s h a p i n g t h e w i re l e s s w o r l d S M C r o w n C a s t l e I n t e r n a t i o n a l 1 9 9 9 A n n u a l R e p o r t Corporate Profile Crown Castle International Corp. 1999 Acquisition Highlights Bell Atlantic — We continued to integrate the 1,427 engineers, deploys, owns and operates towers associated with our first major wireless car- technologically advanced shared wireless rier acquisition in the United States, announced in infrastructure, including extensive networks December 1998. of towers and rooftops as well as analog and digital audio and television broadcast transmission systems. BellSouth — Crown Castle announced an agree- ment to acquire the complete economic rights to 1,850 towers from BellSouth through a master We offer near–universal broadcast cov- sublease agreement in March 1999. erage in the United Kingdom and signifi- cant wireless communications coverage to 68 of the top 100 United States markets, to more than 95% of the UK population and to more than 92% of the Australian population. With more than 75 years of experience in engineering and operating broadcast transmission networks, and over 20 years of experience in the ownership, leasing, design and deployment of wireless com- munications sites and systems, Crown Castle is recognized as the technology leader in our sector. Crown Castle is headquartered in Houston, Texas, with operating companies in the United States, UK and Australia. Powertel — Also in March 1999, the Company announced and later closed on an agreement to acquire 620 towers from Powertel with an addition- al 31 build-to-suits since completed, representing our first PCS carrier transaction in the United States. One 2 One ( D e u t s c h e Te l e k o m ) — A l s o i n March 1999, the Company announced and later closed on an agreement to acquire 821 towers in the UK, effectively doubling our tower portfolio there. BellSouth DCS — In July 1999, Crown Castle announced an agreement to acquire the complete economic rights to 773 towers in the United States through a master sublease agreement, our second PCS carrier transaction. GTE — In November 1999, the Company announced the world’s largest tower transaction, encompassing 2,300 towers in the United States. Cable & Wireless Optus — In March 2000, the Company announced an agreement to acquire 700 towers from Cable & Wireless Optus that positions Crown Castle as the largest independent tower oper- ator in Australia, with a strategic presence in all of Australia’s licensed regions. financial highlights Years Ended December 31, 1997 1998 1999 (thousands of dollars) N e t R e v e n u e s : Site rental and broadcast transmission . . . . . . . . . . . . . . . . . . . . . $ 11,010 $ 75,028 $ 267,894 Network services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,395 38,050 77,865 $ 31,405 $ 113,078 $ 345,759 E B I T D A : Site rental and broadcast transmission . . . . . . . . . . . . . . . . . . . . . $ 7,682 $ 44,661 $ 139,966 Network services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,182) (7,597) (181) $ 3,500 $ 37,064 $ 139,785 Total sites owned and managed . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453 1,608 7,488 Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,035 $ 138,759 $ 293,801 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371,391 1,523,230 Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,293 Redeemable preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,749 Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,792 429,710 201,063 737,562 3,836,650 1,542,343 422,923 1,617,747 A c q u i s i t i o n H i s t o r y ( n u m b e r o f s i t e s ) M a r k e t C a p i t a l i z a t i o n ( m i l l i o n s o f d o l l a r s ) N e t W o r t h H i s t o r y ( m i l l i o n s o f d o l l a r s ) E B I T D A ( t h o u s a n d s o f d o l l a r s ) 10,925 6,545 2,041 165,870 139,785 7,488 3,050 939 1,675 37,064 1,608 174 214 453 404 10 32 203 6 15 3,500 1,905 1,899 12.95 12.96 12.97 12.98 12.99 12.99 pro forma 12.95 12.96 12.97 8.98 IPO 12.98 12.99 12.95 12.96 12.97 12.98 12.99 12.95 12.96 12.97 12.98 12.99 12.99 pro forma letter to shareholders force of the tower industry. We optimistically hoped that by 1999 we could build a public company with 2,500 towers, $75 million in cash flow, $500 million in market value and a reputation as a well-run company. We launched the company in 1995 with three employ- ees. So, five years later, how have we done? To w e r s I n t e g r a t e d 5,880 I am pleased to report that 1999 was an exciting year for Crown Castle International and our industry, Pro forma for announced and completed transactions, including our agreement in March of this year to acquire 700 towers from Cable & Wireless Optus in Australia, a year that reflected our continued leadership Crown Castle today effectively owns almost 11,000 in shaping the wireless worldSM. In our tower sites. In 1999, we generated EBITDA of $139.8 mil- second year as a publicly traded company, lion and ended the year with market capitalization in we continued to transform our industry while excess of $6.5 billion, far exceeding the goals we set five also achieving record performance results. years ago. Since our IPO in August 1998, through March A History of Achievement In a vote of confidence by Wall Street analysts, Crown 15th of this year, our stock price had appreciated 208%. 1,155 Since our inception we have focused Castle was one of the 25 most highly recommended 239 97 98 99 Crown Castle integrated almost 6,000 towers into its networks in 1999. on a simple mission: To be the leading companies in 1999 (Wall Street Journal, February 24, independent owner and operator of tech- 2000). We’re proud of these historical achievements and nologically advanced, shared communi- excited by the opportunities that lie ahead. cations infrastructure. At our first strategy session in November 1994, there was no independent wireless infrastructure A Strong Presence in Three Global Markets industry. There simply was an idea that From our early days with only a few hundred wireless owning towers was a potentially prof- communications towers in the United States, Crown itable, high-growth opportunity. At that Castle has expanded rapidly in size and geographic session, we set out to build the driving scope. Today, the Company’s unparalleled engineered Ted Miller Chairman & Chief Executive Officer, Crown Castle International footprint of strategic tower clusters reaches three con- tinents. We offer near-universal broadcast coverage in the UK and significant wireless communications coverage to 68 of the top 100 United States markets, to more than 95% of the UK population and to more than 92% of the Australian population, reaching a total of more than 170 million people globally. The value to our customers of our strategic clusters of towers and broadcast sites clearly sets us apart. Our footprint, based on networks originally designed and engineered by wireless carriers and broadcasters, 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 offers comprehensive coverage and key Optus through a majority owned venture. Many of these advantages both to existing carriers and transactions include significant build-to-suit agreements. broadcasters and to new companies wish- This brings our total of owned, managed or committed ing to enter the market. Our customers towers and sites to more than 12,600 (pro forma for benefit from: announced transactions and including forecasted build- rapid speed to market by using our to-suits). (A summary of these transactions can be found “equity in the field;” on the inside front cover of this report.) cost-effective network infill and expan- Scope. Crown Castle has evolved from an owner of shared sion; and communications infrastructure to a provider of advanced a full range of strategic solutions that solutions for the wireless telecom and broadcast industries. extend far beyond leasing space on Our watershed agreement with One 2 One for the turnkey our towers. engineering, build-out, deployment and management of its new network in Northern Ireland represents the first trans- Wa l l S t re e t a n a l y s t s r a n k e d C ro w n C a s t l e a s o n e o f t h e 2 5 m o s t h i g h l y re c o m m e n d e d c o m p a n i e s i n 1 9 9 9 . Achieving Significant Milestones action of its kind for an independent infrastructure compa- ny. Under this agreement, we will engineer, build and The tremendous momentum we con- maintain the entire network, including physically maintain- To w e r s C o n s t r u c t e d 909 tinued to enjoy in 1999 enabled us to ing the switch and transmission electronics, while owning achieve a number of significant mile- and operating all shareable infrastructure. This extends our stones in size, scope, scale, technology successful broadcast model to the wireless domain. 1999 and financial performance. also saw us significantly increase our range of service offer- Size. By year-end, Crown Castle was the ings as we focused on increasing our total revenue per largest independent shared communica- tower site. Our success rate in selling installation, mainte- tions infrastructure owner in the world. nance and other services continues to rise. Our portfolio of owned and managed sites Scale. Effective site integration is one of the most complex increased from 1,608 at year-end 1998 to issues facing our industry, and Crown Castle clearly is 7,488 at year-end 1999, an increase of the acknowledged leader in this area. During 1999, we 366%. We closed significant transactions integrated into our organization almost 6,000 acquired and with Bell Atlantic, BellSouth, One 2 One built sites. Our industry-leading information technology (IT) (Deutsche Telekom) and Powertel and systems, our ability to absorb rapid growth in sites success- announced the world’s largest tower acqui- fully and our expertise in efficiently managing the real estate, sition deal with GTE. Since year-end, we maintenance, build-out, marketing and operations of our announced an agreement to acquire 700 ever-expanding infrastructure portfolio continue to distin- towers in Australia from Cable & Wireless guish Crown Castle. 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 194 32 97 98 99 New towers built increased 369% in 1999. (cid:2) (cid:2) (cid:2) letter to shareholders P r o F o r m a R e v e n u e s b y Ty p e Network Services 20% Site Rental 48% Broadcast Transmission 32% Non-broadcast revenue continues to increase as a percentage of total revenues. Technology. In 1999, Crown Castle com- Crown Castle, we raised or negotiated more than $4 billion pleted the initial build-out of its shared Digital in new or more attractive capital, including: Terrestrial Television (DTT) network, which significant investments from a number of carriers commenced in 1998, and now is delivering whose portfolios we acquired, as these carriers dem- 30 digital channels for four of the six national onstrated their confidence in Crown Castle; multiplexes in the UK. We also completed the a strategic investment from GE Capital/NBC of $200 initial build-out of our Digital Audio Broadcast million along with a commitment to explore opportuni- (DAB) network and today reach more than ties with the GE family of companies; 99% of the UK with our digital and analog a $1.2 billion revolving credit agreement with a bank- broadcast signals. We own and operate 17 ing syndicate, completed slightly outside the report- broadcast transmission networks, delivering ing period, that positions us to grow our business radio and television signals for the BBC, without having to rely on day-to-day capital market ONdigital, Virgin Radio and others. We are conditions; and also a leading candidate to deploy the next a number of additional public and private debt generation of wireless networks - called third and equity offerings. generation, or 3G. This will combine voice, B y y e a r- e n d , C ro w n C a s t l e w a s t h e l a r g e s t i n d e p e n d e n t s h a re d c o m m u n i c a t i o n s i n f r a s t r u c t u re o w n e r i n t h e w o r l d . video, multimedia, data and fast Internet Positioned for the Future access, all delivered via wireless networks to Looking forward, I am pleased to report that your people on the move or at fixed locations. Company is well-positioned in an exciting, rapidly grow- Per for mance. In 1999, Crown Castle ing global industry. A number of positive trends are achieved record revenues of $345.8 mil- impacting our industry, including: lion, up 206%, and record EBITDA of rapid consolidation and globalization of both the wire- $139.8 million, up 277% from the year less and broadcast industries; before. We continue to improve our bal- the upcoming auction of new spectrum for third gen- ance of revenues between our broadcast eration wireless voice, data and mobile multimedia transmission management, telecom site networks in the UK, United States and Europe; sharing and network services businesses. planned privatizations of national broadcast networks Raising Capital. Our business requires in several countries throughout Europe; substantial amounts of capital to fund net- a growing willingness of carriers and broadcasters to work expansion, and in 1999 Crown Castle outsource the ownership, management, maintenance raised more money than in any year in our and operation of larger parts of their networks; and history, setting a record for the industry. increasing demand for traditional and new wireless Reflecting the capital markets’ support for services. 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Together these represent significant oppor- tunities for Crown Castle, both in its tradition- al site sharing and broadcast transmission Strategic Objectives Optimize retur ns on existing assets. Expand end-to-end ser vice capabilities. Expand globally in geographies that meet risk and retur n criteria. management businesses and in the area Grow relationships with strategic par tners. of value-added services and solutions. Maintain technological leadership in wireless telecom, broadcast Nontraditional providers are entering the and 3G. market in the upcoming deployment of 3G as well as in the traditional wireless arena. These Continue to lead our industr y in advanced IT systems. new entrants provide opportunities for Deploy e-business initiatives wherever it significantly benefits Crown Castle to offer turnkey network engi- neering, deployment, operation and man- agement services as new wireless products our customers and par tners. are introduced and new markets opened. deploy e-business initiatives wherever we can make it R e v e n u e s significantly easier for customers, vendors and part- (millions of dollars) Our strategy for meeting these opportuni- ners to work with Crown Castle. 345 ties is simple: Our future success depends in large part on the qual- optimize returns on our existing assets; ity and dedication of your management team and of our expand our already significant end-to- employees, and I want to express my sincere apprecia- end service capabilities, allowing us to tion for their hard work. We recently announced en- build, own and operate wireless commu- hancements to our senior management team that will nications networks in addition to manag- strengthen further our ability to thrive in the years ahead. ing towers; This information can be accessed on our web site at 113 31 97 98 99 Revenues for 1999 were more than triple those for 1998. expand internationally in those geog- www.crowncastle.com. raphies that meet our risk and oppor- On behalf of the Board of Directors, I offer our most sin- tunity profiles; cere appreciation to Crown Castle’s dedicated employees, grow our relationships with partners loyal customers and supportive shareholders. I look for- such as Bell Atlantic, BellSouth, the BBC, ward to reporting future developments and exciting GTE, One 2 One (Deutsche Telekom), GE achievements in coming periods. Capital/NBC, Cable & Wireless Optus and others, building on these relationships as we move into new world markets; R e s p e c t f u l l y, (cid:2) maintain our technological leadership in the wireless and broadcast worlds and in upcoming 3G technologies; continue to lead the industry in the deploy- Ted B. Miller, Jr. ment of the advanced IT systems required Chairman & Chief Executive Officer to integrate and manage shared infra- structure and networks effectively; and 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) s h a p i n g w i re l e s s t e l e c o m S p e e d t o m a r k e t . A d v a n c e d s o l u t i o n s f o r c a r r i e r s . C r o w n C a s t l e D e l i v e r s 6 8 o f t o p 1 0 0 U n i t e d S t a t e s m a r k e t s . M o r e t h a n 9 5 % o f U K p o p u l a t i o n . M o r e t h a n 9 2 % o f A u s t r a l i a n p o p u l a t i o n . D e l i v e r i n g p r i m e m a r k e t s a n d t o t a l t u r n k e y s o l u t i o n s f o r w i re l e s s o p e r a t o r s Crown Castle has transformed the industry twice — first with precedent-setting deals for carriers to out- source their tower networks and now with the first contract ever awarded to an independent infrastruc- ture owner for the engineering, build-out and operation of a turnkey wireless network. Carriers worldwide real- ize the smart move is to outsource to Crown Castle. E x p a n d i n g g l o b a l l y E n g i n e e re d c o v e r a g e D e l i v e r i n g v a l u e 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 C r o w n C a s t l e O f f e r s More than 75 years of broadcast experience. Te c h n o l o g i c a l l e a d e r s h i p . R e l i a b l e o p e r a t i o n . Tu r n k e y e n g i n e e r i n g , d e p l o y m e n t a n d n e t w o r k m a n a g e m e n t . Leading the world’s conversion to digital terrestrial television and radio Crown Castle owns and operates 17 analog and dig- ital broadcast networks for the BBC, ONdigital and others, providing near-universal coverage in the UK. Commercial broadcasters embracing the favorable economics of outsourcing their networks, the priva- t i z a t i o n o f n a t i o n a l b ro a d c a s t n e t w o r k s a n d t h e i n t ro d u c t i o n o f d i g i t a l t e l e v i s i o n a l l re p re s e n t tremendous growth opportunities for Crown Castle. F i r s t i n d i g i t a l O u t s o u rc e l e a d e r s G l o b a l o p p o r t u n i t y 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 s h a p i n g d i g i t a l b ro a d c a s t s h a p i n g t h i rd g e n e r a t i o n C r o w n C a s t l e O f f e r s R a p i d d e p l o y m e n t . Tu r n k e y d e s i g n a n d b u i l d - o u t . E x t e n s i v e e n g i n e e r e d c o v e r a g e . To t a l o u t s o u r c e f o r n e w e n t r a n t s . Revolutionizing the @Now/@Anywhere society with 3G technology As the United States, UK, Europe and other countries auc- tion spectrum for 3rd Generation wireless voice, video and data, consumers and business professionals will see new freedom in their ability to connect to the people, informa- tion and entertainment they want, @Now/@Anywhere. Crown Castle will help auction winners deploy this exciting technology. 3G wireless technology - Internet on the go - a compelling global dynamic - Crown Castle is ready. Te c h n o l o g i c a l c o n v e r g e n c e @ A n y t i m e / @ A n y w h e re T h e n e x t re v o l u t i o n 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 operations review S i t e R e n t a l R e v e n u e s (millions of dollars) 143 In 1999, led by Crown Castle, the wireless telecom industry discovered what the broadcast industry already understood — that outsourcing is an economically savvy business decision. Carriers and broadcasters are recognizing ed its 3G team to prepare for the deployment of the new wire- less networks that will be required to deliver the high speed data, voice, multimedia and mobile Internet access that 3G technology promises. Crown Castle sees opportunity both in engineering, deploying and operating carrier networks for 3G, and in providing many of the new sites that will be required when the auction winners roll out 3G services. Our IT Advantage Integration Excellence. Our unprecedented network that outsourcing their transmission networks: growth resulted in the huge integration of almost 6,000 tow- frees them from non-core functions; ers, substantially more than any other independent infra- (cid:2) monetizes their significant investments in structure company. To assimilate rapidly the massive amount tower and transmission assets; and of information this integration required, we introduced frees up capital and management Intrasite™, an award-winning site management information 35 attention to focus on other aspects of system. Intrasite pulls together in a single tool the extensive their businesses. customer- and tower-related lease, real estate, contract, 11 Crown Castle led the industry metamor- legal, operational and financial information for each of our phosis in the United States wireless commu- sites, resulting in more efficient operations and in improved 97 98 99 nications industry, winning five of the seven ability to lease our sites and towers. Site rental revenue increased over 300% in 1999. major carrier portfolios that changed hands. During the year, the Company continued to standardize In the UK, Crown Castle announced the key systems and processes to enable us to easily expand country’s first telecom carrier tower acquisi- our service offerings and geographic coverage. By pack- tion and the world’s first outsourcing of a aging the Crown Castle business model, systems infra- turnkey network to an independent infra- structure and business processes into the equivalent of a structure company, both with One 2 One. turnkey “company in a box,” Crown Castle can now begin Together, these watershed agreements operations in a new market within 30 days in the United mark the further evolution of Crown Castle States and can go live within 90 days in a new country. from a shared site/broadcast transmission E-business @Now/@Anywhere. Speed to market and management company into a total solutions access to information are two capabilities of vital impor- provider to the wireless telecom and broad- tance to our customers. In 1999 Crown Castle launched an cast industries. e-business initiative designed to enable our customers to Third Generation (3G) Technology. In find the information they need on site and service avail- anticipation of 3G spectrum auctions in the ability via the Internet and to complete a substantial part of United States and UK, Crown Castle expand- the process for collocating on one of our towers online. Crown Castle presented several 3G showcases in 1999. Our 3G Reality showcase featured an operating demonstra- tion of a 3G network at our UK headquarters, created in concert with equipment providers. Working closely with our key customers, we expect to launch our pilot in the summer of 2000. In addition, Crown Castle’s superior IT capabilities cost- effectively enable us to: absorb new acquisitions of towers and sites rapidly and bring them to market quickly; reduce application-to-installation time through auto- mated radio frequency (RF) and interference planning; identify fertile markets for expansion and process thou- 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Crown Castle’s 1999 operations were characterized by several notewor thy developments, as we: proved our ability to integrate towers; achieved record lease-up, broadcast and ser vices results; expanded our value-added offerings to the wireless telecom industr y; added operations in Europe and Australia; increased our 3G effor ts in preparation for spectrum auctions; launched e-business initiatives to ser ve the @Now/@Anywhere economy; completed our initial build-out of the world’s first commercial digital terrestrial television and audio broadcast networks; and implemented a global rebranding, uniting our operating companies under a single brand name. sands of search rings to identify prime new site locations; provide the financial and operational information managers require to operate our business efficiently and to maximize yield on our tower assets; and expand the full range of engineering, system integration and broadcast and wireless telecom network design, de- ployment and management services we industry-leading capability for 24-hour, seven-day-a-week offer our customers. central monitoring of our sites. We also introduced Crown United States 1999 was a landmark year for our Castle’s “Towers that Talk™,” a program in which our tow- ers communicate wirelessly via our Network Operations Center to our field service personnel when there is an oper- United States operations. ational issue. Through the use of sophisticated pocket At the close of 1999, as a result of new devices, our field personnel can diagnose the problem builds and acquisitions, our United States/ and then wirelessly initiate a preprogrammed series of cor- Puerto Rico portfolio of strategic clusters of rective actions. The bottom line: we avoid disruptions in towers increased to more than 5,400 (with service to carriers and their customers, often without going more than 8,000 committed), up 685% from to the actual tower site. Crown Castle acquired six of the eight major wireless carrier p o r t f o l i o s t h a t c h a n g e d h a n d s i n t h e U n i t e d S t a t e s a n d U K . 690 at year-end 1998. As a result, Crown Together, these technologies enable us to offer an Castle entered into a range of master lease expanded range of monitoring, maintenance and network agreements in the United States as wireless operations services to our customers, increasing our abil- operators recognized the ability of these ity to generate revenue from our tower sites. B r o a d c a s t Tr a n s m i s s i o n R e v e n u e s (millions of dollars) 124 engineered footprints to help solve their capacity and market expansion needs. Master site-leasing arrangements with United Kingdom Wireless Telecommunications. The UK continues to Nextel and Metricom, totaling 1,264 and 500 represent a vigorous market, requiring continued build-out sites respectively, demonstrate the attrac- to accommodate second-generation capacity and quality tiveness of our strategic tower clusters. demands and the approaching rollout of 3G. Our acquisi- Existing carriers and new market entrants tions of Millennium and of One 2 One’s communications find that our engineered footprints offer a sites strengthened Crown Castle’s position in the UK’s rapid way to improve coverage or deploy telecommunications market. We ended the year with a new services. portfolio of 2,071 towers and sites, including those Network Operations Center Expanded. acquired from the BBC, Millennium and One 2 One as well Crown Castle recently completed the as new builds, an increase of 126% from the year before. expansion of its Network Operations Center Broadcasting. Following our launch in 1998 of the in Pittsburgh, Pennsylvania, to reinforce our world’s first commercial Digital Terrestrial Television and 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 40 0 97 98 99 With 17 networks in operation, broadcast revenues increased over 200% in 1999. (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) operations review Digital Audio Broadcast transmission net- telephone switch and transmission electronics for the carri- works, Crown Castle completed the initial er, as well as own and operate the signal distribution and phase of its digital rollout in 1999. Crown backhaul network, towers and other shareable infrastruc- Castle now owns and operates 17 digital ture. This represents a substantial expansion in the breadth and analog broadcast transmission net- of value-added services we are able to provide to the wire- works that reach more than 99% of the UK less community. population. Our networks met or exceeded all contractual performance standards for reliable operations during the year. Our International From a global perspective, Crown Castle is pursuing more than 75 years of broadcast experi- opportunities in the European Union and Australasia ence position Crown Castle to compete (Australia and New Zealand) and investigating potential successfully as more countries privatize opportunities in Latin America. We are looking to expand the their national networks and convert from Company’s success in these markets by replicating our UK analog to spectrum-efficient digital televi- and United States models around three broad themes: sion over the next several years. purchasing existing portfolios of wireless carrier towers; Value–Added Solutions. In December pursuing additional privatization of government televi- 1999, Crown Castle was awarded the turnkey sion broadcast networks, similar to our transaction with contract to design, build and operate the the BBC; and wireless network being rolled out in Northern proactively moving into a market we want to enter prior Ireland by One 2 One. Under this industry- to an acquisition, obtaining knowledge about the local first contract, Crown Castle will maintain the environment and establishing a local presence. This Crown Castle’s Network Our engineered tower networks reach 68 of the top 100 United States markets, more than 95% (wireless) and 99% (broadcast) of the UK’s population and more than 92% of the Australian popu- lation. Pro forma for announced transactions, our network of almost 11,000 towers reaches more than 170 million people. (cid:2) (cid:2) (cid:2) type of “greenfield work” has served us & Wireless Optus in Australia. Crown Castle is the well in Australia, Europe and South majority shareholder of this venture, with a group led America as we have developed relation- by local investment manager Fay, Richwhite as minor- N e t w o r k S e r v i c e s R e v e n u e s (millions of dollars) 78 ships with local partners, gained a better ity shareholders. understanding of the local environment As we continue to identify markets ripe for outsourc- and positioned the Company to recog- ing of broadcast or wireless voice and data networks, our nize opportunities as they unfold in international efforts will prudently exploit the expertise the marketplace. Crown Castle has gained in acquiring large portfolios and As part of our greenfield efforts, in infrastructure assets from carriers and broadcasters. 1999 we established a joint operation in the Benelux (Belgium, Netherlands, Luxembourg) Superior performance. Service excellence. region with Detron Group NV. Detron is a Smart growth. Strategic clustered footprints. leading supplier of services to the fixed line In a world where more subscribers, lower prices, higher and wireless industries in Benelux and other usages rates and the rapid introduction of new voice, dig- European countries and contributed an ital television, radio and 3G multimedia/data services are established site acquisition business to the creating an explosion in demand for wireless and broad- joint operation. cast services, Crown Castle will continue to shape the As a result of prior greenfield efforts in wireless world by offering unparalleled coverage, opera- Australasia, in March 2000 we announced tional excellence and a broad range of solutions for the our first acquisition outside the United wireless and broadcast industries. States and the UK of 700 towers from Cable 38 20 97 98 99 Network services revenues more than doubled in 1999 as volume and penetration rates increased. at a glance Crown Castle offers full end-to-end wire- K e y S t a t i s t i c s a s o f 1 2 / 3 1 / 9 9 less and broadcast network engineering, Number of Towers Effectively Owned* 1 0 , 9 2 5 deployment and management, using its extensive network of almost 11,000 towers and rooftops offering coverage throughout the United States, the UK and Australia. Headquartered in Houston, Texas, Crown Castle provides a wide range of services to the broadcast, wireless communications and data industries: Num be r o f E m p l o y e e s E s t i m a t e d P o p u l a t i o n R e a c h e d b y N e t w o r k s U n i t e d S t a t e s W i r e l e s s C o v e r a g e UK Coverage ( % o f P o p u l a t i o n ) A u s t r a l i a n W i r e l e s s C o v e r a g e ( % o f P o p u l a t i o n ) R e v e n u e s E B I T D A Turnkey Solutions for Broadcasters and Wireless Providers Num be r o f To w e r s I n t e g r a t e d D u r i n g Ye a r Num be r o f Te a m B a s e s / R e g i o n a l O f f i c e s 1 , 2 3 6 1 7 0 M i l l i o n + 6 8 o f To p 1 0 0 M a r k e t s 99% Broadcast, 95%+ Wireless 9 2 % + $ 3 4 5 . 8 M i l l i o n $ 1 3 9 . 8 M i l l i o n 5 , 8 8 0 4 3 Engineering, Developing and Operating M a r k e t C a p i t a l i z a t i o n $ 6 . 5 B i l l i o n Analog and Digital Terrestrial Television and Audio Broadcast Networks. Engineering, Developing and Operating Wireless Communications Networks We serve many types of customers, including: (Second Generation Voice and 3G Cellular, Personal Communications Services (PCS) and Wireless Voice, Video and Data). Personal Communications Network (PCN) Carriers. Value–Added Services Specialized Mobile Radio (SMR)/Enhanced SMR/ Television and Radio Broadcasters. Site Acquisition, Development and PMR/TETRA Operators. Construction. (cid:2) Government Agencies. Broadcast and Wireless Network Private Industrial Users. Operations and Maintenance. (cid:2) Wireless Data Networks. Antenna and Equipment Installation. Traditional and Two-Way Paging System Operators. Radio Frequency Engineering. Utilities. Backhaul. Public Telecommunications Companies. Fixed Wireless and Wireless Local Loop System Basic Services Operators. Leasing Antenna Space on Wireless and Broadcast Multi-Tenant Towers Major Operating and Services Companies and Rooftops. Build-to-Suit. Crown Castle USA Inc. Crown Castle Atlantic LLC Crown Castle UK Limited Crown Castle Australia Limited Crown Castle International Corp. de Puerto Rico TEA Group Incorporated (Site Acquisition and Development) Spectrum Site Management Corporation (Rooftops and Risers) * Owned, operated and managed (pro forma for announced transactions including Optus). 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) f i n a n c i a l s e c t i o n Ta b l e o f C o n t e n t s Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . .19 Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Consolidated Statement of Operations and Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 Consolidated Statement of Stockholders’ Equity (Deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Market for the Company’s Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61 Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62 17 S e l e c t e d F i n a n c i a l D a t a The results of operations for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 are not comparable as a result of business acquisitions. Results of operations of these acquired businesses are included in the Company’s consolidated financial statements for the periods after the respective dates of acquisition. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s consolidated financial statements. Consolidated Statement of Operations Data: Net revenues: Site rental and broadcast transmission . . . . . . . . . . . . . . . . $ Network services and other . . . . . . . . . . . . . . . . . . . . . . . . . Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs of operations: Site rental and broadcast transmission . . . . . . . . . . . . . . . . Network services and other . . . . . . . . . . . . . . . . . . . . . . . . . Total costs of operations . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash compensation charges . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings (losses) of unconsolidated affiliate . . . . . . Interest and other income (expense) . . . . . . . . . . . . . . . . . . . . Interest expense and amortization of Years Ended December 31, 1995 1996 1997 1998 1999 (In thousands of dollars, except per share amounts) $ 4,052 6 4,058 1,226 — 1,226 729 204 — — 836 1,063 — 53 5,615 592 6,207 1,292 8 1,300 1,678 1,324 — — 1,242 663 — 193 $ 11,010 20,395 31,405 2,213 13,137 15,350 6,824 5,731 — — 6,952 (3,452) (1,138) 1,951 $ 75,028 38,050 $ 267,894 77,865 113,078 345,759 26,254 21,564 47,818 23,571 4,625 — 12,758 37,239 (12,933) 2,055 4,220 114,436 42,312 156,748 43,823 5,403 5,645 2,173 130,106 1,861 — 17,731 deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,137) (1,803) (9,254) (29,089) (110,908) Loss before income taxes, minority interests and cumulative effect of change in accounting principle . . . . . . Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss before cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative effect of change in accounting principle for costs of start-up activities . . . . . . . . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss after deduction of dividends on preferred stock . . . $ Per common share — basic and diluted: Loss before cumulative effect of change (21) — — (21) — (21) — (21) in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . $ Cumulative effect of change in accounting principle . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.01) — (0.01) Common shares outstanding — $ $ $ (947) (10) — (11,893) (49) — (35,747) (374) (1,654) (91,316) (275) (2,756) (957) (11,942) (37,775) (94,347) — (957) — — (11,942) (2,199) — (37,775) (5,411) (2,414) (96,761) (28,881) (957) $ (14,141) $ (43,186) $ (125,642) (0.27) — (0.27) $ $ (2.27) — (2.27) $ $ (1.02) — (1.02) $ $ (0.94) (0.02) (0.96) basic and diluted (in thousands) . . . . . . . . . . . . . . . . . . . . . 3,316 3,503 6,238 42,518 131,466 Other Consolidated Data: EBITDA* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Summary cash flow information: 1,899 $ 1,905 $ 3,500 $ 37,064 $ 139,785 Net cash provided by (used for) operating activities . . . . . Net cash used for investing activities . . . . . . . . . . . . . . . . . Net cash provided by financing activities . . . . . . . . . . . . . . Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,672 (16,673) 15,597 — (530) (13,916) 21,193 — (624) (111,484) 159,843 — 44,976 (149,248) 345,248 — 92,608 (1,509,146) 1,670,402 — Consolidated Balance Sheet Data (at period end): Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redeemable preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . Total stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . 596 16,003 19,875 11,182 5,175 619 $ 7,343 26,753 41,226 22,052 15,550 (210) $ 55,078 81,968 371,391 156,293 160,749 41,792 $ 296,450 592,594 1,523,230 429,710 201,063 737,562 $ 549,328 2,468,101 3,836,650 1,542,343 422,923 1,617,747 * EBITDA is defined as operating income (loss) plus depreciation and amortization, non-cash compensation charges and restructuring charges. EBITDA is presented as additional information because management believes it to be a useful indicator of our ability to meet debt service and capital expendi- ture requirements. It is not, however, intended as an alternative measure of operating results or cash flow from operations (as determined in accordance with gen- erally accepted accounting principles). Furthermore, our measure of EBITDA may not be comparable to similarly titled measures of other companies. 18 M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S The following discussion is intended to assist in understanding our consolidated financial condition as of December 31, 1999 and our consolidated results of operations for each year in the three-year period ended December 31, 1999. The statements in this discussion regarding the industry outlook, our expectations regarding the future performance of our businesses and the other nonhistorical statements in this discussion are forward-looking statements. These forward-looking statements are sub- ject to numerous risks and uncertainties, including but not limited to the uncertainties relating to decisions on capital expen- ditures to be made in the future by wireless carriers and broadcasters. This discussion should be read in conjunction with “Selected Financial Data” and the consolidated financial statements and related notes included elsewhere in this document. Results of operations of the acquired businesses that are wholly and majority owned are included in our consolidated finan- cial statements for the periods subsequent to the respective dates of acquisition. As such, our results of operations for the year ended December 31, 1999 are not comparable to the year ended December 31, 1998, and the results for the year ended December 31, 1998 are not comparable to the year ended December 31, 1997. O v e r v i e w The continued growth of our business depends substantially on the condition of the wireless communications and broadcast industries. We believe that the demand for communications sites will continue to grow and expect that, due to increased com- petition, wireless carriers will continue to seek operating and capital efficiencies by (1) outsourcing certain network services and the build-out and operation of new and existing infrastructure; and (2) planning to use a tower site as a common location, or “co-locating”, for the placement of their antennas and transmission equipment alongside the equipment of other communi- cations providers. In addition, we believe that more wireless carriers will seek to sell their wireless communications infrastruc- ture to, or establish joint ventures with, experienced infrastructure providers, such as the Company, that have the ability to manage networks. Further, we believe that wireless carriers and broadcasters will continue to seek to outsource the operation of their towers and, eventually, their transmission networks, including the transmission of their signals. Management believes that our ability to manage towers and transmission networks and our proven track record of providing services addressing all aspects of sig- naling systems from the originating station to the terminating receiver, or “end-to-end” services, to the wireless communica- tions and broadcasting industries position our company to capture such business. The willingness of wireless carriers to utilize our infrastructure and related services is affected by numerous factors, including: • consumer demand for wireless services; • interest rates; • cost of capital; • availability of capital to wireless carriers; • • willingness to co-locate equipment; • • cost of building towers; and • tax policies; local restrictions on the proliferation of towers; technological changes affecting the number of communications sites needed to provide wireless communications serv- ices to a given geographic area. Our revenues that are derived from the provision of transmission services to the broadcasting industry will be affected by: the timing of the roll-out of digital television broadcasts from tower-mounted antenna systems, or “digital terrestrial television broadcasts”, in the United Kingdom, as well as in the United States and other countries around the world; • zoning restrictions on towers; and the cost of building towers. • consumer demand for digital terrestrial broadcasting; • interest rates; • cost of capital; • • As an important part of our business strategy, we will seek: (1) to maximize utilization of our tower capacity, (2) to utilize the expertise of U.S. and U.K. personnel to capture global growth opportunities, (3) to partner with wireless carriers to assume ownership of their existing towers, and (4) to acquire existing transmission networks globally as opportunities arise. 19 M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D ) R e s u l t s o f O p e r a t i o n s Our primary sources of revenues are from: (1) renting antenna space on towers and rooftops sites, (2) providing analog and digital broadcast transmission services, and (3) providing network services. Site rental revenues in the U.S. are received primarily from wireless communications companies, including those operat- ing in the following categories of wireless communications: • microwave; • cellular; • personal communications services, a digital service operating at a higher frequency range than cellular and is provid- ed by companies such as Sprint PCS, OmniPoint and PrimeCo; • paging; • specialized mobile radio, a service operating in the frequency range used for two-way radio communication by public safety, trucking companies, and other dispatch service users; and • enhanced specialized mobile radio, a service operating in the frequency range typically used for digital communica- tions and provided by Nextel and others. Site rental revenues are generally recognized on a monthly basis under lease agreements, which typically have original terms of five years (with three or four optional renewal periods of five years each). Average revenues for our managed rooftop sites are significantly less than for the owned and managed towers because a substantial portion of the revenues from the tenants at rooftop sites is remitted to the building owner or manager. Broadcast transmission services revenues in the U.K. are received for both analog and digital transmission services. Monthly analog transmission revenues are principally received from the BBC under a contract with an initial 10-year term through March 31, 2007. Digital transmission services revenues from the BBC and ONdigital are recognized under contracts with initial terms of 12 years through November 15, 2010. Monthly revenues from these digital transmission contracts increase over time as the network rollout progresses. Site rental revenues in the U.K. are received from other broadcast transmission service providers (primarily NTL) and wire- less communications companies, including all four U.K. cellular operators (Cellnet, Vodafone, One 2 One and Orange). Site rental revenues are generally recognized on a monthly basis under lease agreements with original terms of three to 12 years. Such lease agreements generally require annual payments in advance, and include rental rate adjustment provisions between one and three years from the commencement of the lease. Site rental revenues are expected to become an increasing portion of CCUK’s total U.K. revenue base, and we believe that the demand for site rental from communication service providers will increase in line with the expected growth of these communication services in the United Kingdom. Network services revenues in the U.S. consist of revenues from: (1) network design and site selection, (2) site acquisition, (3) site development and construction, (4) antenna installation, and (5) other services. Network services revenues are received primarily from wireless communications companies. Network services revenues in the U.S. are recognized under service contracts which provide for billings on either a fixed price basis or a time and materials basis. Demand for our network services fluctuates from period to period and within periods. Consequently, the operating results of our network services businesses for any particular period may vary significantly, and should not be considered as indicative of longer-term results. We also derive revenues from the ownership and operation of microwave radio and special- ized mobile radio networks in Puerto Rico where we own radio wave spectrum in the 2,000 MHz and 6,000 MHz range (for microwave radio) and the 800 MHz range (for specialized mobile radio). These revenues are generally recognized under monthly management or service agreements. 20 Network services revenues in the U.K. consist of (1) network design and site selection, site acquisition, site development and antenna installation and (2) site management and other services. Network design and development and related services are provided to: (1) a number of broadcasting and related organizations, both in the United Kingdom and other countries, (2) all four U.K. cellular operators, and (3) a number of other wireless communications companies, including Dolphin and Highway One. These services are usually subject to a competitive bid, although a significant proportion result from an operator coming onto an existing CCUK site. Revenues from such services are recognized on either a fixed price or a time and materials basis. Site management and other services, consisting of both network monitoring and equipment maintenance, are carried out in the United Kingdom for a number of emergency service organizations. CCUK receives revenues for such services under con- tracts with original terms of between three and five years. Such contracts provide fixed prices for network monitoring and vari- able pricing dependent on the level of equipment maintenance carried out in a given period. land leases; repairs and maintenance; Costs of operations for site rental in the U.S. primarily consist of: • • • utilities; insurance; • • property taxes; • monitoring costs; and • in the case of managed sites, rental payments. For any given tower, such costs are relatively fixed over a monthly or an annual time period. As such, operating costs for owned towers do not generally increase significantly as additional customers are added. However, rental expenses at certain man- aged towers increase as additional customer antennas are added, resulting in higher incremental revenues but lower incre- mental margins than on owned towers. Costs of operations for broadcast transmission services in the U.K. consist primarily of employee compensation and relat- ed benefits costs, utilities, rental payments under the Site-Sharing Agreement with NTL, circuit costs and repairs and mainte- nance on both transmission equipment and structures. Site rental operating costs in the U.K. consist primarily of employee compensation and related benefits costs, utilities and repairs and maintenance. The majority of such costs are relatively fixed in nature, with increases in revenue from new installations on existing sites generally being achieved without a corresponding increase in costs. Costs of operations for network services consist primarily of employee compensation and related benefits costs, subcon- tractor services, consulting fees, and other on-site construction and materials costs. We incur these network services costs (1) to support our internal operations, including construction and maintenance of our owned towers, and (2) to maintain the employees necessary to provide end-to-end services to third parties regardless of the level of such business at any time. We believe that our experienced staff enables us to provide the type of end-to-end services that enhance our ability to acquire access to the infrastructure of wireless carriers and to attract significant build-to-suit contracts. General and administrative expenses consist primarily of: • employee compensation, training, recruitment and related benefits costs; • advertising; • professional and consulting fees; • office rent and related expenses; and • Corporate development expenses represent costs incurred in connection with acquisitions and development of new busi- travel costs. ness initiatives. These expenses consist primarily of: • allocated compensation and external professional fees; • benefits; and • overhead costs that are not directly related to the administration or management of existing towers. Depreciation and amortization charges relate to our property and equipment (which consists primarily of towers, broadcast transmission equipment, associated buildings, construction equipment and vehicles), goodwill and other intangible assets recorded in connection with business acquisitions. Depreciation of towers, broadcast transmission equipment and amortiza- tion of goodwill are computed with a useful life of 20 years. Amortization of other intangible assets (principally the value of 21 M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D ) existing site rental contracts at Crown Communication) is computed with a useful life of 10 years. Depreciation of buildings is computed with useful lives ranging from 20 to 50 years. Depreciation of construction equipment and vehicles are generally computed with useful lives of 10 years and 5 years, respectively. In May 1997, we completed the acquisition of TEA and the acquisition of TeleStructures. In August 1997, we completed the acquisition of Crown Communication. In August 1998, we completed a share exchange with the shareholders of CCUK, under which our ownership of CCUK increased from approximately 34.3% to 80%. In October 1998, CCUK completed the acquisi- tion of Millennium. In March 1999, we completed the formation of Crown Atlantic. In June and December of 1999, we com- pleted the acquisition of towers from Powertel. Finally, during 1999 we completed the substantial portions of the transactions with BellSouth and BellSouth DCS. Results of operations of these acquired businesses and towers are included in our con- solidated financial statements for the periods subsequent to the respective dates of acquisition. As such, our results of oper- ations for the year ended December 31, 1999 are not comparable to the year ended December 31, 1998, and the results for the year ended December 31, 1998 are not comparable to the year ended December 31, 1997. The following information is derived from our historical Consolidated Statements of Operations for the periods indicated. Year Ended December 31, 1997 Year Ended December 31, 1998 Year Ended December 31, 1999 Percent of Net Revenues Amount Percent of Net Revenues Percent of Net Revenues Amount Amount Net revenues: (In thousands of dollars) Site rental and broadcast transmission . . . . $ 11,010 35.1% $ 75,028 66.4% $ 267,894 Network services and other . . . . . . . . . . . . . 20,395 Total net revenues . . . . . . . . . . . . . . . . . . 31,405 64.9 100.0 38,050 113,078 33.6 100.0 77,865 77.5% 22.5 345,759 100.0 Operating expenses: Costs of operations: Site rental and broadcast transmission . 2,213 Network services and other . . . . . . . . . . 13,137 Total costs of operations . . . . . . . . . . 15,350 General and administrative . . . . . . . . . . . . . . Corporate development . . . . . . . . . . . . . . . . Restructuring charges . . . . . . . . . . . . . . . . . . Non-cash compensation charges . . . . . . . . 6,824 5,731 — — Depreciation and amortization . . . . . . . . . . . 6,952 Operating income (loss) . . . . . . . . . . . . . . . . . . . (3,452) Other income (expense): Equity in earnings (losses) of unconsolidated affiliate . . . . . . . . . . . . . . (1,138) Interest and other income (expense) . . . . . . 1,951 Interest expense and amortization of 20.1 64.4 48.9 21.7 18.3 — — 22.1 (11.0) (3.6) 6.2 26,254 21,564 47,818 23,571 4,625 — 12,758 37,239 35.0 56.7 42.3 20.8 4.1 — 11.3 32.9 114,436 42,312 156,748 43,823 5,403 5,645 2,173 130,106 (12,933) (11.4) 1,861 2,055 4,220 1.8 3.7 — 17,731 42.7 54.3 45.4 12.7 1.6 1.6 0.6 37.6 0.5 — 5.1 deferred financing costs . . . . . . . . . . . . . (9,254) (29.5) (29,089) (25.7) (110,908) (32.0) Loss before income taxes, minority interests and cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . . (11,893) Provision for income taxes . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . (49) — (37.9) (0.1) — (35,747) (374) (1,654) (31.6) (0.3) (1.5) (91,316) (275) (2,756) (26.4) (0.1) (0.8) Loss before cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . (11,942) (38.0) (37,775) (33.4) (94,347) (27.3) Cumulative effect of change in accounting principle for costs of start-up activities . . . . — — — — (2,414) (0.7) Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (11,942) (38.0)% $ (37,775) (33.4)% $ (96,761) (28.0)% 22 C o m p a r i s o n o f Ye a r s E n d e d D e c e m b e r 3 1 , 1 9 9 9 a n d 1 9 9 8 Consolidated revenues for 1999 were $345.8 million, an increase of $232.7 million from 1998. This increase was primarily attributable to: (1) a $192.9 million, or 257.1%, increase in site rental and broadcast transmission revenues, of which $119.5 million was attributable to CCUK, $37.6 million was attributable to Crown Atlantic and $35.8 million was attributable to CCUSA, (2) a $12.9 million increase in network services and other revenues from CCUSA, (3) a $16.1 million increase in network services and other revenues from CCUK, and (4) $10.3 million in network services and other revenues from Crown Atlantic. Costs of operations for 1999 were $156.7 million, an increase of $108.9 million from 1998. This increase was primarily attrib- utable to: (1) an $88.2 million increase in site rental and broadcast transmission costs, of which $57.3 million was attributable to CCUK, $16.3 million was attributable to Crown Atlantic and $14.6 million was attributable to CCUSA, (2) a $4.0 million increase in network services costs related to CCUSA, (3) an $11.4 million increase in network services costs from CCUK, and (4) $4.7 million in network services costs from Crown Atlantic. Costs of operations for site rental and broadcast transmission as a percentage of site rental and broadcast transmission rev- enues increased to 42.7% for 1999 from 35.0% for 1998 because of higher costs attributable to the CCUK, Crown Atlantic and CCUSA operations. Costs of operations for network services and other as a percentage of network services and other rev- enues decreased to 54.3% for 1999 from 56.7% for 1998, primarily due to higher margins from the CCUK, Crown Atlantic and CCUSA operations. General and administrative expenses for 1999 were $43.8 million, an increase of $20.3 million from 1998. This increase was primarily attributable to: (1) a $10.1 million increase in expenses related to the CCUSA operations, (2) a $1.8 million increase in expenses at our corporate office, (3) a $3.2 million increase in expenses at CCUK, and (4) $5.1 million in expenses at Crown Atlantic. General and administrative expenses as a percentage of revenues decreased for 1999 to 12.7% from 20.8% for 1998 because of lower overhead costs as a percentage of revenues for CCUK, Crown Atlantic and CCUSA. Corporate development expenses for 1999 were $5.4 million, compared to $4.6 million for 1998. This increase was attributable to $0.8 million in expenses at CCUK. Corporate development expenses for 1998 include discretionary bonuses related to our performance totaling approximately $0.8 million for certain members of our management. In connection with the formation of Crown Atlantic, we completed a restructuring of our United States operations during the first quarter of 1999. The objective of this restructuring was to transition from a centralized organization to a regionally-based organization in the United States. In the first quarter of 1999, we recorded one-time charges of $1.8 million related to sever- ance payments for staff reductions, as well as costs related to non-cancelable leases of excess office space. We completed a restructuring of our TeleStructures, Inc. operations in December 1999. The objective of this restructuring was to reduce the size of the TeleStructures, Inc. staff to a level which could be justified by its current operating volume. In the fourth quarter of 1999, we recorded one-time charges totaling $3.8 million related to severance payments for the staff reduc- tions, the recognition of an impairment loss for the remaining goodwill from the acquisition and other related costs. For 1999, we recorded non-cash compensation charges of $2.2 million related to the issuance of stock options to certain employees and executives, compared to $12.8 million for 1998. See “—Compensation Charges Related to Stock Option Grants”. Depreciation and amortization for 1999 was $130.1 million, an increase of $92.9 million from 1998. This increase was pri- marily attributable to: (1) a $43.3 million increase in depreciation and amortization related to the property and equipment and goodwill from CCUK, (2) $24.2 million of depreciation and amortization related to the property and equipment and goodwill from Crown Atlantic, and (3) a $25.0 million increase in depreciation and amortization related to the property and equipment, goodwill and other intangible assets related to the CCUSA operations. 23 M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D ) The equity in earnings (losses) of unconsolidated affiliate represents our 34.3% share of CCUK’s net earnings (losses) for the periods prior to August 1998, at which time the share exchange with CCUK’s shareholders was completed. For the eight months ended August 31, 1998, after making appropriate adjustments to CCUK’s results of operations for such period to con- form to generally accepted accounting principles of the United States, CCUK had net revenues, operating income, interest expense (including amortization of deferred financing costs) and net income of $97.2 million, $18.6 million, $13.4 million and $6.0 million, respectively. Included in CCUK’s results of operations for such period are non-cash compensation charges for approximately $3.8 million related to the issuance of stock options to certain members of CCUK’s management. Interest and other income (expense) for 1999 resulted primarily from: (1) the investment of the net proceeds from our initial public offering of common stock in August 1998, (2) the investment of the excess proceeds from the sale of our 123⁄4% senior exchangeable preferred stock in December 1998, (3) the investment of the excess proceeds from the sale of our common stock, 103⁄8% discount notes and 9% senior notes in May 1999, (4) the investment of the proceeds from the sale of our common stock to TdF in June and July of 1999, (5) the investment of the net proceeds from the sale of our 111⁄4% discount notes and 91⁄2% senior notes in July 1999, and (6) the investment of the net proceeds from the sale of our 81⁄4% convertible preferred stock in November 1999, partially off- set by costs incurred in connection with unsuccessful acquisition attempts, costs incurred in connection with an offering of common stock by one of our shareholders, a loss incurred upon the disposition of an investment in an affiliate and costs incurred in connection with a solicitation of consents from certain of our bond and preferred stock holders. Interest and other income (expense) for 1998 resulted primarily from (1) the investment of the excess proceeds from the sale of the 105⁄8% discount notes in November 1997; and (2) the investment of the net proceeds from the initial public offering in August 1998. See “—Liquidity and Capital Resources”. Interest expense and amortization of deferred financing costs for 1999 was $110.9 million, an increase of $81.8 million, or 281.3%, from 1998. This increase was primarily attributable to interest on indebtedness at CCUK and Crown Atlantic, amortization of the original issue discount on the 103⁄8% discount notes and the 111⁄4% discount notes, interest on the 9% senior notes and the 91⁄2% senior notes, and interest and fees on the term loans used to finance the BellSouth and Powertel escrow payments. Minority interests represent the minority shareholder’s 20% interest in CCUK’s operations and the minority partner’s 38.5% interest in Crown Atlantic’s operations. The cumulative effect of the change in accounting principle for costs of start-up activities represents the charge we record- ed upon the adoption of SOP 98-5 on January 1, 1999. C o m p a r i s o n o f Ye a r s E n d e d D e c e m b e r 3 1 , 1 9 9 8 a n d 1 9 9 7 Consolidated revenues for 1998 were $113.1 million, an increase of $81.7 million from 1997. This increase was primarily attrib- utable to: (1) a $64.0 million, or 581.5%, increase in site rental and broadcast transmission revenues, of which $52.5 million was attributable to CCUK and $11.5 million was attributable to the CCUSA operations, (2) an $11.4 million increase in network services revenues from the CCUSA operations, and (3) $5.6 million in network services revenues from CCUK. Costs of operations for 1998 were $47.8 million, an increase of $32.5 million from 1997. This increase was primarily attrib- utable to: (1) a $24.0 million increase in site rental and broadcast transmission costs, of which $20.1 million was attributable to CCUK and $3.9 million was attributable to the CCUSA operations, (2) a $3.8 million increase in network services costs related to the CCUSA operations, and (3) $4.2 million in network services costs from CCUK. Costs of operations for site rental and broadcast transmission as a percentage of site rental and broadcast transmission rev- enues increased to 35.0% for 1998 from 20.1% for 1997, primarily due to (1) higher costs attributable to the CCUK operations which are inherent with CCUK’s broadcast transmission business, and (2) higher costs for the CCUSA operations. Costs of operations for network services as a percentage of network services revenues decreased to 56.7% for 1998 from 64.4% for 1997, primarily due to improved margins from the CCUSA operations. Margins from the CCUSA network services operations vary from period to period, often as a result of increasingly competitive market conditions. 24 General and administrative expenses for 1998 were $23.6 million, an increase of $16.7 million from 1997. This increase was primarily attributable to: (1) an $11.3 million increase in expenses related to the CCUSA operations, (2) a $2.8 million increase in expenses at our corporate office, and (3) $2.4 million in expenses at CCUK. General and administrative expenses as a percentage of revenues decreased for 1998 to 20.8% from 21.7% for 1997 because of lower overhead costs as a percentage of revenues for CCUK, partially offset by higher overhead costs as a percentage of revenues for CCUSA and the increase in costs at our corporate office. Corporate development expenses for 1998 were $4.6 million, a decrease of $1.1 million from 1997. Corporate development expenses for 1997 included nonrecurring compensation charges associated with the CCUK investment of (1) $0.9 million for certain executive bonuses and (2) the repurchase of shares of our common stock from a member of our board of directors, which resulted in compensation charges of $1.3 million. Corporate development expenses for 1998 included discretionary bonuses related to our performance totaling approximately $1.8 million for certain members of our management. We have recorded non-cash compensation charges of $12.8 million related to the issuance of stock options to certain employees and executives. Such charges are expected to amount to approximately $1.6 million per year through 2002 and approximately $0.8 million in 2003. See “—Compensation Charges Related to Stock Option Grants”. Depreciation and amortization for 1998 was $37.2 million, an increase of $30.3 million from 1997. This increase was pri- marily attributable to (1) a $9.5 million increase in depreciation and amortization related to the property and equipment, good- will and other intangible assets acquired in the Crown Communication acquisition; and (2) $20.3 million of depreciation and amortization related to the property and equipment and goodwill from CCUK. The equity in earnings (losses) of unconsolidated affiliate represents our 34.3% share of CCUK’s net earnings (losses) for the periods from March 1997 through August 1998, at which time the share exchange with CCUK’s shareholders was com- pleted. For the period from March through December 1997, after making appropriate adjustments to CCUK’s results of oper- ations for such period to conform to generally accepted accounting principles of the United States, CCUK had net revenues, operating income, interest expense (including amortization of deferred financing costs) and net losses of $103.5 million, $16.5 million, $20.4 million and $3.3 million, respectively. Interest and other income for 1997 includes a $1.2 million fee received in March 1997 as compensation for leading the investment consortium which provided the equity financing for CCUK. Interest income for 1998 resulted primarily from (1) the investment of excess proceeds from the sale of the 105⁄8% discount notes in November 1997; and (2) the investment of the net proceeds from the initial public offering in August 1998. See “—Liquidity and Capital Resources”. Interest expense and amortization of deferred financing costs for 1998 was $29.1 million, an increase of $19.8 million, or 214.3%, from 1997. This increase was primarily attributable to amortization of the original issue discount on the 105⁄8% discount notes and interest on CCUK’s indebtedness. Minority interests represent the minority shareholder’s 20% interest in CCUK’s operations. L i q u i d i t y a n d C a p i t a l R e s o u rc e s Our business strategy contemplates substantial capital expenditures: (1) in connection with the expansion of our tower portfolios by partnering with wireless carriers to assume ownership or con- trol of their existing towers, by pursuing build-to-suit opportunities, and by pursuing other tower acquisition opportuni- ties, 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 pro- ceeds from contributions of equity capital and cash provided by operations. CCIC has financed acquisitions and investments with the proceeds from equity contributions, borrowings under our senior credit facilities, issuances of debt securities and the issuance of promissory notes to sellers. Since its inception, CCUK has generally funded its activities, other than the acquisi- tion of the BBC home service transmission business, through cash provided by operations and borrowings under CCUK’s credit facility. CCUK financed the acquisition of the BBC home service transmission business with the proceeds from equity contributions and the issuance of the CCUK bonds. 25 M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D ) For the years ended December 31, 1997, 1998 and 1999, our net cash provided by (used for) operating activities was ($0.6 million), $45.0 million and $92.6 million, respectively. For the years ended December 31, 1997, 1998 and 1999, our net cash provided by financing activities was $159.8 million, $345.2 million and $1,670.4 million, respectively. Our primary financ- ing-related activities in 1999 and the first quarter of 2000 included the following: M a y O f f e r i n g s On May 12, 1999, we completed public offerings of debt and equity securities. We sold (1) 21,000,000 shares of our common stock at a price of $17.50 per share and received proceeds of $352.8 million (after underwriting discounts of $14.7 million), (2) $500.0 million aggregate principal amount at maturity of our 103⁄8% discount notes for proceeds of $292.6 million (net of orig- inal issue discount of $198.3 million and after underwriting discounts of $9.1 million), and (3) $180.0 million aggregate princi- pal amount of our 9% senior notes for proceeds of $174.6 million (after underwriting discounts of $5.4 million). We had granted the underwriters for the offerings an over-allotment option to purchase an additional 3,150,000 shares of our common stock. On May 13, 1999, the underwriters exercised this over-allotment option in full. As a result, we received additional proceeds of $52.9 million (after underwriting discounts of $2.2 million). A portion of the proceeds from these offerings was used to repay amounts drawn under the term loans in connection with the BellSouth and Powertel transactions. The remaining proceeds will be used to pay the remaining purchase price for the BellSouth and Powertel transactions, to fund our initial interest payments on the 9% senior notes and for general corporate purposes. S a l e s o f C o m m o n S t o c k t o T d F On June 15, 1999, we sold shares of our common stock to a subsidiary of TdF pursuant to TdF’s preemptive rights related to two recent acquisitions. We sold 5,395,539 shares at $12.63 per share and 125,066 shares at $13.00 per share. The aggregate pro- ceeds of approximately $69.8 million will be used for general corporate purposes. On July 20, 1999, we sold shares of our com- mon stock to a subsidiary of TdF pursuant to TdF’s preemptive rights related to the May offerings. We sold 8,351,791 shares at $16.80 per share. The aggregate proceeds of approximately $140.3 million will be used for general corporate purposes. J u l y O f f e r i n g s On July 27, 1999, we sold debt securities in a private placement. We sold (1) $260.0 million aggregate principal amount at maturity of our 111⁄4% discount notes for proceeds of $147.5 million (net of original issue discount of $109.5 million and after underwriting discounts of $3.0 million) and (2) $125.0 million aggregate principal amount of our 91⁄2% senior notes for pro- ceeds of $122.5 million (after underwriting discounts of $2.5 million). The proceeds from the sale of these securities will be used to pay the remaining purchase price for the BellSouth DCS transaction, to fund our initial interest payments on the 91⁄2% sen- ior notes and for general corporate purposes. S a l e o f P r e f e r r e d S t o c k t o G E C C On November 19, 1999, we issued 200,000 shares of our 81/4% convertible preferred stock at a price of $1,000 per share (the liquidation preference per share) to GECC. We received net proceeds of approximately $191.5 million (after structuring and underwriting fees of $8.5 million but before other expenses of the transaction). The net proceeds will be used to pay a portion of the purchase price for the GTE joint venture. GECC also received warrants to purchase 1.0 million shares of our common stock at an exercise price of $26.875 per share. The warrants are exercisable, in whole or in part, at any time for a period of five years following the issue date. 2 0 0 0 C r e d i t F a c i l i t y In March 2000, a subsidiary of CCIC entered into a credit agreement with a syndicate of banks which consists of two term loan facilities and a revolving line of credit aggregating $1,200.0 million. Available borrowings under the 2000 credit facility are generally to be used for the construction and purchase of towers and for general corporate purposes of CCUSA, Crown Castle GT and CCAL. The amount of available borrowings will be determined based on the current financial performance (as defined) of those subsidiaries’ assets. In addition, up to $25.0 million of borrowing availability under the 2000 credit facility can be used for letters of credit. On March 15, 2000, we used $83.4 million in borrowings under the 2000 credit facility to repay outstand- ing borrowings and accrued interest under the Crown Communication senior credit facility. The net proceeds from $316.6 mil- lion in additional borrowings will be used to fund a portion of the purchase price for the GTE joint venture and for general corporate purposes. In the first quarter of 2000, Crown Communication will record an extraordinary loss of approximately $1.7 million consisting of the write-off of unamortized deferred financing costs related to the senior credit facility. 26 Capital expenditures were $293.8 million for the year ended December 31, 1999, of which $1.0 million were for CCIC, $119.0 million were for CCUSA, $23.3 million were for Crown Atlantic and $150.5 million were for CCUK. We anticipate that we will build, through the end of 2000, approximately 900 towers in the United States at a cost of approximately $225.0 million and approximately 270 towers in the United Kingdom at a cost of approximately $45.0 million. We also expect that the capital expenditure requirements related to the roll-out of digital broadcast transmission in the United Kingdom will be approximate- ly £17.5 million ($28.0 million). In addition to capital expenditures in connection with build-to-suits, we expect to apply a significant amount of capital to finance the remaining cash portion of the consideration being paid in connection with the recent and agreed to transactions discussed below. In connection with the Bell Atlantic joint venture, we issued approximately 15.6 million shares of our common stock and con- tributed $250.0 million in cash to the joint venture. The joint venture borrowed approximately $180.0 million under the Crown Atlantic credit facility, following which the joint venture made a $380.0 million cash distribution to Bell Atlantic. In connection with the BellSouth transaction, through February 2, 2000, we have issued approximately 8.2 million shares of our common stock and paid BellSouth $390.6 million in cash. We expect to (1) issue an additional 0.9 million shares of our common stock and (2) use a portion of the net proceeds from our recent offerings to finance the remaining $39.4 million cash purchase price for this transaction. In connection with the Powertel acquisition, we paid Powertel $275.0 million in cash. In connection with the BellSouth DCS transaction, through February 2, 2000, we have paid BellSouth DCS $277.5 million in cash. We expect to use a portion of the net proceeds from our recent offerings to finance the remaining $39.4 million cash purchase price for this transaction. On November 7, 1999, we entered into an agreement with GTE to form a joint venture to own and operate a significant majority of GTE’s towers. Upon formation of the GTE joint venture (which will occur in multiple closings during 2000), (1) we will contribute approximately $825.0 million (of which up to $100.0 million can be in shares of our common stock, with the bal- ance in cash) in exchange for a majority ownership interest in the joint venture, and (2) GTE will contribute approximately 2,300 towers in exchange for a cash distribution of approximately $800.0 million (less any amount contributed in the form of our common stock) from the joint venture and a minority ownership interest in the joint venture. Upon dissolution of the joint venture, GTE would receive (1) any shares of our common stock contributed to the joint venture and (2) a payment equal to approximately 11.4% of the fair market value of the joint venture’s other net assets; we would then receive the remaining assets and liabilities of the joint venture. We will account for our investment in the GTE joint venture as a purchase of tower assets, and will include the joint venture’s results of operations and cash flows in our consolidated financial statements for periods subsequent to formation. Upon entering into this agreement, we placed $50.0 million into an escrow account; such funds would be forfeited if we failed to close this transaction because we were unable to obtain adequate financing. On January 31, 2000, the formation of the GTE joint venture took place with the first closing of towers. We contributed $223.9 mil- lion in cash to the joint venture, and GTE contributed 637 towers in exchange for a cash distribution of $198.9 million from the joint venture. We expect to use borrowings under our 2000 credit facility to finance most of the remaining $601.1 million purchase price for this transaction. In March 2000, CCAL (our 66.7% owned subsidiary) entered into an agreement to purchase approximately 700 towers in Australia from Cable & Wireless Optus. The total purchase price for the towers will be approximately $135.0 million in cash (Australian $220.0 million), and the purchase is expected to close in the second quarter of 2000. We will account for our investment in CCAL as a purchase of tower assets, and will include CCAL’s results of operations and cash flows in our con- solidated financial statements for periods subsequent to the purchase date. We expect to use borrowings under our 2000 credit facility to finance the cash purchase price for this transaction. We expect that the completion of the recent and agreed to transactions and the execution of our new tower build, or build-to-suit program, will have a material impact on our liquidity. We expect that once integrated, these transactions will have a positive impact on liquidity, but will require some period of time to offset the initial adverse impact on liquidity. In addi- tion, we believe that as new towers become operational and we begin to add tenants, they should result in a long-term increase in liquidity. 27 M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D ) Our liquidity may also be materially impacted if we fail to complete the GTE joint venture transaction. We expect to finance most of the purchase price for this transaction with borrowings under the 2000 credit facility, and we are currently investigat- ing various financing alternatives for the remaining amount. There can be no assurance, however, that we will be able to obtain any such financing, and we may be forced to forego a portion of the towers included in this transaction. If that were to occur, we would likely be forced to forfeit all or part of the related escrow payment. If we were to fail to complete this transaction and forfeit all or any significant portion of the $50.0 million escrow payment made in connection with the transaction, it would have a material adverse effect on our financial condition, including our ability to implement our current business strategy. To fund the execution of our business strategy, including the recent and agreed to transactions described above and the construction of new towers that we have agreed to build, we expect to use the net proceeds of our recent offerings and bor- rowings available under our U.S. and U.K. credit facilities. We will have additional cash needs to fund our operations in the future. We may also have additional cash needs in the near term if additional tower acquisitions or build-to-suit opportunities arise. Some of the opportunities that we are currently pursuing could require significant additional capital. If we do not other- wise have cash available, or borrowings under our credit facilities have otherwise been utilized, when our cash need arises, we would be forced to seek additional debt or equity financing or to forego the opportunity. In the event we determine to seek additional debt or equity financing, there can be no assurance that any such financing will be available, on commercially acceptable terms or at all, or permitted by the terms of our existing indebtedness. We expect to raise additional funds in the near term with bank loans, debt or equity financing. As of December 31, 1999, we had consolidated cash and cash equivalents of $549.3 million (including $14.6 million at CCUK and $40.0 million at Crown Atlantic), consolidated long-term debt of $1,542.3 million, consolidated redeemable pre- ferred stock of $422.9 million and consolidated stockholders’ equity of $1,617.7 million. As of March 1, 2000, Crown Atlantic had unused borrowing availability under its credit facility of approximately $70.0 mil- lion, and CCUK had unused borrowing availability under its credit facility of approximately £65.0 million ($102.6 million). As of March 15, 2000, our subsidiaries had approximately $100.0 million of unused borrowing availability under the 2000 credit facil- ity. Our various credit facilities require our subsidiaries to maintain certain financial covenants and place restrictions on the abil- ity of our subsidiaries to, among other things, incur debt and liens, pay dividends, make capital expenditures, undertake transactions with affiliates and make investments. These facilities also limit the ability of the borrowing subsidiaries to pay div- idends to CCIC. If we are unable to refinance our subsidiary debt or renegotiate the terms of such debt, we may not be able to meet our debt service requirements, including interest payments on the notes, in the future. Our 9% senior notes and our 91⁄2% senior notes will require annual cash interest payments of approximately $16.2 million and $11.9 million, respectively. Prior to November 15, 2002, May 15, 2004 and August 1, 2004, the interest expense on our 105⁄8% discount notes, our 103⁄8% discount notes and our 111⁄4% discount notes, respectively, will be comprised solely of the amortization of original issue discount. Thereafter, the 105⁄8% discount notes, the 103⁄8% discount notes and the 111⁄4% discount notes will require annual cash interest payments of approx- imately $26.7 million, $51.9 million and $29.3 million, respectively. Prior to December 15, 2003, we do not expect to pay cash dividends on our exchangeable preferred stock or, if issued, cash interest on the exchange debentures. Thereafter, assuming all dividends or interest have been paid-in-kind, our exchangeable preferred stock or, if issued, the exchange debentures will require annual cash dividend or interest payments of approximately $47.8 million. Annual cash interest payments on the CCUK bonds are £11.25 million ($18.2 million). In addition, our various credit facilities will require periodic interest payments on amounts borrowed thereunder. As a holding company, CCIC will require distributions or dividends from its subsidiaries, or will be forced to use capital raised in debt and equity offerings, to fund its debt obligations, including interest payments on the cash-pay notes and even- tually the 105⁄8% discount notes, the 103⁄8% discount notes and the 111⁄4% discount notes. The terms of the indebtedness of our subsidiaries significantly limit their ability to distribute cash to CCIC. As a result, we will be required to apply a portion of the net proceeds from the recent debt offerings to fund interest payments on the cash-pay notes. If we do not retain sufficient funds from the offerings or any future financing, we may not be able to make our interest payments on the cash-pay notes. Our ability to make scheduled payments of principal of, or to pay interest on, our debt obligations, and our ability to refi- nance any such debt obligations, will depend on our future performance, which, to a certain extent, is subject to general eco- nomic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We anticipate that we may need to refinance all or a portion of our indebtedness on or prior to its scheduled maturity. There can be no assurance that we will be able to effect any required refinancings of our indebtedness on commercially reasonable terms or at all. 28 C o m p e n s a t i o n C h a r g e s R e l a t e d t o S t o c k O p t i o n G r a n t s 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 subse- quent to the date of the share exchange agreement with CCUK’s shareholders and at prices substantially below the price to the public in the IPO, we have recorded a non-cash compensation charge related to these options and shares based upon the difference between the respective exercise and purchase prices and the price to the public in the IPO. Such compensation charge will total approximately $18.4 million, of which approximately $10.6 million was recognized upon consummation of the IPO (for such options and shares which vested upon consummation of the IPO), and the remaining $7.8 million is being rec- ognized 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 mem- bers of CCUK’s management prior to the consummation of the share exchange. I m p a c t o f R e c e n t l y I s s u e d A c c o u n t i n g S t a n d a rd s In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 98-5, Reporting on the Costs of Start-Up Activities (“SOP 98-5”). SOP 98-5 requires that costs of start- up activities be charged to expense as incurred and broadly defines such costs. We have deferred certain costs incurred in connection with potential business initiatives and new geographic markets, and SOP 98-5 requires that such deferred costs be charged to results of operations upon its adoption. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. We have adopted the requirements of SOP 98-5 as of January 1, 1999. The cumulative effect of the change in account- ing principle for the adoption of SOP 98-5 resulted in a charge to results of operations for $2.4 million in our financial statements for the three months ended March 31, 1999. In June 1998, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). SFAS 133 requires that derivative instru- ments be recognized as either assets or liabilities in the consolidated balance sheet based on their fair values. Changes in the fair values of such derivative instruments will be recorded either in results of operations or in other comprehensive income, depending on the intended use of the derivative instrument. The initial application of SFAS 133 will be reported as the effect of a change in accounting principle. SFAS 133, as amended, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. We will adopt the requirements of SFAS 133 in our financial statements for the three months ending March 31, 2001. We have not yet determined the effect that the adoption of SFAS 133 will have on our consolidated financial statements. Ye a r 2 0 0 0 C o m p l i a n c e The year 2000 problem is the result of computer programs having been written using two digits (rather than four) to define the applicable year. Any of our computer programs that have date-sensitive software might have recognized a date using “00” as 1900 rather than the year 2000, or might not have recognized the date at all. This could have resulted in a system failure or mis- calculations causing disruption of operations including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. In 1997 we established a year 2000 project to ensure that the issue received appropriate priority and that necessary resources were made available. This project included the replacement of our worldwide business computer systems with sys- tems that use programs primarily from J.D. Edwards, Inc. The new systems made approximately 90% of our business com- puter systems year 2000 compliant and are in production today. Remaining business software programs, including those supplied by vendors, were made year 2000 compliant through the year 2000 project or they were retired. None of our other information technology projects were delayed due to the implementation of the year 2000 project. 29 M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S ( C O N T I N U E D ) Our year 2000 project was divided into the following phases: (1) inventorying year 2000 items; (2) assigning priorities to identified items; (3) assessing the year 2000 compliance of items determined to be material to us; (4) repairing or replacing material items that are determined not to be year 2000 compliant; (5) testing material items; and (6) designing and imple- menting contingency and business continuation plans for each organization and company location. We completed all such phases prior to the end of 1999. All critical broadcast equipment and non-information technology related equipment was test- ed and was either year 2000 compliant or was designated as year 2000 ready. A year 2000 ready designation implies the equipment or system will function without adverse effects beyond year 2000 but may not be aware of the century. All critical information technology systems were designated year 2000 compliant or were retired or remediated by the end of 1999. We expended approximately $7.6 million on the year 2000 project through December 31, 1999, of which approximately $6.8 million related to the implementation of the J.D. Edwards Systems and related hardware. The failure to correct a material year 2000 problem could have resulted in an interruption in, or a failure of, certain normal business activities or operations. However, we believe that our efforts to ensure year 2000 compliance have been successful. To date, we have not suffered any significant year 2000 problems, but we continue to monitor our various computer systems. Q u a l i t a t i v e a n d Q u a n t i t a t i v e D i s c l o s u re s a b o u t M a r k e t R i s k As a result of our international operating, investing and financing activities, we are exposed to market risks, which include changes in foreign currency exchange rates and interest rates which may adversely affect our results of operations and finan- cial position. In seeking to minimize the risks and/or costs associated with such activities, we manage exposure to changes in interest rates and foreign currency exchange rates. Certain financial instruments used to obtain capital are subject to market risks from fluctuations in market rates. The major- ity of our financial instruments, however, are long-term fixed interest rate notes and debentures. Therefore, fluctuations in mar- ket interest rates of 1% in 2000 would not have a material effect on our consolidated financial results. The majority of our foreign currency transactions are denominated in the British pound sterling, which is the functional cur- rency of CCUK. As CCUK’s transactions are denominated and settled in the functional currency, risks associated with currency fluctuations are minimized to foreign currency translation adjustments. We do not currently hedge against foreign currency translation risks and believe that foreign currency exchange risk is not significant to our operations. 30 I n d e p e n d e n t A u d i t o r s ’ R e p o r t To the Board of Directors and Stockholders of Crown Castle International Corp.: We have audited the accompanying consolidated balance sheets of Crown Castle International Corp. and subsidiaries as of December 31, 1998 and 1999, and the related consolidated statements of operations and comprehensive loss, cash flows and stockholders’ equity (deficit) for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Crown Castle International Corp. and subsidiaries as of December 31, 1998 and 1999, and the results of their oper- ations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with gener- ally accepted accounting principles. Houston, Texas February 22, 2000 31 C o n s o l i d a t e d B a l a n c e S h e e t ( I N T H O U S A N D S O F D O L L A R S , E X C E P T S H A R E A M O U N T S ) December 31, 1998 1999 A s s e t s Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 296,450 $ 549,328 Receivables: Trade, net of allowance for doubtful accounts of $1,535 and $3,218 at December 31, 1998 and 1999, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,130 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Escrow deposit for acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill and other intangible assets, net of accumulated amortization of 4,290 6,599 2,647 342,116 592,594 — 74,290 4,327 19,178 14,922 662,045 2,468,101 50,000 $20,419 and $53,437 at December 31, 1998 and 1999, respectively . . . . . . . . . . . . . . . . . . . . . . . 569,740 596,147 Deferred financing costs and other assets, net of accumulated amortization of $1,722 and $4,245 at December 31, 1998 and 1999, respectively . . . . . . . . . . . . . . . . . . . . . . . . . 18,780 60,357 $ 1,523,230 $ 3,836,650 L i a b i l i t i e s a n d S t o c k h o l d e r s ’ E q u i t y Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued compensation and related benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred rental revenues and other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,020 15,677 5,188 26,002 92,887 429,710 22,823 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545,420 Commitments and contingencies (Note 12) Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redeemable preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,185 201,063 $ 45,998 20,912 4,005 60,366 131,281 1,542,343 67,064 1,740,688 55,292 422,923 Stockholders’ equity: Common stock, $.01 par value; 690,000,000 shares authorized: Common Stock; shares issued: December 31, 1998 - 83,123,873 and December 31, 1999 - 146,074,905 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Class A Common Stock; shares issued: 11,340,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 831 113 1,461 113 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 795,153 1,805,053 Cumulative foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,690 (60,225) (3,013) (185,867) Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 737,562 1,617,747 $ 1,523,230 $ 3,836,650 See notes to consolidated financial statements. 32 C o n s o l i d a t e d S t a t e m e n t o f O p e r a t i o n s a n d C o m p re h e n s i v e L o s s ( I N T H O U S A N D S O F D O L L A R S , E X C E P T P E R S H A R E A M O U N T S ) Years Ended December 31, 1997 1998 1999 Net revenues: Site rental and broadcast transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Network services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Costs of operations (exclusive of depreciation and amortization): Site rental and broadcast transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Network services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash compensation charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,010 20,395 31,405 2,213 13,137 6,824 5,731 — — 6,952 34,857 Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,452) Other income (expense): Equity in earnings (losses) of unconsolidated affiliate . . . . . . . . . . . . . . . . . . . Interest and other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense and amortization of deferred financing costs . . . . . . . . . . . (1,138) 1,951 (9,254) Loss before income taxes, minority interests and cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,893) Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49) — Loss before cumulative effect of change in accounting principle . . . . . . . . . . . . (11,942) Cumulative effect of change in accounting principle for costs of start-up activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,942) (2,199) Net loss after deduction of dividends on preferred stock . . . . . . . . . . . . . . . . . . $ (14,141) Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (11,942) Other comprehensive income: $ 75,028 38,050 113,078 $ 267,894 77,865 345,759 26,254 21,564 23,571 4,625 — 12,758 37,239 126,011 (12,933) 2,055 4,220 (29,089) (35,747) (374) (1,654) (37,775) — (37,775) (5,411) 114,436 42,312 43,823 5,403 5,645 2,173 130,106 343,898 1,861 — 17,731 (110,908) (91,316) (275) (2,756) (94,347) (2,414) (96,761) (28,881) $ $ (43,186) $ (125,642) (37,775) $ (96,761) Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 562 1,128 (4,703) Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (11,380) $ (36,647) $ (101,464) Per common share — basic and diluted: Loss before cumulative effect of change in accounting principle . . . . . . . . . $ (2.27) Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . . . — Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2.27) $ $ (1.02) — (1.02) $ $ (0.94) (0.02) (0.96) Common shares outstanding — basic and diluted (in thousands) . . . . . . . . . . . 6,238 42,518 131,466 See notes to consolidated financial statements. 33 Years Ended December 31, 1997 1998 1999 $ (11,942) $ (37,775) $ (96,761) C o n s o l i d a t e d S t a t e m e n t o f C a s h F l o w s ( I N T H O U S A N D S O F D O L L A R S ) Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred financing costs and discounts on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . Non-cash compensation charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in losses (earnings) of unconsolidated affiliate . . . . . . . . . . . . . . . . . Changes in assets and liabilities, excluding the effects of acquisitions: Increase (decrease) in deferred rental revenues and other liabilities . . Increase (decrease) in accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (increase) in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in inventories, prepaid expenses and other assets . . . . . . . . . Net cash provided by (used for) operating activities . . . . . . . . . . . . . 6,952 2,159 — — — 1,138 (240) (396) 1,824 1,353 (1,472) (624) Cash flows from investing activities: Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33,962) (18,035) (59,487) Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . (111,484) Cash flows from financing activities: Proceeds from issuance of capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net borrowings (payments) under revolving credit agreements . . . . . . . . . . . Incurrence of financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,867 150,010 (6,223) (7,798) — (2,132) (113,881) Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . 159,843 Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . — 47,735 7,343 37,239 130,106 17,910 1,654 — 12,758 (2,055) 5,847 5,835 15,373 (7,450) (4,360) 44,976 (10,489) (138,759) — (149,248) 339,929 — 9,212 (3,010) — (883) — 345,248 396 241,372 55,078 49,937 2,756 2,414 2,173 — 75,277 5,518 889 (42,913) (36,788) 92,608 (1,208,466) (293,801) (6,879) (1,509,146) 805,771 757,206 136,993 (28,330) (1,238) — — 1,670,402 (986) 252,878 296,450 Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,078 $ 296,450 $ 549,328 Supplementary schedule of non-cash investing and financing activities: Conversion of stockholder’s Convertible Secured Subordinated Notes to Series A Convertible Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,657 $ — $ — Amounts recorded in connection with acquisitions (see Note 2): Fair value of net assets acquired, including goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Escrow deposit for acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assumption of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,235 — 57,189 78,102 — 27,982 431,453 — 420,964 — — — 1,750,506 50,000 397,710 180,000 14,330 — Supplemental disclosure of cash flow information: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,533 26 $ 6,276 446 $ 54,514 301 See notes to consolidated financial statements. 34 C o n s o l i d a t e d S t a t e m e n t o f S t o c k h o l d e r s ’ E q u i t y ( D e f i c i t ) ( I N T H O U S A N D S O F D O L L A R S , E X C E P T S H A R E A M O U N T S ) Class A Common Stock Class B Common Stock Common Stock Class A Common Stock Shares ($.01 Par) Shares ($.01 Par) Shares ($.01 Par) Shares ($.01 Par) Cumulative Foreign Currency Translation Accumulated Adjustment Deficit Additional Paid-In Capital Total Balance, January 1, 1997 . . . . 1,350,000 $ 3 1,488,330 $ Issuances of capital stock . . — — 8,228,835 Purchase of capital stock . . (308,435) (1) (350,000) Foreign currency translation adjustments . . Dividends on preferred stock . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . Balance, — — — — — — — — — 3 17 (1) — — — — $ — — $ — $ 762 $ — $ (978) $ (210) — — — — — — — — — — — — — — — — — — — — 57,696 (210) — — — 57,713 (1,920) (2,132) — 562 — 562 — — — — (2,199) (2,199) (11,942) (11,942) December 31, 1997 . . . . . . . 1,041,565 2 9,367,165 19 — — — — 58,248 562 (17,039) 41,792 Conversion of preferred stock to Common Stock . . . . . . . . . . . . . . . . . — — — — 38,517,865 385 — — 164,712 — — 165,097 Conversion of Class A Common Stock and Class B Common Stock to Common Stock . . . . . . . . . (1,041,565) (2) (9,367,165) (19) 10,953,625 109 — Issuances of capital stock . . Purchase of capital stock . . Non-cash compensation charges . . . . . . . . . . . . . . . Foreign currency translation adjustments . . Dividends on preferred stock . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . Balance, December 31, 1998 . . . . . . . Issuances of capital stock and warrants . . . . . . Non-cash compensation charges . . . . . . . . . . . . . . . Foreign currency translation adjustments . . . . . . . . . . . Dividends on preferred stock . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . Balance, — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 33,793,453 338 11,340,000 — (141,070) (1) — — — — — — — — — — — — — — — — — — — — — 113 — (88) 560,779 (882) — 12,384 — — — — — 1,128 — — — — — — 561,230 (883) 12,384 1,128 — — — — (5,411) (5,411) (37,775) (37,775) — 83,123,873 831 11,340,000 113 795,153 1,690 (60,225) 737,562 — 62,951,032 630 — — — — — — — — — — — — — — — — — — 1,007,947 — 1,953 — — — 1,008,577 — 1,953 — — — — (4,703) — (4,703) — — — — (28,881) (28,881) (96,761) (96,761) December 31, 1999 . . . . . . . — $ — — $ — 146,074,905 $ 1,461 11,340,000 $ 113 $1,805,053 $ (3,013) $(185,867) $ 1,617,747 See notes to consolidated financial statements. 35 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s 1 . B a s i s o f P re s e n t a t i o n a n d S u m m a r y o f S i g n i f i c a n t A c c o u n t i n g P o l i c i e s B a s i s o f P r e s e n t a t i o n The consolidated financial statements include the accounts of Crown Castle International Corp. (“CCIC”) and its majority and wholly owned subsidiaries, collectively referred to herein as the “Company”. All significant intercompany balances and trans- actions have been eliminated in consolidation. Certain reclassifications have been made to the prior year’s financial state- ments to be consistent with the presentation in the current year. The Company owns, operates and manages wireless communications sites and broadcast transmission networks. The Company also provides complementary services to its customers, including network design, radio frequency engineering, site acquisition, site development and construction, antenna installation and network management and maintenance. The Company’s communications sites are located throughout the United States, in Puerto Rico and in the United Kingdom. In the United States and Puerto Rico, the Company’s primary business is the leasing of antenna space to wireless operators under long-term contracts. In the United Kingdom, the Company’s primary businesses are the operation of television and radio broadcast transmission networks and the leasing of antenna space to wireless operators in the United Kingdom. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. S u m m a r y o f S i g n i f i c a n t A c c o u n t i n g P o l i c i e s C A S H E Q U I V A L E N T S Cash equivalents consist of highly liquid investments with original maturities of three months or less. I N V E N T O R I E S Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. P R O P E R T Y A N D E Q U I P M E N T Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is computed utilizing the straight-line method at rates based upon the estimated useful lives of the various classes of assets. Additions, renewals and improvements are capitalized, while maintenance and repairs are expensed. Upon the sale or retirement of an asset, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized. The carrying value of property and equipment and other long-lived assets will be reviewed for impairment whenever events or changes in circumstances indi- cate that the carrying amount of the assets may not be recoverable. If the sum of the estimated future cash flows (undis- counted) 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. G O O D W I L L A N D O T H E R I N T A N G I B L E A S S E T S Goodwill and other intangible assets represents the excess of the purchase price for an acquired business over the allocated value of the related net assets (see Note 2). Goodwill is amortized on a straight-line basis over a 20 year life. Other intangible assets (principally the value of existing site rental contracts at Crown Communications) are amortized on a straight-line basis over a 10 year life. The carrying value of goodwill and other intangible assets will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the acquired assets may not be recoverable. If the sum of the estimated future cash flows (undiscounted) expected to result from the use and eventual disposition of an asset is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss is based on the fair value of the asset. D E F E R R E D F I N A N C I N G C O S T S Costs incurred to obtain financing are deferred and amortized over the estimated term of the related borrowing. 36 R E V E N U E R E C O G N I T I O N Site rental revenues are recognized on a monthly basis under lease or management agreements with terms ranging from 12 months to 25 years. Broadcast transmission revenues are recognized on a monthly basis under transmission contracts with terms ranging from 8 years to 12 years. Network services revenues from site development, construction and antenna installation activities are recognized under a method which approximates the completed contract method. This method is used because these services are typically com- pleted 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 con- ditions 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 con- tracts are recognized at such time as they become known. Network services revenues from design, engineering, site acquisition, and network management and maintenance activ- ities are recognized under service contracts with customers which provide for billings on a time and materials, cost plus prof- it, 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-comple- tion method for cost plus profit and fixed price contracts, measured by the percentage of contract costs incurred to date com- pared to estimated total contract costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. C O R P O R A T E D E V E L O P M E N T E X P E N S E S Corporate development expenses represent costs incurred in connection with acquisitions and development of new business initiatives. I N C O M E T A X E S 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 tem- porary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. P E R S H A R E I N F O R M A T I O N Per share information is based on the weighted-average number of common shares outstanding during each period for the basic computation and, if dilutive, the weighted-average number of potential common shares resulting from the assumed con- version of outstanding stock options, warrants and convertible preferred stock for the diluted computation. A reconciliation of the numerators and denominators of the basic and diluted per share computations is as follows: Years Ended December 31, 1997 1998 1999 (In thousands of dollars, except per share amounts) Loss before cumulative effect of change in accounting principle . . . . . . . . . . . . $ (11,942) $ (37,775) $ (94,347) Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,199) (5,411) (28,881) Loss before cumulative effect of change in accounting principle applicable to common stock for basic and diluted computations . . . . . . . . . (14,141) Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . . . . . — (43,186) — (123,228) (2,414) Net loss applicable to common stock for basic and diluted computations . . . . $ (14,141) $ (43,186) $ (125,642) Weighted-average number of common shares outstanding during the period for basic and diluted computations (in thousands) . . . . . . . . . . . . . . . 6,238 42,518 131,466 Per common share - basic and diluted: Loss before cumulative effect of change in accounting principle . . . . . . . . . $ (2.27) Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . . . — Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2.27) $ $ (1.02) — (1.02) $ $ (0.94) (0.02) (0.96) 37 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D The calculations of common shares outstanding for the diluted computations exclude the following potential common shares as of December 31, 1999: (1) options to purchase 19,226,076 shares of common stock at exercise prices ranging from $-0- to $25.62 per share; (2) warrants to purchase 1,194,990 shares of common stock at an exercise price of $7.50 per share; (3) warrants to purchase 1,000,000 shares of common stock at an exercise price of $26.875 per share; (4) shares of Crown Castle UK Holdings Limited (“CCUK”, formerly Castle Transmission Services (Holdings) Ltd) stock which are convertible into 17,443,500 shares of common stock; and (5) shares of the Company’s 81⁄4% Cumulative Convertible Redeemable Preferred Stock (see Note 8) which are convertible into 7,441,860 shares of common stock. The inclusion of such potential common shares in the diluted per share computations would be antidilutive since the Company incurred net losses for each of the three years in the period ended December 31, 1999. F O R E I G N C U R R E N C Y T R A N S L A T I O N CCUK uses the British pound sterling as the functional currency for its operations. The Company translates CCUK’s results of operations using the average exchange rate for the period, and translates CCUK’s assets and liabilities using the exchange rate at the end of the period. The cumulative effect of changes in the exchange rate is recorded as a translation adjustment in stockholders’ equity. F I N A N C I A L I N S T R U M E N T S The carrying amount of cash and cash equivalents approximates fair value for these instruments. The estimated fair value of the Company’s public debt securities is based on quoted market prices, and the estimated fair value of the other long-term debt is determined based on the current rates offered for similar borrowings. The estimated fair value of the interest rate swap agreement is based on the amount that the Company would receive or pay to terminate the agreement at the balance sheet date. The estimated fair values of the Company’s financial instruments, along with the carrying amounts of the related assets (liabilities), are as follows: December 31, 1998 December 31, 1999 Carrying Amount Fair Value Carrying Amount Fair Value (In thousands of dollars) Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 296,450 $ 296,450 $ 549,328 $ 549,328 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (429,710) (443,379) (1,542,343) (1,542,500) Interest rate swap agreement . . . . . . . . . . . . . . . . . . . . . . . . — (47) — 5,415 The Company’s interest rate swap agreement is used to manage interest rate risk. The net settlement amount resulting from this agreement is recognized as an adjustment to interest expense. The Company does not currently hold or issue deriv- ative financial instruments for trading purposes. S T O C K O P T I O N S In October 1995, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). SFAS 123 establishes alternative methods of accounting and disclosure for employee stock-based compensation arrangements. The Company has elected to continue the use of the “intrinsic value based method” of accounting for its employee stock option plans (see Note 9). This method does not result in the recognition of compensation expense when employee stock options are granted if the exercise price of the options equals or exceeds the fair market value of the stock at the date of grant. See Note 9 for the disclosures required by SFAS 123. R E C E N T A C C O U N T I N G P R O N O U N C E M E N T S 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 finan- cial 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 38 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 geo- graphic areas in which they operate and their major customers. SFAS 131 also requires that certain information about operat- ing 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 requires that such deferred costs be charged to results of operations upon its adoption. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The Company has adopted the requirements of SOP 98-5 as of January 1, 1999. The cumulative effect of the change in accounting principle for the adoption of SOP 98-5 resulted in a charge to results of operations for $2,414,000 in the Company’s financial statements for the year ended December 31, 1999. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). SFAS 133 requires that derivative instruments be recognized as either assets or liabilities in the consolidated balance sheet based on their fair values. Changes in the fair values of such derivative instru- ments will be recorded either in results of operations or in other comprehensive income, depending on the intended use of the derivative instrument. The initial application of SFAS 133 will be reported as the effect of a change in accounting principle. SFAS 133, as amended, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company will adopt the requirements of SFAS 133 in its financial statements for the year ending December 31, 2001. The Company has not yet determined the effect that the adoption of SFAS 133 will have on its consolidated financial statements. 2 . A c q u i s i t i o n s During the three years in the period ended December 31, 1999, the Company consummated a number of business and asset acquisitions which were accounted for using the purchase method. Results of operations and cash flows of the acquired busi- nesses are included in the consolidated financial statements for the periods subsequent to the respective dates of acquisition. T E A G r o u p I n c o r p o r a t e d a n d Te l e S t r u c t u r e s , I n c . ( c o l l e c t i v e l y, “ T E A ” ) 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 105⁄8% Senior Discount Notes (see Note 5). C r o w n C o m m u n i c a t i o n s ( “ C C M ” ) , C r o w n N e t w o r k S y s t e m s , I n c . ( “ C N S ” ) a n d C r o w n M o b i l e S y s t e m s , I n c . ( “ C M S ” ) ( c o l l e c t i v e l y, “ C r o w n ” ) On July 11, 1997, the Company entered into an asset purchase and merger agreement with the owners of Crown. On August 15, 1997, such agreement was amended and restated, and the Company acquired (1) substantially all of the assets, net of out- standing liabilities, of CCM; and (2) all of the outstanding common stock of CNS and CMS. Crown provides network services, which includes site selection and acquisition, antenna installation, site development and construction, network design and site maintenance, and owns and operates telecommunications towers and related assets. The purchase price of $185,021,000 consisted of $27,843,000 in cash, a short-term promissory note payable to the former owners of Crown for $76,230,000, the assumption of $26,009,000 in outstanding debt and 7,325,000 shares of the Company’s Class B Common Stock valued at $54,939,000 (the estimated fair value of such common stock on that date). The Company recognized goodwill and other intan- gible assets of $146,103,000 in connection with this acquisition. The Company financed the cash portion of the purchase price 39 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D with proceeds from the issuance of redeemable preferred stock (see Note 8), and repaid the promissory note with proceeds from the issuance of additional redeemable preferred stock and borrowings under the Senior Credit Facility (see Note 5). In 1997, the Company organized Crown Communication Inc. (“CCI”, a Delaware corporation) as a wholly owned subsidiary to own the net assets acquired from CCM and the common stock of CNS and CMS. In January 1998, the Company merged Castle Tower Corporation (“CTC”, a wholly owned operating subsidiary) with and into CCI. C C U K On April 24, 1998, the Company entered into a share exchange agreement with certain shareholders of CCUK pursuant to which certain of CCUK’s shareholders agreed to exchange their shares of CCUK for shares of the Company. On August 18, 1998, the exchange was consummated and the Company’s ownership of CCUK increased from approximately 34.3% to 80%. The Company issued 20,867,700 shares of its Common Stock and 11,340,000 shares of its Class A Common Stock, with such shares valued at an aggregate of $418,700,000 (based on the price per share to the public in the Company’s initial public offer- ing as discussed in Note 9). The Company recognized goodwill of $344,375,000 in connection with this transaction, which was accounted for as an acquisition using the purchase method. CCUK’s results of operations and cash flows are included in the consolidated financial statements for the period subsequent to the date the exchange was consummated. A g r e e m e n t w i t h B e l l A t l a n t i c M o b i l e ( “ B A M ” ) 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 on March 31, 1999, (1) the Company con- tributed to Crown Atlantic $250,000,000 in cash and 15,597,783 shares of its Common Stock in exchange for a 61.5% owner- ship interest in Crown Atlantic; (2) Crown Atlantic borrowed $180,000,000 under a committed $250,000,000 revolving credit facility (see Note 5); and (3) BAM contributed to Crown Atlantic approximately 1,458 towers in exchange for a cash distribu- tion of $380,000,000 from Crown Atlantic and a 38.5% ownership interest in Crown Atlantic. Upon dissolution of Crown Atlantic, BAM will receive (1) the shares of the Company’s Common Stock contributed to Crown Atlantic and (2) a payment (either in cash or in shares of the Company’s Common Stock, at the Company’s election) equal to approximately 15.6% of the fair mar- ket value of Crown Atlantic’s other net assets; the Company would then receive the remaining assets and liabilities of Crown Atlantic. The Company has accounted for its investment in Crown Atlantic as an acquisition using the purchase method, and has included Crown Atlantic’s results of operations and cash flows in the Company’s consolidated financial statements for periods subsequent to formation. The Company recognized goodwill of approximately $64,163,000 in connection with this acquisition. B e l l S o u t h M o b i l i t y I n c . a n d B e l l S o u t h Te l e c o m m u n i c a t i o n s I n c . ( “ B e l l S o u t h ” ) In March 1999, the Company entered into an agreement with BellSouth to acquire the operating rights for approximately 1,850 of their towers. The legal form of the transaction is a lease arrangement and will be treated by BellSouth as a sale of the tow- ers for tax purposes. The Company will pay BellSouth total consideration of $610,000,000, consisting of $430,000,000 in cash and $180,000,000 in shares of its common stock. As of December 31, 1999, the Company has closed on 1,574 of the towers and has paid $370,151,000 in cash and issued 7,728,787 shares of its common stock. The Company is accounting for this transaction as a purchase of tower assets. P o w e r t e l , I n c . ( “ P o w e r t e l ” ) In March 1999, the Company entered into an agreement with Powertel to purchase 650 of their towers and related assets. The total purchase price for these towers was $275,000,000 in cash, all of which has been paid as of December 31, 1999. The Company has accounted for this transaction as an acquisition using the purchase method. 40 P r o F o r m a R e s u l t s o f O p e r a t i o n s ( U n a u d i t e d ) The following unaudited pro forma summary presents consolidated results of operations for the Company as if (1) the share exchange with CCUK’s shareholders had been consummated as of January 1, 1998; and (2) the Crown Atlantic, BellSouth and Powertel acquisitions, along with the related financing transactions, had been consummated as of January 1 for both 1998 and 1999. Appropriate adjustments have been reflected for depreciation and amortization, interest expense, amortization of deferred financing costs and minority interests. The pro forma information does not necessarily reflect the actual results that would have been achieved, nor is it necessarily indicative of future consolidated results for the Company. Years Ended December 31, 1998 1999 (In thousands of dollars, except per share amounts) Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 301,978 $ 386,999 Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (153,192) Net loss per common share — basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.25) (144,246) (1.19) A g r e e m e n t w i t h N e x t e l C o m m u n i c a t i o n s , I n c . ( “ N e x t e l ” ) On July 11, 1997, the Company entered into an agreement with Nextel (the “Nextel Agreement”) whereby the Company had the option to purchase up to 50 of Nextel’s existing towers which are located in Texas, Florida and the metropolitan areas of Denver, Colorado and Philadelphia, Pennsylvania. As of December 31, 1999, the Company had purchased all 50 of such tow- ers for an aggregate price of $15,083,000 in cash. M i l l e n n i u m C o m m u n i c a t i o n s L i m i t e d ( “ M i l l e n n i u m ” ) On October 8, 1998, the Company acquired all of the outstanding shares of Millennium. Millennium develops, owns and oper- ates telecommunications towers and related assets in the United Kingdom. On the date of acquisition, Millennium owned 102 tower sites. Millennium is being operated as a subsidiary of CCUK. The purchase price of $14,473,000 consisted of $9,813,000 in cash, the repayment of $2,396,000 in outstanding debt and 358,678 shares of the Company’s common stock valued at $2,264,000 (the market value of such common stock on that date). B e l l S o u t h D C S In July 1999, the Company entered into an agreement with certain affiliates of BellSouth (“BellSouth DCS”) to acquire the oper- ating rights for approximately 773 of their towers. The legal form of the transaction is a lease arrangement and will be treated by BellSouth as a sale of the towers for tax purposes. The Company will pay BellSouth DCS total consideration of $316,930,000 in cash. As of December 31, 1999, the Company has closed on 648 of these towers and has paid $266,857,000 in cash. The Company is accounting for this transaction as a purchase of tower assets. A g r e e m e n t W i t h G T E C o r p o r a t i o n ( “ G T E ” ) On November 7, 1999, the Company entered into an agreement with GTE to form a joint venture (“Crown Castle GT”) to own and operate a significant majority of GTE’s towers. Upon formation of Crown Castle GT (which will occur in multiple closings during 2000), (1) the Company will contribute approximately $825,000,000 (of which up to $100,000,000 can be in shares of its common stock, with the balance in cash) in exchange for a majority ownership interest in Crown Castle GT, and (2) GTE will contribute approximately 2,300 towers in exchange for a cash distribution of approximately $800,000,000 (less any amount contributed in the form of the Company’s common stock) from Crown Castle GT and a minority ownership interest in Crown Castle GT. Upon dissolution of Crown Castle GT, GTE would receive (1) any shares of the Company’s common stock con- tributed to Crown Castle GT and (2) a payment equal to approximately 11.4% of the fair market value of Crown Castle GT’s other net assets; the Company would then receive the remaining assets and liabilities of Crown Castle GT. The Company will account for its investment in Crown Castle GT as a purchase of tower assets, and will include Crown Castle GT’s results of oper- ations and cash flows in the Company’s consolidated financial statements for periods subsequent to formation. Upon enter- ing into this agreement, the Company placed $50,000,000 into an escrow account; such funds would be forfeited if the Company failed to close this transaction because it was unable to obtain adequate financing. See Note 16. 41 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D 3 . P ro p e r t y a n d E q u i p m e n t The major classes of property and equipment are as follows: Estimated Useful Lives December 31, 1998 1999 (In thousands of dollars) Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0-50 years $ 58,767 $ 89,683 Telecommunications towers and broadcast transmission equipment . . . . . . . . . 5-20 years Transportation and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-10 years Office furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-7 years Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532,907 11,452 12,248 615,374 (22,780) 2,458,741 20,231 18,919 2,587,574 (119,473) $ 592,594 $ 2,468,101 Depreciation expense for the years ended December 31, 1997, 1998 and 1999 was $2,886,000, $20,638,000 and $96,556,000, respectively. Accumulated depreciation on telecommunications towers and broadcast transmission equipment was $19,583,000 and $110,366,000 at December 31, 1998 and 1999, respectively. At December 31, 1999, minimum rentals receivable under existing operating leases for towers are as follows: years ending December 31, 2000 — $352,640,000; 2001 — $342,473,000; 2002 — $337,536,000; 2003 — $324,963,000; 2004 — $315,142,000; thereafter — $1,118,557,000. 4 . I n v e s t m e n t i n A ff i l i a t e On February 28, 1997, the Company used a portion of the net proceeds from the sale of the Series C Convertible Preferred Stock (see Note 8) to purchase an ownership interest of approximately 34.3% in CCUK (a company incorporated under the laws of England and Wales). The Company led a consortium of investors which provided the equity financing for CCUK. The funds invested by the consortium were used by CCUK to purchase, through a wholly owned subsidiary, the domestic broad- cast transmission division of the British Broadcasting Corporation (the “BBC”). The cost of the Company’s investment in CCUK amounted to approximately $57,542,000. The Company accounted for its investment in CCUK utilizing the equity method of accounting prior to the consummation of the share exchange agreement with CCUK’s shareholders in August 1998 (see Note 2). In March 1997, as compensation for leading the investment consortium, the Company received a fee from CCUK amount- ing 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 CCUK as reimbursement for costs incurred prior to the closing of the pur- chase from the BBC. In June 1997, as compensation for the successful completion of the investment in CCUK and certain other acquisitions and investments, the Company paid bonuses to two of its executive officers totaling $913,000. These bonuses are included in cor- porate development expenses on the Company’s consolidated statement of operations. Summarized financial information for CCUK is as follows (for periods in which the Company accounted for CCUK utilizing the equity method): Ten Months Ended December 31, 1997 Eight Months Ended August 31, 1998 (In thousands of dollars) Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,531 $ Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,999 16,532 553 Interest expense and amortization of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,404) Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 97,228 78,605 18,623 725 (13,378) — Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,319) $ 5,970 42 5 . L o n g - t e r m D e b t Long-term debt consists of the following: Senior Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ CCUK Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Crown Atlantic Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9% Guaranteed Bonds due 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105⁄8% Senior Discount Notes due 2007, net of discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103⁄8% Senior Discount Notes due 2011, net of discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9% Senior Notes due 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111⁄4% Senior Discount Notes due 2011, net of discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91⁄2% Senior Notes due 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 1998 1999 (In thousands of dollars) 5,500 55,177 — 200,934 168,099 — — — — $ 63,000 133,456 180,000 195,699 186,434 321,284 180,000 157,470 125,000 $ 429,710 $ 1,542,343 S e n i o r C r e d i t F a c i l i t y CCI has a credit agreement with a syndicate of banks (as amended, the “Senior Credit Facility”) which consists of a $100,000,000 secured revolving line of credit (see Note 16). Available borrowings under the Senior Credit Facility are gen- erally to be used to construct new towers and to finance a portion of the purchase price for towers and related assets of CCI and its subsidiaries. The amount of available borrowings is determined based on the current financial performance (as defined) of CCI’s assets. In addition, up to $5,000,000 of borrowing availability under the Senior Credit Facility can be used for letters of credit. On October 31, 1997, additional borrowings under the Senior Credit Facility, along with the proceeds from the October issuance of Senior Preferred Stock (see Note 8), were used to repay (1) the promissory note payable to the former stockhold- ers of Crown; and (2) the outstanding borrowings under Crown’s bank credit agreement (see Note 2). In November 1997, the Company repaid all of the outstanding borrowings under the Senior Credit Facility with a portion of the proceeds from the issuance of its 105⁄8% 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 out- standing borrowings under the Senior Credit Facility with a portion of the proceeds from the issuance of its 123⁄4% Senior Exchangeable Preferred Stock (see Note 8). As of December 31, 1999, approximately $19,250,000 of borrowings was avail- able under the Senior Credit Facility, of which $5,000,000 was available for letters of credit. There were no letters of credit out- standing as of December 31, 1999. The amount of available borrowings under the Senior Credit Facility will decrease by $5,000,000 at the end of each calen- dar 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 pro- ceeds from certain sales of equity or debt securities by the Company. The Senior Credit Facility is secured by substantially all of the assets of CCI and the Company’s pledge of the capital stock of CCI and its subsidiaries. In addition, the Senior Credit Facility is guaranteed by the Company. Borrowings under the Senior Credit Facility bear interest at a rate per annum, at the Company’s election, equal to the bank’s prime rate plus 1.5% or a Eurodollar interbank offered rate (LIBOR) plus 3.25% (10.00% and 9.43%, respectively, at December 31, 1999). The interest rate margins may be reduced by up to 2.25% (non-cumulatively) based on a financial test, determined quarterly. As of December 31, 1999, the financial test permitted a reduction of 1.125% in the interest rate margin for prime rate borrowings and 1.625% in the interest rate margin for LIBOR borrowings. Interest on prime rate loans is due quarterly, while interest on LIBOR loans is due at the end of the period (from one to three months) for which such LIBOR rate is in effect. The Senior Credit Facility requires CCI to maintain certain financial covenants and places restrictions on CCI’s ability to, among other things, incur debt and liens, pay dividends, make capital expenditures, dispose of assets, undertake transactions with affiliates and make investments. 43 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D C C U K C r e d i t F a c i l i t y CCUK has a credit agreement with a syndicate of banks (as amended, the “CCUK Credit Facility”). In June 1999, the CCUK Credit Facility was amended to (1) increase the available borrowings to £150,000,000 (approximately $242,250,000) and (2) extend the maturity date to June 2006. The amended facility comprises (1) a seven year £100,000,000 (approximately $161,500,000) revolving loan facility which converts into a term loan facility on the third anniversary of the amendment date and (2) a seven year £50,000,000 (approximately $80,750,000) revolving loan facility. Available borrowings under the CCUK Credit Facility are generally to be used to finance capital expenditures and for working capital and general corporate purpos- es. As of December 31, 1999, unused borrowing availability under the CCUK Credit Facility amounted to approximately £65,000,000 (approximately $104,975,000). In June 2002, the amount drawn under the £100,000,000 revolving loan facility is converted into a term loan facility and is amortized in equal semi-annual installments on June 30 and December 31 of each year, with the final installment being due in June 2006. The £50,000,000 revolving loan facility expires in June 2006. Under certain circumstances, CCUK may be required to make principal prepayments from the proceeds of certain asset sales. The CCUK Credit Facility is secured by substantially all of CCUK’s assets. Borrowings under the CCUK Credit Facility bear interest at a rate per annum equal to a Eurodollar interbank offered rate (LIBOR) plus 1.5% (approximately 7.08% at December 31, 1999). The interest rate margin may be reduced by up to 0.875% (non-cumulatively) based on a financial test. Interest is due at the end of the period (from one to six months) for which such LIBOR rate is in effect. The CCUK Credit Facility requires CCUK to maintain certain financial covenants and places restrictions on CCUK’s ability to, among other things, incur debt and liens, pay dividends, make capital expenditures, dispose of assets, undertake transactions with affiliates and make invest- ments. C r o w n A t l a n t i c C r e d i t F a c i l i t y Crown Atlantic has a credit agreement with a syndicate of banks (the “Crown Atlantic Credit Facility”) which consists of a $250,000,000 secured revolving line of credit. Available borrowings under the Crown Atlantic Credit Facility are generally to be used to construct new towers and to finance a portion of the purchase price for towers and related assets of Crown Atlantic. The amount of available borrowings is determined based on the current financial performance (as defined) of Crown Atlantic’s assets. In addition, up to $25,000,000 of borrowing availability under the Crown Atlantic Credit Facility can be used for letters of credit. On March 31, 1999, Crown Atlantic borrowed $180,000,000 under the Crown Atlantic Credit Facility to fund a portion of the cash payment to BAM (see Note 2). As of December 31, 1999, approximately $70,000,000 of borrowings was available under the Crown Atlantic Credit Facility, of which $25,000,000 was available for letters of credit. There were no letters of credit out- standing as of December 31, 1999. The amount of available borrowings under the Crown Atlantic Credit Facility will decrease by a stated amount at the end of each calendar quarter beginning on September 30, 2001 until March 31, 2006, at which time any remaining borrowings must be repaid. Under certain circumstances, Crown Atlantic may be required to make principal prepayments under the Crown Atlantic Credit Facility in an amount equal to 50% of excess cash flow (as defined), the net cash proceeds from certain asset sales or the net cash proceeds from certain sales of equity or debt securities. The Crown Atlantic Credit Facility is secured by a pledge of the membership interest in Crown Atlantic and a security inter- est in Crown Atlantic’s tenant leases. Borrowings under the Crown Atlantic Credit Facility bear interest at a rate per annum, at Crown Atlantic’s election, equal to the bank’s prime rate plus 1.25% or a Eurodollar interbank offered rate (LIBOR) plus 2.75% (9.75% and 8.93%, respectively, at December 31, 1999). The interest rate margins may be reduced by up to 1.75% (non- cumulatively) based on a financial test, determined quarterly. As of December 31, 1999, the financial test permitted no reduc- tion in the interest rate margin for prime rate borrowings or LIBOR borrowings. Interest on prime rate loans is due quarterly, while interest on LIBOR loans is due at the end of the period (from one to three months) for which such LIBOR rate is in effect. The Crown Atlantic Credit Facility requires Crown Atlantic to maintain certain financial covenants and places restrictions on Crown Atlantic’s ability to, among other things, incur debt and liens, pay dividends, make capital expenditures, dispose of assets, undertake transactions with affiliates and make investments. 44 9 % G u a r a n t e e d B o n d s d u e 2 0 0 7 ( “ C C U K B o n d s ” ) CCUK has issued £125,000,000 (approximately $201,875,000) aggregate principal amount of the CCUK Bonds. Interest pay- ments on the CCUK Bonds are due annually on each March 30. The maturity date of the CCUK Bonds is March 30, 2007. The CCUK Bonds are stated net of unamortized discount. The CCUK Bonds are redeemable, at the option of CCUK, in whole or in part at any time, at the greater of their principal amount and such a price as will provide a gross redemption yield 0.5% per annum above the gross redemption yield on the benchmark gilt plus, in either case, accrued and unpaid interest. Under certain circumstances, each holder of the CCUK Bonds has the right to require CCUK to repurchase all or a portion of such holder’s CCUK Bonds at a price equal to 101% of their aggregate principal amount plus accrued and unpaid interest. The CCUK Bonds are guaranteed by CCUK; however, they are unsecured and effectively subordinate to the outstanding borrowings under the CCUK Credit Facility. The trust deed governing the CCUK Bonds places restrictions on CCUK’s ability to, among other things, pay dividends and make capital distributions, make investments, incur additional debt and liens, dis- pose of assets and undertake transactions with affiliates. 1 0 5⁄8% S e n i o r D i s c o u n t N o t e s d u e 2 0 0 7 ( t h e “ 1 0 5⁄8% D i s c o u n t N o t e s ” ) On November 25, 1997, the Company issued $251,000,000 aggregate principal amount (at maturity) of the 105⁄8% Discount Notes for proceeds of $150,010,000 (net of original issue discount). The Company used a portion of the proceeds from the sale of the 105⁄8% Discount Notes to (1) repay all of the outstanding borrowings, including accrued interest thereon, under the Senior Credit Facility; (2) repay the promissory notes payable, including accrued interest thereon, to the former stockholders of TEA (see Note 2); (3) repay certain indebtedness, including accrued interest thereon, from a prior acquisition; and (4) repay out- standing installment debt assumed in connection with the Crown acquisition (see Note 2). The 105⁄8% Discount Notes will not pay any interest until May 15, 2003, at which time semi-annual interest payments will commence and become due on each May 15 and November 15 thereafter. The maturity date of the 105⁄8% Discount Notes is November 15, 2007. The 105⁄8% Discount Notes are net of unamortized discount of $82,901,000 and $64,566,000 at December 31, 1998 and 1999, respectively. The 105⁄8% Discount Notes are redeemable at the option of the Company, in whole or in part, on or after November 15, 2002 at a price of 105.313% of the principal amount plus accrued interest. The redemption price is reduced annually until November 15, 2005, after which time the 105⁄8% Discount Notes are redeemable at par. Prior to November 15, 2000, the Company may redeem up to 35% of the aggregate principal amount of the 105⁄8% Discount Notes, at a price of 110.625% of the accreted value thereof, with the net cash proceeds from a public offering of the Company’s common stock. 1 0 3⁄8% S e n i o r D i s c o u n t N o t e s d u e 2 0 1 1 ( t h e “ 1 0 3⁄8% D i s c o u n t N o t e s ” ) a n d 9 % S e n i o r N o t e s d u e 2 0 1 1 ( t h e “ 9 % S e n i o r N o t e s ” ) On May 12, 1999, the Company issued (1) $500,000,000 aggregate principal amount (at maturity) of its 103⁄8% Discount Notes for proceeds of $292,644,000 (net of original issue discount of $198,305,000 and after underwriting discounts of $9,051,000) and (2) $180,000,000 aggregate principal amount of its 9% Senior Notes for proceeds of $174,600,000 (after underwriting dis- counts of $5,400,000). The Company used a portion of the proceeds from the sale of these securities to repay $100,000,000 in outstanding borrowings, including accrued interest thereon, under a term loan credit facility in connection with the BellSouth and Powertel transactions (see Note 2). The remaining proceeds are being used to pay the remaining purchase price for such transactions, to fund the initial interest payments on the 9% Senior Notes and for general corporate purposes. The 103⁄8% Discount Notes will not pay any interest until November 15, 2004, at which time semi-annual interest payments will commence and become due on each May 15 and November 15 thereafter. Semi-annual interest payments for the 9% Senior Notes are due on each May 15 and November 15, commencing on November 15, 1999. The maturity date of the 103⁄8% Discount Notes and the 9% Senior Notes is May 15, 2011. The 103/8% Discount Notes are net of unamortized discount of $178,716,000 at December 31, 1999. 45 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D The 103⁄8% Discount Notes and the 9% Senior Notes are redeemable at the option of the Company, in whole or in part, on or after May 15, 2004 at prices of 105.187% and 104.5%, respectively, of the principal amount plus accrued interest. The redemption prices are reduced annually until May 15, 2007, after which time the 103⁄8% Discount Notes and the 9% Senior Notes are redeemable at par. Prior to May 15, 2002, the Company may redeem up to 35% of the aggregate principal amount of the 103⁄8% Discount Notes and the 9% Senior Notes, at prices of 110.375% and 109%, respectively, of the accreted value thereof, with the net cash proceeds from a public offering of the Company’s common stock. 1 1 1⁄4% S e n i o r D i s c o u n t N o t e s d u e 2 0 1 1 ( t h e “ 1 1 1⁄4% D i s c o u n t N o t e s ” ) a n d 9 1⁄2% S e n i o r N o t e s d u e 2 0 1 1 ( t h e “ 9 1⁄2% S e n i o r N o t e s ” ) On July 27, 1999, the Company issued (1) $260,000,000 aggregate principal amount (at maturity) of its 111⁄4% Discount Notes for proceeds of $147,501,000 (net of original issue discount of $109,489,000 and after underwriting discounts of $3,010,000) and (2) $125,000,000 aggregate principal amount of its 91⁄2% Senior Notes for proceeds of $122,500,000 (after underwriting discounts of $2,500,000) (collectively, the “July Offerings”). The proceeds from the sale of these securities are being used to pay the purchase price for the BellSouth DCS transaction (see Note 2), to fund the initial interest payments on the 91⁄2% Senior Notes and for general corporate purposes. The 111⁄4% Discount Notes will not pay any interest until February 1, 2005, at which time semi-annual interest payments will commence and become due on each February 1 and August 1 thereafter. Semi-annual interest payments for the 91⁄2% Senior Notes are due on each February 1 and August 1, commencing on February 1, 2000. The maturity date of the 111⁄4% Discount Notes and the 91⁄2% Senior Notes is August 1, 2011. The 111⁄4% Discount Notes are net of unamortized discount of $102,530,000 at December 31, 1999. The 111⁄4% Discount Notes and the 91⁄2% Senior Notes are redeemable at the option of the Company, in whole or in part, on or after August 1, 2004 at prices of 105.625% and 104.75%, respectively, of the principal amount plus accrued interest. The redemption prices are reduced annually until August 1, 2007, after which time the 111⁄4% Discount Notes and the 91⁄2% Senior Notes are redeemable at par. Prior to August 1, 2002, the Company may redeem up to 35% of the aggregate principal amount of the 111⁄4% Discount Notes and the 91⁄2% Senior Notes, at prices of 111.25% and 109.5%, respectively, of the accreted value thereof, with the net cash proceeds from a public offering of the Company’s common stock. S t r u c t u r a l S u b o r d i n a t i o n o f t h e D e b t S e c u r i t i e s The 105⁄8% Discount Notes, the 103⁄8% Discount Notes, the 9% Senior Notes, the 111⁄4% Discount Notes and the 91⁄2% Senior Notes (collectively, the “Debt Securities”) are senior indebtedness of the Company; however, they are unsecured and effec- tively subordinate to the liabilities of the Company’s subsidiaries, which include outstanding borrowings under the Senior Credit Facility, the CCUK Credit Facility, the Crown Atlantic Credit Facility and the CCUK Bonds. The indentures governing the Debt Securities (the “Indentures”) place restrictions on the Company’s ability to, among other things, pay dividends and make cap- ital distributions, make investments, incur additional debt and liens, issue additional preferred stock, dispose of assets and undertake transactions with affiliates. As of December 31, 1999, the Company was effectively precluded from paying divi- dends on its capital stock under the terms of the Indentures. R e p o r t i n g R e q u i r e m e n t s U n d e r t h e I n d e n t u r e s G o v e r n i n g t h e C o m p a n y ’s D e b t S e c u r i t i e s a n d t h e C e r t i f i c a t e o f D e s i g n a t i o n s G o v e r n i n g t h e C o m p a n y ’s 1 2 3⁄ 4% S e n i o r E x c h a n g e a b l e P r e f e r r e d S t o c k ( t h e “ C e r t i f i c a t e ” ) The following information (as such capitalized terms are defined in the Indentures and the Certificate) is presented solely as a requirement of the Indentures and the Certificate; such information is not intended as an alternative measure of financial posi- tion, operating results or cash flow from operations (as determined in accordance with generally accepted accounting princi- ples). Furthermore, the Company’s measure of the following information may not be comparable to similarly titled measures of other companies. Upon consummation of the share exchange with CCUK’s shareholders (see Note 2), which increased the Company’s own- ership interest in CCUK to 80%, the Company designated CCUK as an Unrestricted Subsidiary. In addition, the Company has designated Crown Atlantic as an Unrestricted Subsidiary (see Note 2). Prior to these transactions, the Company did not have any Unrestricted Subsidiaries. Summarized financial information for (1) the Company and its Restricted Subsidiaries; and (2) the Company’s Unrestricted Subsidiaries is as follows: 46 December 31, 1999 Company and Restricted Subsidiaries Unrestricted Subsidiaries Consolidation Eliminations Consolidated Total Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 494,724 $ Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,106 (In thousands of dollars) 54,604 53,611 $ Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 1,350,610 1,117,491 Escrow deposit for acquisition . . . . . . . . . . . . . . . . . . . . . . . Investments in Unrestricted Subsidiaries . . . . . . . . . . . . . . Goodwill and other intangible assets, net . . . . . . . . . . . . . . Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 991,261 132,553 48,578 — — 463,594 11,779 — — — — (991,261) — — $ 549,328 112,717 2,468,101 50,000 — 596,147 60,357 $ 3,126,832 $ 1,701,079 $ (991,261) $ 3,836,650 Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,905 $ 81,376 $ Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,033,188 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,069 — Redeemable preferred stock . . . . . . . . . . . . . . . . . . . . . . . . 422,923 Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,617,747 509,155 63,995 55,292 — 991,261 — — — — — (991,261) $ 131,281 1,542,343 67,064 55,292 422,923 1,617,747 $ 3,126,832 $ 1,701,079 $ (991,261) $ 3,836,650 Three Months Ended December 31, 1999 Year Ended December 31, 1999 Company and Restricted Subsidiaries Unrestricted Consolidated Subsidiaries Total Company and Restricted Subsidiaries Unrestricted Consolidated Subsidiaries Total (In thousands of dollars) Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,694 $ 73,502 $ 114,196 $ 104,177 $ 241,582 $ 345,759 Costs of operations (exclusive of depreciation and amortization) . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . Corporate development . . . . . . . . . . . . . . . . . . . . . . Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . Non-cash compensation charges . . . . . . . . . . . . . . 17,327 10,578 1,181 3,831 340 34,534 3,169 88 — 161 51,861 13,747 1,269 3,831 501 42,737 33,052 4,584 5,645 1,404 114,011 156,748 10,771 43,823 819 — 769 5,403 5,645 2,173 Depreciation and amortization . . . . . . . . . . . . . . . . 16,251 24,486 40,737 42,354 87,752 130,106 Operating income (loss) . . . . . . . . . . . . . . . . . . . . . (8,814) 11,064 Interest and other income (expense) . . . . . . . . . . . 4,339 590 2,250 4,929 (25,599) 9,934 27,460 7,797 1,861 17,731 Interest expense and amortization of deferred financing costs . . . . . . . . . . . . . . . . . . . (25,891) (12,669) (38,560) (70,341) (40,567) (110,908) Provision for income taxes . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative effect of change in accounting principle for costs of start-up activities . . . . . . . . (7) — — — (7) (1,569) (1,569) (275) — — (2,756) (275) (2,756) — — (2,414) — (2,414) Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (30,373) $ (2,584) $ (32,957) $ (88,695) $ (8,066) $ (96,761) 47 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its Restricted Subsidiaries is as follows under (1) the indenture governing the 105⁄8% Discount Notes and the Certificate (the “1997 and 1998 Securities”) and (2) the inden- tures governing the 103⁄8% Discount Notes, the 9% Senior Notes, the 111⁄4% Discount Notes and the 91⁄2% Senior Notes (the “1999 Securities”): Tower Cash Flow, for the three months ended December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Cash Flow, for the twelve months ended December 31, 1999 . . . . . . . . . . . . . . . . . . . . Less: Tower Cash Flow, for the twelve months ended December 31, 1999 . . . . . . . . . . . . . . . . . . . . . Plus: four times Tower Cash Flow, for the three months ended December 31, 1999 . . . . . . . . . . . . . . 1997 and 1998 Securities 1999 Securities (In thousands of dollars) (Unaudited) $ $ 12,339 23,804 (33,022) 49,356 $ $ 12,339 28,388 (33,022) 49,356 Adjusted Consolidated Cash Flow, for the twelve months ended December 31, 1999 . . . . . . . . . . . $ 40,138 $ 44,722 R e s t r i c t e d N e t A s s e t s o f S u b s i d i a r i e s Under the terms of the Senior Credit Facility, the CCUK Credit Facility, the Crown Atlantic Credit Facility and the CCUK Bonds, the Company’s subsidiaries are limited in the amount of dividends which can be paid to the Company. For CCI, the amount of such dividends is limited to (1) $6,000,000 per year until October 31, 2002, and $33,000,000 per year thereafter; and (2) an amount to pay income taxes attributable to the Company’s Restricted Subsidiaries. CCUK and Crown Atlantic are effectively precluded from paying dividends. The restricted net assets of the Company’s subsidiaries totaled approximately $1,003,701,000 at December 31, 1999. I n t e r e s t R a t e S w a p A g r e e m e n t s The Company had an interest rate swap agreement in connection with amounts borrowed under the Senior Credit Facility which terminated on February 24, 1999. The Company paid a fixed rate of 6.28% on the notional amount and received a float- ing rate based on LIBOR. This agreement effectively changed the interest rate on $17,925,000 of borrowings under the Senior Credit Facility from a floating rate to a fixed rate of 6.28% plus the applicable margin. In April 1999, the Company entered into an interest rate swap agreement in connection with amounts borrowed under the Crown Atlantic Credit Facility. This interest rate swap agreement has an initial notional amount of $100,000,000, decreasing on a quarterly basis beginning September 30, 2003 until the termination of the agreement on March 31, 2006. The Company pays a fixed rate of 5.79% on the notional amount and receives a floating rate based on LIBOR. This agreement effectively changes the interest rate on a portion of the borrowings under the Crown Atlantic Credit Facility from a floating rate to a fixed rate of 5.79% plus the applicable margin. The Company does not believe there is any significant exposure to credit risk due to the creditworthiness of the counterparty. In the event of nonperformance by the counterparty, the Company’s loss would be limit- ed to any unfavorable interest rate differential. 6 . I n c o m e Ta x e s The provision for income taxes consists of the following: Years Ended December 31, 1997 1998 1999 (In thousands of dollars) Current: State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — 49 — 49 $ $ 365 9 — 374 $ $ 55 — 220 275 48 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: Benefit for income taxes at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,044) $ (12,154) $ (31,047) Years Ended December 31, 1997 1998 1999 (In thousands of dollars) Depreciation on basis difference in joint venture . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and foreign taxes, net of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . . Expenses for which no federal tax benefit was recognized . . . . . . . . . . . . . . . . . Acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Puerto Rico taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign earnings not subject to tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 478 — — 28 — 49 — 3,650 (112) $ 49 $ The components of the net deferred income tax assets and liabilities are as follows: — 604 2,844 247 151 (675) 9 (584) 9,944 (12) 374 1,012 770 477 182 152 34 — (781) 29,451 25 275 $ December 31, 1998 1999 (In thousands of dollars) Deferred income tax liabilities: Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,045 $ 30,055 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 6,129 14 30,069 Deferred income tax assets: Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,071 76,826 Noncompete agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Puerto Rico losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464 351 — 68 41 45 Valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,911) Total deferred income tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,129 348 264 238 68 55 45 (47,775) 30,069 Net deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — Valuation allowances of $13,911,000 and $47,775,000 were recognized to offset net deferred income tax assets as of December 31, 1998 and 1999, respectively. At December 31, 1999, the Company has net operating loss carryforwards of approximately $225,959,000 which are avail- able to offset future federal taxable income. These loss carryforwards will expire in 2010 through 2019. The utilization of the loss carryforwards is subject to certain limitations. 49 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D 7 . M i n o r i t y I n t e re s t s Minority interests represent the minority shareholder’s 20% interest in CCUK and the minority partner’s 38.5% interest in Crown Atlantic. 8 . R e d e e m a b l e P re f e r re d S t o c k Redeemable preferred stock ($.01 par value, 10,000,000 shares authorized) consists of the following: December 31, 1998 1999 (In thousands of dollars) 123⁄4% Senior Exchangeable Preferred Stock; shares issued: December 31, 1998 — 200,000 and December 31, 1999 — 226,745 (stated at mandatory redemption and aggregate liquidation value) . . . . . . . . . . . . . . . . . . . . . . $ 201,063 $ 227,950 81⁄4% Cumulative Convertible Redeemable Preferred Stock; shares issued: December 31, 1998 — none and December 31, 1999 — 200,000 (stated net of unamortized value of warrants; mandatory redemption and aggregate liquidation value of $200,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 194,973 $ 201,063 $ 422,923 E x c h a n g e a b l e P r e f e r r e d S t o c k On December 16, 1998, the Company issued 200,000 shares of its 123⁄4% Senior Exchangeable Preferred Stock due 2010 (the “Exchangeable Preferred Stock”) at a price of $1,000 per share (the liquidation preference per share). The net proceeds received by the Company from the sale of such shares amounted to approximately $193,000,000 (after underwriting discounts of $7,000,000 but before other expenses of the offering, which amounted to approximately $8,059,000). A portion of the net proceeds was used to repay outstanding borrowings under the Senior Credit Facility of $73,750,000, and the remaining net proceeds were used to pay a portion of the purchase price for the Crown Atlantic transaction (see Note 2). The holders of the Exchangeable Preferred Stock are entitled to receive cumulative dividends at the rate of 123⁄4% per share, compounded quarterly on each March 15, June 15, September 15 and December 15 of each year, beginning on March 15, 1999. On or before December 15, 2003, the Company has the option to pay dividends in cash or in additional shares of Exchangeable Preferred Stock. After December 15, 2003, dividends are payable only in cash. The Company is required to redeem all outstanding shares of Exchangeable Preferred Stock on December 15, 2010 at a price equal to the liquidation preference plus accumulated and unpaid dividends. On or after December 15, 2003, the shares are redeemable at the option of the Company, in whole or in part, at a price of 106.375% of the liquidation preference. The redemption price is reduced on an annual basis until December 15, 2007, at which time the shares are redeemable at the liq- uidation 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 123⁄4% Senior Subordinated Exchange Debentures due 2010. The Company’s obligations with respect to the Exchangeable Preferred Stock are subordinate to all indebtedness of the Company (including the Debt Securities), and are effectively subordinate to all debt and liabilities of the Company’s sub- sidiaries (including the Senior Credit Facility, the CCUK Credit Facility, the Crown Atlantic Credit Facility and the CCUK Bonds). The certificate of designations governing the Exchangeable Preferred Stock places restrictions on the Company’s ability to, among other things, pay dividends and make capital distributions, make investments, incur additional debt and liens, issue additional preferred stock, dispose of assets and undertake transactions with affiliates. 50 C o n v e r t i b l e P r e f e r r e d S t o c k On November 19, 1999, the Company issued 200,000 shares of its 81⁄4% Cumulative Convertible Redeemable Preferred Stock (the “Convertible Preferred Stock”) at a price of $1,000 per share (the liquidation preference per share) to General Electric Capital Corporation (“GECC”). The Company received net proceeds of approximately $191,500,000 (after structuring and underwriting fees of $8,500,000 but before other expenses of the transaction). The net proceeds will be used to pay a portion of the purchase price for the GTE joint venture (see Note 2). GECC will be entitled to receive cumulative dividends at the rate of 81⁄4% per annum payable on March 15, June 15, September 15 and December 15 of each year, beginning on December 15, 1999. The Company will have the option to pay dividends in cash or in shares of its Common Stock having a current market value equal to the stated dividend amount. GECC also received warrants to purchase 1,000,000 shares of the Company’s Common Stock at an exercise price of $26.875 per share. The warrants will be exercisable, in whole or in part, at any time for a period of five years following the issue date. The Company is required to redeem all outstanding shares of the Convertible Preferred Stock on March 31, 2012 at a price equal to the liquidation preference plus accumulated and unpaid dividends. On or after October 1, 2002, the shares are redeemable at the option of the Company, in whole or in part, at a price of 104.125% of the liquidation preference. The redemp- tion price is reduced on an annual basis until October 1, 2005, at which time the shares are redeemable at the liquidation pref- erence. The shares of Convertible Preferred Stock are convertible, at the option of GECC, in whole or in part at any time, into shares of the Company’s Common Stock at a conversion price of $26.875 per share of Common Stock. The Company’s obligations with respect to the Convertible Preferred Stock are subordinate to all indebtedness and the Exchangeable Preferred Stock of the Company, and are effectively subordinate to all debt and liabilities of the Company’s sub- sidiaries. The certificate of designations governing the Convertible Preferred Stock places restrictions on the Company simi- lar to those imposed by the Company’s Debt Securities and the Exchangeable Preferred Stock. S e n i o r P r e f e r r e d S t o c k 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 approxi- mately $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 pro- ceeds 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 divi- dends) 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 pub- lic 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 esti- mated 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. S e r i e s P r e f e r r e d S t o c k 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 divi- dends 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). 51 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D 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 approxi- mately $74,024,000. A portion of this amount was used to purchase the ownership interest in CCUK (see Note 4). 9 . S t o c k h o l d e r s ’ E q u i t y C o m m o n S t o c k On May 12, 1999, the Company sold shares of its common stock and debt securities in concurrent underwritten public offer- ings (collectively, the “May Offerings”) (see Note 5). The Company sold 21,000,000 shares of its common stock at a price of $17.50 per share and received proceeds of $352,800,000 (after underwriting discounts of $14,700,000). The Company had granted the underwriters for the May Offerings an over-allotment option to purchase an additional 3,150,000 shares of the Company’s common stock. On May 13, 1999, the underwriters exercised this over-allotment option in full. As a result, the Company received additional proceeds of $52,920,000 (after underwriting discounts of $2,205,000). The proceeds from the May Offerings are being used to pay the remaining purchase price for the BellSouth and Powertel transactions, to fund the ini- tial interest payments on the 9% Senior Notes and for general corporate purposes. On June 15, 1999, the Company sold shares of its common stock to a subsidiary of TeleDiffusion de France International S.A. (“TdF”) pursuant to TdF’s preemptive rights related to two recent acquisitions. The Company sold 5,395,539 shares at $12.63 per share and 125,066 shares at $13.00 per share. The aggregate proceeds of approximately $69,772,000 will be used for general corporate purposes. On July 20, 1999, the Company sold shares of its common stock to a subsidiary of TdF pursuant to TdF’s preemptive rights related to the May Offerings. The Company sold 8,351,791 shares at $16.80 per share. The aggregate proceeds of approxi- mately $140,310,000 will be used for general corporate purposes. On August 18, 1998, the Company consummated its initial public offering of common stock at a price to the public of $13.00 per share (the “IPO”). The Company sold 12,320,000 shares of its common stock and received proceeds of $151,043,000 (after underwriting discounts of $9,117,000 but before other expenses of the IPO, which amounted to approximately $4,116,000). The net proceeds from the IPO were used to pay a portion of the purchase price for the Crown Atlantic transac- tion (see Note 2). In anticipation of the IPO, the Company (1) amended and restated the 1995 Stock Option Plan to, among other things, authorize the issuance of up to 18,000,000 shares of common stock pursuant to awards made thereunder; and (2) approved an amendment to its certificate of incorporation to increase the number of authorized shares of common and preferred stock to 690,000,000 shares and 10,000,000 shares, respectively, and to effect a five-for-one stock split for the shares of common stock then outstanding. The effect of the stock split has been presented retroactively in the Company’s consolidated financial statements for all periods presented. In July 1998, all of the holders of the Company’s Senior Convertible Preferred Stock converted such shares into an aggre- gate 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 com- pensation 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. C l a s s A C o m m o n S t o c k Upon consummation of the share exchange agreement with CCUK’s shareholders (see Note 2), TdF received all of the cur- rently outstanding shares of the Company’s Class A Common Stock. Each share of Class A Common Stock is convertible, at the option of its holder at any time, into one share of Common Stock. The holder of the Class A Common Stock is entitled to one vote per share on all matters presented to a vote of the Company’s shareholders, except with respect to the election of directors. The holder of the Class A Common Stock, voting as a separate class, has the right to elect up to two members of the Company’s Board of Directors. The shares of Class A Common Stock also provide certain governance and anti-dilutive rights. 52 C o m p e n s a t i o n C h a r g e s R e l a t e d t o S t o c k O p t i o n G r a n t s During the period from April 24, 1998 through July 15, 1998, the Company granted options to employees and executives for the purchase of 3,236,980 shares of its common stock at an exercise price of $7.50 per share. Of such options, options for 1,810,730 shares vested upon consummation of the IPO and the remaining options for 1,426,250 shares will vest at 20% per year over five years, beginning one year from the date of grant. In addition, the Company has assigned its right to repurchase shares of its common stock from a stockholder (at a price of $6.26 per share) to two individuals (including a newly-elected director) with respect to 100,000 of such shares. Since the granting of these options and the assignment of these rights to repurchase shares occurred subsequent to the date of the share exchange agreement with CCUK’s shareholders and at prices substantially below the price to the public in the IPO, the Company has recorded a non-cash compensation charge related to these options and shares based upon the difference between the respective exercise and purchase prices and the price to the public in the IPO. Such compensation charge will total approximately $18,400,000, of which approximately $10,600,000 was recognized upon consummation of the IPO (for such options and shares which vested upon consummation of the IPO), and the remaining $7,800,000 is being recognized over five years (approximately $1,600,000 per year) through the second quarter of 2003. An additional $1,600,000 in non-cash compensation charges will be recognized through the third quarter of 2001 for stock options issued to certain members of CCUK’s management prior to the consummation of the share exchange. S t o c k O p t i o n s In 1995, the Company adopted the Crown Castle International Corp. 1995 Stock Option Plan (as amended, the “1995 Stock Option Plan”). Up to 28,000,000 shares of the Company’s common stock have been reserved for awards granted to certain employees, consultants and non-employee directors of the Company and its subsidiaries or affiliates. These options general- ly vest over periods of up to five years from the date of grant (as determined by the Company’s Board of Directors) and have a maximum term of 10 years from the date of grant. Upon consummation of the share exchange agreement with CCUK’s shareholders (see Note 2), the Company adopted each of the various CCUK stock option plans. All outstanding options to purchase shares of CCUK under such plans have been converted into options to purchase shares of the Company’s common stock. Up to 4,392,451 shares of the Company’s com- mon stock were reserved for awards granted under the CCUK plans, and these options generally vest over periods of up to three years from the date of grant. A summary of awards granted under the various stock option plans is as follows for the years ended December 31, 1997, 1998 and 1999: 1997 1998 1999 Weighted- Average Exercise Price Number of Shares Weighted- Average Exercise Price Number of Shares Weighted- Average Exercise Price Number of Shares Options outstanding at beginning of year . . . . . 1,050,000 $ Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . 3,042,500 Options outstanding under CCUK stock option plans . . . . . . . . . . . . . . . — Options exercised . . . . . . . . . . . . . . . . . . . . . . . . (363,125) Options forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . (35,000) Options outstanding at end of year . . . . . . . . . . . 3,694,375 Options exercisable at end of year . . . . . . . . . . . 728,875 0.89 5.46 — 0.53 1.20 4.69 2.49 3,694,375 $ 4.69 16,585,197 $ 7.06 9,024,720 10.02 4,661,649 18.68 4,367,202 (216,650) (284,450) 16,585,197 7,615,649 2.74 4.89 5.72 7.06 4.75 — (1,482,066) (538,704) 19,226,076 11,590,217 — 5.82 9.17 9.89 8.14 53 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D In August 1998, certain outstanding options became fully or partially vested upon consummation of the IPO. A summary of options outstanding as of December 31, 1999 is as follows: Exercise Prices $ -0- to $ 2.31 to 4.01 to 7.50 to 10.04 to 15.13 to 18.00 to 20.06 to 23.69 to 1.60 3.90 5.97 7.77 12.50 13.00 17.63 19.94 22.28 25.62 Number of Options Outstanding 729,107 3,541,171 1,616,592 4,789,021 436,418 3,415,000 1,286,000 2,003,822 1,289,111 119,834 19,226,076 Weighted- Average Remaining Contractual Life 6.0 years 6.8 years 7.7 years 8.3 years 8.9 years 8.6 years 9.7 years 9.3 years 9.2 years 9.5 years Number of Options Exercisable 644,415 1,977,850 1,535,925 3,244,029 93,084 3,415,000 25,000 546,986 107,928 — 11,590,217 The weighted-average fair value of options granted during the years ended December 31, 1997, 1998 and 1999 was $1.30, $4.54 and $6.76, respectively. The fair value of each option was estimated on the date of grant using the Black-Scholes option- pricing model and the following weighted-average assumptions about the options (the minimum value method was used prior to the IPO): Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1% Expected life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 years Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0% 0% 5.38% 3.6 years 0% to 30% 0% Years Ended December 31, 1997 1998 1999 5.41% 4.9 years 30% 0% The exercise prices for options granted during the years ended December 31, 1997 and 1999 were equal to or in excess of the estimated fair value of the Company’s common stock at the date of grant. As such, no compensation cost was recog- nized for stock options during those years (see Note 1 and “Compensation Charges Related to Stock Option Grants”). If com- pensation cost had been recognized for stock options based on their fair value at the date of grant, the Company’s pro forma net loss for the years ended December 31, 1997, 1998 and 1999 would have been $12,586,000 ($2.37 per share), $75,660,000 ($1.91 per share) and $113,633,000 ($1.08 per share), respectively. The pro forma effect of stock options on the Company’s net loss for those years may not be representative of the pro forma effect for future years due to the impact of vesting and poten- tial future awards. 54 S h a r e s R e s e r v e d F o r I s s u a n c e At December 31, 1999, the Company had the following shares reserved for future issuance: Common Stock: Class A Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,340,000 Shares of CCUK stock which are convertible into common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,443,500 Convertible Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,441,860 Stock option plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,330,610 Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,194,990 68,750,960 1 0 . E m p l o y e e B e n e f i t P l a n s The Company and its subsidiaries have various defined contribution savings plans covering substantially all employees. Depending on the plan, employees may elect to contribute up to 15% of their eligible compensation. Certain of the plans pro- vide for partial matching of such contributions. The cost to the Company for these plans amounted to $98,000, $197,000 and $836,000 for the years ended December 31, 1997, 1998 and 1999, respectively. CCUK has a defined benefit plan which covers all of its employees hired on or before March 1, 1997. Employees hired after that date are not eligible to participate in this plan. The net periodic pension cost attributable to this plan for the four months ended December 31, 1998 and the year ended December 31, 1999 was $1,115,000 and $3,592,000, respectively. As of December 31, 1998 and 1999, (1) the projected benefit obligation amounted to $15,298,000 and $18,169,000, respectively; (2) the fair value of the plan’s assets amounted to $15,848,000 and $22,449,000, respectively; and (3) the prepaid pension cost attributable to this plan amounted to $1,704,000 and $1,454,000, respectively. 1 1 . R e l a t e d P a r t y Tr a n s a c t i o n s Included in other receivables at December 31, 1998 and 1999 are amounts due from employees of the Company totaling $368,000 and $312,000, respectively. 1 2 . C o m m i t m e n t s a n d C o n t i n g e n c i e s At December 31, 1999, minimum rental commitments under operating leases are as follows: years ending December 31, 2000 — $70,477,000; 2001 — $67,261,000; 2002 — $61,770,000; 2003 — $54,625,000; 2004 — $49,111,000; thereafter — $233,217,000. Rental expense for operating leases was $1,712,000, $9,620,000 and $47,300,000 for the years ended December 31, 1997, 1998 and 1999, respectively. The Company is involved in various claims, lawsuits and proceedings arising in the ordinary course of business. While there are uncertainties inherent in the ultimate outcome of such matters and it is impossible to presently determine the ultimate costs that may be incurred, management believes the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company’s consolidated financial position or results of operations. 1 3 . O p e r a t i n g S e g m e n t s a n d C o n c e n t r a t i o n s o f C re d i t R i s k O p e r a t i n g S e g m e n t s The Company’s reportable operating segments for 1999 are (1) the domestic operations other than Crown Atlantic (“CCUSA”); (2) the United Kingdom operations of CCUK; and (3) the operations of Crown Atlantic. Financial results for the Company are reported to management and the Board of Directors in this manner, and much of the Company’s current debt financing is struc- tured along these geographic and organizational lines. See Note 1 for a description of the primary revenue sources from these segments. As discussed in Note 2, CCUK’s and Crown Atlantic’s results of operations are included in the Company’s consolidated financial statements beginning in 1998 and 1999, respectively. Prior to that time, the domestic operations of CCUSA repre- sented the Company’s only reportable segment. 55 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D 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 oper- ating income (loss) plus depreciation and amortization, non-cash compensation charges and restructuring charges. EBITDA is not intended as an alternative measure of operating results or cash flow from operations (as determined in accordance with generally accepted accounting principles), and the Company’s measure of EBITDA may not be comparable to similarly titled measures of other companies. There are no significant revenues resulting from transactions between the Company’s operat- ing segments. Total assets for the Company’s operating segments are determined based on the separate consolidated bal- ance sheets for CCUSA, CCUK and Crown Atlantic. The results of operations and financial position for CCUK reflect appropriate adjustments for their presentation in accordance with generally accepted accounting principles in the United States. The financial results for the Company’s operating segments are as follows: Year Ended December 31, 1999 CCUSA CCUK Crown Atlantic Corporate Office and Other Consolidated Total (In thousands of dollars) Net revenues: Site rental and broadcast transmission . . . . . . . . . . . . . . . . $ 58,293 $ 171,981 $ 37,620 $ — $ 267,894 Network services and other . . . . . . . . . . . . . . . . . . . . . . . . . 44,413 21,713 102,706 193,694 Costs of operations (exclusive of depreciation and amortization) . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash compensation charges . . . . . . . . . . . . . . . . . . . . . . 41,648 27,988 — 33,070 5,645 67 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 41,174 Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,816) Interest and other income (expense) . . . . . . . . . . . . . . . . . . . . (155) Interest expense and amortization of 93,058 5,625 819 94,192 — 769 63,597 29,826 377 10,268 47,888 20,953 5,146 — 1,471 1,471 1,089 5,064 4,584 77,865 345,759 156,748 43,823 5,403 21,789 (9,266) 139,785 — — 24,155 (2,366) 4,577 — 1,337 1,180 (11,783) 12,932 5,645 2,173 130,106 1,861 17,731 deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,119) (28,334) (12,233) (66,222) (110,908) Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56) — — (3,835) — 1,079 (219) — (275) (2,756) Cumulative effect of change in accounting principle for costs of start-up activities . . . . . . . . . . . . . . . . (2,014) — — (400) (2,414) Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (20,160) $ (1,966) Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 118,961 $ 150,562 $ $ (8,943) $ (65,692) $ (96,761) 23,287 $ 991 $ 293,801 Total assets (at year end) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,544,969 $ 989,060 $ 712,019 $ 590,602 $3,836,650 56 Year Ended December 31, 1998 CCUSA CCUK Corporate Office and Other Consolidated Total (In thousands of dollars) Net revenues: Site rental and broadcast transmission . . . . . . . . . . . . . . $ Network services and other . . . . . . . . . . . . . . . . . . . . . . . Costs of operations (exclusive of depreciation and amortization) . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . Corporate development . . . . . . . . . . . . . . . . . . . . . . . . . . . . EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash compensation charges . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 22,541 31,471 54,012 23,076 17,929 — 13,007 132 16,202 Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,327) Equity in earnings of unconsolidated affiliate . . . . . . . . . . . Interest and other income (expense) . . . . . . . . . . . . . . . . . . — (253) Interest expense and amortization of $ 52,487 $ 5,568 58,055 24,372 2,418 — 31,265 2,851 20,318 8,096 — 294 deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . (4,476) Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets (at year end) . . . . . . . . . . . . . . . . . . . . . . . . . . . (374) — (8,430) 84,911 332,555 $ $ $ (7,362) — (1,654) (626) 50,224 887,938 $ $ $ $ $ $ — 1,011 1,011 370 3,224 4,625 (7,208) 9,775 719 $ 75,028 38,050 113,078 47,818 23,571 4,625 37,064 12,758 37,239 (17,702) (12,933) 2,055 4,179 (17,251) — — (28,719) 3,624 $ $ 2,055 4,220 (29,089) (374) (1,654) (37,775) 138,759 302,737 $ 1,523,230 Year Ended December 31, 1997 CCUSA Corporate Office and Other Consolidated Total (In thousands of dollars) Net revenues: Site rental and broadcast transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Network services and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Costs of operations (exclusive of depreciation and amortization) . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in losses of unconsolidated affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest and other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,010 20,066 31,076 15,350 6,675 1,864 7,187 6,925 262 — (77) Interest expense and amortization of deferred financing costs . . . . . . . . . . . . . (4,660) Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ (4,475) 17,200 $ $ — 329 329 — 149 3,867 (3,687) 27 (3,714) (1,138) 2,028 (4,594) (49) (7,467) 835 $ 11,010 20,395 31,405 15,350 6,824 5,731 3,500 6,952 (3,452) (1,138) 1,951 (9,254) (49) $ $ (11,942) 18,035 57 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D G e o g r a p h i c I n f o r m a t i o n A summary of net revenues by country, based on the location of the Company’s subsidiary, is as follows: Years Ended December 31, 1997 1998 1999 (In thousands of dollars) United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,076 $ 51,807 $ 147,679 Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total domestic operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total for all foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,329 31,405 — — — 2,470 54,277 58,055 746 58,801 2,915 150,594 193,655 1,510 195,165 $ 31,405 $ 113,078 $ 345,759 A summary of long-lived assets by country of location is as follows: December 31, 1998 1999 (In thousands of dollars) United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 310,953 $ 2,220,468 Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,473 21,191 Total domestic operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,426 2,241,659 United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 855,560 Other foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Total for all foreign countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 855,688 925,424 7,522 932,946 $ 1,181,114 $ 3,174,605 M a j o r C u s t o m e r s For the years ended December 31, 1997, 1998 and 1999, CCUSA had revenues from a single customer amounting to $5,998,000, $14,168,000 and $16,872,000, respectively. For the years ended December 31, 1998 and 1999, consolidated net revenues include $33,044,000 and $97,520,000, respectively, from a single customer of CCUK. C o n c e n t r a t i o n s o f C r e d i t R i s k Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equiv- alents and trade receivables. The Company mitigates its risk with respect to cash and cash equivalents by maintaining such deposits at high credit quality financial institutions and monitoring the credit ratings of those institutions. The Company derives the largest portion of its revenues from customers in the wireless telecommunications industry. In addition, the Company has concentrations of operations in certain geographic areas (including the United Kingdom and var- ious regions in the United States). The Company mitigates its concentrations of credit risk with respect to trade receivables by actively monitoring the creditworthiness of its customers. Historically, the Company has not incurred any significant credit related losses. 1 4 . R e s t r u c t u r i n g C h a r g e s In connection with the formation of Crown Atlantic (see Note 2), the Company completed a restructuring of its United States operations during the first quarter of 1999. The objective of this restructuring was to transition from a centralized organization to a regionally-based organization in the United States. Coincident with the restructuring, the Company incurred one-time charges of $1,814,000 related to severance payments for staff reductions, as well as costs related to non-cancelable leases of excess office space. At December 31, 1999, other accrued liabilities includes $331,000 related to these charges. 58 The Company completed a restructuring of its TeleStructures, Inc. operations in December 1999. The objective of this restructuring was to reduce the size of the TeleStructures, Inc. staff to a level which could be justified by its current operating volume. In connection with this restructuring, the Company incurred one-time charges totaling $3,831,000 related to severance payments for the staff reductions, the recognition of an impairment loss for the remaining goodwill from the acquisition (see Note 2) and other related costs. At December 31, 1999, other accrued liabilities includes $1,309,000 related to these charges. 1 5 . Q u a r t e r l y F i n a n c i a l I n f o r m a t i o n ( U n a u d i t e d ) Summary quarterly financial information for the years ended December 31, 1998 and 1999 is as follows: Three Months Ended March 31 June 30 September 30 December 31 (In thousands of dollars, except per share amounts) 1998: Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,837 $ 11,530 $ 28,894 $ 60,817 Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss per common share-basic and diluted . . . . . . . . . . (2,494) (6,606) (0.79) (2,197) (6,426) (0.78) (12,006) (17,444) (0.33) 3,764 (7,299) (0.09) 1999: Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,109 $ 77,527 $ 98,927 $ 114,196 Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . (1,715) 1,124 202 2,250 Loss before cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . Cumulative effect of change in accounting principle . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,473) (2,414) (15,887) Per common share — basic and diluted: Loss before cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . (0.21) Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.03) (0.24) (20,850) — (20,850) (0.22) — (0.22) (27,067) — (27,067) (0.23) — (0.23) (32,957) — (32,957) (0.27) — (0.27) 1 6 . S u b s e q u e n t E v e n t s ( U n a u d i t e d ) C r o w n C a s t l e G T On January 31, 2000, the formation of Crown Castle GT took place with the first closing of towers (see Note 2). The Company contributed $223,870,000 in cash to Crown Castle GT, and GTE contributed 637 towers in exchange for a cash distribution of $198,870,000 from Crown Castle GT. B e l l S o u t h a n d B e l l S o u t h D C S On February 2, 2000, the Company closed on an additional 90 of the BellSouth towers (see Note 2). In connection with this closing, the Company paid $20,437,000 in cash and issued 441,925 shares of its common stock. On the same date, the Company closed on an additional 26 of the BellSouth DCS towers (see Note 2). In connection with this closing, the Company paid $10,662,000 in cash. 59 N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s C O N T I N U E D C r o w n C a s t l e A u s t r a l i a L i m i t e d ( “ C C A L ” ) In March 2000, CCAL (a 66.7% owned subsidiary of the Company) entered into an agreement to purchase approximately 700 towers in Australia from Cable & Wireless Optus. The total purchase price for the towers will be approximately $135,000,000 in cash (Australian $220,000,000), and the purchase is expected to close in the second quarter of 2000. The Company will account for its investment in CCAL as a purchase of tower assets, and will include CCAL’s results of operations and cash flows in the Company’s consolidated financial statements for periods subsequent to the purchase date. B a n k C r e d i t F a c i l i t y In March 2000, a subsidiary of the Company entered into a credit agreement with a syndicate of banks (the “2000 Credit Facility”) which consists of two term loan facilities and a revolving line of credit aggregating $1,200,000,000. Available bor- rowings under the 2000 Credit Facility are generally to be used for the construction and purchase of towers and for general corporate purposes of CCUSA, Crown Castle GT and CCAL. The amount of available borrowings will be determined based on the current financial performance (as defined) of those subsidiaries’ assets. In addition, up to $25,000,000 of borrowing availability under the 2000 Credit Facility can be used for letters of credit. The 2000 Credit Facility is secured by substantially all of the assets of CCUSA and CCAL, and the Company’s pledge of the capital stock of those subsidiaries and Crown Castle GT. In addition, the 2000 Credit Facility is guaranteed by CCIC. The 2000 Credit Facility requires the borrowers to maintain cer- tain financial covenants and includes restrictive covenants similar to those in the Senior Credit Facility (see Note 5). On March 15, 2000, the Company used $83,375,000 in borrowings under the 2000 Credit Facility to repay outstanding bor- rowings and accrued interest under the Senior Credit Facility. The net proceeds from $316,625,000 in additional borrowing will be used to fund a portion of the purchase price for Crown Castle GT and for general corporate purposes. In the first quarter of 2000, CCI will record an extraordinary loss of approximately $1,653,000 consisting of the write-off of unamortized deferred financing costs related to the Senior Credit Facility. 60 M a r k e t f o r t h e C o m p a n y ’s C o m m o n E q u i t y A N D R E L A T E D S T O C K H O L D E R M A T T E R S The Company’s Common Stock was initially offered to the public on August 18, 1998 at a price of $13.00 per share. The Common Stock is listed and traded on The Nasdaq Stock Market’s National Market SM (“Nasdaq”) under the symbol “TWRS”. The following table sets forth for the calendar periods indicated the high and low sales prices per share of the Company’s Common Stock as reported by Nasdaq. 1 9 9 8 : Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9 9 9 : First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . High Low 13.25 23.50 23.50 21.50 25.50 33.50 $ $ 6.69 6.00 16.63 16.38 14.69 15.44 2 0 0 0 : First Quarter (through March 15, 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42.69 $ 28.19 On March 15, 2000, the last reported sale price of the Common Stock as reported by Nasdaq was $40.06. As of March 15, 2000, there were approximately 473 holders of record of the Company’s Common Stock. We have never declared or paid any cash dividends on our capital stock and do not anticipate paying cash dividends on our capital stock in the foreseeable future. It is our current policy to retain earnings to finance the expansion of our operations. Future declaration and payment of cash dividends, if any, will be determined in light of the then-current conditions, including our earnings, operations, capital requirements, financial condition and other factors deemed relevant by the Board of Directors. In addition, our ability to pay dividends is limited by the terms of our debt instruments and the terms of the certifi- cate of designations in respect of our Exchangeable Preferred Stock. 61 C R O W N C A S T L E I N T E R N A T I O N A L C O R P . A N D S U B S I D I A R I E S C o r p o r a t e I n f o r m a t i o n C r o w n C a s t l e I n t e r n a t i o n a l C o r p . C r o w n C a s t l e I n t e r n a t i o n a l C o r p . B O A R D O F D I R E C T O R S O F F I C E O F T H E C H A I R M A N Ted B. Miller, Jr. Chairman and Chief Executive Officer Ted B. Miller, Jr. Chairman and Chief Executive Officer David L. Ivy Vice Chairman–Global Mergers and Acquisitions David L. Ivy Vice Chairman–Global Mergers and Acquisitions Michel Azibert Chief Executive Officer TéléDiffusion de France International S.A. Bruno Chetaille Chairman and Chief Executive Officer TéléDiffusion de France S.A. Carl Ferenbach Managing Director Berkshire Partners LLC Randall A. Hack Senior Managing Member Nassau Capital L.L.C. Edward C. Hutcheson, Jr. Principal PGG Capital J. Landis Martin President and Chief Executive Officer NL Industries, Inc. and Chairman and Chief Executive Officer Titanium Metals Corporation Robert F. McKenzie Entrepreneur William A. Murphy, IV Managing Director of Mergers & Acquisitions Merrill Lynch International Jeffrey H. Schutz General Partner The Centennial Funds William D. Strittmatter Vice President GE Capital Corporation and Managing Director–Telecommunications for the Structured Finance Group of GE Capital Corporation John P. Kelly President and Chief Operating Officer Charles C. Green, III Executive Vice President of Global Finance Alan Rees Executive Vice President–Technology George E. Reese Executive Vice President –International S E N I O R O F F I C E R S E. Blake Hawk Executive Vice President and General Counsel W. Benjamin Moreland Senior Vice President, Chief Financial Officer and Treasurer Wesley D. Cunningham Senior Vice President, Chief Accounting Officer and Corporate Controller Michael Schueppert Senior Vice President of Marketing and Business Development Edward W. Wallander President and Chief Operating Officer Crown Castle USA Inc. Robert E. Giles President and Chief Operating Officer Crown Castle UK Limited Peter G. Abery Managing Director Crown Castle Australia Limited 62 C r o w n C a s t l e U K L i m i t e d C r o w n C a s t l e A t l a n t i c L L C B O A R D O F D I R E C T O R S B O A R D O F D I R E C T O R S Ted B. Miller, Jr. Chairman and Chief Executive Officer Crown Castle International Corp. David H. Benson Vice President–Strategic Planning and Business Development Verizon Wireless David L. Ivy Vice Chairman–Global Mergers and Acquisitions Crown Castle International Corp. Brian D. Jacks President Crown Castle Atlantic LLC John P. Kelly President and Chief Operating Officer Crown Castle International Corp. Richard J. Lynch Executive Vice President and Chief Technical Officer Verizon Wireless Ted B. Miller, Jr. Chairman and Chief Executive Officer Crown Castle International Corp. Michel Azibert Chief Executive Officer TéléDiffusion de France International S.A. Robert E. Giles President and Chief Operating Officer Crown Castle UK Limited Charles C. Green, III Executive Vice President of Global Finance Crown Castle International Corp. Fady Kamar Director of Business Development TéléDiffusion de France International S.A. Alan Rees Executive Vice President–Technology Crown Castle International Corp. C r o w n C a s t l e U S A I n c . B O A R D O F D I R E C T O R S Ted B. Miller, Jr. Chairman and Chief Executive Officer Crown Castle International Corp. Carl Ferenbach Managing Director Berkshire Partners LLC David L. Ivy Vice Chairman–Global Mergers and Acquisitions Crown Castle International Corp. Stuart A. Williams Partner Eckert, Seamans, Cherin & Mellott 63 C R O W N C A S T L E I N T E R N A T I O N A L C O R P . A N D S U B S I D I A R I E S C o r p o r a t e I n f o r m a t i o n C O N T I N U E D C o r p o r a t e H e a d q u a r t e r s 510 Bering, Suite 500 Houston, Texas 77057 1-713-570-3000 A g e n t s a n d Tr u s t e e s ChaseMellon Shareholder Services 2323 Bryan Street Suite 2300 Dallas, Texas 75201 1-214-965-2220 The Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission is available, without charge, on written request. In addition, a copy of any exhib- it to the Form 10-K is available upon payment of a specified fee, which fee shall be limited to the Company’s expenses in furnishing such exhibit(s). All requests should be directed to: Crown Castle International Corp. Corporate Secretary 510 Bering, Suite 500 Houston, Texas 77057 Transfer Agent for Common Stock and 123⁄4% Senior Exchangeable Preferred Stock due 2010 A n n u a l M e e t i n g United States Trust Company of New York 114 West 47th Street, 25th Floor New York, New York 10036 1-212-852-1649 Trustee for the Company’s Debt Securities The Law Debenture Trust Corporation p.l.c. Princes House, 95 Gresham Street London EC2V 7LY 44.(0)20.7696.5206 Trustee for Crown Castle Finance PLC (f/k/a CastleTransmission (Finance) PLC) £125 million 9% Guaranteed Bonds due 2007 I n d e p e n d e n t A u d i t o r s KPMG LLP 700 Louisiana, 27th Floor Houston, Texas 77002 1-713-319-2000 G e n e r a l I n v e s t o r I n q u i r i e s a n d C o r r e s p o n d e n c e Investors with general questions about the Company are invited to call Easterly Investor Relations at 1-713-529-6600. Investor correspondence should be directed to: Kenneth S. Dennard Easterly Investor Relations 2001 Kirby Drive, Suite 500 Houston, Texas 77019 Stockholders are invited to attend the 2000 Crown Castle International Corp. Annual Meeting of Stockholders, which will be held Wednesday, May 24, 2000, at 9:00 a.m. at The Houstonian Hotel, 111 North Post Oak Lane, Houston, Texas 77024. Formal notice of the meeting, along with the proxy statement and proxy materials, will be mailed or otherwise made avail- able on or about April 24, 2000, to stockholders of record as of March 27, 2000. W e b S i t e www.crowncastle.com C o m m o n S t o c k I n f o r m a t i o n Crown Castle International Corp.’s common stock is traded on NASDAQ (stock symbol: TWRS). Statements made by Crown Castle International Corp. in this annual report that are not historical facts, including those regarding future performance, are forward-looking state- ments under the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions and involve risks and uncertainties that could cause actual results to differ from expectations. 64 w w w . c r o w n c a s t l e . c o m