earnings of
unconsolidated
affiliate.............. -- -- -- 2,055 -- 2,055
Interest and other
income (expense)....... (285) 2,212 1,927 1,101 3,119 4,220
Interest expense and
amortization of
deferred financing
costs.................. (5,823) (5,685) (11,508) (21,727) (7,362) (29,089)
Provision for income
taxes (156) -- (156) (374) -- (374)
Minority interests...... -- (1,326) (1,326) -- (1,654) (1,654)
-------- ------- ------- -------- ------- --------
Net loss................ $(10,375) $ 3,076 $(7,299) $(39,974) $ 2,199 $(37,775)
======== ======= ======= ======== ======= ========
69
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows:
(In
thousands
of
dollars)
---------
Tower Cash Flow, for the three months ended December 31, 1998.... $ 3,868
========
Consolidated Cash Flow, for the twelve months ended December 31,
1998............................................................ $ 6,001
Less: Tower Cash Flow, for the twelve months ended December 31,
1998............................................................ (14,811)
Plus: four times Tower Cash Flow, for the three months ended
December 31, 1998............................................... 15,472
--------
Adjusted Consolidated Cash Flow, for the twelve months ended
December 31, 1998............................................... $ 6,662
========
CTI Credit Facility
CTI has a credit agreement with a syndicate of banks (as amended, the "CTI
Credit Facility") which consists of a (Pounds)64,000,000 (approximately
$106,419,000) secured revolving line of credit. Available borrowings under the
CTI Credit Facility are generally to be used to finance capital expenditures
and for working capital and general corporate purposes. As of December 31,
1998, approximately $51,243,000 of borrowings was available under the CTI
Credit Facility.
The loan commitment under the CTI Credit Facility will be automatically
reduced to zero in three equal semi-annual installments beginning on May 31,
2001 until May 31, 2002, when the CTI Credit Facility matures. Under certain
circumstances, CTI may be required to make principle prepayments from the
proceeds of certain asset sales.
The CTI Credit Facility is secured by substantially all of CTI's assets.
Borrowings under the CTI Credit Facility bear interest at a rate per annum
equal to a Eurodollar interbank offered rate (LIBOR) plus 0.85% (approximately
6.99% at December 31, 1998). Interest is due at the end of the period (from one
to six months) for which such LIBOR rate is in effect. The CTI Credit Facility
requires CTI to maintain certain financial covenants and places restrictions on
CTI'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 ("CTI Bonds")
CTI has issued (Pounds)125,000,000 (approximately $207,850,000) aggregate
principal amount of the CTI Bonds. Interest payments on the CTI Bonds are due
annually on each March 30. The maturity date of the CTI Bonds is March 30,
2007. The CTI Bonds are stated net of unamortized discount.
The CTI Bonds are redeemable, at the option of CTI, in whole or in part at
any time, at the greater of their principal amount and such a price as will
provide a gross redemption yield 0.5% per annum above the gross redemption
yield on the benchmark gilt plus, in either case, accrued and unpaid interest.
Under certain circumstances, each holder of the CTI Bonds has the right to
require CTI to repurchase all or a portion of such holder's CTI Bonds at a
price equal to 101% of their aggregate principal amount plus accrued and unpaid
interest.
The CTI Bonds are guaranteed by CTI; however, they are unsecured and
effectively subordinate to the outstanding borrowings under the CTI Credit
Facility. The trust deed governing the CTI Bonds places restrictions on CTI'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.
70
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 CTI Credit Facility and
the CTI 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 (i) $6,000,000 per year until October 31, 2002, and
$33,000,000 per year thereafter, and (ii) an amount to pay income taxes
attributable to the Company's Restricted Subsidiaries. CTI is effectively
precluded from paying dividends. The restricted net assets of the Company's
subsidiaries totaled approximately $826,321,000 at December 31, 1998.
Interest Rate Swap Agreement
The interest rate swap agreement had an outstanding notional amount of
$17,925,000 at January 29, 1997 (inception) and 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. 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,
------------------------
1996 1997 1998
----- ------- --------
(In thousands of
dollars)
Current:
State.......................................... $ -- $ -- $ 365
Puerto Rico.................................... 10 49 9
----- ------- --------
$ 10 $ 49 $ 374
===== ======= ========
A reconciliation between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate to the loss before
income taxes is as follows:
Years Ended December
31,
------------------------
1996 1997 1998
----- ------- --------
(In thousands of
dollars)
Benefit for income taxes at statutory rate....... $(322) $(4,044) $(12,154)
Stock-based compensation......................... -- -- 2,844
Amortization of intangible assets................ -- 478 604
State and foreign taxes, net of federal tax
benefit......................................... -- -- 247
Expenses for which no federal tax benefit was
recognized...................................... 5 28 151
Puerto Rico taxes................................ 10 49 9
Acquisition costs................................ -- -- (675)
Foreign earnings not subject to tax.............. -- -- (584)
Changes in valuation allowances.................. 315 3,650 9,944
Other............................................ 2 (112) (12)
----- ------- --------
$ 10 $ 49 $ 374
===== ======= ========
71
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the net deferred income tax assets and liabilities are as
follows:
December 31,
--------------------------------
1997 1998
------------ -------------
(In thousands of dollars)
Deferred income tax
liabilities:
Property and equipment.... $ 2,487 $ 6,045
Puerto Rico earnings...... 75 84
Intangible assets......... 276 --
Other..................... 38 --
------------ -------------
Total deferred income
tax liabilities........ 2,876 6,129
------------ -------------
Deferred income tax assets:
Net operating loss
carryforwards............ 6,800 19,071
Noncompete agreement...... 37 464
Intangible assets......... -- 351
Accrued liabilities....... -- 68
Other..................... -- 45
Receivables allowance..... 6 41
Valuation allowances...... (3,967) (13,911)
------------ -------------
Total deferred income
tax assets, net........ 2,876 6,129
------------ -------------
Net deferred income tax
liabilities................. $ -- $ --
============ =============
Valuation allowances of $3,967,000 and $13,911,000 were recognized to offset
net deferred income tax assets as of December 31, 1997 and 1998, respectively.
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $56,000,000 which are available to offset future federal taxable
income. These loss carryforwards will expire in 2010 through 2018. The
utilization of the loss carryforwards is subject to certain limitations.
7.Minority Interests
Minority interests represent the minority stockholder's interest in CTI.
8.Redeemable Preferred Stock
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 are currently invested in short-term investments.
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
72
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 Notes), and
are effectively subordinate to all debt and liabilities of the Company's
subsidiaries (including the Senior Credit Facility, the CTI Credit Facility and
the CTI 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.
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 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.
73
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 CTI (see Note 4).
9.Stockholders' Equity
Common Stock
On August 18, 1998, the Company consummated its initial public offering of
common stock at a price to the public of $13 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 are currently invested in short-term investments.
In anticipation of the IPO, the Company (i) amended and restated the 1995
Stock Option Plan to, among other things, authorize the issuance of up to
18,000,000 shares of common stock pursuant to awards made thereunder and (ii)
approved an amendment to its certificate of incorporation to increase the
number of authorized shares of common and preferred stock to 690,000,000 shares
and 10,000,000 shares, respectively, and to effect a five-for-one stock split
for the shares of common stock then outstanding. The effect of the stock split
has been presented retroactively in the Company's consolidated financial
statements for all periods presented.
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 CTI's shareholders
(see Note 2), an affiliate of CTI's remaining minority shareholder 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.
74
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 CTI'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 $18.4 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 CTI's management prior to the
consummation of the share exchange.
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 18,000,000 shares
of the Company's common stock were 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 ten years from the date of grant.
Upon consummation of the share exchange agreement with CTI's shareholders
(see Note 2), the Company adopted each of the various CTI stock option plans.
All outstanding options to purchase shares of CTI 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 CTI plans, and these options generally vest over periods of up to
three years from the date of grant.
75
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of awards granted under the various stock option plans is as
follows for the years ended December 31, 1996, 1997 and 1998:
1996 1997 1998
------------------- -------------------- ---------------------
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...... 825,000 $0.53 1,050,000 $0.89 3,694,375 $4.69
Options granted......... 225,000 2.22 3,042,500 5.46 9,024,720 10.02
Options outstanding
under CTI stock option
plans.................. -- -- -- -- 4,367,202 2.74
Options exercised....... -- -- (363,125) 0.53 (216,650) 4.89
Options forfeited....... -- -- (35,000) 1.20 (284,450) 5.72
--------- --------- ----------
Options outstanding at
end of year............ 1,050,000 0.89 3,694,375 4.69 16,585,197 7.06
========= ========= ==========
Options exercisable at
end of year............ 721,250 0.43 728,875 2.49 7,615,649 4.75
========= ========= ==========
In November 1996, options which were granted in 1995 for the purchase of
690,000 shares were modified such that those options became fully vested. 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,
1998 is as follows:
Weighted-
Average
Number of Remaining Number of
Exercise Options Contractual Options
Prices Outstanding Life Exercisable
-------- ----------- ----------- -----------
$ -0- to $ 0.40 677,108 7.0 years 494,709
1.20 to 1.60 123,750 7.1 years 123,750
2.37 to 3.09 3,316,600 7.8 years 2,266,600
4.01 to 6.00 2,607,621 8.2 years 1,833,960
7.50 to 7.77 5,694,692 9.3 years 2,821,630
10.04 to 12.50 450,426 9.9 years --
13.00 3,590,000 9.6 years 75,000
17.63 125,000 10.0 years --
---------- ---------- ---------
16,585,197 9.1 years 7,615,649
========== =========
The weighted-average fair value of options granted during the years ended
December 31, 1996, 1997 and 1998 was $0.50, $1.30 and $4.54, respectively. The
fair value of each option was estimated on the date of grant using the Black-
Scholes option-pricing model and the following weighted-average assumptions
about the options (the minimum value method was used prior to the IPO):
Years Ended December 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
Risk-free interest rate..................... 6.4% 6.1% 5.38%
Expected life............................... 4.0 years 4.5 years 3.6 years
Expected volatility......................... 0% 0% 0% to 30%
Expected dividend yield..................... 0% 0% 0%
76
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The exercise prices for options granted during the years ended December 31,
1996 and 1997 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, 1996, 1997
and 1998 would have been $973,000 ($0.28 per share), $12,586,000 ($2.37 per
share) and $75,660,000 ($1.91 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, 1998, the Company had the following shares reserved for
future issuance:
Common Stock:
Class A Common Stock........................................... 11,340,000
Shares of CTI stock which are convertible into common stock.... 17,443,500
Stock option plans............................................. 21,812,676
Warrants....................................................... 1,314,990
----------
51,911,166
==========
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 20% 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 and $197,000 for the years ended
December 31, 1997 and 1998, respectively.
CTI 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 was $1,115,000. As of December
31, 1998, (i) the accumulated benefit obligation under this plan amounted to
$13,635,000 (all of which was vested); (ii) the projected benefit obligation
amounted to $15,298,000; (iii) the fair value of the plan's assets amounted to
$15,848,000; and (iv) the prepaid pension cost attributable to this plan
amounted to $1,704,000.
11.Related Party Transactions
The Company leases office space in a building formerly owned by its Chief
Executive Officer. Lease payments for such office space amounted to $50,000 and
$130,000 for the years ended December 31, 1996 and 1997, respectively.
Included in other receivables at December 31, 1997 and 1998 are amounts due
from employees of the Company totaling $499,000 and $368,000, respectively.
12.Commitments and Contingencies
At December 31, 1998, minimum rental commitments under operating leases are
as follows: years ending December 31, 1999--$19,721,000; 2000--$19,456,000;
2001--$19,298,000; 2002--$19,293,000; 2003--$18,996,000; thereafter--
$112,848,000. Rental expense for operating leases was $277,000, $1,712,000 and
$9,620,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
77
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1998 are (i) the domestic
operations of CCI and (ii) the United Kingdom operations of CTI. 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 lines. In addition, the Company's financial performance
is evaluated by outside securities analysts based on these operating segments.
See Note 1 for a description of the primary revenue sources from these two
segments.
As discussed in Note 2, CTI's results of operations are included in the
Company's consolidated financial statements beginning in 1998. Prior to that
time, the domestic operations of CCI represented the Company's only reportable
segment.
78
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 and non-
cash compensation 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 CCI and
CTI. The results of operations and financial position for CTI 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, 1998
-------------------------------------------
Corporate
Office Consolidated
CCI CTI 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 financing costs...... (4,476) (7,362) (17,251) (29,089)
Provision for income taxes........ (374) -- -- (374)
Minority interests................ -- (1,654) -- (1,654)
-------- -------- -------- ----------
Net loss.......................... $ (8,430) $ (626) $(28,719) $ (37,775)
======== ======== ======== ==========
Capital expenditures.............. $ 84,911 $ 50,224 $ 3,624 $ 138,759
======== ======== ======== ==========
Total assets (at year end)........ $332,555 $887,938 $302,737 $1,523,230
======== ======== ======== ==========
Investments in affiliates (at year
end)............................. $ -- $ -- $ 2,258 $ 2,258
======== ======== ======== ==========
79
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31,
-----------------------------------------------------------------
1996 1997
------------------------------- ---------------------------------
Corporate Corporate
Office Consolidated Office Consolidated
CCI and Other Total CCI and Other Total
------- --------- ------------ -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission......... $ 5,615 $ -- $ 5,615 $ 11,010 $ -- $ 11,010
Network services and
other................ 592 -- 592 20,066 329 20,395
------- ------- ------- -------- -------- --------
6,207 -- 6,207 31,076 329 31,405
------- ------- ------- -------- -------- --------
Costs of operations
(exclusive of
depreciation and
amortization).......... 1,300 -- 1,300 15,350 -- 15,350
General and
administrative......... 1,678 -- 1,678 6,675 149 6,824
Corporate development... 75 1,249 1,324 1,864 3,867 5,731
------- ------- ------- -------- -------- --------
EBITDA.................. 3,154 (1,249) 1,905 7,187 (3,687) 3,500
Depreciation and
amortization 1,242 -- 1,242 6,925 27 6,952
------- ------- ------- -------- -------- --------
Operating income
(loss)................. 1,912 (1,249) 663 262 (3,714) (3,452)
Equity in earnings
(losses) of
unconsolidated
affiliate.............. -- -- -- -- (1,138) (1,138)
Interest and other
income (expense)....... 22 171 193 (77) 2,028 1,951
Interest expense and
amortization of
deferred financing
costs.................. (1,803) -- (1,803) (4,660) (4,594) (9,254)
Credit (provision) for
income taxes........... (59) 49 (10) -- (49) (49)
------- ------- ------- -------- -------- --------
Net income (loss)....... $ 72 $(1,029) $ (957) $ (4,475) $ (7,467) $(11,942)
======= ======= ======= ======== ======== ========
Capital expenditures.... $ 890 $ -- $ 890 $ 17,200 $ 835 $ 18,035
======= ======= ======= ======== ======== ========
Total assets (at year
end)................... $250,911 $120,480 $371,391
======== ======== ========
Investments in
affiliates (at year
end)................... $ -- $ 59,082 $ 59,082
======== ======== ========
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,
-----------------------
1996 1997 1998
------ ------- --------
(In thousands of
dollars)
United States....................................... $5,050 $29,076 $ 51,807
Puerto Rico......................................... 1,157 2,329 2,470
------ ------- --------
Total domestic operations......................... 6,207 31,405 54,277
------ ------- --------
United Kingdom...................................... -- -- 58,055
Other foreign countries............................. -- -- 746
------ ------- --------
Total for all foreign countries................... -- -- 58,801
------ ------- --------
$6,207 $31,405 $113,078
====== ======= ========
80
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of long-lived assets by country of location is as follows:
December 31,
-------------------
1997 1998
-------- ----------
(In thousands of
dollars)
United States........................................... $237,125 $ 310,953
Puerto Rico............................................. 10,145 14,473
-------- ----------
Total domestic operations............................. 247,270 325,426
-------- ----------
United Kingdom.......................................... 56,965 855,560
Other foreign countries................................. -- 128
-------- ----------
Total for all foreign countries....................... 56,965 855,688
-------- ----------
$304,235 $1,181,114
======== ==========
Major Customers
For the years ended December 31, 1996, 1997 and 1998, CCI had revenues from
a single customer amounting to $2,634,000, $5,998,000 and $14,168,000,
respectively. For the year ended December 31, 1998, consolidated net revenues
includes $33,044,000 from a single customer of CTI.
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 (primarily the United
Kingdom, Pennsylvania, Texas, New Mexico, Arizona and Puerto Rico). 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.Quarterly Financial Information (Unaudited)
Summary quarterly financial information for the years ended December 31,
1997 and 1998 is as follows:
Three Months Ended
-------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(In thousands of dollars, except per
share amounts)
1997:
Net revenues................. $ 1,994 $ 4,771 $11,481 $13,159
Operating income (loss)...... (1,293) (921) 61 (1,299)
Net loss..................... (443) (1,706) (4,001) (5,792)
Loss per common share--basic
and diluted................. (0.13) (0.51) (0.62) (0.69)
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)
81
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15.Subsequent Events (Unaudited)
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
transaction is structured as a lease agreement and will be treated as a sale of
the towers for tax purposes. The Company will pay BellSouth consideration of
$610,000,000, consisting of $430,000,000 in cash and $180,000,000 in shares of
its common stock. The Company will account for this transaction as a purchase
of tower assets. The transaction is expected to close over a period of up to
eight months beginning in the second quarter of 1999. Upon entering into the
agreement, the Company placed $50,000,000 into an escrow account. In order to
fund this escrow deposit, the Company borrowed $45,000,000 under the Senior
Credit Facility.
Powertel, Inc. ("Powertel")
In March 1999, the Company entered into an agreement with Powertel to
purchase approximately 650 of their towers and related assets. The purchase
price for these towers will be $275,000,000 in cash. The Company will account
for this transaction as an acquisition using the purchase method. Upon entering
into the agreement, the Company placed $50,000,000 into an escrow account. The
Company funded this escrow deposit with borrowings under a $100,000,000 loan
agreement provided by a syndicate of investment banks. The remaining
$50,000,000 of borrowings under this loan agreement were used to repay the
amount drawn under the Senior Credit Facility in connection with the BellSouth
escrow deposit.
Proposed Securities Offerings
The Company intends to offer shares of its common stock and debt securities
in concurrent underwritten public offerings. The proceeds from such offerings
would be used to repay amounts drawn under the loan agreement in connection
with the BellSouth and Powertel transactions, and to pay the remaining purchase
price for such transactions. Any securities will only be offered by means of a
prospectus forming a part of a registration statement filed with the Securities
and Exchange Commission. There can be no assurance that such securities
offerings can be successfully completed.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
82
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 1999 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 1999 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 1999 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 1999 Proxy Statement and is incorporated herein by reference.
83
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 54.
(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. In 1998 we filed the following Reports on Form 8-K:
--On April 27, 1998, announcing a share exchange agreement with certain
shareholders of Castle Transmission Services (Holdings) Ltd.
--On June 19, 1998, announcing the filing of a registration statement
with the Securities and Exchange Commission for the initial public
offering of our common stock.
--On December 9, 1998, announcing the offering of $200 million of our
senior exchangeable pay-in-kind preferred stock in a Rule
144A/Regulation S offering.
--On December 21, 1998, announcing the completion of the offering of
$200 million of our senior exchangeable pay-in-kind preferred stock in
a Rule 144A/Regulation S distribution.
84
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET (Unconsolidated)
(In thousands of dollars, except share amounts)
December 31,
---------------------
1997 1998
--------- ----------
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 53,092 $ 37,907
Receivables and other current assets................... 424 957
Advances to subsidiaries, net.......................... 2,611 13,711
--------- ----------
Total current assets................................. 56,127 52,575
Property and equipment, net of accumulated depreciation
of $27 and $875 at December 31, 1997 and 1998,
respectively........................................... 808 4,255
Investment in subsidiaries.............................. 232,229 1,041,788
Investments in affiliates............................... 59,082 2,258
Deferred financing costs and other assets, net of
accumulated amortization of $69 and $814 at December
31, 1997 and 1998, respectively........................ 7,075 7,227
--------- ----------
$ 355,321 $1,108,103
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities......... $ 1,187 $ 1,379
--------- ----------
Total current liabilities............................ 1,187 1,379
Long-term debt.......................................... 151,593 168,099
--------- ----------
Total liabilities.................................... 152,780 169,478
--------- ----------
Redeemable preferred stock, $.01 par value; 10,000,000
shares authorized:
12 3/4% Senior Exchangeable Preferred Stock; shares
issued: December 31, 1997--none and December 31,
1998--200,000 (stated at mandatory redemption and
aggregate liquidation value).......................... -- 201,063
Senior Convertible Preferred Stock; shares issued:
December 31, 1997--657,495 and
December 31, 1998--none (stated at redemption value;
aggregate liquidation value of $68,916)............... 67,948 --
Series A Convertible Preferred Stock; shares issued:
December 31, 1997--1,383,333 and December 31, 1998--
none (stated at redemption and aggregate liquidation
value)................................................ 8,300 --
Series B Convertible Preferred Stock; shares issued:
December 31, 1997--864,568 and December 31, 1998--none
(stated at redemption and aggregate liquidation
value)................................................ 10,375 --
Series C Convertible Preferred Stock; shares issued:
December 31, 1997--3,529,832 and December 31, 1998--
none (stated at redemption and aggregate liquidation
value)................................................ 74,126 --
--------- ----------
Total redeemable preferred stock................... 160,749 201,063
--------- ----------
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares
authorized:
Class A Common Stock; shares issued: December 31,
1997--1,041,565 and December 31, 1998--none........... 2 --
Class B Common Stock; shares issued: December 31,
1997--9,367,165 and December 31, 1998--none........... 19 --
Common Stock; shares issued: December 31, 1997--none
and December 31, 1998--83,123,873..................... -- 831
Class A Common Stock; shares issued: December 31,
1997--none and December 31, 1998--11,340,000.......... -- 113
Additional paid-in capital............................. 58,248 795,153
Cumulative foreign currency translation adjustment..... 562 1,690
Accumulated deficit.................................... (17,039) (60,225)
--------- ----------
Total stockholders' equity........................... 41,792 737,562
--------- ----------
$ 355,321 $1,108,103
========= ==========
See notes to consolidated financial statements and accompanying notes.
85
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued)
STATEMENT OF OPERATIONS (Unconsolidated)
(In thousands of dollars)
Years Ended December 31,
---------------------------
1996 1997 1998
------- -------- --------
Other revenues.................................... $ -- $ 329 $ 399
Interest and other income......................... 171 2,028 1,354
General and administrative expenses............... -- (149) (2,975)
Corporate development expenses.................... (1,249) (3,867) (4,404)
Non-cash compensation charges..................... -- -- (9,775)
Depreciation and amortization..................... -- (27) (720)
Interest expense and amortization of deferred
financing costs.................................. -- (4,594) (17,251)
------- -------- --------
Loss before income taxes and equity in earnings
(losses) of subsidiaries and unconsolidated
affiliate........................................ (1,078) (6,280) (33,372)
Credit (provision) for income taxes............... 49 (49) --
Equity in earnings (losses) of subsidiaries....... 72 (4,475) (6,458)
Equity in earnings (losses) of unconsolidated
affiliate........................................ -- (1,138) 2,055
------- -------- --------
Net loss.......................................... (957) (11,942) (37,775)
Dividends on preferred stock...................... -- (2,199) (5,411)
------- -------- --------
Net loss after deduction of dividends on preferred
stock............................................ $ (957) $(14,141) $(43,186)
======= ======== ========
See notes to consolidated financial statements and accompanying notes.
86
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,
--------------------------
1996 1997 1998
------ -------- --------
Cash flows from operating activities:
Net loss......................................... $ (957) $(11,942) $(37,775)
Adjustments to reconcile net loss to net cash
used for operating activities:
Amortization of deferred financing costs and
discount on long-term debt.................... -- 1,652 17,251
Non-cash compensation charges.................. -- -- 9,775
Equity in losses (earnings) of subsidiaries.... (72) 4,475 6,458
Depreciation and amortization.................. -- 27 720
Equity in losses (earnings) of unconsolidated
affiliate..................................... -- 1,138 (2,055)
Increase (decrease) in accounts payable and
other accrued liabilities..................... 130 (103) 1,352
Decrease (increase) in receivables and other
assets........................................ (1,122) 551 (1,413)
------ -------- --------
Net cash used for operating activities....... (2,021) (4,202) (5,687)
------ -------- --------
Cash flows from investing activities:
Investment in subsidiaries....................... -- (89,989) (332,065)
Net advances to subsidiaries..................... (288) (2,223) (11,100)
Capital expenditures............................. -- (835) (3,624)
Investments in affiliates........................ (2,101) (59,487) --
------ -------- --------
Net cash used for investing activities....... (2,389) (152,534) (346,789)
------ -------- --------
Cash flows from financing activities:
Proceeds from issuance of capital stock.......... 10,503 139,867 339,929
Incurrence of financing costs.................... -- (5,908) (1,755)
Purchase of capital stock........................ -- (2,132) (883)
Proceeds from issuance of long-term debt......... -- 150,010 --
Principal payments on long-term debt............. -- (78,102) --
------ -------- --------
Net cash provided by financing activities.... 10,503 203,735 337,291
------ -------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 6,093 46,999 (15,185)
Cash and cash equivalents at beginning of year..... -- 6,093 53,092
------ -------- --------
Cash and cash equivalents at end of year........... $6,093 $ 53,092 $ 37,907
====== ======== ========
Supplementary schedule of noncash investing and
financing activities:
Issuance of long-term debt in connection with
acquisitions.................................... $ -- $ 78,102 $ --
Issuance of common stock in connection with
acquisitions.................................... -- 57,189 420,964
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 $ --
Income taxes paid................................ -- -- --
See notes to consolidated financial statements and accompanying notes.
87
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 CTI Credit Facility and the
CTI 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 (i) $6,000,000 per year until October 31, 2002, and $33,000,000 per
year thereafter, and (ii) an amount to pay income taxes attributable to the
Company's Restricted Subsidiaries. CTI is effectively precluded from paying
dividends. The restricted net assets of the Company's subsidiaries totaled
approximately $826,321,000 at December 31, 1998.
2.Long-term Debt
Long-term debt consists of the Company's 10 5/8% Senior Discount Notes due
2007.
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.
88
CROWN CASTLE INTERNATIONAL INC.
INDEX TO EXHIBITS
Item 14 (a) (3)
Exhibit
No. Description Page
------- ----------- ----
**2.1 Asset Purchase and Merger Agreement among Crown Network
Systems, Inc., Crown Mobile Systems, Inc., Robert A. Crown,
Barbara Crown and Castle Acquisition Corp. I, Castle
Acquisition Corp. II, Castle Tower Holding Corp. dated July 11,
1997
**2.2 First Amended and Restated Asset Purchase and Merger Agreement
among Crown Network Systems, Inc., Crown Mobile Systems, Inc.,
Robert A. Crown, Barbara Crown and Castle Acquisition Corp. I,
Castle Acquisition Corp. II, Castle Tower Holding Corp. dated
July 11, 1997, as amended and restated on August 14, 1997
**2.3 Stock Purchase Agreement by and between Castle Tower Holding
Corp., Bruce W. Neurohr, Charles H. Jones, Ronald J. Minnich,
Ferdinand G. Neurohr and Terrel W. Pugh dated May 12, 1997
("TEA Stock Purchase Agreement")
***2.4 Share Exchange Agreement among Castle Transmission Services
(Holdings) Ltd., Crown Castle International Corp., T 1
Diffusion 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
****3.1 Restated Certificate of Incorporation of Crown Castle
International Corp.
****3.2 Amended and Restated By-laws of Crown Castle International
Corp.
****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.
**4.1 Indenture between Crown Castle International Corp. and United
States Trust Company of New York, as Trustee (including
exhibits).
**4.2 Amended and Restated Stockholders Agreement among Castle Tower
Holding Corp., Edward C. Hutcheson, Jr., Ted B. Miller, Jr.,
Robert A. Crown and Barbara Crown and the persons listed on
Schedule I thereto dated August 15, 1997
**4.3 Article Fourth of Certificate of Incorporation of Castle Tower
Holding Corp. (included in Exhibits 3.1 through 3.5)
**4.4 Trust Deed related to (Pounds)125,000,000 9 percent. 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
**4.5 First Supplemental Trust Deed related to (Pounds)125,000,000 9
percent Guaranteed Bonds due 2007 among Castle Transmission
(Finance) PLC, as Issuer, Castle Transmission International
Ltd. and Castle Transmission Services (Holdings) Ltd., as
Guarantors, and The Law Debenture Trust Corporation p.l.c., as
Trustee, dated October 17, 1997
***4.6 Specimen Certificate of Common Stock
****4.7 Indenture dated as of December 21, 1998 between Crown Castle
International Corp. and the United States Trust Company, as
Trustee (including exhibits)
**10.1 Registration Rights Agreement by and among Crown Castle
International Corp. and Lehman Brothers Inc. and Credit Suisse
First Boston Corporation dated as of November 25, 1997
***10.2 Amended and Restated Loan Agreement by and among Crown
Communication Inc., Crown Castle International Corp. de Puerto
Rico, Key Corporate Capital Inc. and certain lenders dated July
10, 1998
89
Exhibit
No. Description Page
------- ----------- ----
**10.8 Amended and Restated Limited Holdco Guaranty by Crown Castle
International Corp., in favor of KeyBank National Association,
as Agent, dated November 25, 1997
**10.9 Memorandum of Understanding regarding Management and Governance
of Castle Tower Holding Corp. and Crown Communications, Inc.
dated August 15, 1997
**10.10 Site Commitment Agreement between Nextel Communications, Inc.
and Castle Tower Corporation dated July 11, 1997
**10.11 Independent Contractor Agreement by and between Crown Network
Systems, Inc. and Sprint Spectrum L.P. dated July 8, 1996,
including addendum dated November 12, 1997
**10.12 Independent Contractor Agreement between Crown Network Systems,
Inc. and Powerfone, Inc. d/b/a Nextel Communications dated
September 30, 1996
**10.13 Independent Contractor Agreement by and between APT Pittsburgh
Limited Partnership and Crown Network Systems, Inc. dated
December 3, 1996
**10.14 Master Lease Agreement between Sprint Spectrum, L.P. and Robert
Crown d/b/a Crown Communications dated June 11, 1996 ("Sprint
Master Lease Agreement")
**10.15 First Amendment to Sprint Master Lease Agreement, dated July 5,
1996 (included in Exhibit 10.14)
**10.16 Second Amendment to Sprint Master Lease Agreement, dated
January 27, 1997 (included in Exhibit 10.14)
**10.17 Master Lease Agreement between Powerfone, Inc. d/b/a Nextel
Communications and Robert A. Crown d/b/a Crown Communications
dated October 3, 1996
**10.18 Master Lease Agreement between APT Pittsburgh Limited
Partnership and Robert Crown d/b/a Crown Communications dated
December 3, 1996
**10.19 Master Tower Lease Agreement between Cellco Partnership d/b/a
Bell Atlantic NYNEX Mobile, Pittsburgh SMSA, L.P. and
Pennsylvania RSN No. 6(II) and Robert A. Crown d/b/a Crown
Communications dated December 29, 1995, as amended by a letter
agreement dated as of October 28, 1997
**10.20 Master Tower Lease Agreement between Cellco Partnership d/b/a
Bell Atlantic NYNEX Mobile, Pittsburgh SMSA, L.P. and
Pennsylvania RSN No. 6(II) and Robert A. Crown d/b/a Crown
Communications dated December 29, 1995, as amended by a letter
agreement dated as of October 28, 1997
**10.21 Castle Tower Holding Corp. 1995 Stock Option Plan (Third
Restatement)
**10.22 Services Agreement between Castle Transmission International
Ltd. (formerly known as Castle Transmission Services Ltd.) and
Castle Tower Holding Corp. dated February 28, 1997
**10.23 Shareholders Agreement among Berkshire Fund IV Investment
Corp., Berkshire Investors LLC, Berkshire Partners LLC,
Candover Investments PLC, Candover (Trustees) Limited, Candover
Partners Limited (as general partner for four limited
partnerships), Castle Tower Holding Corp., T 1 Diffusion de
France International S.A., and Diohold Limited (now known as
Castle Transmission Services (Holdings) Ltd.) dated January 23,
1997
**10.24 First Amendment to Amended and Restated Stockholders Agreement
by and among Crown Castle International Corp., Edward C.
Hutcheson, Jr., Ted B. Miller, Jr., Robert A. Crown and Barbara
Crown and the persons listed as Investors dated January 28,
1998
**10.25 Third Amendment to Sprint Master Lease Agreement, dated
February 12, 1998
90
Exhibit
No. Description Page
------- ----------- ----
****10.26 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
***10.27 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
****10.28 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
****10.29 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
****10.30 Shareholders Agreement among Crown Castle International
Corp., T 1 Diffusion de France International S.A. and Castle
Transmission Services (Holdings) Limited dated August 1998
***10.31 Site Sharing Agreement between National Transcommunications
Limited and The British Broadcasting Corporation dated
September 10, 1991
***10.32 Transmission Agreement between The British Broadcasting
Corporation and Castle Transmission Services Limited dated
February 27, 1997
***10.33 Digital Terrestrial Television Transmission Agreement between
The British Broadcasting Corporation and Castle Transmission
International Ltd. dated February 10, 1998
***10.34 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
***10.35 Loan Amendment Agreement among Castle Transmission
International, Castle Transmission Services (Holdings) Ltd.
and certain lenders dated May 21, 1997
***10.36 Crown Castle International Corp. 1995 Stock Option Plan
(Fourth Restatement)
***10.37 Contract between British Telecommunications PLC and Castle
Transmission International Inc. for the Provision of Digital
Terrestrial Television Network Distribution Service dated May
13, 1998
***10.38 Site Marketing Agreement dated June 25, 1998 between
BellSouth Mobility Inc. and Crown Communication Inc.
***10.39 Commitment Agreement between the British Broadcasting
Corporation, Castle Tower Holding Corp., T 1 Diffusion de
France International S.A. and T 1 Diffusion de France S.A.
****10.40 Amended and Restated Services Agreement between Castle
Transmission International Limited and T 1 Diffusion de
France S.A. dated August 1998
***10.41 Castle Transmission Services (Holdings) Ltd. All Employee
Share Option Scheme dated as of January 23, 1998
***10.42 Rules of the Castle Transmission Services (Holdings) Ltd.
Bonus Share Plan
****10.43 Employee Benefit Trust between Castle Transmission Services
(Holdings) Ltd. and Castle Transmission (Trustees) Limited
91
Exhibit
No. Description Page
------- ----------- ----
***10.44 Castle Transmission Services (Holdings) Ltd. Unapproved
Share Option Scheme dated as of January 23, 1998
***10.45 Amending Agreement between the British Broadcasting
Corporation and Castle Transmission International Limited
dated July 16, 1998
****10.46 Rights Agreement dated as of August 21, 1998, between
Crown Castle International Corp. and Chasemellon
Shareholder Services L.L.C.
***10.47 Deed of Grant of Option between Castle Transmission Series
(Holdings) Ltd. and George Reese dated January 23, 1998
***10.48 Deed of Grant of Option between Castle Transmission
Services (Holdings) Ltd. and David Ivy dated January 23,
1998
***10.49 Deed of Grant of Option between Castle Transmission
Services (Holdings) Ltd. and David Ivy dated April 23,
1998
***10.50 Deed of Grant of Option between Castle Transmission
Services (Holdings) Ltd. and Ted B. Miller, Jr., dated
April 23, 1998
***10.51 Deed of Grant of Option between Castle Transmission
Services (Holdings) Ltd. and Ted B. Miller, Jr., dated
January 23, 1998
***10.52 Memorandum Regarding Proposed Initial Public Offering and
Certain Transitional Changes Affecting Management dated
July 2, 1998, between Crown Castle International Corp. and
Robert A. and Barbara A. Crown
***10.53 Services Agreement dated July 2, 1998, by and between
Crown Castle International Corp. and Robert A. and Barbara
A. Crown
****10.56 Registration Rights Agreement dated as of December 21,
1998 by and among Crown Castle International Corp. and
Lehman Brothers, Salomon Smith Barney and Goldman, Sachs &
Co.
*****10.57 Formation Agreement relating to the formation of Crown
Atlantic Company LLC, Crown Atlantic Holding Sub LLC, and
Crown Atlantic Holding Company LLC dated December 1998
******10.58 Letter of Agreement between Crown Castle International
Corp. and BellSouth Mobility Inc. dated March 5, 1999
(including the Form of Sublease)
*******10.59 Asset Purchase Agreement among Crown Castle International
Corp., CCP Inc., Powertel Atlanta Towers, LLC, Powertel
Birmingham Towers, LLC, Powertel Jacksonville Towers, LLC,
Powertel Kentucky Towers, LLC, Powertel Memphis Towers,
LLC and Powertel, Inc. dated March 15, 1999
****10.60 Framework Agreement between One2One and Castle
Transmission International Ltd. dated March 5, 1999
****10.61 Indenture between Crown Castle International Corp. and
United States Trust Company of New York dated March 15,
1999
****10.62 Registration Rights Agreement among Crown Castle
International Corp. and Goldman Sachs Credit Partners LP,
Salomon Brothers Holding Company Inc. and Credit Suisse
First Boston dated March 15, 1999
****10.63 Escrow Agreement among Crown Castle International Corp.,
Goldman Sachs Credit Partners LP, Salomon Brothers Holding
Company Inc., Credit Suisse First Boston and United States
Trust Company of New York dated March 15, 1999
****10.64 Term Loan Agreement among Crown Castle International Corp.
and Goldman Sachs Credit Partners LP, Salomon Brothers
Holding Company Inc. and Credit Suisse First Boston dated
March 15, 1999
92
Exhibit
No. Description of Exhibit
------- ----------------------
****11 Computation of net loss per common share
****12 Computation of Ratio of Earnings to Fixed Charges
****21 Subsidiaries of Crown Castle International Corp.
23.1 Consent of KPMG LLP
****27.1 Financial Data Schedule
99.1 Financial Statements of Castle Transmission Services (Holdings) Ltd.
and the BBC Home Service Transmission Business
- --------
** 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 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 December 9,
1998.
****** Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated March 8, 1999.
******* Incorporated by reference to the exhibit previously filed by the
Registrant on Form 8-K (Registration No. 0-24737) dated March 15, 1999.
93
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, in the City of New York, New York on this 16th day of March,
1999.
CROWN CASTLE INTERNATIONAL CORP.
/s/ Charles C. Green III
By: _________________________________
[name] Charles C. Green, III
[title] 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
16th day of March, 1999.
Signature Title
--------- -----
/s/ Ted B. Miller, Jr. Chief Executive Officer and Vice
______________________________________ Chairman of the Board (Principal
Ted B. Miller, Jr. Executive Officer)
/s/ David L. Ivy President and Director
______________________________________
David L. Ivy
/s/ Charles C. Green III Executive Vice President and Chief
______________________________________ Financial Officer (Principal
Charles C. Green, III Financial Officer)
/s/ Wesley D. Cunningham Senior Vice President, Chief
______________________________________ Accounting Officer and Corporate
Wesley D. Cunningham Controller (Principal Accounting
Officer)
/s/ Carl Ferenbach Chairman of the Board
______________________________________
Carl Ferenbach
/s/ Michel Azibert Director
______________________________________
Michel Azibert
/s/ Bruno Chetaille Director
______________________________________
Bruno Chetaille
/s/ Robert A. Crown Director
______________________________________
Robert A. Crown
/s/ Randall A. Hack Director
______________________________________
Randall A. Hack
/s/ Robert F. McKenzie Director
______________________________________
Robert F. McKenzie
94
Signature Title
--------- -----
/s/ William A. Murphy Director
______________________________________
William A. Murphy
/s/ Jeffrey H. Schutz Director
______________________________________
Jeffrey H. Schutz
95