Clarity.
Confi dence.
Crown Castle International
2004 Annual Report
Statistical
Highlights(1)
(cid:25)
(cid:18)
(cid:16)
(cid:12)
(cid:18)
(cid:17)
(cid:17)
(cid:24)
(cid:17)
(cid:12)
(cid:18)
(cid:17)
(cid:16)
(cid:19)
(cid:16)
(cid:12)
(cid:18)
(cid:17)
(cid:16)
(cid:16)
(cid:16)
(cid:12)
(cid:18)
(cid:17)
(cid:23)
(cid:19)
(cid:21)
(cid:4)
(cid:19)
(cid:24)
(cid:20)
(cid:4)
(cid:22)
(cid:20)
(cid:20)
(cid:4)
(cid:23)
(cid:23)
(cid:19)
(cid:4)
(cid:20)
(cid:21)
(cid:19)
(cid:4)
(cid:19)
(cid:16)
(cid:19)
(cid:16) (cid:4)
(cid:23)
(cid:18)
(cid:4)
(cid:20)
(cid:17)
(cid:18)
(cid:4)
(cid:17)
(cid:24)
(cid:18)
(cid:4)
(cid:22)
(cid:19)
(cid:18)
(cid:4)
(cid:21)
(cid:17)
(cid:18)
(cid:4)
(cid:17)
(cid:16)
(cid:18)
(cid:4)
(cid:16)(cid:19)
(cid:16)(cid:17)
(cid:16)(cid:18)
(cid:52)(cid:79)(cid:87)(cid:69)(cid:82)(cid:83)(cid:0)
(cid:8)(cid:78)(cid:85)(cid:77)(cid:66)(cid:69)(cid:82)(cid:0)(cid:79)(cid:70)(cid:0)(cid:83)(cid:73)(cid:84)(cid:69)(cid:83)(cid:9)
(cid:16)(cid:20)
(cid:16)(cid:17)
(cid:16)(cid:18)
(cid:16)(cid:19)
(cid:16)(cid:20)
(cid:51)(cid:73)(cid:84)(cid:69)(cid:0)(cid:50)(cid:69)(cid:78)(cid:84)(cid:65)(cid:76)(cid:0)(cid:50)(cid:69)(cid:86)(cid:69)(cid:78)(cid:85)(cid:69)(cid:0)
(cid:8)(cid:4)(cid:0)(cid:73)(cid:78)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)(cid:83)(cid:9)
(cid:16)(cid:17)
(cid:16)(cid:20)
(cid:16)(cid:18)
(cid:16)(cid:19)
(cid:51)(cid:73)(cid:84)(cid:69)(cid:0)(cid:50)(cid:69)(cid:78)(cid:84)(cid:65)(cid:76)(cid:0)(cid:39)(cid:82)(cid:79)(cid:83)(cid:83)(cid:0)(cid:45)(cid:65)(cid:82)(cid:71)(cid:73)(cid:78)
(cid:8)(cid:4)(cid:0)(cid:73)(cid:78)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)(cid:83)(cid:9)
(cid:16)(cid:20)
(cid:16)(cid:19)
(cid:16)(cid:17)
(cid:16)(cid:18)
(cid:33)(cid:68)(cid:74)(cid:85)(cid:83)(cid:84)(cid:69)(cid:68)(cid:0)(cid:37)(cid:34)(cid:41)(cid:52)(cid:36)(cid:33)
(cid:8)(cid:73)(cid:78)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)(cid:83)(cid:9)
(1)This graph includes presentations of Adjusted EBITDA and Site Rental Gross Margin, which are non-GAAP fi nancial measures. Crown Castle defi nes Adjusted EBITDA as net
income (loss) plus cumulative effect of change in accounting principle, income (loss) from discontinued operations, minority interests, provision for income taxes, interest expense,
amortization of deferred fi nancing costs and dividends on preferred stock, interest and other income (expense), depreciation, amortization and accretion, non-cash general and
administrative compensation charges, asset write-down charges and restructuring charges (credits). Crown Castle defi nes Site Rental Gross Margin as site rental revenue less site
rental cost of operations. Site Rental Gross Margin and Adjusted EBITDA are intended as alternative measures of operating results (as determined in accordance with Generally
Accepted Accounting Principles (GAAP)). Tables reconciling these non-GAAP fi nancial measures to the most directly comparable GAAP fi nancial measures are set forth on the inside
back cover of this document.
Corporate
Profi le
Crown Castle International Corp. engineers, deploys, owns and operates technologically
advanced shared wireless infrastructure, including extensive networks of towers.
Crown Castle offers signifi cant wireless communications coverage to 68 of the top 100
United States markets and to substantially all of the Australian population. Crown Castle
owns, operates and manages over 10,600 and over 1,300 wireless communications
sites in the U.S. and Australia, respectively. For more information on Crown Castle visit:
http://www.crowncastle.com.
Letter to
Shareholders
2004 was another very good year for Crown Castle.
The past year was characterized by our deliberate steps to forge a clear path for contin-
ued fi nancial and operational strength in future years. Our tower assets have continued
to outperform our expectations, and our fi nancial strategy has not wavered. We con-
sistently work to deliver the highest level of service to our customers at all times and
utilize our operating leverage to improve our balance sheet and mitigate risks Crown
Castle may encounter.
Crown Castle’s direction is clear: to grow recurring revenue, expand recurring margins
by driving effi ciencies in the existing business, allocate capital to projects that we
believe achieve high returns with lower execution risks and extend revenue around our
existing assets. The divestiture of our UK business changed the geographic composi-
tion of our assets, lessened our risk profi le and increased our expected growth rates.
We focused our efforts on growing our U.S. and Australian businesses and more effec-
tively capturing the demand in these less developed wireless markets. As a result, site
rental revenue was up 11.3% for full-year 2004 compared to full-year 2003, and recur-
ring cash fl ow was $64.6 million for the full year 2004. We stayed the course in terms
of executing our fi nancial and operational goals and continued to maintain our direction
in terms of growing site rental revenue and effi ciently managing the business in order
to grow recurring cash fl ow per share. I am heartened by the diligence of our employ-
ees who worked to fulfi ll our initiatives – from the daily tasks to the major endeavors
– and make Crown Castle an even stronger organization than it was previously.
We consistently work
to deliver the highest
level of service to our
customers at all times.
Clear Direction in 2004
2004 could be defi ned by several transforming milestones: we sold our UK business
in order to concentrate more determinedly on our U.S. business, purchased Verizon’s
interest in our Crown Atlantic joint venture, improved our balance sheet through the
purchase and tender of higher-coupon securities and selectively invested in our own
shares and existing assets to realize high returns on invested capital. Through these
dynamic events, we remained true to our core site rental business, proactively captur-
ing demand on our sites to optimize our customers’ networks.
The sale of our UK business for over $2 billion in August changed the landscape of
our business in terms of both our geographic market concentration and our capital
structure. Crown Castle was not actively seeking to divest its UK subsidiary, but the
purchase price fully realized the value of our UK business plan, and the strategic ratio-
nale was many-sided. The invested capital in the UK business had a lower return on
investment than our U.S. business, and we primarily wanted to focus our efforts on the
larger and faster-growing U.S. market to position ourselves for new growth opportuni-
ties. We believe top-line potential growth in our U.S. business is approximately twice
that of our prior UK business, and in the U.S. market, 2G build-outs are continuing with
carriers accelerating their 3G deployments and increasing 3G capital expenditures. We
were also able to capitalize on the historically favorable British pound to U.S. dollar
exchange rate due to the British pound’s being at near 10-year highs. Moreover, the
sale positioned Crown Castle to be within our targeted capital structure, reducing net
debt to EBITDA by over two turns. Crown Castle now has a signifi cantly reduced risk
profi le, with less leverage, less currency risk and less fl oating interest rate risk. As a
result, we believe Crown Castle is in a better position operationally, with well-located
assets and a balance sheet with which to further improve our capital structure and
execute our objectives.
Positive results were also realized in November through our purchase of Verizon’s
remaining 37.245% interest in our Crown Castle Atlantic joint venture for $295 million,
inclusive of approximately $15 million of net working capital. As a result of this transac-
tion, Crown Castle now owns 100% of Crown Atlantic. We were very pleased with the
purchase of Verizon’s interest in Crown Atlantic, which we believe will continue to be
benefi cial to Crown Castle in future years.
In conjunction with the sale of our UK business, we have taken steps to refi nance our
balance sheet in order to grow recurring cash fl ow. Previously, we measured our per-
formance primarily by the free cash fl ow metric, which took into account total capital
expenditures. We believe recurring cash fl ow is a more appropriate metric because it
takes into account only sustaining capital expenditures, which were approximately $10
million in 2004. The allocation of our cash fl ow to discretionary investments, such as
improvements to existing sites, construction of new sites, purchases of land under our
sites and purchases of our own securities, continues to be based on a prudent return
on investment threshold. We consider these discretionary investments as revenue-
generating capital expenditures and believe that measured capital investments can
enhance overall returns for our shareholders. We anticipate providing quarterly detail
around these uses of our recurring cash fl ow that seek to maximize the return on our
investments, and as a result, recurring cash fl ow per share. We believe recurring cash
fl ow is the most appropriate method for valuing our business, and we continually pur-
sue actions which increase the value of our core business.
The growth in our core site rental business, together with the sale of our UK business,
enabled us to repay our $1.2 billion credit facility and invest excess capital to refi nance
our capital structure. During 2004, we tendered for certain of our senior notes, includ-
ing convertible senior notes, with excess funds from the sale of our UK business and
existing cash balances. Through the purchases of our more expensive high-yield notes
and the repayment of our $1.2 billion credit facility, we were able to reduce interest
expense by over $28 million from the fourth quarter 2003 to the fourth quarter 2004.
In addition to purchasing our debt, we also opportunistically purchased shares of
Crown Castle common stock throughout the year. In 2004, we purchased 2.7 million
of our fully diluted shares at approximately $13.49 per share. We believe the purchase
of our own securities is one of the most prudent uses of our capital, and therefore, we
may continue to opportunistically take advantage of such investments as they
are presented.
Further, I have been very pleased with the opportunities we are seeing to build new
infrastructure. In 2004, we completed the design and construction of a comprehensive
wireless infrastructure solution covering the Walt Disney World® Resort in Orlando,
Florida. This solution incorporates new towers and stealth rooftop installations, provid-
ing wireless coverage to the fi ve convention centers totaling over 300,000 square feet.
We remain steadfast in
our pursuit of growing
recurring cash fl ow and
operating our valuable
infrastructure.
Currently, all of the Big Five wireless carriers are installed on our sites at the Walt Dis-
ney World® Resort. We look forward to developing solutions to satisfy the future needs
of our customers with new tower and distributed antenna system deployments.
Finally, we are excited about an opportunity to extend new revenue around our existing
assets through our investment in Crown Castle Mobile Media. As a result of the pur-
chase of our nationwide spectrum license in 2003, we entertained a number of options
for the use of the 5 MHz of nationwide spectrum rights. We believe our investment
in Crown Castle Mobile Media was the best use of this asset. Crown Castle Mobile
Media’s goal is to deploy a national DVB-H mobile media network to deliver television
services to mobile phones, and we have already successfully deployed a mobile digital
video television service on a three-site test network in Pittsburgh. This test network
includes fully functional transmitters using our spectrum and handsets provided by a
leading handset manufacturer. In the near future, we intend to fi nish this deployment
and make the system ready for consumer trials. We currently expect to make limited
additional investments in this opportunity as we expect to bring in strategic partners
to assist in funding the development. Although this project is still in the early stages,
I am encouraged that Crown Castle is able to so clearly leverage its existing assets to
engage in this new opportunity.
Clear Outlook for the Future
Our future direction is clear: we remain steadfast in our pursuit of growing recurring
cash fl ow and operating our valuable infrastructure. We believe the best measure of
the performance of our business is recurring cash fl ow per share, and we strive to ex-
pand this measure through the addition of revenue and cash fl ow to our existing assets
while opportunistically reducing our share count. I am confi dent of the strong demand
for wireless telecommunications services and believe Crown Castle is well-positioned
to thrive in this industry.
The consolidation of wireless carriers has been a widely publicized topic this year, and
there continues to be some speculation about the possible effects carrier consolidation
might have on the tower industry. The demand for our wireless infrastructure is driven
primarily by wireless minutes of use, and, therefore, we do not expect carrier consoli-
dation to have a signifi cant impact on the tower industry. As a result of the two recent
major carrier consolidations, thus far, we have not seen a reduction in the amount of
carrier equipment on our sites.
Recent studies continue to show a shift from wireline usage to wireless usage,
which is not surprising, given consumers’ increasingly mobile lifestyles. These trends
reinforce the need for Crown Castle’s wireless infrastructure. The need for cell sites
is based on what we essentially provide to wireless customers: access to wireless
minutes of use. With the increase in wireless minutes of use, networks may become
constrained, requiring more cell sites to be built.
We believe Crown Castle is both operationally and fi nancially positioned to capture the
continuing growth in the wireless telecommunications industry through the hard work
of our employees. We have demonstrated our fortitude in all economic cycles, and I
am confi dent of the clear direction in which we are headed. Finally, I am heartened by
the display of strong ethics and accountability in every area of our organization, and our
commitment to consistently deliver the best service to our customers.
I am confi dent Crown Castle has assembled a premier portfolio of assets, and we
will build on our past achievements in the coming year. I would like to recognize our
employees, who are crucial to Crown Castle’s leadership in the tower industry. In 2005,
I look forward to new advancements in the universe of wireless telecommunications
and the critical role Crown Castle will play in this dynamic industry.
On behalf of the Board of Directors and our employees, thank you for your support.
Sincerely,
John P. Kelly
President and Chief Executive Offi cer
This letter contains presentations of Recurring Cash Flow and Sustaining Capital Expenditures, which are non-GAAP fi nancial
measures. Crown Castle defi nes Recurring Cash Flow as Adjusted EBITDA less interest expense less Sustaining Capital Expen-
ditures and Sustaining Capital Expenditures as capital expenditures less revenue-generating capital expenditures, land purchases
and new site construction. A table reconciling these non-GAAP fi nancial measures to the most directly comparable GAAP fi nancial
measures is contained on the inside back cover of this document.
Walt Disney World® is a trademark of the Walt Disney Company.
Grow revenue
organically
Wireless minutes of use in the U.S. increased from 5% as a share of total
voice traffi c in 1999 to 21% in 2003. Further, fi xed-line subscriber growth
has been negative since 2001 and is expected to decline by approximately
3% by 2008. These and other recent telecommunications industry estimates
demonstrate the strong migration from the use of wireline telephony to
the use of wireless telephony services. Over the past year alone, wireless
minutes of use increased approximately 35% in the U.S. Moreover, wireless
penetration in the U.S. is approximately 58%, compared to 80% penetration
in many European countries. This gap in wireless penetration rates suggests
the possibility of U.S. wireless demand trending upward in the future.
Growth in U.S. wireless minutes of use is a key indicator of the demand
for wireless infrastructure, as wireless networks may become constrained
by such increased use. As minutes of use increase, Crown Castle provides
its customers with the wireless infrastructure necessary to help alleviate
network congestion and improve the quality of their wireless networks.
Crown Castle’s site rental revenue stream is comprised primarily of stable,
recurring revenue generated through long-term lease contracts with its many
wireless customers. Over the past year, Crown Castle added approximately
$4,400 per tower to its existing revenue base, or overall growth of 11.3%,
reinforcing the critical nature of its wireless infrastructure. Due to the
long-term nature of Crown Castle’s tenant leases, the recurring revenue
stream does not have to be “resold” each year. 95% of Crown Castle’s 2004
site rental revenue was under contract from the existing tenant base as of
the fourth quarter of 2003. Crown Castle’s primary objective is to continue
to grow its existing revenue stream through the addition of antennae to its
existing sites.
Expand margins
by driving
effi ciencies in the
existing business
In 2004, Crown Castle expanded its U.S. site rental gross margins (site rental
revenue less site rental cost of operations) to 66%, primarily through growth
in recurring revenue and through stabilizing operating costs. The additional
site rental revenue generated in 2004 increased site rental revenue margins
due to the relatively fi xed nature of site rental operating costs, such as ground
leases, maintenance and utilities, and property taxes. Over the past year,
Crown Castle has taken deliberate measures to ensure that ground leases
and other operating expenses remain relatively fi xed, with minimal future
escalators. Crown Castle endeavors to increase recurring revenue and contain
expenses in the pursuit of continued expansion of its margins.
The benefi ts of Crown Castle’s focus on the growth in site rental gross
margins can be illustrated by incremental site rental margins, or the increase
of recurring gross margin compared to the increase of recurring revenue. This
measure quantifi es the ability of Crown Castle to effi ciently convert new site
rental revenue into operating profi t. Crown Castle employees at all levels
have diligently managed operating expenses in order to expand incremental
margins over the past year. The combination of limiting discretionary
expenses and managing fi xed expenses produces increased incremental
margins. Incremental margins of 90% for the fourth quarter 2004 compared
to the fourth quarter 2003 are evidence of Crown Castle’s progress in the
expansion of its incremental margins.
Allocate capital
to projects that
achieve higher
returns with lower
execution risks
Crown Castle’s tower sites require minimal sustaining capital expenditures
– only $9.8 million of total capital expenditures were spent on maintenance and
repairs in 2004. The vast majority of Crown Castle’s capital expenditures are
discretionary in nature. Discretionary investments may consist of enhancements
to existing sites, purchases of land under our sites, purchases of debt or
equity securities or construction of new sites. Such discretionary investments
are measured against a predetermined investment threshold, and thoroughly
analyzed in comparison with other possible opportunities. Prudent allocation
of capital is critical to any business, and such discretionary investments are
generally made only if they exhibit suffi cient potential to produce a yield that
meets or exceeds such investment hurdle. Crown Castle measures these
investment opportunities based on the expected contribution to recurring
cash fl ow (Adjusted EBITDA less interest expense less sustaining capital
expenditures) per share.
In 2004, Crown Castle utilized a portion of its capital to reduce its interest
expense and reduce its fully diluted share count. Crown Castle believes
recurring cash fl ow per share is the best metric by which to value the business.
Recurring cash fl ow increases through revenue growth, cost containment and
interest expense reduction. Crown Castle utilized its capital to reduce interest
expense through the repayment of its $1.2 billion credit facility after the sale
of its UK business. The repayment of such credit facility in conjunction with
other purchases for approximately $296 million face value of Crown Castle’s
debt decreased interest expense by over $28 million, comparing the fourth
quarter 2004 to the fourth quarter 2003. Crown Castle also purchased Verizon’s
interest in its Crown Castle Atlantic joint venture for $295 million, and as a
result, this subsidiary is now 100% owned by Crown Castle. Lastly, Crown
Castle purchased 2.7 million of its fully diluted shares in 2004 at an average
price of $13.49, thus reducing its share count and increasing recurring cash fl ow
per share. Crown Castle is committed to the pursuit of high-yielding capital
investments that maximize recurring cash fl ow per share.
Extend
revenue around
existing assets
Crown Castle seeks to further leverage its existing tower sites through
complementary revenue-producing opportunities which it believes exhibit
suffi cient potential to satisfy its investment criteria or exhibit potential to
complement its existing assets and expertise. New opportunities may serve to
augment Crown Castle’s existing revenue stream and provide new sources for
additional revenue on its existing assets. One such opportunity is Crown Castle
Mobile Media, a venture aimed to deploy a DVB-H mobile media network
to deliver television services to handheld devices, including mobile phones.
Crown Castle’s 5 MHz of U.S. nationwide spectrum rights, together with its
over 10,600 U.S. tower sites, could form an important part of a nationwide
mobile digital video television service to wireless handsets. Crown Castle has
already successfully deployed a three-site test network in Pittsburgh using
its existing U.S. sites and is optimistic about the future of this developing
business. Further, Allen & Company LLC, the New York-based investment
bank, has made an equity investment to acquire a minority interest in Crown
Castle Mobile Media and will be an advisor to Crown Castle with respect to
this project.
Crown Castle takes a measured approach to investing capital in
complementary ventures outside the existing tower business. Crown Castle
recognizes the inherent value in its assets through creatively extending its
revenue model around promising opportunities. Beyond its existing tower
business, Crown Castle also participates in revenue-extending opportunities
such as radio-based backhaul services and distributed antennae systems.
BOARD OF DIRECTORS
J. Landis Martin
Chairman and Chief Executive Offi cer
Titanium Metals Corporation
Carl Ferenbach
Managing Director, Berkshire Partners LLC
Ari Q. Fitzgerald
Partner with Hogan & Hartson L.L.P.
Randall A. Hack
Senior Managing Director, Capstone Capital L.L.C.
Senior Managing Director, Nassau Capital L.L.C.
Dale N. Hatfi eld
Adjunct Professor, Interdisciplinary Telecommunications
Program, University of Colorado at Boulder
Lee W. Hogan
Individual Investor
Edward C. Hutcheson, Jr.
Individual Investor and Consultant
John P. Kelly
President and Chief Executive Offi cer
Crown Castle International Corp.
Robert F. McKenzie
Individual Investor
William D. Strittmatter
Vice President
GE Capital Corporation and
Chief Risk Offi cer for GE Commercial Finance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
or
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 001-16441
CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
510 Bering Drive
Suite 500
Houston, Texas
(Address of principal executive offices)
76-0470458
(I.R.S. Employer
Identification No.)
77057-1457
(Zip Code)
(713) 570-3000
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to
Section 12(b) of the Act
Common Stock, $.01 par value
Rights to Purchase Series A Participating
Cumulative Preferred Stock
Name of Each Exchange
on Which Registered
New York Stock Exchange
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:95) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:133)
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes (cid:95) No (cid:133)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was
approximately $3,278.2 million as of June 30, 2004, the last business day of the registrant’s most recently completed
second fiscal quarter, based on the New York Stock Exchange closing price on that day of $14.75 per share.
As of February 28, 2005, there were 225,048,491 shares of Common Stock outstanding.
Applicable Only to Corporate Registrants
Documents Incorporated by Reference
The information required to be furnished pursuant to Part III of this Form 10-K will be set forth in, and incorporated
by reference from, the registrant’s definitive proxy statement for the annual meeting of stockholders (the “2005 Proxy
Statement”), which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the
fiscal year ended December 31, 2004.
CROWN CASTLE INTERNATIONAL CORP.
TABLE OF CONTENTS
Explanatory Note Regarding Restatement.............................................................................................................
Page
1
PART I
Item 1. Business ...................................................................................................................................................
2
Item 2. Properties ................................................................................................................................................. 18
Item 3. Legal Proceedings.................................................................................................................................... 19
Item 4. Submissions of Matters to a Vote of Security Holders ............................................................................ 19
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.................................................................................................................................. 20
Item 6. Selected Financial Data ........................................................................................................................... 21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .................. 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................................................. 51
Item 8. Financial Statements and Supplementary Data........................................................................................ 52
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ................. 106
Item 9A. Controls and Procedures .......................................................................................................................... 106
Item 9B. Other Information .................................................................................................................................... 111
PART III
Item 10. Directors and Executive Officers of the Registrant ................................................................................. 111
Item 11. Executive Compensation ......................................................................................................................... 111
Item 12. Security Ownership of Certain Beneficial Owners and Management ..................................................... 111
Item 13. Certain Relationships and Related Transactions...................................................................................... 111
Item 14. Principal Accounting Fees and Services.................................................................................................. 111
Item 15. Exhibits, Financial Statement Schedules ................................................................................................. 112
Signatures ............................................................................................................................................................... 122
PART IV
PRELIMINARY NOTE: This Annual Report on Form 10-K contains forward-looking statements as defined by the
Private Securities Litigation Reform Act of 1995. Forward-looking statements should be read in conjunction with
the cautionary statements and other important factors included in this Form 10-K. See “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Cautionary Statement for Purposes of
Forward-Looking Statements” and “Item 1. Business—Risk Factors” for descriptions of important factors which
could cause actual results to differ materially from those contained in the forward-looking statements.
EXPLANATORY NOTE REGARDING RESTATEMENT
The Company is restating its consolidated balance sheet as of December 31, 2003, and consolidated statements
of operations and comprehensive income (loss) and stockholders’ equity for the years ended December 31, 2002 and
2003. The restatement effected periods prior to 2002 (see “Item 6. Selected Financial Data”). The impact of the
restatement on such prior periods was reflected as an adjustment to opening accumulated deficit as of January 1,
2002. The restatement is reported in this Annual Report on Form 10-K for the year ended December 31, 2004 and
will be reported in amendments to our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31,
2004, June 30, 2004, and September 30, 2004.
The consolidated financial statements have been restated to reflect the correction of errors for certain non-cash
items relating to the Company’s lease accounting practices. On February 7, 2005, the Securities and Exchange
Commission issued a public letter to the American Institute of Certified Public Accountants to clarify the
interpretation of existing accounting literature applicable to certain leases and leasehold improvements. As a result,
the Company has adjusted its method of accounting for tenant leases, ground leases and depreciation.
The corrections to the Company’s consolidated financial statements consist of non-cash adjustments primarily
attributable to increases in site rental revenues, ground lease expense (included in site rental costs of operations) and
depreciation expense. Since the adjustments affected results of operations at the Company’s majority owned
Australian subsidiary (“CCAL”) and the Company’s two joint ventures with Verizon Communications, they also
resulted in changes to minority interests and the purchase price allocation for the acquisition of a minority interest in
2003. The adjustments for depreciation expense also effected the discontinued operations of its UK subsidiary
(“CCUK”), resulting in a change to the net gain on disposal. The cumulative effects of these adjustments on the
Company’s consolidated statements of operations from inception through September 30, 2004 are as follows: an
increase in site rental revenues of $34.3 million; an increase in site rental costs of operations of $98.8 million; an
increase in depreciation expense of $180.7 million; an increase in operating losses of $245.3 million; an increase in
other expense (attributable to the loss on the issuance of an interest in the Crown Atlantic joint venture) of $3.1
million; an increase in minority interests of $43.1 million; a decrease in income from operations of CCUK, and a
corresponding increase in the net gain on disposal of CCUK, of $4.8 million; and an increase in net losses of $205.3
million. These adjustments have no effect on the Company’s credit (provision) for income taxes since the net impact
on deferred tax assets and liabilities is offset by changes in valuation allowances. The adjustments do not affect
historical net cash flows from operating, investing or financing activities, future cash flows or the timing of
payments under related leases. Moreover, the corrections do not have any impact on cash balances, compliance with
any financial covenants or debt instruments, or the current economic value of the Company’s leaseholds and its
tower assets. The net impact of the accounting correction will generally be to accelerate ground lease expense (as
such expenses are straight-lined over a period that equals or exceeds the remaining depreciable life of the tower,
along with periods covered by tenant renewal options) and depreciation expense and, to a lesser extent, site rental
revenues (as such revenues are only straight-lined over the current lease term, without regard to renewal options that
may be exercised by a tenant).
The restatement adjustments increased the Company’s net loss and net loss per share for the year ended
December 31, 2002 by approximately $47.4 million or $0.23 per share, and increased the net loss and net loss per
share for the year ended December 31, 2003 by approximately $56.5 million or $0.27 per share.
For a discussion of the individual restatement adjustments, see Note 1 to the Company’s consolidated financial
statements in “Item 8. Financial Statements and Supplementary Data”. Additionally, see “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” For more information on the impact of
the restatement on years 2000 and 2001, see “Item 6. Selected Financial Data”.
The Company did not amend its Annual Report on Form 10-K or Quarterly Reports on Form 10-Q for periods
effected by the restatement that ended prior to March 31, 2004. The financial statements and related financial
information contained in the Company’s previously filed reports should no longer be relied upon.
All referenced amounts in this Annual Report for prior periods and prior period comparisons reflect the
balances and amounts on a restated basis.
1
Item 1. Business
Overview
PART I
We own, operate and lease towers for wireless communications. We engage in such activities through a variety of
structures, including subleasing and management arrangements. As of December 31, 2004, we owned, leased or
managed 12,000 towers, including 10,612 towers in the United States and Puerto Rico and 1,388 towers in
Australia. Our real property interests in the sites on which our towers are located consist primarily of leasehold and
sub-leasehold interests, fee interests, easements, licenses and rights-of-way, with approximately 85% of our property
interests in such sites being pursuant to ground lease, sublease or license as of December 31, 2004. Our customers
currently include many of the world’s major wireless communications companies, including Cingular Wireless
(“Cingular”), Verizon Wireless, T-Mobile, Nextel, Sprint PCS, Alltel, Vodafone Australia and SingTel Optus
(“Optus”).
Our strategy is to increase our recurring revenue and recurring cash flow per share by increasing the utilization
of our towers by wireless companies, and, where appropriate, to continue to build, acquire and operate new towers
and wireless infrastructure, through opportunities created by:
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the need for existing wireless carriers to expand coverage and improve network capacity;
the additional demand for towers and wireless infrastructure created by new entrants into the wireless
communications industry;
the introduction of new wireless technologies, including third generation (“3G”) and broadband data
technology;
our development of adjacent businesses which complement our existing businesses and assets; and
the transfer to third parties, or outsourcing, of tower ownership and management by wireless carriers.
In both the U.S. and Australia, our core business is the leasing (including via licensing) of antenna space on our
towers that can accommodate multiple tenants (“co-location”). Our site rental leasing revenues are derived from this
core business which we are seeking to grow by increasing the utilization of our towers. Typically, these revenues
result from long-term (five to ten year) contracts with our customers with renewal terms at the option of the
customer. As a result, in any given year approximately 97% of our site rental revenue has been contracted for in a
prior year and is of a recurring nature. We also provide certain network services relating to our towers on a limited
basis for our customers, including project management of antenna installations.
Our tower portfolios consist primarily of towers in various metropolitan areas. As of December 31, 2004, 51%
of our U.S. towers were located in the 50 largest basic trading areas, or “BTAs”, in the U.S., and 70% of our U.S.
towers were located in the 100 largest BTAs. See “Business—The Company—U.S. Operations.” Through our
Australia tower portfolio we have a strategic presence in each of Australia’s major metropolitan areas, including
Sydney, Melbourne, Brisbane, Adelaide and Perth. See “Business—The Company—Australia Operations”.
An element of our growth strategy is to extend revenue around our existing assets. See “Business—Growth
Strategy”. Toward that end, we are pursuing other strategic opportunities, or adjacent businesses, which we believe
exhibit sufficient potential to achieve our risk-adjusted return on investment hurdle rates or exhibit potential to
complement our core site rental business. Such emerging adjacent businesses include Crown Castle Mobile Media
and Crown Castle Solutions. See “Business—The Company—Emerging Businesses”.
On August 31, 2004 we completed the sale of our business operations in the United Kingdom, which
represented approximately 40.8% of our revenues (as restated) for the year ended December 31, 2003, to an affiliate
of National Grid Transco Plc for $2.029 billion in cash, after taking into account certain working capital type
adjustments. Prior to such sale, our primary businesses in the U.K., which were conducted through a wholly-owned
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subsidiary Crown Castle UK Limited, were the leasing of antenna space on our sites to wireless carriers and the
operation of television and radio broadcast transmission networks. See “Business—The Company—Previous U.K.
Operations.”
We believe our towers are attractive to a diverse range of wireless communications industries, including cellular
personal communications services (PCS), enhanced specialized mobile radio, 3G, broadband data, paging, fixed
point-to-point radio, and point to multipoint broadcasting (such as radio and television broadcasting). In the U.S. our
major customers include Cingular, Verizon Wireless, T-Mobile, Nextel, Sprint PCS and Alltel. Our principal
customers in Australia are Vodafone Australia, Optus, Hutchison and Telstra.
Strategy
Our mission is to deliver the highest level of service to our customers at all times – striving to be their critical
partner as we assist them in growing efficient, ubiquitous wireless networks. We believe our experience in
expanding, marketing and operating our portfolio of towers positions us to accomplish this mission. The key
elements of our business strategy are to:
(cid:120) Grow Revenue Organically. We are seeking to increase the utilization of our towers by increasing the
number of antenna leases on our towers. Our towers have capacity available for additional antenna space
rental. We believe there is demand for such co-location capacity both from existing wireless carriers and
new wireless carriers. We intend to continue to use targeted sales and marketing techniques to increase
utilization of and investment return on our towers.
(cid:120) Grow Margins. We are seeking to take advantage of the operating margin expansion afforded by the
relatively fixed nature of the operating costs associated with our site rental business. The majority of the
operating costs of our site rental business consist of ground lease expense, property taxes, repair and
maintenance, utilities and salaries, which tend to escalate at approximately the rate of inflation.
Consequently, if increased utilization of tower capacity is achieved at low incremental cost, our site rental
business should experience operating margin expansion.
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Allocate Capital Efficiently. We are focused on the efficient utilization of capital. We may seek to enhance
or expand our existing portfolio of towers through (1) the enhancement of our existing towers, (2) the
selective acquisition and/or build of strategically located towers or other sites that satisfy certain investment
criteria and are complementary to our tower portfolio or (3) the acquisition of real property interests in the
sites on which our towers are located. With respect to tower and site acquisitions, such transactions may
include acquisitions of towers or other sites from major wireless carriers or other tower companies through
direct acquisitions, tower exchanges, joint ventures, mergers or other means. With respect to tower builds
and structural enhancements we may selectively build new towers and structurally enhance our existing
towers for wireless carriers as they expand and fill in their service areas and deploy new technologies
requiring additional sites. Our decisions to invest additional capital in structural enhancements and
selective acquisitions or build activities are generally based upon whether such investments exhibit
sufficient co-location revenue potential to achieve our risk-adjusted return on investment hurdle rates. From
time to time, we may sell or exchange certain of our towers or other assets as opportunities arise. In
addition, we have, and may continue to, use some of our capital to acquire our debt and equity securities
when such acquisitions appear economically viable and capital efficient. Such activities are undertaken to
maximize our recurring cash flow per share.
Extend Revenue Around Our Existing Assets. We are seeking to leverage our assets and the skills of our
personnel in the U.S. and Australia. With our shared wireless communications infrastructure and broadcast
transmission network expertise, we are positioned to extend the products and services we offer beyond the
leasing of space on our towers to other potentially shareable activities, such as antenna and base station
maintenance, shared antennas, shared radio spectrum, shared point-to-point radio backhaul and network
maintenance and monitoring. Further, we are pursuing other strategic opportunities which we believe
exhibit sufficient potential to satisfy investment return criteria or exhibit potential to complement our
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existing assets and expertise, as evidenced by our investments in Crown Castle Mobile Media and Crown
Castle Solutions. See “Business—The Company—Emerging Businesses”.
The Company
We operate our business through our subsidiaries in two countries — the U.S. and Australia. We conduct our
operations principally through subsidiaries of Crown Castle Operating Company, which together with its
subsidiaries (collectively, “CCOC”) and Crown Castle International Corp. (our holding company) form our
“Restricted Group” for purposes of compliance with the covenants imposed by the indentures governing our public
debt. Our U.S. operations are conducted through CCOC, and our Australian operations are conducted through
Crown Castle Australia Pty Ltd, or “CCAL”, which is a part of CCOC and the Restricted Group.
We also use other subsidiaries to hold assets we acquire or control as a result of various transactions we have
engaged in or may engage in from time to time. For more information about our operating segments, as well as
financial information about the geographic areas in which we operate, see “Item 8. Financial Statements and
Supplementary Data—Notes to Consolidated Financial Statements—13. Operating Segments and Concentrations of
Credit Risk” and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” below.
U.S. Operations
Overview
Our primary business in the U.S., including Puerto Rico, is the leasing of antenna space on multiple-tenant
towers to a variety of wireless carriers under long-term lease contracts. Supporting our competitive position in the
site rental business, we offer our customers certain infrastructure and network services, including project
management of antenna installations.
We lease antenna space to our customers on our owned, leased and managed towers. We generally receive
monthly rental payments from customers payable under site rental leases that are typically five years with renewal
options. We also receive fees for managing the installation of customers’ equipment and antennas on certain of our
towers. Our U.S. customers include such companies as Cingular, Verizon Wireless, T-Mobile, Nextel, Sprint PCS
and Alltel. We also provide tower space to private network operators and various federal, state and local government
agencies.
At December 31, 2004, we owned, leased or managed 10,612 towers in the U.S. and Puerto Rico. These towers
are located predominantly in the northeast, southeast, midwest, southwest and Pacific coast regions of the U.S. Most
of our towers were acquired through transactions consummated within the past six years, including through
transactions with Bell Atlantic Mobile and GTE Wireless (both now part of Verizon Wireless), BellSouth Mobility
and BellSouth DCS (both now part of Cingular), and Powertel (now a part of T-Mobile). In addition, we may
consider and enter into arrangements with other wireless carriers and independent tower operators to acquire
additional towers or tower portfolios.
Through the Bell Atlantic Mobile transaction, which was entered into on December 8, 1998, we currently have
2,020 towers. Through the GTE Wireless transaction, which was entered into on November 7, 1999, we currently
have 2,897 towers. At the time these transactions were entered into, the towers transferred represented substantially
all the towers used in such carriers’ 850 MHz wireless networks in the eastern, midwestern, southwestern and
Pacific coast areas of the U.S. and currently provide coverage for 22 of the top 50 U.S. metropolitan areas, including
New York, Chicago, Houston, Washington, D.C., Philadelphia, Boston, Phoenix and San Francisco.
Through the BellSouth Mobility and BellSouth DCS (both now part of Cingular) transactions, which were
substantially completed in September 2000, we have approximately 3,055 towers (including towers built pursuant to
build-to-suit agreements). These towers represented (1) substantially all of the towers in BellSouth Mobility’s 850
MHz wireless network in the southeastern and midwestern United States providing coverage for 12 of the top 50
4
U.S. metropolitan areas, including Miami, Atlanta, Tampa, Nashville and Indianapolis and (2) substantially all of the
towers in BellSouth DCS’s 1.9 GHz wireless network in North Carolina, South Carolina, east Tennessee and parts
of Georgia.
Through the Powertel acquisition, which closed in June 1999, we have approximately 674 towers. These towers
represented substantially all of the towers owned by Powertel (now a part of T-Mobile) in its 1.9 GHz wireless
network in the southeastern and midwestern United States. Approximately 90% of these towers are in seven
southeastern states providing coverage for such metropolitan areas as Atlanta, Birmingham, Jacksonville, Memphis
and Louisville, and a number of major connecting highway corridors in the southeast.
We plan to continue to structurally enhance our existing towers and selectively build or acquire strategically
located towers or other sites which meet certain economic criteria on a limited basis. To reduce risk and speculation,
in connection with building towers, we generally look for sites with multiple tenant demand and obtain lease
commitments from wireless carriers prior to building such towers. Further, the towers are constructed to
accommodate multiple tenants in order to obviate the need for later structural enhancement, saving capital and time
for wireless carriers.
Site Rental
In the U.S., we rent antenna space on our towers to a variety of carriers operating cellular, personal
communication services, enhanced specialized mobile radio, 3G, broadband data services, paging and other
networks. The number of antennae that our towers can accommodate varies depending on the tower’s location,
height and structural capacity. In 2004, the rate of new tenant additions (or modifications to existing installations) on
our U.S. towers was approximately 38% greater than in 2003.
We generally receive monthly rental payments from customers payable under site leases, and we also receive
fees for managing the installation of customers’ equipment and antennas on certain of our towers. In the U.S., the
new leases typically entered into by us have original terms of five years (with three or four optional renewal periods
of five years each) and provide for annual price increases based upon a consumer price index, a fixed percentage or
a combination thereof. The lease agreements relating to tower network acquisitions generally have a base term of ten
years, with multiple renewal options, each typically ranging from five to ten years. We have existing master lease
agreements with most major wireless carriers, including Cingular, Verizon Wireless, T-Mobile, Nextel and Sprint
PCS, which provide certain terms (including economic terms) that govern leases on our towers entered into by such
parties during the term of their master lease agreements.
The average monthly rental payment of a new tenant added to a tower varies among the different regions in the
U.S. and the type of service being provided by the tenant, with broadband tenants (such as personal communications
services) paying more than narrowband tenants (such as paging), primarily as a result of the physical size of the
antenna installation. In addition, we also routinely receive rental payment increases in connection with lease
amendments which authorize carriers to add additional antennas or other equipment to towers on which they already
have equipment pursuant to pre-existing lease agreements.
Network Services
We provide network services, such as antenna installations, network design and site selection, site acquisition,
site development and other services, on a limited basis. Currently, we generally provide such services only when
important to a customer relationship.
Customers
In both our U.S. site rental and network services businesses, we work with a number of customers in a variety
of businesses including cellular, personal communications services, enhanced specialized mobile radio, 3G,
broadband data services and paging. We work primarily with large national wireless carriers such as Cingular,
Verizon Wireless, T-Mobile, Nextel and Sprint PCS. For the year ended December 31, 2004, these five carriers,
together with AT&T Wireless, which merged with Cingular in October 2004, accounted for approximately 73.8% of
our U.S. revenues and 68.3% of our consolidated revenues, with Cingular and Verizon Wireless accounting for
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26.8% and 23.5%, respectively, of our U.S. revenues and 24.8% and 21.8%, respectively, of our consolidated
revenues. The percentages set forth in the preceding sentence for Cingular reflect the completed merger of Cingular
and AT&T Wireless as if it had occurred as of January 1, 2004. Assuming the consolidation contemplated by the
merger agreement entered into between Sprint PCS and Nextel on December 15, 2004 had been completed on
January 1, 2004, the combined Sprint Nextel entity would have accounted for 13.4% of our U.S. revenues and
12.4% of our consolidated revenues. No other single customer in the U.S. accounted for more than 10.0% of our
2004 consolidated revenues. See “Business—Risk Factors—A Substantial Portion of Our Revenues is Derived From
a Small Number of Customers”.
Sales and Marketing
Our U.S. sales organization markets our towers within the wireless telecommunications industry. We seek to
become the preferred independent tower provider for our wireless carrier customers. We use public and proprietary
databases to develop targeted marketing programs focused on carrier network build-outs, modifications, site
additions and network services. Information about carriers’ existing sites, leases, marketing strategies, capital spend
plans, deployment status, and actual signal strength measurements taken in the field is analyzed to match specific
towers in our portfolios with potential new site demand. In addition, we have developed proprietary property
management tools and software which allow us to determine co-locatability with greater speed and accuracy.
Through these and other tools we have developed, we seek to determine “potential demand” for our towers, allowing
for proactive discussions with our carrier customers regarding these towers and the timing of their demand.
A team of national account directors maintains our relationships with our largest customers. These directors
work to develop new tower leasing opportunities, network services contracts and site management opportunities, as
well as to ensure that customers’ tower needs are efficiently translated into new leases on our towers.
Sales personnel in our regional offices develop and maintain local relationships with carriers that are expanding
their networks, entering new markets, bringing new technologies to market or requiring maintenance or add-on
business. We target numerous types of wireless carriers, including cellular, personal communications services,
enhanced specialized mobile radio, 3G, wireless data, broadband data, paging and government agencies. Our
objective is to lease space on existing towers and pre-sell capacity on our new towers prior to construction.
In addition to our full-time sales and marketing staff, a number of senior managers and executive officers spend
a significant portion of their time on sales and marketing activities and call on existing and prospective customers.
Competition
In the U.S., we compete with other independent tower owners which also provide site rental and network
services; wireless carriers which own and operate their own tower networks; broadcasters with respect to their
broadcast towers; building owners that lease antenna space on co-locatable rooftop sites; and other potential
competitors, such as utilities and outdoor advertisers, some of which actively participate in the site rental industry.
Wireless carriers that own and operate their own tower networks generally are substantially larger and have greater
financial resources than we have. We believe that tower location, capacity, quality of service, deployment speed and
price have been and will continue to be the most significant competitive factors affecting the leasing of a site.
The following is a list of some of the larger independent tower companies with which we compete in the U.S.:
SpectraSite, American Tower, SBA Communications, AAT Communications and Global Signal. Significant
additional site rental competition comes from the leasing of rooftops, utility structures and other alternative sites for
antennas.
Competitors in the network services business include site acquisition consultants, zoning consultants, real estate
firms, right-of-way consulting firms, construction companies, tower owners/managers, radio frequency engineering
consultants, telecommunications equipment vendors who can provide turnkey site development services through
multiple subcontractors, and our customers’ internal staffs. Commencing in 2002, we made a strategic decision to
reduce our service offerings to primarily the management of antenna installations on our sites. We believe that
carriers base their decisions on the outsourcing of network services on criteria such as a company’s experience, track
record, local reputation, price and time for completion of a project.
6
Australia Operations
Our primary business in Australia is the leasing of antenna space to wireless carriers. CCAL, a joint venture
which is owned 77.6% by us and 22.4% by Permanent Nominees (Aust) Ltd, acting on behalf of a group of
professional and institutional investors led by Jump Capital Limited, is our principal Australian operating subsidiary.
CCAL is the largest independent tower operator in Australia. As of December 31, 2004, CCAL has 1,388 towers,
with a strategic presence in each of Australia’s major metropolitan areas, including Sydney, Melbourne, Brisbane,
Adelaide and Perth.
Our principal customers in Australia are Vodafone Australia, Optus, Hutchison and Telstra. For the year ended
December 31, 2004, these four carriers accounted for approximately 95.5% of our Australia revenues and 7.2% of
our consolidated revenues, with Vodafone Australia and Optus accounting for 35.9% and 29.9%, respectively, of
our Australia revenues and 2.6% and 2.4%, respectively, of our consolidated revenues. No customer in Australia
accounted for more than 10.0% of our 2004 consolidated revenues. See “Business—Risk Factors—A Substantial
Portion of Our Revenues is Derived From a Small Number of Customers”.
Through its acquisition of towers from Optus, which was substantially completed in April 2000, CCAL has 759
towers, including towers built or acquired subsequent to the initial closing. As part of this transaction, Optus agreed
to lease space on these towers for an initial term of 15 years. The arrangement relating to CCAL developing future
tower sites for Optus was terminated in March 2002 by mutual consent.
Through its acquisition of towers from Vodafone Australia, which was substantially completed in April 2001,
CCAL has 629 towers, including towers built or acquired subsequent to the initial closing. As part of this
transaction, Vodafone Australia has agreed to lease space on these towers for an initial rent free term of 10 years,
and CCAL has the exclusive right, and under limited circumstances the obligation, to acquire certain additional
tower sites that Vodafone Australia may construct. To date, CCAL has not elected to acquire, nor been obligated to
purchase, any towers under this arrangement.
In Australia, CCAL competes with wireless carriers, which own and operate their own tower networks; service
companies that provide engineering and site acquisition services; and other site owners, such as broadcasters and
building owners. The two other significant tower owners in Australia are Broadcast Australia and Telstra. We
believe that tower location, capacity, quality of service, deployment speed and price within a geographic market are
the most significant competitive factors affecting the leasing of a site.
In 2003, Hutchison launched a 3G network in Australia and as part of its deployment has utilized a number of
our towers in connection with such 3G network. In December 2004, Hutchison and Telstra established a joint
venture to share Hutchison’s existing 3G network (commencing on July 1, 2005) and to build out that 3G network
over the following two years. In addition, Optus and Vodafone Australia entered into a joint venture agreement on
November 19, 2004 to deploy a shared 3G network, which is targeted for launch in the third quarter of 2005. The
Optus/Vodafone Australia joint venture has already utilized a number of CCAL towers as it commences its 3G
deployment. We expect more of our towers will be utilized in 2005 by both joint ventures for their 3G networks.
In 2004, Unwired Australia deployed a broadband wireless network (providing high speed internet services to
consumers) in Sydney. Unwired Australia utilized a number of our towers for this deployment. Personal Broadband
Australia also commenced deployment of a broadband wireless network in 2004 using a number of our towers.
Emerging Businesses
We have pursued and are currently pursuing other strategic opportunities, or adjacent businesses, which we
believe exhibit sufficient potential to achieve our risk-adjusted return on investment hurdle rates or exhibit potential
to complement our core site rental business. Such emerging adjacent businesses include Crown Castle Mobile Media
and Crown Castle Solutions.
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Crown Castle Mobile Media
Crown Castle Mobile Media is a subsidiary formed to explore a potential offering of a digital video broadcast to
handsets (“DVB-H”) service to capitalize on our U.S. nationwide license of five megahertz of spectrum. The U.S.
nationwide license relates to five megahertz of spectrum in the 1670-1675 MHz range, has an initial term of 10
years, and was acquired during 2003 through a Federal Communications Commission (“FCC”) auction for a price of
approximately $12.6 million. Crown Castle Mobile Media seeks to participate with wireless carriers, handset
manufacturers, financial institutions and other third parties in connection with the financing and development of this
potential opportunity. In 2004, Crown Castle Mobile Media launched a test network of its DVB-H technology in
Pittsburgh, Pennsylvania and is currently developing networks in certain select U.S. cities. Crown Castle Mobile
Media had no revenues for the year ended December 31, 2004.
Crown Castle Solutions
Crown Castle Solutions is a subsidiary which offers a hub-based, low visibility distributed antenna system,
called OptiNet. Base stations can be located up to ten miles away and connected to the distributed antenna system
via dark fiber. Each antenna location in the distributed antenna network provides coverage in a radius of
approximately one-half mile. The OptiNet distributed antenna system is particularly useful in areas with challenging
zoning regulations or other impediments to traditional towers. Crown Castle Solutions had revenues of $208,000 for
the year ended December 31, 2004.
Previous U.K. Business
On August 31, 2004 we completed the sale of our business operations in the United Kingdom, which
represented approximately 40.8% of our revenues for the year ended December 31, 2003 (as restated), to an affiliate
of National Grid Transco Plc for $2.029 billion in cash, after taking into account certain working capital type
adjustments. Prior to such sale, our primary businesses in the U.K., which were conducted through a wholly-owned
subsidiary Crown Castle UK Limited (“CCUK”), were the leasing of antenna space on our sites to wireless carriers
and the operation of television and radio broadcast transmission networks.
In accordance with the terms of our prior 2000 Credit Facility, we were required to use $1.275 billion of the
proceeds from the transaction to fully repay the outstanding borrowings under the 2000 Credit Facility. Under the
terms of the indentures governing our public debt securities, any proceeds from the sale of CCUK not invested in
qualifying assets within one year must be offered to purchase such debt securities from our bondholders at the
outstanding principal amount plus accrued interest. On September 10, 2004, in order to satisfy these requirements
under the indentures, we commenced an offer to purchase certain of our outstanding public debt securities in
advance of such one year time period. In connection with such offer, on October 12, 2004, we purchased $465,000
in outstanding principal amount of tendered notes. The remaining proceeds from the sale of CCUK are being used
for general corporate purposes, including (1) the purchase on November 4, 2004 of Verizon’s remaining 37.245%
equity interest in the Crown Atlantic joint venture for $295.0 million in cash and (2) purchases, from time to time, of
our common stock and our 4% senior notes, subject to certain restrictions.
Employees
At December 31, 2004, we employed approximately 847 people worldwide. We are not a party to any collective
bargaining agreements. We have not experienced any strikes or work stoppages, and management believes that our
employee relations are satisfactory.
Regulatory Matters
To date, we have not incurred any material fines or penalties or experienced any material adverse effects to our
business as a result of any domestic or international regulations. The summary below is based on regulations
8
currently in effect, and such regulations are subject to review and modification by the applicable governmental
authority from time to time. See “Business—Risk Factors.”
United States
Federal Regulations
Both the FCC and the Federal Aviation Administration (“FAA”) regulate towers used for wireless
communications transmitters and receivers. Such regulations control the siting and marking of towers and may,
depending on the characteristics of particular towers, require the registration of tower facilities and the issuance of
determinations confirming no hazard to air traffic. Wireless communications devices operating on towers are
separately regulated and independently licensed based upon the particular frequency used. In addition, the FCC and
the FAA have developed standards to consider proposals for new or modified tower and antenna structures based
upon the height and location, including proximity to airports. Proposals to construct or to modify existing tower and
antenna structures above certain heights are reviewed by the FAA to ensure the structure will not present a hazard to
aviation, which determination may be conditioned upon compliance with lighting and marking requirements. The
FCC requires its licensees to operate communications devices only on towers that comply with FAA rules and are
registered with the FCC, if required by its regulations. Where tower lighting is required by FAA regulation, tower
owners bear the responsibility of notifying the FAA of any tower lighting outage. Failure to comply with the
applicable requirements may lead to civil penalties.
Local Regulations
The U.S. Telecommunications Act of 1996 amended the Communications Act of 1934 to preserve state and
local zoning authorities’ jurisdiction over the siting of communications towers. The law, however, limits local
zoning authority by prohibiting actions by local authorities that discriminate between different service providers of
wireless services or ban altogether the construction, modification or placement of communications towers.
Additionally, the law prohibits state and local restrictions based on the environmental effects of radiofrequency
emissions to the extent the facilities comply with FCC regulations.
Local regulations include city and other local ordinances (including subdivision and zoning ordinances),
approvals for construction and removal of towers, and restrictive covenants imposed by community developers.
These regulations vary greatly, but typically require us to obtain approval from local officials prior to tower
construction. Local zoning authorities may render decisions or place conditions on construction that are responsive
to community residents’ concerns regarding the height and visibility of the towers.
Other Regulations
We hold, through certain of our subsidiaries, certain licenses for radio transmission facilities granted by the
FCC, including licenses for common carrier microwave service, commercial and private mobile radio service,
specialized mobile radio and paging service, which are subject to additional regulation by the FCC. Our FCC license
relating to the 1670 to 1675 MHz spectrum band contains certain conditions related to the services that may be
provided thereunder, the technical equipment used in connection therewith and the circumstances under which it
may be renewed. We are required to obtain the FCC’s approval prior to assigning or transferring control of any of
our FCC licenses.
Australia
Federal Regulation
Carrier licenses and nominated carrier declarations issued under the Australian Telecommunications Act 1997
authorize the use of network units for the supply of telecommunications services to the public. The definition of
“network units” includes line links and base stations used for wireless telephony services but does not include tower
infrastructure. Accordingly, CCAL as a tower owner and operator does not require a carrier license. Similarly,
9
because CCAL does not own any transmitters or spectrum, it does not currently require any apparatus or spectrum
licenses issued under the Australian Radiocommunications Act 1992.
Carriers have a statutory obligation to provide other carriers with access to sites and, if there is a dispute
(including a pricing dispute), the matter may be referred to the Australian Competition and Consumer Commission
for resolution. As a non-carrier, CCAL is not subject to this regime, and our customers negotiate site access on a
commercial basis.
While the Australian Telecommunications Act 1997 grants certain exemptions from planning laws for the
installation of “low impact facilities,” newly constructed towers are expressly excluded from the definition of “low
impact facilities.” Accordingly, in connection with the construction of towers, CCAL is subject to state and local
planning laws which vary on a site by site basis. Structural enhancements may be undertaken on behalf of a carrier
without state and local planning approval under the general “maintenance power” under the Australian
Telecommunications Act 1997, although these enhancements may be subject to state and local planning laws if
CCAL is unable to obtain carrier co-operation to use that legislative power. For a limited number of sites, CCAL is
also required to install aircraft warning lighting in compliance with federal aviation regulations.
Local Regulations
In Australia there are various local, state and territory laws and regulations which relate to, among other things,
town planning and zoning restrictions, standards and approvals for the design, construction or alteration of a
structure or facility, and environmental regulations. As in the U.S., these laws vary greatly, but typically require
tower owners to obtain approval from government bodies prior to tower construction and to comply with
environmental laws on an ongoing basis.
Environmental Matters
To date, we have not incurred any material fines or penalties or experienced any material adverse effects to our
business as a result of any domestic or international environmental regulations or matters. See “Business—Risk
Factors.”
The construction of new towers may be subject to environmental review under the National Environmental
Policy Act of 1969, which requires federal agencies to evaluate the environmental impact of major federal actions.
The FCC has promulgated regulations implementing the National Environmental Policy Act which require
applicants to investigate the potential environmental impact of the proposed tower construction. Should the proposed
tower construction present a significant environmental impact, the FCC must prepare an environmental impact
statement, subject to public comment. If a proposed tower may have a significant impact on the environment, the
FCC’s approval of the construction could be significantly delayed.
Our operations are subject to foreign, federal, state and local laws and regulations relating to the management,
use, storage, disposal, emission, and remediation of, and exposure to, hazardous and non-hazardous substances,
materials and wastes. As an owner, lessee and/or operator of real property, we are subject to certain environmental
laws that impose strict, joint-and-several liability for the cleanup of on-site or off-site contamination relating to
existing or historical operations, and we could also be subject to personal injury or property damage claims relating
to such contamination. We are potentially subject to environmental and cleanup liabilities in the U.S. and Australia.
As licensees and site owners, we are also subject to regulations and guidelines that impose a variety of
operational requirements relating to radio frequency emissions. As employers, we are subject to OSHA (and similar
occupational health and safety legislation in Australia) and similar guidelines regarding employee protection from
radio frequency exposure. The potential connection between radio frequency emissions and certain negative health
effects, including some forms of cancer, has been the subject of substantial study by the scientific community in
recent years.
10
We have compliance programs and monitoring projects to help assure that we are in substantial compliance
with applicable environmental laws. Nevertheless, there can be no assurance that the costs of compliance with
existing or future environmental laws will not have a material adverse effect on us.
Risk Factors
You should carefully consider the risks described below, as well as the other information contained in this
document, when evaluating your investment in our securities.
Our Business Depends on the Demand for Wireless Communications and Towers—We may be adversely affected
by any slowdown in the demand for wireless communications.
Demand for our sites depends on demand for communication sites from wireless carriers, which, in turn,
depends on the demand for wireless services. The willingness of wireless carriers to utilize our infrastructure is
affected by numerous factors, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
consumer demand for wireless services;
availability and location of our sites and alternative sites;
cost of capital, including interest rates;
availability of capital to wireless carriers;
(cid:120) willingness to co-locate equipment;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
local and state restrictions on the proliferation of towers;
cost of building towers;
technological changes affecting the number or type of communications sites needed to provide wireless
communications services to a given geographic area;
our ability to efficiently satisfy their service requirements; and
tax policies.
A slowdown in the demand in a particular wireless segment may adversely affect the demand for our sites.
Moreover, some wireless carriers operate with substantial indebtedness, and financial problems for our customers
may result in accounts receivable going uncollected, the loss of a customer (and associated lease revenue) or a
reduced ability of these customers to finance expansion activities. A slowdown in the deployment of equipment for
new wireless technology, the consolidation of wireless carriers, the sharing of networks by wireless carriers or the
increased use of alternative sites may also adversely affect the demand for our sites. Finally, advances in technology,
such as the development of new antenna systems, new terrestrial deployment technologies and new satellite systems,
may reduce the need for land-based, or terrestrial, transmission networks or our sites. To some extent, almost all of
the above factors have occurred in recent years with an adverse effect on our business, and such factors are likely to
persist in the future. The occurrence of any of these factors may negatively impact our revenues, result in an
impairment of our assets or otherwise have a material adverse effect on us.
11
A Substantial Portion of Our Revenues Is Derived From a Small Number of Customers—The loss or
consolidation of, network sharing among, or financial instability of any of our limited number of customers may
materially decrease revenues.
Approximately 81.0% of our revenues are derived from 10 wireless carrier customers, including Cingular,
Verizon Wireless, T-Mobile, Nextel and Sprint PCS, which represented 24.8%, 21.8%, 9.3%, 7.2% and 5.2% of our
revenues, respectively, for the year ended December 31, 2004. The percentage set forth in the preceding sentence for
Cingular reflects the completed merger of Cingular and AT&T Wireless as if it had occurred as of January 1, 2004.
In addition, assuming the consolidation contemplated by the merger agreement entered into between Sprint PCS and
Nextel on December 15, 2004 had been completed on January 1, 2004, the combined Sprint Nextel entity would
have accounted for 12.4% of our consolidated revenues. The loss of any one of our large customers as a result of
bankruptcy, consolidation or merger with other customers of ours or otherwise may materially decrease our
revenues and have other adverse effects on our business. We cannot guarantee that the leases (including
management service agreements) with our major wireless carrier customers will not be terminated or that these
carriers will renew such agreements.
Wireless carriers frequently enter into agreements with their competitors allowing them to utilize one another’s
wireless communications facilities to accommodate customers who are out of range of their home providers’
services. In addition, wireless carriers have also entered into agreements allowing two or more carriers to share a
single wireless network or jointly develop a tower portfolio in certain locations. Such agreements may be viewed by
wireless carriers as a superior alternative to leasing space for their own antennas on our sites. The proliferation of
these roaming, network sharing and joint development agreements may have a material adverse effect on us.
Wireless Carrier Consolidation—Consolidations and mergers in the wireless industry could decrease the demand
for our sites and may lead to reductions in our revenues and our ability to generate positive cash flows.
Various wireless carriers, which are our primary existing and potential customers, could enter into mergers,
acquisitions or joint ventures with each other over time. On October 26, 2004, Cingular, our second largest U.S.
customer by revenues for the year ended December 31, 2003, announced it had completed its merger with AT&T
Wireless, our sixth largest U.S. customer by revenues for the year ended December 31, 2003. On December 15,
2004, Sprint PCS, our fifth largest U.S. customer by revenues for the year ended December 31, 2003, and Nextel,
our fourth largest U.S. customer by revenues for the year ended December 31, 2003 announced that they had
executed a merger agreement. Such consolidations could reduce the size of our customer base and have a negative
impact on the demand for our services. In addition, consolidation among our customers is likely to result in
duplicate or overlapping networks, which may result in a reduction of cell sites and impact the revenues at our sites.
Recent regulatory developments have made consolidation in the wireless industry easier and more likely. For
example, in February 2002, the Federal Communications Commission, or FCC, enabled the ownership by a single
entity of interests in both cellular carriers in overlapping metropolitan cellular service areas. In January 2003, the
FCC eliminated the spectrum aggregation cap in a geographic area in favor of a case-by-case review of spectrum
transactions. Also, in May 2003, the FCC adopted new rules authorizing wireless radio services holding exclusive
licenses to freely lease unused spectrum. It is possible that at least some wireless carriers may take advantage of this
relaxation of spectrum and ownership limitations and consolidate their businesses. Any industry consolidation could
decrease the demand for our sites, which in turn may result in a reduction in our revenues.
Economic and Wireless Telecommunications Industry Slowdown—an economic or wireless telecommunications
industry slowdown may materially and adversely affect our business (including reducing demand for our towers
and network services) and the business of our customers.
In recent years, the U.S. economy, particularly in the wireless telecommunications industry, has experienced
significant general slowdowns which have negatively affected the factors described in these risk factors, influencing
demand for tower space and network services. Similar slowdowns in the U.S. or Australia in the future may reduce
consumer demand for wireless services, or negatively impact the debt and equity markets, thereby causing carriers
to delay or abandon implementation of new systems and technologies, including 3G and other wireless broadband
services. Further, the war on terrorism, the threat of additional terrorist attacks, the political and economic
12
uncertainties resulting therefrom and other unforeseen events may impose additional risks upon and adversely affect
the wireless telecommunications industry and us.
We believe that the recent economic slowdown in the U.S., particularly in the wireless telecommunications
industry, has already harmed, and similar slowdowns in the U.S. or Australia may further harm, the financial
condition or operations of wireless carriers, some of which, including customers of ours, have filed for bankruptcy
protection.
Restrictive Debt Covenants—The terms of our debt instruments limit our ability to take a number of actions that
our management might otherwise believe to be in our best interests. In addition, if we fail to comply with our
covenants, our debt may be accelerated.
Currently we have debt instruments that restrict our ability to incur more indebtedness, pay dividends, create
liens, sell assets and engage in certain mergers and acquisitions. Our Crown Atlantic subsidiaries, under their credit
facility, are also required to maintain specific financial ratios. Our ability to comply with the restrictions of our debt
instruments and to satisfy our debt obligations will depend on our future operating performance. If we fail to comply
with the debt restrictions, we will be in default under those instruments, which in some cases may cause the maturity
of substantially all of our indebtedness to be accelerated. The restrictions relating to our indebtedness may also
effect our decisions relating to certain strategic growth opportunities.
We are a holding company with no business operations of our own. We conduct all of our business operations
through our subsidiaries. Accordingly, our only source of cash to pay interest and principal on our outstanding
indebtedness is distributions relating to our ownership interest in our subsidiaries from the cash flows and net
earnings generated by such subsidiaries or from proceeds of debt or equity offerings. Under the terms of the Crown
Atlantic credit facility, our Crown Atlantic subsidiaries are prohibited from making any dividends or distributions to
us. For the year ended December 31, 2004, our Crown Atlantic subsidiaries produced 20.7% of our consolidated
revenue. If our Crown Atlantic subsidiaries are unable to dividend cash to us when we need it, we may be unable to
satisfy our obligations, including interest and principal payments, under our debt instruments.
Substantial Level of Indebtedness—Our substantial level of indebtedness may adversely affect our ability to react
to changes in our business. We may also be limited in our ability to use debt to fund future capital needs.
We have a substantial amount of indebtedness. The following chart sets forth certain important credit
information and is presented as of December 31, 2004, after giving effect (pro forma) to the January 2005 purchases
of our 4% senior notes (dollars in thousands).
Total indebtedness..............................................................................................$
Redeemable preferred stock...............................................................................
Stockholders’ equity ..........................................................................................
Debt and redeemable preferred stock to equity ratio..........................................
1,756,898
508,040
1,751,038
1.29
As a result of our substantial indebtedness:
(cid:120) we may be more vulnerable to general adverse economic and industry conditions;
(cid:120) we may find it more difficult to obtain additional financing to fund future working capital, capital
expenditures and other general corporate requirements;
(cid:120) we will be required to dedicate a substantial portion of our cash flow from operations to the payment of
principal and interest on our debt, reducing the available cash flow to fund other investments, including
capital expenditures;
(cid:120) we may have limited flexibility in planning for, or reacting to, changes in our business or in the industry;
and
13
(cid:120) we may have a competitive disadvantage relative to other companies in our industry with less debt.
We cannot guarantee that we will be able to generate enough cash flow from operations or that we will be able
to obtain enough capital to service our debt or pay our obligations under our preferred stock. In addition, we may
need to refinance some or all of our indebtedness on or before maturity. We cannot guarantee that we will be able to
refinance our indebtedness on commercially reasonable terms or at all. If we are unable to refinance our 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. In addition, our Crown Atlantic credit facility requires periodic interest
payments on amounts borrowed thereunder.
Fluctuations in market interest rates may increase interest expense relating to our floating rate indebtedness. As
of December 31, 2004, approximately 90.3% of our outstanding indebtedness consists of long-term fixed interest
rate notes and debentures. In addition, there is no guarantee future refinancings of our indebtedness will have fixed
interest rates or that interest rates on such indebtedness will be equal to or lower than the rates on our current
indebtedness.
We Operate Our Business In a Competitive Industry and Some of Our Competitors Have Significantly More
Resources or Less Debt Than We Do—As a result of this competition, we may find it more difficult to achieve
favorable lease rates on our sites.
We face competition for site rental customers from various sources, including:
(cid:120)
other large independent tower owners;
(cid:120) wireless carriers that own and operate their own towers and lease antenna space to other carriers;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
alternative facilities such as rooftops, broadcast towers and utility poles;
new alternative deployment methods;
site development companies that acquire antenna space on existing towers for wireless carriers and manage
new tower construction; and
local independent tower operators.
Wireless carriers that own and operate their own tower portfolios generally are substantially larger (particularly
given the impact of announced wireless carrier mergers) and have greater financial resources than we have. Further,
the financial status of certain of our competitors may lead to increased competition in certain areas. Competition for
tenants on sites may adversely affect lease rates and revenues.
New Technologies May Make Our Site Leasing Services Less Desirable to Potential Tenants and Result in
Decreasing Revenues—Such new technologies may significantly reduce demand for site leases and negatively
impact the growth in our revenues.
The development and deployment of signal combining technologies, which permit one antenna to service
multiple frequencies and, thereby, multiple customers, may reduce the need for our antenna space. In addition, other
technologies which may be developed and emerge may serve as substitutes and alternatives to leasing which might
otherwise be anticipated or expected on our sites had such technologies not existed.
Mobile satellite systems and other new technologies may compete with land-based wireless communications
systems, thereby reducing the demand for tower space and other services we provide. The FCC has granted license
applications for several low-earth orbiting satellite systems that are intended to provide mobile voice or data
services. The growth in delivery of video services by direct broadcast satellites may also adversely affect demand
for our antenna space.
14
Any reduction in site leasing demand resulting from multiple frequency antennas, satellite or other technologies
may negatively impact our revenues or otherwise have a material adverse effect on us.
New Technologies May Not Perform as Projected—2.5G/3G and other technologies may not deploy or be adopted
by customers as rapidly or in the manner projected.
There can be no assurances that 2.5G/3G or other new wireless technologies will be introduced or deployed as
rapidly or in the manner previously or presently projected by the wireless or broadcast industries. The deployment of
3G has already been significantly delayed from prior projections. In addition, demand and customer adoption rates
for such new technologies may be lower or slower than anticipated for numerous reasons. As a result, growth
opportunities and demand for site rental or broadcast services as a result of such technologies may not be realized at
the times or to the extent previously or presently anticipated.
We Generally Lease or Sublease the Land Under Our Towers and May Not Be Able to Extend These Leases—If
we fail to protect our rights against persons claiming superior rights in our communications sites, our business
may be adversely affected.
Our real property interests relating to the sites on which our towers are located consist primarily of leasehold
and sub-leasehold interests, fee interests, easements, licenses and rights-of-way. A loss of these interests may
interfere with our ability to conduct our business and generate revenues. For various reasons, we may not always
have the ability to access, analyze and verify all information regarding titles and other issues prior to completing an
acquisition of sites. Further, we may not be able to renew ground leases on commercially viable terms.
Approximately 16% of our sites are on land where our property interests in such land have a final expiration date of
less than 10 years. Our inability to protect our rights to the land under our towers may have a material adverse affect
on us.
We May Need Additional Financing, Which May Not Be Available, for Strategic Growth Opportunities—If we
are unable to raise capital in the future when needed, we may not be able to fund future growth opportunities.
Over time, we may require significant capital expenditures for strategic growth opportunities. As of December
31, 2004, after giving effect to the January 2005 purchases of our 4% senior notes, we had consolidated cash and
cash equivalents of $391.7 million. We may need additional sources of debt or equity capital in the future to fund
future growth opportunities. Additional financing may not be available or may be restricted by the terms of our
outstanding indebtedness. Additional sales of equity securities would dilute our existing stockholders. If we are
unable to raise capital when our needs arise, we may not be able to fund future growth opportunities.
Laws and Regulations Which May Change at Any Time and With Which We May Fail to Comply Regulate Our
Business—If we fail to comply with applicable laws or regulations, we may be fined or even lose our right to
conduct some of our business.
A variety of federal, state, local and foreign laws and regulations apply to our business. Failure to comply with
applicable requirements may lead to civil penalties or require us to assume indemnification obligations or breach
contractual provisions. We cannot guarantee that existing or future laws or regulations, including state and local tax
laws, will not adversely affect our business, increase delays or result in additional costs. These factors may have a
material adverse effect on us.
We Are Heavily Dependent on Our Senior Management—If we lose members of our senior management, we may
not be able to find appropriate replacements on a timely basis and our business may be adversely affected.
Our existing operations and continued future development depend to a significant extent upon the performance
and active participation of certain key individuals as employees, including our chief executive officer. We cannot
15
guarantee that we will be successful in retaining the services of these or other key personnel. If we were to lose any
of these individuals, we may not be able to find or integrate appropriate replacements on a timely basis and we may
be materially adversely affected.
Variability In Demand For Network Services Business Reduces the Predictability of Our Results—Our network
services business has historically experienced significant volatility in demand.
The operating results of our network services business for any particular period may vary significantly and should
not necessarily be considered indicative of longer-term results. Network services revenues declined as a percentage
of our total revenues during 2003 and 2004, reflecting our efforts to de-emphasize this area of our business and
increased competition. Such decline may continue in the foreseeable future.
Emissions From Antennas on Our Sites or Wireless Devices May Create Health Risks—We may suffer from
future claims if the radio frequency emissions from wireless handsets or equipment on our sites are demonstrated
to cause negative health effects.
The FCC and other government agencies impose requirements and other guidelines on its licensees relating to
radio frequency emissions. The potential connection between radio frequency emissions and certain negative health
effects, including some forms of cancer, has been the subject of substantial study by the scientific community in
recent years. We cannot guarantee that claims relating to radio frequency emissions will not arise in the future or
that the results of such studies will not be adverse to us.
Public perception of possible health risks associated with cellular and other wireless communications may slow
or diminish the growth of wireless companies, which may in turn slow or diminish our growth. In particular,
negative public perception of, and regulations regarding, these perceived health risks may slow or diminish the
market acceptance of wireless communications services.
If a connection between radio emissions and possible negative health effects were established, our operations,
costs and revenues would be materially and adversely affected. We do not maintain any significant insurance with
respect to these matters.
Anti-Takeover Provisions in Our Certificate of Incorporation and Competition Laws May Have Effects That
Conflict with the Interests of Our Stockholders—Certain provisions of our certificate of incorporation, by-laws
and operative agreements and domestic and international competition laws may make it more difficult for a third
party to acquire control of us or for us to acquire control of a third party, even if such a change in control would
be beneficial to you.
We have a number of anti-takeover devices in place that will hinder takeover attempts and may reduce the
market value of our common stock. Our anti-takeover provisions include:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
a staggered board of directors;
a shareholder rights agreement;
the authority of the board of directors to issue preferred stock without approval of the holders of common
stock; and
advance notice requirements for director nominations and actions to be taken at annual meetings.
Our by-laws permit special meetings of the stockholders to be called only upon the request of a majority of the
board of directors, and deny stockholders the ability to call such meetings. Such provisions, as well as the provisions
of Section 203 of the Delaware General Corporation Law, may impede a merger, consolidation, takeover or other
16
business combination or discourage a potential acquiror from making a tender offer or otherwise attempting to
obtain control of us.
In addition, domestic and international competition laws may prevent or discourage us from acquiring towers or
tower networks in certain geographical areas or impede a merger, consolidation, takeover or other business
combination or discourage a potential acquiror from making a tender offer or otherwise attempting to obtain control
of us.
Shares Eligible For Future Sale—Sales or issuances of a substantial number of shares of common stock may
adversely affect the market price of our common stock.
Future sales of a substantial number of shares of our common stock may adversely affect the market price of
our common stock. As of February 28, 2005, we had 225,048,491 shares of common stock outstanding. In addition,
we have reserved 25,322,431 shares of common stock for issuance under our various stock compensation plans,
639,990 shares of common stock upon exercise of outstanding warrants, 8,173,223 shares of common stock for the
conversion of our 4% senior notes and 16,066,944 shares of common stock for the conversion of our outstanding
convertible preferred stock.
A small number of shareholders own a significant percentage of our outstanding common stock. If any one of
these shareholders, or any group of our shareholders, sells a large quantity of shares of our common stock, or the
public market perceives that existing shareholders might sell shares of common stock, the market price of our
common stock may significantly decline.
The holders of our 8 ¼% convertible preferred stock and our 6.25% convertible preferred stock are entitled to
receive cumulative dividends at the rate of 8 ¼% per annum (approximately $16.5 million) and 6.25% per annum
(approximately $19.9 million), respectively, payable on a quarterly basis. We have the option to pay the dividends
on such series of preferred stock in cash or in shares of our common stock. We have historically paid such dividends
with shares of our common stock, and we expect to continue to do so. The number of shares of our common stock
required to be issued to pay such dividends is dependent upon the current market value of our common stock at the
time such dividend is required to be paid. From time to time we have elected to repurchase the shares of common
stock issued as dividends, effectively paying the dividends in cash (utilizing cash from an unrestricted investment
subsidiary), in order to mitigate or offset the dilutive effect of the common stock issued to pay such dividends upon
the shares of our common stock otherwise outstanding. We may continue to purchase shares of common stock
issued as dividends on our preferred stock in order to mitigate such dilution; however, there can be no assurances
that we will do so.
Tower Industry Consolidation(cid:127)Our participation or failure to participate in a tower industry consolidation may
be harmful to our business.
We contemplate that there are certain operational efficiencies and benefits to be gained through the acquisition
of additional tower portfolios including through the consolidation of tower companies. There are numerous reasons
we might not be able to participate in any such acquisition including competition for such assets, asset valuation and
anti-competition restraints. Our failure or lack of participation in tower portfolio acquisitions including any tower
industry consolidation could result in our inability to receive or fully partake of such efficiencies and benefits and
may result in an adverse effect on our business.
If we are involved in a tower portfolio acquisition including a consolidation of tower companies, then such
transaction will have certain risk and costs that could adversely affect our business. The potential risk and costs
include those relating to integration, diversion of management time and focus, and failure to achieve revenue targets,
operational synergies and other benefits contemplated.
17
We Have Experienced Disputes With Customers and Suppliers—Such disputes may lead to increased tensions,
damaged relationships or litigation which may result in the loss of a key customer or supplier.
We have experienced certain conflicts or disputes with some of our customers and service providers. Most of
these disputes relate to the interpretation of terms in our contracts. While we seek to resolve such conflicts amicably
and have generally resolved customer and supplier disputes on commercially reasonable terms, such disputes may
lead to increased tensions and damaged relationships between ourselves and these entities, some of whom are key
customers or suppliers of ours. In addition, if we are unable to resolve these differences amicably, we may be forced
to litigate these disputes in order to enforce or defend our rights. There can be no assurances as to the outcome of
these disputes. Damaged relationships or litigation with our key customers or suppliers may lead to decreased
revenues (including as a result of losing a customer) or increased costs, which could have a material adverse effect
on us.
Our Operations in Australia Expose Us to Changes in Foreign Currency Exchange Rates—We may suffer losses
as a result of changes in such currency exchange rates.
We conduct business in the U.S. and Australia, which exposes us to fluctuations in foreign currency exchange
rates. For the year ended December 31, 2004, approximately 7.5% of our consolidated revenues originated outside
the U.S., all of which were denominated in currencies other than U.S. dollars, principally Australian dollars. We
have not historically engaged in significant hedging activities relating to our non-U.S. dollar operations, and we may
suffer future losses as a result of changes in currency exchange rates.
Internet Access to Reports
We maintain an internet website at www.crowncastle.com. Our annual reports on Form 10-K, quarterly reports
on Form 10-Q, and current reports on Form 8-K (and any amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934) are made available, free of charge, through the
investor relations section of our internet website at http://investor.crowncastle.com/edgar.cfm as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
In addition, our corporate governance guidelines, business practices and ethics policy and the charters of our
Audit Committee, Compensation Committee and Nominating & Corporate Governance Committees are available
through the investor relations section of our internet website at http://investor.crowncastle.com/edgar.cfm, and such
information is also available in print to any shareholder who requests it.
Item 2. Properties
Our principal corporate offices are located in Houston, Texas; Canonsburg, Pennsylvania; and Sydney,
Australia.
Property
Interest
Canonsburg, PA......................................................................... Owned
Houston, TX .............................................................................. Leased
Sydney, Australia ...................................................................... Leased
Location
Size
(Sq. Ft.)
124,000
24,300
15,527
Use
Corporate office
Corporate office
Corporate office
In the U.S., we also lease and maintain five additional regional offices (called “Area Offices”) located in (1)
Albany, New York, (2) Alpharetta, Georgia, (3) Charlotte, North Carolina, (4) Louisville, Kentucky and (5)
Phoenix, Arizona. The principal responsibilities of these offices are to manage the leasing of tower space on a local
basis, maintain the towers already located in the region and service our customers in the area.
As of December 31, 2004, 8,816 of the sites on which our U.S. towers are located, or approximately 83% of our
U.S. portfolio, were leased, subleased or licensed, while 1,796 or approximately 17% were owned in fee or through
18
a permanent easement or similar interest. In the U.S., 19% of the sites are occupied by guyed towers, which are
located on an average of approximately 143,322 square feet of land (with square footage of individual sites varying
widely). The remaining 81% are non-guyed (monopole, self-support, etc.), which are located on an average of
approximately 22,389 square feet of land (with square footage of individual sites varying widely). These tracts
support the towers, equipment shelters and, where applicable, guy wires to stabilize the structure. The actual square
footage of any particular site depends on a number of things, including the topography of the site, the size of the area
the landlord is willing to lease, the number of customers locating on the tower and the type of structure at the site, as
self-supporting and monopole tower structures typically require less land area than a guyed tower. Our land leases,
subleases and licenses generally have five- or ten-year initial terms and frequently contain one or more renewal
options.
In Australia, as of December 31, 2004, for 1,386 of our 1,388 towers in Australia site tenure takes the form of a
land lease or occupation license, and we own the remaining two sites in fee. The sites range from approximately 250
square feet to 2,500 square feet. Our land leases generally have terms up to 15 years through sequential leases and
options to renew.
Item 3. Legal Proceedings
We are periodically involved in legal proceedings that arise in the ordinary course of business. Most of these
proceedings involve disputes with landlords, vendors, collection matters involving bankrupt customers, zoning and
variance matters, condemnation or wrongful termination claims. While the outcome of these proceedings cannot be
predicted with certainty, management does not expect any pending matters to have a material adverse effect on us.
Item 4. Submissions of Matters to a Vote of Security Holders
None.
19
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
Price Range of Common Stock
The Common Stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “CCI”.
The following table sets forth for the calendar periods indicated the high and low sales prices per share of the
Common Stock as reported by NYSE.
2003:
First Quarter..................................................................................................................... $5.75
Second Quarter ................................................................................................................
9.00
Third Quarter ................................................................................................................... 11.05
Fourth Quarter ................................................................................................................. 13.10
$3.16
5.25
7.70
9.35
2004:
First Quarter..................................................................................................................... $13.86
Second Quarter ................................................................................................................ 17.10
Third Quarter ................................................................................................................... 15.24
Fourth Quarter ................................................................................................................. 17.55
$10.90
12.51
12.55
14.60
High
Low
As of February 28, 2005, there were approximately 948 holders of record of the Common Stock.
Dividend Policy
We have never declared nor paid any cash dividends on our common stock. It is our current policy to retain our
cash provided by operating activities to finance the expansion of our operations, to reduce our debt or to purchase
our own stock (either common or preferred). Future declaration and payment of cash dividends, if any, will be
determined in light of the then-current conditions, including our earnings, cash flow from operations, capital
requirements, financial condition and other factors deemed relevant by the Board of Directors. In addition, our
ability to pay dividends is limited by the terms of our debt instruments and the terms of the certificates of
designations in respect of our convertible preferred stock.
The holders of our 8¼% convertible preferred stock and our 6.25% convertible preferred stock are entitled to
receive cumulative dividends at the rate of 8¼% per annum and 6.25% per annum, respectively, payable on a
quarterly basis. We have the option to pay the dividends on such series of preferred stock in cash or in shares of our
common stock. We have historically paid such dividends with shares of our common stock, and we expect to
continue to do so. The number of shares of our common stock required to be issued to pay such dividends is
dependent upon the current market value of our common stock at the time such dividend is required to be paid. For
the years ended December 31, 2002, 2003 and 2004, dividends on our 8¼% convertible preferred stock were paid
with 4,290,000, 2,190,000 and 1,140,000 shares of common stock, respectively, and dividends on our 6.25%
convertible preferred stock were paid with 6,338,153, 3,253,469 and 1,498,361 shares of common stock,
respectively. The shares of common stock issued to pay such dividends will continue to have a dilutive effect upon
the shares of our common stock otherwise outstanding, and declines in the fair market value of our common stock
will increase the effective dilution. In 2002, 2003 and 2004, as allowed by the Deposit Agreement relating to
dividend payments on the 8¼% convertible preferred stock, we purchased 3,745,000, 1,825,000 and 845,000 shares
of common stock, respectively, from the dividend paying agent for a total of $12.2 million, $12.4 million and $12.2
million in cash, respectively. We utilized cash from an unrestricted investment subsidiary for such stock purchases,
effectively satisfying that portion of the dividend requirements with cash. We have also purchased shares of our
common stock on other occasions (see “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources”). We may choose to continue issuances and purchases of
stock in the future in order to offset dilution caused by the issuance of common stock as dividends on our preferred
20
stock. As of February 28, 2005, we had approximately $150.4 million in cash remaining at our unrestricted
investment subsidiary which could be used for future purchases of common stock.
Issuance of Unregistered Securities
We made no unregistered sales of equity securities during 2004.
Equity Compensation Plans
Certain information with respect to our equity compensation plans is set forth in Item 12 herein.
Purchases of Equity Securities
The following table summarizes information with respect to purchases of our equity securities during the fourth
quarter of 2004:
Period
October 1 – October 31, 2004 (1)
November 1 – November 30, 2004
December 1 – December 31, 2004 (2)
Total
Total Number of
Shares Purchased (3)
Average Price Paid
per Share
153,084
(cid:127)
245,000
398,084
$15.52
(cid:127)
16.32
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans or
Programs
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(2)
(1) On October 27, 2004, in connection with the expiration of restrictions on certain restricted common stock issued to our employees, we purchased 153,084
shares of common stock in private transactions from employees electing to sell a portion of their shares in order to satisfy their minimum tax withholding
liabilities. We may elect to make similar purchases of our common stock in the future in connection with the expiration of restrictions with respect to restricted
common stock we have issued or may issue. See Note 9 to the consolidated financial statements in “Item 8. Financial Statements and Supplementary Data”.
In December 2004, we paid our quarterly dividends on the 8¼% convertible preferred stock by issuing a total of 245,000 shares of our common stock. As
allowed by the Deposit Agreement relating to dividend payments on such preferred stock, on December 15, 2004, we purchased the 245,000 shares of common
stock from the dividend paying agent in a private transaction. We may choose to continue issuances and purchases of stock in the future in order to offset
dilution caused by the issuance of common stock as dividends on our preferred stock. See Note 8 to the consolidated financial statements in “Item 8. Financial
Statements and Supplementary Data”.
In addition to the common stock purchases shown in the table, on December 8, 2004, in accordance with the terms of a publicly announced tender offer
commenced on November 8, 2004, we utilized $86.9 million of our cash to purchase, at a price of 179.505% of the outstanding principal amount (excluding
accrued interest through the purchase date), $48.0 million in outstanding principal amount of our outstanding 4% senior notes, including accrued interest
thereon of $0.8 million. At the time of purchase, the 4% senior notes acquired were convertible into 4,430,656 shares of our common stock. See Note 5 to the
consolidated financial statements in “Item 8. Financial Statements and Supplementary Data”.
(3)
Item 6. Selected Financial Data
The selected historical consolidated financial and other data for the Company set forth below for each of the
five years in the period ended December 31, 2004, and as of December 31, 2000, 2001, 2002, 2003 and 2004, have
been derived from the consolidated financial statements of the Company. We have various transactions recorded in
our financial statements that are non-recurring in nature, such as gains and losses on purchases and redemptions of
our debt and preferred stock. On June 28, 2004, we signed a definitive agreement to sell our UK subsidiary
(“CCUK”) to an affiliate of National Grid Transco Plc (“National Grid”). As a result, we have restated our financial
statements to present CCUK’s assets, liabilities, results of operations and cash flows as amounts from discontinued
operations. Such restatements have been made for all periods presented. On August 31, 2004, we completed the sale
of CCUK. Prior periods have also been restated to reflect the correction of errors for certain non-cash items relating
to our lease accounting practices in February of 2005. See Note 1 to our consolidated financial statements for
additional information regarding the restatement. The information set forth below should be read in conjunction with
21
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8.
Financial Statements and Supplementary Data”.
2000
(As restated)
Years Ended December 31,
2002
(As restated)
(As restated)
(In thousands of dollars, except per share amounts)
2001
(As restated)
2003
2004
Statement of Operations Data:
Net revenues:
Site rental...............................................................................................$
Network services and other...................................................................
Total net revenues...........................................................................
261,495 $
177,663
439,158
376,615 $
290,797
667,412
446,136 $
159,217
605,353
$
482,747
72,316
555,063
537,465
66,400
603,865
Costs of operations:
Site rental...............................................................................................
Network services and other...................................................................
Total costs of operations.................................................................
General and administrative .............................................................................
Corporate development(a) ..............................................................................
Restructuring charges (credits) .......................................................................
Asset write-down charges...............................................................................
Non-cash general and administrative compensation charges(b) ....................
Depreciation, amortization and accretion .......................................................
Operating income (loss)..................................................................................
Interest and other income (expense)(c)...........................................................
Interest expense, amortization of deferred financing costs and dividends on
preferred stock ..........................................................................................
Loss from continuing operations before income taxes, minority interests
and cumulative effect of change in accounting principle .........................
Credit (provision) for income taxes ................................................................
Minority interests ............................................................................................
Loss from continuing operations before cumulative effect of change in
125,683
101,530
227,213
68,872
9,706
—
—
2,153
192,868
(61,654)
31,944
162,408
200,689
363,097
91,174
12,289
17,577
13,024
3,488
272,736
(105,973)
2,489
176,161
122,027
298,188
84,244
7,483
8,665
52,598
3,488
278,609
(127,922)
64,922
179,549
46,746
226,295
87,061
5,564
1,291
14,317
13,986
281,980
(75,431)
(132,075)
183,600
47,315
230,915
90,230
1,455
870
7,652
15,947
283,986
(27,190)
(78,508)
(209,331)
(270,766)
(273,895)
(258,834)
(206,770)
(239,041)
(225)
11,717
(374,250)
(465)
11,279
(336,895)
(4,407)
12,340
(466,340)
(2,465)
4,036
(312,468)
5,370
202
accounting principle .................................................................................
(227,549)
(363,436)
(328,962)
(464,769)
(306,896)
Discontinued operations:
Income (loss) from operations of CCUK, net of tax.............................
Net gain on disposal of CCUK, net of tax ............................................
Income (loss) from discontinued operations, net of tax.................
Income (loss) before cumulative effect of change in accounting principle ...
Cumulative effect of change in accounting principle for asset retirement
obligations ................................................................................................
Net income (loss) ............................................................................................
Dividends on preferred stock, net of gains (losses) on purchases of
(9,788)
(cid:127)
(9,788)
(237,337)
(cid:127)
(237,337)
(45,158)
(cid:127)
(45,158)
(408,594)
9,041
(cid:127)
9,041
(319,921)
10,458
(cid:127)
10,458
(454,311)
46,399
495,607
542,006
235,110
(cid:127)
(408,594)
(cid:127)
(319,921)
(551)
(454,862)
(cid:127)
235,110
preferred stock(d) .....................................................................................
(59,469)
(79,028)
16,023
(55,897)
(38,618)
Net income (loss) after deduction of dividends on preferred stock, net of
gains (losses) on purchases of preferred stock .........................................$
(296,806) $
(487,622) $
(303,898) $
(510,759) $
196,492
Per common share—basic and diluted:
Loss from continuing operations before cumulative effect of change
in accounting principle ...................................................................$
Income (loss) from discontinued operations.........................................
Cumulative effect of change in accounting principle ...........................
Net income (loss) ..................................................................................$
Common shares outstanding—basic and diluted (in thousands)....................
Other Data:
Summary cash flow information:
Net cash provided by operating activities .............................................$
Net cash provided by (used for) investing activities.............................
Net cash provided by (used for) financing activities ............................
Ratio of earnings to fixed charges(e)..............................................................
Balance Sheet Data (at period end):
Cash and cash equivalents ..............................................................................$
Short-term investments ...................................................................................
Assets of discontinued operations ..................................................................
Investments .....................................................................................................
Property and equipment, net ...........................................................................
Total assets......................................................................................................
Liabilities of discontinued operations.............................................................
Total debt ........................................................................................................
Redeemable preferred stock(f)........................................................................
Total stockholders’ equity ..............................................................................
(1.61) $
(0.05)
—
(1.66) $
(2.07) $
(0.21)
—
(2.28) $
178,588
214,246
(1.43) $
0.04
—
(1.39) $
218,028
(2.40) $
0.05
(0.01)
(2.36) $
216,947
(1.56)
2.45
(cid:127)
0.89
221,693
83,572 $
(1,308,631)
1,692,071
—
50,400 $
(801,505)
1,073,480
—
93,577 $
50,518
(286,258)
—
$
79,471
119,005
71,086
(cid:127)
112,084
(319,628)
(1,686,422)
—
374,259 $
38,000
1,559,558
137,000
3,720,027
6,376,578
471,932
2,281,935
842,718
2,376,937
508,640 $
199,963
1,793,746
128,500
4,066,173
7,319,412
566,137
3,073,646
878,861
2,279,672
339,837 $
178,697
1,972,209
409,584
26,600
2,052,510
$
—
3,834,019
6,801,049
645,164
2,880,917
756,014
2,074,292
(cid:127)
3,593,570
6,612,233
353,544
3,449,992
506,702
1,794,353
567,148
—
—
—
3,369,565
4,571,522
—
1,850,398
508,040
1,833,625
(a)
(b)
Corporate development expenses represent costs incurred in connection with acquisitions and development of new business initiatives. These expenses consist
primarily of allocated compensation, benefits and overhead costs that are not directly related to the administration or management of existing towers.
Represents charges related to the issuance of stock and stock options to certain employees and executives, and the issuance of common stock and stock options
in connection with certain acquisitions.
22
(c)
(d)
(e)
(f)
For the year ended December 31, 2002, includes gains of $79.1 million on debt purchases and charges of $29.1 million for losses from, and write-downs of,
investments in unconsolidated affiliates. For the year ended December 31, 2003, includes losses of $119.4 million (as restated) on debt and preferred stock
purchases and redemptions and a loss on the issuance of the interest in Crown Atlantic of $11.2 million (as restated). For the year ended December 31, 2004,
includes losses of $77.7 million on debt purchases and repayments.
Includes gains of $95.8 million on purchases of preferred stock in 2002 and net losses of $1.6 million on purchases of preferred stock in 2003.
For purposes of computing the ratio of earnings to fixed charges, earnings represent income (loss) from continuing operations before income taxes, minority
interests, cumulative effect of change in accounting principle and fixed charges. Fixed charges consist of interest expense, the interest component of operating
leases, amortization of deferred financing costs and dividends on preferred stock classified as liabilities. For the years ended December 31, 2000, 2001, 2002,
2003 and 2004, earnings were insufficient to cover fixed charges by $239.0 million, $374.3 million, $336.9 million, $466.3 million and $312.5 million,
respectively.
The 2000, 2001 and 2002 amounts represent the 12¾% exchangeable preferred stock, the 8¼% convertible preferred stock and the 6.25% convertible preferred
stock. The 2003 and 2004 amounts represent the 8¼% convertible preferred stock and the 6.25% convertible preferred stock.
The adjustments to amounts previously presented in selected financial data for the years ended December 31,
2000 and 2001 are summarized as follows. See Note 1 to our consolidated financial statements for tables
summarizing the adjustments to amounts for the years ended December 31, 2002 and 2003.
As Previously
Stated
Restatement
Adjustments
As
Restated
(In thousands of dollars, except per share amounts)
Adjustments
to Present
CCUK as
Discontinued
Operations
As Restated
on Continuing
Operations
Basis
2000:
Site rental revenues............................................... $ 446,039 $
Site rental costs of operations............................... 194,424
Depreciation expense............................................ 238,796
5,209
Operating income (loss) .......................................
Minority interests .................................................
(721)
Net income (loss).................................................. (204,786)
Net income (loss) per common share – basic
and diluted .......................................................
(1.48)
Property and equipment, net................................. 4,303,037
Total assets ........................................................... 6,401,885
Total stockholders’ equity:
7,667 $ 453,706 $ (192,211) $ 261,495
(87,802) 125,683
19,061 213,485
(77,190) 192,868
31,262 270,058
(61,654)
(24,207)
(37,447)
(42,656)
10,105
11,717
2,333
9,384
(cid:127) (237,337)
(32,551) (237,337)
(0.18)
(1.66)
(1.66)
(38,634) 4,264,403 (544,376) 3,720,027
(cid:127) 6,376,578
(25,307) 6,376,578
(cid:127)
Beginning of year........................................ 1,617,747
End of year.................................................. 2,420,862
(11,489) 1,606,258
(43,925) 2,376,937
(cid:127) 1,606,258
(cid:127) 2,376,937
2001:
Site rental revenues............................................... $ 575,961 $
Site rental costs of operations............................... 238,748
Depreciation expense............................................ 328,491
(62,099)
Operating income (loss) .......................................
8,548
Interest and other income (expense) .....................
Minority interests .................................................
1,306
Net income (loss).................................................. (366,167)
Net income (loss) per common share – basic
and diluted .......................................................
(2.08)
Property and equipment, net................................. 4,844,912
Total assets ........................................................... 7,375,458
Total stockholders’ equity .................................... 2,364,648
6,177 $ 582,138 $ (205,523) $ 376,615
(96,533) 162,408
20,193 258,941
(93,453) 272,736
37,698 366,189
7,840 (105,973)
(51,714) (113,813)
2,489
(5,373)
7,862
(cid:127)
11,279
11,279
(cid:127) (408,594)
(42,427) (408,594)
(686)
9,973
(0.20)
(2.28)
(2.28)
(75,406) 4,769,506 (703,333) 4,066,173
(cid:127) 7,319,412
(56,046) 7,319,412
(cid:127) 2,279,672
(84,976) 2,279,672
(cid:127)
The decrease in total assets of $25.3 million for 2000 consists of the decrease in property and equipment of
$38.6 million and an increase in deferred site rental receivable of $13.3 million. The decrease in total assets of $56.0
million for 2001 consists of the decrease in property and equipment of $75.4 million and an increase in deferred site
rental receivable of $19.4 million.
The following tables describe the effects of the restatement on the loss from continuing operations before
cumulative effect of change in accounting principle, net loss and the related per share amounts for the years ended
23
December 31, 2000 and 2001. See Note 1 to our consolidated financial statements for tables describing the effects of
the restatement for the years ended December 31, 2002 and 2003.
Years Ended December 31,
2000
2001
Loss before cumulative effect of change in accounting principle, as previously stated ....$
Adjustments to site rental revenues ........................................................................
Adjustments to site rental costs of operations ........................................................
Adjustments to depreciation expense .....................................................................
Adjustments to interest and other income (expense) ..............................................
Adjustments to minority interests...........................................................................
Loss before cumulative effect of change in accounting principle, as restated...................
Adjustment to present CCUK’s results of operations as discontinued operations..
Loss from continuing operations before cumulative effect of change in accounting
principle, as restated....................................................................................................$
Net loss, as previously stated ............................................................................................$
Adjustments to site rental revenues ........................................................................
Adjustments to site rental costs of operations ........................................................
Adjustments to depreciation expense .....................................................................
Adjustments to interest and other income (expense) ..............................................
Adjustments to minority interests...........................................................................
Net loss, as restated...........................................................................................................
Dividends on preferred stock, net of gains (losses) on purchases of preferred stock ........
Net income (loss) after deduction of dividends on preferred stock, net of gains (losses)
$
(In thousands of dollars,
except per share amounts)
(204,786)
7,667
(19,061)
(31,262)
(cid:127)
10,105
(237,337)
9,788
(366,167)
6,177
(20,193)
(37,698)
(686)
9,973
(408,594)
45,158
$
$
(227,549)
(204,786)
7,667
(19,061)
(31,262)
(cid:127)
10,105
(237,337)
(59,469)
(363,436)
(366,167)
6,177
(20,193)
(37,698)
(686)
9,973
(408,594)
(79,028)
on purchases of preferred stock, as restated ................................................................$
(296,806)
$
(487,622)
Per common share – basic and diluted:
Loss before cumulative effect of change in accounting principle, as previously
stated .................................................................................................................$
Adjustments to site rental revenues ................................................................
Adjustments to site rental costs of operations ................................................
Adjustments to depreciation expense .............................................................
Adjustments to interest and other income (expense) ......................................
Adjustments to minority interests...................................................................
Loss before cumulative effect of change in accounting principle, as restated ........
Adjustment to present CCUK’s results of operations as discontinued
operations..................................................................................................
Loss from continuing operations before cumulative effect of change in
accounting principle, as restated .......................................................................$
Net loss, as previously stated .................................................................................$
Adjustments to site rental revenues ................................................................
Adjustments to site rental costs of operations ................................................
Adjustments to depreciation expense .............................................................
Adjustments to interest and other income (expense) ......................................
Adjustments to minority interests...................................................................
Net loss, as restated ................................................................................................$
(1.48)
0.04
(0.11)
(0.17)
(cid:127)
0.06
(1.66)
0.05
(1.61)
(1.48)
0.04
(0.11)
(0.17)
(cid:127)
0.06
(1.66)
$
$
$
$
(2.08)
0.03
(0.09)
(0.18)
(cid:127)
0.04
(2.28)
0.21
(2.07)
(2.08)
0.03
(0.09)
(0.18)
(cid:127)
0.04
(2.28)
24
The following table describes the cumulative effects of the restatement on the consolidated balance sheet as of
December 31, 2002.
Property and
Equipment
Deferred Site
Rental
Receivable
Deferred
Ground Lease
Other
Payable
Liabilities
(In thousands of dollars)
Minority
Interests
Stockholders’
Equity
Balances as of December 31, 2002, as
previously stated ......................................$ 4,828,033 $
(cid:127) $
(cid:127) $
183,227 $
171,383 $ 2,208,498
Reclassification of previously stated
amounts........................................
Adjustments to site rental revenues....
Adjustments to site rental costs of .....
operations.....................................
Adjustments to depreciation expense .
Adjustments to provision for income
taxes.............................................
Adjustments to minority interests.......
Foreign currency translation
(cid:127)
(cid:127)
36,972
24,171
4,439
(cid:127)
(cid:127)
(114,667)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
71,740
(cid:127)
(cid:127)
(cid:127)
adjustments ..................................
(1,180)
124
207
(4,439)
(cid:127)
(cid:127)
(cid:127)
4,000
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
24,171
(71,740)
(114,667)
(cid:127)
(33,055)
(4,000)
33,055
(238)
(1,025)
Balances as of December 31, 2002, as
restated .....................................................
Adjustment to present CCUK’s
assets and liabilities as
4,712,186
61,267
76,386
182,788
138,090
2,074,292
discontinued operations........
(878,167)
(cid:127)
(cid:127)
(134,920)
(cid:127)
(cid:127)
Balances as of December 31, 2002, as
restated on continuing operations basis ....$ 3,834,019 $
61,267 $
76,386 $
47,868 $
138,090 $ 2,074,292
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist in understanding our consolidated financial condition as of
December 31, 2004 and our consolidated results of operations for each year in the three-year period ended
December 31, 2004. The statements in this discussion regarding the industry outlook, our expectations regarding the
future performance of our businesses and the other non-historical statements in this discussion are forward-looking
statements. See “—Cautionary Statement for Purposes of Forward-Looking Statements”. This discussion should be
read in conjunction with “Item 6. Selected Financial Data” and “Item 8. Financial Statements and Supplementary
Data”. Prior periods have been restated to reflect the correction of errors for certain non-cash items relating to our
lease accounting practices in February of 2005. See Note 1 to our consolidated financial statements for additional
information regarding the restatement.
Overview
Our primary business is leasing towers that we own to major wireless service providers in the two countries in
which we operate – the United States (U.S.) and Australia. Our customers use our tower sites to locate antennas and
other equipment necessary for the transmission of wireless signals for mobile telephones and other devices. This
leasing activity represents approximately 89.0% of our consolidated revenues. We also provide network services in
the U.S. which consist primarily of project management services for antenna installations on our company-owned
tower sites on behalf of wireless service providers.
Our site rental revenues are derived from the core businesses we are seeking to grow by increasing the
utilization of our existing tower site assets. Typically, these revenues result from long-term (5-10 year) contracts
with our customers with renewal terms at the option of the customer. As a result, in any given year more than 95%
of our site rental revenue has been contracted for in a prior year and is of a recurring nature. When we discuss
growth in this core business, we are generally describing the rate at which we are adding revenues to the previously
contracted base, sometimes referred to as the revenue “run-rate”.
25
The network services business is not typically recurring and is largely incidental to our site rental business. It
usually has lower margins and is not a key to our future growth. Such activities are generally pursued at the request
of a customer in order to facilitate our leasing activities, or otherwise to better serve our customers’ site
requirements. Network services revenues declined as a percentage of our total revenues during 2003 and 2004, and
we expect such decline may continue in the foreseeable future.
The growth of our business depends substantially on the condition of the wireless communications industry. We
believe that the demand for new communications sites will continue, although possibly not at the levels experienced
prior to 2002. While the total number of new tenant additions on our towers (including modifications to existing
installations) decreased for the first half of 2003 as compared to the first half of 2002, the rate of new tenant
additions during the second half of 2003 was approximately constant with the rate of new additions that we
experienced during the second half of 2002. During the second half of 2003, we began to see signs of increased
activity in the form of additional applications for our U.S. sites by wireless carriers. In 2004, the rate of new tenant
additions (or modifications to existing installations) on our U.S. towers were 38% greater than the comparable
period in 2003. We expect that, due to increased competition, wireless carriers will continue to seek operating and
capital efficiencies by (1) outsourcing certain network services and the build-out and operation of new and existing
infrastructure and (2) utilizing third-party tower sites as a common location for the placement of their antennas and
transmission equipment alongside the equipment of other wireless service providers.
The willingness of wireless carriers to utilize our infrastructure and related services is affected by numerous
factors, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
consumer demand for wireless services;
availability and location of our sites and alternative sites;
cost of capital, including interest rates;
availability of capital to wireless carriers;
(cid:120) willingness to co-locate equipment;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
local restrictions on the proliferation of towers;
cost of building towers;
technological changes affecting the number of communications sites needed to provide wireless
communications services to a given geographic area;
our ability to efficiently satisfy their service requirements; and
tax policies.
As an important part of our business strategy, we will seek to:
(1) maximize utilization of our tower capacity to grow revenues organically,
(2) grow our margins by taking advantage of the relatively fixed nature of the operating costs associated with
our site rental business,
(3) allocate capital efficiently as we selectively build new towers for wireless carriers, acquire other assets or
purchase our own securities, and
(4) utilize the expertise of U.S. and Australian personnel to extend revenues around our existing assets.
26
Critical Accounting Policies
The following is a discussion of the accounting policies that we believe (1) are most important to the portrayal
of our financial condition and results of operations and (2) require our most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Revenue Recognition
Site rental revenues are recognized on a monthly basis over the fixed, non-cancelable term of the relevant lease,
agreement or contract. In accordance with applicable accounting standards, these revenues are recognized on a
monthly basis, regardless of whether the payments from the customer are received in equal monthly amounts. Some
agreements provide for rent-free periods at the beginning of the lease term, while others call for rent to be prepaid
for some period. If the payment terms call for fixed escalations (as in fixed dollar or fixed percentage increases), the
effect of such increases is recognized on a straight-line basis over the fixed, non-cancelable term of the agreement.
As a result of this accounting method, a portion of the revenue recognized in a given period represents cash
collected in other periods. For 2002 (as restated), 2003 (as restated) and 2004, the non-cash portion of our site rental
revenues amounted to approximately $20.5 million, $22.9 million and $18.8 million, respectively. See Note 1 to our
consolidated financial statements.
Network services revenues are generally recognized under the completed contract method. Under the completed
contract method, revenues and costs for a particular project are recognized in total at the completion date. When
using the completed contract method of accounting for network services revenues, we must accurately determine the
completion date for the project in order to record the revenues and costs in the proper period. For antenna
installations, we consider the project complete when the customer can begin transmitting its signal through the
antenna. We must also be able to estimate losses on uncompleted contracts; as such losses must be recognized as
soon as they are known. The completed contract method is used for projects that require relatively short periods of
time to complete (generally less than one year). We do not believe that our use of the completed contract method for
network services projects produces operating results that differ substantially from the percentage-of-completion
method.
Some of our arrangements with our customers call for the performance of multiple revenue-generating
activities. Generally, these arrangements include both site rental and network services. In such cases, we determine
whether the multiple deliverables are to be accounted for separately or on a combined basis. In order to be accounted
for separately, the undelivered items must (1) have stand-alone value to the customer, (2) have reliably determinable
fair value on a separate basis, and (3) have delivery which is probable and under our control. Allocation of
recognized revenue in such arrangements is based on the relative fair value of the separately delivered items. We
have generally determined that it is appropriate to account for antenna installation activities separately from the
customer’s subsequent site rentals.
Allowance for Doubtful Accounts Receivable
As part of our normal accounting procedures, we must evaluate our outstanding accounts receivable to estimate
whether they will be collected. This is a subjective process that involves making judgments about our customers’
ability and willingness to pay these accounts. An allowance for doubtful accounts is recorded as an offset to
accounts receivable in order to present a net balance that we believe will be collected. In estimating the appropriate
balance for this allowance, we consider (1) specific reserves for accounts we believe may prove to be uncollectible
and (2) additional reserves, based on historical collections, for the remainder of our accounts. Additions to the
allowance for doubtful accounts are charged to costs of operations, and deductions from the allowance are recorded
when specific accounts receivable are written off as uncollectible. If our estimate of uncollectible accounts should
prove to be inaccurate at some future date, the results of operations for the period could be materially affected by
any necessary correction to the allowance for doubtful accounts.
Valuation of Long-Lived Assets
We review the carrying values of property and equipment and other long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amounts may not be recoverable. If the sum of the
27
estimated future cash flows (undiscounted) from the asset is less than its carrying amount, an impairment loss is
recognized. Measurement of an impairment loss is based on the fair value of the asset. Our determination that an
adverse event or change in circumstance has occurred will generally involve (1) a deterioration in an asset’s
financial performance compared to historical results, (2) a shortfall in an asset’s financial performance compared to
forecasted results or (3) a change in strategy affecting the utility of the asset. Our measurement of the fair value of
an impaired asset will generally be based on an estimate of discounted future cash flows.
Depreciation expense for our property and equipment is computed using the straight-line method over the
estimated useful lives of our various classes of assets. The substantial portion of our property and equipment
represents the cost of our towers which are depreciated with an estimated useful life equal to the shorter of 20 years
or the term of the underlying ground lease (including optional renewal periods). See Note 1 to our consolidated
financial statements.
On January 1, 2002, we adopted the new accounting standard for goodwill and other intangible assets. In
accordance with that new standard, we test goodwill for impairment on an annual basis, regardless of whether
adverse events or changes in circumstances have occurred. This annual impairment test involves (1) a step to
identify potential impairment at a reporting unit level based on fair values, and (2) a step to measure the amount of
the impairment, if any. Our measurement of the fair value for goodwill is based on an estimate of discounted future
cash flows of the reporting unit. The most important estimates for such calculations are the expected additions of
new tenants on our towers, the terminal multiple for our projected cash flows and our weighted-average cost of
capital.
During the fourth quarter of 2004, we performed our annual update of the impairment test for goodwill. The
results of this test indicated that goodwill was not impaired at any of our reporting units. We have included the
results of the joint venture transactions with Verizon Communications in our most recent evaluations. Future
declines in our site leasing business could result in an impairment of goodwill in the future. If impairment were to
occur in the future, the calculations to measure the impairment could result in the write-off of some portion, to
substantially all, of our goodwill.
Deferred Income Taxes
We record deferred income tax assets and liabilities on our balance sheet related to events that impact our
financial statements and tax returns in different periods. In order to compute these deferred tax balances, we first
analyze the differences between the book basis and tax basis of our assets and liabilities (referred to as “temporary
differences”). These temporary differences are then multiplied by current tax rates to arrive at the balances for the
deferred income tax assets and liabilities. If deferred tax assets exceed deferred tax liabilities, we must estimate
whether those net deferred asset amounts will be realized in the future. A valuation allowance is then provided for
the net deferred asset amounts that are not likely to be realized.
The change in our net deferred income tax balances during a period results in a deferred income tax provision or
benefit in our statement of operations. If our expectations about the future tax consequences of past events should
prove to be inaccurate, the balances of our deferred income tax assets and liabilities could require significant
adjustments in future periods. Such adjustments could cause a material effect on our results of operations for the
period of the adjustment. See Note to our consolidated financial statements.
Results of Operations
Our primary sources of revenues are from:
(1) renting antenna space on towers and
(2) providing network services, including the installation of antennas on our sites.
Site rental revenues in the U.S. and Australia are received primarily from wireless communications companies,
including those operating in the following categories of wireless communications:
28
(cid:120)
(cid:120)
(cid:120)
cellular;
personal communications services (“PCS”), a digital service operating at a higher frequency range than
cellular;
enhanced specialized mobile radio (“ESMR”), a service operating in the SMR frequency range using
enhanced technology;
(cid:120) wireless data services;
(cid:120)
(cid:120)
(cid:120)
point-to-point radio;
paging; and
specialized mobile radio (“SMR”), a service operating in the frequency range used for two-way radio
communication by public safety, trucking companies, and other dispatch service users.
Site rental revenues are generally recognized on a monthly basis under lease agreements, which typically have
original terms of five to ten years (with three or four optional renewal periods of five or ten years each). See
“(cid:326)Critical Accounting Policies(cid:326)Revenue Recognition” and Note 1 to our consolidated financial statements.
Network services revenues in the U.S. consist of revenues from:
(1) antenna installations, substantially all on towers owned or managed by us,
(2) site acquisition services,
(3) site development and construction, and
(4) 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 generally provide for billings on a fixed price
basis. Demand for our network services fluctuates from period to period and within periods. See “Item 1.
Business—Risk Factors”. 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. In 2002 and
continuing to 2003 and 2004, we made a strategic decision to reduce our network services offerings to primarily the
management of antenna installations on our sites.
Costs of operations for site rental in the U.S. and Australia primarily consist of:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
ground leases;
property taxes;
repairs and maintenance;
employee compensation and related benefits costs;
utilities;
insurance; and
(cid:120) monitoring costs.
29
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. In accordance with
applicable accounting standards, ground lease expenses are recognized on a straight-line basis, regardless of whether
the payments to the landlord are made in equal monthly installments. If the payment terms call for fixed escalations
(as in fixed dollar or fixed percentage increases), the effect of such increases is spread evenly over the term of the
agreement using a time period that equals or exceeds the remaining depreciable life of the tower asset. Further, when
a tenant has exercisable renewal options that would compel us to exercise existing ground lease renewal options, we
have straight-lined the ground lease expense over a sufficient portion of such ground lease renewals to coincide with
the final termination of the tenant’s renewal options. As a result of this accounting method, a portion of the expense
recognized in a given period represents cash paid in other periods. See Note 1 to our consolidated financial
statements.
Costs of operations for network services consist primarily of employee compensation and related benefits costs,
subcontractor services, consulting fees, and other on-site construction and materials costs. Certain costs incurred in
connection with antenna installations are capitalized as property and equipment since they represent assets owned by
us. As such, those costs are not included in our results of operations in the year incurred, but rather will be charged
to depreciation expense over the life of the assets.
General and administrative expenses consist primarily of:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
employee compensation, training, recruitment and related benefits costs;
professional and consulting fees;
office rent and related expenses;
state franchise taxes;
travel costs; and
corporate office expenses.
Corporate development expenses represent costs incurred in connection with acquisitions and development of
new business initiatives. These expenses consist primarily of:
(cid:120)
(cid:120)
(cid:120)
allocated compensation and related benefits costs;
external professional fees; and
overhead costs that are not directly related to the administration or management of existing towers.
Depreciation, amortization and accretion charges relate to our property and equipment (which consists primarily
of tower sites, associated buildings, construction equipment and vehicles) and other intangible assets. Depreciation
of tower sites is generally computed with a useful life equal to the shorter of 20 years or the term of the underlying
ground lease (including optional renewal periods). See Note 1 to our consolidated financial statements. Amortization
of other intangible assets (the value of certain site rental contracts at CCUSA) is computed with a useful life of 10
years. Depreciation of buildings is generally computed with useful lives ranging from 20 to 40 years. Depreciation
of construction equipment and vehicles is generally computed with useful lives of 10 years and 5 years, respectively.
While the total number of new tenant additions on our towers (including modifications to existing installations)
decreased for the first half of 2003 as compared to the first half of 2002, the rate of new tenant additions during the
second half of 2003 was approximately constant with the rate of new additions that we experienced during the
second half of 2002. During the second half of 2003, we began to see signs of increased activity in the form of
additional applications for our U.S. sites by wireless carriers. In 2004, the rate of new tenant additions (or
modifications to existing installations) on our U.S. towers were 38% greater than the comparable period in 2003.
30
A summary of site rental revenues by country is as follows:
United States and Puerto Rico ........................................
Australia .........................................................................
Total ........................................................................
$
$
421,902
24,234
446,136
2002
(As restated)
Years Ended December 31,
2003
(As restated)
(In thousands of dollars)
$
451,874
30,873
482,747
$
$
$
2004
496,368
41,097
537,465
A summary of the non-cash portions of our site rental revenues, ground lease expense and resulting impact on
our site rental gross margins is as follows:
Non-cash portion of site rental revenues:
Amounts attributable to rent-free periods ................... $
Amounts attributable to straight-line recognition of
fixed escalations .....................................................
Non-cash portion of ground lease expense:
Amounts attributable to straight-line recognition of
2002
(As restated)
Years Ended December 31,
2003
(As restated)
(In thousands of dollars)
2004
4,285 $
4,274 $
6,515
18,321
22,606
16,473
20,747
11,897
18,412
fixed escalations .....................................................
21,150
19,696
17,628
Non-cash impact on site rental gross margins:
Amounts attributable to rent-free periods ...................
Amounts attributable to straight-line recognition of
fixed escalations .....................................................
4,285
4,274
6,515
$
(2,829)
1,456 $
(3,223)
1,051 $
(5,731)
784
On June 28, 2004, we signed a definitive agreement to sell our UK subsidiary (“CCUK”) to an affiliate of
National Grid Transco Plc (“National Grid”). As a result, we have restated our financial statements to present
CCUK’s assets, liabilities, results of operations and cash flows as amounts from discontinued operations. Such
restatements have been made for all periods presented. On August 31, 2004, we completed the sale of CCUK. See
“—Liquidity and Capital Resources”.
On November 4, 2004, we entered into an agreement with a subsidiary of Verizon Communications (“Verizon”)
to acquire Verizon’s remaining 37.245% equity interest in the Crown Castle Atlantic venture (“Crown Atlantic”).
Following this transaction, we have combined the Crown Atlantic operating segment with the CCUSA operating
segment. This change in reportable segments was made in our consolidated financial statements for the year ended
December 31, 2004, and segment information for all prior periods presented have been restated.
Restatement of Previously Issued Financial Statements
Our consolidated results of operations for the years ended December 31, 2002 and 2003 have been restated to
reflect the correction of errors for certain non-cash items relating to our lease accounting practices. In February of
2005, we adjusted our method of accounting for tenant leases, ground leases and depreciation. The corrections to our
consolidated results of operations consist of non-cash adjustments primarily attributable to increases in site rental
revenues, ground lease expense (included in site rental costs of operations) and depreciation expense. Since the
adjustments affected results of operations at CCAL and our two joint ventures with Verizon Communications, they
also resulted in changes to minority interests. The adjustments for depreciation expense also effected the
discontinued operations of CCUK, resulting in a change to the net gain on disposal. The cumulative effects of these
adjustments on our consolidated statements of operations from inception through September 30, 2004 are as follows:
an increase in site rental revenues of $34.3 million; an increase in site rental costs of operations of $98.8 million; an
increase in depreciation expense of $180.7 million; an increase in operating losses of $245.3 million; an increase in
31
other expense (attributable to the loss on the issuance of an interest in the Crown Atlantic joint venture) of $3.1
million; an increase in minority interests of $43.1 million; a decrease in income from operations of CCUK, and a
corresponding increase in the net gain on disposal of CCUK, of $4.8 million; and an increase in net losses of $205.3
million. These adjustments have no effect on our credit (provision) for income taxes since the net impact on deferred
tax assets and liabilities is offset by changes in valuation allowances. The net impact of the accounting correction
will generally be to accelerate ground lease expense (as such expenses are straight-lined over a period that equals or
exceeds the remaining depreciable life of the tower, along with periods covered by tenant renewal options) and
depreciation expense and, to a lesser extent, site rental revenues (as such revenues are only straight-lined over the
current lease term, without regard to renewal options that may be exercised by a tenant).
Historically, we have calculated straight-line ground lease expense (for leases with fixed escalation provisions)
using the current lease term (typically five to ten years) without regard to renewal options. Further, we depreciated
all tower assets over a 20-year useful life, without regard to the term of the underlying ground lease, because of our
historical experience in successfully renewing ground leases prior to expiration. As a result of this accounting
adjustment, we now calculate our straight-line ground lease expense using a time period that equals or exceeds the
remaining depreciable life of the tower asset. Further, when a tenant has exercisable renewal options that would
compel us to exercise existing ground lease renewal options, we have straight-lined the ground lease expense over a
sufficient portion of such ground lease renewals to coincide with the final termination of the tenant’s renewal
options. We have also shortened the depreciable lives of certain tower assets that have ground lease expirations prior
to the end of their useful life. When calculating our straight-line site rental revenues, we now consider all fixed
elements of a tenant lease’s escalation provisions, even if such escalation provisions also include a variable element.
In addition, (1) certain issuance costs from prior financing transactions have been charged to other expense or
included with dividends on preferred stock, (2) certain foreign currency translation adjustments have been charged
to a prior year’s results of operations and (3) certain adjustments have been made to deferred income tax provisions
and the estimated tax on the sale of CCUK. See Note 1 to our consolidated financial statements for additional
information regarding the restatement.
The following information is derived from our historical Consolidated Statements of Operations for the periods
indicated.
32
Year Ended
December 31, 2002
Year Ended
December 31, 2003
Year Ended
December 31, 2004
Percent
of Net
Revenues
Amount
Amount
Percent
of Net
Revenues
Percent
of Net
Revenues
Amount
(As restated)
(As restated)
(In thousands of dollars)
Net revenues:
Site rental................................................................................ $
Network services and other....................................................
Total net revenues ..................................................
446,136
159,217
605,353
73.7%
26.3
100.0
$
482,747
72,316
555,063
$
87.0%
13.0
100.0
537,465
66,400
603,865
89.0%
11.0
100.0
Operating expenses:
Costs of operations:
Site rental .........................................................................
Network services and other .............................................
Total costs of operations ........................................
General and administrative ....................................................
Corporate development ..........................................................
Restructuring charges (credits) ..............................................
Asset write-down charges ......................................................
Non-cash general and administrative compensation
charges .............................................................................
Depreciation, amortization and accretion ..............................
Operating income (loss)...................................................................
Other income (expense):
Interest and other income (expense) ......................................
Interest expense, amortization of deferred financing
176,161
122,027
298,188
84,244
7,483
8,665
52,598
39.5
76.6
49.3
13.9
1.2
1.4
8.7
3,488
278,609
(127,922)
0.6
46.0
(21.1)
179,549
46,746
226,295
87,061
5,564
1,291
14,317
13,986
281,980
(75,431)
37.2
64.6
40.8
15.7
1.0
0.2
2.6
2.5
50.8
(13.6)
183,600
47,315
230,915
90,230
1,455
870
7,652
15,947
283,986
(27,190)
34.2
71.3
38.2
15.0
0.2
0.2
1.3
2.6
47.0
(4.5)
64,922
10.7
(132,075)
(23.8)
(78,508)
(13.0)
costs and dividends on preferred stock............................
(273,895)
(45.2)
(258,834)
(46.6)
(206,770)
(34.2)
Loss from continuing operations before income taxes, minority
interests and cumulative effect of change in accounting
principle.....................................................................................
Provision for income taxes ..............................................................
Minority interests .............................................................................
Loss from continuing operations before cumulative effect of
(336,895)
(4,407)
12,340
(55.6)
(0.7)
2.0
(466,340)
(2,465)
4,036
(84.0)
(0.4)
0.7
(312,468)
5,370
202
(51.7)
0.9
(cid:127)
change in accounting principle..................................................
(328,962)
(54.3)
(464,769)
(83.7)
(306,896)
(50.8)
Discontinued operations:
Income from operations of CCUK, net of tax........................
Net gain on disposal of CCUK, net of tax .............................
Income from discontinued operations, net of tax ............
9,041
(cid:127)
9,041
1.5
(cid:127)
1.5
10,458
(cid:127)
10,458
1.9
(cid:127)
1.9
46,399
495,607
542,006
7.7
82.0
89.7
Income (loss) before cumulative effect of change in accounting
principle .....................................................................................
(319,921)
(52.8)
(454,311)
(81.8)
235,110
38.9
Cumulative effect of change in accounting principle for asset
retirement obligations................................................................
Net income (loss) ............................................................................. $
(cid:127)
(319,921)
(cid:127)
(52.8)% $
(551)
(0.1)
(454,862)
(81.9)% $
(cid:127)
235,110
(cid:127)
38.9%
Comparison of Years Ended December 31, 2004 and 2003—Consolidated
Site rental revenues for 2004 were $537.5 million, an increase of $54.7 million, or 11.3%, from 2003. Of this
increase, $44.5 million was attributable to CCUSA and $10.2 million was attributable to CCAL. Network services
and other revenues for 2004 were $66.4 million, a decrease of $5.9 million from 2003. This decrease was primarily
attributable to a $6.7 million decrease from CCUSA, partially offset by a $0.8 million increase from CCAL.
Total revenues for 2004 were $603.9 million, a net increase of $48.8 million from 2003. The increases in site
rental revenues reflect the new tenant additions (or modifications to existing installations) on our tower sites and
contractual escalations on existing leases with variable escalations. In 2004, the rate of new tenant additions (or
modifications to existing installations) on our U.S. tower sites has been approximately 38% greater than the
comparable period in 2003. In 2004, the rate of new tenant additions on CCAL’s tower sites has been approximately
67% greater than the comparable period in 2003. In addition, CCAL’s site rental revenues for 2004 include a
nonrecurring contractual payment of $2.1 million related to a site commitment agreement with one of its customers.
The decrease in network services and other revenues reflects our efforts to de-emphasize this area of our business
and increased competition. We expect that network services and other revenues may continue to decline as a
percentage of total revenues for CCUSA.
Site rental costs of operations for 2004 were $183.6 million, an increase of $4.1 million from 2003. This
increase was primarily attributable to cost increases of $0.5 million for CCUSA and $3.5 million for CCAL. Such
33
cost increases relate to normal and customary increases in ground rentals on leases with variable escalations, repairs
and maintenance and property taxes. Network services and other costs of operations for 2004 were $47.3 million, an
increase of $0.6 million from 2003. This increase was primarily attributable to a $0.9 million increase in costs from
CCAL, partially offset by a $0.4 million decrease in costs from CCUSA.
Total costs of operations for 2004 were $230.9 million, a net increase of $4.6 million from 2003. Gross margins
(net revenues less costs of operations) for site rental as a percentage of site rental revenues increased to 65.8% for
2004 from 62.8% for 2003, because of higher margins from the CCUSA and CCAL operations. Gross margins for
network services and other as a percentage of network services and other revenues decreased to 28.7% for 2004
from 35.4% for 2003 because of lower margins from the CCUSA and CCAL operations.
General and administrative expenses for 2004 were $90.2 million, an increase of $3.2 million from 2003. This
increase was primarily attributable to:
(1) a $2.7 million increase in expenses at CCAL (attributable to increased employee and other costs associated
with increased business activity), and
(2) a $1.6 million increase in expenses at CCUSA (primarily attributable to the transfer of a strategic business
unit from the corporate office segment to CCUSA), partially offset by
(3) a $1.1 million decrease in expenses at our corporate office segment (partially attributable to the transfer of
such strategic business unit from the corporate office segment to CCUSA).
General and administrative expenses as a percentage of revenues decreased to 15.0% for 2004 from 15.7% for 2003,
primarily due to stable overhead costs as compared to increasing revenues for CCUSA.
Corporate development expenses for 2004 were $1.5 million, compared to $5.6 million for 2003. This decrease
was primarily attributable to a decrease in salary costs related to corporate activities.
During 2004, we recorded net cash restructuring charges of $0.9 million, compared to $1.3 million for 2003.
Such 2004 charges related primarily to employee severance payments. See “—Restructuring Charges and Asset
Write-Down Charges”.
During 2004, we recorded asset write-down charges of $7.7 million for CCUSA. Such non-cash charges related
to the abandonment or disposal of certain tower sites, sites in development and certain other assets. We may record
such charges in the future if conditions warrant. See “(cid:127)Restructuring Charges and Asset Write-Down Charges”.
During the fourth quarter of 2004, we performed our annual update of the impairment test for goodwill. The
results of this test indicated that goodwill was not impaired at any of our reporting units. We have included the
results of the joint venture transactions with Verizon Communications in our most recent evalutions
(see”(cid:127)Liquidity and Capital Resources(cid:127)Joint Ventures With Verizon Communications). Future declines in our site
leasing business could result in an impairment of goodwill in the future. If an impairment were to occur in the
future, the calculations to measure the impairment could result in the write-off of some portion, to substantially all,
of our goodwill.
For 2004, we recorded non-cash general and administrative compensation charges of $15.9 million related to
the issuance of stock and stock options to certain employees and executives, compared to $14.0 million for 2003.
These charges were primarily attributable to the issuance, during the first quarter of 2003 and the first and second
quarters of 2004, of restricted common stock to our executives and certain employees, the modification of stock
options for certain terminated executives and the issuance of common stock to the non-executive members of our
Board of Directors. See “(cid:127)Compensation Charges Related to Stock and Stock Option Grants and Acquisitions”.
Depreciation, amortization and accretion for 2004 was $284.0 million, an increase of $2.0 million from 2003.
This increase was primarily attributable to:
34
(1) a $2.0 million increase in depreciation from CCUSA, and
(2) a $1.2 million increase in depreciation from CCAL, partially offset by
(3) a $1.2 million decrease in depreciation at our corporate office segment.
Interest and other income (expense) for 2004 resulted primarily from:
(1) losses of $63.8 million from purchases of our debt securities (see “(cid:127)Liquidity and Capital Resources”),
(2) a loss of $13.9 million from the repayment of our 2000 credit facility (see “(cid:127)Liquidity and Capital
Resources”), and
(3) $5.6 million from our share of losses incurred by unconsolidated affiliates, partially offset by
(4) interest income from invested cash balances.
Interest expense, amortization of deferred financing costs and dividends on preferred stock for 2004 was $206.8
million, a decrease of $52.1 million, or 20.1%, from 2003. This decrease was primarily attributable to:
(1) purchases and redemptions of our debt securities in 2003 and 2004 (see “(cid:127)Liquidity and Capital
Resources”), and
(2) reductions in outstanding bank indebtedness at the Crown Atlantic joint venture, partially offset by
(3) the issuance of the 4% senior notes, the 7.5% senior notes and the 7.5% Series B senior notes in 2003, and
(4) an increase in outstanding bank indebtedness at CCUSA in 2003, the proceeds of which were used to retire
CCUK’s indebtedness and purchase certain of our public debt and preferred stock.
The credit for income taxes of $5.4 million for 2004 consists primarily of a non-cash deferred tax asset resulting
from an alternative minimum tax carryforward, partially offset by a non-cash deferred tax liability resulting from a
difference between the book and tax basis of CCUSA’s goodwill.
Minority interests represent the minority partner’s interest in the operations of Crown Atlantic (43.1% through
April 30, 2003, 37.245% from May 1, 2003 through November 4, 2004 and none thereafter), the minority partner’s
interest in the operations of the Crown Castle GT joint venture (17.8% through April 30, 2003 and none thereafter)
and the minority shareholder’s 22.4% interest in the CCAL operations. See “—Liquidity and Capital Resources—
Joint Ventures With Verizon Communications”.
Comparison of Years Ended December 31, 2004 and 2003—Operating Segments
See Note 13 to the consolidated financial statements for a tabular presentation of the financial results for our
operating segments.
CCUSA. CCUSA’s site rental revenues for 2004 were $496.4 million, an increase of $44.5 million, or 9.8%
from 2003. Network services and other revenues for 2004 were $62.1 million, a decrease of $6.7 million from 2003.
Total revenues for 2004 were $558.5 million, a net increase of $37.8 million from 2003. The increase in site rental
revenues reflects the new tenant additions (or modifications to existing installations) on our tower sites and
contractual escalations on existing leases with variable escalations. In 2004, the rate of new tenant additions (or
modifications to existing installations) on our U.S. tower sites has been approximately 38% greater than the
comparable period in 2003. The decrease in network services and other revenues reflects our efforts to de-emphasize
this area of our business and increased competition. We expect that network services and other revenues may
continue to decline as a percentage of CCUSA’s total revenues. Site rental costs of operations for 2004 were $167.5
million, an increase of $0.5 million from 2003. Such cost increases relate to normal and customary increases in
ground rentals on leases with variable escalations, repairs and maintenance and property taxes. Network services and
35
other costs of operations for 2004 were $44.2 million, a decrease of $0.4 million from 2003. Total costs of
operations for 2004 were $211.7 million, a net increase of $0.2 million from 2003. Gross margins (net revenues less
costs of operations) for site rental as a percentage of site rental revenues increased to 66.3% for 2004 from 63.1%
for 2003. Gross margins for network services and other as a percentage of network services and other revenues
decreased to 28.8% for 2004 from 35.3% for 2003. General and administrative expenses for 2004 were $58.9
million, an increase of $1.6 million from 2003. This increase was primarily attributable to the transfer of a strategic
business unit from the corporate office segment to CCUSA. General and administrative expenses as a percentage of
revenues decreased to 10.5% for 2004 from 11.0% for 2003. For 2004, CCUSA recorded asset write-down charges
of $7.7 million (see “—Restructuring Charges and Asset Write-Down Charges”). CCUSA recorded non-cash
general and administrative compensation charges of $7.3 million for 2004 and $8.0 million for 2003 (see “—
Compensation Charges Related to Stock and Stock Option Grants and Acquisitions”). Depreciation, amortization
and accretion for 2004 was $255.3 million, an increase of $2.0 million from 2003. Interest and other income
(expense) for 2004 was $(9.6) million, compared to $(13.1) million for 2003. Interest expense and amortization of
deferred financing costs for 2004 was $53.6 million, a decrease of $1.5 million from 2003. This decrease was
primarily attributable to a decrease in outstanding bank indebtedness at the Crown Atlantic joint venture, partially
offset by higher interest rates on bank indebtedness.
CCAL. CCAL’s site rental revenues for 2004 were $41.1 million, an increase of $10.2 million, or 33.1%,
from 2003. Network services and other revenues for 2004 were $4.3 million, an increase of $0.8 million from 2003.
Total revenues for 2004 were $45.4 million, an increase of $11.0 million from 2003. The increase in site rental
revenues reflects the new tenant additions on our tower sites and contractual escalations on existing leases with
variable escalations. In 2004, the rate of new tenant additions on CCAL’s tower sites has been approximately 67%
greater than the comparable period in 2003. Site rental costs of operations for 2004 were $16.1 million, an increase
of $3.5 million from 2003. Network services and other costs of operations for 2004 were $3.1 million, an increase of
$0.9 million from 2003. Total costs of operations for 2004 were $19.3 million, an increase of $4.5 million from
2003. Gross margins (net revenues less costs of operations) for site rental as a percentage of site rental revenues
increased to 60.8% for 2004 from 59.2% for 2003. Gross margins for network services and other as a percentage of
network services and other revenues decreased to 27.4% for 2004 from 36.8% for 2003. General and administrative
expenses for 2004 were $10.5 million, an increase of $2.7 million from 2003. General and administrative expenses
as a percentage of revenues increased to 23.2% for 2004 from 22.8% for 2003. Depreciation, amortization and
accretion for 2004 was $28.1 million, an increase of $1.2 million from 2003. Interest and other income (expense)
was $(0.4) million for 2004, compared to $1.5 million for 2003. Interest expense and amortization of deferred
financing costs for 2004 was $4.4 million, compared to $3.8 million for 2003.
Corporate Office and Other. General and administrative expenses for 2004 were $20.8 million, a decrease of
$1.1 million from 2003. This decrease was primarily attributable to the transfer of a strategic business unit from the
corporate office segment to CCUSA. Corporate development expenses for 2004 were $1.5 million, a decrease of
$4.1 million from 2003. This decrease was primarily attributable to a decrease in salary costs related to corporate
activities. For 2004, the corporate office recorded restructuring charges of $1.3 million (see “—Restructuring
Charges and Asset Write-Down Charges”). For 2004 and 2003, the corporate office recorded non-cash general and
administrative compensation charges of $8.6 million and $5.9 million, respectively (see “—Compensation Charges
Related to Stock and Stock Option Grants and Acquisitions”). Depreciation, amortization and accretion for 2004
was $0.6 million, compared to $1.8 million for 2003. Interest and other income (expense) for 2004 was $(68.5)
million compared to $(120.5) million for 2003. The 2004 amount was primarily attributable to losses on debt
purchases of approximately $63.8 million. Interest expense, amortization of deferred financing costs and dividends
on preferred stock for 2004 was $148.7 million, a decrease of $51.3 million from 2003. This decrease was primarily
attributable to purchases and redemptions of our debt securities in 2003 and 2004, partially offset by the issuance of
the 4% senior notes, the 7.5% senior notes and the 7.5% Series B senior notes in 2003 (see “—Liquidity and Capital
Resources”).
Comparison of Years Ended December 31, 2003 and 2002—Consolidated
Site rental revenues for 2003 were $482.7 million, an increase of $36.6 million, or 8.2%, from 2002. Of this
increase, $30.0 million was attributable to CCUSA and $6.6 million was attributable to CCAL. Network services
and other revenues for 2003 were $72.3 million, a decrease of $86.9 million from 2002. This decrease was primarily
attributable to an $87.9 million decrease from CCUSA, partially offset by a $1.0 million increase from CCAL.
36
Total revenues for 2003 were $555.1 million, a net decrease of $50.3 million from 2002. The increases in site
rental revenues reflect the new tenant additions (or modifications to existing installations) on our tower sites and
contractual escalations on existing leases with variable escalations. The increases or decreases in network services
and other revenues reflect fluctuations in demand for antenna installations from our tenants, along with our strategic
decision to reduce our U.S. network services offerings to primarily the management of antenna installations on our
sites. We expect that network services and other revenues may continue to decline as a percentage of total revenues
for CCUSA.
Site rental costs of operations for 2003 were $179.5 million, an increase of $3.4 million from 2002. Of this
increase, $1.5 million was attributable to CCUSA and $1.9 million was attributable to CCAL. Network services and
other costs of operations for 2003 were $46.7 million, a decrease of $75.3 million from 2002. This decrease was
primarily attributable to a $75.9 million decrease in costs from CCUSA, partially offset by a $0.6 million increase in
costs from CCAL.
Total costs of operations for 2003 were $226.3 million, a net decrease of $71.9 million from 2002. Gross
margins (net revenues less costs of operations) for site rental as a percentage of site rental revenues increased to
62.8% for 2003 from 60.5% for 2002 because of higher margins from the CCUSA and CCAL operations. Gross
margins for network services and other as a percentage of network services and other revenues increased to 35.4%
for 2003 from 23.4% for 2002 because of higher margins from the CCUSA and CCAL operations.
General and administrative expenses for 2003 were $87.1 million, an increase of $2.8 million from 2002. This
increase was primarily attributable to:
(1) a $2.1 million increase in expenses at CCAL and
(2) a $5.1 million increase in expenses at our corporate office segment, related primarily to new business
initiatives we are pursuing, partially offset by
(3) a $4.4 million decrease in expenses related to the CCUSA operations, related primarily to lower staffing
levels after the recent restructurings.
General and administrative expenses as a percentage of revenues increased to 15.7% for 2003 from 13.9% for 2002,
primarily because of higher overhead costs as a percentage of revenues for CCUSA and CCAL, along with the
increase in expenses at our corporate office segment.
Corporate development expenses for 2003 were $5.6 million, compared to $7.5 million for 2002. This decrease
was primarily attributable to a decrease in salary costs.
During 2003, we recorded cash restructuring charges of $1.3 million, compared to $8.7 million for 2002. Such
charges related to employee severance payments, lease termination costs and costs of office closures. See
“(cid:127)Restructuring Charges and Asset Write-Down Charges”.
During 2003, we recorded asset write-down charges of $14.3 million, compared to $52.6 million for 2002. Such
non-cash charges related to the abandonment of a portion of our construction in process and the write-down of
certain other assets. We may record such charges in the future if conditions warrant. See “(cid:127)Restructuring Charges
and Asset Write-Down Charges”.
During the fourth quarter of 2003, we performed our annual update of the impairment test for goodwill. The
results of this test indicated that goodwill was not impaired at any of our reporting units. We have included the
results of the joint venture transactions with Verizon Communications in our most recent evalutions
(see”(cid:127)Liquidity and Capital Resources(cid:127)Joint Ventures With Verizon Communications). Future declines in our site
leasing business could result in an impairment of goodwill in the future. If an impairment were to occur in the
future, the calculations to measure the impairment could result in the write-off of some portion, to substantially all,
of our goodwill.
37
For 2003, we recorded non-cash general and administrative compensation charges of $14.0 million related to
the issuance of stock and stock options to certain employees and executives, compared to $3.5 million for 2002. This
increase was primarily attributable to the issuance, during the first quarter of 2003, of restricted common stock to
our executives and certain employees and the issuance of common stock to the non-executive members of our Board
of Directors. See “(cid:127)Compensation Charges Related to Stock and Stock Option Grants and Acquisitions”.
Depreciation, amortization and accretion for 2003 was $282.0 million, an increase of $3.4 million from 2002.
This increase was primarily attributable to:
(1) a $1.4 million increase in depreciation from CCUSA and
(2) a $2.1 million increase in depreciation from CCAL.
Interest and other income (expense) for 2003 resulted primarily from:
(1) losses of approximately $87.1 million from purchases and redemptions of our debt securities,
(2)
losses of approximately $32.3 million from purchases and the redemption of shares of our 12¾%
exchangeable preferred stock,
(3) a loss on the issuance of the interest in the Crown Atlantic joint venture of $11.2 million (see “—Liquidity
and Capital Resources—Joint Ventures With Verizon Communications”),
(4) our share of losses incurred by unconsolidated affiliates and
(5) costs incurred in connection with unsuccessful investment projects, partially offset by
(6) interest income and foreign exchange gains from invested cash balances.
Interest expense, amortization of deferred financing costs and dividends on preferred stock for 2003 was $258.8
million, a decrease of $15.1 million, or 5.5%, from 2002. This decrease was primarily attributable to:
(1) purchases and redemptions of our debt securities in 2002 and 2003,
(2) reductions in outstanding bank indebtedness at the Crown Atlantic joint venture, and
(3) lower interest rates on bank indebtedness at CCUSA and the Crown Atlantic joint venture, partially offset
by
(4) the issuance of the 4% senior notes, the 7.5% senior notes and the 7.5% Series B senior notes in 2003,
(5) an increase in outstanding bank indebtedness at CCUSA, and
(6) dividends on the 12¾% exchangeable preferred stock (see “(cid:127)Impact of Recently Issued Accounting
Standards”).
The provision for income taxes of $2.5 million for 2003 and $4.4 million for 2002 consists primarily of a non-
cash deferred tax liability resulting from a difference between the book and tax basis of CCUSA’s goodwill.
Minority interests represent the minority partner’s interest in the operations of Crown Atlantic (43.1% through
April 30, 2003, 37.245% from May 1, 2003 through November 4, 2004 and none thereafter), the minority partner’s
interest in the operations of the Crown Castle GT joint venture (17.8% through April 30, 2003 and none thereafter)
and the minority shareholder’s 22.4% interest in the CCAL operations. See “—Liquidity and Capital Resources—
Joint Ventures With Verizon Communications”.
38
Comparison of Years Ended December 31, 2003 and 2002—Operating Segments
See Note 13 to the consolidated financial statements for a tabular presentation of the financial results for our
operating segments.
CCUSA. CCUSA’s site rental revenues for 2003 were $451.9 million, an increase of $30.0 million, or 7.1%,
from 2002. Network services and other revenues for 2003 were $68.8 million, a decrease of $87.9 million from
2002. Total revenues for 2003 were $520.7 million, a net decrease of $57.9 million from 2002. The increase in site
rental revenues reflects the new tenant additions (or modifications to existing installations) on our tower sites and
contractual escalations on existing leases with variable escalations. The decrease in network services and other
revenues reflects a decrease in demand for antenna installation from our tenants, along with our strategic decision to
reduce our U.S. network services offerings to primarily the management of antenna installations on our sites. We
expect that network services and other revenues may continue to decline as a percentage of CCUSA’s total
revenues. Site rental costs of operations for 2003 were $167.0 million, an increase of $1.5 million from 2002.
Network services and other costs of operations for 2003 were $44.5 million, a decrease of $75.9 million from 2002.
Total costs of operations for 2003 were $211.5 million, a net decrease of $74.4 million from 2002. Gross margins
(net revenues less costs of operations) for site rental as a percentage of site rental revenues increased to 63.1% for
2003 from 60.8% for 2002. Gross margins for network services and other as a percentage of network services and
other revenues increased to 35.3% for 2003 from 23.2% for 2002. General and administrative expenses for 2003
were $57.3 million, a decrease of $4.4 million from 2002. General and administrative expenses as a percentage of
revenues increased to 11.0% for 2003 from 10.7% for 2002. For 2003, CCUSA recorded restructuring charges and
asset write-down charges of $1.3 million and $14.3 million, respectively (see “—Restructuring Charges and Asset
Write-Down Charges”). CCUSA recorded non-cash general and administrative compensation charges of $8.0
million for 2003 and $2.1 million for 2002 (see “—Compensation Charges Related to Stock and Stock Option
Grants and Acquisitions”). Depreciation, amortization and accretion for 2003 was $253.4 million, an increase of
$1.4 million from 2002. Interest and other income (expense) for 2003 was $(13.1) million, resulting primarily from a
loss on the issuance of the interest in the Crown Atlantic joint venture of $11.2 million (see “—Liquidity and Capital
Resources—Joint Ventures With Verizon Communications”). Interest expense and amortization of deferred
financing costs for 2003 was $55.1 million, a decrease of $1.7 million from 2002. This decrease was primarily
attributable to lower interest rates on bank indebtedness.
CCAL. CCAL’s site rental revenues for 2003 were $30.9 million, an increase of $6.6 million, or 27.4%, from
2002. Network services and other revenues for 2003 were $3.5 million, an increase of $1.0 million from 2002. Total
revenues for 2003 were $34.4 million, an increase of $7.6 million from 2002. The increase in site rental revenues
reflects the new tenant additions on our tower sites and contractual escalations on existing leases with variable
escalations. Site rental costs of operations for 2003 were $12.6 million, an increase of $1.9 million from 2002.
Network services and other costs of operations for 2003 were $2.2 million, an increase of $0.6 million from 2002.
Total costs of operations for 2003 were $14.8 million, an increase of $2.5 million from 2002. Gross margins (net
revenues less costs of operations) for site rental as a percentage of site rental revenues increased to 59.2% for 2003
from 55.9% for 2002. Gross margins for network services and other as a percentage of network services and other
revenues increased to 36.8% for 2003 from 34.7% for 2002. General and administrative expenses for 2003 were
$7.8 million, an increase of $2.1 million from 2002. General and administrative expenses as a percentage of
revenues increased to 22.8% for 2003 from 21.6% for 2002. Depreciation, amortization and accretion for 2003 was
$26.8 million, an increase of $2.1 million from 2002. Interest and other income (expense) was $1.5 million for 2003,
compared to $0.4 million for 2002. Interest expense and amortization of deferred financing costs for 2003 was $3.8
million, compared to $3.4 million for 2002.
Corporate Office and Other. General and administrative expenses for 2003 were $21.9 million, an increase of
$5.1 million from 2002. Corporate development expenses for 2003 were $5.6 million, a decrease of $1.9 million
from 2002. For 2003 and 2002, the corporate office recorded non-cash general and administrative compensation
charges of $5.9 million and $1.4 million, respectively (see “—Compensation Charges Related to Stock and Stock
Option Grants and Acquisitions”). Depreciation, amortization and accretion for 2003 was $1.8 million, compared to
$1.9 million for 2002. Interest and other income (expense) for 2003 was $(120.5) million compared to $65.6 million
for 2002. The 2003 amount was primarily attributable to losses on debt and preferred stock purchases and
redemptions of approximately $119.4 million. Interest expense, amortization of deferred financing costs and
dividends on preferred stock for 2003 was $200.0 million, a decrease of $13.7 million from 2002. This decrease was
39
primarily attributable to purchases and redemptions of our debt securities in 2002 and 2003, partially offset by the
issuance of the 4% senior notes, the 7.5% senior notes and the 7.5% Series B senior notes in 2003.
Liquidity and Capital Resources
We seek to allocate our available capital among the investment alternatives that provide the greatest risk-
adjusted returns given current market conditions. As such, we may continue to (1) acquire sites, build new towers
and make improvements to existing towers and (2) make investments in emerging businesses that are
complementary to our core site leasing business when the expected returns from such investments meet our
investment return criteria. In addition, we may continue to utilize a portion of our available cash balances to
purchase our own stock (either common or preferred) or debt securities from time to time as market prices make
such investments attractive.
On June 28, 2004, we signed a definitive agreement to sell CCUK to an affiliate of National Grid for $2.035
billion in cash, subject to certain working capital type adjustments. On August 31, 2004, we completed the sale of
CCUK. The proceeds for the transaction amounted to $2.029 billion, after taking into account the working capital
type adjustments. In accordance with the terms of our 2000 credit facility, we were required to use $1.275 billion of
the proceeds from the transaction to fully repay the outstanding borrowings under the 2000 credit facility. The
remaining proceeds from the transaction are being used for general corporate purposes, which could include the
repayment of outstanding indebtedness (including any required tender premiums) and/or investments in new
business opportunities. Under the terms of the indentures governing our public debt securities, any proceeds from
the sale of CCUK not invested in qualifying assets within one year must be offered to purchase such debt securities
from our bondholders at the outstanding principal amount plus accrued interest. On September 10, 2004, in order to
satisfy these requirements under the indentures, we commenced an offer to purchase certain of our outstanding
public debt securities in advance of the one year time period (as further discussed below). As a result of the sale of
CCUK, we have restated our financial statements to present CCUK’s assets, liabilities, results of operations and cash
flows as amounts from discontinued operations. Such restatements have been made for all periods presented.
After having closed the sale of CCUK and repaid the outstanding borrowings under the 2000 credit facility, we
anticipate replacing such facility with new senior indebtedness. We currently expect that the principal amount of
such new senior indebtedness would range from $1.3 billion to $1.9 billion. In addition, we anticipate that we may
purchase additional debt and preferred securities with the proceeds from such new senior indebtedness and the
remaining proceeds from the CCUK sale. Such purchases would likely be of our outstanding public debt securities,
the 8¼% convertible preferred stock or outstanding borrowings under Crown Atlantic’s credit facility, and could
involve public market purchases, contractual redemptions or tender offers.
Our goal is to maximize net cash from operating activities and fund all capital spending and debt service from
our operating cash flow, without reliance on additional borrowing or the use of our cash. However, due to the risk
factors outlined in “Item 1. Business – Risk Factors”, there can be no assurance that this will be possible. As part of
our strategy to achieve increases in net cash from operating activities, we seek to lower our interest expense by
reducing outstanding debt balances or lowering interest rates. Such reductions can be made either by using a portion
of our existing cash balances to purchase our debt securities, or with attractive refinancing opportunities.
Our business strategy contemplates discretionary capital expenditures in connection with the further
improvement and selective expansion of our existing tower portfolios. During 2005, we expect that the majority of
our discretionary capital expenditures will occur in connection with the addition of new tenants on our existing sites,
purchases of land on our tower sites and selected new tower builds.
A summary of our net cash provided by operating activities and capital expenditures (both amounts from our
consolidated statement of cash flows) is as follows:
Net cash provided by operating activities .....................................$
Capital expenditures .....................................................................
93,577
111,643
2002
Years Ended December 31,
2003
(In thousands of dollars)
$
79,471
27,431
$
2004
112,084
43,346
40
The increase in net cash from operating activities for 2004 as compared to 2003 is largely due to growth in our core
site leasing business, partially offset by an increase in cash interest paid and the continued decline in our network
services business. Changes in working capital, and particularly changes in accrued interest, have a dramatic impact
on our net cash from operating activities for interim periods, largely due to the timing of interest payments on our
various senior notes issues. In addition, the debt refinancing transactions we completed in 2003 and 2004 have
impacted the timing of our interest payments as compared to prior periods. Cash interest payments for 2004, as
compared to 2003, were increased by payments related to the 4% senior notes, the 7.5% senior notes and the 7.5%
Series B senior notes. The proceeds from these three debt issues were used in 2003 to retire the 10(cid:491)% discount
notes (which were to require cash interest payments beginning on May 15, 2003) and a portion of the 10(cid:490)%
discount notes and the 11¼% discount notes (which were not going to require cash interest payments until
November 15, 2004 and February 1, 2005, respectively). Cash interest payments for 2004 were also impacted by
increased borrowings under the amended 2000 credit facility, a portion of which were used to retire CCUK’s
outstanding indebtedness in 2003. For the year ending December 31, 2005, we expect that our net cash from
operating activities will be positively impacted by continued growth in our core site leasing business. Further
repayment or refinancing of existing indebtedness with lower cost senior debt is expected to reduce interest expense
levels beginning in 2005.
Our capital expenditures can be separated into three general categories: (1) sustaining (which includes
maintenance activities on our sites, vehicles, information technology equipment and office equipment), (2) revenue
generating (which includes tower improvements, enhancements to the structural capacity of our towers in order to
support additional leasing and the construction of new towers) and (3) certain other expenditures related to emerging
businesses. For the fourth quarter of 2004, total capital expenditures were $14.1 million, of which $3.8 million were
for sustaining activities and $10.3 million were for revenue generating activities.
Capital expenditures were $43.3 million for 2004, of which $39.8 million were for CCUSA, $2.7 million were
for CCAL and $0.8 million were for CCIC. For the year ending December 31, 2005, we currently expect that our
total capital expenditures will be between approximately $50.0 million and $74.0 million, of which approximately
$40.0 million to $60.0 million will be for revenue generating activities and approximately $10.0 million to $14.0
million will be for sustaining activities. As such, we expect that our capital expenditures for this period will be fully
funded by net cash from operating activities, as discussed above. Our decisions regarding the construction of new
towers and structural enhancements are discretionary, and depend upon expectations of achieving acceptable rates of
return given current market conditions. Such decisions are influenced by the availability of capital and expected
returns on alternative investments.
As of December 31, 2004, after giving effect to the January 2005 purchases of our 4% senior notes, we had
consolidated cash and cash equivalents of $391.7 million (including $177.0 million at CCUSA, $17.6 million at
CCAL, $150.1 million in an unrestricted investment subsidiary and $47.0 million at restricted group companies in
our corporate segment), consolidated long-term debt of $1,756.9 million, consolidated redeemable preferred stock of
$508.0 million and consolidated stockholders’ equity of $1,751.0 million. In January of 2005, we utilized
approximately $175.4 million of our cash to purchase an aggregate of $93.5 million in outstanding principal amount
of our 4% senior notes, including accrued interest thereon.
For the years ended December 31, 2002, 2003 and 2004, our net cash provided by (used for) financing activities
was $(286.3) million, $71.1 million and $(1,686.4) million, respectively. The amounts for 2002, 2003 and 2004 are
largely due to financing transactions we have completed in an effort to lower our future cash interest payments and
simplify our capital structure. Following is a summary of significant financing transactions completed in 2004 and
January of 2005.
On December 5, 2003, we commenced cash tender offers and consent solicitations for all of our outstanding 9%
senior notes and 9½% senior notes. On December 31, 2003, in accordance with the terms of the tender offers, the
purchase prices for the tendered notes (excluding accrued interest through the purchase date) were determined to be
107.112% of the outstanding principal amount for the 9% senior notes and 109.140% of the outstanding principal
amount for the 9½% senior notes. Such purchase prices include a consent payment of $20.00 for each $1,000
principal amount of the tendered notes. On January 7, 2004, we (1) utilized $147.0 million of our cash to purchase
the $135.6 million in outstanding principal amount of the tendered 9% senior notes, including accrued interest
thereon of $1.8 million, and (2) utilized $124.0 million of our cash to purchase the $109.5 million in outstanding
41
principal amount of the tendered 9½% senior notes, including accrued interest thereon of $4.5 million. The purchase
of the tendered 9% senior notes resulted in a loss of $12.5 million for the first quarter of 2004, consisting of the
write-off of unamortized deferred financing costs ($2.8 million) and the excess of the total purchase price over the
carrying value of the tendered notes ($9.7 million). The purchase of the tendered 9½% senior notes resulted in a loss
of $11.7 million for the first quarter of 2004, consisting of the write-off of unamortized deferred financing costs
($1.7 million) and the excess of the total purchase price over the carrying value of the tendered notes ($10.0
million). Such losses are included in interest and other income (expense) on our consolidated statement of operations
for the year ended December 31, 2004. The 9% senior notes and 9½% senior notes that were tendered through
December 31, 2003 have been classified as current maturities of long-term debt on our consolidated balance sheet as
of December 31, 2003. Upon completion of these tender offers, the outstanding balances for the 9% senior notes and
the 9½% senior notes were $26.1 million and $4.8 million, respectively.
In January of 2004, we (1) utilized $1.6 million of our cash to purchase $1.5 million in outstanding principal
amount at maturity of our 10(cid:490)% discount notes and (2) utilized $1.0 million of our cash to purchase $1.0 million in
outstanding principal amount at maturity of our 11¼% discount notes, both in public market transactions. The debt
purchases resulted in losses of $0.2 million that are included in interest and other income (expense) on our
consolidated statement of operations for the year ended December 31, 2004.
During the year ended December 31, 2004, Crown Atlantic repaid $15.0 million in outstanding borrowings
under its credit facility. Crown Atlantic utilized cash provided by its operations to effect this repayment. In February
of 2004, Crown Atlantic amended its credit facility to reduce the available borrowings from $301.1 million to
$250.0 million.
Under the terms of the indentures governing our public debt securities, any proceeds from the sale of CCUK not
invested in qualifying assets within one year must be offered to purchase such debt securities from our bondholders
at the outstanding principal amount plus accrued interest. On September 10, 2004, in order to satisfy these
requirements under the indentures, we commenced an offer to purchase for cash up to $216.4 million of our 10¾%
senior notes, $205.6 million of our 9(cid:490)% senior notes, $151.4 million of our 7.5% senior notes and $151.4 million of
our 7.5% Series B senior notes in advance of the one year time period. The offer to purchase these securities expired
on October 8, 2004, at which time we accepted an aggregate of $0.5 million in notes that had been tendered. On
October 12, 2004, we utilized $0.5 million of our cash to purchase the $0.5 million in outstanding principal amount
of the tendered notes, including accrued interest thereon.
In March, June and December of 2004, we paid our quarterly dividends on the 8¼% convertible preferred stock
by issuing a total of 0.8 million shares of our common stock. As allowed by the Deposit Agreement relating to
dividend payments on the 8¼% convertible preferred stock, we purchased the 0.8 million shares of common stock
from the dividend paying agent for a total of $12.2 million in cash. We utilized cash from an unrestricted investment
subsidiary to effect the stock purchases. We may choose to continue issuances and purchases of stock in the future
in order to offset dilution caused by the issuance of common stock as dividends on our preferred stock. Such
purchases could amount to $36.4 million annually if we were to choose to offset all of the dividends on our preferred
stock through continued share purchases.
In April of 2004, the restrictions expired with respect to the final third of the outstanding restricted common
shares that had been issued during the first quarter of 2003 (see “—Compensation Charges Related to Stock and
Stock Option Grants and Acquisitions”). All of the executives and employees elected to sell a portion of their vested
shares in order to pay their respective minimum withholding tax liabilities, and we arranged to purchase these shares
in order to facilitate the stock sales. We purchased 0.6 million of such shares of common stock (at a price of $14.92
per share) for a total of $8.8 million in cash. We utilized cash from an unrestricted investment subsidiary to effect
the stock purchase.
In August of 2004, we began purchasing our common stock in public market transactions. Through September
3, 2004, we purchased a total of 2.7 million shares of common stock. We utilized $36.0 million in cash from an
unrestricted investment subsidiary to effect these common stock purchases. We may choose to continue purchases of
common stock in the future.
42
In October of 2004, the restrictions expired with respect to the first third of the outstanding restricted common
shares that had been issued during March, April and May of 2004 (see “—Compensation Charges Related to Stock
and Stock Option Grants and Acquisitions”). Most of the executives and employees sold a portion of their vested
shares in order to pay their respective minimum withholding tax liabilities, and we arranged to purchase these shares
in order to facilitate the stock sales. We purchased 0.2 million of such shares of common stock (at a price of $15.52
per share) for a total of $2.4 million in cash. We utilized cash from an unrestricted investment subsidiary to effect
the stock purchase.
On November 4, 2004, we entered into an agreement with a subsidiary of Verizon Communications (“Verizon”)
to acquire Verizon’s remaining 37.245% equity interest in Crown Atlantic. On that date, we acquired such equity
interest for $295.0 million in cash, inclusive of approximately $15.0 million of net working capital. Following the
transaction, we own 100% of Crown Atlantic. See “(cid:127) Joint Ventures With Verizon Communications”.
On November 8, 2004, we commenced a cash tender offer for all of our outstanding 4% senior notes. On
December 3, 2004, in accordance with the terms of the tender offer, the purchase price for the tendered notes
(excluding accrued interest through the purchase date) was determined to be 179.505% of the outstanding principal
amount. On December 8, 2004, we utilized $86.9 million of our cash to purchase the $48.0 million in outstanding
principal amount of the tendered 4% senior notes, including accrued interest thereon of $0.8 million. The purchase
of the tendered 4% senior notes resulted in a loss of $39.4 million for the fourth quarter of 2004, consisting of the
write-off of unamortized deferred financing costs ($1.2 million) and the excess of the total purchase price over the
carrying value of the tendered notes ($38.2 million). Such loss is included in interest and other income (expense) on
our consolidated statement of operations for the year ended December 31, 2004.
In January of 2005, we utilized $175.4 million of our cash to purchase $93.5 million in outstanding principal
amount of our 4% senior notes, including accrued interest thereon of $1.7 million, in public market transactions. The
debt purchases resulted in losses of $82.6 million for the first quarter of 2005, consisting of the write-off of
unamortized deferred financing costs ($2.4 million) and the excess of the total purchase price over the carrying
value of the notes ($80.2 million). Such losses will be included in interest and other income (expense) on our
consolidated statement of operations for the three months ending March 31, 2005. After these purchases, the
conversion of all the remaining outstanding 4% senior notes would result in the issuance of 8.2 million shares of our
common stock.
The primary factors that are likely to determine our subsidiaries’ ability to comply with their current and future
debt covenants are (1) their current financial performance, (2) their levels of indebtedness and (3) their debt service
requirements. Given the levels of indebtedness that we anticipate for our subsidiaries, the primary risk of a debt
covenant violation would result from a deterioration of a subsidiary’s financial performance. Should a covenant
violation occur in the future as a result of a shortfall in financial performance (or for any other reason), we might be
required to make principal payments earlier than currently scheduled and may not have access to additional
borrowings under these facilities as long as the covenant violation continues. Any such early principal payments
would have to be made from our existing cash balances.
As a holding company, CCIC will require distributions or dividends from its subsidiaries, or will be forced to
use its remaining cash balances, to fund its debt obligations, including interest payments on the notes. The terms of
the current and future indebtedness of our subsidiaries are likely to limit their ability to distribute cash to CCIC. In
addition, there can be no assurance that our subsidiaries will generate sufficient cash from their operations to make
any permitted distributions. As a result, we could be required to apply a portion of our remaining cash to fund
interest payments on the notes. If we do not retain sufficient funds or raise additional funds from any future
financing, we may not be able to make our interest payments on the notes.
If we are unable to refinance our indebtedness or renegotiate the terms of such debt prior to maturity, we may
not be able to meet our debt service requirements, including interest payments on the notes, in the future. Our 4%
senior notes, our 10(cid:490)% discount notes, our 9% senior notes, our 11¼% discount notes, our 9½% senior notes, our
10¾% senior notes, our 9(cid:490)% senior notes, our 7.5% senior notes and our 7.5% Series B senior notes require annual
cash interest payments of $3.5 million, $1.2 million, $2.4 million, $1.2 million, $0.5 million, $46.0 million, $38.2
million, $22.5 million and $22.5 million, respectively.
43
The following table summarizes our contractual cash obligations as of December 31, 2004:
Long-term debt ............................................................................. $
Interest payments on long-term debt (a) ......................................
Capital lease obligations...............................................................
Operating lease obligations (b) ....................................................
Redeemable preferred stock .........................................................
$
2005
97,250 $
148,659
1,013
103,814
(cid:127)
350,736 $
2006
2007
Years Ending December 31,
2008
(In thousands of dollars)
(cid:127)
141,680
849
105,852
(cid:127)
331,224 $ 248,381
(cid:127)
141,680
227
105,436
(cid:127)
$ 247,343
82,750 $
142,586
684
105,204
(cid:127)
$
$
2009
Thereafter
Totals
141,680
(cid:127)
105,094
(cid:127) $ 1,670,398 $ 1,850,398
364,305 1,080,590
2,773
(cid:127)
1,193,787 1,719,187
518,050
$ 3,746,540 $ 5,170,998
518,050
(cid:127)
$ 246,774
(a)
Interest payments on floating rate debt are estimated based on rates in effect during the first quarter of 2005. See Note 5 to the Consolidated Financial
Statements.
(b) Amounts relate primarily to ground lease obligations for our tower sites, and are based on the assumption that payments will be made through the end of the
period for which we hold renewal rights.
We have issued letters of credit to various landlords, insurers and other parties in connection with certain
contingent retirement obligations under various tower site land leases and certain other contractual obligations. The
letters of credit were issued through one of CCUSA’s lenders in amounts aggregating $6.1 million and expire on
various dates through October 2005.
Our ability to make scheduled payments of principal of, or to pay interest on, our debt obligations, and our
ability to refinance any such debt obligations, will depend on our future performance. Such performance is, to a
certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are
beyond our control. We anticipate that we may need to refinance a substantial portion of our indebtedness on or
prior to its scheduled maturity. There can be no assurance that we will be able to effect any required refinancing of
our indebtedness on commercially reasonable terms or at all. See “Item 1. Business(cid:127)Risk Factors”.
Joint Ventures With Verizon Communications
On May 2, 2003, we entered into several agreements (the “Agreements”), dated effective May 1, 2003, relating
to our two joint ventures with Verizon Communications (“Verizon”): Crown Atlantic and the Crown Castle GT
venture (“Crown Castle GT”). Under the Agreements, certain termination rights under which Verizon could have
required us to purchase Verizon’s interest in either or both ventures at any time were converted to put and call rights
with an extended exercise date of July 1, 2007. We also acquired all of Verizon’s interest in Crown Castle GT in
exchange for additional interests in Crown Atlantic and certain other consideration. In addition, the shares of our
common stock previously held by the ventures were distributed to Verizon. Following the transactions, we owned
100% of Crown Castle GT and 62.755% of Crown Atlantic. Further details of the transaction and its accounting
treatment are discussed below.
Pursuant to the Agreements, we acquired all of Verizon’s equity interests in Crown Castle GT (11.0% after the
distribution of the shares of our common stock from Crown Castle GT to Verizon, as discussed below) in exchange
for consideration consisting of (1) the transfer to a Verizon affiliate of a 13.3% equity interest in Crown Atlantic
(with an estimated fair value of $63.6 million), representing consideration for the Verizon Crown Castle GT
partner’s interest in the operating assets held by Crown Castle GT, (2) approximately $5.9 million in cash,
representing the working capital of Crown Castle GT allocable to the Verizon Crown Castle GT partner’s interest
reduced by the working capital of Crown Atlantic allocable to the 13.3% equity interest in Crown Atlantic
transferred to the Verizon affiliate, and (3) the transfer to a Verizon affiliate of approximately 58 tower sites from
the two ventures (for which our proportion of their estimated fair value aggregated $10.3 million, as restated). For
the purpose of performing the purchase price allocation, the fair value measurement for the exchange of the venture
interests was determined based on the current financial performance of Crown Castle GT’s tower sites, using a
valuation multiple derived from the current market performance of our common stock.
Pursuant to the Agreements, Crown Castle GT distributed 5.1 million shares of our common stock previously
held by Crown Castle GT to the Verizon Crown Castle GT partner, resulting in a reduction in Verizon’s interest in
Crown Castle GT by a fixed percentage of 6.8%. The fixed percentage reduction was agreed upon at the time of the
formation of Crown Castle GT. We then purchased such shares from Verizon (at a negotiated price of $6.122 per
44
share) for $31.0 million in cash. We utilized cash from an unrestricted investment subsidiary to effect this stock
purchase.
In addition, pursuant to the Agreements, Crown Atlantic distributed 15.6 million shares of our common stock
previously held by Crown Atlantic to the Verizon Crown Atlantic partner, resulting in a reduction in Verizon’s
interest in Crown Atlantic by a fixed percentage of 19%. The fixed percentage reduction was agreed upon at the
time of the formation of Crown Atlantic. Pursuant to the registration rights contained in the Crown Atlantic
formation agreement dated December 8, 1998, as amended by the Agreements, we filed a registration statement
relating to the sale of such distributed shares on July 1, 2003. Such registration statement became effective on July
21, 2003. Subsequent to that date, Verizon has sold all of the 15.6 million shares of our common stock to third
parties.
We have accounted for the acquisition of the minority interest in Crown Castle GT using the purchase method.
In connection with the purchase price allocation for the transaction, we recorded, as restated, (1) a net decrease in
the carrying value of our tower sites (included in property and equipment) of $29.3 million, (2) goodwill of $51.6
million, none of which is currently expected to be deductible for tax purposes, (3) other intangible assets (included
in deferred financing costs and other assets) of $4.0 million, (4) the elimination of minority interest related to Crown
Castle GT of $46.3 million, (5) an increase in minority interest related to Crown Atlantic of $78.0 million, and (6) a
loss on the issuance of the interest in Crown Atlantic of $11.2 million (included in interest and other income
(expense) on our consolidated statement of operations). The net decrease in the carrying value of the tower sites
resulted from a purchase price allocation adjustment based on the estimated replacement cost of Crown Castle GT’s
towers, along with the net book value of the tower sites transferred to Verizon from the two ventures. The increase
in goodwill resulted primarily from the fair value of the acquired portion of Crown Castle GT in excess of the
related minority interest, along with the net decrease in the carrying value of the tower sites. The amounts recorded
for the net decrease in the carrying value of the tower sites and the increase in other intangible assets represent the
proportionate share of such allocated amounts acquired by us from Verizon.
On November 4, 2004, we entered into an agreement with Verizon to acquire Verizon’s remaining 37.245%
equity interest in Crown Atlantic. On that date, we acquired such equity interest for $295.0 million in cash, inclusive
of approximately $15.0 million of net working capital. Following the transaction, we own 100% of Crown Atlantic.
We have accounted for the acquisition of the minority interest in Crown Atlantic using the purchase method. In
connection with the purchase price allocation for the transaction, we recorded (1) an increase in the carrying value of
our tower sites (included in property and equipment) of $17.7 million, (2) goodwill of $63.3 million, none of which
is currently expected to be deductible for tax purposes, (3) other intangible assets (included in deferred financing
costs and other assets) of $67.0 million, and (4) the elimination of minority interest related to Crown Atlantic of
$147.0 million. The increase in the carrying value of the tower sites resulted from a purchase price allocation
adjustment based on the estimated replacement cost of Crown Atlantic’s towers. The increase in goodwill resulted
primarily from the cash paid for the acquired portion of Crown Atlantic in excess of the related minority interest and
other intangible assets, along with the increase in the carrying value of the tower sites. The amounts recorded for the
increase in the carrying value of the tower sites and the increase in other intangible assets represent the proportionate
share of such allocated amounts acquired by us from Verizon. Following this transaction, we combined the Crown
Atlantic operating segment with the CCUSA operating segment. This change in reportable segments was made in
our consolidated financial statements for the year ended December 31, 2004, and segment information for all prior
periods presented have been restated. As permitted by the indentures governing our public debt securities, in order to
designate Crown Atlantic as a restricted group subsidiary (as defined in the indentures) we transferred an additional
$118.8 million of the remaining proceeds from the CCUK sale to an unrestricted investment subsidiary in exchange
for a 15% ownership interest in Crown Atlantic. As a result, approximately 52% of Crown Atlantic is now held by
our restricted group and the remaining approximately 48% is held by the unrestricted subsidiary. In addition, the
$180.0 million in outstanding borrowings under Crown Atlantic’s credit facility are now indebtedness of our
restricted group per the covenants in our bond indentures. From time to time, we may choose to use funds from our
restricted group to purchase additional interests in Crown Atlantic from our unrestricted subsidiary, subject to
satisfying the conditions imposed by our bond indentures. To the extent we elect to transfer more of the ownership
of Crown Atlantic to our restricted group, cash paid to the unrestricted subsidiary in consideration for such
ownership interest would be available for general corporate purposes, including the purchase of our common stock.
Based on the purchase price paid to Verizon in November 2004, the remaining 48% interest in Crown Atlantic held
by the unrestricted subsidiary would be valued at approximately $380 million.
45
Verizon retains certain protective rights regarding the tower networks held by both Crown Atlantic and Crown
Castle GT. The protective rights relate primarily to ensuring Verizon Wireless’ quiet enjoyment as a tenant on the
Crown Atlantic and Crown Castle GT sites, and such rights terminate should Verizon Wireless cease to occupy the
sites.
Reporting Requirements Under the Indentures Governing the Company’s Debt Securities (the “Indentures”)
The following information (as such capitalized terms are defined in the Indentures) is presented solely as a
requirement of the Indentures; such information is not intended as an alternative measure of financial position,
operating results or cash flow from operations (as determined in accordance with generally accepted accounting
principles). Furthermore, our measure of the following information may not be comparable to similarly titled
measures of other companies.
We have designated certain investment subsidiaries as Unrestricted Subsidiaries. As of December 31, 2004, the
remaining assets in our Unrestricted Subsidiaries consist primarily of cash and cash equivalents, a 48% ownership
interest in Crown Atlantic, an investment in an unconsolidated affiliate and a U.S. nationwide license relating to five
megahertz of spectrum. Summarized financial information for (1) CCIC and our Restricted Subsidiaries and (2) our
Unrestricted Subsidiaries is as follows:
December 31, 2004
Company and
Restricted
Subsidiaries
Unrestricted
Subsidiaries
Consolidation
Eliminations
Consolidated
Total
(In thousands of dollars)
567,148
(cid:127) $
70,166
(cid:127)
(cid:127) 3,369,565
(cid:127)
(cid:127)
333,718
84,928
145,997
(489,028) $ 4,571,522
(183,673)
(305,355)
(cid:127)
(cid:127)
(cid:127)
(cid:127) $
285,065
(cid:127) 1,753,148
116,874
(cid:127)
44,302
(cid:127)
30,468
(cid:127)
508,040
(cid:127)
(489,028) 1,833,625
(489,028) $ 4,571,522
Cash and cash equivalents .................................................... $ 416,597 $ 150,551 $
Other current assets ..............................................................
Property and equipment, net .................................................
Investments in Unrestricted Subsidiaries..............................
Investment in Restricted Group Subsidiary ..........................
Goodwill ...............................................................................
Deferred site rental receivable ..............................................
Other assets, net....................................................................
68,033
3,367,566
183,673
333,718
84,928
115,889
(cid:127)
305,355
(cid:127)
(cid:127)
30,108
2,133
1,999
(cid:127)
$ 4,570,404 $ 490,146 $
Current liabilities .................................................................. $ 283,947 $
Long-term debt, less current maturities ................................
Deferred ground lease payable .............................................
Other liabilities .....................................................................
Minority interests..................................................................
Redeemable preferred stock .................................................
Stockholders’ equity .............................................................
1,118 $
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
1,753,148
116,874
44,302
30,468
508,040
1,833,625
489,028
$ 4,570,404 $ 490,146 $
46
Three Months Ended December 31, 2004
Year Ended December 31, 2004
Company and
Restricted
Subsidiaries
Unrestricted
Subsidiaries
Consolidated
Total
Company and
Restricted
Subsidiaries
Unrestricted
Subsidiaries
Consolidated
Total
Net revenues ............................... $ 157,535 $
Costs of operations (exclusive of
depreciation, amortization and
accretion) ...............................
General and administrative .........
Corporate development...............
Restructuring charges (credits) ...
Asset write-down charges...........
Non-cash general and
60,507
21,775
434
1,348
3,836
(In thousands of dollars)
242 $ 157,777 $ 603,358
$
507
$ 603,865
672
1,519
(cid:127)
(cid:127)
(cid:127)
61,179
23,294
434
1,348
3,836
229,830
83,671
1,455
870
7,652
1,085
6,559
230,915
90,230
1,455
870
7,652
(cid:127)
(cid:127)
(cid:127)
administrative compensation
charges ...................................
Depreciation, amortization and
accretion.................................
Operating income (loss)..............
Interest and other income
(expense)................................
Interest expense and amortization
of deferred financing costs.....
Provision for income taxes .........
Minority interests........................
Income (loss) from discontinued
6,086
1
6,087
15,942
5
15,947
72,422
(8,873)
115
(2,065)
72,537
(10,938)
283,563
(19,625)
423
(7,565)
283,986
(27,190)
(37,414)
(741)
(38,155)
(74,381)
(4,127)
(78,508)
(40,599)
(149)
1,154
(cid:127)
(cid:127)
(cid:127)
(40,599)
(149)
1,154
(206,770)
5,370
202
(cid:127) (206,770)
5,370
(cid:127)
202
(cid:127)
operations...............................
558
Net income (loss)........................ $ (85,323) $
(cid:127)
542,175
(2,806) $ (88,129) $ 246,971
558
(169)
542,006
$ (11,861) $ 235,110
Tower Cash Flow and Adjusted Consolidated Cash Flow for CCIC and our Restricted Subsidiaries is as follows
under the indentures governing the 4% senior notes, the 10¾% senior notes, the 9(cid:490)% senior notes, the 7.5% senior
notes and the 7.5% Series B senior notes:
(In thousands
of dollars)
83,979
Tower Cash Flow, for the three months ended December 31, 2004 ........................................................ $
Consolidated Cash Flow, for the twelve months ended December 31, 2004 ........................................... $ 425,194
(458,772)
Less: Tower Cash Flow, for the twelve months ended December 31, 2004 ............................................
Plus: four times Tower Cash Flow, for the three months ended December 31, 2004 ..............................
335,916
Adjusted Consolidated Cash Flow, for the twelve months ended December 31, 2004............................ $ 302,338
The amounts presented above for Tower Cash Flow, Consolidated Cash Flow and Adjusted Consolidated Cash Flow
include the operating results from CCUK through August 31, 2004 (the date of sale). After acquiring the remaining
minority interest in Crown Atlantic on November 4, 2004, we designated Crown Atlantic as a restricted group
subsidiary. As a result, the amounts presented above for Tower Cash Flow, Consolidated Cash Flow and Adjusted
Consolidated Cash Flow include the operating results from Crown Atlantic for all periods presented. See “—
Liquidity and Capital Resources”.
Related Party Transactions
For the years ended December 31, 2002 (as restated), 2003 (as restated) and 2004, we had revenues from
Verizon Wireless of $147.0 million, $127.5 million and $131.3 million, respectively. As of December 31, 2003, our
total receivables from Verizon Wireless amounted to $6.8 million. Verizon Wireless is a majority owned subsidiary
of Verizon Communications, our former partner in Crown Atlantic and Crown Castle GT (see “(cid:127)Joint Ventures
With Verizon Communications”).
47
Restructuring Charges and Asset Write-Down Charges
For the year ended December 31, 2002, we recorded cash charges of $3.1 million related primarily to additional
employee severance payments at our corporate office in connection with a July 2001 restructuring. In October 2002,
we announced a restructuring of our U.S. business in order to flatten its organizational structure to better align with
customer demand and enhance our regional focus to improve customer service. As part of the restructuring, we
reduced our U.S. workforce by approximately 230 employees and closed some smaller offices. The actions taken for
the October 2002 restructuring were substantially completed by the end of the first quarter of 2003. In connection
with this restructuring, we recorded cash charges of approximately $6.1 million for the year ended December 31,
2002 related to employee severance payments ($3.3 million) and costs of office closures ($2.8 million).
The continued execution of the October 2002 restructuring plan lead to further headcount reductions in the U.S.
business during the second quarter of 2003. As a result, we reduced our U.S. workforce by approximately 60
employees (approximately 9%) and initiated efforts to sublease vacated office space at two of our locations. The
actions taken for this restructuring were substantially completed at June 30, 2003. In connection with this
restructuring, we recorded cash charges of approximately $2.3 million for the year ended December 31, 2003 related
to employee severance payments and lease termination costs.
As a result of the sale of CCUK, in December of 2004 and January of 2005 we consolidated certain corporate
management functions. The actions taken for this restructuring will be substantially completed by the end of the first
quarter of 2005. In connection with this restructuring, we recorded cash charges of $1.3 million for the fourth
quarter of 2004 related to employee severance payments. We expect to record an additional $2.0 million of such
cash charges for the first quarter of 2005. In addition, in the fourth quarter of 2004 we recorded non-cash general
and administrative compensation charges in connection with the modification of stock options for certain terminated
executives (see “—Compensation Charges Related to Stock and Stock Option Grants and Acquisitions”).
During the year ended December 31, 2002, we abandoned a portion of our construction in process related to
certain open projects, cancelled certain build-to-suit agreements and wrote down the value of the related
construction in process, wrote down the value of certain inventories, and wrote down the value of three office
buildings. As a result, we recorded asset write-down charges of $50.3 million for CCUSA and $2.3 million for the
corporate office.
During the year ended December 31, 2003, we abandoned an additional portion of our construction in process
and certain other assets and recorded asset write-down charges of $14.3 million for CCUSA. During the year ended
December 31, 2004, we recorded asset write-down charges of $7.7 million for CCUSA. Such non-cash charges
related to the abandonment or disposal of certain tower sites and sites in development. We will continue to evaluate
the carrying value of our goodwill and our property and equipment as required by SFAS 142 and SFAS 144.
Implicit in the determination of fair value for such long-lived assets are certain assumptions regarding the future
leasing of our tower sites. Should future business conditions require the amendment of previous assumptions we
may abandon additional portions of our construction in process if the leasing potential of open projects is determined
to be below acceptable levels. As a result, our assets could be deemed impaired and a charge to earnings would be
required.
Compensation Charges Related to Stock and Stock Option Grants and Acquisitions
We have recognized non-cash general and administrative compensation charges related to certain stock options
granted to employees and executives prior to our IPO. Such charges amounted to approximately $1.4 million for the
year ended December 31, 2002.
We have issued shares of our common stock in connection with an acquisition by CCUSA. A portion of such
shares were deemed to be compensation to the former shareholders of the acquired company (who remained
employed by us). As a result, CCUSA has recognized non-cash general and administrative compensation charges of
approximately $5.9 million over a three-year period ended in 2003.
48
On January 1, 2003, we adopted the fair value method of accounting (using the “prospective method” of
transition) for stock-based employee compensation awards granted on or after that date. As a result, we are
recognizing non-cash general and administrative compensation charges for stock options granted in 2003. Such
charges will amount to approximately $0.6 million over a five-year period ending in 2008.
In February of 2003, we issued 105,000 shares of common stock to the non-executive members of our Board of
Directors as part of their annual compensation for services on the Board. These shares had a grant-date fair value of
$3.95 per share. In connection with these shares, we recognized non-cash general and administrative compensation
charges of approximately $0.4 million for the year ended December 31, 2003.
During the first quarter of 2003, we granted approximately 5.8 million shares of restricted common stock to our
executives and certain employees. These restricted shares had a weighted-average grant-date fair value of $4.15 per
share, determined based on the closing market price of our common stock on the grant dates. The restrictions on
these shares were to expire in various annual amounts over the vesting period of five years, with provisions for
accelerated vesting based on the market performance of our common stock.
On April 29, 2003, the market performance of our common stock reached the first target level for accelerated
vesting of the restricted common shares that had been issued during the first quarter of 2003. This first target level
was reached when the market price of our common stock closed at or above $5.54 per share for twenty consecutive
trading days. As a result, the restrictions expired with respect to one third of such outstanding shares during the
second quarter of 2003. The acceleration of the vesting for these shares resulted in the recognition of non-cash
general and administrative compensation charges of approximately $7.3 million for the year ended December 31,
2003.
On July 30, 2003, the market performance of our common stock reached the second target level for accelerated
vesting of the restricted common shares that had been issued during the first quarter of 2003. This second target
level was reached when the market price of our common stock closed at or above $8.30 per share (150% of the first
target level of $5.54 per share) for twenty consecutive trading days. As a result, the restrictions expired with respect
to an additional third of such shares during the third quarter of 2003. The acceleration of the vesting for these shares
resulted in the recognition of non-cash general and administrative compensation charges of approximately $7.8
million for the year ended December 31, 2003.
In February of 2004, we issued 35,400 shares of common stock to the non-executive members of our Board of
Directors as part of their annual compensation for services on the Board. These shares had a grant-date fair value of
$11.85 per share. In connection with these shares, we recognized non-cash general and administrative compensation
charges of approximately $0.4 million for the first quarter of 2004.
In March, April and May of 2004, we granted approximately 1.3 million shares of restricted common stock to
approximately 500 of our employees (including approximately 175 employees of CCUK). These restricted shares
had a weighted-average grant-date fair value of $13.99 per share, determined based on the closing market price of
our common stock on the grant dates. The restrictions on the shares will expire in various annual amounts over the
vesting period of four years, with provisions for accelerated vesting based on the market performance of our
common stock. In connection with these restricted shares, we are recognizing non-cash general and administrative
compensation charges of approximately $18.8 million over the vesting period. Such charges will be reduced in the
event that any of the restricted shares are forfeited before they become vested.
On April 27, 2004, the market performance of our common stock reached the third (and final) target level for
accelerated vesting of the restricted common shares that had been issued during the first quarter of 2003. This third
target level was reached when the market price of our common stock closed at or above $12.45 per share (150% of
the second target level of $8.30 per share) for twenty consecutive trading days. As a result, the restrictions expired
with respect to the final third of such outstanding shares during the second quarter of 2004. The acceleration of the
vesting for these shares resulted in the recognition of non-cash general and administrative compensation charges of
$5.4 million for the second quarter of 2004. The restricted common shares that were issued during the first quarter of
2003 were granted to approximately 350 employees, while the restricted common shares that were issued in March
through May of 2004 were granted to approximately 500 employees (including approximately 175 employees of
CCUK).
49
On October 27, 2004, the market performance of our common stock reached the first target level for accelerated
vesting of the restricted common shares that had been issued during March, April and May of 2004. This first target
level was reached when the market price of our common stock closed at or above $14.81 per share (125% of the
base price of $11.85 per share) for twenty consecutive trading days. As a result, the restrictions expired with respect
to the first third of such outstanding shares during the fourth quarter of 2004. The acceleration of the vesting for
these shares resulted in the recognition of non-cash general and administrative compensation charges of
approximately $3.1 million for the fourth quarter of 2004, of which $2.5 million was recorded in continuing
operations and $0.6 million was charged to the net gain on disposal of CCUK. In order to reach the second and third
target levels for accelerated vesting of these restricted shares, the market price of our common stock would have to
close at or above $18.52 per share and $23.14 per share, respectively (125% of each of the previous target levels),
for twenty consecutive trading days. Reaching each of the second and third target levels would result in the
restrictions expiring with respect to an additional third of these restricted shares. The vesting terms for the restricted
shares held by CCUK employees were modified upon the closing of the sale of CCUK. See Note 2 to the
consolidated financial statements.
In December of 2004, we modified the vesting and exercise terms of outstanding stock options for certain
terminated executives (see “—Restructuring Charges and Asset Write-Down Charges”). As a result, we recognized
non-cash general and administrative compensation charges of $2.8 million for the fourth quarter of 2004. We expect
to record an additional $5.2 million of such non-cash charges for the first quarter of 2005.
In February of 2005, we issued 35,650 shares of common stock to the non-executive members of our Board of
Directors as part of their annual compensation for services on the Board. These shares have a grant-date fair value of
$16.20 per share. In connection with these shares, we will recognize non-cash general and administrative
compensation charges of approximately $0.6 million for the first quarter of 2005.
In February of 2005, we granted approximately 0.3 million shares of restricted common stock to certain of our
executives. The restricted shares had a grant-date fair value of $16.20 per share, determined based on the closing
market price of our common stock on the grant date. The restrictions on the shares will expire in various amounts
over the vesting period of four years if the market performance of our common stock reaches certain levels. In
connection with these restricted shares, we will recognize non-cash general and administrative compensation
charges of approximately $4.2 million over the vesting period. Such charges will be reduced in the event that any of
the restricted shares are forfeited before they become vested. In February of 2005, we also authorized the grant of
approximately 0.4 million shares of restricted common stock to 274 other executives and employees. The
restrictions on these shares will expire in various annual amounts over the vesting period of four years, with
provisions for accelerated vesting based on the market performance of our common stock.
Impact of Recently Issued Accounting Standards
In January 2003, the Financial Accounting Standards Board (the “FASB”) issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (“FIN 46”). In December 2003, the FASB issued a revised version of
FIN 46. FIN 46 clarifies existing accounting literature regarding the consolidation of entities in which a company
holds a “controlling financial interest”. A majority voting interest in an entity has generally been considered
indicative of a controlling financial interest. FIN 46 specifies other factors (“variable interests”) which must be
considered when determining whether a company holds a controlling financial interest in, and therefore must
consolidate, an entity (“variable interest entities”). The provisions of FIN 46, as revised, are effective for the first
reporting period ending after March 15, 2004. We adopted the provisions of FIN 46 as of March 31, 2004, and such
adoption did not have a significant effect on our consolidated financial statements.
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (“SFAS 123(R)”). SFAS 123(R) requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements based on fair value. SFAS 123(R) replaces Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”) and supersedes
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). SFAS 123(R)
clarifies and expands SFAS 123’s guidance in several areas, including measuring fair value, classifying an award as
equity or as a liability, and attributing compensation cost to reporting periods. SFAS 123(R) also requires that
50
forfeitures of awards be estimated when granted, while SFAS 123 allowed forfeitures to be accounted for as they
occur. SFAS 123(R) also requires additional disclosures about stock-based compensation awards. The provisions of
SFAS 123(R) are effective for us as of the beginning of the first interim or annual reporting period that begins after
June 15, 2005. As such, we will adopt the provisions of SFAS 123(R) on July 1, 2005. On January 1, 2003, we
adopted the fair value method of accounting for stock-based compensation using the prospective method of
transition under Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation
– Transition and Disclosure (“SFAS 148”). SFAS 123(R) requires the use of a modified version of prospective
application under which compensation cost is recognized on or after the required effective date for (1) awards
granted, modified, repurchased or cancelled after that date and (2) the unvested portion of awards outstanding on
that date based on their grant-date fair values. We expect that the adoption of SFAS 123(R) will increase our non-
cash general and administrative compensation charges by approximately $3.3 million and $3.6 million for the years
ending December 31, 2005 and 2006, respectively.
Cautionary Statement for Purposes of Forward-Looking Statements
Certain information contained in this Annual Report on Form 10-K (including statements contained in “Item 1.
Business”, “Item 3. Legal Proceedings” and “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations”), as well as other written and oral statements made or incorporated by reference from
time to time by us in other reports, filings with the Securities and Exchange Commission, press releases,
conferences, conference calls, or otherwise, may be deemed to be forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 and are subject to the “Safe Harbor” provisions of that section.
This information includes, without limitation, expectations, projections, estimates and other forward-looking
information regarding results of operations, revenues, liquidity, costs and expenses and margins; our competitive
position; demand for our assets, including leasing rates; employee relations; timing of and demand for technological
advances; the effect of accounting policies and standards; adversarial proceedings and other contingent liabilities;
funding of our operations, incurrence of debt and debt service; cash from operating activities; issuances or purchases
of our securities; capital expenditures and financial condition; and tower industry and wireless telecommunications
industry conditions, including consolidation.
These statements are based on current expectations and involve a number of risks and uncertainties, including
those set forth below and elsewhere in this Annual Report on Form 10-K. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, there can be no assurances that such expectations will
prove correct.
When used in this report, the words “anticipate,” “estimate,” “expect,” “may,” “project” and similar expressions
are intended to be among the statements that identify forward-looking statements. Important factors which could
affect actual results and cause actual results to differ materially from those results which might be projected,
forecast, estimated or budgeted in such forward-looking statements include, but are not limited to, the factors set
forth in “—Overview” above and “Item 1. Business—Risk Factors.”
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a result of our international operating, investing and financing activities, we are exposed to market risks,
which include changes in foreign currency exchange rates and interest rates which may adversely affect our results
of operations and financial position. In attempting to minimize the risks and/or costs associated with such activities,
we seek to manage exposure to changes in interest rates and foreign currency exchange rates where economically
prudent to do so.
Certain of the financial instruments we have used to obtain capital are subject to market risks from fluctuations
in market interest rates. The majority of our financial instruments, however, are long-term fixed interest rate notes
and debentures. As of December 31, 2004, we have $180.0 million of floating rate indebtedness, of which $51.3
million has been effectively converted to fixed rate indebtedness through the use of an interest rate swap agreement.
As a result, a fluctuation in market interest rates of one percentage point over the next twelve months would impact
our interest expense by approximately $1.1 million.
51
The majority of our foreign currency transactions are denominated in the British pound sterling or the
Australian dollar, which are the functional currencies of CCUK and CCAL, respectively. As a result of CCUK’s and
CCAL’s transactions being denominated and settled in such functional currencies, the risks associated with currency
fluctuations are primarily associated with foreign currency translation adjustments. We do not currently hedge
against foreign currency translation risks and do not currently believe that foreign currency exchange risk is
significant to our operations. The sale of CCUK generally eliminated our foreign currency risks related to the British
pound sterling. In addition, substantially all of the cash consideration for the CCUK sale was denominated in United
States dollars, so we had no significant foreign currency risk related to that transaction.
The foreign currency exchange rates used to translate the 2003 and 2004 financial statements for CCAL were as
follows:
Average exchange rate for:
CCAL
(Australian dollar)
January 2003...............................................................................................................................
February 2003.............................................................................................................................
March 2003.................................................................................................................................
April 2003...................................................................................................................................
May 2003....................................................................................................................................
June 2003....................................................................................................................................
July 2003 ....................................................................................................................................
August 2003................................................................................................................................
September 2003 ..........................................................................................................................
October 2003 ..............................................................................................................................
November 2003 ..........................................................................................................................
December 2003...........................................................................................................................
$
January 2004...............................................................................................................................
February 2004.............................................................................................................................
March 2004.................................................................................................................................
April 2004...................................................................................................................................
May 2004....................................................................................................................................
June 2004....................................................................................................................................
July 2004 ....................................................................................................................................
August 2004................................................................................................................................
September 2004 ..........................................................................................................................
October 2004 ..............................................................................................................................
November 2004 ..........................................................................................................................
December 2004...........................................................................................................................
Ending exchange rate for:
December 2003...........................................................................................................................
December 2004...........................................................................................................................
Item 8. Financial Statements and Supplementary Data
Crown Castle International Corp. and Subsidiaries
Index to Consolidated Financial Statements
0.5829
0.5956
0.6015
0.6100
0.6468
0.6652
0.6607
0.6518
0.6635
0.6948
0.7158
0.7385
0.7717
0.7770
0.7496
0.7443
0.7039
0.6937
0.7161
0.7111
0.7028
0.7337
0.7704
0.7675
0.7520
0.7805
Page
Report of KPMG LLP, Independent Registered Public Accounting Firm ............................................................ 53
Consolidated Balance Sheet as of December 31, 2003 and 2004 .......................................................................... 54
Consolidated Statement of Operations and Comprehensive Income (Loss) for each of the three years in the
period ended December 31, 2004 ..................................................................................................................... 55
Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 2004 ....... 56
Consolidated Statement of Stockholders’ Equity for each of the three years in the period ended
December 31, 2004........................................................................................................................................... 57
Notes to Consolidated Financial Statements.......................................................................................................... 58
52
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Crown Castle International Corp.:
We have audited the accompanying consolidated balance sheets of Crown Castle International Corp. and
subsidiaries as of December 31, 2003 and 2004, and the related consolidated statements of operations and
comprehensive income (loss), cash flows and stockholders’ equity for each of the years in the three-year period
ended December 31, 2004. In connection with our audits of the consolidated financial statements, we also have
audited financial statement schedules I to II. These consolidated financial statements and financial statement
schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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, 2003 and
2004, and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the
related financial statement schedules, when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2002 and
2003 consolidated financial statements.
As discussed in Note 1, in 2003 the Company adopted the provisions of Statement of Financial Accounting
Standards No. 143, “Accounting for Asset Retirement Obligations”, Statement of Financial Accounting Standards
No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” and Statement of Financial
Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.”
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Crown Castle International Corp.’s internal control over financial
reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March
29, 2005 expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effective
operation of, internal control over financial reporting.
KPMG LLP
Houston, Texas
March 29, 2005
53
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
Current assets:
ASSETS
Cash and cash equivalents ...................................................................................... $
Short-term investments...........................................................................................
Receivables:
Trade, net of allowance for doubtful accounts of $7,603 and $6,577 at
409,584 $
26,600
567,148
(cid:127)
December 31,
2003
2004
(As restated)
37,289
December 31, 2003 and 2004, respectively................................................
Other ...............................................................................................................
Inventories ..............................................................................................................
Deferred site rental receivable................................................................................
Prepaid expenses and other current assets ..............................................................
Assets of discontinued operations (Notes 1 and 2)................................................. 2,052,510
16,369
11,997
6,422
6,395
28,983
(cid:127)
637,314
Total current assets .................................................................................. 2,566,800
Property and equipment, net .......................................................................................... 3,593,570 3,369,565
333,718
Goodwill ........................................................................................................................
84,928
Deferred site rental receivable .......................................................................................
Deferred financing costs and other assets, net of accumulated amortization of $39,692
and $35,961 at December 31, 2003 and 2004, respectively......................................
930
9,615
2,332
27,940
270,438
76,333
105,092
145,997
$ 6,612,233 $ 4,571,522
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable ................................................................................................... $
Accrued interest......................................................................................................
Accrued compensation and related benefits ...........................................................
Deferred rental revenues and other accrued liabilities............................................
Liabilities of discontinued operations (Notes 1 and 2) ...........................................
Long-term debt, current maturities .........................................................................
Total current liabilities .............................................................................
12,323
43,308
15,445
116,739
(cid:127)
97,250
285,065
Long-term debt, less current maturities ......................................................................... 3,182,850 1,753,148
116,874
Deferred ground lease payable ......................................................................................
Other liabilities ..............................................................................................................
44,302
Total liabilities ......................................................................................... 4,134,533 2,199,389
9,785 $
49,063
13,397
106,384
353,544
267,142
799,315
98,524
53,844
Commitments and contingencies (Note 12)
Minority interests...........................................................................................................
Redeemable preferred stock ..........................................................................................
Stockholders’ equity:
Common stock, $.01 par value; 690,000,000 shares authorized; shares issued:
176,645
506,702
30,468
508,040
December 31, 2003—220,758,321 and December 31, 2004—224,064,124 .....
2,241
Additional paid-in capital ....................................................................................... 3,349,459 3,386,749
Accumulated other comprehensive income (loss) ..................................................
54,476
(9,892)
Unearned stock compensation ................................................................................
Accumulated deficit................................................................................................ (1,796,441) (1,599,949)
Total stockholders’ equity........................................................................ 1,794,353 1,833,625
$ 6,612,233 $ 4,571,522
247,249
(8,122)
2,208
See notes to consolidated financial statements.
54
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands of dollars, except per share amounts)
2002
(As restated)
Years Ended December 31,
2003
(As restated)
2004
Net revenues:
Site rental............................................................................................................$
Network services and other.................................................................................
Operating expenses:
Costs of operations (exclusive of depreciation, amortization and accretion):
Site rental....................................................................................................
Network services and other.........................................................................
General and administrative .................................................................................
Corporate development.......................................................................................
Restructuring charges (credits) ...........................................................................
Asset write-down charges ...................................................................................
Non-cash general and administrative compensation charges ..............................
Depreciation, amortization and accretion............................................................
Operating income (loss)..............................................................................................
Other income (expense):
Interest and other income (expense) ...................................................................
Interest expense, amortization of deferred financing costs and dividends
446,136 $
159,217
605,353
482,747 $
72,316
555,063
537,465
66,400
603,865
176,161
122,027
84,244
7,483
8,665
52,598
3,488
278,609
733,275
(127,922)
179,549
46,746
87,061
5,564
1,291
14,317
13,986
281,980
630,494
(75,431)
183,600
47,315
90,230
1,455
870
7,652
15,947
283,986
631,055
(27,190)
64,922
(132,075)
(78,508)
on preferred stock ..........................................................................................
(273,895)
(258,834)
(206,770)
Loss from continuing operations before income taxes, minority interests and
cumulative effect of change in accounting principle...........................................
Credit (provision) for income taxes ............................................................................
Minority interests........................................................................................................
Loss from continuing operations before cumulative effect of change in
(336,895)
(466,340)
(4,407)
12,340
(2,465)
4,036
(312,468)
5,370
202
accounting principle............................................................................................
(328,962)
(464,769)
(306,896)
Discontinued operations (Notes 1 and 2):
Income from operations of CCUK, net of tax .....................................................
Net gain on disposal of CCUK, net of tax...........................................................
Income from discontinued operations, net of tax ........................................
Income (loss) before cumulative effect of change in accounting principle .................
Cumulative effect of change in accounting principle for asset retirement
obligations .............................................................................................................
Net income (loss)........................................................................................................
Dividends on preferred stock, net of gains (losses) on purchases of preferred stock ..
Net income (loss) after deduction of dividends on preferred stock, net of gains
9,041
(cid:127)
9,041
(319,921)
10,458
(cid:127)
10,458
(454,311)
(cid:127)
(319,921)
16,023
(551)
(454,862)
(55,897)
46,399
495,607
542,006
235,110
(cid:127)
235,110
(38,618)
(losses) on purchases of preferred stock ................................................................$
(303,898) $
(510,759) $
196,492
Net income (loss)........................................................................................................$
Other comprehensive income (loss):
Foreign currency translation adjustments ...........................................................
Less: reclassification adjustment for foreign currency translation adjustments
included in net income (loss).........................................................................
Derivative instruments:
Net change in fair value of cash flow hedging instruments ........................
Amounts reclassified into results of operations ..........................................
Minimum pension liability adjustment ...............................................................
Comprehensive income (loss).....................................................................................$
Per common share – basic and diluted:
Loss from continuing operations before cumulative effect of change in
(319,921) $
(454,862) $
235,110
91,075
204,587
25,353
(cid:127)
(cid:127)
(232,893)
(7,883)
5,964
(8,417)
(239,182) $
(1,308)
6,874
(1,888)
(246,597) $
75
3,179
11,513
42,337
accounting principle ......................................................................................$
Income from discontinued operations .................................................................
Cumulative effect of change in accounting principle..........................................
Net income (loss) ................................................................................................$
Common shares outstanding – basic and diluted (in thousands).................................
(1.43) $
0.04
(cid:127)
(1.39) $
218,028
(2.40) $
0.05
(0.01)
(2.36) $
216,947
(1.56)
2.45
(cid:127)
0.89
221,693
See notes to consolidated financial statements.
55
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
Cash flows from operating activities:
Net income (loss)...................................................................................................... $
Adjustments to reconcile net income (loss) to net cash provided by operating
(319,921) $
(454,862) $
235,110
2002
(As restated)
Years Ended December 31,
2003
(As restated)
2004
activities:
Depreciation, amortization and accretion............................................................
Losses (gains) on purchases and redemptions of long-term debt ........................
Non-cash general and administrative compensation charges ..............................
Amortization of deferred financing costs, discounts on long-term debt
and dividends on preferred stock......................................................................
Asset write-down charges ...................................................................................
Equity in losses (earnings) and write-downs of unconsolidated
affiliates ...........................................................................................................
Income from discontinued operations .................................................................
Minority interests and loss on issuance of interest in joint venture .....................
Losses on purchases and redemption of preferred stock .....................................
Cumulative effect of change in accounting principle ..........................................
Changes in assets and liabilities, excluding the effects of acquisitions:
Decrease in receivables .................................................................................
Increase (decrease) in deferred rental revenues, deferred ground lease
payable and other liabilities .....................................................................
Increase (decrease) in accounts payable ........................................................
(Increase) decrease in inventories, prepaid expenses, deferred site rental
receivable and other assets.......................................................................
Increase (decrease) in accrued interest ..........................................................
Net cash provided by operating activities ................................................
Cash flows from investing activities:
Maturities of investments .........................................................................................
Proceeds from disposition of property and equipment..............................................
Purchases of investments..........................................................................................
Acquisitions of assets and minority interests in joint ventures .................................
Capital expenditures .................................................................................................
Investments in affiliates and other ............................................................................
Net cash provided by (used for) investing activities ................................
1,647,313
27,978
(1,497,547)
(4,449)
(111,643)
(11,134)
50,518
Cash flows from financing activities:
Proceeds from issuance of capital stock ...................................................................
Principal payments on long-term debt ......................................................................
Purchases and redemptions of long-term debt ..........................................................
Purchases and redemption of capital stock ...............................................................
Net borrowings (payments) under revolving credit agreements ...............................
Incurrence of financing costs....................................................................................
Proceeds from issuance of long-term debt................................................................
Net cash provided by (used for) financing activities................................
Effect of exchange rate changes on cash.....................................................................
Discontinued operations (Notes 1 and 2) ....................................................................
Net increase (decrease) in cash and cash equivalents ................................................
Cash and cash equivalents at beginning of year ........................................................
Cash and cash equivalents at end of year................................................................... $
Supplementary schedule of non-cash investing and financing activities:
Amounts recorded in connection with acquisitions (see Note 7):
Fair value of net assets recorded, including goodwill and other intangible
assets ................................................................................................................ $
Minority interest acquired ...................................................................................
Minority interest issued.......................................................................................
Supplemental disclosure of cash flow information:
278,609
(79,138)
3,488
93,411
52,598
28,354
(9,041)
(12,340)
(cid:127)
(cid:127)
281,980
87,112
13,986
72,159
14,317
1,817
(10,458)
7,204
32,293
551
283,986
77,659
15,947
9,512
7,652
5,945
(542,006)
(202)
(cid:127)
(cid:127)
96,986
30,736
20,578
(22,234)
(49,976)
34,417
(1,636)
93,577
1,032
(cid:127)
(142,820)
(94,470)
(50,000)
(cid:127)
(cid:127)
(286,258)
1,230
(27,870)
(168,803)
508,640
339,837 $
13,746
(7,751)
(7,114)
3,755
79,471
877,260
13,520
(725,163)
(5,873)
(27,431)
(13,308)
119,005
7,992
(112,250)
(928,388)
(343,734)
(55,000)
(29,534)
1,532,000
71,086
4,964
(204,779)
69,747
339,837
409,584
$
9,692
2,509
(8,543)
(5,755)
112,084
517,500
3,237
(490,900)
(295,000)
(43,346)
(11,119)
(319,628)
32,094
(1,289,750)
(353,958)
(59,364)
(15,000)
(444)
(cid:127)
(1,686,422)
1,178
2,050,352
157,564
409,584
567,148
— $
—
(cid:127)
26,360 $
46,265
(66,752)
147,995
147,005
—
Interest paid .............................................................................................................. $
Income taxes paid .....................................................................................................
181,984 $
407
177,547
465
$
199,836
11,630
See notes to consolidated financial statements.
56
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands of dollars, except share amounts)
Accumulated Other Comprehensive
Income (Loss)
Common Stock
Shares
($.01
Par)
Additional
Paid-In Capital
Foreign
Currency
Translation
Adjustments
Derivative
Instruments
Minimum
Pension
Liability
Adjustment
Unearned
Stock
Compensation
Cumulative effect of restatement................................................
Balance, January 1, 2002, as previously reported ............................ 218,804,363 $ 2,188 $ 3,301,023 $
(cid:127)
3,301,023
1,029
(33,344)
3,733
—
Balance, January 1, 2002, as restated ............................................... 218,804,363 2,188
3
(137)
—
—
306,678
Issuances of capital stock............................................................
Purchases of capital stock ........................................................... (13,755,900)
—
Non-cash general and administrative compensation charges.....
Foreign currency translation adjustments...................................
—
Derivative instruments:
(cid:127)
(cid:127)
(35,254) $
1,491
(33,763)
—
—
—
91,075
(7,992) $
(cid:127)
(7,992)
—
—
—
—
— $
(cid:127)
(cid:127)
—
—
—
—
Net change in fair value of cash flow hedging
—
instruments................................................................
—
Amounts reclassified into results of operations .............
Minimum pension liability adjustment.......................................
—
Dividends on preferred stock...................................................... 10,628,153
—
Gains on purchases of preferred stock, as restated.....................
—
Net loss, as restated.....................................................................
—
—
—
106
—
—
Balance, December 31, 2002, as restated ......................................... 215,983,294 2,160
74
(80)
—
—
Issuances of capital stock, net of forfeitures...............................
Purchases and retirement of capital stock...................................
Non-cash general and administrative compensation charges.....
Foreign currency translation adjustments...................................
Derivative instruments:
7,365,611
(8,034,053)
—
—
Net change in fair value of cash flow hedging
instruments................................................................
Amounts reclassified into results of operations .............
Minimum pension liability adjustment.......................................
Dividends on preferred stock......................................................
Losses on purchases of preferred stock, as restated ...................
Net loss, as restated.....................................................................
—
—
—
54
—
—
Balance, December 31, 2003, as restated ......................................... 220,758,321 2,208
49
(42)
(cid:127)
(cid:127)
Issuances of capital stock, net of forfeitures...............................
Purchases and retirement of capital stock...................................
Non-cash general and administrative compensation charges.....
Foreign currency translation adjustments...................................
Derivative instruments:
—
—
—
5,443,469
—
—
4,919,208
(4,251,766)
(cid:127)
(cid:127)
—
—
—
42,774
3,615
—
3,318,830
31,889
(52,515)
1,512
—
—
—
—
37,301
12,442
—
3,349,459
50,416
(59,322)
3,309
(cid:127)
—
—
—
—
—
—
57,312
—
—
—
205,674
—
—
—
—
—
—
262,986
(cid:127)
(cid:127)
(cid:127)
25,474
(7,883)
5,964
—
—
—
—
(9,911)
—
—
—
—
(1,308)
6,874
—
—
—
—
(4,345)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
—
—
(8,417)
—
—
—
(8,417)
—
—
—
(1,087)
—
—
(1,888)
—
—
—
(11,392)
Total
Accumulated
Deficit
(895,317) $ 2,364,648
(84,976)
2,279,672
1,032
(33,481)
3,733
91,075
(86,467)
(981,784)
—
—
—
—
— $
(cid:127)
(cid:127)
—
—
—
—
—
—
—
—
—
—
—
(23,972)
(cid:127)
15,850
(cid:127)
—
—
—
(79,786)
95,809
(319,921)
(1,285,682)
—
—
—
—
(7,883)
5,964
(8,417)
(36,906)
99,424
(319,921)
2,074,292
7,991
(52,595)
17,362
204,587
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(8,122)
—
—
—
(54,294)
(1,603)
(454,862)
(1,796,441)
(1,308)
6,874
(1,888)
(16,939)
10,839
(454,862)
1,794,353
32,000
(59,364)
18,518
25,353
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(121)
(18,465)
(cid:127)
15,209
(cid:127)
Net change in fair value of cash flow hedging
instruments................................................................
Amounts reclassified into results of operations .............
Dividends on preferred stock......................................................
Amounts included in net gain on disposal of CCUK .................
Net income ..................................................................................
(cid:127)
(cid:127)
2,638,361
(cid:127)
(cid:127)
(cid:127)
(cid:127)
26
(cid:127)
(cid:127)
(cid:127)
(cid:127)
37,253
5,634
(cid:127)
Balance, December 31, 2004 ............................................................ 224,064,124 $ 2,241 $ 3,386,749 $
(cid:127)
(cid:127)
(cid:127)
(232,893)
(cid:127)
55,567
$
75
3,179
(cid:127)
(cid:127)
(cid:127)
(1,091) $
(cid:127)
(cid:127)
(cid:127)
11,513
(cid:127)
(cid:127) $
See notes to consolidated financial statements.
57
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
75
3,179
(1,339)
(214,260)
235,110
235,110
(9,892) $ (1,599,949) $ 1,833,625
(38,618)
(cid:127)
1,486
(cid:127)
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation, Summary of Significant Accounting Policies and Effects of Restatement
Basis of Presentation
The consolidated financial statements include the accounts of Crown Castle International Corp. (“CCIC”) and
its majority and wholly owned subsidiaries, collectively referred to herein as the “Company”. All significant
intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been
made to the prior year’s financial statements to be consistent with the presentation in the current year.
On June 28, 2004, the Company signed a definitive agreement to sell its UK subsidiary (“CCUK”) to an
affiliate of National Grid Transco Plc (“National Grid”). As a result, the Company has restated its financial
statements to present CCUK’s assets, liabilities, results of operations and cash flows as amounts from discontinued
operations. Such restatements have been made for all periods presented. On August 31, 2004, the Company
completed the sale of CCUK. See Note 2.
The Company owns, operates and manages wireless communications sites. The Company also provides
complementary services to its customers, including initial antenna installation and subsequent augmentation, site
acquisition, site development and construction, network design and site selection, site management and other
services. The Company’s communications sites are located throughout the United States, in Puerto Rico and in
Australia. The Company’s primary business is the leasing of antenna space to wireless operators under long-term
contracts.
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.
Effects of Restatement
The consolidated financial statements as presented for the years ended December 31, 2002 and 2003 have been
restated to reflect the correction of errors for certain non-cash items relating to the Company’s lease accounting
practices. On February 7, 2005, the Securities and Exchange Commission issued a public letter to the American
Institute of Certified Public Accountants to clarify the interpretation of existing accounting literature applicable to
certain leases and leasehold improvements. As a result, the Company has adjusted its method of accounting for
tenant leases, ground leases and depreciation. In addition to restating the consolidated financial statements for the
years ended December 31, 2002 and 2003, the Company has also restated its interim financial statements for the
four quarters of 2003 and the first three quarters of 2004 to reflect these corrections in the proper periods (see Note
15).
The corrections to the Company’s consolidated financial statements consist of non-cash adjustments primarily
attributable to increases in site rental revenues, ground lease expense (included in site rental costs of operations) and
depreciation expense. Since the adjustments affected results of operations at CCAL and the Company’s two joint
ventures with Verizon Communications, they also resulted in changes to minority interests and the purchase price
allocation for the acquisition of a minority interest in 2003 (see Note 7). The adjustments for depreciation expense
also effected the discontinued operations of CCUK, resulting in a change to the net gain on disposal (see Note 2).
The cumulative effects of these adjustments on the Company’s consolidated statements of operations from inception
through September 30, 2004 are as follows: an increase in site rental revenues of $34,258,000; an increase in site
rental costs of operations of $98,822,000; an increase in depreciation expense of $180,715,000; an increase in
operating losses of $245,279,000; an increase in other expense (attributable to the loss on the issuance of an interest
in the Crown Atlantic joint venture) of $3,126,000; an increase in minority interests of $43,071,000; a decrease in
income from operations of CCUK, and a corresponding increase in the net gain on disposal of CCUK, of
$4,839,000; and an increase in net losses of $205,334,000. These adjustments have no effect on the Company’s
credit (provision) for income taxes since the net impact on deferred tax assets and liabilities is offset by changes in
valuation allowances. The adjustments do not affect historical net cash flows from operating, investing or financing
activities, future cash flows or the timing of payments under related leases. Moreover, the corrections do not have
any impact on cash balances, compliance with any financial covenants or debt instruments, or the current economic
58
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
value of the Company’s leaseholds and its tower assets. The net impact of the accounting correction will generally
be to accelerate ground lease expense (as such expenses are straight-lined over a period that equals or exceeds the
remaining depreciable life of the tower, along with periods covered by tenant renewal options) and depreciation
expense and, to a lesser extent, site rental revenues (as such revenues are only straight-lined over the current lease
term, without regard to renewal options that may be exercised by a tenant).
Historically, the Company has calculated straight-line ground lease expense (for leases with fixed escalation
provisions) using the current lease term (typically five to ten years) without regard to renewal options. Further, the
Company depreciated all tower assets over a 20-year useful life, without regard to the term of the underlying ground
lease, because of its historical experience in successfully renewing ground leases prior to expiration. As a result of
this accounting adjustment, the Company now calculates its straight-line ground lease expense using a time period
that equals or exceeds the remaining depreciable life of the tower asset. Further, when a tenant has exercisable
renewal options that would compel the Company to exercise existing ground lease renewal options, the Company
has straight-lined the ground lease expense over a sufficient portion of such ground lease renewals to coincide with
the final termination of the tenant’s renewal options. The Company has also shortened the depreciable lives of
certain tower assets that have ground lease expirations prior to the end of their useful life. When calculating its
straight-line site rental revenues, the Company now considers all fixed elements of a tenant lease’s escalation
provisions, even if such escalation provisions also include a variable element.
In addition, certain issuance costs from prior financing transactions that were previously included in deferred
financing costs ($387,000) or additional paid-in capital ($16,057,000) have been charged to interest and other
income (expense) ($10,877,000) or included with dividends on preferred stock ($5,567,000). Such corrections were
made in accordance with EITF Issue No. 98-14, Debtor’s Accounting for Changes in Line-of-Credit or Revolving-
Debt Arrangements (“EITF 98-14”), and EITF Topic No. D-42, The Effect on the Calculation of Earnings per Share
for the Redemption or Induced Conversion of Preferred Stock (“EITF D-42”). EITF 98-14 requires that a
proportionate amount of unamortized deferred financing costs be written off when the borrowing availability under a
credit facility is reduced. EITF D-42 requires that financing costs related to preferred stock that were classified as
additional paid-in capital upon issuance be charged to results of operations upon the subsequent purchase or
redemption of such preferred stock.
In addition, certain foreign currency translation adjustments ($686,000) included in accumulated other
comprehensive income (loss) have been charged to results of operations for 2001in accordance with EITF Issue No.
01-5, Application of FASB Statement No. 52 to an Investment Being Evaluated for Impairment That Will Be
Disposed Of (“EITF 01-5”). In 2001, the Company wrote off an investment in Brazil, but did not write off the
related translation adjustments. EITF 01-5 requires that accumulated foreign currency translation adjustments be
included as part of the carrying amount of a foreign investment being evaluated for impairment under a committed
plan of disposal.
Finally, the Company has recorded (1) deferred income tax provisions resulting from the adoption of Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, pursuant to which goodwill
balances were no longer amortized, and (2) an adjustment to the estimated tax on the sale of CCUK (see Note 2).
The deferred income tax provisions amounted to $4,000,000, $2,000,000 and $1,500,000 for the years ended
December 31, 2002, 2003 and 2004, respectively. Such amounts had previously been inappropriately offset by
deferred tax assets. Upon the sale of CCUK, the Company incurred a federal alternative minimum tax which has
been increased by $7,000,000 for certain adjustments to the tax basis of CCUK’s assets. A deferred tax asset arising
from the carryforward of such alternative minimum tax can be offset against the deferred tax liabilities, resulting in a
$7,500,000 deferred income tax credit for the year ended December 31, 2004.
The adjustments to amounts previously presented in the consolidated statement of operations for the years
ended December 31, 2002 and 2003 are summarized as follows.
59
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
As Previously
Stated
Restatement
Adjustments
As
Restated
(In thousands of dollars, except per share amounts)
Adjustments
to Present
CCUK as
Discontinued
Operations
As Restated
on Continuing
Operations
Basis
2002:
Site rental revenues............................................... $ 677,839 $
Site rental costs of operations............................... 270,024
Depreciation expense............................................ 301,928
(26,591)
Operating income (loss) .......................................
(12,276)
Credit (provision) for income taxes......................
Minority interests .................................................
2,498
Net income (loss).................................................. (272,521)
Dividends on preferred stock, net of gains
4,639 $ 682,478 $ (236,342) $ 446,136
19,720 289,744 (113,583) 176,161
(61,480) 278,609
38,161 340,089
(48,089) (127,922)
(79,833)
(53,242)
(4,407)
11,869
(16,276)
(4,000)
(cid:127)
12,340
12,340
9,842
(cid:127) (319,921)
(47,400) (319,921)
(losses) on purchases of preferred stock ..........
19,638
(3,615)
16,023
(cid:127)
16,023
Net income (loss) per common share – basic
and diluted .......................................................
(1.16)
(0.23)
(1.39)
(cid:127)
(1.39)
2003:
Site rental revenues............................................... $ 786,788 $
Site rental costs of operations............................... 307,511
Depreciation expense............................................ 324,152
51,703
Operating income (loss) .......................................
Interest and other income (expense) ..................... (148,474)
(7,518)
Credit (provision) for income taxes......................
Minority interests .................................................
(2,394)
Net income (loss).................................................. (398,365)
Dividends on preferred stock, net of gains
6,593 $ 739,381 $ (310,634) $ 482,747
16,374 323,885 (144,336) 179,549
(79,702) 281,980
37,530 361,682
(75,431)
(79,823)
4,392
(47,311)
30,015 (132,075)
(13,616) (162,090)
(2,465)
(9,518)
7,053
(cid:127)
4,036
4,036
(cid:127) (454,862)
(56,497) (454,862)
(2,000)
6,430
(losses) on purchases of preferred stock ..........
(53,945)
(1,952)
(55,897)
(cid:127)
(55,897)
Net income (loss) per common share – basic
and diluted .......................................................
(2.09)
(0.27)
(2.36)
(cid:127)
(2.36)
The following tables describe the effects of the restatement on the loss from continuing operations before
cumulative effect of change in accounting principle, net loss and the related per share amounts for the years ended
December 31, 2002 and 2003.
60
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Years Ended December 31,
2002
2003
(In thousands of dollars, except
per share amounts)
Loss before cumulative effect of change in accounting principle, as previously stated ..................... $
Adjustments to site rental revenues............................................................................................
Adjustments to site rental costs of operations ............................................................................
Adjustments to depreciation expense.........................................................................................
Adjustments to interest and other income (expense)..................................................................
Adjustments to credit (provision) for income taxes ...................................................................
Adjustments to minority interests ..............................................................................................
Loss before cumulative effect of change in accounting principle, as restated....................................
Adjustment to present CCUK’s results of operations as discontinued operations......................
(272,521) $
4,639
(19,720)
(38,161)
(cid:127)
(4,000)
9,842
(319,921)
(9,041)
(396,330)
6,593
(16,374)
(37,530)
(13,616)
(2,000)
6,430
(452,827)
(11,942)
Loss from continuing operations before cumulative effect of change in accounting principle, as
restated ......................................................................................................................................... $
(328,962) $
(464,769)
Net loss, as previously stated ............................................................................................................. $
Adjustments to site rental revenues............................................................................................
Adjustments to site rental costs of operations ............................................................................
Adjustments to depreciation expense.........................................................................................
Adjustments to interest and other income (expense)..................................................................
Adjustments to credit (provision) for income taxes ...................................................................
Adjustments to minority interests ..............................................................................................
Net loss, as restated............................................................................................................................
Dividends on preferred stock, net of gains (losses) on purchases of preferred stock, as restated.......
Net income (loss) after deduction of dividends on preferred stock, net of gains (losses) on
(272,521) $
4,639
(19,720)
(38,161)
(cid:127)
(4,000)
9,842
(319,921)
16,023
(398,365)
6,593
(16,374)
(37,530)
(13,616)
(2,000)
6,430
(454,862)
(55,897)
purchases of preferred stock, as restated....................................................................................... $
(303,898) $
(510,759)
Per common share – basic and diluted:
Loss before cumulative effect of change in accounting principle, as previously stated ............. $
Adjustments to site rental revenues .................................................................................
Adjustments to site rental costs of operations .................................................................
Adjustments to depreciation expense ..............................................................................
Adjustments to interest and other income (expense) .......................................................
Adjustments to credit (provision) for income taxes.........................................................
Adjustments to minority interests....................................................................................
Adjustments to dividends on preferred stock, net of gains (losses) on purchases of
preferred stock ...........................................................................................................
Loss before cumulative effect of change in accounting principle, as restated............................
Adjustment to present CCUK’s results of operations as discontinued operations ...........
Loss from continuing operations before cumulative effect of change in accounting principle,
as restated ............................................................................................................................. $
Net loss, as previously stated ..................................................................................................... $
Adjustments to site rental revenues .................................................................................
Adjustments to site rental costs of operations .................................................................
Adjustments to depreciation expense ..............................................................................
Adjustments to interest and other income (expense) .......................................................
Adjustments to credit (provision) for income taxes.........................................................
Adjustments to minority interests....................................................................................
Adjustments to dividends on preferred stock, net of gains (losses) on purchases of
preferred stock ...........................................................................................................
Net loss, as restated.................................................................................................................... $
(1.16) $
0.02
(0.09)
(0.17)
(cid:127)
(0.02)
0.05
(0.02)
(1.39)
(0.04)
(1.43) $
(1.16) $
0.02
(0.09)
(0.17)
(cid:127)
(0.02)
0.05
(0.02)
(1.39) $
(2.08)
0.03
(0.08)
(0.17)
(0.06)
(0.01)
0.03
(0.01)
(2.35)
(0.05)
(2.40)
(2.09)
0.03
(0.08)
(0.17)
(0.06)
(0.01)
0.03
(0.01)
(2.36)
The following table describes the effects of the restatement on comprehensive income (loss) for the years ended
December 31, 2002 and 2003.
Comprehensive income (loss), as previously stated.............................................................$
Adjustments to net income (loss) ......................................................................
Adjustments to foreign currency translation adjustments..................................
Comprehensive income (loss), as restated ...........................................................................$
Years Ended December 31,
2002
2003
(In thousands of dollars)
(189,952) $
(47,400)
(1,830)
(239,182) $
(180,253)
(56,497)
(9,847)
(246,597)
61
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
The following table describes the cumulative effects of the restatement on the consolidated balance sheet as of
December 31, 2003.
Property and
Equipment
Goodwill
Other
Liabilities
Minority
Interests
Stockholders’
Equity
Deferred Site
Rental
Receivable(a)
Deferred
Ground
Lease
Payable
(In thousands of dollars)
(cid:127) $
Balances as of December 31, 2003, as previously stated............... $ 4,741,945 $ 1,206,713 $
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
Reclassification of previously stated amounts.....................
Adjustments to site rental revenues .....................................
Adjustments to site rental costs of operations .....................
Adjustments to depreciation expense ..................................
Adjustments to provision for income taxes .........................
Adjustments to minority interests ........................................
Adjustments to purchase price allocation for
(cid:127)
(cid:127)
(cid:127)
(152,197)
(cid:127)
(cid:127)
45,887
30,764
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127) $ 211,763 $ 208,333 $ 1,984,413
(cid:127)
30,764
(88,114)
(152,197)
(6,000)
39,485
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(39,485)
(8,134)
(cid:127)
(cid:127)
(cid:127)
6,000
(cid:127)
8,134
(cid:127)
88,114
(cid:127)
(cid:127)
(cid:127)
acquisition .....................................................................
Foreign currency translation adjustments (b) ......................
4,386
(13,692)
Balances as of December 31, 2003, as restated ............................. 4,580,442
3,367
(cid:127)
1,210,080
(cid:127)
2,014
78,665
(cid:127)
2,276
98,524
(cid:127)
(cid:127)
209,629
Adjustment to present CCUK’s assets and
10,879
(3,082)
176,645
(3,126)
(10,872)
1,794,353
liabilities as discontinued operations ............................
(986,872)
(939,642)
(cid:127)
(cid:127)
(155,785)
(cid:127)
(cid:127)
Balances as of December 31, 2003, as restated on continuing
operations basis ....................................................................... $ 3,593,570 $ 270,438 $
78,665 $
98,524 $
53,844 $ 176,645 $ 1,794,353
(a) Balance as of December 31, 2003, as restated on continuing operations basis, includes current portion of $2,332.
(b) Amounts represent the effect of foreign currency translation for the lease accounting adjustments to the Australian operations.
The following table describes the cumulative effects of the restatement on the accumulated deficit as of January
1, 2002.
Balance as of January 1, 2002, as previously stated .......................................................................... $
Adjustments to site rental revenues..........................................................................................
Adjustments to site rental costs of operations ..........................................................................
Adjustments to depreciation expense.......................................................................................
Adjustments to interest and other income (expense)................................................................
Adjustments to minority interests ............................................................................................
Total adjustments .....................................................................................................................
Balance as of January 1, 2002, as restated......................................................................................... $
(895,317)
19,532
(52,020)
(76,506)
(686)
23,213
(86,467)
(981,784)
Accumulated
Deficit
(In thousands of
dollars)
Summary of Significant Accounting Policies
Cash Equivalents
Cash equivalents consist of highly liquid investments with original maturities of three months or less.
Investments
As of December 31, 2003, all investments (consisting of auction rate securities) were classified as held-to-
maturity since the Company had the positive intent and ability to hold such investments until they matured. Held-to-
maturity securities are stated at amortized cost. Although the Company’s auction rate securities had contractual
maturities which exceeded one year, the underlying interest rates on such securities reset at intervals of less
than 90 days. Therefore, these auction rate securities were priced and subsequently traded as short-term investments
because of the interest rate reset feature. As a result, the Company has classified its auction rate securities as short-
term investments in the accompanying consolidated balance sheet. The 2003 balance of such securities was
previously classified as cash equivalents due to the liquidity and pricing reset feature. In 2004, these securities were
reclassified as short-term investments to conform with the current presentation. There was no impact on net earnings
or cash flow from operations as a result of the reclassification.
62
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Allowance for Doubtful Accounts Receivable
An allowance for doubtful accounts is recorded as an offset to accounts receivable in order to present a net
balance that the Company believes will be collected. In estimating the appropriate balance for this allowance, the
Company considers (1) specific reserves for accounts it believes may prove to be uncollectible and (2) additional
reserves, based on historical collections, for the remainder of its accounts. Additions to the allowance for doubtful
accounts are charged to costs of operations, and deductions from the allowance are recorded when specific accounts
receivable are written off as uncollectible.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO)
method. Inventories include work in process amounting to $3,194,000 and $2,860,000 at December 31, 2003 and
2004, respectively.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is computed utilizing
the straight-line method at rates based upon the estimated useful lives of the various classes of assets. Depreciation
of tower sites is generally computed with a useful life equal to the shorter of 20 years or the term of the underlying
ground lease (including optional renewal periods). 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, including other intangible assets with finite useful lives, will be reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be
recoverable. If the sum of the estimated future cash flows (undiscounted) expected to result from the use and
eventual disposition of an asset is less than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss is based on the fair value of the asset.
Goodwill
Goodwill represents the excess of the purchase price for an acquired business over the allocated value of the
related net assets (see Note 4). On January 1, 2002, the Company adopted the new accounting standard for goodwill
and other intangible assets (see “Recent Accounting Pronouncements”). In accordance with that new standard,
goodwill is not amortized, but rather is tested for impairment on an annual basis. This annual impairment test
involves (1) a step to identify potential impairment at a reporting unit level based on fair values, and (2) a step to
measure the amount of the impairment, if any. Our measurement of the fair value for goodwill is based on an
estimate of discounted future cash flows of the reporting unit.
Deferred Financing Costs
Costs incurred to obtain financing are deferred and amortized over the estimated term of the related borrowing.
Revenue Recognition
Site rental revenues are recognized on a monthly basis over the fixed, non-cancelable term of the relevant lease,
agreement or contract, with such terms generally ranging from five years to ten years. In accordance with applicable
accounting standards, these revenues are recognized on a monthly basis, regardless of whether the payments from
the customer are received in equal monthly amounts. If the payment terms call for fixed escalations (as in fixed
dollar or fixed percentage increases), the effect of such increases is recognized on a straight-line basis over the fixed,
non-cancelable term of the agreement.
Network services revenues are generally recognized under a method which approximates the completed
contract method. This method is used because these services are typically completed in relatively short periods of
time and financial position and results of operations do not vary significantly from those which would result from
63
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
use of the percentage-of-completion method. These services are considered complete when the terms and conditions
of the contract or agreement have been completed. Costs and revenues associated with contracts not complete at the
end of a period are deferred and recognized when the installation becomes operational. Any losses on contracts are
recognized at such time as they become known.
Some of the Company’s arrangements with its customers call for the performance of multiple revenue-
generating activities. Generally, these arrangements include both site rental and network services. In such cases, the
Company determines whether the multiple deliverables are to be accounted for separately or on a combined basis. In
order to be accounted for separately, the undelivered items must (1) have stand-alone value to the customer, (2) have
reliably determinable fair value on a separate basis, and (3) have delivery which is probable and under the control of
the Company. Allocation of recognized revenue in such arrangements is based on the relative fair value of the
separately delivered items.
Corporate Development Expenses
Corporate development expenses represent costs incurred in connection with acquisitions and development of
new business initiatives.
Income Taxes
The Company accounts for income taxes using an asset and liability approach, which requires the recognition of
deferred income tax assets and liabilities for the expected future tax consequences of events that have been
recognized in the Company’s financial statements or tax returns. Deferred income tax assets and liabilities are
determined based on the temporary differences between the financial statement and tax bases of assets and liabilities
using enacted tax rates.
Per Share Information
Per share information is based on the weighted-average number of common shares outstanding during each
period for the basic computation and, if dilutive, the weighted-average number of potential common shares resulting
from the assumed conversion of outstanding stock options, warrants, convertible preferred stock and convertible
senior notes for the diluted computation.
64
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
A reconciliation of the numerators and denominators of the basic and diluted per share computations is as
follows:
Loss from continuing operations before cumulative effect of change in
2002
(As restated)
Years Ended December 31,
2003
(As restated)
(In thousands of dollars,
except per share amounts)
2004
accounting principle............................................................................... $ (328,962) $ (464,769) $ (306,896)
(38,618)
(cid:127)
Dividends on preferred stock......................................................................
Gains (losses) on purchases of preferred stock...........................................
Loss from continuing operations before cumulative effect of change in
(54,294)
(1,603)
(79,786)
95,809
accounting principle applicable to common stock for basic and diluted
computations ..................................................................................... (312,939)
9,041
Income from discontinued operations.........................................................
Cumulative effect of change in accounting principle .................................
Net income (loss) applicable to common stock for basic and diluted
(cid:127)
(520,666)
10,458
(551)
(345,514)
542,006
(cid:127)
computations.......................................................................................... $ (303,898) $ (510,759) $ 196,492
Weighted-average number of common shares outstanding during the
period for basic and diluted computations (in thousands)...................... 218,028
216,947
221,693
Per common share – basic and diluted:
Loss from continuing operations before cumulative effect of change
in accounting principle...................................................................... $
Income from discontinued operations .................................................
Cumulative effect of change in accounting principle ..........................
Net income (loss)................................................................................. $
(1.43) $
0.04
(cid:127)
(1.39) $
(2.40) $
0.05
(0.01)
(2.36) $
(1.56)
2.45
(cid:127)
0.89
The calculations of common shares outstanding for the diluted computations exclude the following potential
common shares. The inclusion of such potential common shares in the diluted per share computations would be
antidilutive since the Company incurred net losses from continuing operations for each of the three years in the
period ended December 31, 2004.
Options to purchase shares of common stock.............................................
Warrants to purchase shares of common stock at an exercise price of $7.50
per share.................................................................................................
Warrants to purchase shares of common stock at an exercise price of
2002
22,975
December 31,
2003
(In thousands)
18,994
640
640
$26.875 per share...................................................................................
1,000
1,000
Shares of 8¼% Cumulative Convertible Redeemable Preferred Stock
which are convertible into shares of common stock at a conversion
price of $26.875 per share (callable at par beginning on October 1,
2004
14,433
640
(cid:127)
2005)............................................................................................
7,442
7,442
7,442
Shares of 6.25% Convertible Preferred Stock which are convertible into
shares of common stock at a conversion price of $36.875 per share .....
Shares of restricted common stock .............................................................
4% Convertible Senior Notes which are convertible into shares of common
stock at a conversion price of $10.83 per share .....................................
Total potential common shares............................................................
8,625
—
—
40,682
8,625
1,873
21,237
59,811
8,625
918
16,807
48,865
As of December 31, 2004, outstanding stock options include (1) 7,808,425 options at exercise prices ranging
from $-0- to $15.50 per share and a weighted-average exercise price of $9.47 per share, and (2) 6,624,847 options at
exercise prices ranging from $16.28 to $39.75 per share and a weighted-average exercise price of $24.69 per share.
65
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Foreign Currency Translation
Crown Castle Australia Holdings Pty Ltd. (“CCAL”) uses the Australian dollar as the functional currency for its
operations. The Company translates CCAL’s results of operations using the average exchange rate for the period,
and translates CCAL’s assets and liabilities using the exchange rate at the end of the period. The cumulative effect
of changes in the exchange rate are recorded as translation adjustments in stockholders’ equity.
Derivative and Financial Instruments
Derivative instruments are recognized as either assets or liabilities in the consolidated balance sheet based on
their fair values. Changes in the fair values of such derivative instruments are recorded either in results of operations
or in other comprehensive income (loss), depending on the intended use of the derivative instrument. The derivative
instrument recognized in the Company’s consolidated balance sheet consists of an interest rate swap agreement.
Such agreement is used to manage interest rate risk on a portion of the Company’s floating rate indebtedness, and is
designated as a cash flow hedging instrument. The interest rate swap agreement effectively converts the interest
payments on an equal amount of debt from a floating rate to a fixed rate. As such, the Company is protected from
future increases in market interest rates on that portion of its indebtedness. To the extent that the interest rate swap
agreement is effective in hedging the Company’s interest rate risk, the change in its fair value is recorded as other
comprehensive income (loss). Amounts recorded as other comprehensive income (loss) are reclassified into results
of operations in the same periods that the hedged interest costs are recorded in interest expense. The Company
estimates that such reclassified amounts will be approximately $1,200,000 for the year ending December 31, 2005.
To the extent that any portion of the interest rate swap agreement is deemed ineffective, the related change in fair
value is recognized in results of operations. As of December 31, 2003 and 2004, the accumulated other
comprehensive income (loss) in consolidated stockholders’ equity includes $4,345,000 and $1,091,000, respectively,
in losses related to derivative instruments.
The carrying amount of cash and cash equivalents approximates fair value for these instruments. The estimated
fair value of the Company’s public debt securities is based on quoted market prices, and the estimated fair value of
the other long-term debt is determined based on the current rates offered for similar borrowings. The estimated fair
value of the interest rate swap agreement is based on the amount that the Company would receive or pay to
terminate the agreement at the balance sheet date. The estimated fair values of the Company’s financial instruments,
along with the carrying amounts of the related assets (liabilities), are as follows:
Carrying
Amount
December 31, 2003
Carrying
Fair
Value
Amount
(In thousands of dollars)
December 31, 2004
Fair
Value
Cash and cash equivalents ............................................. $ 409,584
Short-term investments (to be held to maturity) ............
26,600
Long-term debt ..............................................................
Interest rate swap agreement .........................................
$ 409,584 $ 567,148
(cid:127)
$ 567,148
(cid:127)
(3,449,992) (3,651,057) (1,850,398) (2,119,760)
(1,091)
(1,091)
(4,345)
(4,345)
26,600
The Company does not currently hold or issue derivative financial instruments for trading purposes.
Stock-Based Compensation
The Company used the “intrinsic value based method” of accounting for its stock-based employee
compensation plans until December 31, 2002 (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. The exercise prices for the substantial portion of the
options granted during the year ended December 31, 2002 were equal to or in excess of the market value of the
Company’s common stock at the date of grant. As such, no compensation cost was recognized for the substantial
portion of the stock options granted during that year (see Note 9). On January 1, 2003, the Company adopted the fair
value method of accounting (using the “prospective method” of transition) for stock-based employee compensation
awards granted on or after that date (see “Recent Accounting Pronouncements”). The following table shows the pro
forma effect on the Company’s net income (loss) and income (loss) per share as if compensation cost had been
66
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
recognized for all stock options based on their fair value at the date of grant. The pro forma effect of stock options
on the Company’s net income (loss) for those years may not be representative of the pro forma effect for future
years due to the impact of vesting and potential future awards.
Years Ended December 31,
2003
2002
(As restated)
(As restated)
(In thousands of dollars, except per share amounts)
Net income (loss), as reported ............................................................... $ (319,921) $ (454,862) $ 235,110
Add: Stock-based employee compensation expense included in
2004
reported net income (loss).................................................................
5,349
20,654
25,772
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards ................
Net income (loss), as adjusted ...............................................................
Dividends on preferred stock, net of gains (losses) on purchases of
(45,709)
(360,281)
(45,329)
(479,537)
(33,653)
227,229
preferred stock ..................................................................................
16,023
(55,897)
(38,618)
Net income (loss) applicable to common stock for basic and diluted
computations, as adjusted ................................................................. $ (344,258) $ (535,434) $ 188,611
Net income (loss) per common share—basic and diluted:
As reported................................................................................... $
As adjusted................................................................................... $
(1.39) $
(1.58) $
(2.36) $
(2.47) $
0.89
0.85
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial
Accounting Standards No. 141, Business Combinations (“SFAS 141”), and Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 141 prohibits the use of the pooling-
of-interests method of accounting for business combinations, and requires that the purchase method be used for all
business combinations after June 30, 2001. SFAS 141 also changed the manner in which acquired intangible assets
are identified and recognized apart from goodwill. Further, SFAS 141 requires additional disclosures regarding the
reasons for business combinations, the allocation of the purchase price to recognized assets and liabilities and the
recognition of goodwill and other intangible assets. The Company has used the purchase method of accounting since
its inception, so the adoption of SFAS 141 did not change its method of accounting for business combinations. The
Company adopted the other recognition and disclosure requirements of SFAS 141 as of July 1, 2001 for any future
business combinations. The transition provisions of SFAS 141 required that the carrying amounts for goodwill and
other intangible assets acquired in prior purchase method business combinations be reviewed and reclassified in
accordance with the new recognition rules; such reclassifications were to be made in conjunction with the adoption
of SFAS 142. The application of these transition provisions of SFAS 141 as of January 1, 2002 resulted in a
reclassification of other intangible assets with finite useful lives (the value of site rental contracts from the
acquisition of Crown Communication) to deferred financing costs and other assets on the Company’s consolidated
balance sheet. The gross carrying amount, accumulated amortization and net book value of such reclassified
intangible assets were $26,000,000, $11,483,000 and $14,517,000 at January 1, 2002, respectively (see Note 4). The
net book value of these intangible assets is being amortized using a revised life of 10 years.
SFAS 142 changed the accounting and disclosure requirements for acquired goodwill and other intangible
assets. The most significant provision of SFAS 142 is that goodwill and other intangible assets with indefinite useful
lives are no longer amortized, but rather are tested for impairment on an annual basis. This annual impairment test
involves (1) a step to identify potential impairment at a reporting unit level based on fair values, and (2) a step to
measure the amount of the impairment, if any. Intangible assets with finite useful lives will continue to be amortized
over such lives, and tested for impairment in accordance with the Company’s existing policies. SFAS 142 requires
disclosures about goodwill and other intangible assets in the periods subsequent to their acquisition, including (1)
changes in the carrying amount of goodwill, in total and by operating segment, (2) the carrying amounts of
intangible assets subject to amortization and those which are not subject to amortization, (3) information about
impairment losses recognized, and (4) the estimated amount of intangible asset amortization expense for the next
five years. The provisions of SFAS 142 were effective for fiscal years beginning after December 15, 2001. In
addition, the nonamortization provisions of SFAS 142 were to be immediately applied for goodwill and other
67
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
intangible assets acquired in business combinations subsequent to June 30, 2001. The Company adopted the
requirements of SFAS 142 as of January 1, 2002. SFAS 142 required that transitional impairment tests be performed
at its adoption, and provided that resulting impairment losses for goodwill and other intangible assets with indefinite
useful lives be reported as the effect of a change in accounting principle. The Company completed its transitional
impairment tests and determined that no impairment losses for goodwill and other intangible assets were to be
recorded upon the adoption of SFAS 142. The Company’s depreciation and amortization expense has decreased by
approximately $60,617,000 per year as a result of the adoption of SFAS 142.
In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations (“SFAS 143”). SFAS 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the related asset retirement costs. The fair value of a
liability for an asset retirement obligation is to be recognized in the period in which it is incurred and can be
reasonably estimated. Such asset retirement costs are to be capitalized as part of the carrying amount of the related
long-lived asset and depreciated over the asset’s estimated useful life. Fair value estimates of liabilities for asset
retirement obligations will generally involve discounted future cash flows. Periodic accretion of such liabilities due
to the passage of time is to be recorded as an operating expense. The provisions of SFAS 143 were effective for
fiscal years beginning after June 15, 2002, with initial application as of the beginning of the fiscal year. The
Company adopted the requirements of SFAS 143 as of January 1, 2003. The adoption of SFAS 143 resulted in the
recognition of liabilities amounting to $1,359,000 for contingent retirement obligations under certain tower site land
leases (included in other long-term liabilities on the Company’s consolidated balance sheet), the recognition of asset
retirement costs amounting to $808,000 (included in property and equipment on the Company’s consolidated
balance sheet), and the recognition of a charge for the cumulative effect of the change in accounting principle
amounting to $551,000. Accretion expense related to liabilities for contingent retirement obligations (included in
depreciation, amortization and accretion on the Company’s consolidated statement of operations) amounted to
$180,000 and $204,000 for the years ended December 31, 2003 and 2004, respectively. At December 31, 2003 and
2004, liabilities for contingent retirement obligations amounted to $1,584,000 and $1,702,000, respectively. If the
provisions of SFAS 143 had been applied during all periods presented, liabilities for contingent retirement
obligations would have amounted to $1,182,000 at January 1, 2002.
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (“SFAS 144”). SFAS 144 supersedes Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of (“SFAS 121”), but retains many of its fundamental provisions. SFAS 144 also clarifies certain
measurement and classification issues from SFAS 121. In addition, SFAS 144 supersedes the accounting and
reporting provisions for the disposal of a business segment as found in Accounting Principles Board Opinion No. 30,
Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions (“APB 30”). However, SFAS 144
retains the requirement in APB 30 to separately report discontinued operations, and broadens the scope of such
requirement to include more types of disposal transactions. The scope of SFAS 144 excludes goodwill and other
intangible assets that are not to be amortized, as the accounting for such items is prescribed by SFAS 142. The
provisions of SFAS 144 were effective for fiscal years beginning after December 15, 2001, and were to be applied
prospectively. The adoption of the requirements of SFAS 144 as of January 1, 2002 had no impact on the
Company’s consolidated financial statements.
In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (“SFAS 145”).
SFAS 145 amends or rescinds a number of authoritative pronouncements, including Statement of Financial
Accounting Standards No. 4, Reporting Gains and Losses from Extinguishment of Debt (“SFAS 4”). SFAS 4
required that gains and losses from extinguishment of debt that were included in the determination of net income or
loss be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. Upon
adoption of SFAS 145, gains and losses from extinguishment of debt are no longer classified as an extraordinary
item, but rather are generally classified as part of other income (expense) on the Company’s consolidated statement
of operations. Any such gains or losses classified as an extraordinary item in prior periods were to be reclassified in
future financial statement presentations. The provisions of SFAS 145 related to the rescission of SFAS 4 were
effective for fiscal years beginning after May 15, 2002, with early application encouraged. The Company adopted
the provisions of SFAS 145 as of January 1, 2002.
68
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (“SFAS 146”). SFAS 146 replaces the previous accounting guidance
provided by Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”).
SFAS 146 requires that costs associated with exit or disposal activities be recognized when they are incurred, rather
than at the date of a commitment to an exit or disposal plan (as provided by EITF 94-3). Examples of costs covered
by SFAS 146 include certain employee severance costs and lease termination costs that are associated with a
restructuring or discontinued operation. The provisions of SFAS 146 were effective for exit or disposal activities
initiated after December 31, 2002, and are to be applied prospectively. The Company adopted the requirements of
SFAS 146 as of January 1, 2003. See Note 14.
In November 2002, the FASB’s Emerging Issues Task Force (the “EITF”) released its final consensus on Issue
No. 00-21, Revenue Arrangements with Multiple Deliverables (“EITF 00-21”). EITF 00-21 addresses certain aspects
of the accounting for arrangements under which multiple revenue-generating activities will be performed, including
the determination of whether an arrangement involving multiple deliverables contains more than one unit of
accounting. The guidance in EITF 00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The Company adopted the provisions of EITF 00-21 as of July 1, 2003, and such
adoption did not have a significant effect on its consolidated financial statements.
In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation—Transition and Disclosure (“SFAS 148”). SFAS 148 amends Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), to provide alternative
methods of transition for a voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the provisions of SFAS 123 to require more prominent disclosures in
both annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results of operations. The Company adopted the
disclosure requirements of SFAS 148 as of December 31, 2002. On January 1, 2003, the Company adopted the fair
value method of accounting for stock-based employee compensation using the “prospective” method of transition as
provided by SFAS 148. Under this transition method, the Company is recognizing compensation cost for all
employee awards granted on or after January 1, 2003. The adoption of this new accounting method did not have a
significant effect on the Company’s consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities
(“FIN 46”). In December 2003, the FASB issued a revised version of FIN 46. FIN 46 clarifies existing accounting
literature regarding the consolidation of entities in which a company holds a “controlling financial interest”. A
majority voting interest in an entity has generally been considered indicative of a controlling financial interest. FIN
46 specifies other factors (“variable interests”) which must be considered when determining whether a company
holds a controlling financial interest in, and therefore must consolidate, an entity (“variable interest entities”). The
provisions of FIN 46, as revised, were effective for the first reporting period ending after March 15, 2004. The
Company adopted the provisions of FIN 46 as of March 31, 2004, and such adoption did not have a significant
effect on its consolidated financial statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS 150”). SFAS 150 requires that
mandatorily redeemable financial instruments issued in the form of shares be classified as liabilities, and specifies
certain measurement and disclosure requirements for such instruments. The provisions of SFAS 150 were effective
at the beginning of the first interim period beginning after June 15, 2003. The Company adopted the requirements of
SFAS 150 as of July 1, 2003. The Company determined that (1) its 12¾% Exchangeable Preferred Stock was to be
reclassified as a liability upon adoption of SFAS 150 and (2) its 8¼% Convertible Preferred Stock and its 6.25%
Convertible Preferred Stock were not to be reclassified as liabilities, since the conversion features caused them to be
contingently redeemable rather than mandatorily redeemable financial instruments. In addition, the dividends on the
Company’s 12¾% Exchangeable Preferred Stock were included in interest expense on its consolidated statement of
operations beginning on July 1, 2003. The Company redeemed the remaining outstanding shares of 12¾%
Exchangeable Preferred Stock in December of 2003 (see Note 8).
69
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (“SFAS 123(R)”). SFAS 123(R) requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements based on fair value. SFAS 123(R) replaces SFAS 123 and
supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”).
SFAS 123(R) clarifies and expands SFAS 123’s guidance in several areas, including measuring fair value,
classifying an award as equity or as a liability, and attributing compensation cost to reporting periods. SFAS 123(R)
also requires that forfeitures of awards be estimated when granted, while SFAS 123 allowed forfeitures to be
accounted for as they occur. SFAS 123(R) also requires additional disclosures about stock-based compensation
awards. The provisions of SFAS 123(R) are effective for the Company as of the beginning of the first interim or
annual reporting period that begins after June 15, 2005. As such, the Company will adopt the provisions of SFAS
123(R) on July 1, 2005. As discussed above, on January 1, 2003, the Company adopted the fair value method of
accounting for stock-based compensation using the prospective method of transition under SFAS 148. SFAS 123(R)
requires the use of a modified version of prospective application under which compensation cost is recognized on or
after the required effective date for (1) awards granted, modified, repurchased or cancelled after that date and (2) the
unvested portion of awards outstanding on that date based on their grant-date fair values. The Company expects that
the adoption of SFAS 123(R) will increase its non-cash general and administrative compensation charges by
approximately $3,300,000 and $3,600,000 for the years ending December 31, 2005 and 2006, respectively.
2. Sale of CCUK
On June 28, 2004, the Company signed a definitive agreement to sell CCUK to an affiliate of National Grid for
$2,035,000,000 in cash, subject to certain working capital type adjustments. On August 31, 2004, the Company
completed the sale of CCUK. The proceeds for the transaction amounted to $2,029,460,000, after taking into
account the working capital type adjustments. In accordance with the terms of the Company’s 2000 Credit Facility,
the Company was required to use $1,275,385,000 of the proceeds from the transaction to fully repay the outstanding
borrowings under the 2000 Credit Facility (see Note 5). The remaining proceeds from the transaction are being used
for general corporate purposes, which could include the repayment of outstanding indebtedness and/or investments
in new business opportunities. Under the terms of the indentures governing the Company’s public debt securities,
any proceeds from the sale of CCUK not invested in qualifying assets within one year must be offered to purchase
such debt securities from the Company’s bondholders at the outstanding principal amount plus accrued interest. On
September 10, 2004, in order to satisfy these requirements under the indentures, the Company commenced an offer
to purchase certain of its outstanding public debt securities in advance of the one year time period. On October 12,
2004, the Company purchased $465,000 in outstanding principal amount of tendered notes (see Note 5).
The carrying amounts of CCUK’s assets and liabilities were as follows:
Assets:
Cash and cash equivalents ........................................................................ $
Receivables ...............................................................................................
Inventories ................................................................................................
Prepaid expenses and other current assets.................................................
Property and equipment, net .....................................................................
Goodwill ...................................................................................................
Other assets, net ........................................................................................
Assets of discontinued operations............................................................. $
Liabilities:
Accounts payable...................................................................................... $
Other current liabilities .............................................................................
Other liabilities .........................................................................................
Liabilities of discontinued operations ....................................................... $
December 31, 2003
August 31, 2004
(Date of sale)
(As restated)
(In thousands of dollars)
26,243
43,834
5,927
49,605
986,872
939,642
387
2,052,510
30,964
166,795
155,785
353,544
$
$
$
$
53,621
37,923
6,384
40,458
972,403
949,782
809
2,061,380
30,930
133,545
182,522
346,997
70
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
As of August 31, 2004, the Company’s consolidated stockholders’ equity accounts included foreign currency
translation adjustments and a minimum pension liability adjustment of $232,893,000 and $(11,513,000),
respectively, related to CCUK’s assets and liabilities. Such adjustments were included in accumulated other
comprehensive income (loss) on the Company’s consolidated balance sheet and are part of the calculation of the net
gain on the sale of CCUK.
The Company has recognized a net gain (as restated) of $495,607,000 during 2004 in connection with the sale
of CCUK. Such gain is net of taxes of $18,000,000 (as restated), representing the Company’s estimated U.S. federal
alternative minimum tax resulting from the transaction. The cash proceeds from the transaction ($2,022,566,000),
the cash payments for fees and expenses for the transaction ($12,959,000), the initial cash payment for the estimated
tax from the transaction ($11,000,000) and the net cash payments received from CCUK during 2004 ($51,745,000)
are included as discontinued operations on the Company’s consolidated statement of cash flows. The net gain is
calculated as follows (in thousands of dollars, as restated):
Proceeds from sale ................................................................................................................................... $ 2,029,460
Assets of discontinued operations ............................................................................................................ (2,061,380)
346,997
Liabilities of discontinued operations ......................................................................................................
232,893
Foreign currency translation adjustments.................................................................................................
(11,513)
Minimum pension liability adjustment.....................................................................................................
(12,959)
Fees and expenses ....................................................................................................................................
(2,771)
Severance costs ........................................................................................................................................
(7,120)
Compensation charges related to modified stock-based employee awards ..............................................
513,607
Net gain on disposal of CCUK before income taxes................................................................................
(18,000)
Estimated federal alternative minimum tax..............................................................................................
495,607
Net gain on disposal of CCUK, net of tax................................................................................................ $
Upon the closing of the sale of CCUK to National Grid, the Company’s stock-based employee compensation
awards (comprised of restricted common stock and stock options) granted to CCUK employees (other than the
President and Managing Director of CCUK) were modified as to the terms of their vesting and exercise. Such
awards will continue to vest after the closing until either April 1, 2005 or September 30, 2005, depending on the
position held by the CCUK employee. Further, vested stock options will be exercisable until either September 30,
2005 or December 30, 2005, again depending on the position held by the CCUK employee. As of August 31, 2004,
the number of shares of the Company’s common stock subject to awards held by CCUK employees includes (1)
351,533 shares of restricted common stock, (2) 620,432 shares for unvested stock options and (3) 1,262,035 shares
for vested stock options. The modifications to these awards have generally been treated as the grant of new awards
for accounting purposes. As such, compensation charges related to the modified awards amounting to $7,120,000
have been recognized as part of the calculation of the net gain on the sale of CCUK. The awards held by the
President and Managing Director of CCUK are subject to a severance agreement with stock options vesting and
restricted common stock eligible for vesting over a period of 36 months from the closing date of the CCUK
transaction. See Note 9.
CCUK’s financial results have historically been presented as a separate operating segment (see Note 13). A
summary of CCUK’s operating results is as follows:
Net revenues ................................................................... $
Income before income taxes and cumulative
effect of change in accounting principle.................... $
Provision for income taxes..............................................
Cumulative effect of change in accounting principle for
asset retirement obligations, net of related income
tax benefits of $636 ...................................................
Income from discontinued operations............................. $
Years Ended December 31,
2002
2003
300,819
(In thousands of dollars)
$
381,878
$
20,910
(11,869)
$
18,995
(7,053)
$
Eight Months Ended
August 31, 2004
(Date of sale)
(As restated)
291,399
73,561
(27,162)
(cid:127)
$
9,041
(1,484)
10,458
$
(cid:127)
46,399
71
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
3. Property and Equipment
The major classes of property and equipment are as follows:
Land and buildings.........................................................................
Telecommunications towers ..........................................................
Transportation and other equipment ..............................................
Office furniture and equipment......................................................
Less: accumulated depreciation ....................................................
Estimated
Useful Lives
0-40 years
1-20 years
3-5 years
2-10 years
December 31,
2003
(As restated)
2004
$
$
(In thousands of dollars)
114,570
4,459,164
16,151
85,576
4,675,461
(1,081,891)
116,771
4,513,936
15,784
85,206
4,731,697
(1,362,132)
$ 3,369,565
$ 3,593,570
Depreciation expense for the years ended December 31, 2002 (as restated), 2003 (as restated) and 2004 was
$277,142,000, $280,249,000 and $281,002,000, respectively. Accumulated depreciation on telecommunications
towers was $1,018,636,000 and $1,285,057,000 at December 31, 2003 (as restated) and 2004, respectively. At
December 31, 2004, minimum rentals receivable under existing operating leases for towers are as follows: years
ending December 31, 2005—$510,764,000; 2006—$453,742,000; 2007—$418,468,000; 2008—$373,787,000;
2009—$267,218,000; thereafter—$402,430,000.
4. Goodwill and Other Intangible Assets
A summary of goodwill at CCUSA is as follows (in thousands of dollars):
Balance from January 1, 2002 through December 31, 2002, as restated..............................................................$
Goodwill acquired in 2003, as restated ................................................................................................................
Goodwill written off related to sale of subsidiary in 2003 ...................................................................................
Balance at December 31, 2003, as restated..........................................................................................................
Goodwill acquired in 2004...................................................................................................................................
Balance at December 31, 2004 ............................................................................................................................$
219,400
51,648
(610)
270,438
63,280
333,718
During the fourth quarter of 2004, the Company performed its annual update of the impairment test for
goodwill. The results of this test indicated that goodwill was not impaired at any of the Company’s reporting units.
The Company has included the results of the joint venture transactions with Verizon Communications in its most
recent evaluations (see Note 7).
The value of site rental contracts from acquisitions included in CCUSA are accounted for as other intangible
assets with finite useful lives, and are included in deferred financing costs and other assets on the Company’s
consolidated balance sheet. A summary of other intangible assets with finite useful lives is as follows:
Year Ended December 31, 2002
Balance at beginning of year ......................................................... $
Amortization expense ....................................................................
Balance at end of year ................................................................... $
26,000
—
26,000
Gross
Carrying
Amount
Accumulated
Amortization
(In thousands of dollars)
(11,483) $
$
(1,452)
(12,935) $
$
Net Book
Value
14,517
(1,452)
13,065
72
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Year Ended December 31, 2003
Gross
Carrying
Amount
Balance at beginning of year ......................................................... $
Other intangible assets acquired ....................................................
Amortization expense ....................................................................
Balance at end of year ................................................................... $
26,000
4,005
—
30,005
Accumulated
Amortization
(In thousands of dollars)
(12,935) $
$
—
(1,718)
(14,653) $
$
Net Book
Value
13,065
4,005
(1,718)
15,352
Year Ended December 31, 2004
Gross
Carrying
Amount
Balance at beginning of year ......................................................... $
Other intangible assets acquired ....................................................
Amortization expense ....................................................................
Balance at end of year ................................................................... $
Estimated aggregate annual amortization expense:
30,005
67,045
—
97,050
Accumulated
Amortization
(In thousands of dollars)
(14,653) $
$
—
(2,969)
(17,622) $
$
Net Book
Value
15,352
67,045
(2,969)
79,428
Years ending December 31, 2005 through 2009 ......................
$
8,557
Effective May 1, 2003, the Company acquired all of Verizon Communications’ equity interests in the Crown
Castle GT Venture (“Crown Castle GT”) in a transaction accounted for using the purchase method (see Note 7). In
connection with the purchase price allocation for this transaction, the Company recorded goodwill of $51,648,000
and other intangible assets (representing the acquired portion of the estimated fair value of Crown Castle GT’s site
rental contracts) of $4,005,000. These intangible assets will be amortized using an estimated useful life of 10 years.
On November 4, 2004, the Company acquired all of Verizon Communications’ remaining equity interests in the
Crown Castle Atlantic venture (“Crown Atlantic”) in a transaction accounted for using the purchase method (see
Note 7). In connection with the purchase price allocation for this transaction, the Company recorded goodwill of
$63,280,000 and other intangible assets (representing the acquired portion of the estimated fair value of Crown
Atlantic’s site rental contracts) of $67,045,000. These intangible assets will be amortized using an estimated useful
life of 10 years.
5. Long-term Debt
Long-term debt consists of the following:
December 31,
2004
2003
(In thousands of dollars)
$
2000 Credit Facility.............................................................................................................. $ 1,289,750
195,000
Crown Atlantic Credit Facility .............................................................................................
230,000
4% Convertible Senior Notes due 2010 ...............................................................................
12,366
10(cid:490)% Senior Discount Notes due 2011, net of discount .....................................................
161,712
9% Senior Notes due 2011 ...................................................................................................
10,979
11¼% Senior Discount Notes due 2011, net of discount .....................................................
114,265
9½% Senior Notes due 2011 ................................................................................................
428,695
10¾% Senior Notes due 2011 ..............................................................................................
407,225
9(cid:490)% Senior Notes due 2011 ................................................................................................
300,000
7.5% Senior Notes due 2013 ................................................................................................
300,000
7.5% Series B Senior Notes due 2013...................................................................................
3,449,992
(267,142)
Less: current maturities ........................................................................................................
(cid:127)
180,000
182,016
11,341
26,133
10,700
4,753
428,280
407,218
299,995
299,962
1,850,398
(97,250)
$ 1,753,148
$ 3,182,850
73
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
2000 Credit Facility
A subsidiary of the Company had a credit agreement with a syndicate of banks (as amended, the “2000 Credit
Facility”) which previously consisted of two term loan facilities and a revolving line of credit aggregating
$1,200,000,000. On October 10, 2003, the Company entered into an amendment of the 2000 Credit Facility. The
amended credit agreement consisted of two term loan facilities and a revolving line of credit aggregating
$1,642,500,000. After closing of the amended credit agreement, the Term A loan had a balance of $192,500,000, the
Term B loan had a balance of $1,100,000,000, and there were no amounts drawn under the $350,000,000 revolving
line of credit.
Upon closing of the amended credit agreement in 2003, the Company received $702,000,000 in gross proceeds
from the increased Term B loan. The Company utilized (1) $100,000,000 of such proceeds to reduce the outstanding
borrowings under the Term A loan and (2) $58,968,000 of such proceeds to repay the remaining amounts borrowed
under the CCUK Credit Facility, including accrued interest and fees. In addition, on November 10, 2003, the
Company used approximately $248,284,000 of such proceeds to redeem CCUK’s 9% Guaranteed Bonds, including
accrued interest and redemption premiums. The remaining proceeds from the increased Term B loan were used for
general corporate purposes, including the purchase of the Company’s public debt securities and its 12¾% Senior
Exchangeable Preferred Stock. In connection with the amendment of the 2000 Credit Agreement and the retirement
of CCUK’s indebtedness, the Company designated CCUK as a restricted subsidiary for purposes of the amended
credit agreement as well as under the Company’s bond indentures. The amendment of the 2000 Credit Facility
resulted in a loss of approximately $1,755,000 consisting of the write-off of certain financing costs. Such loss is
included in interest and other income (expense) on the Company’s consolidated statement of operations for 2003.
On June 28, 2004, the Company signed a definitive agreement to sell CCUK to an affiliate of National Grid. On
August 31, 2004, the Company completed the sale of CCUK. In accordance with the terms of the 2000 Credit
Facility, the Company was required to use $1,286,568,000 of the proceeds from the transaction to fully repay the
outstanding borrowings under the 2000 Credit Facility, including accrued interest and fees of $11,183,000. The
repayment of the 2000 Credit Facility resulted in a loss of $13,886,000, consisting of the write-off of unamortized
deferred financing costs. Such loss is included in interest and other income (expense) on the Company’s
consolidated statement of operations. See Note 3.
Crown Atlantic Credit Facility
Crown Atlantic has a credit agreement with a syndicate of banks (as amended, the “Crown Atlantic Credit
Facility”) which consisted of a $301,050,000 secured revolving line of credit. In February of 2004, Crown Atlantic
amended its credit facility to reduce the available borrowings from $301,050,000 to $250,000,000. The amendment
of the credit facility resulted in a loss of $387,000 consisting of the write-off of certain financing costs (as restated).
Such loss is included in interest and other income (expense) on the Company’s consolidated statement of operations.
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.
During 2002, 2003 and 2004, Crown Atlantic repaid $50,000,000, $55,000,000 and $15,000,000, respectively,
in outstanding borrowings under the Crown Atlantic Credit Facility. Crown Atlantic utilized cash provided by its
operations to effect these repayments. As of December 31, 2004, approximately $3,100,000 of borrowings was
available under the Crown Atlantic Credit Facility, all of which was available for letters of credit. There were no
letters of credit outstanding as of December 31, 2004.
The amount of available borrowings under the Crown Atlantic Credit Facility decrease by a stated amount at the
end of each calendar quarter 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.
74
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
The Crown Atlantic Credit Facility is secured by a pledge of Crown Atlantic and a security interest in Crown
Atlantic’s tenant leases. Borrowings under the Crown Atlantic Credit Facility bear interest at a rate per annum, at
Crown Atlantic’s election, equal to the bank’s prime rate plus 1.25% or a Eurodollar interbank offered rate (LIBOR)
plus 2.75%. The interest rate margins may be reduced by up to 1.25% (non-cumulatively) based on a financial test,
determined quarterly. Interest on prime rate loans is due quarterly, while interest on LIBOR loans is due at the end
of the period (from one to three months) for which such LIBOR rate is in effect. At December 31, 2004, the interest
rate in effect for outstanding borrowings under the Crown Atlantic Credit Facility was 3.92%. 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.
4% Convertible Senior Notes due 2010 (the “4% Convertible Senior Notes”)
On July 2, 2003, the Company issued $230,000,000 aggregate principal amount of its 4% Convertible Senior
Notes for proceeds of $223,100,000 (after underwriting discounts of $6,900,000). The proceeds from the sale of
these securities were used to fund a portion of the redemption price for the 10(cid:491)% Senior Discount Notes due 2007
(the 10(cid:491)% Discount Notes”). Semi-annual interest payments for the 4% Convertible Senior Notes are due on each
January 15 and July 15, beginning on January 15, 2004. The maturity date of the 4% Convertible Senior Notes is
July 15, 2010.
The 4% Convertible Senior Notes are redeemable at the option of the Company, in whole or in part, on or after
July 18, 2008 at a price of 101.143% of the principal amount plus accrued interest. The redemption price is reduced
to 100.571% on July 15, 2009. The 4% Convertible Senior Notes are convertible, at the option of the holder, in
whole or in part at any time, into shares of the Company’s common stock at a conversion price of $10.83 per share
of common stock. As of December 31, 2004, conversion of all the outstanding 4% Convertible Senior Notes would
result in the issuance of 16,806,648 shares of the Company’s common stock. See “Purchases and Redemption of the
Company’s Debt Securities” below and Note 16.
10(cid:490)% Senior Discount Notes due 2011 (the “10(cid:490)% Discount Notes”) and 9% Senior Notes due 2011 (the “9%
Senior Notes”)
The Company had originally issued $500,000,000 aggregate principal amount (at maturity) of its 10(cid:490)%
Discount Notes and $180,000,000 aggregate principal amount of its 9% Senior Notes. The 10(cid:490)% Discount Notes
did not pay any interest until November 15, 2004, at which time semi-annual interest payments commenced and
became 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. The maturity date of the 10(cid:490)% Discount Notes and the 9% Senior Notes
is May 15, 2011. The 10(cid:490)% Discount Notes were net of unamortized discount of $475,000 at December 31, 2003.
The 10(cid:490)% Discount Notes and the 9% Senior Notes are redeemable at the option of the Company, in whole or
in part, on or after May 15, 2004 at prices of 105.187% and 104.5%, respectively, of the principal amount plus
accrued interest. The redemption prices are reduced annually until May 15, 2007, after which time the 10(cid:490)%
Discount Notes and the 9% Senior Notes are redeemable at par. In December of 2003 and January of 2004, the
Company purchased a significant portion of the outstanding 10(cid:490)% Discount Notes and 9% Senior Notes in two cash
tender offers and consent solicitations (see “Purchases and Redemption of the Company’s Debt Securities” below).
11¼% Senior Discount Notes due 2011 (the “11¼% Discount Notes”) and 9½% Senior Notes due 2011 (the
“9½% Senior Notes”)
The Company had originally issued $260,000,000 aggregate principal amount (at maturity) of its 11¼%
Discount Notes and $125,000,000 aggregate principal amount of its 9½% Senior Notes. The 11¼% 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 9½% Senior Notes
are due on each February 1 and August 1. The maturity date of the 11¼% Discount Notes and the 9½% Senior
Notes is August 1, 2011. The 11¼% Discount Notes were net of unamortized discount of $721,000 at December 31,
2003.
75
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
The 11¼% Discount Notes and the 9½% 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 11¼%
Discount Notes and the 9½% Senior Notes are redeemable at par. In December of 2003 and January of 2004, the
Company purchased a significant portion of the outstanding 11¼% Discount Notes and 9½% Senior Notes in two
cash tender offers and consent solicitations (see “Purchases and Redemption of the Company’s Debt Securities”
below).
10¾% Senior Notes due 2011 (the “10¾% Senior Notes”)
The Company had originally issued $500,000,000 aggregate principal amount of its 10¾% Senior Notes. Semi-
annual interest payments for the 10¾% Senior Notes are due on each February 1 and August 1. The maturity date of
the 10¾% Senior Notes is August 1, 2011.
The 10¾% Senior Notes are redeemable at the option of the Company, in whole or in part, on or after August 1,
2005 at a price of 105.375% of the principal amount plus accrued interest. The redemption price is reduced annually
until August 1, 2008, after which time the 10¾% Senior Notes are redeemable at par.
9(cid:490)% Senior Notes due 2011 (the “9(cid:490)% Senior Notes”)
On May 10, 2001, the Company issued $450,000,000 aggregate principal amount of its 9(cid:490)% Senior Notes for
proceeds of $441,000,000 (after underwriting discounts of $9,000,000). The proceeds from the sale of these
securities are being used to fund the initial interest payments on the 9(cid:490)% Senior Notes and for general corporate
purposes. Semi-annual interest payments for the 9(cid:490)% Senior Notes are due on each February 1 and August 1. The
maturity date of the 9(cid:490)% Senior Notes is August 1, 2011.
The 9(cid:490)% Senior Notes are redeemable at the option of the Company, in whole or in part, on or after August 1,
2006 at a price of 104.688% of the principal amount plus accrued interest. The redemption price is reduced annually
until August 1, 2009, after which time the 9(cid:490)% Senior Notes are redeemable at par.
7.5% Senior Notes due 2013 (the “7.5% Senior Notes”) and 7.5% Series B Senior Notes due 2013 (the “7.5%
Series B Senior Notes”)
On December 2, 2003, the Company issued $300,000,000 aggregate principal amount of its 7.5% Senior Notes
for net proceeds of $293,250,000. The proceeds from the sale of these securities were used to fund a portion of the
purchase price in connection with the cash tender offer for the Company’s 10(cid:490)% Discount Notes and 11¼%
Discount Notes (see “Purchases of the Company’s Debt Securities” below). On December 11, 2003, the Company
issued $300,000,000 aggregate principal amount of its 7.5% Series B Senior Notes for net proceeds of
$292,500,000. The proceeds from the sale of these securities will be used to fund the purchase price in connection
with the cash tender offer for the Company’s 9% Senior Notes and 9½% Senior Notes (see “Purchases of the
Company’s Debt Securities” below) and for general corporate purposes. Semi-annual interest payments for the
7.5% Senior Notes and the 7.5% Series B Senior Notes are due on each June 1 and December 1, beginning on June
1, 2004. The maturity date of the 7.5% Senior Notes and the 7.5% Series B Senior Notes is December 1, 2013.
The 7.5% Senior Notes and the 7.5% Series B Senior Notes are redeemable at the option of the Company, in
whole or in part, on or after December 1, 2008 at a price of 103.75% of the principal amount plus accrued interest.
The redemption price is reduced annually until December 1, 2011, after which time the 7.5% Senior Notes and the
7.5% Series B Senior Notes are redeemable at par. Prior to December 1, 2006, the Company may redeem up to 35%
of the aggregate principal amount of the 7.5% Senior Notes and the 7.5% Series B Senior Notes, at a price of
107.5% of the principal amount thereof, with the net cash proceeds from a public offering of the Company's
common stock.
76
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Structural Subordination of the Debt Securities
The 4% Convertible Senior Notes, the 10(cid:490)% Discount Notes, the 9% Senior Notes, the 11¼% Discount Notes,
the 9½% Senior Notes, the 10¾% Senior Notes, the 9(cid:490)% Senior Notes, the 7.5% Senior Notes and the 7.5% Series
B Senior Notes (collectively, the “Debt Securities”) are senior indebtedness of the Company; however, they are
unsecured and effectively subordinate to the liabilities of the Company’s subsidiaries, which include outstanding
borrowings under the Crown Atlantic Credit Facility. The indentures governing the Debt Securities (the
“Indentures”) place restrictions on the Company’s ability to, among other things, pay dividends and make capital
distributions, make investments, incur additional debt and liens, issue additional preferred stock, dispose of assets
and undertake transactions with affiliates. As of December 31, 2003, the Company was effectively precluded from
paying dividends on its capital stock under the terms of the Indentures. In connection with the cash tender offers and
consent solicitations for the Company’s 10(cid:490)% Discount Notes, 11¼% Discount Notes, 9% Senior Notes and 9½%
Senior Notes, substantially all of the restrictive covenants under the indentures for those four securities have been
eliminated. See “Purchases and Redemption of the Company’s Debt Securities” below.
Purchases and Redemption of the Company’s Debt Securities
In August and September of 2002, the Company began purchasing its stock (both common and preferred) and
debt securities in public market transactions (see Notes 8 and 9). Through December 31, 2002, the Company
purchased debt securities with an aggregate principal amount (at maturity) of $244,590,000. Such debt securities had
an aggregate carrying value (net of unamortized discounts) of $226,511,000. The Company utilized $142,820,000 in
cash ($96,509,000 from an Unrestricted investment subsidiary and $46,311,000 from CCIC) to effect these debt
purchases. The debt purchases resulted in gains of $79,138,000 ($0.36 per share) for the year ended December 31,
2002. Such gains are included in interest and other income (expense) on the Company’s consolidated statement of
operations. The Company’s purchases of its debt securities in 2002 were as follows:
Principal
Amount
Carrying
Value
Cash Paid
Unrestricted
Subsidiary
CCIC
(In thousands of dollars)
Total
Gains on
Purchases
10(cid:491)% Senior Discount Notes due 2007...........$ 11,840 $ 11,701 $ 4,335 $
10(cid:490)% Senior Discount Notes due 2011........... 50,875
9% Senior Notes due 2011 ............................... 14,300
11¼% Senior Discount Notes due 2011........... 56,950
9½% Senior Notes due 2011 ............................ 10,735
10¾% Senior Notes due 2011 .......................... 57,115
9(cid:490)% Senior Notes due 2011 ............................ 42,775
2,859
17,662
5,054
19,137
3,537
16,178
14,711
$ 244,590 $ 226,511 $ 46,311 $ 96,509 $ 142,820 $ 79,138
43,290 12,707
14,300
3,105
46,595 11,587
10,735
1,718
57,115 12,859
—
42,775
24,895
8,903
26,891
7,014
39,379
27,254
12,188
5,798
15,304
5,296
26,520
27,254
8,484 $
4,149 $
On May 30, 2003, the Company announced that it had elected to redeem all of the 10(cid:491)% Discount Notes at the
contractual redemption price of 105.313% of the outstanding principal amount. On July 7, 2003, the Company
utilized $255,537,000 of its cash to redeem the $239,160,000 in outstanding principal amount of the 10(cid:491)% Discount
Notes, including accrued interest thereon of $3,670,000. The redemption resulted in a loss of $18,857,000 for the
year ended December 31, 2003, consisting of the write-off of unamortized deferred financing costs ($6,151,000) and
the redemption premium ($12,706,000). Such loss is included in interest and other income (expense) on the
Company’s consolidated statement of operations.
In October of 2003, the Company purchased debt securities with an aggregate principal amount and carrying
value of $18,178,000 in public market transactions. The Company utilized $20,146,000 of its cash to effect these
debt purchases. The debt purchases resulted in losses of $2,397,000 which are included in interest and other income
(expense) on the Company's consolidated statement of operations for the year ended December 31, 2003.
On November 24, 2003, the Company commenced cash tender offers and consent solicitations for all of its
outstanding 10(cid:490)% Discount Notes and 11¼% Discount Notes. On December 18, 2003, in accordance with the terms
of the tender offers, the purchase prices for the tendered notes were determined to be 104.569% of the outstanding
principal amount at maturity for the 10(cid:490)% Discount Notes and 104.603% of the outstanding principal amount at
maturity for the 11¼% Discount Notes. Such purchase prices include a consent payment of $20.00 for each $1,000
77
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
principal amount at maturity of the tendered notes. On December 24, 2003, the Company (1) utilized approximately
$456,218,000 of its cash to purchase the $436,284,000 in outstanding principal amount at maturity of the tendered
10(cid:490)% Discount Notes and (2) utilized approximately $200,158,000 of its cash to purchase the $191,350,000 in
outstanding principal amount at maturity of the tendered 11¼% Discount Notes. The purchase of the tendered 10(cid:490)%
Discount Notes resulted in a loss of $42,948,000 for the year ended December 31, 2003, consisting of the write-off
of unamortized deferred financing costs ($5,443,000) and the excess of the total purchase price over the carrying
value of the tendered notes ($37,505,000). The purchase of the tendered 11¼% Discount Notes resulted in a loss of
$22,910,000 for the year ended December 31, 2003, consisting of the write-off of unamortized deferred financing
costs ($1,661,000) and the excess of the total purchase price over the carrying value of the tendered notes
($21,249,000). Such losses are included in interest and other income (expense) on the Company’s consolidated
statement of operations.
On December 5, 2003, the Company commenced cash tender offers and consent solicitations for all of its
outstanding 9% Senior Notes and 9½% Senior Notes. On December 31, 2003, in accordance with the terms of the
tender offers, the purchase prices for the tendered notes (excluding accrued interest through the purchase date) were
determined to be 107.112% of the outstanding principal amount for the 9% Senior Notes and 109.140% of the
outstanding principal amount for the 9½% Senior Notes. Such purchase prices include a consent payment of $20.00
for each $1,000 principal amount of the tendered notes. On January 7, 2004, the Company (1) utilized approximately
$146,984,000 of its cash to purchase the $135,579,000 in outstanding principal amount of the tendered 9% Senior
Notes, including accrued interest thereon of $1,763,000, and (2) utilized approximately $124,030,000 of its cash to
purchase the $109,512,000 in outstanding principal amount of the tendered 9½% Senior Notes, including accrued
interest thereon of $4,508,000. The purchase of the tendered 9% Senior Notes resulted in a loss of $12,466,000 for
the first quarter of 2004, consisting of the write-off of unamortized deferred financing costs ($2,823,000) and the
excess of the total purchase price over the carrying value of the tendered notes ($9,643,000). The purchase of the
tendered 9½% Senior Notes resulted in a loss of $11,652,000 for the first quarter of 2004, consisting of the write-off
of unamortized deferred financing costs ($1,642,000) and the excess of the total purchase price over the carrying
value of the tendered notes ($10,010,000). Such losses are included in interest and other income (expense) on the
Company’s consolidated statement of operations for the year ended December 31, 2004. The 9% Senior Notes and
9½% Senior Notes that were tendered through December 31, 2003 have been classified as current maturities of long-
term debt on the Company’s consolidated balance sheet as of December 31, 2003.
In January of 2004, the Company (1) utilized $1,570,000 of its cash to purchase $1,500,000 in outstanding
principal amount at maturity of its 10(cid:490)% Discount Notes and (2) utilized $1,046,000 of its cash to purchase
$1,000,000 in outstanding principal amount at maturity of its 11¼% Discount Notes, both in public market
transactions. The debt purchases resulted in losses of $249,000 that are included in interest and other income
(expense) on the Company’s consolidated statement of operations for the year ended December 31, 2004.
The Company’s purchases of its debt securities in 2003 and January of 2004, including the redemption of the
10(cid:491)% Discount Notes, the purchases in public market transactions discussed above and the purchases pursuant to
the cash tender offers discussed above, resulted in losses of $87,112,000 ($0.40 per share) for the year ended
December 31, 2003 and $24,367,000 for the three months ended March 31, 2004. Such purchases were as follows:
Cash Paid
Losses on Purchases
Principal
Amount
Carrying
Value
January
2004
10(cid:491)% Senior Discount Notes due 2007.............. $ 239,160 $ 239,160 $ 251,867 $
456,218
10(cid:490)% Senior Discount Notes due 2011..............
4,197
9% Senior Notes due 2011 ..................................
11¼% Senior Discount Notes due 2011..............
200,158
9½% Senior Notes due 2011 ...............................
10¾% Senior Notes due 2011 .............................
2003
(In thousands of dollars)
—
1,570
145,221
1,046
119,522
—
$ 1,132,563 $ 1,102,444 $ 928,389 $ 267,359
437,784
139,567
192,350
109,512
14,190
420,162
139,567
179,853
109,512
14,190
—
15,949
$
$
2003
18,857
42,948
294
22,910
(cid:127)
2,103
87,112
$
$
January
2004
—
139
12,466
110
11,652
—
24,367
Under the terms of the indentures governing the Company’s public debt securities, any proceeds from the sale
of CCUK not invested in qualifying assets within one year must be offered to purchase such debt securities from the
Company’s bondholders at the outstanding principal amount plus accrued interest (see Note 2). On September 10,
78
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
2004, in order to satisfy these requirements under the indentures, the Company commenced an offer to purchase for
cash up to $216,412,000 of its 10 ¾% Senior Notes, $205,574,000 of its 9(cid:490)% Senior Notes, $151,445,000 of its
7.5% Senior Notes and $151,445,000 of its 7.5% Series B Senior Notes in advance of the one year time period. The
offer to purchase these securities expired on October 8, 2004, at which time the Company accepted an aggregate of
$465,000 in notes that had been tendered. On October 12, 2004, the Company utilized $475,000 of its cash to
purchase the $465,000 in outstanding principal amount of the tendered notes, including accrued interest thereon of
$10,000. The purchase of the tendered notes resulted in a loss of $10,000 for the fourth quarter of 2004, consisting
of the write-off of unamortized deferred financing costs. Such loss is included in interest and other income (expense)
on the Company’s consolidated statement of operations for the year ended December 31, 2004.
On November 8, 2004, the Company commenced a cash tender offer for all of its outstanding 4% Convertible
Senior Notes. On December 3, 2004, in accordance with the terms of the tender offer, the purchase price for the
tendered notes (excluding accrued interest through the purchase date) was determined to be 179.505% of the
outstanding principal amount. On December 8, 2004, the Company utilized $86,896,000 of its cash to purchase the
$47,984,000 in outstanding principal amount of the tendered 4% Convertible Senior Notes, including accrued
interest thereon of $762,000. The purchase of the tendered 4% Convertible Senior Notes resulted in a loss of
$39,396,000 for the fourth quarter of 2004, consisting of the write-off of unamortized deferred financing costs
($1,246,000) and the excess of the total purchase price over the carrying value of the tendered notes ($38,150,000).
Such loss is included in interest and other income (expense) on the Company’s consolidated statement of operations
for the year ended December 31, 2004.
The Company anticipates that it may purchase additional debt securities using a portion of the proceeds from
the sale of CCUK. See Note 16.
Reporting Requirements Under the Indentures Governing the Company’s Debt Securities
The following information (as such capitalized terms are defined in the Indentures) is presented solely as a
requirement of the Indentures; such information is not intended as an alternative measure of financial position,
operating results or cash flow from operations (as determined in accordance with generally accepted accounting
principles). Furthermore, the Company’s measure of the following information may not be comparable to similarly
titled measures of other companies.
The Company has designated certain investment subsidiaries as Unrestricted Subsidiaries. Summarized
financial information for (1) the Company and its Restricted Subsidiaries and (2) the Company’s Unrestricted
Subsidiaries is as follows:
79
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Company
and
Restricted
Subsidiaries
December 31, 2004
Unrestricted
Subsidiaries
Consolidation
Eliminations
Consolidated
Total
(In thousands of dollars)
Cash and cash equivalents ............................................... $ 416,597 $ 150,551 $
Other current assets .........................................................
68,033
Property and equipment, net ............................................ 3,367,566
Investments in Unrestricted Subsidiaries.........................
183,673
Investment in Restricted Group Subsidiary .....................
Goodwill ..........................................................................
Deferred site rental receivable .........................................
Other assets, net...............................................................
305,355
(cid:127)
(cid:127)
30,108
333,718
84,928
115,889
2,133
1,999
(cid:127)
(cid:127)
$ 4,570,404 $ 490,146 $
(183,673)
(305,355)
567,148
(cid:127) $
(cid:127)
70,166
(cid:127) 3,369,565
(cid:127)
(cid:127)
333,718
84,928
145,997
(489,028) $ 4,571,522
(cid:127)
(cid:127)
(cid:127)
Current liabilities ............................................................. $ 283,947 $
Long-term debt, less current maturities ........................... 1,753,148
116,874
Deferred ground lease payable ........................................
44,302
Other liabilities ................................................................
Minority interests.............................................................
30,468
508,040
Redeemable preferred stock ............................................
Stockholders’ equity ........................................................ 1,833,625
1,118 $
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
489,028
$ 4,570,404 $ 490,146 $
285,065
(cid:127) $
(cid:127) 1,753,148
116,874
(cid:127)
44,302
(cid:127)
30,468
(cid:127)
508,040
(cid:127)
(489,028) 1,833,625
(489,028) $ 4,571,522
Three Months Ended
December 31, 2004 (Unaudited)
Company and
Restricted
Subsidiaries
Unrestricted
Subsidiaries
Consolidated
Total
Year Ended December 31, 2004
Company and
Restricted
Subsidiaries
Unrestricted
Subsidiaries
Consolidated
Total
Net revenues ............................... $ 157,535 $
Costs of operations (exclusive
of depreciation, amortization
(In thousands of dollars)
242 $ 157,777 $ 603,358 $
507 $ 603,865
and accretion).........................
General and administrative .........
Corporate development...............
Restructuring charges (credits) ...
Asset write-down charges...........
Non-cash general and
administrative compensation
charges ...................................
Depreciation, amortization and
accretion.................................
Operating income (loss)..............
Interest and other income
(expense)................................
Interest expense and amortization
of deferred financing costs.....
Provision for income taxes .........
Minority interests........................
Income (loss) from discontinued
operations...............................
60,507
21,775
434
1,348
3,836
672
1,519
(cid:127)
(cid:127)
(cid:127)
61,179
23,294
434
1,348
3,836
229,830
83,671
1,455
870
7,652
1,085
6,559
(cid:127)
(cid:127)
(cid:127)
230,915
90,230
1,455
870
7,652
6,086
1
6,087
15,942
5
15,947
72,422
(8,873)
115
(2,065)
72,537
(10,938)
283,563
(19,625)
423
(7,565)
283,986
(27,190)
(37,414)
(741)
(38,155)
(74,381)
(4,127)
(78,508)
(40,599)
(149)
1,154
558
(cid:127)
(cid:127)
(cid:127)
(40,599)
(149)
1,154
(206,770)
5,370
202
(cid:127) (206,770)
5,370
(cid:127)
202
(cid:127)
(cid:127)
542,006
(2,806) $ (88,129) $ 246,971 $ (11,861) $ 235,110
542,175
(169)
558
80
Net income (loss)........................ $ (85,323) $
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its Restricted Subsidiaries is as
follows under the indentures governing the 4% Convertible Senior Notes, the 10¾% Senior Notes, the 9(cid:490)% Senior
Notes, the 7.5% Senior Notes and the 7.5% Series B Senior Notes:
(In thousands of dollars)
(Unaudited)
Tower Cash Flow, for the three months ended December 31, 2004............................................ $
Consolidated Cash Flow, for the twelve months ended December 31, 2004............................... $
Less: Tower Cash Flow, for the twelve months ended December 31, 2004................................
Plus: four times Tower Cash Flow, for the three months ended December 31, 2004..................
Adjusted Consolidated Cash Flow, for the twelve months ended December 31,2004 ................ $
83,979
425,194
(458,772)
335,916
302,338
The amounts presented above for Tower Cash Flow, Consolidated Cash Flow and Adjusted Consolidated Cash Flow
include the operating results from CCUK through August 31, 2004 (the date of sale). See Note 2. After acquiring the
remaining minority interest in Crown Atlantic on November 4, 2004, the Company designated Crown Atlantic as a
Restricted Subsidiary (see Note 7). As a result, the amounts presented above for Tower Cash Flow, Consolidated
Cash Flow and Adjusted Consolidated Cash Flow include the operating results from Crown Atlantic for all periods
presented.
Maturities
Scheduled maturities of total long-term debt outstanding at December 31, 2004 are as follows: years ending
December 31, 2005—$97,250,000; 2006—$82,750,000; 2007—none; 2008—none; 2009—none; thereafter—
$1,670,398,000.
Scheduled maturities of amounts outstanding under the Crown Atlantic Credit Facility at December 31, 2004
are as follows: years ending December 31, 2005—$97,250,000; 2006—$82,750,000.
Restricted Net Assets of Subsidiaries
Under the terms of the Crown Atlantic Credit Facility, Crown Atlantic is effectively precluded from paying
dividends. The restricted net assets of Crown Atlantic totaled approximately $639,420,000 at December 31, 2004.
Interest Rate Swap Agreements
The Company has an interest rate swap agreement in connection with amounts originally borrowed under the
Crown Atlantic Credit Facility. This interest rate swap agreement had 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. As of December 31, 2004, the notional amount of this agreement is $51,250,000. 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 had an additional interest rate swap agreement in connection with amounts borrowed under the
Crown Atlantic Credit Facility. This interest rate swap agreement had a notional amount of $50,000,000 and
terminated on December 31, 2003. The Company paid a fixed rate of 5.89% on the notional amount and received a
floating rate based on LIBOR. This agreement effectively changed the interest rate on a portion of the borrowings
under the Crown Atlantic Credit Facility from a floating rate to a fixed rate of 5.89% plus the applicable margin.
The Company does not believe there is any significant exposure to credit risk from its interest rate swap
agreements due to the creditworthiness of the counterparty. In the event of nonperformance by the counterparty, the
Company’s loss would be limited to any unfavorable interest rate differential.
81
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Letters of Credit
The Company has issued letters of credit to various landlords, insurers and other parties in connection with certain
contingent retirement obligations under various tower site land leases and certain other contractual obligations. The
letters of credit were issued through one of CCUSA’s lenders in amounts aggregating $6,070,000 and expire on
various dates through October 2005.
6. Income Taxes
Income (loss) from continuing operations before income taxes, minority interests and cumulative effect of
change in accounting principle by geographic area is as follows:
Domestic.................................................................................................... $
Foreign.......................................................................................................
$
The credit (provision) for income taxes consists of the following:
2002
(As restated)
Years Ended December 31,
2003
(As restated)
(In thousands of dollars)
(448,995) $
(17,345)
(466,340) $
(317,780) $
(19,115)
(336,895) $
2004
(295,081)
(17,387)
(312,468)
2002
(As restated)
Years Ended December 31,
2003
(As restated)
(In thousands of dollars)
2004
Current:
Foreign ................................................................................................. $
Deferred:
Federal..................................................................................................
$
(407) $
(465) $
(630)
(4,000)
(4,407) $
(2,000)
(2,465) $
6,000
5,370
For the years ended December 31, 2002, 2003 and 2004, the Company has recognized deferred foreign income
tax provisions of $11,869,000, $7,053,000 and $27,162,000, respectively, related to CCUK’s operating results.
These income tax provisions are included in discontinued operations on the Company’s consolidated statement of
operations. For the year ended December 31, 2003, the Company has also recognized a deferred foreign income tax
benefit of $636,000 related to CCUK’s portion of the cumulative effect adjustment for asset retirement obligations.
This income tax benefit is included in discontinued operations on the Company’s consolidated statement of
operations. See Note 2.
For the year ended December 31, 2004, the Company has recognized an estimated federal alternative minimum
tax expense of $18,000,000 related to the gain on disposal of CCUK. Such amount is included in discontinued
operations on the Company’s consolidated statement of operations (see Note 2).
A reconciliation between the credit (provision) for income taxes and the amount computed by applying the
federal statutory income tax rate to the loss from continuing operations before income taxes is as follows:
Benefit for income taxes at statutory rate .................................................. $
Use of losses for which no tax benefit was previously recognized ............
Basis difference in sale of subsidiary.........................................................
Tax effect of foreign losses........................................................................
Expenses for which no federal tax benefit was recognized........................
Losses for which no tax benefit was recognized........................................
Basis difference in sale of securities ..........................................................
$
2002
(As restated)
Years Ended December 31,
2003
(As restated)
(In thousands of dollars)
117,913 $
(cid:127)
(cid:127)
(7,097)
(1,378)
(79,297)
(34,548)
(4,407) $
163,219 $
(cid:127)
4,165
(6,536)
(4,219)
(159,094)
(cid:127)
(2,465) $
2004
109,364
207,352
(299,237)
(6,715)
(5,394)
(cid:127)
(cid:127)
5,370
82
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
The components of the net deferred income tax assets and liabilities are as follows:
December 31,
2003
2004
(As restated)
(In thousands of dollars)
Deferred income tax liabilities:
Property and equipment.......................................................................................... $ 250,061
25,087
Deferred site rental receivable................................................................................
13,277
Basis differences in joint ventures..........................................................................
4,252
Intangible assets .....................................................................................................
Other.......................................................................................................................
812
293,489
Total deferred income tax liabilities................................................................
$ 323,643
28,181
11,500
9,156
293
372,773
Deferred income tax assets:
Net operating loss carryforwards............................................................................
Deferred ground lease payable ...............................................................................
Alternate minimum tax credit carryforward ...........................................................
Accrued liabilities...................................................................................................
Puerto Rico losses ..................................................................................................
Receivables allowance............................................................................................
Derivative instruments............................................................................................
Other.......................................................................................................................
Valuation allowances..............................................................................................
Total deferred income tax assets, net ..............................................................
Net deferred income tax liabilities................................................................................. $
684,287
34,030
(cid:127)
3,297
1,160
1,540
1,684
309
(438,818)
287,489
6,000
$
377,512
40,159
18,000
3,472
1,622
1,213
423
324
(69,952)
372,773
(cid:127)
Valuation allowances of $438,818,000 and $69,952,000 were recognized to offset net deferred income tax
assets as of December 31, 2003 (as restated) and 2004, respectively. If the benefits related to the valuation allowance
are recognized in the future, such benefits would be allocated as follows in the Company’s consolidated financial
statements:
Consolidated statement of operations ............................................................................................. $
Other comprehensive income (loss) ...............................................................................................
Additional paid-in capital ...............................................................................................................
$
50,122,000
382,000
19,448,000
69,952,000
At December 31, 2004, the Company had net operating loss carryforwards of approximately $1,078,000,000
which are available to offset future federal taxable income. These loss carryforwards will expire in 2021 through
2023. The utilization of the loss carryforwards is subject to certain limitations.
7. Minority Interests
Minority interests represent the minority partner’s interest in the operation of the Crown Atlantic joint venture
(43.1% through April 30, 2003, 37.245% from May 1, 2003 through November 4, 2004 and none thereafter), the
minority partner’s interest in the operation of the Crown Castle GT joint venture (17.8% through April 30, 2003 and
none thereafter) and the minority shareholder’s 22.4% interest in the CCAL operations.
On May 2, 2003, the Company entered into several agreements (the “Agreements”), dated effective May 1,
2003, relating to the Company’s two joint ventures with Verizon Communications (“Verizon”): the Crown Castle
Atlantic venture (“Crown Atlantic”) and the Crown Castle GT venture (“Crown Castle GT”). Under the
Agreements, certain termination rights under which Verizon could have required the Company to purchase
Verizon’s interest in either or both ventures at any time were converted to put and call rights with an extended
exercise date of July 1, 2007. The Company also acquired all of Verizon’s interest in Crown Castle GT in exchange
for additional interests in Crown Atlantic and certain other consideration. In addition, the shares of the Company’s
83
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
common stock previously held by the ventures were distributed to Verizon. Following the transactions, the
Company owned 100% of Crown Castle GT and 62.755% of Crown Atlantic. Further details of the transaction and
its accounting treatment are discussed below.
Pursuant to the Agreements, the Company acquired all of Verizon’s equity interests in Crown Castle GT (11.0%
after the distribution of the shares of the Company’s common stock from Crown Castle GT to Verizon, as discussed
below) in exchange for consideration consisting of (1) the transfer to a Verizon affiliate of a 13.3% equity interest in
Crown Atlantic (with an estimated fair value of $63,576,000), representing consideration for the Verizon partner’s
interest in the operating assets held by Crown Castle GT, (2) $5,873,000 in cash, representing the working capital of
Crown Castle GT allocable to the Verizon partner’s interest reduced by the working capital of Crown Atlantic
allocable to the 13.3% equity interest in Crown Atlantic transferred to the Verizon affiliate, and (3) the transfer to a
Verizon affiliate of approximately 58 tower sites from the two ventures (for which the Company’s proportion of
their estimated fair value aggregated $10,272,000, as restated). For the purpose of performing the purchase price
allocation, the fair value measurement for the exchange of the venture interests was determined based on the current
financial performance of Crown Castle GT’s tower sites, using a valuation multiple derived from the current market
performance of the Company’s common stock.
Pursuant to the Agreements, Crown Castle GT distributed 5,063,731 shares of the Company’s common stock
previously held by Crown Castle GT to that venture’s Verizon partner, resulting in a reduction in Verizon’s interest
in Crown Castle GT by a fixed percentage of 6.8%. The fixed percentage reduction was agreed upon at the time of
the formation of Crown Castle GT. The Company then purchased such shares from Verizon (at a negotiated price of
$6.122 per share) for $31,000,000 in cash. The Company utilized cash from an Unrestricted investment subsidiary to
effect this stock purchase.
In addition, pursuant to the Agreements, Crown Atlantic distributed 15,597,783 shares of the Company’s
common stock previously held by Crown Atlantic to that venture’s Verizon partner, resulting in a reduction in
Verizon’s interest in Crown Atlantic by a fixed percentage of 19%. The fixed percentage reduction was agreed upon
at the time of the formation of Crown Atlantic. Pursuant to the registration rights contained in the Crown Atlantic
formation agreement dated December 8, 1998, as amended by the Agreements, the Company filed a registration
statement relating to the sale of such distributed shares on July 1, 2003. Such registration statement became effective
on July 21, 2003. Subsequent to that date, Verizon has sold all of the 15,597,783 shares of the Company’s common
stock to third parties.
The Company has accounted for the acquisition of the minority interest in Crown Castle GT using the purchase
method. In connection with the purchase price allocation for the transaction, the Company recorded, as restated, (1)
a net decrease in the carrying value of its tower sites (included in property and equipment) of $29,293,000, (2)
goodwill of $51,648,000, none of which is currently expected to be deductible for tax purposes (see Note 4), (3)
other intangible assets (included in deferred financing costs and other assets) of $4,005,000 (see Note 4), (4) the
elimination of minority interest related to Crown Castle GT of $46,265,000, (5) an increase in minority interest
related to Crown Atlantic of $77,992,000, and (6) a loss on the issuance of the interest in Crown Atlantic of
$11,240,000 (included in interest and other income (expense) on the Company’s consolidated statement of
operations). The net decrease in the carrying value of the tower sites resulted from a purchase price allocation
adjustment based on the estimated replacement cost of Crown Castle GT’s towers, along with the net book value of
the tower sites transferred to Verizon from the two ventures. The increase in goodwill resulted primarily from the
fair value of the acquired portion of Crown Castle GT in excess of the related minority interest, along with the net
decrease in the carrying value of the tower sites. The amounts recorded for the net decrease in the carrying value of
the tower sites and the increase in other intangible assets represent the proportionate share of such allocated amounts
acquired by the Company from Verizon.
On November 4, 2004, the Company entered into an agreement with Verizon to acquire Verizon’s remaining
37.245% equity interest in Crown Atlantic. On that date, the Company acquired such equity interest for
$295,000,000 in cash, inclusive of approximately $15,000,000 of net working capital. Following the transaction, the
Company owns 100% of Crown Atlantic. The Company has accounted for the acquisition of the minority interest in
Crown Atlantic using the purchase method. In connection with the purchase price allocation for the transaction, the
Company recorded (1) an increase in the carrying value of its tower sites (included in property and equipment) of
84
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
$17,670,000, (2) goodwill of $63,280,000, none of which is currently expected to be deductible for tax purposes (see
Note 4), (3) other intangible assets (included in deferred financing costs and other assets) of $67,045,000 (see Note
4), and (4) the elimination of minority interest related to Crown Atlantic of $147,005,000. The increase in the
carrying value of the tower sites resulted from a purchase price allocation adjustment based on the estimated
replacement cost of Crown Atlantic’s towers. The increase in goodwill resulted primarily from the cash paid for the
acquired portion of Crown Atlantic in excess of the related minority interest and other intangible assets, along with
the increase in the carrying value of the tower sites. The amounts recorded for the increase in the carrying value of
the tower sites and the increase in other intangible assets represent the proportionate share of such allocated amounts
acquired by the Company from Verizon. Following this transaction, the Company combined the Crown Atlantic
operating segment with the CCUSA operating segment (see Note 13). This change in reportable segments was made
in the Company’s consolidated financial statements for the year ended December 31, 2004, and segment information
for all prior periods presented have been restated.
Verizon retains certain protective rights regarding the tower networks held by both Crown Atlantic and Crown
Castle GT. The protective rights relate primarily to ensuring Verizon Wireless’ quiet enjoyment as a tenant on the
Crown Atlantic and Crown Castle GT sites, and such rights terminate should Verizon Wireless cease to occupy the
sites.
8. Redeemable Preferred Stock
Redeemable preferred stock ($.01 par value, 20,000,000 shares authorized) consists of the following:
8¼% Cumulative Convertible Redeemable Preferred Stock; shares issued and outstanding: 200,000
(stated net of unamortized value of warrants; mandatory redemption and aggregate liquidation
value of $200,000) ....................................................................................................................... $ 196,614 $ 197,025
6.25% Convertible Preferred Stock; shares issued and outstanding: 6,361,000 (stated net
December 31,
2003
2004
(In thousands of dollars)
of unamortized issue costs; mandatory redemption and aggregate liquidation value of $318,050)...
310,088
311,015
$ 506,702 $ 508,040
8¼% Convertible Preferred Stock
The Company had originally issued 200,000 shares of its 8¼% Cumulative Convertible Redeemable Preferred
Stock (the “8¼% Convertible Preferred Stock”) at a price of $1,000 per share (the liquidation preference per share)
to General Electric Capital Corporation (“GECC”). GECC is entitled to receive cumulative dividends at the rate of
8¼% per annum payable on March 15, June 15, September 15 and December 15 of each year. The Company has the
option to pay dividends in cash or in shares of its common stock having a current market value equal to the stated
dividend amount. For the years ended December 31, 2002, 2003 and 2004, dividends were paid with 4,290,000,
2,190,000 and 1,140,000 shares of common stock, respectively.
The Company is required to redeem all outstanding shares of the 8¼% Convertible Preferred Stock on March
31, 2012 at a price equal to the liquidation preference plus accumulated and unpaid dividends. The shares are
redeemable at the option of the Company, in whole or in part, at a price of 101.375% of the liquidation preference.
The redemption price is reduced on an annual basis until October 1, 2005, at which time the shares are redeemable
at the liquidation preference (at par value). The shares of 8¼% 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 conversion of all outstanding shares of the 8¼% Convertible Preferred
Stock would result in the issuance of 7,441,860 shares of the Company’s common stock.
The Company’s obligations with respect to the 8¼% Convertible Preferred Stock are subordinate to all
indebtedness of the Company, and are effectively subordinate to all debt and liabilities of the Company’s
subsidiaries. The certificate of designations governing the Convertible Preferred Stock places restrictions on the
Company similar to those imposed by the Company’s Debt Securities.
85
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
In June, September and December of 2002, the Company paid its quarterly dividends on the 8¼% Convertible
Preferred Stock by issuing a total of 3,745,000 shares of its common stock. As allowed by the Deposit Agreement
relating to dividend payments on the 8¼% Convertible Preferred Stock, the Company purchased the 3,745,000
shares of common stock from the dividend paying agent for a total of $12,239,000 in cash. In March, June and
September of 2003, the Company paid its quarterly dividends on the 8¼% Convertible Preferred Stock by issuing a
total of 1,825,000 shares of its common stock. The Company purchased the 1,825,000 shares of common stock from
the dividend paying agent for a total of $12,382,000 in cash. In March, June and December of 2004, the Company
paid its quarterly dividends on the 8¼% Convertible Preferred Stock by issuing a total of 845,000 shares of its
common stock. The Company purchased the 845,000 shares of common stock from the dividend paying agent for a
total of $12,245,000 in cash. The Company utilized cash from an Unrestricted investment subsidiary to effect the
stock purchases. The Company may choose to continue issuances and purchases of stock in the future in order to
offset dilution caused by the issuance of common stock as dividends on its preferred stock (see note 9).
6.25% Convertible Preferred Stock
The Company had originally issued 8,050,000 shares of its 6.25% Convertible Preferred Stock at a price of
$50.00 per share (the liquidation preference per share). The holders of the 6.25% Convertible Preferred Stock are
entitled to receive cumulative dividends at the rate of 6.25% per annum payable on February 15, May 15, August 15
and November 15 of each year. The Company has the option to pay dividends in cash or in shares of its common
stock (valued at 95% of the current market value of the common stock, as defined). For the years ended December
31, 2002, 2003 and 2004, dividends were paid with 6,338,153, 3,253,469 and 1,498,361 shares of common stock,
respectively. The Company is required to redeem all outstanding shares of the 6.25% Convertible Preferred Stock on
August 15, 2012 at a price equal to the liquidation preference plus accumulated and unpaid dividends.
The shares of 6.25% Convertible Preferred Stock are convertible, at the option of the holder, in whole or in part
at any time, into shares of the Company’s common stock at a conversion price of $36.875 per share of common
stock. Under certain circumstances, the Company has the right to convert the 6.25% Convertible Preferred Stock, in
whole or in part, into shares of the Company’s common stock at the same conversion price. The conversion of all
outstanding shares of the 6.25% Convertible Preferred Stock would result in the issuance of 8,625,084 shares of the
Company’s common stock.
The Company’s obligations with respect to the 6.25% Convertible Preferred Stock are subordinate to all
indebtedness of the Company, and are effectively subordinate to all debt and liabilities of the Company’s
subsidiaries. The 6.25% Convertible Preferred Stock ranks in parity with the 8¼% Convertible Preferred Stock.
Purchases and Redemption of the Company’s Preferred Stock
In August and September of 2002, the Company began purchasing its stock (both common and preferred) and
debt securities in public market transactions (see Notes 5 and 9). Through December 31, 2002, the Company
purchased shares of preferred stock with an aggregate redemption amount of $162,853,000. Such shares of preferred
stock had an aggregate carrying value (net of unamortized issue costs, as restated) of $156,798,000. The Company
utilized $60,989,000 in cash from an Unrestricted investment subsidiary to effect these preferred stock purchases.
The preferred stock purchases resulted in gains of $95,809,000, as restated. Such gains are offset against dividends
on preferred stock in determining the net loss applicable to common stock for the calculation of loss per common
share. The Company’s purchases of its preferred stock in 2002 were as follows:
Shares
Redemption
Amount
Carrying
Value
(As restated)
Cash Paid
From
Unrestricted
Subsidiary
Gains on
Purchases
(As restated)
(In thousands of dollars)
12¾% Senior Exchangeable Preferred
Stock ..................................................
78,403
6.25% Convertible Preferred Stock ........ 1,689,000
$
$
78,403 $
84,450
162,853 $
74,788 $
82,010
156,798 $
36,744 $
24,245
60,989 $
38,044
57,765
95,809
86
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
From March through October of 2003, the Company purchased 222,898 shares of its 12¾% Senior
Exchangeable Preferred Stock due in 2010 (the “Exchangeable Preferred Stock”) in public market transactions. Such
shares of preferred stock had an aggregate redemption amount of $222,898,000 and an aggregate carrying value (net
of issue costs, as restated) of $212,622,000. The Company utilized $241,357,000 in cash ($9,422,000 from an
Unrestricted investment subsidiary and $231,935,000 from CCIC) to effect these preferred stock purchases. The
preferred stock purchases resulted in a net loss of $28,735,000, as restated. Of that amount, (1) $1,603,000 in net
losses (as restated) are offset against dividends on preferred stock in determining the net loss applicable to common
stock for the calculation of loss per common share, and (2) $27,132,000 in net losses (as restated) are included in
interest and other income (expense) due to the reclassification of the Exchangeable Preferred Stock to liabilities
upon adoption of SFAS 150 (see Note 1).
On October 28, 2003, the Company issued a notice of redemption for the remaining outstanding shares of its
Exchangeable Preferred Stock. On December 15, 2003, such shares were redeemed at a price of 106.375% of the
liquidation preference. On the redemption date, such remaining shares had an aggregate redemption and liquidation
value of approximately $46,973,000 and an aggregate carrying value (net of issue costs, as restated) of $44,807,000.
The Company utilized approximately $49,968,000 of its cash to effect this redemption. The redemption resulted in a
loss of approximately $5,161,000 (as restated) for the year ended December 31, 2003. Such loss is included in
interest and other income (expense) on the Company’s consolidated statement of operations.
Mandatory Redemptions
Scheduled mandatory redemptions of redeemable preferred stock outstanding at December 31, 2004 are
$518,050,000 for years ending after December 31, 2009.
9. Stockholders’ Equity
Purchases of Common Stock
In July of 2002, the Company purchased 8,500,000 shares of its common stock for $18,275,000 in cash. The
shares purchased by the Company represented all of the remaining shares previously owned by affiliates of France
Telecom. The purchase was conducted through a privately negotiated transaction. The Company utilized cash from
an Unrestricted investment subsidiary to effect the stock purchase.
In August and September of 2002, the Company began purchasing its stock (both common and preferred) and
debt securities in public market transactions (see Notes 5 and 8). Through December 31, 2002, the Company
purchased a total of 1,510,900 shares of common stock. The Company utilized $2,967,000 in cash from an
Unrestricted investment subsidiary to effect these common stock purchases.
In May of 2003, the Company purchased 5,063,731 shares of its common stock from Verizon Communications
for $31,000,000 in cash (see Note 7).
In August of 2004, the Company began purchasing its common stock in public market transactions. Through
September 3, 2004, the Company purchased a total of 2,666,400 shares of common stock. The Company utilized
$35,981,000 in cash from an Unrestricted investment subsidiary to effect these common stock purchases. The
Company may choose to continue purchases of common stock in the future. See Note 8.
Restricted Common Stock
During the first quarter of 2003, the Company granted 5,840,187 shares of restricted common stock to its
executives and certain employees. These restricted shares had a weighted-average grant-date fair value of $4.15 per
share, determined based on the closing market price of the Company’s common stock on the grant dates. The
restrictions on these shares were to expire in various annual amounts over the vesting period of five years, with
provisions for accelerated vesting based on the market performance of the Company’s common stock.
87
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
On April 29, 2003, the market performance of the Company’s common stock reached the first target level for
accelerated vesting of the restricted common shares that had been issued during the first quarter of 2003. This first
target level was reached when the market price of the Company’s common stock closed at or above $5.54 per share
for twenty consecutive trading days. As a result, the restrictions expired with respect to one third of such outstanding
shares during the second quarter of 2003. The acceleration of the vesting for these shares resulted in the recognition
of non-cash general and administrative compensation charges of $7,317,000 for the year ended December 31, 2003.
Most of the executives and employees elected to sell a portion of their vested shares in order to pay their minimum
respective tax liabilities, and the Company arranged to purchase these shares in order to facilitate the stock sales.
The Company purchased approximately 574,000 of such shares of common stock (at a price of $6.22 per share) for a
total of $3,572,000 in cash. The Company utilized cash from an Unrestricted investment subsidiary to effect the
stock purchase.
On July 30, 2003, the market performance of the Company’s common stock reached the second target level for
accelerated vesting of the restricted common shares that had been issued during the first quarter of 2003. This
second target level was reached when the market price of the Company’s common stock closed at or above $8.30
per share (150% of the first target level of $5.54 per share) for twenty consecutive trading days. As a result, the
restrictions expired with respect to an additional third of such shares during the third quarter of 2003. The
acceleration of the vesting for these shares resulted in the recognition of non-cash general and administrative
compensation charges of $7,825,000 for the year ended December 31, 2003. Most of the executives and employees
elected to sell a portion of their vested shares in order to pay their minimum respective tax liabilities, and the
Company arranged to purchase these shares in order to facilitate the stock sales. The Company purchased
approximately 552,000 of such shares of common stock (at a price of $9.88 per share) for a total of $5,454,000 in
cash. The Company utilized cash from an Unrestricted investment subsidiary to effect the stock purchase.
In March, April and May of 2004, the Company granted approximately 1,343,000 shares of restricted common
stock to approximately 500 of its employees (including approximately 175 employees of CCUK). These restricted
shares had a weighted-average grant-date fair value of $13.99 per share, determined based on the closing market
price of the Company’s common stock on the grant dates. The restrictions on the shares will expire in various annual
amounts over the vesting period of four years, with provisions for accelerated vesting based on the market
performance of the Company’s common stock. In connection with these restricted shares, the Company is
recognizing non-cash general and administrative compensation charges of approximately $18,800,000 over the
vesting period. Such charges will be reduced in the event that any of the restricted shares are forfeited before they
become vested.
On April 27, 2004, the market performance of the Company’s common stock reached the third (and final) target
level for accelerated vesting of the restricted common shares that had been issued during the first quarter of 2003.
This third target level was reached when the market price of the Company’s common stock closed at or above
$12.45 per share (150% of the second target level of $8.30 per share) for twenty consecutive trading days. As a
result, the restrictions expired with respect to the final third of such outstanding shares during the second quarter of
2004. The acceleration of the vesting for these shares resulted in the recognition of non-cash general and
administrative compensation charges of $5,378,000 for the three months ended June 30, 2004. All of the executives
and employees elected to sell a portion of their vested shares in order to pay their respective minimum withholding
tax liabilities, and the Company arranged to purchase these shares in order to facilitate the stock sales. The Company
purchased approximately 587,300 of such shares of common stock (at a price of $14.92 per share) for a total of
$8,762,000 in cash. The Company utilized cash from an Unrestricted investment subsidiary to effect the stock
purchase.
On October 27, 2004, the market performance of the Company’s common stock reached the first target level for
accelerated vesting of the restricted common shares that had been issued during March, April and May of 2004. This
first target level was reached when the market price of the Company’s common stock closed at or above $14.81 per
share (125% of the base price of $11.85 per share) for twenty consecutive trading days. As a result, the restrictions
expired with respect to the first third of such outstanding shares during the fourth quarter of 2004. The acceleration
of the vesting for these shares resulted in the recognition of non-cash general and administrative compensation
charges of approximately $3,133,000 for the three months ended December 31, 2004, of which $2,495,000 was
recorded in continuing operations and $638,000 was charged to the net gain on disposal of CCUK (see Note 2).
88
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Most of the executives and employees sold a portion of their vested shares in order to pay their respective minimum
withholding tax liabilities, and the Company arranged to purchase these shares in order to facilitate the stock sales.
The Company purchased approximately 153,100 of such shares of common stock (at a price of $15.52 per share) for
a total of $2,376,000 in cash. The Company utilized cash from an Unrestricted investment subsidiary to effect the
stock purchase. In order to reach the second and third target levels for accelerated vesting of these restricted shares,
the market price of the Company’s common stock would have to close at or above $18.52 per share and $23.14 per
share, respectively (125% of each of the previous target levels), for twenty consecutive trading days. Reaching each
of the second and third target levels would result in the restrictions expiring with respect to an additional third of
these restricted shares. The vesting terms for the restricted shares held by CCUK employees were modified upon the
closing of the sale of CCUK (see Note 2).
A summary of restricted common shares is as follows for the years ended December 31, 2003 and 2004:
Shares granted during first quarter of 2003 (weighted-average grant-date fair value of $4.15
per share) ............................................................................................................................................
Shares granted during third and fourth quarters of 2003 (weighted-average grant-date fair value of
$10.62 per share).................................................................................................................................
Shares vested during 2003 .......................................................................................................................
Shares forfeited during 2003 ...................................................................................................................
Shares outstanding at December 31, 2003...............................................................................................
Shares granted during March, April and May of 2004 (weighted-average grant-date fair value of
$13.99 per share).................................................................................................................................
Other shares granted during 2004 (weighted-average grant-date fair value of $13.81 per share) ...........
Shares vested during 2004 .......................................................................................................................
Shares forfeited during 2004 ...................................................................................................................
Shares outstanding at December 31, 2004...............................................................................................
5,840,187
57,080
(3,817,057)
(207,343)
1,872,867
1,343,432
15,080
(2,253,787)
(59,234)
918,358
Compensation Charges Related to Stock Option Grants and Acquisitions
The Company has recognized non-cash general and administrative compensation charges related to certain
stock options granted to employees and executives prior to its initial public offering of common stock (the “IPO”).
Such charges amounted to approximately $1,361,000 for the year ended December 31, 2002.
The Company has issued shares of its common stock in connection with an acquisition by CCUSA. A portion of
such shares were deemed to be compensation to the former shareholders of the acquired company (who remained
employed by the Company). As a result, CCUSA has recognized non-cash general and administrative compensation
charges of approximately $5,889,000 over a three-year period ended in 2003.
On January 1, 2003, the Company adopted the fair value method of accounting (using the “prospective method”
of transition) for stock-based employee compensation awards granted on or after that date (see Note 1). As a result,
the Company is recognizing non-cash general and administrative compensation charges for stock options granted in
2003. Such charges will amount to approximately $561,000 over a five-year period ending in 2008 (of which
$184,000 and $377,000 relate to stock options granted by CCIC and CCAL, respectively).
In February of 2003, the Company issued 105,000 shares of common stock to the non-executive members of its
Board of Directors. These shares had a grant-date fair value of $3.95 per share. In connection with these shares, the
Company recognized non-cash general and administrative compensation charges of $415,000 for the year ended
December 31, 2003.
In February of 2004, the Company issued 35,400 shares of common stock to the non-executive members of its
Board of Directors. These shares had a grant-date fair value of $11.85 per share. In connection with these shares, the
Company recognized non-cash general and administrative compensation charges of $419,000 for the year ended
December 31, 2004.
89
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
In December of 2004, the Company modified the vesting and exercise terms of outstanding stock options for
certain terminated executives (see Note 14). As a result, the Company recognized non-cash general and
administrative compensation charges of $2,790,000 for the fourth quarter of 2004. The Company expects to record
an additional $5,200,000 of such non-cash charges for the first quarter of 2005.
Stock Options
In 1995, the Company adopted the Crown Castle International Corp. 1995 Stock Option Plan (as amended, the
“1995 Stock Option Plan”). Up to 28,000,000 shares of the Company’s common stock have been reserved for
awards granted to certain employees, consultants and non-employee directors of the Company and its subsidiaries or
affiliates. These options generally vest over periods of up to five years from the date of grant (as determined by the
Company’s Board of Directors) and have a maximum term of 10 years from the date of grant.
Upon consummation of a share exchange agreement with CCUK’s shareholders in 1998, the Company adopted
each of the various CCUK stock option plans. All outstanding options to purchase shares of CCUK under such plans
have been converted into options to purchase shares of the Company’s common stock. Up to 4,392,451 shares of the
Company’s common stock were reserved for awards granted under the CCUK plans, and these options generally
vest over periods of up to three years from the date of grant.
In 2001, the Company adopted the Crown Castle International Corp. 2001 Stock Incentive Plan (the “2001
Stock Incentive Plan”). Up to 8,000,000 shares of the Company’s common stock have been reserved for awards
granted to certain employees, consultants and non-employee directors of the Company and its subsidiaries or
affiliates. These awards will vest over periods to be determined by the Company’s Board of Directors, and will have
a maximum term of 10 years from the date of the grant.
In 2004, the Company adopted the Crown Castle International Corp. 2004 Stock Incentive Plan (the “2004
Stock Incentive Plan”). Up to 6,000,000 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. The maximum number of shares of common stock that may be issued under the 2004 Stock Incentive Plan
may be increased by an additional amount equal to a reduction, from time to time, in the number of shares of
common stock available for stock option grants pursuant to the 1995 Stock Option Plan; provided, however, that the
aggregate number of shares added shall not exceed 10,000,000 shares. These awards will vest over periods to be
determined by the Company’s Board of Directors, and will have a maximum term of 10 years from the date of the
grant.
A summary of awards granted under the various stock option plans is as follows for the years ended December
31, 2002, 2003 and 2004:
2002
2003
2004
Weighted-
Average
Exercise
Price
Weighted-
Average
Exercise
Price
Number of
Shares
Weighted-
Average
Exercise
Price
Number of
Shares
Number of
Shares
22,975,116 $ 14.71
6.86
5.09
16.10
57,500
(1,570,687)
(2,467,533)
18,994,396 $ 15.30
(cid:127)
8.93
22.43
(3,592,071)
(969,053)
(cid:127)
18,994,396
13,801,678
14,433,272
15.30
16.93 10,530,164
16.46
19.06
Options outstanding at beginning
of year ........................................ 23,873,337 $ 15.45
6.28
Options granted .............................. 1,580,860
Options exercised ...........................
3.00
Options forfeited............................. (2,172,403) 18.30
Options outstanding at end of
year ............................................ 22,975,116
14.71
Options exercisable at end of year.. 14,588,588 15.18
(306,678)
90
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
A summary of options outstanding as of December 31, 2004 is as follows:
Exercise Prices
$-0- to $4.00 ..............................................................................
4.01 to 8.00 ................................................................................
8.01 to 12.00 ..............................................................................
12.01 to 16.00 ............................................................................
16.01 to 20.00 ............................................................................
20.01 to 30.00 ............................................................................
30.01 to 39.75 ............................................................................
Number of
Options
Outstanding
425,521
1,603,604
3,744,300
2,035,000
1,623,973
3,858,326
1,142,548
14,433,272
Weighted-Average
Remaining
Contractual Life
3.4 years
5.2 years
5.8 years
2.6 years
3.9 years
4.4 years
5.1 years
Number of Options
Exercisable
354,981
1,214,406
500,286
2,035,000
1,612,373
3,712,464
1,100,654
10,530,164
The weighted-average fair value of options granted during the years ended December 31, 2002 and 2003 was
$3.64 and $4.51, respectively. See Note 1 for a tabular presentation of the pro forma effect on the Company’s net
loss and loss per share as if compensation cost had been recognized for stock options based on their fair value at the
date of grant. 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:
2002
3.97%
Risk-free interest rate.......................................................................................................
Expected life.................................................................................................................... 3.7 years
80%
Expected volatility...........................................................................................................
0%
Expected dividend yield ..................................................................................................
2003
3.06%
5.0 years
80%
0%
Years Ended December 31,
CCAL Share Option Scheme
In 2000, CCAL adopted the Crown Castle Australia Holdings Pty Ltd. Director and Employee Share Option
Scheme (the “CCAL Share Option Scheme”). Under this plan, CCAL may award options for the purchase of CCAL
shares to its employees and directors. These options generally vest over periods of up to five years from the date of
grant (as determined by CCAL’s Board of Directors) and have a maximum term of seven years from the date of
grant. Through December 31, 2002, all options granted under this plan have an exercise price of Australian $1.00
per share (approximately $0.75). Options granted under this plan in 2003 have an exercise price of Australian $0.92
per share (approximately $0.69). A summary of awards granted under the CCAL Share Option Scheme is as follows
for the years ended December 31, 2002, 2003 and 2004:
Options outstanding at beginning of year .............................................. 4,509,062
Options granted ..................................................................................... 2,037,000
Options forfeited....................................................................................
Options outstanding at end of year ........................................................ 5,932,062
(614,000)
5,932,062
1,470,000
(875,000)
6,527,062
2002
2003
2004
6,527,062
(cid:127)
(3,341,062)
3,186,000
Options exercisable at end of year......................................................... 1,296,612
2,094,625
1,578,800
The estimated fair value of options granted under the CCAL Share Option Scheme was approximately $0.19
and $0.37 per share in 2002 and 2003, respectively, based on the Black-Scholes option pricing model using the
following weighted-average assumptions:
2002
Risk-free interest rate.......................................................................................................
3.84%
Expected life.................................................................................................................... 5.0 years
30%
Expected volatility...........................................................................................................
0%
Expected dividend yield ..................................................................................................
2003
5.95%
5.0 years
45%
0%
Years Ended December 31,
91
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Shares Reserved For Issuance
At December 31, 2004, the Company had the following shares reserved for future issuance:
Common Stock:
Convertible Senior Notes ................................................................................................................... 16,806,648
Convertible Preferred Stock............................................................................................................... 16,066,944
Stock compensation plans .................................................................................................................. 25,990,102
639,990
Warrants.............................................................................................................................................
59,503,684
10. Employee Benefit Plans
The Company and its subsidiaries have various defined contribution savings plans covering substantially all
employees. Employees may elect to contribute a portion of their eligible compensation, subject to limits imposed by
the various plans. Certain of the plans provide for partial matching of such contributions. The cost to the Company
for these plans amounted to $3,260,000, $2,935,000 and $2,871,000 for the years ended December 31, 2002, 2003
and 2004, respectively.
11. Related Party Transactions
Included in other receivables at December 31, 2003 and 2004 are amounts due from employees of the Company
totaling $109,000 and $89,000, respectively.
For the years ended December 31, 2002 (as restated), 2003 (as restated) and 2004, the Company had revenues
from Verizon Wireless of $146,968,000 $127,493,000 and $131,344,000, respectively. As of December 31, 2003,
the Company’s total receivables from Verizon Wireless amounted to $6,791,000. Verizon Wireless is a majority
owned subsidiary of Verizon Communications, the Company’s former partner in Crown Atlantic and Crown Castle
GT (see Note 7).
12. Commitments and Contingencies
At December 31, 2004, minimum rental commitments under operating leases are as follows: years ending
December 31, 2005—$103,814,000; 2006—$105,204,000; 2007—$105,852,000; 2008—$105,436,000; 2009—
$105,094,000; thereafter—$1,193,787,000. Such amounts relate primarily to ground lease obligations for tower
sites, and are based on the assumption that payments will be made through the end of the period for which the
Company holds renewal rights. Rental expense for operating leases was $121,741,000, $125,401,000 and
$129,800,000 for the years ended December 31, 2002 (as restated), 2003 (as restated) and 2004, respectively.
The Company is involved in various claims, lawsuits and proceedings arising in the ordinary course of business.
While there are uncertainties inherent in the ultimate outcome of such matters and it is impossible to presently
determine the ultimate costs that may be incurred, management believes the resolution of such uncertainties and the
incurrence of such costs should not have a material adverse effect on the Company’s consolidated financial position
or results of operations.
13. Operating Segments and Concentrations of Credit Risk
Operating Segments
The Company’s reportable operating segments for 2002, 2003 and 2004 are (1) the domestic operations
(“CCUSA”), (2) the United Kingdom operations of CCUK and (3) the Australian operations of CCAL. Financial
92
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
results for the Company are reported to management and the Board of Directors in this manner. See Note 1 for a
description of the primary revenue sources from these segments. Prior periods have been restated to reflect the
correction of certain accounting errors (see Note 1).
As a result of the sale of CCUK, the Company has restated its financial statements to present CCUK’s results of
operations and cash flows as amounts from discontinued operations (see Note 2). Such restatements have been made
for all periods presented.
After acquiring the remaining minority interest in Crown Atlantic, the Company combined the Crown Atlantic
operating segment with the CCUSA operating segment (see Note 7). This change in reportable segments was made
in the Company’s consolidated financial statements for the year ended December 31, 2004, and segment information
for all prior periods presented have been restated.
The measurement of profit or loss currently used to evaluate the results of operations for the Company and its
operating segments is earnings before interest, taxes, depreciation and amortization, as adjusted (“Adjusted
EBITDA”). The Company defines Adjusted EBITDA as net income (loss) plus cumulative effect of change in
accounting principle, income from discontinued operations, minority interests, provision for income taxes, interest
expense, amortization of deferred financing costs and dividends on preferred stock, interest and other income
(expense), depreciation, amortization and accretion, non-cash general and administrative compensation charges,
asset write-down charges and restructuring charges (credits). Adjusted EBITDA is not intended as an alternative
measure of operating results or cash flow from operations (as determined in accordance with generally accepted
accounting principles), and the Company’s measure of Adjusted EBITDA may not be comparable to similarly titled
measures of other companies. There are no significant revenues resulting from transactions between the Company’s
operating segments. Total assets for the Company’s operating segments are determined based on the separate
consolidated balance sheets for CCUSA, CCUK and CCAL. The results of operations and financial position for
CCUK and CCAL reflect appropriate adjustments for their presentation in accordance with generally accepted
accounting principles in the United States. The financial results for the Company’s operating segments are as
follows:
Year Ended December 31, 2004
CCUSA
CCUK
CCAL
(In thousands of dollars)
Corporate
Office and
Other
Consolidated
Total
Net revenues:
Site rental..................................................... $
Network services and other..........................
Costs of operations (exclusive of depreciation,
amortization and accretion) ............................
General and administrative...................................
Corporate development ........................................
Adjusted EBITDA................................................
Restructuring charges (credits).............................
Asset write-down charges ....................................
Non-cash general and administrative
compensation charges.....................................
Depreciation, amortization and accretion .............
Operating income (loss) .......................................
Interest and other income
$
496,368
62,095
558,463
211,660
58,908
(cid:127)
287,895
(419)
7,652
7,253
255,330
18,079
(expense) ........................................................
(9,555)
Interest expense and amortization of deferred
financing costs................................................
Provision for income taxes...................................
Minority interests .................................................
Income from discontinued operations ..................
(44,413)
Net income (loss) ................................................. $
Capital expenditures............................................. $
39,833
Total assets (at year end)...................................... $ 3,835,099
(53,595)
6,000
(5,342)
(cid:127)
$
$
93
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
$
41,097
4,305
45,402
19,255
10,541
(cid:127)
15,606
(cid:127)
(cid:127)
66
28,081
(12,541)
$
(cid:127)
(cid:127)
(cid:127)
$ 537,465
66,400
603,865
(cid:127)
20,781
1,455
(22,236)
1,289
(cid:127)
8,628
575
(32,728)
230,915
90,230
1,455
281,265
870
7,652
15,947
283,986
(27,190)
(405)
(68,548)
(78,508)
(cid:127)
(cid:127)
(cid:127)
542,006
542,006
(cid:127)
(4,441)
(630)
5,544
(cid:127)
(148,734)
(cid:127)
(cid:127)
(cid:127)
$
$
(12,473)
2,682
$ 286,022
$ (250,010)
831
$
$ 450,401
(206,770)
5,370
202
542,006
$ 235,110
43,346
$
$ 4,571,522
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Year Ended December 31, 2003
CCUSA
(As restated)
CCUK
Corporate
Office and
Other
(As restated)
CCAL
(As restated)
(In thousands of dollars)
Consolidated
Total
(As restated)
Net revenues:
Site rental........................................... $ 451,874
Network services and other ...............
68,828
$
Costs of operations (exclusive of
depreciation, amortization and
accretion) .............................................
General and administrative .......................
Corporate development.............................
Adjusted EBITDA ....................................
Restructuring charges ...............................
Asset write-down charges.........................
Non-cash general and administrative
compensation charges ..........................
Depreciation, amortization and accretion .
Operating income (loss)............................
Interest and other income (expense) .........
Interest expense, amortization of deferred
financing costs and dividends on
preferred stock .....................................
Provision for income taxes .......................
Minority interests......................................
Income from discontinued operations.......
Cumulative effect of change in accounting
520,702
211,505
57,323
(cid:127)
251,874
1,291
14,317
8,048
253,367
(25,149)
(13,127)
(55,072)
(2,000)
(1,270)
principle for asset retirement
obligations............................................
Net income (loss)...................................... $
(97,112)
Capital expenditures ................................. $
23,863
Total assets (at year end) .......................... $ 3,823,873
(494)
(cid:127)
10,458
(cid:127) $
(cid:127)
(cid:127)
30,873
3,488
34,361
$
(cid:127)
(cid:127)
(cid:127)
$ 482,747
72,316
555,063
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
14,790
7,836
(cid:127)
11,735
(cid:127)
(cid:127)
20
26,836
(15,121)
1,539
(3,763)
(465)
5,306
(cid:127)
(cid:127)
(57)
(cid:127)
21,902
5,564
(27,466)
(cid:127)
(cid:127)
5,918
1,777
(35,161)
(120,487)
(199,999)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
226,295
87,061
5,564
236,143
1,291
14,317
13,986
281,980
(75,431)
(132,075)
(258,834)
(2,465)
4,036
10,458
(551)
$
10,458
$ 2,052,510
(12,561)
$
$
3,381
$ 302,290
$ (355,647)
$
187
$ 433,560
$ (454,862)
$
27,431
$ 6,612,233
94
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Year Ended December 31, 2002
CCUSA
(As restated)
CCUK
CCAL
(As restated)
(In thousands of dollars)
Corporate
Office and
Other
Consolidated
Total
(As restated)
Net revenues:
Site rental................................................. $ 421,902
156,723
Network services and other......................
$
Costs of operations (exclusive of depreciation
and amortization) .......................................
General and administrative..............................
Corporate development ...................................
Adjusted EBITDA...........................................
Restructuring charges......................................
Asset write-down charges ...............................
Non-cash general and administrative
compensation charges ................................
Depreciation and amortization ........................
Operating income (loss) ..................................
Interest and other income (expense)................
Interest expense and amortization of deferred
578,625
285,878
61,677
—
231,070
5,204
50,245
2,127
251,998
(78,504)
(1,006)
$
(cid:127)
(cid:127)
(cid:127)
$ 24,234
2,494
26,728
—
$ 446,136
— 159,217
— 605,353
(cid:127)
(cid:127)
—
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
12,310
5,768
—
8,650
—
—
—
24,718
(16,068)
366
—
16,799
7,483
(24,282)
3,461
2,353
298,188
84,244
7,483
215,438
8,665
52,598
1,361
1,893
(33,350)
65,562
3,488
278,609
(127,922)
64,922
financing costs............................................
Provision for income taxes ..............................
Minority interests ............................................
(cid:127)
Income from discontinued operations .............
Net income (loss) ............................................ $ (133,506) $
Capital expenditures........................................ $ 105,889
(56,806)
(4,000)
6,810
(cid:127)
(cid:127)
—
9,041
(3,413)
(407)
5,530
(cid:127)
(213,676)
—
—
(cid:127)
(273,895)
(4,407)
12,340
9,041
9,041
$ (13,992)
5,104
$
$ (181,464)
650
$
$ (319,921)
$ 111,643
Geographic Information
A summary of net revenues by country, based on the location of the Company’s subsidiary, is as follows:
United States.......................................................................................... $
Puerto Rico ............................................................................................
Total domestic operations ............................................................
Australia ................................................................................................
$
A summary of long-lived assets by country of location is as follows:
2002
(As restated)
Years Ended December 31,
2003
(As restated)
(In thousands of dollars)
510,669 $
10,033
520,702
34,361
555,063 $
565,879 $
12,746
578,625
26,728
605,353 $
2004
548,744
9,719
558,463
45,402
603,865
United States
and
Puerto Rico
(As restated)
December 31, 2003
Australia
(As restated)
(In thousands of dollars)
$
Consolidated
Total
(As restated)
3,593,570
270,438
76,333
105,092
$
4,045,433
Property and equipment, net ................................... $
Goodwill .................................................................
Deferred site rental receivable ................................
Deferred financing costs and other assets, net ........
3,337,600
270,438
62,376
104,307
$
$
3,774,721
$
255,970
(cid:127)
13,957
785
270,712
95
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
United States
and
Puerto Rico
December 31, 2004
Australia
(In thousands of dollars)
Consolidated
Total
Property and equipment, net ................................... $
Goodwill .................................................................
Deferred site rental receivable ................................
Deferred financing costs and other assets, net ........
$
3,132,807
333,718
66,293
145,526
3,678,344
$
$
236,758
$
(cid:127)
18,635
471
255,864
$
3,369,565
333,718
84,928
145,997
3,934,208
Major Customers
For the years ended December 31, 2002 (as restated), 2003 (as restated) and 2004, consolidated net revenues
include $146,968,000, $127,493,000 and $131,344,000, respectively, from Verizon Wireless, a customer of
CCUSA. For the years ended December 31, 2002 (as restated), 2003 (as restated) and 2004, consolidated net
revenues include $104,285,000, $116,197,000 and $149,983,000, respectively, from Cingular Wireless and its
predecessor companies, a customer of CCUSA. For the years ended December 31, 2002 (as restated), 2003 (as
restated) and 2004, consolidated net revenues include $69,762,000, $66,413,000 and $74,873,000, respectively,
from Sprint Nextel and its predecessor companies, a customer of CCUSA.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash
and cash equivalents and trade receivables. The Company mitigates its risk with respect to cash and cash equivalents
by maintaining such deposits at high credit quality financial institutions and monitoring the credit ratings of those
institutions.
The Company derives the largest portion of its revenues from customers in the wireless telecommunications
industry. In addition, the Company has concentrations of operations in certain geographic areas (including various
regions in the United States). The Company mitigates its concentrations of credit risk with respect to trade
receivables by actively monitoring the creditworthiness of its customers.
14. Restructuring Charges and Asset Write-Down Charges
For the year ended December 31, 2002, the Company recorded cash charges of $3,073,000 related primarily to
additional employee severance payments at its corporate office in connection with a July 2001 restructuring. In
October 2002, the Company announced a restructuring of its United States businesses in order to flatten its
organizational structure to better align with customer demand and enhance our regional focus to improve customer
service. As part of the restructuring, the Company reduced its United States workforce by approximately 230
employees and closed some smaller offices. The actions taken for this restructuring were substantially completed by
the end of the first quarter of 2003. In connection with this restructuring, the Company recorded cash charges of
$6,070,000 for the year ended December 31, 2002 related to employee severance payments and costs of office
closures.
The continued execution of the October 2002 restructuring plan lead to further headcount reductions in the
United States businesses during the second quarter of 2003. As a result, the Company reduced its United States
workforce by approximately 60 employees (approximately 9%) and initiated efforts to sublease vacated office space
at two of its locations. The actions taken for this restructuring were substantially completed at June 30, 2003. In
connection with this restructuring, the Company recorded cash charges of $2,349,000 for the year ended December
31, 2003 related to employee severance payments and lease termination costs.
As a result of the sale of CCUK (see Note 2), in December of 2004 and January of 2005 the Company
consolidated certain corporate management functions. The actions taken for this restructuring will be substantially
completed by the end of the first quarter of 2005. In connection with this restructuring, the Company recorded cash
96
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
charges of $1,348,000 for the fourth quarter of 2004 related to employee severance payments. The Company expects
to record an additional $2,000,000 of such cash charges for the first quarter of 2005. In addition, in the fourth
quarter of 2004 the Company recorded non-cash general and administrative compensation charges in connection
with the modification of stock options for certain terminated executives (see Note 9).
At December 31, 2003 and 2004, other accrued liabilities includes $2,716,000 and $1,942,000, respectively,
related to restructuring charges. A summary of the restructuring charges by operating segment is as follows:
Year Ended December 31, 2002
Corporate
Office and
Other
(In thousands of dollars)
Consolidated
Total
CCUSA
Amounts accrued at beginning of year:
Employee severance .............................................................. $
Costs of office closures and other..........................................
Amounts charged to expense:
Employee severance ..............................................................
Costs of office closures and other..........................................
Total restructuring charges ............................................
Amounts paid:
Employee severance ..............................................................
Costs of office closures and other..........................................
1,356 $
1,310
2,666
3,568 $
—
3,568
2,880
2,324
5,204
(2,477)
(780)
(3,257)
3,359
102
3,461
(6,586)
(102)
(6,688)
Amounts accrued at end of year:
Employee severance ..............................................................
Costs of office closures and other..........................................
$
1,759
2,854
4,613 $
341
—
341 $
4,924
1,310
6,234
6,239
2,426
8,665
(9,063)
(882)
(9,945)
2,100
2,854
4,954
Year Ended December 31, 2003
Corporate
Office and
Other
(In thousands of dollars)
Consolidated
Total
CCUSA
Amounts accrued at beginning of year:
Employee severance .............................................................. $
Costs of office closures and other..........................................
1,759 $
2,854
4,613
Amounts charged (credited) to expense:
Employee severance ..............................................................
Costs of office closures and other..........................................
Total restructuring charges (credits) ..............................
999
292
1,291
Amounts paid:
Employee severance ..............................................................
Costs of office closures and other..........................................
Amounts accrued at end of year:
Employee severance ..............................................................
Costs of office closures and other..........................................
$
(2,265)
(956)
(3,221)
493
2,190
2,683 $
341 $
(cid:127)
341
(cid:127)
(cid:127)
(cid:127)
(308)
(cid:127)
(308)
33
(cid:127)
33 $
2,100
2,854
4,954
999
292
1,291
(2,573)
(956)
(3,529)
526
2,190
2,716
97
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
Year Ended December 31, 2004
Corporate
Office
and Other
(In thousands of dollars)
Consolidated
Total
CCUSA
Amounts accrued at beginning of year:
Employee severance..................................................... $
Costs of office closures and other ................................
Amounts charged (credited) to expense:
Employee severance.....................................................
Costs of office closures and other ................................
Total restructuring charges
(credits)........................................................
Amounts paid:
Employee severance.....................................................
Costs of office closures and other ................................
$
493
2,190
2,683
25
(444)
(419)
(518)
(342)
(860)
Amounts accrued at end of year:
Employee severance.....................................................
Costs of office closures and other ................................
$
(cid:127)
1,404
1,404
$
33
—
33
1,289
—
1,289
(784)
—
(784)
538
—
538
$
$
526
2,190
2,716
1,314
(444)
870
(1,302)
(342)
(1,644)
538
1,404
1,942
During the year ended December 31, 2002, the Company abandoned a portion of its construction in process
related to certain open projects, cancelled certain build-to-suit agreements and wrote down the value of the related
construction in process, wrote down the value of certain inventories, and wrote down the value of three office
buildings. A summary of the asset write-down charges by operating segment is as follows:
Inventories ..................................................................... $
Property and equipment.................................................
1,160
49,085
CCUSA
Year Ended December 31, 2002
Corporate
Office and
Other
(In thousands of dollars)
$
$
—
2,353
$
50,245
$
2,353
$
Consolidated
Total
1,160
51,438
52,598
During the year ended December 31, 2003, the Company abandoned an additional portion of its construction in
process and certain other assets and recorded asset write-down charges of $14,317,000 for CCUSA.
During the year ended December 31, 2004, the Company abandoned or disposed of certain tower sites, sites in
development and certain other assets and recorded asset write-down charges of $7,652,000 for CCUSA.
98
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
15. Quarterly Financial Information (Unaudited)
Summary quarterly financial information for the years ended December 31, 2003 and 2004 is as follows:
2003:
Three Months Ended
March 31
June 30
September 30 December 31
(In thousands of dollars, except per share amounts)
(As restated)
(As restated)
(As restated)
(As restated)
Net revenues.................................................................. $ 132,309 $ 137,905 $ 139,181 $ 145,668
Operating income (loss) ................................................
(15,910)
Loss from continuing operations before cumulative
(19,178)
(18,559)
(21,784)
effect of change in accounting principle ................
Income (loss) from discontinued operations .................
Cumulative effect of change in accounting principle ....
Net loss..........................................................................
Per common share – basic and diluted:
Loss from continuing operations before cumulative
(83,906)
5,442
(551)
(79,015)
(96,748)
2,099
(cid:127)
(94,649)
(124,057)
5,076
(cid:127)
(118,981)
(160,058)
(2,159)
(cid:127)
(162,217)
effect of change in accounting principle ................ (0.46)
(0.55)
Income (loss) from discontinued operations.............
Cumulative effect of change in accounting
0.03
(0.61)
0.01 0.02
principle.................................................................. (0.01)
(cid:127)
Net loss ..................................................................... (0.44) (0.54)
(cid:127)
(0.59)
2004:
(As restated)
(As restated)
(As restated)
(0.78)
(0.01)
(cid:127)
(0.79)
Net revenues.................................................................. $ 144,883 $ 151,020 $ 150,185 $ 157,777
(10,938)
Operating income (loss) ................................................
(88,687)
Loss from continuing operations ...................................
558
Income from discontinued operations ...........................
(88,129)
Net income (loss) ..........................................................
Per common share – basic and diluted:
(234)
(59,793)
510,449
450,656
(8,357)
(67,235)
16,455
(50,780)
(7,661)
(91,181)
14,544
(76,637)
Loss from continuing operations ..............................
Income from discontinued operations ......................
Net income (loss)......................................................
(0.46)
0.07
(0.39)
(0.34)
0.07
(0.27)
(0.31)
2.29
1.98
(0.44)
(cid:127)
(0.44)
Certain amounts have been restated to reflect the correction of accounting errors as more fully described in Note
1. The adjustments to amounts previously presented in the consolidated statement of operations for the four quarters
of 2003 and the first three quarters of 2004 are summarized as follows.
99
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
As Previously
Stated
Restatement
Adjustments
As
Restated
(In thousands of dollars, except per share amounts)
Adjustments
to Present
CCUK as
Discontinued
Operations
As Restated
on Continuing
Operations
Basis
Three Months Ended March 31, 2003:
Site rental revenues............................................... $ 184,960 $
Site rental costs of operations...............................
Depreciation expense............................................
Operating income (loss) .......................................
Credit (provision) for income taxes......................
Minority interests .................................................
Net income (loss)..................................................
Dividends on preferred stock, net of gains
73,360
80,357
11,822
(3,966)
(557)
(69,016)
1,555 $ 186,515 $ (71,125) $ 115,390
44,658
4,050
70,567
9,104
(18,559)
(11,599)
(616)
(500)
1,543
2,100
(79,015)
(9,999)
77,410
89,461
223
(4,466)
1,543
(79,015)
(32,752)
(18,894)
(18,782)
3,850
(cid:127)
(cid:127)
(losses) on purchases of preferred stock ..........
(14,371)
(587)
(14,958)
(cid:127)
(14,958)
Net income (loss) per common share – basic
and diluted .......................................................
(0.38)
(0.06)
(0.44)
(cid:127)
(0.44)
Three Months Ended June 30, 2003:
Site rental revenues............................................... $ 116,646 $
Site rental costs of operations...............................
Depreciation expense............................................
Operating income (loss) .......................................
Interest and other income (expense) .....................
Credit (provision) for income taxes......................
Minority interests .................................................
Net income (loss)..................................................
Dividends on preferred stock, net of gains
39,985
60,763
(9,993)
(8,271)
(127)
(730)
(80,831)
1,630 $ 118,276 $
44,070
4,085
70,099
9,336
(21,784)
(11,791)
(11,397)
(3,126)
(627)
(500)
869
1,599
(94,649)
(13,818)
(cid:127) $ 118,276
44,070
(cid:127)
70,099
(cid:127)
(21,784)
(cid:127)
(11,397)
(cid:127)
(627)
(cid:127)
869
(cid:127)
(94,649)
(cid:127)
(losses) on purchases of preferred stock ..........
(20,081)
(1,365)
(21,446)
(cid:127)
(21,446)
Net income (loss) per common share – basic
and diluted .......................................................
(0.47)
(0.07)
(0.54)
(cid:127)
(0.54)
Three Months Ended September 30, 2003:
Site rental revenues............................................... $ 120,127 $
40,062
Site rental costs of operations...............................
60,846
Depreciation expense............................................
(7,308)
Operating income (loss) .......................................
(35,104)
Interest and other income (expense) .....................
(85)
Credit (provision) for income taxes......................
151
Minority interests .................................................
Net income (loss)..................................................
(99,678)
Net income (loss) per common share – basic
1,658 $ 121,785 $
44,160
4,098
70,276
9,430
(19,178)
(11,870)
(43,382)
(8,278)
(585)
(500)
1,496
1,345
(19,303) (118,981)
(cid:127) $ 121,785
(cid:127)
44,160
70,276
(cid:127)
(19,178)
(cid:127)
(43,382)
(cid:127)
(cid:127)
(585)
(cid:127)
1,496
(cid:127) (118,981)
and diluted .......................................................
(0.50)
(0.09)
(0.59)
(cid:127)
(0.59)
Three Months Ended December 31, 2003:
Site rental revenues............................................... $ 213,971 $
83,425
Site rental costs of operations...............................
82,893
Depreciation expense............................................
Operating income (loss) .......................................
23,566
Interest and other income (expense) ..................... (101,605)
4,102
Credit (provision) for income taxes......................
Minority interests .................................................
(1,258)
Net income (loss).................................................. (148,840)
Net income (loss) per common share – basic
1,750 $ 215,721 $ (88,425) $ 127,296
87,566
46,661
4,141
(40,905)
71,038
92,553
9,660
(21,515)
(15,910)
(12,051)
11,515
(27,425)
(74,733)
(2,212) (103,817)
29,084
(637)
3,602
(4,239)
(cid:127)
128
128
(cid:127) (162,217)
(13,377) (162,217)
(500)
1,386
and diluted .......................................................
(0.73)
(0.06)
(0.79)
(cid:127)
(0.79)
100
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
As Previously
Stated
Restatement
Adjustments
As
Restated
(In thousands of dollars, except per share amounts)
Adjustments
to Present
CCUK as
Discontinued
Operations
As Restated
on Continuing
Operations
Basis
Three Months Ended March 31, 2004:
Site rental revenues............................................... $ 219,377 $
Site rental costs of operations...............................
Depreciation expense............................................
Operating income (loss) .......................................
Interest and other income (expense) .....................
Credit (provision) for income taxes......................
Minority interests .................................................
Net income (loss)..................................................
Net income (loss) per common share – basic
82,987
84,822
26,669
(24,829)
(5,955)
(1,346)
(64,967)
1,211 $ 220,588 $ (90,408) $ 130,180
44,525
3,590
70,844
9,619
(7,661)
(11,998)
(25,414)
(387)
(653)
(500)
(131)
1,215
(76,637)
(11,670)
86,577
94,441
14,671
(25,216)
(6,455)
(131)
(76,637)
(42,052)
(23,597)
(22,332)
(198)
5,802
(cid:127)
(cid:127)
and diluted .......................................................
(0.34)
(0.05)
(0.39)
(cid:127)
(0.39)
Three Months Ended June 30, 2004:
Site rental revenues............................................... $ 131,363 $
Site rental costs of operations...............................
Depreciation expense............................................
Operating income (loss) .......................................
Credit (provision) for income taxes......................
Minority interests .................................................
Net income (loss)..................................................
Net income (loss) per common share – basic
41,843
61,119
3,515
(184)
(1,463)
(39,594)
1,144 $ 132,507 $
45,403
3,560
70,575
9,456
(8,357)
(11,872)
(684)
(500)
(277)
1,186
(50,780)
(11,186)
(cid:127) $ 132,507
45,403
(cid:127)
70,575
(cid:127)
(8,357)
(cid:127)
(684)
(cid:127)
(277)
(cid:127)
(50,780)
(cid:127)
and diluted .......................................................
(0.22)
(0.05)
(0.27)
(cid:127)
(0.27)
Three Months Ended September 30, 2004:
Site rental revenues............................................... $ 134,090 $
42,196
Site rental costs of operations...............................
60,587
Depreciation expense............................................
11,628
Operating income (loss) .......................................
(144)
Credit (provision) for income taxes......................
Minority interests .................................................
(1,729)
Income from discontinued operations, net of tax . 517,449
Net income (loss).................................................. 461,333
Net income (loss) per common share – basic
1,139 $ 135,229 $
45,754
3,558
70,030
9,443
(234)
(11,862)
6,856
7,000
1,185
(544)
(7,000) 510,449
(10,677) 450,656
(cid:127) $ 135,229
45,754
(cid:127)
70,030
(cid:127)
(234)
(cid:127)
6,856
(cid:127)
(cid:127)
(544)
(cid:127) 510,449
(cid:127) 450,656
and diluted .......................................................
2.02
(0.04)
1.98
(cid:127)
1.98
The following tables describe the effects of the restatement on net revenues, operating income (loss), loss from
continuing operations before cumulative effect of change in accounting principle, income from discontinued
operations, net income (loss) and the related per share amounts.
101
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
2003:
Three Months Ended
March 31
June 30
September 30 December 31
(In thousands of dollars, except per share amounts)
Net revenues, as previously stated ............................................................................ $
Adjustments to site rental revenues..............................................................
Net revenues, as restated ...........................................................................................
216,724 $
1,555
218,279
224,201 $
1,630
225,831
235,577 $
1,658
237,235
253,846
1,750
255,596
Adjustment to present CCUK’s results of operations as
discontinued operations .........................................................................
Net revenues from continuing operations, as restated .............................................. $
(85,970)
132,309 $
(87,926)
137,905 $
(98,054)
139,181 $
(109,928)
145,668
Operating income, as previously stated .................................................................... $
Adjustments to site rental revenues..............................................................
Adjustments to site rental costs of operations..............................................
Adjustments to depreciation expense...........................................................
Operating income, (loss) as restated .........................................................................
11,822 $
1,555
(4,050)
(9,104)
223
6,275 $
1,630
(4,085)
(9,336)
(5,516)
10,040 $
1,658
(4,098)
(9,430)
(1,830)
23,566
1,750
(4,141)
(9,660)
11,515
Adjustment to present CCUK’s results of operations as
discontinued operations .........................................................................
Operating income (loss) from continuing operations, as restated ............................ $
(18,782)
(18,559) $
(16,268)
(21,784) $
(17,348)
(19,178) $
(27,425)
(15,910)
Loss before cumulative effect of change in accounting principle,
as previously stated.......................................................................................... $
Adjustments to site rental revenues..............................................................
Adjustments to site rental costs of operations..............................................
Adjustments to depreciation expense...........................................................
Adjustments to interest and other income (expense) ...................................
Adjustments to credit (provision) for income taxes.....................................
Adjustments to minority interests ................................................................
(66,981) $
1,555
(4,050)
(9,104)
(cid:127)
(500)
2,100
(80,831) $
1,630
(4,085)
(9,336)
(3,126)
(500)
1,599
(99,678) $
1,658
(4,098)
(9,430)
(8,278)
(500)
1,345
(148,840)
1,750
(4,141)
(9,660)
(2,212)
(500)
1,386
Loss before cumulative effect of change in accounting principle, as
restated .............................................................................................................
(76,980)
(94,649)
(118,981)
(162,217)
Adjustment to present CCUK’s results of operations as
discontinued operations .........................................................................
(6,926)
(2,099)
(5,076)
2,159
Loss from continuing operations before cumulative effect of change
in accounting principle, as restated ................................................................. $
(83,906) $
(96,748) $
(124,057) $
(160,058)
Net loss, as previously stated .................................................................................... $
Adjustments to site rental revenues..............................................................
Adjustments to site rental costs of operations..............................................
Adjustments to depreciation expense...........................................................
Adjustments to interest and other income (expense) ...................................
Adjustments to credit (provision) for income taxes.....................................
Adjustments to minority interests ................................................................
Net loss, as restated ...................................................................................................
Dividends on preferred stock, net of gains (losses) on purchases of
(69,016) $
1,555
(4,050)
(9,104)
(cid:127)
(500)
2,100
(79,015)
(80,831) $
1,630
(4,085)
(9,336)
(3,126)
(500)
1,599
(94,649)
(99,678) $
1,658
(4,098)
(9,430)
(8,278)
(500)
1,345
(118,981)
(148,840)
1,750
(4,141)
(9,660)
(2,212)
(500)
1,386
(162,217)
preferred stock, as restated ..............................................................................
(14,958)
(21,446)
(9,496)
(9,997)
Net income (loss) after deduction of dividends on preferred stock, net of
gains (losses) on purchases of preferred stock, as restated ............................. $
(93,973) $
(116,095) $
(128,477) $
(172,214)
Per common share – basic and diluted:
Loss before cumulative effect of change in accounting
principle, as previously stated................................................................ $
Adjustments to site rental revenues.................................................
Adjustments to site rental costs of operations.................................
Adjustments to depreciation expense..............................................
Adjustments to interest and other income (expense) ......................
Adjustments to credit (provision) for income taxes........................
Adjustments to minority interests ...................................................
Adjustments to dividends on preferred stock, net of gains (losses)
on purchases of preferred stock.......................................................
Loss before cumulative effect of change in accounting principle,
as restated...............................................................................................
Adjustment to present CCUK’s results of operations
as discontinued operations ........................................................
Loss from continuing operations before cumulative effect of
change in accounting principle, as restated ........................................... $
Net loss, as previously stated ....................................................................... $
Adjustments to site rental revenues.................................................
Adjustments to site rental costs of operations.................................
Adjustments to depreciation expense..............................................
Adjustments to interest and other income (expense) ......................
Adjustments to credit (provision) for income taxes........................
Adjustments to minority interest .....................................................
Adjustments to dividends on preferred stock, net of gains (losses)
on purchases of preferred stock.......................................................
Net loss, as restated ...................................................................................... $
(0.37) $
0.01
(0.02)
(0.05)
(cid:127)
(cid:127)
0.01
(0.01)
(0.43)
(0.03)
(0.46) $
(0.38) $
0.01
(0.02)
(0.05)
(cid:127)
(cid:127)
0.01
(0.01)
(0.44) $
(0.47) $
0.01
(0.02)
(0.04)
(0.02)
(cid:127)
0.01
(0.50) $
0.01
(0.02)
(0.05)
(0.04)
(cid:127)
0.01
(0.01)
(cid:127)
(0.73)
0.01
(0.02)
(0.05)
(0.01)
(cid:127)
0.01
(cid:127)
(0.54)
(0.59)
(0.79)
(0.01)
(0.02)
0.01
(0.55) $
(0.47) $
0.01
(0.02)
(0.04)
(0.02)
(cid:127)
0.01
(0.01)
(0.54) $
(0.61) $
(0.50) $
0.01
(0.02)
(0.05)
(0.04)
(cid:127)
0.01
(cid:127)
(0.59) $
(0.78)
(0.73)
0.01
(0.02)
(0.05)
(0.01)
(cid:127)
0.01
(cid:127)
(0.79)
102
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
March 31
September 30
Three Months Ended
June 30
(In thousands of dollars,
except per share amounts)
2004:
Net revenues, as previously stated ............................................................................................. $
Adjustments to site rental revenues ...............................................................................
Net revenues, as restated ............................................................................................................
248,487 $
1,211
249,698
149,876 $
1,144
151,020
149,046
1,139
150,185
Adjustment to present CCUK’s results of operations as
discontinued operations ...........................................................................................
Net revenues from continuing operations, as restated ............................................................... $
(104,815)
144,883 $
(cid:127)
151,020 $
(cid:127)
150,185
Operating income, as previously stated ..................................................................................... $
Adjustments to site rental revenues ...............................................................................
Adjustments to site rental costs of operations ...............................................................
Adjustments to depreciation expense ............................................................................
Operating income (loss), as restated ..........................................................................................
26,669 $
1,211
(3,590)
(9,619)
14,671
3,515 $
1,144
(3,560)
(9,456)
(8,357)
11,628
1,139
(3,558)
(9,443)
(234)
Adjustment to present CCUK’s results of operations as
discontinued operations ...........................................................................................
(22,332)
Operating income (loss) from continuing operations, as restated ............................................. $
(7,661) $
(cid:127)
(8,357) $
(cid:127)
(234)
Net loss (first quarter) or Loss from continuing operations (second and third
quarters), as previously stated........................................................................................... $
Adjustments to site rental revenues ...............................................................................
Adjustments to site rental costs of operations ...............................................................
Adjustments to depreciation expense ............................................................................
Adjustments to interest and other income (expense).....................................................
Adjustments to credit (provision) for income taxes ......................................................
Adjustments to minority interests ..................................................................................
(64,967) $
1,211
(3,590)
(9,619)
(387)
(500)
1,215
(56,049) $
1,144
(3,560)
(9,456)
(cid:127)
(500)
1,186
(56,116)
1,139
(3,558)
(9,443)
(cid:127)
7,000
1,185
Net loss (first quarter) or Loss from continuing operations (second and third
quarters), as restated..........................................................................................................
(76,637)
(67,235)
(59,793)
Adjustment to present CCUK’s results of operations as
discontinued operations ...........................................................................................
Loss from continuing operations, as restated ............................................................................ $
(14,544)
(91,181) $
(cid:127)
(67,235) $
Income from discontinued operations (second and third quarters), as previously stated ......... $
Adjustments to income from discontinued operations ..................................................
Income from discontinued operations (second and third quarters), as restated ........................
Adjustment to present CCUK’s first quarter results of operations as discontinued
operations .................................................................................................................
Income from discontinued operations, as restated..................................................................... $
Net income (loss), as previously stated ..................................................................................... $
Adjustments to site rental revenues ...............................................................................
Adjustments to site rental costs of operations ...............................................................
Adjustments to depreciation expense ............................................................................
Adjustments to interest and other income (expense).....................................................
Adjustments to credit (provision) for income taxes ......................................................
Adjustments to minority interests ..................................................................................
Adjustment to income from discontinued operations, net of tax ..................................
Net income (loss), as restated ....................................................................................................
Dividends on preferred stock, net of gains (losses) on purchases of preferred stock ...............
Net income (loss) after deduction of dividends on preferred stock, net of gains (losses) on
(cid:127) $
(cid:127)
(cid:127)
16,455 $
(cid:127)
16,455
14,544
14,544 $
(64,967) $
1,211
(3,590)
(9,619)
(387)
(500)
1,215
(cid:127)
(76,637)
(9,696)
(cid:127)
16,455 $
(39,594) $
1,144
(3,560)
(9,456)
(cid:127)
(500)
1,186
(cid:127)
(50,780)
(9,332)
(cid:127)
(59,793)
517,449
(7,000)
510,449
(cid:127)
510,449
461,333
1,139
(3,558)
(9,443)
(cid:127)
7,000
1,185
(7,000)
450,656
(9,836)
purchases of preferred stock, as restated .......................................................................... $
(86,333) $
(60,112) $
440,820
103
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
March 31
September 30
Three Months Ended
June 30
(In thousands of dollars,
except per share amounts)
Per common share – basic and diluted:
Net loss (first quarter) or Loss from continuing operations (second and
third quarters), as previously stated ......................................................................... $
Adjustments to site rental revenues ...................................................................
Adjustments to site rental costs of operations ...................................................
Adjustments to depreciation expense ................................................................
Adjustments to interest and other income (expense).........................................
Adjustments to credit (provision) for income taxes ..........................................
Adjustments to minority interests......................................................................
(0.34) $
0.01
(0.02)
(0.05)
(cid:127)
(cid:127)
0.01
(0.29) $
0.01
(0.02)
(0.05)
(cid:127)
(cid:127)
0.01
(0.30)
0.01
(0.02)
(0.04)
(cid:127)
0.03
0.01
Net loss (first quarter) or Loss from continuing operations (second and
third quarters), as restated ........................................................................................
(0.39)
(0.34)
(0.31)
Adjustment to present CCUK’s results of operations
as discontinued operations...........................................................................
Loss from continuing operations, as restated ................................................................ $
(0.07)
(0.46) $
(cid:127)
(0.34) $
(cid:127)
(0.31)
Income from discontinued operations (second and third quarters), as previously
stated ........................................................................................................................ $
Adjustments to income from discontinued operations ......................................
Income from discontinued operations (second and third quarters), as restated ............
Adjustment to present CCUK’s first quarter results of operations as
discontinued operations ...............................................................................
Income from discontinued operations, as restated......................................................... $
Net income (loss), as previously stated ......................................................................... $
Adjustments to site rental revenues ...................................................................
Adjustments to site rental costs of operations ...................................................
Adjustments to depreciation expense ................................................................
Adjustments to interest and other income (expense).........................................
Adjustments to credit (provision) for income taxes ..........................................
Adjustments to minority interests......................................................................
Adjustment to income from discontinued operations, net of tax ......................
Net income (loss), as restated ........................................................................................ $
(cid:127) $
(cid:127)
(cid:127)
0.07
0.07 $
(0.34) $
0.01
(0.02)
(0.05)
(cid:127)
(cid:127)
0.01
(cid:127)
(0.39) $
0.07 $
(cid:127)
0.07
(cid:127)
0.07 $
(0.22) $
0.01
(0.02)
(0.05)
(cid:127)
(cid:127)
0.01
(cid:127)
(0.27) $
2.32
(0.03)
2.29
(cid:127)
2.29
2.02
0.01
(0.02)
(0.04)
(cid:127)
0.03
0.01
(0.03)
1.98
16. Subsequent Events
Purchases of the Company’s Debt Securities
In January of 2005, the Company utilized $175,439,000 of its cash to purchase $93,500,000 in outstanding
principal amount of its 4% Convertible Senior Notes, including accrued interest thereon of $1,744,000, in public
market transactions. The debt purchases resulted in losses of $82,587,000 for the first quarter of 2005, consisting of
the write-off of unamortized deferred financing costs ($2,392,000) and the excess of the total purchase price over the
carrying value of the notes ($80,195,000). Such losses will be included in interest and other income (expense) on the
Company’s consolidated statement of operations for the three months ending March 31, 2005. After these purchases,
the conversion of all the remaining outstanding 4% Convertible Senior Notes would result in the issuance of
8,173,223 shares of the Company’s common stock (see Note 5).
Crown Atlantic Credit Facility
In February of 2005, Crown Atlantic amended its credit facility to terminate certain collateral and security
agreements and amend one of the financial covenants.
Stock-Based Compensation
In February of 2005, the Company issued 35,650 shares of common stock to the non-executive members of its
Board of Directors. These shares have a grant-date fair value of $16.20 per share. In connection with these shares,
the Company will recognize non-cash general and administrative compensation charges of approximately $578,000
for the first quarter of 2005.
104
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:127)(Continued)
In February of 2005, the Company granted 256,836 shares of restricted common stock to certain of its
executives. The restricted shares had a grant-date fair value of $16.20 per share, determined based on the closing
market price of the Company’s common stock on the grant date. The restrictions on the shares will expire in various
amounts over the vesting period of four years if the market performance of the Company’s common stock reaches
certain levels. In connection with these restricted shares, the Company will recognize non-cash general and
administrative compensation charges of $4,161,000 over the vesting period. Such charges will be reduced in the
event that any of the restricted shares are forfeited before they become vested. In February of 2005, the Company
also authorized the grant of 447,864 shares of restricted common stock to 274 other executives and employees. The
restrictions on these shares will expire in various annual amounts over the vesting period of four years, with
provisions for accelerated vesting based on the market performance of the Company’s common stock.
105
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
The Company has restated its consolidated financial statements as of and for the years ended December 31,
2002 and 2003 to reflect the correction of errors for certain non-cash items relating to the Company’s lease
accounting practices. In addition to restating its consolidated financial statements as of and for the years ended
December 31, 2002 and 2003, the Company also has restated its interim financial statements for the first three
quarters of 2004 to reflect these corrections in the proper periods. For further discussion of the restatement, see
Notes 1 and 15 to the Company’s consolidated financial statements.
(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
In connection with the preparation of this Annual Report on Form 10-K, as of December 31, 2004, the
Company’s management conducted an evaluation, under the supervision and with the participation of the
Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). As a result of this review, the
Company concluded that its previously established lease accounting practices were not appropriate under U.S.
generally accepted accounting principles and determined that the Company’s annual site rental revenue, ground rent,
and depreciation expense over the last several years had been understated. Accordingly, as described above, the
Company determined to restate certain of its previously issued financial statements to reflect the correction in the
Company’s lease accounting practices. These errors were attributed to a material weakness in the Company’s
internal control relative to the selection, monitoring, and review of assumptions and factors affecting lease and
depreciation accounting practices as of December 31, 2004, resulting in an error in the Company’s application of
U.S. generally accepted accounting principles. Based on that evaluation, the Company’s CEO and CFO concluded
that the Company’s disclosure controls and procedures were not effective as of December 31, 2004, to provide
reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms.
(b) Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act) for Crown Castle International Corp. (the Company). Under
the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer,
management assessed the effectiveness of the Company’s internal control over financial reporting based on the
framework described in “Internal Control – Integrated Framework”, issued by the Committee of Sponsoring
Organizations (“COSO”) of the Treadway Commission. The Company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The
Company’s internal control over financial reporting includes those policies and procedures that:
(cid:120)
(cid:120)
(cid:120)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. generally accepted accounting principles, and that receipts
and expenditures of the Company are being made only in accordance with authorization of
management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions,
use or disposition of the Company’s assets that could have a material effect on the financial statements.
106
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2004. In performing this assessment, management reviewed the Company’s lease accounting
practices. As a result of this review, management concluded that there was a material weakness in the Company’s
internal control over the selection, monitoring, and review of assumptions and factors affecting lease and
depreciation accounting practices as of December 31, 2004. As a result of such material weakness, the Company’s
annual site rental revenue, ground rent, and depreciation expense for the years ended 2002 and 2003 were
understated. On February 15, 2005, the Company announced that it was appropriate to restate certain of its
previously issued financial statements to reflect the correction of these errors in the Company’s lease and
depreciation accounting. See Note 1 to the consolidated financial statements. Management evaluated the impact of
this restatement on the Company’s assessment of internal control over financial reporting and has concluded that the
control deficiency that resulted in incorrect lease and depreciation accounting represented a material weakness as of
December 31, 2004. As a result of this material weakness, management has concluded, based on the criteria set forth
by the COSO of the Treadway Commission in “Internal Control—Integrated Framework”, that the Company’s
internal control over financial reporting was not effective as of December 31, 2004.
A material weakness in internal control over financial reporting is a control deficiency (within the meaning of
the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 2), or combination of control
deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected.
KPMG LLP, a registered public accounting firm, has issued an attestation report on management’s assessment
of the Company’s internal control over financial reporting, which is included herein in this Annual Report.
(c) Changes in Internal Control Over Financial Reporting
To remediate the material weakness in the Company’s internal control over financial reporting, subsequent to
year-end the Company has implemented additional review procedures over the selection and monitoring of the
appropriate assumptions and factors affecting lease accounting. No other material weaknesses were identified as a
result of management’s assessment.
There were no changes in the Company’s internal control over financial reporting that occurred during the
Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting. However, during the course of assessing the Company’s
internal control over financial reporting in 2004, management performed a number of activities to confirm and
enhance the adequacy of internal control over financial reporting and believes that those activities have improved
the effectiveness of our internal control over financial reporting and will continue to do so in the future. Those
activities included the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
elevating visibility of the system of internal control over financial reporting within the Company by
creating or otherwise improving our documentation of the system via (1) flowcharts, (2) formal written
policies and procedures and (3) control listings documenting the risks and financial statement captions and
assertions the controls address;
enhancing the monitoring of internal control over financial reporting to ensure that (1) such controls are
designed and operating effectively and (2) developing a process for on-going compliance, including
expanding the internal audit department in 2004 and subsequently conducting internal audits to evaluate the
design and operating effectiveness of internal control over financial reporting;
retaining outside specialists to evaluate the design and operating effectiveness of certain internal controls
relating to our financial accounting, taxation, treasury management and information technology systems;
and
elevating senior management’s visibility to accounting and operational matters by establishing regular
review meetings, intended to enhance current processes in place to ensure the completeness and accuracy
of our public disclosures.
107
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of its inherent limitations, our internal control over financial reporting may
not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies and procedures may deteriorate.
108
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Crown Castle International Corp.:
We have audited management's assessment, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting (Item 9A(b)), that Crown Castle International Corp. (the Company) did
not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of a
material weakness in internal control over the selection, monitoring and review of assumptions and factors affecting
the Company’s lease and depreciation accounting practices, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company's management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, evaluating management's
assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more
than a remote likelihood that a material misstatement of the annual or interim financial statements will not be
prevented or detected. The following material weakness has been identified and included in management's
assessment as of December 31, 2004: Management identified a material weakness in the Company’s internal control
over the selection, monitoring, and review of assumptions and factors affecting lease and depreciation accounting
practices as of December 31, 2004. As a result of such material weakness, the Company’s annual site rental revenue,
ground rent, and depreciation expense for the years ended 2002 and 2003 were understated, resulting in the
restatement of the 2002 and 2003 consolidated financial statements to reflect the correction of these errors in the
Company’s lease and depreciation accounting.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Crown Castle International Corp. and subsidiaries as of
December 31, 2003 and 2004, and the related consolidated statements of operations and comprehensive income
(loss), cash flows and stockholders’ equity for each of the years in the three-year period ended December 31, 2004.
The aforementioned material weakness was considered in determining the nature, timing, and extent of audit tests
109
applied in our audit of the 2004 consolidated financial statements, and this report does not affect our report dated
March 29, 2005, which expressed an unqualified opinion on those consolidated financial statements.
In our opinion, management's assessment that the Company did not maintain effective internal control over
financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Also, in our opinion, because of the effect of the material weakness described above on the
achievement of the objectives of the control criteria, the Company has not maintained effective internal control over
financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
KPMG LLP
Houston, Texas
March 29, 2005
110
ITEM 9B. Other Information
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required to be furnished pursuant to this item will be set forth in the 2005 Proxy Statement and
is incorporated herein by reference.
ITEM 11. Executive Compensation
The information required to be furnished pursuant to this item will be set forth in the 2005 Proxy Statement and
is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required to be furnished pursuant to this item will be set forth in the 2005 Proxy Statement and
is incorporated herein by reference.
The following table summarizes information with respect to equity compensation plans under which equity
securities of the registrant are authorized for issuance as of December 31, 2004:
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding
options, warrants
and rights
Number of securities
remaining available
for future
issuance(3)
Plan category(1)(2)
Equity compensation plans approved by
security holders ...........................................
14,433,272
Equity compensation plans not approved
by security holders ......................................
Total.................................................................
—
14,433,272
$16.46
$16.46
11,556,830
—
11,556,830
(1)
(2)
(3)
See Note 9 to the Consolidated Financial Statements for more detailed information regarding the registrant’s equity compensation plans.
Crown Castle Australia Holdings Pty Ltd. (“CCAL”, a majority owned subsidiary of the registrant) has an equity compensation plan under which it awards
options for the purchase of CCAL shares to its employees and directors. This plan has not been approved by the registrant’s security holders. See Note 9 to the
Consolidated Financial Statements for more detailed information regarding this plan.
In February of 2005, the registrant issued 35,650 shares of common stock to the non-executive members of its Board of Directors. This share award was granted
under an equity compensation plan which was approved by the registrant’s security holders. See Note 16 to the Consolidated Financial Statements.
ITEM 13. Certain Relationships and Related Transactions
The information required to be furnished pursuant to this item will be set forth in the 2005 Proxy Statement and
is incorporated herein by reference.
ITEM 14. Principal Accounting Fees and Services
The information required to be furnished pursuant to this item will be set forth in the 2005 Proxy Statement and
is incorporated herein by reference.
111
ITEM 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements:
PART IV
The list of financial statements filed as part of this report is submitted as a separate section, the index to
which is located on page 52.
(a)(2) Financial Statement Schedules:
Schedule I—Condensed Financial Information of Registrant and Schedule II—Valuation and Qualifying
Accounts follow this Part IV. All other schedules are omitted because they are not applicable or because the
required information is contained in the financial statements or notes thereto included in this Form 10-K.
(a)(3) Exhibits:
The Exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report on Form
10-K.
112
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET (Unconsolidated)
(In thousands of dollars, except share amounts)
Current assets:
ASSETS
Cash and cash equivalents ........................................................................................ $
Receivables and other current assets ........................................................................
Total current assets............................................................................................
204,287 $
2,083
9,384
1,345
206,370
10,729
Property and equipment, net of accumulated depreciation of $6,573 and $7,029 at
December 31,
2003
(As restated)
2004
December 31, 2003 and 2004, respectively ................................................................
473
Investment in and net advances to subsidiaries ............................................................... 4,070,621 4,018,227
Deferred financing costs and other assets, net of accumulated amortization of
$10,535 and $12,498 at December 31, 2003 and 2004, respectively..........................
45,138
875
34,540
$ 4,323,004 $ 4,063,969
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities ...................................................... $
Accrued interest .....................................................................................................
Long-term debt, current maturities.........................................................................
Total current liabilities..................................................................................
51,906
Long-term debt, less current maturities ........................................................................... 1,735,695 1,670,398
286,254
7,644 $
49,063
229,547
8,598
43,308
(cid:127)
Total liabilities.............................................................................................. 2,021,949
Redeemable preferred stock ............................................................................................
Stockholders’ equity:
Common stock, $.01 par value; 690,000,000 shares authorized; shares issued:
506,702
1,722,304
508,040
December 31, 2003—220,758,321and December 31, 2004—224,064,124...........
2,241
Additional paid-in capital ........................................................................................... 3,349,459 3,386,749
Accumulated other comprehensive income (loss) ......................................................
54,476
(9,892)
Unearned stock compensation ....................................................................................
Accumulated deficit.................................................................................................... (1,796,441) (1,599,949)
247,249
(8,122)
2,208
Total stockholders’ equity ............................................................................ 1,794,353
1,833,625
$ 4,323,004 $ 4,063,969
See notes to consolidated financial statements and accompanying notes.
113
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
STATEMENT OF OPERATIONS (Unconsolidated)
(In thousands of dollars)
2002
(As restated)
Years Ended December 31,
2003
(As restated)
2004
Interest and other income (expense) ........................................................... $
General and administrative expenses..........................................................
Corporate development expenses ...............................................................
Restructuring charges .................................................................................
Non-cash general and administrative compensation charges......................
Depreciation, amortization and accretion ...................................................
Interest expense, amortization of deferred financing costs and dividends
on preferred stock ..................................................................................
Loss before income taxes and equity in earnings (losses) of
subsidiaries ............................................................................................
Equity in earnings (losses) of subsidiaries..................................................
Net income (loss)........................................................................................
Dividends on preferred stock, net of gains (losses) on purchases of
73,511 $ (120,643) $
(14,337)
(7,483)
(3,461)
(1,361)
(1,310)
(16,063)
(5,564)
(cid:127)
(5,914)
(938)
(64,339)
(17,451)
(1,455)
(1,289)
(8,624)
(472)
(213,676)
(199,999)
(148,734)
(168,117)
(151,804)
(319,921)
(349,121)
(105,741)
(454,862)
(242,364)
477,474
235,110
preferred stock .......................................................................................
16,023
(55,897)
(38,618)
Net income (loss) after deduction of dividends on preferred stock, net of
gains (losses) on purchases of preferred stock....................................... $ (303,898) $ (510,759) $ 196,492
See notes to consolidated financial statements and accompanying notes.
114
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
STATEMENT OF CASH FLOWS (Unconsolidated)
(In thousands of dollars)
2002
(As restated)
Years Ended December 31,
2003
(As restated)
2004
Cash flows from operating activities:
Net income (loss)...................................................................................... $
Adjustments to reconcile net income (loss) to net cash used for operating
(319,921) $
(454,862) $
235,110
activities:
Losses (gains) on purchases and redemption of long-term debt ..........
Non-cash general and administrative compensation charges...............
Amortization of deferred financing costs, discounts on long-term
debt and dividends on preferred stock ............................................
Depreciation, amortization and accretion ............................................
Equity in losses (earnings) and write-downs of unconsolidated
affiliates ..........................................................................................
Equity in losses (earnings) of subsidiaries...........................................
Losses on purchases and redemption of preferred stock......................
Decrease in receivables and other assets .............................................
Increase (decrease) in accounts payable and other accrued
liabilities .........................................................................................
Increase (decrease) in accrued interest ................................................
Net cash used for operating activities................................................
(79,138)
1,361
89,423
1,310
8,271
151,804
(cid:127)
1,778
87,112
5,914
67,974
938
63,773
8,624
5,949
472
162
105,741
32,293
2,857
39
(477,474)
(cid:127)
1,048
(3,075)
(1,636)
397
3,755
954
(5,755)
(149,823)
(147,719)
(167,260)
Cash flows from investing activities:
Net advances from (to) subsidiaries..........................................................
Distributions from (investment in) subsidiaries ........................................
Capital expenditures .................................................................................
Maturities of investments..........................................................................
Purchases of investments ..........................................................................
Disposition of (investments in) affiliates ..................................................
Net cash provided by investing activities..........................................
58,816
176,437
(488)
930,313
(746,154)
5,582
(79,112)
620,325
(111)
285,367
(167,063)
(cid:127)
474,933
(120,849)
(55)
(cid:127)
(cid:127)
(cid:127)
424,506
659,406
354,029
Cash flows from financing activities:
Proceeds from issuance of capital stock ...................................................
Purchases and redemption of long-term debt............................................
Purchases and redemption of capital stock ...............................................
Incurrence of financing costs ....................................................................
Proceeds from issuance of long-term debt ................................................
Net cash used for financing activities................................................
Net increase (decrease) in cash and cash equivalents..................................
Cash and cash equivalents at beginning of year ..........................................
Cash and cash equivalents at end of year..................................................... $
Supplemental disclosure of cash flow information:
1,032
(142,820)
(94,470)
—
—
7,992
(928,388)
(343,734)
(22,346)
830,000
(236,258)
38,425
110,651
149,076 $
(456,476)
55,211
149,076
204,287 $
32,094
(353,958)
(59,364)
(444)
(cid:127)
(381,672)
(194,903)
204,287
9,384
Interest paid .............................................................................................. $
Income taxes paid .....................................................................................
125,888 $
—
128,271 $
(cid:127)
148,540
(cid:127)
See notes to consolidated financial statements and accompanying notes.
115
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
NOTES TO FINANCIAL STATEMENTS (Unconsolidated)
1. Investment in and Net Advances to Subsidiaries
The Company’s investment in subsidiaries is presented in the accompanying unconsolidated financial
statements using the equity method of accounting. Under the terms of the 2000 Crown Atlantic Credit Facility,
Crown Atlantic is effectively precluded from paying dividends to the Company. The restricted net assets of Crown
Atlantic totaled approximately $639,420,000 at December 31, 2004.
2. Long-term Debt
Long-term debt consists of the Company’s Debt Securities.
3. Redeemable Preferred Stock
Redeemable preferred stock consists of the Company’s 8¼% Convertible Preferred Stock and 6.25%
Convertible Preferred Stock.
4. Income Taxes
Income taxes reported in the accompanying unconsolidated financial statements are determined by computing
income tax assets and liabilities on a consolidated basis, for the Company and members of its consolidated federal
income tax return group, and then reducing such consolidated amounts for the amounts recorded by the Company’s
subsidiaries on a separate tax return basis.
116
CROWN CASTLE INTERNATIONAL CORP.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
(In thousands of dollars)
Description
Allowance for Doubtful Accounts Receivable:
Additions
Amounts
Charged to
Operating
Expenses
Balance at
Beginning
of Year
Deductions
Amounts
Credited to
Operating
Expenses
Amounts
Written
Off Against
Receivables
Effect of
Exchange
Rate
Changes
Balance
at End of
Year
2002 ..........................................................$ 17,361 $
2003 ..........................................................$ 10,522 $
2004 ..........................................................$ 7,603 $
1,653 $
(cid:127) $ (8,429) $
2,246 $ (1,122) $ (4,210) $
(650) $ (1,400) $
994 $
(63) $ 10,522
7,603
167 $
6,577
30 $
117
Exhibit Number
* 2.1
** 2.2
§ 2.3
** 2.4
§ 2.5
*** 2.6
*** 2.7
+ 2.8
+ 2.9
**** 2.10
+ 2.11
= 2.12
### 3.1
### 3.2
† 3.3
+++ 3.4
# 4.1
## 4.2
#### 4.3
INDEX TO EXHIBITS
Item 15 (a) (3)
Exhibit Description
Formation Agreement, dated December 8, 1998, relating to the formation of Crown Atlantic
Company LLC, Crown Atlantic Holding Sub LLC, and Crown Atlantic Holding Company
LLC
Amendment Number 1 to Formation Agreement, dated March 31, 1999, among Crown
Castle International Corp., Cellco Partnership, doing business as Bell Atlantic Mobile,
certain Transferring Partnerships and CCA Investment Corp.
Crown Atlantic Holding Company LLC Amended and Restated Operating Agreement,
dated May 1, 2003, by and between Bell Atlantic Mobile, Inc. and CCA Investment Corp.
Crown Atlantic Company LLC Operating Agreement entered into as of March 31, 1999 by
and between Cellco Partnership, doing business as Bell Atlantic Mobile, and Crown
Atlantic Holding Sub LLC
Crown Atlantic Company LLC First Amendment to Operating Agreement, dated May 1,
2003, by Crown Atlantic Company LLC, and each of Bell Atlantic Mobile, Inc. and Crown
Atlantic Holding Sub LLC
Agreement to Sublease dated June 1, 1999 by and among BellSouth Mobility Inc.,
BellSouth Telecommunications Inc., The Transferring Entities, Crown Castle International
Corp. and Crown Castle South Inc.
Sublease dated June 1, 1999 by and among BellSouth Mobility Inc., Certain BMI Affiliates,
Crown Castle International Corp. and Crown Castle South Inc.
Agreement to Sublease dated August 1, 1999 by and among BellSouth Personal
Communications, Inc., BellSouth Carolinas PCS, L.P., Crown Castle International Corp.
and Crown Castle South Inc.
Sublease dated August 1, 1999 by and among BellSouth Personal Communications, Inc.,
BellSouth Carolinas PCS, L.P., Crown Castle International Corp. and Crown Castle South
Inc.
Formation Agreement dated November 7, 1999 relating to the formation of Crown Castle
GT Company LLC, Crown Castle GT Holding Sub LLC and Crown Castle GT Holding
Company LLC
Operating Agreement, dated January 31, 2000 by and between Crown Castle GT Corp. and
affiliates of GTE Wireless Incorporated
Share Purchase Agreement dated June 28, 2004 by and among Crown Castle International
Corp., NGG Telecoms Investment Limited and National Grid Holdings One plc.
Restated Certificate of Incorporation of Crown Castle International Corp., dated August 21,
1998
Amended and Restated By-laws of Crown Castle International Corp., dated August 21,
1998
Certificate of Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions thereof
of Series A and Series B Cumulative Convertible Redeemable Preferred Stock of Crown
Castle International Corp. filed with the Secretary of State of the State of Delaware on
November 19, 1999
Certificate of Designations, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions thereof
of 6.25% Cumulative Convertible Redeemable Preferred Stock of Crown Castle
International Corp. filed with the Secretary of State of the State of Delaware on August 2,
2000
Article Fourth of Certificate of Incorporation of Castle Tower Holding Corp. (included in
Exhibit 3.1)
Specimen Certificate of Common Stock
Indenture, dated as of May 17, 1999, between Crown Castle International Corp. and United
States Trust Company of New York, as Trustee, relating to the 9% Senior Notes Due 2011
(including exhibits)
118
Exhibit Number
(cid:159)(cid:159)(cid:159) 4.4
#### 4.5
(cid:159)(cid:159) 4.6
*** 4.7
#### 4.8
(cid:159)(cid:159)(cid:159) 4.9
#### 4.10
(cid:159)(cid:159) 4.11
† 4.12
† 4.13
@ 4.14
^^ 4.15
†† 4.16
†† 4.17
†† 4.18
†† 4.19
†† 4.20
†† 4.21
# 10.1
## 10.2
## 10.3
## 10.4
Exhibit Description
Supplemental Indenture, dated as of January 7, 2004, between Crown Castle International
Corp. and The Bank of New York, as Trustee, relating to the 9% Senior Notes Due 2011
Indenture, dated as of May 17, 1999, between Crown Castle International Corp. and United
States Trust Company of New York, as Trustee, relating to the 10 3/8% Senior Discount
Notes Due 2011 (including exhibits)
Supplemental Indenture, dated as of December 24, 2003, between Crown Castle
International Corp. and The Bank of New York, as Trustee, relating to the 10 3/8% Senior
Discount Notes Due 2011
Registration Rights Agreement dated June 1, 1999 between BellSouth Mobility Inc. and
Crown Castle International Corp.
Indenture, dated as of August 3, 1999, between Crown Castle International Corp. and
United States Trust Company of New York, as Trustee, relating to the 9 ½% Senior Notes
Due 2011 (including exhibits)
Supplemental Indenture, dated as of January 7, 2004, between Crown Castle International
Corp. and The Bank of New York, as Trustee, relating to the 9 ½% Senior Notes Due 2011
Indenture, dated as of August 3, 1999, between Crown Castle International Corp. and
United States Trust Company of New York, as Trustee, relating to the 11 ¼% Senior
Discount Notes Due 2011 (including exhibits)
Supplemental Indenture, dated as of December 24, 2003, between Crown Castle
International Corp. and The Bank of New York, as Trustee, relating to the 11 ¼% Senior
Discount Notes Due 2011
Deposit Agreement among Crown Castle International Corp. and the United States Trust
Company of New York dated November 19, 1999
Registration Rights Agreement among Crown Castle International Corp., the United States
Trust Company of New York and SFG-P INC. dated November 19, 1999
Indenture, dated as of June 26, 2000, between Crown Castle International Corp. and United
States Trust Company of New York, as Trustee, relating to the 10 ¾% Senior Notes due
2011 (including exhibits)
Indenture, dated as of May 16, 2001, between Crown Castle International Corp. and The
Bank of New York, as Trustee, relating to the 9 3/8% Senior Notes due 2011 (including
Exhibits)
Indenture, dated as of July 2, 2003, between Crown Castle International Corp. and The
Bank of New York, as Trustee, relating to the 4% Convertible Senior Notes due 2010
(including exhibits)
Supplemental Indenture, dated as of July 2, 2003, between Crown Castle International
Corp. and The Bank of New York, as Trustee, relating to the 4% Convertible Senior Notes
due 2010
Indenture, dated as of December 2, 2003, between Crown Castle International Corp. and
The Bank of New York, as Trustee, relating to the 7.5% Senior Notes due 2013 (including
exhibits)
Indenture, dated as of December 11, 2003, between Crown Castle International Corp. and
The Bank of New York, as Trustee, relating to the 7.5% Series B Senior Notes due 2013
(including exhibits)
Registration Rights Agreement, dated as of December 2, 2003, between Crown Castle
International Corp. and J.P. Morgan Securities Inc., relating to the 7.5% Senior Notes due
2013.
Registration Rights Agreement, dated as of December 11, 2003, between Crown Castle
International Corp. and Morgan Stanley & Co. Incorporated, relating to the 7.5% Series B
Senior Notes due 2013
Castle Tower Holding Corp. 1995 Stock Option Plan (Third Restatement)
Crown Castle International Corp. 1995 Stock Option Plan (Fourth Restatement)
Castle Transmission Services (Holdings) Ltd. All Employee Share Option Scheme dated as
of January 23, 1998
Rules of the Castle Transmission Services (Holdings) Ltd. Bonus Share Plan
119
Exhibit Number
## 10.5
** 10.6
** 10.7
+++ 10.8
++ 10.9
^ 10.10
++++ 10.11
@@@ 10.12
@@@ 10.13
^^^ 10.14
(cid:32)(cid:32) 10.15
(cid:32)(cid:32) 10.16
(cid:32)(cid:32) 10.17
11
12
21
23
24
31.1
31.2
32.1
Exhibit Description
Castle Transmission Services (Holdings) Ltd. Unapproved Share Option Scheme dated as
of January 23, 1998
Loan Agreement dated as of March 31, 1999 by and among Crown Atlantic HoldCo Sub
LLC, as the Borrower, Key Corporate Capital Inc., as Agent, and the Financial Institutions
listed therein
Global Lease Agreement dated March 31, 1999 between Crown Atlantic Company LLC
and Cellco Partnership, doing business as Bell Atlantic Mobile
Termination Agreement dated as of July 5, 2000, by and between Crown Castle
International Corp., Crown Castle UK Holdings Limited, France Telecom S.A.,
Telediffusion de France S.A., and Transmission Future Networks B.V.
Amended and Restated Rights Agreement dated as of September 18, 2000, between Crown
Castle International Corp. and ChaseMellon Shareholder Services L.L.C.
Crown Castle International Corp. 2001 Stock Incentive Plan
Form of Option Agreement pursuant to 2001 Stock Incentive Plan
Form of Severance Agreement between Crown Castle International Corp. and each of John
P. Kelly, W. Benjamin Moreland, E. Blake Hawk, Edward W. Wallander, Robert E. Giles
and Michael T. Schueppert
Form of Restricted Stock Agreement pursuant to 2001 Stock Incentive Plan
Crown Castle International Corp. 2004 Stock Incentive Plan
Form of Restricted Stock Agreement pursuant to 2001 Stock Incentive Plan
Form of Restricted Stock Agreement pursuant to 2004 Stock Incentive Plan
Form of Severance Agreement between Crown Castle International Corp. and Jed P. Fawaz
Computation of Net Income (Loss) per Common Share
Computation of Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed
Charges and Preferred Stock Dividends
Subsidiaries of Crown Castle International Corp.
Consent of KPMG LLP
Powers of Attorney (included in the signatures page of this Annual Report on Form 10-K)
Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of
2002
Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of
2002
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of Sarbanes-Oxley Act of 2002
#
##
*
**
###
***
+
####
****
†
++
@
+++
^
^^
++++
@@
@@@
(cid:159)
(cid:159)(cid:159)
(cid:159)(cid:159)(cid:159)
††
Incorporated by reference to the exhibits in the Registration Statement on Form S-4 previously filed by the Registrant (Registration No. 333-43873).
Incorporated by reference to the exhibits in the Registration Statement on Form S-1 previously filed by the Registrant (Registration No. 333-57283).
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 0-24737) dated December 9, 1998.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 0-24737) dated March 31, 1999.
Incorporated by reference to the exhibits in the Registration Statement on Form S-4 previously filed by the Registrant (Registration No. 333-71715).
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 0-24737) dated June 9, 1999.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 10-K (Registration No. 0-24737) for the year ended December 31,
2000.
Incorporated by reference to the exhibits in the Registration Statement on Form S-4 previously filed by the Registrant (Registration No. 333-87765).
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 0-24737) dated November 7, 1999.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 0-24737) dated November 19, 1999.
Incorporated by reference to the exhibit filed by the Registrant in the Registration Statement on Form 8-A12G/A (Registration No. 0-24737) dated
September 19, 2000.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 0-24737) dated June 22, 2000.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 10-Q (Registration No. 0-24737) for the quarter ended June 30,
2000.
Incorporated by reference to the exhibit previously filed by the Registrant as Appendix A to the Definitive Schedule 14A Proxy Statement
(Registration No. 001-16441) filed on May 8, 2001.
Incorporated by reference to the exhibits in the Registration Statement on Form S-4 previously filed by the Registrant (Registration No. 333-63520).
Incorporated by reference to the exhibit previously filed by the Registrant on Form 10-Q (Registration No. 001-16441) for the quarter ended
September 30, 2002.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-16441) dated November 22, 2002.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-16441) dated January 7, 2003.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-16441) dated October 10, 2003.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-16441) dated December 24, 2003.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-16441) dated January 7, 2004.
Incorporated by reference to the exhibits in the Registration Statement on Form S-4 previously filed by the Registrant (Registration No. 333-112176).
120
§
^^^
=
(cid:32)(cid:32)
Incorporated by reference to the exhibit previously filed by the Registrant on Form 10-K (Registration No. 001-16441) for the year ended December
31, 2003.
Incorporated by reference to the exhibit previously filed by the Registrant as Appendix A to the Definitive Schedule 14A Proxy Statement
(Registration No. 001-16441) filed on April 13, 2004.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-16441) dated June 28, 2004.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-164441) dated February 24, 2005.
121
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 29th day of March, 2005.
CROWN CASTLE INTERNATIONAL CORP.
By:
/s/ W. BENJAMIN MORELAND
W. Benjamin Moreland
Executive Vice President and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints W. Benjamin Moreland and E. Blake Hawk and each of them, as his or her true and lawful attorneys-in-fact
and agents with full power of substitution and re-substitution for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all documents relating to the Annual Report on Form 10-K, including any
and all amendments and supplements thereto, for the year ended December 31, 2004 and to file the same with all
exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this
Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the
capacities indicated below on this 29th day of March, 2005.
Name
/s/ JOHN P. KELLY
John P. Kelly
Title
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ W. BENJAMIN MORELAND
Executive Vice President and Chief Financial Officer
W. Benjamin Moreland
/s/ WESLEY D. CUNNINGHAM
Wesley D. Cunningham
/s/ CARL FERENBACH
Carl Ferenbach
/s/ ARI Q. FITZGERALD
Ari Q. Fitzgerald
/s/ RANDALL A. HACK
Randall A. Hack
/s/ DALE N. HATFIELD
Dale N. Hatfield
/s/ LEE W. HOGAN
Lee W. Hogan
/s/ EDWARD C. HUTCHESON, JR.
Edward C. Hutcheson, Jr.
/s/ J. LANDIS MARTIN
J. Landis Martin
(Principal Financial Officer)
Senior Vice President, Chief Accounting Officer and
Corporate Controller (Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Chairman of the Board
122
Name
/s/ ROBERT F. MCKENZIE
Robert F. McKenzie
/s/ WILLIAM D. STRITTMATTER
William D. Strittmatter
Title
Director
Director
123
CORPORATE INFORMATION
Corporate Headquarters
510 Bering Drive, Suite 500
Houston, Texas 77057
713.570.3000
Agents and Trustees
Mellon Investor Services LLC
600 North Pearl Street
Suite 1010
Dallas, Texas 75201
214.922.4420
Transfer Agent for Common Stock,
6.25% Convertible Preferred Stock
The Bank of New York
101 Barclay Street, 8th Floor West
New York, New York 10286
212.815.5733
Trustee for the Company’s
Debt Securities
Independent Auditors
KPMG LLP
700 Louisiana
Houston, Texas 77002
713.319.2000
General Investor Inquiries
and Correspondence
Investors with general questions about Crown
Castle are invited to call at 713.570.3000.
Investor correspondence should be directed to:
Jay Brown
Treasurer
Crown Castle International Corp.
510 Bering Drive, Suite 500
Houston, Texas 77057
Crown Castle’s Annual Report on Form 10-K as
fi led with the Securities and Exchange Commis-
sion is available, without charge, upon written
request or on Crown Castle’s web site. In addi-
tion, a copy of any exhibit to the Form 10-K is
available upon payment of a specifi ed fee, which
fee shall be limited to Crown Castle’s expenses
in furnishing such exhibits, or on Crown Castle’s
web site. All requests should be directed to:
Donald J. Reid, Jr.
Corporate Secretary
Crown Castle International Corp.
510 Bering Drive, Suite 500
Houston, Texas 77057
Annual Meeting
Stockholders are invited to attend the 2005
Crown Castle International Corp. Annual
Meeting of Stockholders, which will be held on
Thursday, May 26, 2005, at 9:00 a.m. at Crown
Castle’s Corporate Headquarters at:
510 Bering Drive, Suite 500
Houston, Texas 77057
Formal notice of the meeting, along with the
proxy statement and materials, will be mailed or
otherwise available on or about April 13, 2005,
to stockholders of record as of April 1, 2005.
Web Site
www.crowncastle.com
Common Stock Information
Crown Castle International Corp.’s common stock
is traded on the NYSE (stock symbol: CCI).
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO COMPARABLE GAAP FINANCIAL MEASURES
Adjusted EBITDA is computed as follows:
(In thousands of dollars)
Net loss
Income from discontinued operations, net of tax
Cumulative effect of change in accounting principle
Minority interests
Provision for income taxes
Interest expense, amortization of deferred
fi nancing costs and dividends on preferred stock
Interest and other income (expense)
Depreciation, amortization and accretion
Non-cash general and administrative compensation charges
Asset write-down charges
Restructuring charges (credits)
Adjusted EBITDA
Site rental gross margin is computed as follows:
(In thousands of dollars)
Site rental revenue
Less: Site rental cost of operations
Site rental gross margin
Recurring cash fl ow is computed as follows:
(In thousands of dollars)
Net cash from operating activities
Add: Other adjustments(1)
Less: Sustaining capital expenditures
Recurring Cash Flow
(1) Other adjustments include adjustments for changes in assets and liabilities, excluding
the effects of acquisitions, restructuring charges and provision for income taxes.
Sustaining capital expenditures are computed for the year ending 2004 as follows:
(In thousands of dollars)
Capital expenditures
Less: Revenue-generating capital expenditures
Less: Land purchases
Less: New site construction
Sustaining capital expenditures
m
o
c
.
r
e
k
a
b
e
n
n
e
P
:
n
g
i
s
e
D
2001
$ (408,594)
45,158
-
(11,279)
465
270,766
(2,489)
272,736
3,488
13,024
17,577
$ 200,852
2002
$ (319,921)
(9,041)
-
(12,340)
4,407
273,895
(64,922)
278,609
3,488
52,598
8,665
$ 215,438
2003
$ (454,862)
(10,458)
551
(4,036)
2,465
258,834
132,075
281,980
13,986
14,317
1,291
$ 236,143
2004
$ 235,110
(542,006)
-
(202)
(5,370)
206,770
78,508
283,986
15,947
7,652
870
$ 281,265
2001
376,615
(162,408)
$ 214,207
2002
446,136
(176,161)
$ 269,975
2003
482,747
(179,549)
$ 303,198
2004
537,465
(183,600)
$ 353,865
2004
112,084
(37,589)
(9,859)
$64,636
2004
43,346
(23,959)
(2,525)
(7,003)
$9,859
Statements made by Crown Castle International Corp. in this annual report that are not historical facts, including those regarding future performance, are forward-looking statements 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.
www.crowncastle.com
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