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, 2005
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 600
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
USection 12(b) of the Act U
Common Stock, $.01 par value
Rights to Purchase Series A Participating
Cumulative Preferred Stock
Name of Each Exchange
Uon Which Registered U
New York Stock Exchange
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Role 405 of the Securities Act. Yes ⌧ No (cid:133)
Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No ⌧
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 ⌧ 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule
12b-2 of the Act). Large Accelerated Filer ⌧ Accelerated Filer (cid:133) Non-Accelerated Filer (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No ⌧
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately
$4,356.2 million as of June 30, 2005, 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 $20.32 per share.
As of February 28, 2006, there were 215,763,286 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 “2006 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, 2005.
CROWN CASTLE INTERNATIONAL CORP.
TABLE OF CONTENTS
Explanatory Note Regarding Restatement.............................................................................................................
Page
1
PART I
Item 1. Business ...................................................................................................................................................
3
Item 1A. Risk Factors ............................................................................................................................................. 13
Item 1B. Unresolved Staff Comments .................................................................................................................... 21
Item 2. Properties ................................................................................................................................................. 22
Item 3. Legal Proceedings.................................................................................................................................... 23
Item 4. Submissions of Matters to a Vote of Security Holders ............................................................................ 23
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.................................................................................................................................. 24
Item 6. Selected Financial Data ........................................................................................................................... 25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .................. 29
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .................................................................. 55
Item 8. Financial Statements and Supplementary Data........................................................................................ 56
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ................. 112
Item 9A. Controls and Procedures .......................................................................................................................... 112
Item 9B. Other Information .................................................................................................................................... 115
PART III
Item 10. Directors and Executive Officers of the Registrant ................................................................................. 115
Item 11. Executive Compensation ......................................................................................................................... 115
Item 12. Security Ownership of Certain Beneficial Owners and Management ..................................................... 115
Item 13. Certain Relationships and Related Transactions...................................................................................... 116
Item 14. Principal Accounting Fees and Services.................................................................................................. 116
Item 15. Exhibits, Financial Statement Schedules ................................................................................................. 116
Signatures ............................................................................................................................................................... 121
PART IV
Cautionary Language Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements that are based on our management’s
expectations as of the filing date of this report with the SEC. Such statements include, plans, projections and estimates
contained in “Business”, “Legal Proceedings”, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk” herein. Such forward-looking
statements are subject to certain risks, uncertainties and assumptions, including prevailing market conditions, the risk
factors described under “Risk Factors” herein and other factors. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected.
EXPLANATORY NOTE REGARDING RESTATEMENT
The Company is restating its consolidated balance sheet as of December 31, 2004, and consolidated statements
of operations and comprehensive income (loss) and stockholders’ equity for the years ended December 31, 2003 and
2004. The restatement affected periods prior to 2003 (see “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, 2003. The
restatement is reported in this Annual Report on Form 10-K for the year ended December 31, 2005 (“2005
Restatement”). The Company’s consolidated financial statements have been restated to reflect the correction of
errors for certain non-cash items primarily relating to the Company’s lease accounting practices. The correction of
these errors resulted in a $19.0 million cumulative improvement to net income (loss) on the Company’s consolidated
statements of operations from inception through September 30, 2005.
On February 7, 2005, the Securities and Exchange Commission (“SEC”) 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. In March 2005, the Company adjusted (both retroactively and
prospectively) its method of accounting for tenant leases, ground leases, and depreciation and restated its
consolidated balance sheet as of December 31, 2003, and consolidated statements of operations and comprehensive
income (loss) and stockholder’s equity for the years ended December 31, 2002 and 2003 to reflect the corrections of
errors for certain non-cash items relating to the Company’s lease accounting practices. The restatement affected
periods prior to 2002. 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 was reported in the Company’s Annual Report on Form
10-K for the year ended December 31, 2004 and its amendments to the Company’s Quarterly Reports on Form 10-Q
for the quarterly periods ended March 31, 2004, June 30, 2004, and September 30, 2004 (“2004 Restatement”). The
corrections consisted of non-cash adjustments primarily attributable to increases in site rental revenues, ground lease
expense (included in site rental cost of operations) and depreciation expense (included in depreciation, amortization
and accretion expense).
As part of its 2005 control procedures, the Company engaged in a lease by lease review of the leases that
generated the non-cash adjustments attributable to increases in site rental revenues, ground lease expense and
depreciation expense. The Company completed this review during the first quarter of 2006. This lease by lease
review resulted in the 2005 Restatement. The corrections to the Company’s consolidated financial statements consist
of non-cash adjustments primarily attributable to decreases in site rental revenues, ground lease expense 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 (“Crown Atlantic” and “Crown Castle GT”)
with Verizon Communications (“Verizon”), they also resulted in changes to minority interests and the purchase
price allocation for the acquisition of a minority interest in 2003 and 2004. The Company believes the impacts of
these non-cash adjustments are not material to any previously issued financial statements. However, the cumulative
adjustments required to correct these errors would be material to the fourth quarter of 2005 if taken as a single
adjustment in that quarter. The cumulative effects of these adjustments on the Company’s consolidated statements of
operations from inception through September 30, 2005 are as follows: a decrease in site rental revenues of $0.7
million; a decrease in site rental costs of operations of $12.1 million; a decrease in depreciation expense of $12.1
million; a decrease in operating losses of $23.4 million; a decrease in other expense (attributable to the loss on the
issuance of an interest in Crown Atlantic) of $0.1 million; a decrease in minority interests of $3.7 million; and a
decrease in net losses of $19.9 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.
In addition, incremental non-cash compensation expense (included in general and administrative expenses) of
$0.9 million was charged to results of operations in 2005 and non-cash compensation expense (totaling $1.5 million)
previously charged to results of operations during 2005 related to former employees of the Company’s UK
operations (“CCUK”) was charged to the net gain on disposal of CCUK. See note 1 to the Company’s consolidated
financial statements for additional information regarding the restatement.
1
The 2005 Restatement adjustments decreased the Company’s net loss and net loss per share for the year ended
December 31, 2003 by approximately $3.3 million or $0.02 per share, and decreased the net income and net income
per share for the year ended December 31, 2004 by approximately $2.0 million or $0.01 per share.
For a discussion of the individual restatement adjustments, see note 1 to the Company’s consolidated financial
statements in “Financial Statements and Supplementary Data”. Additionally, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” For more information on the impact of the restatement
on years 2001 and 2002, see “Selected Financial Data”.
The Company did not amend its Annual Report on Form 10-K or Quarterly Reports on Form 10-Q for periods
affected by the 2005 Restatement that ended prior to March 31, 2004. The 2005 Restatement for all periods affected
is reflected in this Annual Report on Form 10-K for the year ended December 31, 2005. In addition, the Company
expects to reflect the restated unaudited quarterly financial statements for the first three quarters of 2005 in its
quarterly filings on Form 10-Q in 2006.
All referenced amounts in this Annual Report for prior periods and prior period comparisons reflect the
balances and amounts on a restated basis.
2
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, 2005, we owned, leased or
managed 12,459 towers, including 11,074 towers in the United States and Puerto Rico (collectively, “U.S.”) and
1,385 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 84%
of our property interests in such sites being pursuant to ground lease, sublease or license as of December 31, 2005.
Our customers currently include many of the world’s major wireless communications companies, including Cingular
Wireless (“Cingular”), Verizon Wireless, Sprint Nextel Corp. (“Sprint Nextel”), T-Mobile, Alltel, SingTel Optus
(“Optus”) and Vodafone Australia.
Our strategy is to increase our recurring revenue and cash flow by increasing the utilization of our towers by
wireless companies and, where appropriate, to continue to build, acquire and operate towers and wireless
infrastructure, through opportunities created by:
•
•
•
•
•
the need for existing wireless carriers to expand coverage and improve network capacity;
the introduction of new wireless technologies, including third generation (“3G”) and wireless data
technology;
the additional demand for towers and wireless infrastructure created by new entrants into the wireless
communications industry;
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 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 10 year) contracts with our customers with renewal terms at the option of the
customer. As a result, in any given year approximately 95% of our site rental revenue has been contracted for in a
prior year. 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, 2005, 49%
of our U.S. towers were located in the 50 largest basic trading areas, or “BTAs”, in the U.S., and 68% 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—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 Modeo, formerly known as Crown Castle
Mobile Media, and Crown Castle Solutions. See “Business —The Company—Emerging Businesses”.
We believe our towers are attractive to a diverse range of wireless communications industries, including
cellular, personal communications services (“PCS”), enhanced specialized mobile radio (“ESMR”), 3G, wireless
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, Sprint Nextel, T-Mobile and
Alltel. Our principal customers in Australia are Optus, Vodafone Australia, Hutchison and Telstra.
3
2005 Developments
During 2005, we engaged in a number of significant activities, including the refinancing of virtually all of our
indebtedness, the purchase of certain of our securities, the acquisition of towers from affiliates of Trintel
Communications, Inc. (“Trintel”) and an investment in FiberTower Corporation (“FiberTower”). Set forth below is a
summary description of the main points of such activities.
•
Investment Grade Refinancing. We issued $1.9 billion in notes (“Tower Revenue Notes”) through certain
of our subsidiaries in June 2005. The Tower Revenue Notes are rated investment grade, have a weighted
average interest rate of 4.89% and are secured by the personal property, license agreements, revenues
and/or distributions related to the majority of our U.S. towers. Proceeds from the notes were used to
purchase and redeem $1.5 billion of existing senior notes during June and July 2005 and to repay our
previously outstanding Crown Atlantic credit facility (“Crown Atlantic Credit Facility”). Further, our
annual interest expense was reduced by approximately $53.0 million as a result of this refinancing.
Periodically, beginning in 2006, we contemplate issuing additional notes under a similar structure to the
existing Tower Revenue Notes in order to leverage anticipated growth in our site rental business. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—General
Overview” and “—Liquidity and Capital Resources—Financing Activities”.
We believe this refinancing provides us significantly more flexibility to invest expected future cash flows
in activities that we believe exhibit potential to achieve our risk-adjusted return on investment hurdle rates
or exhibit potential to complement our core site rental business. Such activities could include, among other
things, acquiring or building towers, improving existing towers, purchasing our own stock or debt securities
or making investments in adjacent businesses, such as FiberTower or Modeo. See “Business—Strategy”.
• Purchases of Our Securities. During 2005, we purchased 16.0 million shares of common stock (“common
stock”), exclusive of shares of common stock purchased from the dividend paying agent following the
issuance of the Convertible Preferred Stock dividend. We utilized $310.1 million in cash to effect these
purchases. These purchases of common stock, combined with purchases of additional 4% convertible
senior notes due 2010 (“4% Convertible Senior Notes”) and all of our 8¼% cumulative convertible
redeemable preferred stock (“8¼% Convertible Preferred Stock”) during 2005, reduced our outstanding
shares of common stock by 16.0 million, or 7.1% and potential future outstanding shares of common stock
by an additional 18.3 million.
• Trintel Acquisition. In August 2005, we purchased 467 towers from Trintel for approximately $145.0
million. These towers represented substantially all of the towers owned by Trintel. Approximately 80% of
these towers are in Iowa, Michigan, Ohio and Texas, providing coverage for such metropolitan areas as
Dallas and Detroit. Trintel’s portfolio produced approximately $14.4 million in annualized site rental
revenues and approximately $9.0 million an annualized site rental gross margin prior to the acquisition.
• FiberTower Investment. In July 2005, we invested $55.0 million in FiberTower, a privately-held provider
of wireless backhaul services that designs, deploys and operates a hybrid of radio-based and fiber optic
backhaul networks for major wireless carriers, as an alternative to legacy backhaul provided by regional
Bell operating companies through T-1 and T-3 lines, in order to improve scalability, service quality and
growth potential in wireless networks. FiberTower raised a total of $150.0 million, inclusive of our $55.0
million investment, through a private equity offering. Following this investment, which brought our
aggregate investment to $84.0 million, we own a 36% minority interest position in FiberTower
(approximately 32% on a fully diluted basis). See “Risk Factors—FiberTower’s Business has Certain Risk
Factors Different from Our Core Tower Business, Including and Unproven Business Model”.
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:
4
• 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.
• 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 generally 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.
• Grow Margins. We are seeking to take advantage of the potential for 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, repairs 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.
• 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
existing assets and expertise, as evidenced by our investments in Modeo and FiberTower. 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 (“CCOC”). For more information
about our operating segments, as well as financial information about the geographic areas in which we operate, see
note 15 to our consolidated financial statements and the section entitled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” below.
5
U.S. Operations
Overview
Our primary business in the U.S. 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 network services, which are primarily limited to 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 to 10 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, Sprint Nextel, T-Mobile
and Alltel. We also provide tower space to private network operators and various federal, state and local government
agencies.
At February 28, 2006, we owned, leased or managed 11,074 towers in the U.S. 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 seven 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 transactions, which were substantially completed in
September of 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 U.S. providing coverage for 12 of the top 50 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 of 1999, we have approximately 674 towers. These
towers represented substantially all of the towers owned by Powertel in its 1.9 GHz wireless network in the
southeastern and midwestern U.S. 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, PCS, ESMR, 3G,
wireless 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 2005, the rate of gross new tenant additions (or
6
modifications to existing installations) on a per lease standard basis for our U.S. towers was consistent with 2004,
which was approximately 38% greater than in 2003.
We generally receive monthly rental payments from customers payable under site leases. 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 10
years, with multiple renewal options, each typically ranging from five to 10 years. We have existing master lease
agreements with most major wireless carriers, including Cingular, Verizon Wireless, Sprint Nextel and T-Mobile,
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 PCS) 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 also provide network services for our customers typically by employing local contractors on our behalf. Our
service offering is primarily limited to project management of our customers’ equipment and antenna installations
on certain of our towers.
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, PCS, ESMR, 3G, wireless data services and paging. We work extensively with
large national wireless carriers such as Cingular, Verizon Wireless, Sprint Nextel and T-Mobile. For the year ended
December 31, 2005, these four carriers, accounted for approximately 74.4% of our U.S. revenues and 68.4% of our
consolidated revenues, with Cingular, Verizon Wireless, Sprint Nextel and T-Mobile accounting for 25.6%, 25.4%,
13.7% and 9.7%, respectively, of our U.S. revenues and 23.5%, 23.4%, 12.6% and 8.9%, respectively, of our
consolidated revenues. The percentages set forth in the preceding sentence for Sprint Nextel reflect the completed
merger of Sprint and Nextel as if it had occurred as of January 1, 2005. No other single customer in the U.S.
accounted for more than 10.0% of our 2005 consolidated revenues. See “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 wireless carrier 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 property
management tools and software which allow us to estimate site leasing demand 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
7
business. We target numerous types of wireless carriers, including cellular, PCS, ESMR, 3G, wireless 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 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 build, 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, deployment speed, capacity, quality of service 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.:
American Tower, Global Signal, SBA Communications, Global Tower Partners and AAT Communications.
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. Our service offering is primarily limited to the
management of antenna installations on our towers. 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. See “Risk Factors—We Operate Our Business In A Competitive Industry and Some Of Our
Competitors Have Significantly More Resources or Less Debt Than We Do”.
Australia Operations
Our primary business in Australia is the leasing of antenna space on towers 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 February 28, 2006, CCAL has 1,385 towers,
with a strategic presence in each of Australia’s major metropolitan areas, including Sydney, Melbourne, Brisbane,
Adelaide and Perth.
For the year ended December 31, 2005, our Australian operations comprised 8.1% of our consolidated
revenues. Our principal customers in Australia are Optus, Vodafone Australia, Hutchison and Telstra. For the year
ended December 31, 2005, these four carriers accounted for approximately 96.0% of our Australia revenues with
Vodafone Australia and Optus accounting for 36.5% and 33.1%, respectively. See “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 of 2000, CCAL has
758 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.
Through its acquisition of towers from Vodafone Australia, which was substantially completed in April 2001,
CCAL has 627 towers, including towers built or acquired subsequent to the initial closing. As part of this
transaction, Vodafone Australia agreed to lease space on these towers for an initial rent free term of 10 years, and
CCAL has the exclusive right to acquire certain additional towers that Vodafone Australia may construct. To date,
CCAL has not elected to acquire any towers under this arrangement.
8
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 December 2004, Hutchison and Telstra established a joint venture to share Hutchison’s existing 3G network
and to build out that 3G network over the following two years. Telstra and Hutchison leased space on a number of
CCAL sites for this network in 2005 and are expected to utilize more of CCAL’s sites in 2006. In November 2005,
Telstra also announced plans to build a new 850 MHz 3G network which will eventually replace their existing
CDMA network. We anticipate additional leasing from Telstra in 2006 as a result of this planned network.
In addition, Optus and Vodafone Australia entered into a joint venture agreement in November 2004 to deploy a
shared 3G network. This network was launched in Melbourne, Sydney and Canberra in late 2005 and utilizes a
number of CCAL sites. Further deployment of the network in other regions is planned for 2006. We expect more of
CCAL’s towers will be utilized by this joint venture in 2006.
In 2004 and 2005, Unwired Australia deployed a broadband wireless network (providing high speed internet
services to consumers) in Sydney. Unwired Australia utilized a number of CCAL towers for this deployment.
Personal Broadband Australia also continued their deployment of a broadband wireless network in 2005 using a
number of CCAL 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 Modeo and Crown Castle
Solutions.
Modeo
Modeo was formed in 2004 to explore a potential offering of live digital television and audio broadcast and
podcasting to mobile devices, such as wireless phones. Modeo plans to offer this service as a wholesale network
provider, utilizing the spectrum under our 1670-1675 MHz U.S. nationwide spectrum license (having an initial term
of 10 years), which we acquired in 2003 through a Federal Communications Commission (“FCC”) auction. Modeo
had no revenues for 2004 or 2005.
Modeo intends to broadcast its service using the Digital Video Broadcast to Handheld (“DVB-H”) standard.
DVB-H is a broadcast specification developed in 2004 by the Digital Video Broadcasting Project, an international
industry consortium that designs global standards for the delivery of digital television and data services. DVB-H is
based on the Digital Video Broadcast Terrestrial (“DVB-T”) specification for digital terrestrial television and
incorporates a number of features, including time-slicing and forward-error correction, designed for the limited
battery life of handheld devices and the environments in which mobile devices operate.
Modeo has launched a test network of its DVB-H technology in Pittsburgh, Pennsylvania. Under the test
network, Modeo’s broadcast operations center, located in Canonsburg, Pennsylvania, receives both television and
audio content from its content providers via satellite links and other means similar to the way content is distributed
to local cable television providers. The network operations center encodes and encrypts the content for transmission.
Modeo then transmits the content via leased satellite capacity to individual transmitter sites throughout its network.
These individual transmitter sites terrestrially broadcast the Modeo service to mobile devices using the DVB-H
standard and utilizing the spectrum under our FCC license. We expect that any service Modeo launches
commercially will be distributed in a similar manner.
9
Under the planned business model, content providers are expected to charge Modeo a network carriage fee per
subscriber, per month, to provide the video and audio feeds. Modeo expects to wholesale the service on a per
subscriber, per month basis, to existing wireless service providers and other potential retail distributors, who, in turn,
are expected to retail the mobile media service to consumers on a subscription basis. Handset manufacturers
including Nokia, Motorola and Samsung have developed prototype handsets that support Modeo’s planned DVB-H
service.
Modeo is developing DVB-H networks in certain select U.S. cities, including New York City. Modeo currently
has plans to eventually deliver live mobile television to the 30 most populated metropolitan areas across the United
States. Modeo’s planned DVB-H network will enable video and audio content to be delivered wherever a properly-
equipped mobile device can be used in a Modeo network broadcast area. Modeo seeks to leverage our existing
towers in the U.S. and our broadcast experience developed through operating the broadcast business of our former
CCUK operations. Modeo seeks to participate with content providers, wireless carriers, handset manufacturers,
financial institutions and other third parties in connection with the financing and development of this potential
opportunity.
We estimate deployment of the planned network to 30 U.S. markets will cost approximately $500 million which
will be spent primarily on site acquisition, construction and equipment. We currently expect to raise external
funding for the cost of developing the Modeo network, and we will require additional third party financing to do so.
In March 2005, Allen & Company LLC, the New York-based investment bank, made an equity investment to
acquire a minority interest in Modeo and agreed to act as an advisor to Modeo.
Many other companies, some with significantly greater resources than us, offer or plan to offer video and audio
content to wireless handsets and other mobile devices. Although Modeo’s planned services are not yet commercially
available, Modeo competes with these other offerings in bringing its service to commercial availability. If and when
Modeo’s planned service becomes commercially available, Modeo will compete with these offerings to capture
potential subscribers and market share. In particular, Qualcomm has announced that it is currently developing a
multicast digital video service, to be marketed under the brand name MediaFLO. Verizon Wireless has announced
that it plans to offer its customers mobile video services over the MediaFLO network when it becomes commercially
available. In addition, Modeo may face competition from other companies offering podcasting and alternate
methods of distributing video and audio to handheld devices. See “Risk Factors—Modeo’s Business Has Certain
Risk Factors Different from our Core Tower Business, Including an Unproven Business Model.”
Crown Castle Solutions
Crown Castle Solutions offers a hub-based, low visibility distributed antenna system. Base stations can be
located up to 10 miles away and connected to the distributed antenna system via fiber optic cable. Each antenna
location in the distributed antenna network provides coverage in a radius of approximately one-half mile.
Distributed antenna systems are particularly useful in areas with challenging zoning regulations or other
impediments to traditional towers. Crown Castle Solutions had revenues of $0.3 million for the year ended
December 31, 2005.
Effective January 1, 2006, Crown Castle Solutions became a part of our U.S. operations, a reflection of our
belief that a distributed antenna system can be an alternative to traditional tower leasing in circumstances in which a
tower or other structure is not available or cannot be built due to zoning or other impediments.
Employees
At February 28, 2006, we employed approximately 785 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.
10
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
currently in effect, and such regulations are subject to review and modification by the applicable governmental
authority from time to time. See “Risk Factors—Laws and Regulations Which May Change at Any Time and With
Which We May Fail to Comply Regulate Our Business.”
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 sitting 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 provision of wireless services. 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, modification 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 that prevent the construction or modification of
towers or place conditions on such construction or modifications that are responsive to community residents’
concerns regarding the height, visibility and other characteristics 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.
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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,
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. In Australia, a
carrier may arguably be able to utilize the “maintenance power” under the Australian Telecommunications Act of
1997 to remain as a tenant on a tower after the expiration of a site license or sublease; however, CCAL’s customer
access agreements generally limit the ability of customers to do this, and, even if a carrier did utilize this power, the
carrier would be required to pay for CCAL’s financial loss, which would roughly equal the tower rental that would
have otherwise been payable.
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 “Risk Factors—Laws
and Regulations Which May Change at Any Time and With Which We May Fail to Comply Regulate Our Business”
and “—Emissions From Antennas on Our Sites or Wireless Devices May Create Health Risks”.
The construction of new towers in the U.S. 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 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
12
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.
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.
Item 1A. 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 such demand.
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:
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;
•
•
•
•
• willingness to co-locate equipment;
•
•
•
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 demand for a particular wireless segment may adversely affect the demand for our towers.
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 towers. In addition, 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 towers. 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.
13
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 82.4% of our revenues are derived from 10 wireless carrier customers, including Cingular,
Verizon Wireless, Sprint Nextel and T-Mobile, which represented 23.5%, 23.4%, 12.6%, and 8.9% of our
consolidated revenues, respectively, for the year ended December 31, 2005. The percentage set forth in the
preceding sentence for Sprint Nextel reflects the completed merger of Sprint and Nextel as if it had occurred as of
January 1, 2005. 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 towers 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 August 12, 2005,
Sprint, our fifth largest U.S. customer by revenues for the year ended December 31, 2003, announced it had
completed its merger with Nextel, our fourth largest U.S. customer by revenues for the year ended December 31,
2003. 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 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 towers, 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 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
uncertainties resulting there from and other unforeseen events may impose additional risks upon and adversely affect
the wireless telecommunications industry and us.
14
We believe that the recent economic slowdown in the U.S., particularly in the wireless telecommunications
industry, has 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.
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, 2005.
Total indebtedness...................................................................................
Redeemable preferred stock....................................................................
Stockholders’ equity ...............................................................................
Debt and redeemable preferred stock to equity ratio...............................
(In thousands of dollars)
$ 2,270,686
311,943
1,178,376
2.19
As a result of our substantial indebtedness:
• we may be more vulnerable to general adverse economic and industry conditions;
• we may find it more difficult to obtain additional financing to fund future working capital, capital
expenditures and other general corporate requirements;
• we will be required to dedicate a substantial portion of our cash flow from operations to the payment of
principal and interest on our debt, reducing the available cash flow to fund other investments, including
capital expenditures;
• we may have limited flexibility in planning for, or reacting to, changes in our business or in the industry;
and
• 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.
Fluctuations in market interest rates may increase interest expense relating to our floating rate indebtedness. As
of December 31, 2005, approximately 87.0% of our outstanding indebtedness consists of long-term fixed interest
rate notes and debentures. In addition, there is no guarantee future refinancing 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:
other large independent tower owners;
•
• wireless carriers that own and operate their own towers and lease antenna space to other carriers;
•
•
•
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.
•
15
Wireless carriers that own and operate their own tower portfolios generally are substantially larger (particularly
given the impact of recently completed 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.
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—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 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 in
the U.S. 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 9% 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, 2005, we had consolidated cash and cash equivalents of $65.4 million and restricted cash of $95.8 million. We
may need additional sources of debt or equity capital in the future to fund future growth opportunities. Additional
16
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.
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, under certain circumstances, restrict our ability to incur more
indebtedness, pay dividends, create liens, sell assets and engage in certain mergers and acquisitions. 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. As of February 28, 2006, approximately 3.3% of our consolidated indebtedness, was held
at the holding company level (another 13.0% of our consolidated indebtedness is unconditionally guaranteed by the
holding company). Accordingly, our only source of cash to pay interest and principal on our outstanding
indebtedness held at the holding company level 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. If
our 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.
Modeo’s Business Has Certain Risk Factors Different from our Core Tower Business, Including an Unproven
Business Model—Modeo’s business may fail to operate successfully and produce results that are less than
anticipated.
Modeo is a new company with no operating history and may not be able to operate successfully. Modeo has an
unproven business model and operates in the new, largely untested and rapidly evolving mobile media market.
Modeo is subject to all of the business risks and uncertainties associated with any new business enterprise. Modeo
has had no revenues since inception. We expect Modeo to experience initial operating losses due to the costs and
expenses associated with a start-up operation. No assurance can be made that Modeo will ever generate positive
cash flows or that losses recorded from Modeo will not increase in the future.
Modeo’s planned business model assumes that:
• wireless carriers and other potential retailers will want to offer Modeo’s service to their customers;
•
a sufficient number of end users of wireless handsets and other mobile devices will subscribe to Modeo’s
service;
an adequate supply of wireless handsets and other mobile devices capable of operating on Modeo’s
network will be timely available; and
•
• Modeo will be able to secure video and audio content licenses on favorable terms.
If any of these assumptions is incorrect, Modeo’s proposed business will be harmed and may not become
commercially available or survive.
In addition, Modeo’s ability to achieve its strategic objectives will depend in large part upon the successful,
timely and cost-effective completion of its planned DVB-H network. A variety of factors, uncertainties and
contingencies could affect or prevent the successful, timely and cost-effective buildout of the planned Modeo
network including, among other things:
17
• Modeo’s ability to obtain sufficient base station and broadcast equipment devices compatible with our
spectrum license and DVB-H;
unforeseen delays, costs or impediments relating to the granting of state and municipal permits;
•
• Modeo’s ability to manage the buildout effectively and cost-efficiently; and
•
delays or disruptions resulting from the failure of third-party suppliers, including equipment manufacturers,
or contractors to meet their obligations in a timely and cost-effective manner.
We currently expect to raise external funding for the cost of deploying Modeo’s network, and we will require
additional third party financing to do so. There can be no assurances that we will be able to obtain additional third
party financing on terms acceptable to us or that Modeo will be able to successfully complete its planned DVB-H
network in a timely manner or at all. If we are unable to raise additional capital from third party investors on
acceptable terms in a timely manner or if Modeo is otherwise unable to meet its network development targets, then
Modeo may not be able to implement its current business plan, and Modeo’s planned mobile media service may not
become operationally active or commercially available.
Many other companies, some with significantly greater resources than us, currently offer or plan to offer video
and audio content to wireless handsets and other mobile devices. Although Modeo’s planned services are not yet
commercially available, Modeo competes with these other offerings in bringing its service to commercial
availability. If and when Modeo’s planned service becomes commercially available, Modeo will compete with these
offerings in capturing potential subscribers and market share. Sprint Nextel, Cingular and Verizon Wireless
currently offer streaming video services over their networks under the brand names Sprint TV, Vcast and MobiTV,
respectively. In addition, Qualcomm has announced that it is currently developing a multicast digital video service,
to be marketed under the brandname MediaFLO. Verizon Wireless has announced that it plans to offer its customers
mobile video services over the MediaFLO network when it becomes commercially available. Modeo’s planned
service offering may also face competition from other companies offering podcasting and alternate methods of
distributing video and audio to mobile devices. As a result of such competition, Modeo may not become
commercially viable or gain market share.
There can be no assurances that wireless carriers will adopt a wholesale model, such as Modeo’s, to provide
video and audio services to their subscribers. Modeo’s failure to operate successfully or accomplish its strategic
objectives could negatively impact Modeo’s ability to generate positive cash flow, could require us to dispose of all
or part of Modeo’s business and assets, including the FCC spectrum license, or otherwise have an adverse effect on
us.
FiberTower’s Business Has Certain Risk Factors Different from our Core Tower Business, Including an
Unproven Business Model—FiberTower’s business may produce results that are less than anticipated, resulting
in a write-off of all or part of our investment in FiberTower.
FiberTower commenced its principal operations in 2003 and has a limited operating history. FiberTower has an
unproven business model and operates in the new and largely untested market for facilities-based wireless backhaul
services. As such, FiberTower is subject to all of the business risks and uncertainties associated with any new
business enterprise and may not be able to operate successfully. FiberTower has generated losses since inception.
We anticipate that FiberTower will continue to generate losses for the foreseeable future and may need additional
funding to support the development of its business model. Although we believe that there will be demand for the
backhaul solutions FiberTower provides to wireless carriers as the demand for additional wireless minutes of use
increases, no assurances can be made that FiberTower will ever generate positive cash flows or that it will produce
the results anticipated at the time of our investment.
FiberTower’s failure to operate successfully, gain market share or accomplish its strategic objectives could
negatively impact FiberTower’s ability to generate positive cash flows and could require us to write-off all or a
portion of our investment in FiberTower. In addition, as a minority shareholder, we have a limited ability to affect
FiberTower’s operations. As of December 31, 2005, we have recognized our pro-rata share of FiberTower’s losses
in the aggregate amount of $15.1 million. Although we currently have no plans to do so, should we choose to
liquidate our investment in FiberTower, we can provide no assurances that we will be able to do so at a desirable
value.
18
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
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 may 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.
19
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:
•
•
•
•
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 our
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
business combination or discourage a potential acquirer 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 acquirer 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 common stock may adversely affect the market price of our
common stock. As of February 28, 2006, we had 215,763,286 shares of common stock outstanding. In addition, we
have reserved 18,983,792 shares of common stock for issuance under our various stock compensation plans,
639,990 shares of common stock upon exercise of outstanding warrants, 5,896,954 shares of common stock for the
conversion of our 4% Convertible Senior Notes and 8,625,085 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 our common stock, the market price of our
common stock may significantly decline.
The holders of our 6.25% Convertible Preferred Stock are entitled to receive cumulative dividends at the rate of
6.25% per annum (approximately $19.9 million) 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 common stock. At various times in the past, we
have paid such dividends with shares of common stock, and we may elect to continue to do so again in the future
from time to time. The number of shares of 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.
Tower Industry Consolidation⎯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 risks and costs that could adversely affect our business. The potential risks and costs
20
include those relating to integration, diversion of management time and focus, and failure to achieve revenue targets,
operational synergies and other benefits contemplated.
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, 2005, approximately 8.1% 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.
Available Information and Certifications
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 SEC.
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.
We submitted the Chief Executive Officer certification required by Section 303A.12(a) of the New York stock
Exchange (“NYSE”) Listed Company Manual, relating to compliance with the NYSE’s corporate governance listing
standards, to the NYSE on June 20, 2005 with no qualifications. We have included the certifications of our Chief
Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 and
related rules as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K.
Item 1B. Unresolved Staff Comments
None.
21
Item 2. Properties
Our principal corporate offices are located in Houston, Texas; Canonsburg, Pennsylvania; and Sydney,
Australia.
Location
Canonsburg, PA...............................................................
Houston, TX ....................................................................
Sydney, Australia.............................................................
Property Interest
Owned
Leased
Leased
Size (Sq. Ft.)
124,000
18,586
21,000
Use
Corporate office
Corporate office
Corporate office
In the U.S., we also lease and maintain three additional regional offices (called “Area Offices”) located in (1)
Albany, New York, (2) Alpharetta, Georgia, and (3) 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. In addition, we lease additional, smaller district offices, which report to the Area
Offices, in locations with high site concentrations.
As of February 28, 2006, 9,134 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 1,940 or approximately 17% were owned in fee or through
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 137,000 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 22,000 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 ground
leases, subleases and licenses generally have five or 10 year initial terms and frequently contain one or more renewal
options.
On June 8, 2005, we issued $1.9 billion aggregate principal amount of Tower Revenue Notes. 5,693 of our
11,074 towers in the U.S. and the cash flows from those towers, were effectively pledged as security for the notes.
Governing instruments related to another 4,919 towers prevent liens from being granted on those towers, without
approval of a subsidiary of Verizon; however, distributions paid from the entities that own those towers will also
service the notes.
The remaining terms to expiration (including any renewal terms at our option) of the ground leases, subleases,
or licenses for the U.S. sites which we do not own and on which our towers are located, are as follows:
Remaining Term, In Years, as of December 31, 2005
15+ years
14 – 15 years
12 – 13 years
10 – 11 years
8 – 9 years
6 – 7 years
4 – 5 years
2 – 3 years
0 – 1 year
Number of Sites
6,134
930
567
476
400
228
206
118
75
9,134
Percent of Total U.S. Sites
56%
8%
5%
4%
4%
2%
2%
1%
1%
83%
In 2004, we began a program through which we seek to (1) renegotiate and extend the terms of the ground
leases, subleases and licenses relating to the sites on which our U.S. towers are located or (2) purchase the land on
which such towers reside. For the year ended December 31, 2005, (1) term extensions of ground leases, subleases or
licenses relating to 828 sites have been renegotiated or are pending final closing, with a weighted average extension
of approximately 30 years, and (2) 147 sites on which our towers reside have been purchased or are pending final
closing. See “Risk Factors—We Generally Lease or Sublease the Land Under Our Towers and May Not Be Able to
Extend These Leases”.
22
Substantially all of our U.S. towers can accommodate another tenant either as currently constructed or with
appropriate modifications to the tower. Additionally, if so inclined as a result of customer demand, we could also
tear down an existing tower and reconstruct another tower in its place with additional capacity, subject to certain
restrictions. The weighted average number of tenants per tower on our 11,074 U.S. towers as of December 31, 2005
is approximately 2.25. Our stated goal is 3.50 tenants per tower across our U.S. portfolio. The number of existing
tenants by tower site is as follows:
Number of Tenants
Greater than five
Five
Four
Three
Two
Less than two
Number of Towers
348
547
1,122
2,010
2,964
4,083
1,074
1
In Australia, as of February 28, 2006, for 1,383 of our 1,385 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 of 10 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.
23
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
Price Range of Common Stock
Our common stock is listed and traded on the NYSE under the symbol “CCI”. The following table sets forth for
the calendar periods indicated the high and low sales prices per share of our common stock as reported by NYSE.
2004:
First Quarter................................................................................................................................... $ 13.86
17.10
Second Quarter ..............................................................................................................................
15.24
Third Quarter .................................................................................................................................
17.55
Fourth Quarter................................................................................................................................
$ 10.90
12.51
12.55
14.60
2005:
First Quarter...................................................................................................................................
Second Quarter ..............................................................................................................................
Third Quarter .................................................................................................................................
Fourth Quarter................................................................................................................................
$17.52
20.75
25.43
29.20
$15.40
15.71
19.81
23.47
High
Low
As of February 28, 2006, there were approximately 738 holders of record of our 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 under certain circumstances and the terms of
the certificates of designations in respect of our convertible preferred stock.
The holders of our 6.25% Convertible Preferred Stock are entitled to receive cumulative dividends at the rate of
6.25% per annum, 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 common stock. The number of shares of 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, 2003 and 2004, dividends on our 6.25% Convertible
Preferred Stock were paid with 3,253,469 and 1,498,361 shares of common stock, respectively. For the year ended
December 31, 2005, dividends on our 6.25% Convertible Preferred Stock were paid with 631,700 shares of common
stock and approximately $9,939,000 in cash.
On November 30, 2005, we exercised our redemption right for our $200 million 8¼% Convertible Preferred
Stock. On December 16, 2005, we redeemed the 8¼% Convertible Preferred Stock. Prior to the redemption, the
holders of our 8¼% Convertible Preferred Stock were entitled to receive cumulative dividends at the rate of 8¼%
per annum, payable on a quarterly basis. Prior to redemption, we had the option to pay the dividends on such series
of preferred stock in cash or in shares of common stock. The number of shares required to pay such dividends was
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, 2003 and 2004, dividends on our 8¼% Convertible Preferred Stock were paid with
2,190,000 and 1,140,000 shares of common stock. For the year ended December 31, 2005, dividends on our 8¼%
Convertible Preferred Stock were paid with 245,000 shares of common stock and approximately $12,375,000 in
cash.
24
Any shares of common stock issued to pay such dividends will continue to have a dilutive effect upon the
shares of common stock otherwise outstanding, and declines in the fair market value of our common stock will
increase the effective dilution. In 2003, 2004 and 2005, we purchased 1,825,000, 845,000 and 245,000 shares of
common stock, respectively, from the dividend paying agent for a total of $12.4 million, $12.2 million and $4.1
million in cash, respectively. We have also purchased shares of common stock on other occasions (see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources”).
We may choose to continue cash payments of the dividends in the future in order to avoid dilution caused by the
issuance of common stock as dividends on our preferred stock.
Issuance of Unregistered Securities
We made no unregistered sales of equity securities during 2005.
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 2005:
Period
October 1 – October 31, 2005 (1)
November 1 – November 30, 2005 (1)
December 1 – December 31, 2005
Total
Total Number of
Shares Purchased(2)
Average Price Paid
per Share
366,000
423,300
—
789,300
24.45
24.53
—
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
⎯
⎯
⎯
⎯
⎯
⎯
⎯
⎯
(1)
(2)
In October and November 2005, we purchased 789,300 shares of common stock. We utilized $19,333,000 in cash to affect these purchases. See note 11 to our
consolidated financial statements in “Financial Statements and Supplemental Data”. We may elect to make similar purchases of common stock in the future.
In addition to the common stock purchases shown in the table, in November 2005, in connection with the expiration of restrictions on certain restricted common
stock issued to our executive and non-executive employees, we purchased 74,637 shares of common stock for an aggregate price of $1,986,000 in private
transactions from executives, employees and former 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 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 11 to our consolidated financial statements in “Financial Statements and Supplemental Data”.
Item 6. Selected Financial Data
Our selected historical consolidated financial and other data set forth below for each of the five years in the
period ended December 31, 2005, and as of December 31, 2001, 2002, 2003, 2004 and 2005 have been derived from
our consolidated financial statements. 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 CCUK to an affiliate of National Grid Transco Plc
(“National Grid”) for over $2.0 billion. For all periods presented, CCUK’s assets, liabilities, results of operations
and cash flows are classified as amounts from discontinued operations. On August 31, 2004, we completed the sale
of CCUK. On May 9, 2005, we sold OpenCell Corp. (“OpenCell”), a business which manufactures distributed
antenna systems and is a supplier to Crown Castle Solutions. For all periods presented, OpenCell’s assets, liabilities,
results of operations and cash flows are classified as amounts from discontinued operations. Prior periods have also
been restated to reflect the corrections of errors for certain non-cash items primarily relating to our lease accounting
25
practices. 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 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and “Financial Statements and Supplementary Data”.
2001
Years Ended December 31,
2003
2004
2002
2005
Statement of Operations Data:
Net revenues:
(As restated) (As restated) (As restated) (As restated)
(In thousands of dollars, except per share amounts)
Site rental...................................................................................................... $ 377,326 $ 447,271 $ 484,841 $ 538,309 $ 597,125
79,634
Network services and other ..........................................................................
159,217
290,797
72,316
65,893
Total net revenues..................................................................................
668,123
606,488
557,157
604,202
676,759
Costs of operations (exclusive of depreciation, amortization and accretion):
Site rental......................................................................................................
Network services and other ..........................................................................
Total costs of operations........................................................................
General and administrative ....................................................................................
Corporate development (a) ....................................................................................
Restructuring charges.............................................................................................
Asset write-down charges ......................................................................................
Depreciation, amortization and accretion ..............................................................
Operating income (loss) .........................................................................................
Interest and other income (expense) (b) ................................................................
Interest expense, amortization of deferred financing costs and dividends on
160,271
200,689
360,960
94,662
12,289
17,577
13,024
262,042
(92,431)
2,489
175,267
122,027
297,294
86,086
7,483
8,665
52,598
276,479
179,305
46,888
226,193
95,155
5,564
1,291
14,317
281,028
184,273
46,752
231,025
97,665
1,455
3,729
7,652
284,991
197,355
54,630
251,985
105,763
3,896
8,477
2,925
281,118
(122,117)
64,924
(66,391)
(131,792)
(22,315)
(78,264)
22,595
(282,443)
preferred stock .................................................................................................
(270,766)
(273,842)
(258,834)
(206,770)
(133,806)
Loss from continuing operations before income taxes, minority interests and
cumulative effect of change in accounting principle .......................................
Benefit (provision) for income taxes .....................................................................
Minority interests ...................................................................................................
Loss from continuing operations before cumulative effect of change in
(360,708)
(465)
9,724
(331,035)
(4,407)
11,770
(457,017)
(2,465)
3,992
(307,349)
5,370
398
(393,654)
(3,225)
3,525
accounting principle ........................................................................................
(351,449)
(323,672)
(455,490)
(301,581)
(393,354)
Discontinued operations:
Income (loss) from discontinued operations, net of tax...............................
Net gain on disposal of discontinued operations, 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
(45,158)
⎯
(45,158)
7,340
⎯
7,340
4,430
⎯
4,430
40,578
494,110
534,688
(1,953)
2,801
848
(396,607)
(316,332)
(451,060)
233,107
(392,506)
obligations........................................................................................................
⎯
⎯
(551)
⎯
(9,031)
Net income (loss) (f) ..............................................................................................
Dividends on preferred stock, net of gains (losses) on purchases of preferred
(396,607)
(316,332)
(451,611)
233,107
(401,537)
stock (c) ...........................................................................................................
(79,028)
16,023
(55,897)
(38,618)
(49,356)
Net income (loss) after deduction of dividends on preferred stock, net of gains
(losses) on purchases of preferred stock.......................................................... $ (475,635) $ (300,309) $ (507,508) $ 194,489 $ (450,893)
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 ..................................
(2.01) $
(0.21)
—
(1.41) $
0.03
—
(2.35) $
0.02
(0.01)
(1.54) $
2.42
⎯
Net income (loss).......................................................................................... $
(2.22) $
(1.38) $
(2.34) $
0.88 $
(2.03)
⎯
(0.04)
(2.07)
Weighted average common shares outstanding—basic and diluted (in
thousands).....................................................................................................
214,246
218,028
216,947
221,693
217,759
26
Other Data:
Summary cash flow information:
(As restated)
(As restated)
(As restated) (As restated)
(In thousands of dollars, except per share amounts)
2001
Years Ended December 31,
2003
2004
2002
2005
50,400 $
(801,505)
1,073,480
—
Net cash provided by (used for) operating activities ................................... $
Net cash provided by (used for) investing activities....................................
Net cash provided by (used for) financing activities ...................................
Ratio of earnings to fixed charges (d)....................................................................
Balance Sheet Data (at period end):
Cash and cash equivalents ..................................................................................... $ 508,640 $ 339,837 $ 409,584 $ 566,707 $
Short-term investments ..........................................................................................
Assets of discontinued operations..........................................................................
Investments ............................................................................................................
Property and equipment, net ..................................................................................
Total assets .............................................................................................................
Liabilities of discontinued operations....................................................................
Total debt ...............................................................................................................
Redeemable preferred stock (e) .............................................................................
Total stockholders’ equity......................................................................................
199,963
1,793,746
128,500
4,070,850
7,317,878
566,137
3,073,646
878,861
2,287,712
178,697
1,974,602
—
3,839,178
6,802,951
645,619
2,880,917
756,014
2,086,115
—
3,693
—
3,375,022
4,574,567
568
1,850,398
508,040
1,849,494
26,600
2,055,162
⎯
3,600,894
6,616,908
354,357
3,449,992
506,702
1,810,542
94,107 $
51,626
(286,258)
—
85,324 $ 118,322 $ 204,496
(264,140)
(319,200)
119,081
(445,220)
(1,686,422)
71,086
—
⎯
⎯
65,408
⎯
⎯
⎯
3,294,333
4,131,317
⎯
2,270,686
311,943
1,178,376
(a) Corporate development expenses represent costs incurred in connection with acquisitions and development of new business initiatives. These expenses consist
(b)
(c)
(d)
primarily of compensation, benefits and other costs directly related to new business initiatives.
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 on debt and preferred stock purchases and
redemptions and a loss on the issuance of the interest in Crown Atlantic of $11.2 million. For the year ended December 31, 2004 and 2005, includes losses of
$77.7 million and $283.8 million, respectively, 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 and $12.0 million on purchases of preferred stock in 2003
and 2005, respectively.
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, 2001, 2002, 2003,
2004 and 2005, earnings were insufficient to cover fixed charges by $360.7 million, $331.0 million, $457.0 million, $307.3 million and $393.7 million,
respectively.
(e) The 2001 and 2002 amounts represent the 12¾% exchangeable preferred stock, the 8¼% Convertible Preferred Stock and the 6.25% Convertible Preferred
Stock. The 2003 and 2004 amounts represent the 8¼% Convertible Preferred Stock and the 6.25% Convertible Preferred Stock. The 2005 amount represents the
6.25% Convertible Preferred Stock.
(f) No cash dividends were declared or paid in 2001, 2002, 2003, 2004 or 2005.
The adjustments to amounts previously presented in selected financial data for the years ended December 31,
2001 and 2002 are summarized as follows. See Note 1 to our consolidated financial statements for tables
summarizing the adjustments to amounts for the years ended December 31, 2003 and 2004.
As Previously
Stated
Restatement
Adjustments
As
Restated
(In thousands of dollars, except per share amounts)
Adjustments
to Present
OpenCell as
Discontinued
Operations
Adjustments
to Present
Non-Cash
Compensation
in Accordance
with SAB 107
As Restated
on Continuing
Operations
Basis
2001:
Site rental revenues......................................$ 376,615 $
Site rental costs of operations ......................
General and administrative ..........................
Non-cash compensation charges ..................
Depreciation, amortization and
162,408
91,174
3,488
711 $ 377,326 $
(2,137 )
—
—
160,271
91,174
3,488
— $
—
—
—
— $ 377,326
160,271
—
94,662
3,488
—
(3,488)
accretion expense.................................
Operating income (loss)...............................
Minority interests.........................................
Net income (loss) .........................................
Net income (loss) per common share –
basic and diluted ..........................................
Property and equipment, net ........................ 4,066,173
Total assets .................................................. 7,319,412
Total stockholders’ equity:
272,736
(105,973)
11,279
(408,594)
(2.28 )
(10,694 )
13,542
(1,555 )
11,987
262,042
(92,431)
9,724
(396,607)
(2.22 )
0.06
4,677
4,070,850
(1,534 ) 7,317,878
Beginning of year ................................ 2,376,937
End of year .......................................... 2,279,672
(3,901 ) 2,373,036
2,287,712
8,040
27
—
—
—
—
—
—
—
—
—
—
—
—
—
262,042
(92,431)
9,724
(396,607)
—
(2.22)
— 4,070,850
— 7,317,878
— 2,373,036
— 2,287,712
As Previously
Stated
Restatement
Adjustments
As
Restated
Adjustments
to Present
OpenCell as
Discontinued
Operations
Adjustments
to Present
Non-Cash
Compensation
in Accordance
with SAB 107
As Restated
on Continuing
Operations
Basis
(In thousands of dollars, except per share amounts)
2002:
Site rental revenues .......................................$ 446,136 $
Site rental costs of operations........................
General and administrative............................
Non-cash compensation charges ...................
Depreciation, amortization and
176,161
84,244
3,488
1,135 $ 447,271 $
(894 )
—
—
175,267
84,244
3,488
— $
—
(1,646)
—
— $ 447,271
175,267
—
86,086
3,488
—
(3,488)
accretion expense ....................................
Operating income (loss) ................................
Minority interests ..........................................
Net income (loss) ..........................................
Net income (loss) per common share – basic
and diluted................................................
(1.39 )
Property and equipment, net.......................... 3,834,019
Total assets .................................................... 6,801,049
Total stockholders’ equity ............................. 2,074,292
278,609
(127,922)
12,340
(319,921)
(2,130 )
4,159
(570 )
3,589
276,479
(123,763)
11,770
(316,332)
—
1,646
—
—
0.01
7,070
1,902
11,823
(1.38)
3,841,089
6,802,951
2,086,115
—
(1,911)
—
—
—
—
—
—
—
—
—
—
276,479
(122,117)
11,770
(316,332)
(1.38)
3,839,178
6,802,951
2,086,115
The decrease in total assets of $1.5 million for 2001 consists of the increase in property and equipment of $4.7
million and a decrease in deferred site rental receivable of $6.2 million. The increase in total assets of $1.9 million
for 2002 consists of the increase in property and equipment of $7.0 million and a decrease in deferred site rental
receivable of $5.1 million.
The following table describes the cumulative effects of the restatement on the consolidated balance sheet as of
December 31, 2003.
Balances as of December 31, 2003, as
Property and
Equipment Goodwill
Deferred Site
Rental
Receivable (a)
Deferred
Ground
Lease
Payable
(In thousands of dollars)
Minority
Interests
Stockholders’
Equity
previously stated ................................................................... $3,593,570 $ 270,438 $
—
—
—
—
(707)
—
Adjustments to site rental revenues
Adjustments to site rental costs of operations .................
Adjustments to depreciation expense..............................
Adjustments to minority interests
Adjustments to purchase price allocation for acquisition
Foreign currency translation adjustments (b)
—
—
7,512
—
(287)
1,492
78,665
(3,122)
—
—
—
—
(213)
$ 98,524 $ 176,645 $1,794,353
(3,122)
14,105
7,512
(3,690)
126
1,258
—
(14,105)
—
—
—
(338)
—
—
—
3,690
(1,120)
359
Balances as of December 31, 2003, as restated..........................
3,602,287 269,731
75,330
84,081 179,574 1,810,542
Adjustment to present OpenCell’s assets
and liabilities as discontinued operations..................
(1,393)
—
—
—
—
—
Balances as of December 31, 2003, as restated on
continuing operations basis ................................................... $
3,600,894
$ 269,731 $
75,330 $
84,081 $
179,574 $
1,810,542
(a) Balance as of December 31, 2003, as restated on continuing operations basis, includes current portion of $2.3 million.
(b) Amounts represent the effect of foreign currency translation for the lease accounting adjustments to the Australian
operations.
28
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General Overview
Overview
We own, operate and manage towers for wireless communications which are located in the U.S. and Australia.
Our primary business is leasing space on our towers to major wireless communication companies under long-term
contracts. As of December 31, 2005, we owned, leased or managed 12,459 towers, including 11,074 towers in the
U.S. and 1,385 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 84% of our property interests in such sites being pursuant to ground lease, sublease or license as of
December 31, 2005. Our customers currently include many of the world’s major wireless communications
companies, including Cingular, Verizon Wireless, Sprint Nextel, T-Mobile, Alltel, Optus and Vodafone Australia.
Approximately 81% of our revenues are derived from investment grade customers. Our customers use our towers for
antennas and other equipment necessary for the transmission of wireless signals for mobile telephones and other
devices. This leasing activity represents approximately 88% 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 towers on behalf of wireless service providers.
As an important part of our business strategy, we seek to:
(1) allocate capital efficiently as we selectively build new towers for wireless carriers, acquire other assets,
repurchase debt or purchase our own securities,
(2) maximize utilization of our tower capacity to grow revenues organically,
(3) grow our margins by taking advantage of the relatively fixed nature of the operating costs associated with
our site rental business, and
(4) utilize the expertise of U.S. and Australian personnel to extend revenues around our existing assets.
The growth of our business depends substantially on the condition of the wireless communications industry.
The willingness of wireless carriers to utilize our infrastructure and related services is affected by numerous factors,
including:
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;
•
•
•
•
• willingness to co-locate equipment;
•
•
•
local restrictions on the proliferation of towers;
cost of building towers;
technological changes affecting the number of communications sites needed to provide wireless
communications services to a given geographic area;
our ability to efficiently satisfy our customer’s service requirements; and
tax policies.
•
•
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 increased activity continued, with the rate of gross
new tenant additions (or modifications to existing installations) on a per lease standard basis for our U.S. towers
being 38% greater than the comparable period in 2003. The rate of gross new tenant additions on a per lease
standard basis for 2005 remained approximately constant with the rate of new additions that we experienced during
2004. Approximately 70% of the dollar value of new tenant additions during 2005 related to new leases, and
approximately 30% related to amendments to existing leases.
We believe the demand for new communication sites will continue. The demand for new communication sites
is influenced by the demand for wireless telephony and data services from our customers. An indicator of demand
29
for wireless telephony and data services is wireless minutes of use (“MOU’s”). Based on published reports from
Cellular Telecommunications & Internet Association (“CTIA”), MOU’s in the U.S. exceeded 675 billion for the six
months ended June 2005, a 30.1% growth from the six months ended June 2004. In addition, the wireless industry
reported the largest one-year addition of new subscribers in the U.S. since it first offered commercial service in
1983. In the twelve month period ended June 2005, more than 25.0 million subscribers came online in the U.S.
increasing total subscribers to 194.5 million as of June 2005. The growth in MOU’s, combined with the addition of
new subscribers, resulted in approximately 600 MOU’s per subscriber per month in the U.S. for the six months
ended June 2005. In addition, the demand for new communication sites is influenced by the availability of new
spectrum, which is of particular importance in light of the advanced wireless services auction scheduled to begin
June 29, 2006.
Demand for communication sites could also be affected by carrier consolidation, because consolidation could
result in duplicate or overlapping networks. On October 26, 2004, Cingular merged with AT&T Wireless, and on
August 12, 2005, Sprint merged with Nextel. These mergers could adversely impact site rental revenues on our
towers as a result of these network integrations. Our customers have not notified us of how many leases on our
towers will definitively terminate as a result of these network integrations, and we have not yet seen any lease
cancellations directly resulting from these mergers. We expect that the termination of these leases will be spread
over multiple quarters as existing lease obligations expire. Our belief is consistent with the wireless carriers’ public
comments that indicate that they expect a significant number of net new cell sites to be added during the next couple
of years.
When wireless carriers identify coverage or capacity gaps, we seek to provide carriers with the following four
point value proposition as part of our overall on-going goal to increase customer satisfaction relative to our peers
while still balancing commercial realities:
(1) We will attempt to solve the coverage or capacity gap by collocating on one of our towers;
(2) If we don’t have a tower to solve the coverage or capacity gap, we will attempt to identify a non-Crown
Castle structure;
(3) If there are no towers or other suitable structures to solve the coverage or capacity gap, we will attempt to
build a tower; or
(4) If a tower cannot be built to solve the coverage or capacity gap due to zoning or other impediments, we will
attempt to build a distributed antenna system.
We plan to continue to leverage our asset management tool and the strength of our management team to deliver
on this four point value proposition.
Current Year Highlights
Strong Revenue Growth. Net revenues grew by 8.4% and 12.0% for the year ended December 31, 2004 and
2005, respectively, which was primarily driven by site rental revenues from new tenant additions (or modifications
to existing installations) on existing towers and, to a lesser extent, contractual escalations on existing leases with
variable escalations and new sites acquired or built since the end of prior fiscal year. New tenant additions and
modifications were influenced by the aforementioned on-going demand for additional wireless communication sites
primarily due to the continued strong growth in the usage of wireless minutes and introduction of new data services
by wireless carriers.
Significant Margin Expansion. Gross margins (net revenues less cost of operations) grew by 12.8% to $373.2
million and 13.8% to $424.8 million for the year ended December 31, 2004 and 2005, respectively, which was
primarily driven by the increase in site rental revenues. The incremental margin percentage on the site rental revenue
growth of $58.8 million for the year ended December 31, 2005 was 77.8%, reflecting the relatively fixed nature of
the costs to operate our towers.
Investment Grade Refinancing. We issued $1.9 billion in Tower Revenue Notes through certain of our
subsidiaries in June 2005. The notes are rated investment grade, have a weighted average interest rate of 4.89% and
are secured by our assignable U.S. personal property, license agreements, revenues and/or distributions related to
our towers as of June 2005 located in the U.S. See “Properties”. Proceeds from the notes were used to purchase and
30
redeem $1.5 billion carrying value of existing high yield debt during June and July 2005 and to repay our previously
outstanding Crown Atlantic Credit Facility. These purchases and redemptions resulted in losses of $179.1 million
and $2.7 million during June and July 2005, respectively. Our annual interest expense was reduced by
approximately $53.0 million due to the issuance of the notes and the purchases and redemptions of debt occurring
through July 2005. Periodically, beginning in 2006, we contemplate issuing additional notes under a similar
structure to the existing Tower Revenue Notes, in order to leverage the anticipated growth in our site rental business.
As a result of refinancing our debt in 2005, including the issuance, purchases and redemptions discussed in the
preceding paragraph (see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources—Financing Activities”), the weighted average coupon on our debt
has been reduced by 2.8% to 5.1% at the end of 2005, from 7.9% at the end of 2004. Additionally, annual interest
expense and amortization of deferred financing costs for 2006 is expected to be approximately $128.0 million,
representing a savings of approximately $5.8 million from 2005 actual interest expense and amortization of deferred
financing costs of $133.8 million despite an increase of $420.3 million, or 22.7%, in outstanding debt from
December 2004 to 2005.
Purchases and Investments. We believe the debt refinancing provides us significantly more flexibility to invest
the cash flow produced from operations in activities that we believe exhibit potential to achieve our risk-adjusted
return on investment hurdle rates or exhibit potential to complement our core site rental business. Those activities
could include acquiring or building towers, improving existing towers, making investments in adjacent businesses
including emerging businesses, or purchasing our own stock or debt securities. In 2005, we purchased 16.0 million
shares of common stock, exclusive of shares of common stock purchased from the dividend paying agent following
the issuance of the Convertible Preferred Stock dividend. We utilized $310.1 million in cash to affect these
purchases and paid an average price of $19.44 per share. These purchases of common stock, combined with
purchases of additional 4% Convertible Senior Notes and all of our 8¼% Convertible Preferred Stock during 2005,
reduced outstanding shares by 16.0 million, or 7.1%, and potential future outstanding shares by an additional 18.3
million. Also, in 2005, we purchased 467 towers from affiliates of Trintel for approximately $145.0 million, and we
invested $55.0 million in FiberTower, a privately-held provider of wireless backhaul services, as part of a total of
$150.0 million (inclusive of our $55.0 million investment) raised by FiberTower through a private equity offering.
We anticipate investing, from time to time on an on-going basis, in activities that we believe exhibit potential to
achieve our risk-adjusted return on investment hurdle rates or exhibit potential to complement our core site rental
business, such as our recent purchases of common stock, acquisition of towers and investments in FiberTower and
Modeo.
Accelerated Vesting of Restricted Common Stock. During 2005, the market performance of our stock
appreciated 62% and reached certain target levels for accelerated vesting of restricted stock issued to certain
executives and non-executive employees in the first quarter of 2004 and 2005. For 2005, the non-cash compensation
charges totaled $19.9 million in continuing operations, which is inclusive of $13.9 million resulting from the
acceleration of the various vestings (including the final two thirds of the restricted common stock issued in the first
quarter of 2004, and all of the restricted common stock issued in the first quarter of 2005). We believe that stock
awards are an important component of total compensation.
Results of Operations
Overview
Revenue. Our primary sources of revenues are from:
(1) renting antenna space on towers, and, to a lesser extent
(2) providing network services, including the installation of antennas on our sites.
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 (five to 10 year)
contracts with our customers with renewal terms at the option of the customer. As a result, in any given year
approximately 95% of our site rental revenue has been contracted for in a prior year and is of a recurring nature.
31
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”. 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:
cellular;
•
PCS;
•
• ESMR;
3G;
•
• wireless data services; and
•
paging.
Site rental revenues are generally recognized on a monthly basis under lease agreements, which typically have
original terms of five to 10 years (with three or four optional renewal periods of five or 10 years each). See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations⎯Accounting and
Reporting Matters—Critical Accounting Policies—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 or their agents.
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 “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. Our network services offering is
primarily limited to the management of antenna installations on our sites. 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 increased
as a percentage of our total revenues in 2005, after declining during 2003 and 2004, reflecting the variable nature of
the network services business.
Costs of Operations. Costs of operations consist primarily of ground leases, repairs and maintenance, utilities,
property taxes, employee compensation and related benefit costs, insurance and monitoring costs. Generally, our
ground lease agreements are specific to each site and are for an initial term of five years and are renewable for pre-
determined periods. Ground lease expense is recognized on a monthly basis, regardless of whether the lease
agreement payment terms require us to make payments annually, quarterly, or in equal monthly amounts. If the
payment terms include fixed escalation provisions, the effect of such increases is recognized on a straight-line basis.
We calculate the 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. 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. Because our tower operating expenses generally do not
increase significantly as we add additional customers, once a tower has an anchor customer, additional customers
provide significant incremental cash flow. For any given tower, costs of operations 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.
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
32
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. Costs 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.
Non-Cash Site Rental Margin. 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:
2003
Years Ended December 31,
2004
2005
(As restated)
(As restated)
(In thousands of dollars)
Non-cash portion of site rental revenues:
Amounts attributable to rent-free periods ................................................ $
Amounts attributable to straight-line recognition of fixed escalations.....
Total................................................................................. .......
Non-cash portion of ground lease expense:
Amounts attributable to straight-line recognition of fixed escalations.....
Total................................................................................. .......
Non-cash compensation charges .............................................................. .......
Non-cash impact on site rental gross margins:
Amounts attributable to rent-free periods ................................................
Amounts attributable to straight-line recognition of fixed escalations.....
Amounts attributable to non-cash compensation charges ........................
5,111 $
16,216
21,327
19,542
19,542
279
5,111
(3,326)
(279)
6,458 $
12,740
19,198
17,529
17,529
553
6,458
(4,789)
(553)
Total......................................................................................... $
1,506 $
1,116 $
6,971
9,085
16,056
17,013
17,013
715
6,971
(7,928)
(715)
(1,672)
General and Administrative Expenses. General and administrative expenses consist primarily of:
•
•
•
•
•
•
employee cash and non-cash 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. Corporate development expenses represent costs incurred in connection
with acquisitions and development of new business initiatives. These expenses consist primarily of:
•
•
•
compensation and related benefits costs;
external professional fees; and
other costs directly related to new business initiatives.
Depreciation, Amortization and Accretion. Depreciation, amortization and accretion charges relate to our
property and equipment (which consists primarily of towers, associated buildings, construction equipment and
vehicles) and other intangible assets. Depreciation of towers 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
our U.S. operations (“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.
Discontinued Operations. On June 28, 2004, we signed a definitive agreement to sell our UK subsidiary,
CCUK, to an affiliate of National Grid. CCUK’s assets, liabilities, results of operations and cash flows are classified
as amounts from discontinued operations. On August 31, 2004, we completed the sale of CCUK.
33
In January 2005, we adopted a plan to exit the business of OpenCell. For all periods presented, the assets,
liabilities, results of operations and cash flows of the business of OpenCell are classified as amounts from
discontinued operations. On May 9, 2005, we sold OpenCell to a company in the business of developing and
manufacturing wireless equipment, including distributed antenna systems. As part of the transaction, we entered into
a product procurement arrangement that permits us to continue the purchase of equipment for our distributed
antenna activities.
Restatement of Previously Issued Financial Statements
Our consolidated results of operations for the years ended December 31, 2003 and 2004 have been restated to
reflect the correction of errors for certain non-cash items related to our lease accounting practices. The SEC issued a
public letter to the American Institute of Certified Public Accounts in early 2005 clarifying its interpretation of
existing accounting literature applicable to certain leases and leasehold improvements. In March 2005, as a result of
such clarification, we adjusted (both retroactively and prospectively) our method of accounting for tenant leases,
ground leases, and depreciation and restated our prior financial statements as reported in its Annual Report on Form
10-K for the year ended December 31, 2004 to reflect the corrections of errors for certain non-cash items relating to
our lease accounting practices. As noted in our Quarterly Report on Form 10-Q for the period ended September 30,
2005, we engaged in a lease by lease review of the leases impacted by this clarification.
Upon completion of the review, we have determined that certain non-cash adjustments should be recorded. The
aggregate net amount of these recorded non-cash adjustments, relating to periods prior to October 1, 2005, is an
improvement to net income (loss) of approximately $19.9 million. These non-cash adjustments reflect the
cumulative difference between the amounts previously recorded in our financial statements and those amounts
determined in the lease by lease review. The corrections to our consolidated results of operations consist of non-cash
adjustments attributable to decreases in site rental revenues, ground lease expense (included in site rental costs of
operations) and depreciation expense (included in depreciation, amortization and accretion expense). Since the
adjustments affected results of operations at CCAL and our two joint ventures with Verizon, they also resulted in
changes to minority interests and the purchase price allocation for the acquisition of a minority interest in 2003 and
2004. We believe the impacts of these non-cash adjustments are not material to any previously issued financial
statement. However, the cumulative adjustments required to correct these errors would be material to the fourth
quarter of 2005 if taken as a single adjustment in that quarter. Therefore, we have determined that the errors are
most appropriately corrected through the restatement of previously issued financial statements for the years ended
December 31, 2003 and December 31, 2004, for each of the quarters of 2004 and for the first three quarters of 2005
to reflect these non-cash adjustments in the proper periods. The cumulative effects of these adjustments on our
consolidated statements of operations from inception through September 30, 2005 are as follows: a decrease in site
rental revenues of $0.7 million; a decrease in site rental costs of operations of $12.1 million; a decrease in
depreciation expense of $12.1 million; a decrease in operating losses of $23.4 million; a decrease in other expense
(attributable to the loss on the issuance of an interest in Crown Atlantic) of $0.1 million; a decrease in minority
interest of $3.7 million; and a decrease in net losses of $19.9 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.
In addition, incremental non-cash compensation expense ($0.9 million) was charged to general and
administrative expenses in the results of operations in 2005 and certain non-cash compensation expense (totaling
$1.5 million) previously charged to results of operations during 2005 related to our former CCUK employees was
charged to the net gain on disposal of CCUK. See note 1 to our consolidated financial statements for additional
information regarding the restatement.
The adjustments do not affect historical or future cash flow or the timing of payments under related leases.
Moreover, the non-cash adjustments are not expected to have any impact on cash balances, compliance with any
financial covenant or debt instrument, or the current economic value of our leaseholds and our towers.
The following information is derived from our historical consolidated statements of operations for the periods
indicated:
34
Comparison of Years Ended December 31, 2005 and 2004—Consolidated
Year Ended
December 31, 2004
Year Ended
December 31, 2005
Percent
of Net
Revenues
(As restated)
Amount
(As restated)
Percent
of Net
Revenues
Amount
(In thousands of dollars)
Dollar
Change
Percentage
Change
Net revenues:
Site rental................................................................................ $ 538,309
65,893
Network services and other....................................................
89.1 %
10.9 %
$ 597,125
79,634
88.2 %
11.8 %
$
58,816
13,741
10.9 %
20.9 %
Total net revenues ..................................................
604,202
100.0 %
676,759
100.0 %
72,557
12.0 %
Operating expenses:
Costs of operations (exclusive of depreciation, amortization
and accretion):
Site rental .........................................................................
Network services and other .............................................
Total costs of operations ........................................
General and administrative ....................................................
Corporate development ..........................................................
Restructuring charges.............................................................
Asset write-down charges ......................................................
Depreciation, amortization and accretion ..............................
Operating income (loss)...................................................................
Other income (expense):
184,273
46,752
231,025
97,665
1,455
3,729
7,652
284,991
34.2 %
71.0 %
38.2 %
16.2 %
0.2 %
0.6 %
1.3 %
47.2 %
197,355
54,630
251,985
105,763
3,896
8,477
2,925
281,118
33.1 %
68.6 %
37.2 %
15.6 %
0.6 %
1.3 %
0.4 %
41.6 %
13,082
7,878
20,960
8,098
2,441
4,748
(4,727)
(3,873)
7.1 %
16.8 %
9.1 %
8.3 %
167.7 %
127.3 %
(61.8)%
(1.4)%
(22,315)
(3.7)%
22,595
3.3 %
44,910
201.3 %
Interest and other income (expense) ......................................
Interest expense and amortization of deferred financing costs
(78,264)
(206,770)
(13.0)%
(34.2)%
(282,443)
(133,806)
(41.7)%
(19.8)%
(204,179)
72,964
Loss from continuing operations before income taxes, minority
interests and cumulative effect of change in accounting
principle.....................................................................................
Benefit (provision) for income taxes ...............................................
Minority interests .............................................................................
(307,349)
5,370
398
(50.9)%
0.9 %
⎯
(393,654)
(3,225)
3,525
(58.2)%
(0.5)%
0.5 %
(86,305)
(8,595)
3,127
Loss from continuing operations before cumulative effect of
change in accounting principle..................................................
(301,581)
(50.0)%
(393,354)
(58.2)%
(91,773)
Discontinued operations:
Income from discontinued operations, net of tax...................
Net gain on disposal of discontinued operations, net of tax ..
40,578
494,110
6.7 %
81.9 %
(1,953)
2,801
(0.2)%
0.3 %
(42,531)
(491,309)
Income from discontinued operations, net of tax ............
534,688
88.6 %
848
0.1 %
(533,840)
Income (loss) before cumulative effect of change in accounting
principle.....................................................................................
233,107
38.6 %
(392,506)
(58.1)%
(625,613)
Cumulative effect of change in accounting principle for asset
retirement obligations................................................................
—
—
(9,031)
(1.2)%
(9,031)
*
*
*
*
*
*
*
*
*
*
*
Net income (loss) ............................................................................. $ 233,107
38.6 %
$ (401,537)
(59.3)%
$ (634,644)
*
*: Percentage is not meaningful
Site rental revenues for 2005 were $597.1 million, an increase of $58.8 million, or 10.9%, from 2004. Of this
increase, $51.4 million, or 87.4%, was attributable to CCUSA and $7.2 million, or 12.2%, was attributable to
CCAL. The revenue growth was primarily driven by site rental revenues from new tenant additions (or
modifications to existing installations) in 2005 on existing towers and, to a lesser extent, (1) contractual escalations
on existing leases with variable escalations, (2) new sites built or acquired in 2005, and (3) renewal of certain leases
and associated step up in the straight-line rents.
Network services and other revenues for 2005 were $79.6 million, an increase of $13.7 million, or 20.9%, from
2004. This increase was primarily attributable to a $11.2 million increase from CCUSA, and a $2.8 million increase
from CCAL, and reflects the variable nature of the network services business as these revenues are typically not
under long-term contract.
Site rental costs of operations for 2005 were $197.4 million, an increase of $13.1 million from 2004. This
increase was primarily attributable to cost increases of $10.9 million for CCUSA and $1.6 million for CCAL. Such
cost increases relate to normal and customary increases in ground rentals on leases with variable escalations, repairs
and maintenance, employee compensation and related benefits, property taxes and $2.9 million of operating costs
related to the towers acquired from Trintel in August 2005. Network services and other costs of operations for 2005
35
were $54.6 million, an increase of $7.9 million from 2004. This increase was primarily attributable to an $8.0
million increase in costs from CCUSA and a $0.2 million increase in costs from CCAL.
Site rental gross margins increased by $45.7 million, or 12.9% to $399.8 million, or 66.9% of site rental
revenues for 2005, from $354.0 million, or 65.8% of site rental revenues for 2004. The $45.7 million incremental
margin represents 77.8% of the related increase in site rental revenues for 2005, reflecting the relatively fixed nature
of the costs to operate our towers.
General and administrative expenses were $105.8 million, or 15.6% of total net revenues, including $18.8
million of non-cash compensation charges for 2005, an increase of $8.1 million from $97.7 million, or 16.2% of
total net revenues, including $12.3 million of non-cash compensation charges from 2004. Non-cash compensation
charges increased $6.5 million as a result of accelerated vesting of shares of restricted common stock based on
performance of our stock in 2005. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations⎯Results of Operations⎯Compensation Charges Related to Stock Awards”.
Corporate development expenses for 2005 were $3.9 million, an increase of $2.4 million from $1.5 million for
2004. This increase was primarily attributable to an increase in salary costs related to Modeo within Emerging
Businesses.
As a result of the sale of CCUK, we consolidated certain corporate management functions in 2004 and 2005.
During 2005, we recorded cash and non-cash restructuring charges of $8.5 million, compared to $3.7 million for
2004. Such 2005 charges related primarily to employee severance payments and modification of stock compensation
awards. The 2004 and 2005 restructuring charges included non-cash compensation charges of $2.9 million and $6.4
million, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Results of Operations—Restructuring Charges and Asset Write-Down Charges”.
During 2005, we recorded asset write-down charges of $2.9 million, compared to $7.7 million for 2004. Such
non-cash charges related to the abandonment or disposal of certain towers and towers in development. We may
record such charges in the future if conditions warrant. During the fourth quarter of 2005, 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.
Depreciation, amortization and accretion for 2005 was $281.1 million, a decrease of $3.9 million, or 1.4% from
2004. This decrease was primarily attributable to the portfolio extension program in the U.S., which is designed to
either purchase the land on which our towers reside or renegotiate and extend the terms of the ground leases,
subleases, and licenses relating to the sites on which our U.S. towers are located, partially offset by:
(1) the acquisition of 467 towers from Trintel, and
(2) an increase in our tower assets as a result of capital expenditures for the construction, modification and
maintenance of tower assets (See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations⎯Liquidity and Capital Resources” for further discussion of our capital
expenditures).
Interest and other income (expense) for 2005 resulted primarily from:
(1) losses of $283.8 million from purchases of our debt securities (see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations⎯Liquidity and Capital Resources”). These financing
transactions were completed to lower our future cash interest payments and simplify our capital structure,
(2) $4.7 million from our share of losses incurred by unconsolidated affiliates, partially offset by
(3) interest income from invested cash balances and gains on the sale of assets.
Interest expense and amortization of deferred financing costs for 2005 was $133.8 million, a decrease of $73.0
million, or 35.3%, from 2004. This decrease was primarily attributable to the purchases and repayments of
outstanding debt during 2004 and 2005. These financing transactions were completed to lower our future cash
interest payments and simplify our capital structure. The reductions in outstanding debt during 2004 included (1)
$1.3 billion for CCOC’s former credit agreement with a syndicate of banks (“2000 Credit Facility”), which was
36
repaid in August 2004 via proceeds from the sale of CCUK and (2) $48.0 million of 4% Convertible Senior Notes
via purchases in December 2004. The reductions in outstanding debt during 2005 included $1.6 billion purchase of
notes and $180.0 million repayment on the Crown Atlantic Credit Facility, partially offset by $295.0 million in
borrowings under the 2005 Credit Facility (see “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources—Financing Activities”).
Minority interests represent the minority shareholders 22.4% interest in the CCAL operations and, through
November 4, 2004, Verizon’s 37.245% interest in Crown Atlantic’s operations. On November 4, 2004, we acquired
the remaining 37.245% equity interest in Crown Atlantic.
Income from discontinued operations in 2005 represents the loss from operations of OpenCell and the net gain
on sale of OpenCell. Income from discontinued operations in 2004 primarily relates to the results from operations of
CCUK and the net gain on sale of CCUK.
The cumulative effect of change in accounting principle for asset retirement obligations represents the charge
recorded upon adoption of FASB Interpretation No. 47 (“FIN 47”), Accounting for Conditional Asset Retirement
Obligations—An interpretation of FASB Statement No. 143 (see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Accounting and Reporting Matters—Impact of Recently Issued
Accounting Standards” for more information).
Comparison of Years Ended December 31, 2005 and 2004—Operating Segments
See note 15 to our consolidated financial statements for a tabular presentation of the financial results for our
operating segments. Our reportable operating segments for 2005 are (1) US tower operations, or CCUSA, (2)
Australian tower operations, or CCAL, (3) Emerging Businesses and (4) Corporate Office and Other. Our financial
results are reported to management and the Board of Directors in this manner.
Prior to its sale in June 2004, CCUK, our UK tower and broadcasting operations, was a reportable segment. For
all periods presented, CCUK has been classified as a component of Corporate Office and Other on a discontinued
operations basis.
We have pursued and are currently pursuing emerging strategic opportunities and adjacent businesses, including
Modeo and Crown Castle Solutions. These businesses have been reclassified to the segment Emerging Businesses.
Modeo had previously been reported within the Corporate Office and Other segment, while Crown Castle Solutions
had previously been reported within the CCUSA segment. These changes in reportable segments were effective for
the three months ended March 31, 2005, and segment information for all periods presented has been reclassified.
Our measurement of profit or loss currently used to evaluate our operating performance and operating segments
is earnings before interest, taxes, depreciation, amortization and accretion, as adjusted (“Adjusted EBITDA”). Our
measure of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including
companies in the tower sector, and is not a measure of performance calculated in accordance with U.S. generally
accepted accounting principles (“GAAP”).
We define 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 and
amortization of deferred financing costs, interest and other income (expense), depreciation, amortization and
accretion, operating non-cash 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 GAAP, and Adjusted EBITDA may not be comparable to similarly titled measures of
other companies. Adjusted EBITDA is discussed further under “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Accounting and Reporting Matters—Non-GAAP Financial
Measures”.
CCUSA. Net revenues for 2005 were $621.9 million, a net increase of $62.5 million, or 11.2 %, from 2004. Of
the $62.5 million overall increase in net revenues, $51.4 million relates to site rental revenues. The $51.4 million
increase in site rental revenues for 2005 was primarily driven by new tenant additions (or modifications to existing
37
installations) on our towers and, to a lesser extent, (1) contractual escalations on existing leases with variable
escalations, (2) new towers acquired or built since the end of the third quarter of 2004 and (3) renewal of certain
leases and associated step up in the straight-line rents. This increase represents approximately 87.4% of the
consolidated increase in site rental revenues for this same period. As mentioned previously, more than 95% of our
site rental revenue has been contracted for in a prior year. Network services revenues total $72.5 million for 2005
should continue to be somewhat volatile as these revenues are typically not under long-term contract.
General and administrative expenses were $61.5 million, or 9.9% of total net revenues, including $6.9 million
of non-cash compensation charges for 2005, an increase of $2.0 million from $59.5 million, or 10.6% of total net
revenues, including $6.4 million of non-cash compensation charges for 2004. Non-cash compensation charges
increased $0.5 million primarily as a result of accelerated vesting of shares of restricted common stock based on the
performance of our stock during 2005 (see “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Results of Operations—Compensation Charges Related to Stock Awards”).
Adjusted EBITDA for 2005 was $339.5 million representing a net increase of $42.3 million, or 14.2% from
2004. Adjusted EBITDA was positively impacted by the high incremental margin from new tenant additions (or
modifications to existing installations) on existing towers. More specifically, site rental gross margins increased by
$40.5 million, or 12.3% to $370.3 million, or 67.4% of site rental revenues for 2005 from 66.2% of site rental
revenues for 2004. The $40.5 million incremental margin represents 78.8% of the related increase in site rental
revenues, reflecting the relatively fixed nature of the costs to operate our towers.
Operating income for 2005 was $76.0 million, a net increase of $50.2 million from 2004. The increase in
operating income is primarily driven by the $40.5 million increase in site rental gross margin.
Net income (loss) for 2005 was $7.1 million, an increase of $47.6 million from 2004. The increase in net
income (loss) is primarily driven by:
(1) the $40.5 million increase in site rental gross margin; and
(2) the $14.8 million improvement in interest and other income (expense) as a result of a $13.9 million loss on
the repayment of the 2000 Credit Facility in 2004 (not repeated in 2005); partially offset by
(3) an $11.0 million increase in interest expense and amortization of deferred financing costs as a result of
incremental interest charges related to the $1.9 billion Tower Revenue Notes issued in June 2005 with a
weighted average interest rate of 4.890% and borrowings under the 2005 Credit Facility and reductions in
interest charges as a result of the repayment of the 2000 Credit Facility during the third quarter of 2004 and
the reduction of the Crown Atlantic Credit Facility via regular payments throughout 2004 and 2005 up to
the repayment date in early June 2005 (see also note 7 to our consolidated financial statements for further
discussion of debt transactions); and
(4) $7.9 million incremental expense from the cumulative effect of adopting FIN 47 (see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Accounting and Reporting
Matters—Impact of Recently Issued Accounting Standards” for further discussion of FIN 47).
See note 15 to our consolidated financial statements for a reconciliation from net income (loss) to Adjusted
EBITDA.
CCAL. Total net revenues for 2005 were $54.6 million, a net increase of $9.9 million, or 22.3% from 2004.
Approximately 70% of this increase relates to growth in site rental revenues, with the remaining approximately 30%
related to growth in service revenues. The site rental revenue growth was primarily driven by new tenant additions
(or modifications to existing installations) on our towers and, to a lesser extent, contractual escalations on existing
leases with variable escalations. Our site rental revenues included a contractual payment of $2.1 million and $2.1
million for 2004 and 2005, respectively, related to a fee for the shortfall in contractually committed licenses.
Adjusted EBITDA for 2005 was $22.1 million, a net increase of $7.3 million or 49.0% from 2004. Adjusted
EBITDA was positively impacted by the incremental margin from the new tenant additions (or modifications to
existing installations) on existing towers. Site rental gross margins increased by $5.6 million, or 23.1% to $29.8
million, or 62.7% of site rental revenues for 2005 from $24.2 million, or 60.0% for 2004. The $5.6 million
38
incremental margin represents 78.1% of the related increase in site rental revenues, reflecting the relatively fixed
nature of the costs to operate our towers.
Operating loss for 2005 was $5.7 million, an improvement of $6.7 million from 2004. The improvement in
operating income is primarily due to the $5.6 million increase in gross margin from site rental revenues and the $2.6
million increase in gross margin from network service revenues, offset by a $1.2 million increase in general and
administrative expenses as a result of increased employee related costs.
Net loss for 2005 was $7.0 million, an improvement of $5.3 million from 2004. The decrease in net loss is
primarily driven by the aforementioned factors that resulted in the operating loss improvement. See note 15 to our
consolidated financial statements for a reconciliation of net income (loss) to Adjusted EBITDA.
The increases and decreases between 2005 and 2004 are inclusive of exchange rate fluctuations. Exchange rates
did not have a significant impact on the changes between these two periods.
Emerging Businesses. Net revenues for 2005 were $0.3 million. Emerging Businesses represent new 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. Because these
businesses are in the earlier stages of development, significant revenues have not been realized during 2004 and
2005.
Modeo is pursuing a potential offering of a DVB-H service to capitalize on our U.S. nationwide license relating
to five megahertz of spectrum in the 1670-1675 MHz band. Modeo has launched a test network of its DVB-H
technology in Pittsburgh, Pennsylvania and is developing networks in certain select U.S. cities, including New York
City. Modeo had no revenues for 2004 and 2005.
Crown Castle Solutions offers hub-based, low visibility distributed antenna systems which are attractive
alternatives to a traditional tower site in areas where zoning or densities make a tower unfeasible. Distributed
antenna systems are particularly useful in areas with challenging zoning regulations or other impediments to
traditional towers. Base stations can be located up to 10 miles away and connected to the distributed antenna system
via fiber optic cable. Each antenna location in the distributed antenna network provides coverage in a radius of
approximately one half mile. Crown Castle Solutions had revenues of $0.2 million and $0.3 million for 2004 and
2005, respectively.
The operating loss and net loss of $9.9 million and negative Adjusted EBITDA of $8.3 million for 2005 is
approximately split equally between the operating losses associated with Crown Castle Solutions and the operating
costs of Modeo.
Corporate Office and Other. General and administrative expenses were $28.8 million, including $10.7 million
of non-cash compensation charges for 2005, an increase of $5.4 million from $23.4 million, including $5.8 million
of non-cash compensation charges for 2004. Non-cash compensation charges increased $4.9 million primarily as a
result of accelerated vesting of shares of restricted common stock based on the performance of our stock during
2005 (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of
Operations—Compensation Charges Related to Stock Awards”).
Negative Adjusted EBITDA for 2005 was $18.3 million, an improvement of $0.8 million, or 4.2% from 2004.
The negative Adjusted EBITDA was positively impacted by the consolidation of certain corporate management
functions.
Net loss for 2005 was $391.8 million, compared to net income of $292.2 million for 2004. The reduction in net
income of $684.0 million is primarily the result of $539.0 million income from discontinued operations of CCUK,
including the $494.1 million net gain on sale of CCUK in 2004 (not repeated in 2005), and $288.8 million other
expense, an increase in other expense of $220.2 million, due to (1) the purchases of $1.5 billion combined face value
of the 4% Convertible Senior Notes, 10¾% senior notes due 2011 (“10¾% Senior Notes”), 9⅜% senior notes due
2011 (“9⅜% Senior Notes”) , 7.5% senior notes due 2013 (“7.5% Senior Notes”), and 7.5% Series B senior notes
due 2013 (“7.5% Series B Senior Notes”) in 2005, which resulted in a loss of $281.1 million for 2005, (2) the
39
redemption of the combined $52.9 million of 9% senior notes due 2011 (“9% Senior Notes”), 9½% senior notes due
2011 (“9½% Senior Notes”), 10⅜% senior discount notes due 2011 (“10⅜% Discount Notes”), and 11¼% senior
discount notes due 2011 (“11¼% Discount Notes”) resulting in a loss of $2.7 million, (3) $4.9 million from our
share of losses incurred by unconsolidated affiliates, partially offset by a $83.5 million reduction in interest expense
and amortization of deferred financing costs to $65.2 million driven by the resultant lower interest expense from the
aforementioned purchases, redemptions, and repayment of long-term debt in 2004 and 2005. See note 15 to our
consolidated financial statements for a reconciliation of net income (loss) to Adjusted EBITDA.
Comparison of Years Ended December 31, 2004 and 2003—Consolidated
Year Ended
December 31, 2003
Year Ended
December 31, 2004
Amount
(As restated)
Percent
of Net
Revenues
(As restated)
Percent
of Net
Revenues
(As restated)
Amount
(As restated)
(In thousands of dollars)
Dollar
Change
Percentage
Change
Net revenues:
Site rental................................................................................ $ 484,841
72,316
Network services and other....................................................
87.0 %
13.0 %
$ 538,309
65,893
89.1 %
10.9 %
$
53,468
(6,423)
11.0 %
(8.9)%
Total net revenues ..................................................
557,157
100.0 %
604,202
100.0 %
47,045
8.4 %
Operating expenses:
Costs of operations (exclusive of depreciation, amortization
and accretion):
Site rental .........................................................................
Network services and other .............................................
Total costs of operations ........................................
General and administrative ....................................................
Corporate development ..........................................................
Restructuring charges.............................................................
Asset write-down charges ......................................................
Depreciation, amortization and accretion ..............................
Operating income (loss)...................................................................
Other income (expense):
Interest and other income (expense) ......................................
Interest expense, amortization of deferred financing
179,305
46,888
226,193
95,155
5,564
1,291
14,317
281,028
37.0 %
64.8 %
40.6 %
17.1 %
1.0 %
0.2 %
2.6 %
50.4 %
184,273
46,752
231,025
97,665
1,455
3,729
7,652
284,991
34.2 %
71.0 %
38.2 %
16.2 %
0.2 %
0.6 %
1.3 %
47.2 %
4,968
(136)
4,832
2,510
(4,109)
2,438
(6,665)
3,963
2.8 %
(0.3)%
2.1 %
2.6 %
(73.8)%
188.8 %
(46.6)%
1.4 %
(66,391)
(11.9)%
(22,315)
(3.7)%
44,076
(66.4)%
(131,792)
(23.7)%
(78,264)
(13.0)%
53,528
*
*
*
*
*
*
*
*
*
*
*
costs and dividends on preferred stock............................
(258,834)
(46.4)%
(206,770)
(34.2)%
52,064
Loss from continuing operations before income taxes, minority
interests and cumulative effect of change in accounting
principle.....................................................................................
Benefit (provision) for income taxes ...............................................
Minority interests .............................................................................
(457,017)
(2,465)
3,992
(82.0)%
(0.4)%
0.6 %
(307,349)
5,370
398
(50.9)%
0.9 %
⎯
149,668
7,835
(3,594)
Loss from continuing operations before cumulative effect of
change in accounting principle..................................................
(455,490)
(81.8)%
(301,581)
(50.0)%
153,909
Discontinued operations:
Income from discontinued operations, net of tax...................
Net gain on disposal of discontinued operations, net of tax ..
Income from discontinued operations, net of tax ............
4,430
⎯
4,430
0.8 %
⎯ %
0.8 %
40,578
494,110
6.7 %
81.9 %
534,688
88.6 %
36,148
494,110
530,258
Income (loss) before cumulative effect of change in accounting
principle .....................................................................................
(451,060)
(81.0)%
233,107
38.6 %
684,167
Cumulative effect of change in accounting principle for asset
retirement obligations................................................................
(551)
(0.1)%
⎯
—
551
Net income (loss) ............................................................................. $ (451,611)
(81.1)%
$ 233,107
38.6 %
$ 684,718
*
*: Percentage is not meaningful
Site rental revenues for 2004 were $538.3 million, an increase of $53.5 million, or 11.0%, from 2003. Of this
increase, $43.5 million was attributable to CCUSA and $10.0 million was attributable to CCAL. Network services
and other revenues for 2004 were $65.9 million, a decrease of $6.4 million from 2003. This decrease was primarily
attributable to a $7.4 million decrease from CCUSA and a $0.8 million increase from CCAL. Total revenues for
2004 were $604.2 million, a net increase of $47.0 million from 2003. The revenue growth was primarily driven by
site rental revenues from (1) new tenant additions (or modifications to existing installations) in 2004 on existing
towers (2) contractual escalations on existing leases with variable escalations, (3) new sites built or acquired in
2004, and (4) renewal of certain leases and associated step up in the straight-line rents. The decrease in network
40
services and other revenues from CCUSA reflects a continuation of our strategic decision made in 2002 to reduce
our network services offering to primarily the management of antenna installations on our sites.
Site rental costs of operations for 2004 were $184.3 million, an increase of $5.0 million, or 2.8% from 2003. Of
this increase, $1.4 million was attributable to CCUSA and $3.6 million was attributable to CCAL. Network services
and other costs of operations for 2004 were $46.8 million, a decrease of $0.1 million, or 0.3% from 2003. This
decrease was primarily attributable to a $2.9 million decrease in costs from CCUSA, partially offset by a $0.9
million increase in costs from CCAL and a $1.8 million increase in costs from Emerging Businesses.
Total costs of operations for 2004 were $231.0 million, a net increase of $4.8 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 63.0% for 2003 because of the high incremental margin on the related increase in site rental revenue,
which reflects the relatively fixed costs to operate our towers. Gross margins for network services and other as a
percentage of network services and other revenues decreased to 29.1% for 2004 from 35.2% for 2003 reflecting the
variable nature of the service business.
General and administrative expenses for 2004 were $97.7 million, an increase of $2.5 million, or 2.6%, from
2003. This increase was primarily attributable to:
(1) a $2.8 million increase in expenses at CCAL;
(2) a $4.0 million increase in expenses at Emerging Businesses; and
(3) a $1.0 million increase in expenses at our corporate office segment, partially offset by
(4) a $5.3 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 decreased to 16.2% for 2004 from 17.1% for
2003, primarily due to stable overhead costs as compared to increasing revenues for CCUSA. General and
administrative expenses are inclusive of non-cash charges of $12.3 million and $13.6 million for 2004 and 2003,
respectively.
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 restructuring charges of $3.7 million, compared to $1.3 million for 2003. Such
charges relate primarily to employee severance payments and non-cash compensation charges in connection with the
modification of stock options and restricted stock awards. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations⎯Results of Operations⎯Restructuring Charges and Asset Write-Down
Charges”.
During 2004, we recorded asset write-down charges of $7.7 million, compared to $14.3 million for 2003. 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 “Management’s Discussion
and Analysis of Financial Condition and Results of Operations⎯Results of Operations⎯Restructuring Charges and
Asset Write-Down Charges”.
Depreciation, amortization and accretion for 2004 was $285.0 million, an increase of $4.0 million, or 1.4% from
2003. This increase was primarily attributable to:
(1) a $3.1 million increase in depreciation from CCUSA; and
(2) a $1.4 million increase in depreciation from CCAL, partially offset by
(3) a $0.9 million decrease in depreciation from corporate office and other.
Interest and other income (expense) for 2004 resulted primarily from:
41
(1) losses of approximately $63.8 million from purchases of our debt securities (see also note 7 to our
consolidated financial statements). These financing transactions were completed to lower our future cash
interest payments and simplify our capital structure;
(2) a loss of $13.9 million from the repayment of our 2000 Credit Facility (see also note 7 to our consolidated
financial statements); and
(3) $5.7 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 $52.0 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 also note 7 to our consolidated
financial statements);
(2) reductions in outstanding indebtedness under the Crown Atlantic Credit Facility, partially offset by
(3) the issuance of the 4% Convertible 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, which allowed for the reduction in the valuation allowance, 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 Crown Castle GT (17.8% through April 30, 2003 and none thereafter) and the minority
shareholder’s 22.4% interest in the CCAL operations.
Comparison of Years Ended December 31, 2004 and 2003—Operating Segments
See note 15 to our consolidated financial statements for a tabular presentation of the financial results for our
operating segments.
CCUSA. Net revenues for 2004 were $559.4 million, a net increase of $36.1 million, or 6.9%, from 2003. Of
the $36.1 million overall increase in net revenues, $43.5 million relates to an increase in site rental revenues, offset
by a $7.5 million decrease in network services and other revenues. The $43.5 million increase in site rental revenues
for 2004 compared to 2003 reflects (1) new tenant additions (or modifications to existing installations) on our
towers, (2) contractual escalations on existing leases with variable escalations, and (3) renewal of certain leases and
associated step up in the straight-line rents. This increase represented approximately 81.4% of the consolidated
increase in site rental revenues for this same period. In 2004, the rate of new tenant additions on our U.S. towers was
approximately 38% greater than the comparable period in 2003. As discussed in the management overview, we
believe that site rental revenues may increase as additional tenants are added to, or modifications are made to
existing installations on, our tower assets. We expect network services revenues should continue to be somewhat
volatile as a percentage of total net revenues as these revenues are typically not under long-term contract.
Adjusted EBITDA for 2004 was $297.2 million, representing a net increase of $42.0 million, or 16.5%, from
2003. Adjusted EBITDA was positively impacted by the high incremental margin from new tenant additions (or
modifications to existing installations) on existing towers. More specifically, site rental gross margins increased by
$42.1 million, or 14.6%, to $329.8 million, or 66.2% of site rental revenues for 2004 from 63.3% of site rental
revenues for 2003. The $42.1 million incremental margin represents 96.8% of the related increase in site rental
revenues, reflecting the relatively fixed nature of the costs to operate our towers.
Operating income for 2004 was $25.8 million, a net increase of $48.0 million from 2003. The increase in
operating income is primarily driven by the $42.1 million increase in site rental gross margin, reflecting the
relatively fixed nature of the costs to operate our towers.
42
Net loss for 2004 was $40.5 million, a reduction of $53.5 million from 2003. The reduction in net loss is
primarily driven by:
(1) the $42.1 million increase in site rental gross margin; and
(2) the benefit for income taxes of $6.0 million for 2004, an improvement of $8.0 million from 2003, which
consists primarily of the aforementioned non-cash deferred tax asset resulting from an alternative minimum
tax carryforward, which allowed for the reduction in the valuation allowance, partially offset by a non-cash
deferred tax liability resulting from a difference between the book and tax basis of CCUSA’s goodwill.
See note 15 to our consolidated financial statements for a reconciliation net income (loss) to Adjusted EBITDA.
CCAL. Total net revenues for 2004 were $44.6 million, a net increase of $10.8 million, or 31.9%, from 2003.
Of this increase, $10.0 million relates to growth in site rental revenues, with the remainder related to growth in
network services and other revenues. The site rental revenue growth reflects the new tenant additions (or
modifications to existing installations) on our towers and contractual escalations on existing leases with variable
escalations. In 2004, the rate of new tenant additions on CCAL’s towers was approximately 67% greater than the
comparable period in 2003. Our site rental revenues included a contractual payment of $2.1 million and $2.1 million
for 2003 and 2004, respectively, related to a fee for the customer contractual committed number of site licenses less
the amount actually utilized.
Adjusted EBITDA for 2004 was $14.8 million, a net increase of $3.6 million, or 31.6%, from 2003. Adjusted
EBITDA was positively impacted by the incremental margin from the new tenant additions (or modifications to
existing installations) on existing towers. Site rental gross margins increased by $6.4 million, or 35.7%, to $24.2
million, or 60.0% of site rental revenues for 2004 from $17.8 million, or 58.7% of site rental revenues for 2003. The
$6.4 million incremental margin represents 63.9% of the related increase in site rental revenues, reflecting the
relatively fixed nature of the costs to operate our towers.
Operating loss for 2004 improved to $12.4 million, a net decrease of $2.1 million from 2003. The reduction in
operating loss is primarily due to the $6.4 million increase in gross margin from site rental revenues offset by the
$0.1 million decrease in gross margin from network service revenues, and by a $2.8 million increase in general and
administrative expenses as a result of headcount additions.
Net loss for 2004 was $12.3 million, an increase of $0.3 million from 2003. The increase in net loss is primarily
driven by the aforementioned factors that resulted in the reduction of the operating loss, combined with a $1.4
million increase in depreciation, amortization and accretion.
The increases and decreases between 2004 and 2003 are inclusive of exchange rate fluctuations. Exchange rates
did not have a significant impact on the changes between these two periods.
Emerging Businesses. Net revenues for 2004 were $0.2 million. Modeo had no revenues for 2003 and 2004.
Crown Castle Solutions had revenues of $0.0 million and $0.2 million for 2003 and 2004, respectively.
The operating loss and net loss of $6.3 million and negative Adjusted EBITDA of $5.8 million for 2004
primarily consists of the (1) operating losses associated with Crown Castle Solutions and, to a lesser extent, (2)
operating costs of Modeo.
Corporate Office and Other. General and administrative expenses for 2004 were $23.4 million, a $1.0 million
increase from 2003. The increase relates to salary and related benefits increases. Corporate development expenses
totaled $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.
Net income for 2004 was $292.2 million, an improvement of $637.4 million from 2003. The improvement in
net income is primarily driven by:
(1) The $539.0 million income from discontinued operations of CCUK, including the $494.1 million gain on
sale of CCUK, recognized in 2004;
43
(2) a $51.3 million reduction in interest expense, amortization and deferred financing costs and dividends on
preferred stock attributable to purchases and redemptions of our debt securities in 2003 and 2004, partially
offset by the issuance of the 4% Convertible Senior Notes, the 7.5% Senior Notes and the 7.5% Series B
Senior Notes in 2003 (see note 7 to our consolidated financial statements for discussion of debt purchases
and issuances); partially offset by;
(3) a $51.8 million reduction in interest and other expense. The 2004 amount was primarily attributable to
losses on debt purchases of approximately $63.8 million.
Restructuring Charges and Asset Write-Down Charges
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. In connection with this restructuring, we recorded cash charges of approximately $6.1 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. In connection with
this restructuring, we recorded cash charges of approximately $2.3 million. As a result of the sale of CCUK, in
December 2004 and January 2005 we consolidated certain corporate management functions. In connection with this
restructuring, we recorded cash charges of $1.3 million in the fourth quarter of 2004 and $2.0 million in the first
quarter of 2005. We also recorded non-cash general and administrative compensation charges for the modification
of stock awards for certain executives totaling $2.8 million in the fourth quarter of 2004 and $6.4 million in the first
quarter of 2005.
During the year ended December 31, 2003, we abandoned a 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 and 2005, we recorded asset write-down charges of $7.7 million and $2.4 million, respectively, for
CCUSA and $-0- and $0.6 million, respectively, for CCAL.
See note 16 to our consolidated financial statements for additional information regarding restructuring charges
and asset write-down charges.
Compensation Charges Related to Stock Awards
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 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.
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. In connection with these restricted
shares, we were to recognize non-cash compensation charges of approximately $24.0 million over the vesting
period. On April 27, 2004, the market performance of our common stock reached the third and final target level for
accelerated vesting. In 2003 and 2004, non-cash compensation charges totaling a combined $20.5 million were
recognized as a result of accelerated vesting.
In March, April and May 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 were to 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 were to recognize non-cash compensation charges of
approximately $18.8 million over the vesting period (inclusive of amounts related to former CCUK employees). On
44
September 16, 2005, the market performance of our common stock reached the third and final target level for
accelerated vesting. In 2004 and 2005, non-cash compensation charges totaling a combined $7.4 million were
recognized as a result of accelerated vesting.
In February 2005, we granted 317,005 shares of restricted common stock to certain of our executives. The
restrictions on the shares were to expire in various amounts over the vesting period of four years if the market
performance of our common stock reached certain levels, with additional provisions for accelerated vesting based on
the market performance of our common stock. In connection with these restricted shares, we were to recognize non-
cash compensation charges of approximately $6.4 million over the vesting period. On November 29, 2005, the
market performance of our common stock reached the third and final target level for accelerated vesting. In 2005,
non-cash compensation charges totaling a combined $5.5 million were recognized as a result of accelerated vesting.
In February, March and April 2005, we granted a total of 376,901 shares of restricted common stock to certain
of our non-executive employees. These restricted shares had a weighted average grant-date fair value of $16.16 per
share, determined based on the closing market price of the common stock on the grant dates. The restrictions on the
shares were to expire in various annual amounts over the vesting period of four years, with provisions for
accelerated vesting based on the market performance of the common stock. In connection with these restricted
shares, we were to recognize non-cash compensation charges of approximately $6.1 million over the vesting period.
On November 29, 2005, the market performance of our common stock reached the third and final target level for
accelerated vesting. In 2005, non-cash compensation charges totaling a combined $4.8 million were recognized as a
result of accelerated vesting.
A summary of accelerated vesting charges recorded in continuing operations, by year, for the restricted
common stock issued in years 2003, 2004, and 2005 is as follows:
Grant Year
Grant Recipients
Early Vesting Date
2003
2004
2005
Total
Accelerated Vesting Charge for the Year Ended,
2003
Executives and non-executive employees
2004
Executives and non-executive employees
2005
Executives
2005
Non-executive employees
(In thousands of dollars)
April 29, 2003
July 30, 2003
April 27, 2004
$
$
7,317
7,825
—
— $
—
5,378
— $
—
—
7,317
7,825
5,378
$
15,142
$
5,378 $
—
$
20,520
October 27, 2004
July 19, 2005
September 16, 2005
July 19, 2005
August 30, 2005
November 29, 2005
July 19, 2005
August 30, 2005
November 29, 2005
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
2,495 $
—
—
— $
1,957
2.993
2,495 $
4,950
$
— $
—
—
— $
— $
—
—
— $
$
1,570
1,962
1,943
5,475
$
$
1,312
1,874
1,603
4,789
$
2,495
1,957
2,993
7,445
1,570
1,962
1,943
5,
475
1,312
1,874
1,603
4,
789
Total Accelerated Vesting Charge
$
15,142
$
7,873
$
15,214
$
38,229
See also note 11 to our consolidated financial statements for further discussion of these and other stock-based
compensation awards.
45
Liquidity and Capital Resources
Overview
Strategy. We seek to allocate our available capital among the investment alternatives that we believe provide
the greatest risk-adjusted returns given current market conditions. As such, we may continue to:
(1) acquire sites, extend leaseholds on existing sites, acquire land on which our towers are located, build new
towers and make improvements to existing towers,
(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; and
(3) utilize a portion of our available cash balances and debt capacity to purchase our own stock (either common
or preferred) or debt securities from time to time as market prices make such investments attractive.
Our goal is to maximize net cash from operating activities and fund all non-discretionary capital spending and
debt service from our operating cash flow, without reliance on additional borrowing or the use of our cash.
However, due to risk factors, including those set forth herein and in “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, in addition to
improving operating results, we have lowered interest rates on debt through attractive refinancing opportunities. We
may also incur additional indebtedness on a discretionary basis to fund discretionary investments.
Our business strategy contemplates discretionary investments in connection with the further improvement and
selective expansion of our existing tower portfolios. During 2006, we expect that the majority of our discretionary
investments will occur in connection with strategic tower acquisitions, the addition of new tenants on our existing
sites, purchases of land under our towers, selected new tower builds and investments in adjacent businesses,
including the emerging businesses and the repurchases of common stock.
We issued $1.9 billion in Tower Revenue Notes through certain of our subsidiaries during June 2005. The notes
are rated investment grade, have a weighted average interest rate of 4.89% and are secured by the personal property,
license agreements, revenues and/or distributions related to our towers located in the U.S. as of June 2005.
Periodically, beginning in 2006, we contemplate issuing additional notes under a similar structure to the existing
Tower Revenue Notes, in order to leverage anticipated growth in our site rental business. The proceeds from
issuances of additional notes would be available for general corporate purposes.
Liquidity Position. As of December 31, 2005, we had consolidated cash and cash equivalents of $65.4 million
(exclusive of restricted cash of $95.8 million), consolidated long term and short term debt of $2,270.7 million,
consolidated redeemable preferred stock of $311.9 million and consolidated stockholders equity of $1,178.4 million.
We also had $30.0 million of availability under our 2005 Credit Facility.
Common Stock and Convertible Purchases. During 2005, we purchased 16.0 million shares of common stock,
exclusive of shares of common stock purchased from the dividend paying agent following the issuance of the
Convertible Preferred Stock dividend, at an average price of $19.44, utilizing $310.1 million in cash to affect these
purchases. These purchases of common stock in 2005, combined with purchases of additional 4% Convertible
Senior Notes and all of the 8¼% Convertible Preferred Stock during 2005, reduced outstanding shares of common
stock as of December 31, 2004 by 16.0 million, or 7.1%, and potential future outstanding shares as of December 31,
2004 by an additional 18.3 million. Consistent with our strategy, we may elect to make similar purchases of
common stock and convertible instruments in the future.
Net Cash from Operations
A summary of our net cash provided by operating activities (from our consolidated statement of cash flows) is
as follows:
46
Net cash provided by (used for) operating activities ........................................................ $ 85,324
$ 204,496
2003
2005
Year Ended
December 31,
2004
(In thousands of dollars)
$ 118,322
The net cash provided by operating activities for 2005 increased by $86.2 million from 2004 due primarily to
growth in our core site leasing, a decrease in cash interest paid and a decrease in trade receivables. Changes in
working capital, and particularly changes in accrued interest, can 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 notes issues.
Investing Activities
Capital Expenditures. Our capital expenditures can be separated into two general categories:
(1)
(2)
sustaining (which includes maintenance activities on our sites, vehicles, information technology
equipment and office equipment), and
revenue generating (which includes tower improvements, enhancements to the structural capacity of our
towers in order to support additional leasing, the construction of new towers and distributed antenna
systems, land purchases and investment in emerging businesses).
A summary of our capital expenditures (including the total capital expenditures, which can be found on our
consolidated statement of cash flows) is as follows:
Year Ended December 31,
Revenue
Generating
Capital
Expenditures
Total Capital
Expenditures
Sustaining Capital
Expenditures
2004
2005
2004
2005
2004
2005
(In thousands of dollars)
CCUSA............................................................................... $ 8,225 $ 11,821 $ 29,455
1,498
CCAL .................................................................................
2,170
Emerging Businesses ..........................................................
Corporate Office and Other ................................................
1,184
331
55
1,877
102
45
—
$ 33,976 $ 37,680 $ 45,797
2,630
16,206
45
753
16,104
⎯
2,682
2,501
55
Consolidated ....................................................................... $ 9,795 $ 13,845 $ 33,123 $ 50,833 $ 42,918 $ 64,678
For 2005, total capital expenditures increased $21.8 million, or 50.7% from 2004. The 2005 sustaining capital
expenditures are consistent with our expectations for the on-going maintenance activities on our sites. The increase
in revenue generating capital expenditures is primarily driven by:
(1) the installation of distributed antenna systems by Crown Castle Solutions (totaling approximately $8.0
million), including systems at Disneyland and Hilton Head Island; and
(2) expenditures by Modeo related to the planned build of a dedicated digital network for broadcasting live
television to mobile devices (totaling approximately $8.1 million).
Our decisions regarding the construction of new towers and distributed antenna systems 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.
Other Investments. In July 2005, we invested an additional $55.0 million in FiberTower. FiberTower raised a
total of $150.0 million, inclusive of our investment of $55.0 million, through a private equity offering. In August
2005, we acquired 467 towers from an affiliate of Trintel for approximately $145.0 million in cash. We believe the
acquisition of the towers from Trintel is consistent with our mission, which 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. The expansion into major markets, such as Detroit and Dallas, resulting from this acquisition,
47
further positions us to accomplish this mission. We also believe acquiring these towers from Trintel is consistent
with our strategy of increasing recurring revenue and cash flow.
Financing Activities
For 2003, 2004 and 2005, our net cash provided by (used for) financing activities was $71.1 million, $(1.7)
billion and $(445.2) million, respectively. These amounts for 2004 and 2005 are largely due to financing
transactions we have completed in an effort to lower our future cash interest payments and simplify our capital
structure as discussed herein, as we continue to invest in opportunities we believe will drive long-term shareholder
value. The following is a summary of the significant financing transactions we completed in 2005:
Issuance of Debt. On June 8, 2005, we issued Tower Revenue Notes in the amount of $1.9 billion in a private
transaction. The notes are rated investment grade and are secured by our assignable U.S. personal property, license
agreements, revenues and/or distributions related to our towers as of June 2005 located in the U.S. The notes are
fixed rate obligations of ours, with interest rates ranging from 4.643% to 5.612%. The weighted average interest rate
on the debt is 4.890%. The proceeds from the sale of the notes net of certain fees and expenses of issuance of the
$1.9 billion Tower Revenue Notes were used to (1) purchase the tendered 10¾% Senior Notes, 9⅜% Senior Notes,
7.5% Senior Notes and 7.5% Series B Senior Notes; (2) redeem the 9% Senior Notes, 9½% Senior Notes, 10⅜%
Discount Notes, 11¼% Discount Notes ; and (3) repay our previously outstanding Crown Atlantic Credit Facility. In
addition, on June 8, 2005, proceeds of $48.9 million were used to fund certain reserve accounts, in accordance with
the indenture governing the notes, for the payment of ground rents, real estate and personal property taxes, insurance
premiums related to the towers, other assessments by governmental authorities and potential environmental
remediation costs, and to reserve a portion of advance rents from customers. The balance was made available for
general corporate purposes.
A summary of the use of proceeds from the issuance of such notes is as follows:
Tendered Notes, including accrued interest of $30.1 million (see Purchases of Debt below)................... $ 1,606,316
Redemption of Notes, including accrued interest of $1.2 million (see Purchases of Debt
below) ...............................................................................................................................................
56,172
Crown Atlantic Credit Facility repayment, swap repayments and termination
payment (see Purchases of Debt below)............................................................................................
Fund reserve accounts...............................................................................................................................
Underwriting fees and expenses................................................................................................................
Third party deal expenses .........................................................................................................................
General corporate purposes.......................................................................................................................
108,789
48,873
18,616
5,168
56,066
$ 1,900,000
(In thousands
of dollars)
On August 1, 2005, we entered into a credit agreement with a syndicate of banks on a $275.0 million revolving
credit facility (“2005 Credit Facility”). We utilized $145.0 million of borrowings under the 2005 Credit Facility to
fund the Trintel tower acquisition. On November 2, 2005, we borrowed an additional $55.0 million for general
corporate purposes. On December 1, 2005, we amended the credit facility from $275.0 million to $325.0 million,
borrowed an additional $95.0 million, which was used to partially fund the redemption of preferred stock and
accrued dividends (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources—Preferred Stock Purchases and Dividends”), and extended the maturity to
November 28, 2006. Additional borrowings under the 2005 Credit Facility may be used for capital expenditures and
acquisitions, subject to certain conditions.
Interest Rate Swaps. On May 18, 2005, we entered into a five-year forward starting interest rate swap
agreement with a notional amount of $1.9 billion to fix our interest cash outflows, in contemplation of the $1.9
billion aggregate principal amount of Tower Revenue Notes that were issued on June 8, 2005, at 4.295% plus the
applicable credit spread. The terms of the interest rate swap call for us to receive interest at a variable rate equal to
LIBOR and to pay interest at a fixed annual rate of 4.295%. On May 27, 2005, the effective date of the interest rate
swap, the interest rate swap was terminated resulting in a $5.7 million settlement payment by us. The settlement
payment will be amortized into interest expense on a straight-line basis through 2010, the anticipated repayment date
48
on the $1.9 billion aggregate principal amount of Tower Revenue Notes. The amortization of the settlement payment
into interest expense increases the effective interest rate paid by us on the notes by approximately 0.06%.
On December 15, 2005, we entered into two five-year forward starting interest rate swap agreements with
notional amounts of $175.0 million and $75.0 million, respectively, to fix our interest cash outflows, in
contemplation of refinancing the credit facility in June 2006. The terms of the interest rate swaps call for us to
receive interest at a variable rate equal to LIBOR and to pay interest at fixed rates of 4.935% and 4.95% on the
notional amounts of $175.0 million and $75.0 million, respectively. The interest rate swaps will effectively change
the interest rate on the refinanced borrowings expected to occur in June 2006 from a floating rate based on LIBOR
to a weighted average rate of 4.9395% plus the applicable margin. On January 27, 2006, we terminated these interest
rate swaps and entered into two new interest rate swaps with similar terms to fix our interest cash outflows, in
contemplation of refinancing the credit facility in June 2006. No settlement payment was required to terminate the
interest rate swaps.
On March 1, 2006, we entered into three five-year forward starting interest rate swap agreements with a
combined notional amount of $1.9 billion to fix its interest cash outflows, in contemplation of the expected June
2010 refinancing of the $1.9 billion Tower Revenue Notes issued in June 2005. The terms of the interest rate swaps
call for us to receive interest at a variable rate equal to LIBOR and to pay interest at a weighted average fixed rate of
5.111% plus the applicable margin. The interest rate swaps will effectively change the interest rate on the refinanced
borrowings expected to occur in June 2010 from a floating rate based on LIBOR to 5.111% plus the applicable
margin.
We have used, and will continue to use when we deem prudent, interest rate swap agreements to manage and
reduce interest rate risk to us.
Purchases of Debt. Our purchases of the debt securities in 2005, including purchases pursuant to the tender
offers and redemptions, resulted in losses of $283.8 million for 2005. Such losses are included in interest and other
income (expense) on our consolidated statement of operations and comprehensive income (loss). Such purchases
were as follows:
Principal Amount
and Carrying Value
Cash Paid
Losses on Purchase
Twelve Months
Ended
December 31, 2005
Twelve Months
Ended
December 31, 2005
(In thousands of dollars)
4% Convertible Senior Notes due 2010 ............................................ $
10⅜% Senior Discount Notes due 2011 ...........................................
9% Senior Notes due 2011................................................................
11¼% Senior Discount Notes due 2011 ...........................................
9½% Senior Notes due 2011.............................................................
10 ¾% Senior Notes due 2011..........................................................
9⅜% Senior Notes due 2011 ............................................................
7.5% Senior Notes due 2013.............................................................
7.5% Series B Senior Notes due 2013 ..............................................
118,052
11,341
26,133
10,700
4,753
418,304
405,523
299,944
299,962
$
$
217,127
11,733
26,917
11,302
4,979
445,166
448,018
341,464
341,517
102,070
504
1,214
676
283
35,037
47,872
47,598
48,543
$
1,594,712
$
1,848,223
$
283,797
See note 7 to our consolidated financial statements for additional information regarding purchases of debt.
Purchases of Common Stock. During 2004 and 2005, we purchased 3.4 million and 16.0 million shares of
common stock, respectively, exclusive of shares of common stock purchased from the dividend paying agent
following the issuance of the Convertible Preferred Stock dividend. We utilized $47.1 million and $310.1 million in
cash, respectively, to effect these purchases. We may choose to continue purchases of common stock in the future.
Preferred Stock Purchases and Dividends. On November 30, 2005, we exercised our redemption right for the
8¼% Convertible Preferred Stock. On December 16, 2005, we redeemed $200.0 million face value of our 8¼%
Convertible Preferred Stock for $204.1 million in cash, including accrued interest of $4.1 million. The redemption
49
resulted in losses of $12.0 million for the three months ended December 31, 2005, consisting of the write-off of
deferred financing costs included in additional paid-in capital ($9.4 million), and the excess of the total purchase
price over the carrying value of the redeemed convertible preferred stock ($2.6 million). The redemption eliminated
the potential future conversion of the 8¼% preferred stock into 7,442,000 shares of common stock. Prior to the
redemption in December 2005, we had the option to pay the dividends on our 8¼% preferred stock in cash or shares
of common stock (see “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities”).
We also have the option to pay dividends on our 6.25% Convertible Preferred Stock in cash or shares of
common stock (valued at 95% of the current market value of the common stock, as defined) (see “Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”). We are
required to redeem all outstanding shares of our 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 common
stock at a conversion price of $36.875 per share of common stock. Under certain circumstances, we generally have
the right to convert the 6.25% Convertible Preferred Stock, in whole or in part, into 8.6 million shares of common
stock at 120% of the conversion price or $44.25.
Financing Restrictions. Our credit facilities require our subsidiaries to maintain certain financial covenants and
place restrictions on the ability of our subsidiaries to, among other things, incur debt and liens, undertake
transactions with affiliates or related persons, dispose of towers, or make distributions of property, securities, or
equity, or make distributions of cash if certain covenants are breached. See “Financial Statements and
Supplementary Data”, note 8 for discussion of debt covenants.
Restricted Cash. Pursuant to the indenture agreement governing the $1.9 billion Tower Revenue Notes, all
rental cash receipts of the issuers of the Tower Revenue Notes and their subsidiaries are restricted and held by the
indenture trustee (“Indenture Trustee”) each month. The monies in excess of required reserve balances are
subsequently released to us on the 15th calendar day following month end. On January 15, 2006, $34.3 million was
released to us by the Indenture Trustee.
Contractual Cash Obligations
The following table summarizes our contractual cash obligations as of December 31, 2005:
2006
2007
2008
Years Ending December 31,
2009
(In thousands of dollars)
2010
Thereafter
Totals
Long-term debt (a) ...........................................................$ 295,000 $
Interest payments on long-term debt (a) (b) ....................
Capital lease obligations ..................................................
Operating lease obligations (c) ........................................
Redeemable preferred stock (d) .......................................
Asset retirement obligations (e) .......................................
114,763
836
112,928
—
—
11,722 $2,270,686
730 451,850
1,858
116,762 1,434,432 2,009,265
— 318,050 318,050
16,742
16,742
—
$ 523,527 $ 210,747 $ 211,316 $ 211,604 $2,129,581 $1,781,676 $5,068,451
95,834
361
114,344 115,121
—
—
95,834
92
115,678
—
—
—
95,834
569
963,964
48,855
—
—
— $1,
— $
—
—
$
$
(a) Tower Revenue Notes are presented assuming payment in full is expected to occur on the Anticipated Repayment Date in June of 2010. See note 7 to our
consolidated financial statements.
(b)
Interest payments on floating rate debt are estimated based on rates in effect during the first quarter of 2006. See note 7 to our consolidated financial statements.
(c) 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.
(d) Amounts are exclusive of preferred stock dividends, which may be paid in cash or shares of common stock. See note 10 to our consolidated financial
statements.
(e) Amounts represent the liability at December 31, 2005 for asset retirement obligations related to certain tower site land leases. See note 1 to our consolidated
financial statements.
The remaining terms to expiration (including renewal terms at our option) of the ground leases, subleases, or
licenses for the U.S. sites which we do not own and on which our towers are located, are as follows:
50
Remaining Term, In Years, as of December 31, 2005
15+ years
14 – 15 years
12 – 13 years
10 – 11 years
8 – 9 years
6 – 7 years
4 – 5 years
2 – 3 years
0 – 1 year
Number of Sites
6,134
930
567
476
400
228
206
118
75
9,134
Percent of Total U.S. Sites
56%
8%
5%
4%
4%
2%
2%
1%
1%
83%
In 2004, we began a program through which we seek to (1) renegotiate and extend the terms of the ground
leases, subleases and licenses relating to the sites on which our U.S. towers are located or (2) purchase the land on
which such towers reside. For the year ended December 31, 2005, (1) term extensions of ground leases, subleases or
licenses relating to 828 sites have been renegotiated or are pending final closing with a weighted average extension
of approximately 30 years and (2) 147 sites on which our towers reside have been purchased or are pending final
closing. See “Risk Factors—We Generally Lease or Sublease the Land Under Our Towers and May Not Be Able to
Extend These Leases”.
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 $7.8 million and expire on
various dates through May of 2007.
Factors Affecting Sources of Liquidity
The factors that are likely to determine our subsidiaries’ ability to comply with their current and future debt
covenants are:
(1) financial performance,
(2) levels of indebtedness, and
(3) debt service requirements.
Given the current level of indebtedness of 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 or cash from operations.
As a holding company, Crown Castle International Corp. (“CCIC”) will require distributions or dividends from
our subsidiaries, or will be forced to use our remaining cash balances, to fund the holding company’s debt
obligations (including the 4% Convertible Senior Notes and the guarantee of the 2000 Credit Facility entered into in
July 2005, after consideration of the July redemptions), including interest payments on the notes. The terms of the
current indebtedness of our subsidiaries allow the ability to distribute cash to CCIC unless they experience a
deterioration of financial performance. In addition, there can be no assurance that our subsidiaries will generate
sufficient cash from their operations to make any permitted distributions pursuant to our current or future
indebtedness. 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.
Our ability to make scheduled payments of principal of, or to pay interest on, our debt obligations, and our
ability to refinance any such debt obligations, will depend on our future performance, which, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our
control. See “Risk Factors”.
51
Accounting and Reporting Matters
Related Party Transactions
For the years ended December 31, 2003 and 2004, we had revenues from Verizon Wireless of $128.1 million
(as restated) and $131.7 million (as restated), respectively. Verizon Wireless was a majority owned subsidiary of
Verizon, our former partner in Crown Atlantic and Crown Castle GT. On November 4, 2004, we entered into an
agreement with a subsidiary of Verizon to acquire Verizon’s remaining 37.245% equity interest in Crown Atlantic.
See also note 13 to our consolidated financial statements.
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 or agreement with terms generally ranging from five to 10 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. When calculating our straight-line rental revenues, we
consider all fixed elements of tenant leases escalation provisions, even if such escalation provisions also include a
variable element. As a result of this accounting method, a portion of the revenue recognized in a given period
represents cash collected in other periods. For 2003, 2004 and 2005, the non-cash portion of our site rental revenues
amounted to approximately $21.3 million (as restated), $19.2 million (as restated) and $16.1 million, respectively
(see “Management’s Discussion and Analysis of Financial Condition and Results of Operations⎯Results of
Operations—Non-Cash Site Rental Margin”).
Network services revenues generally represent installation of antennas, lines and construction services for co-
locations on our towers, and are generally recognized under a method which approximates 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), such as our network services agreements and
contracts. We do not believe that our use of the completed contract method for network services projects produces
financial position and 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
52
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 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.
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 2005, 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. 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. A valuation allowance is provided on
deferred tax assets if it is determined that it is more likely than not that the asset will not 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 and comprehensive income (loss). 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 8 to our consolidated financial statements.
Impact of Recently Issued Accounting Standards
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (“SFAS 123(R)”)
(revised 2004), Share-Based Payment. 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) 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
53
requires additional disclosures about stock-based compensation awards. We will adopt the provisions of SFAS
123(R) on January 1, 2006. 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 (“SFAS 148”), Accounting for Stock-Based Compensation – Transition and Disclosure. 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. In October and November
2005 and February 2006, the FASB released Financial Staff Position FSP 123(R)-2, Practical Accommodation to the
Application of Grant Date as Defined in FASB Statement No 123(R), FSP 123 (R)-3, Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment Awards and FSP 123 (R)-4, Classification of Options and
Similar Instruments Issued as Employee Compensation that Allow for Cash Settlement upon the Occurrence of a
Contingent Event. The FSP’s clarify certain accounting provisions set forth in SFAS 123(R). We expect that the
adoption of SFAS 123(R) and the FSP’s will increase our non-cash compensation charges by approximately $0.5
million for the year ending December 31, 2006.
In March 2005, the SEC staff issued guidance on SFAS 123(R) (FAS 123(R)), Share-Based Payment. Staff
Accounting Bulletin No. 107 (“SAB 107”), was issued to assist preparers by simplifying some of the
implementation challenges of SFAS 123(R) while enhancing the information that investors receive. SAB 107 creates
a framework that is premised on two overarching themes: (a) considerable judgment will be required by preparers to
successfully implement SFAS 123(R), specifically when valuing employee stock options; and (b) reasonable
individuals, acting in good faith, may conclude differently on the fair value of employee stock options. Key topics
covered by SAB 107 include: (a) valuation models—SAB 107 reinforces the flexibility allowed by SFAS 123(R) to
choose an option-pricing model that meets the standard’s fair value measurement objective; (b) expected volatility—
SAB 107 provides guidance on when it would be appropriate to rely exclusively on either historical or implied
volatility in estimating expected volatility; and (c) expected term—the new guidance includes examples and some
simplified approaches to determining the expected term under certain circumstances. We will apply the principles of
SAB 107 in conjunction with our adoption of SFAS 123(R). However, we reclassified non-cash compensation
charges to the same line items within the consolidated statement of operations and comprehensive income (loss) as
cash compensation paid to employees, in accordance with the provisions of SAB 107. The amount of each line item
that is attributable to non-cash compensation charges is provided parenthetically on the face of the consolidated
statement of operations and comprehensive income (loss).
In March 2005, the FASB issued FIN 47, which clarifies the term conditional asset retirement obligation as
used in Statement of Financial Accounting Standards No. 143 (“SFAS 143”), Accounting for Asset Retirement
Obligations. SFAS 143 requires a liability to be recorded if the fair value of the obligation can be reasonably
estimated. The types of asset retirement obligations that are covered by FIN 47 are those for which an entity has a
legal obligation to perform an asset retirement activity, but the timing and (or) method of settling the obligation are
conditional on a future event that may or may not be within the control of the entity. FIN 47 also clarifies when an
entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN
47 is effective no later than fiscal years ending after December 15, 2005. We adopted FIN 47 on December 31,
2005. The adoption of FIN 47 resulted in the recognition of liabilities amounting to $14.0 million for contingent
retirement obligations under certain tower site land leases, asset retirement costs amounting to $4.9 million, and the
recognition of a charge for the cumulative effect of the change in accounting principle amounting to $9.0 million. At
December 31, 2004 and 2005, liabilities for contingent retirement obligations amounted to $1.7 million and $16.7
million, respectively.
See note 1 to our consolidated financial statements for further discussion of recently issued accounting
standards and the related impact on our consolidated financial statements.
Non-GAAP Financial Measures
Our measurement of profit or loss currently used to evaluate our operating performance and operating segments
is earnings before interest, taxes, depreciation, amortization and accretion, as adjusted, or Adjusted EBITDA. Our
definition of Adjusted EBITDA is set forth in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations⎯Results of Operations—Comparison of Years Ended December 31, 2005 and 2004—
Operating Segments”. Our measure of Adjusted EBITDA may not be comparable to similarly titled measures of
54
other companies, including companies in the tower sector, and is not a measure of performance calculated in
accordance with GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for operating
income or loss, net income or loss, cash flows provided by (used for) operating, investing and financing activities or
other income statement or cash flow statement data prepared in accordance with GAAP.
We believe Adjusted EBITDA is useful to an investor in evaluating our operating performance because:
•
•
•
•
it is the primary measure used by our management to evaluate the economic productivity of our operations,
including the efficiency of our employees and the profitability associated with their performance, the
realization of contract revenue under our long-term contracts, our ability to obtain and maintain our
customers and our ability to operate our leasing and licensing business effectively;
it is the primary measure of profit and loss used by management for purposes of making decisions about
allocating resources to, and assessing the performance of, our operating segments;
it is similar to the measure of current financial performance generally used in our debt covenant
calculations;
although specific definitions may vary, it is widely used in the wireless tower industry to measure operating
performance without regard to items such as depreciation, amortization and accretion, which can vary
depending upon accounting methods and the book value of assets; and
• we believe it helps investors meaningfully evaluate and compare the results of our operations from period
to period by removing the impact of our capital structure (primarily interest charges from our outstanding
debt) and asset base (primarily depreciation, amortization, and accretion) from our operating results.
Our management uses Adjusted EBITDA:
• with respect to compliance with our debt covenants, which require us to maintain certain financial ratios
including, or similar to, Adjusted EBITDA;
as the primary measure of profit and loss for purposes of making decisions about allocating resources to,
and assessing the performance of, our operating segments;
as a measurement of operating performance because it assists us in comparing our operating performance
on a consistent basis as it removes the impact of our capital structure (primarily interest charges from our
outstanding debt) and asset base (primarily depreciation, amortization and accretion) from our operating
results;
in presentations to our Board of Directors to enable it to have the same measurement of operating
performance used by management;
for planning purposes, including preparation of our annual operating budget; and
as a valuation measure in strategic analyses in connection with the purchase and sale of assets.
•
•
•
•
•
There are material limitations to using a measure such as Adjusted EBITDA, including the difficulty associated
with comparing results among more than one company and the inability to analyze certain significant items,
including depreciation and interest expense, that directly affect our net income or loss. Management compensates for
these limitations by considering the economic effect of the excluded expense items independently as well as in
connection with their analysis of net income (loss).
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 (see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital Resources—Interest Rate Swaps”) 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 for fluctuations in
market interest rates. The majority of our financial instruments, however, are long-term fixed interest rate
instruments. As of December 31, 2005, we had $295.0 million of floating rate indebtedness, or approximately 13.0%
55
of total long-term debt. 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 $3.0 million.
The majority of our foreign currency transactions are denominated in the Australian dollar, which is the
functional currency of CCAL. As a result of 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 average monthly exchange rate used to translate
the 2004 financial statements for CCAL fluctuated between a low of 0.6937 and a high of 0.7770. The average
monthly exchange rate used to translate the 2005 financial statements for CCAL fluctuated between a low of 0.7353
and a high of 0.7848.
Item 8. Financial Statements and Supplementary Data
Crown Castle International Corp. and Subsidiaries
Index to Consolidated Financial Statements
Page
Report of KPMG LLP, Independent Registered Public Accounting Firm ............................................................ 57
Consolidated Balance Sheet as of December 31, 2004 and 2005 .......................................................................... 58
Consolidated Statement of Operations and Comprehensive Income (Loss) for each of the three years in the
period ended December 31, 2005 ..................................................................................................................... 59
Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 2005 ....... 60
Consolidated Statement of Stockholders’ Equity for each of the three years in the period ended
December 31, 2005........................................................................................................................................... 61
Notes to Consolidated Financial Statements.......................................................................................................... 62
56
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, 2004 and 2005, 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, 2005. In connection with our audits of the consolidated financial statements, we have also
audited financial statement schedule II. These consolidated financial statements and the financial statement schedule
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule 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, 2004 and 2005, and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2005, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company restated its 2003 and 2004
consolidated financial statements.
As discussed in Note 1 to the consolidated financial statements, 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.”
As discussed in Note 1 to the consolidated financial statements, in 2005 the Company adopted the provisions of
Financial Accounting Standards Board Interpretation No. 47, “Accounting for Conditional Asset Retirement
Obligations—An Interpretation of FASB Statement No. 143”.
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, 2005, 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 22,
2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal
control over financial reporting.
KPMG LLP
Pittsburgh, Pennsylvania
March 22, 2006
57
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
December 31,
2004
(As restated)
2005
Current assets:
ASSETS
Cash and cash equivalents ...................................................................................................
Receivables:
Trade, net of allowance for doubtful accounts of $6,577 and $2,968, respectively .....
Other ............................................................................................................................
Deferred site rental receivable .............................................................................................
Prepaid expenses and other current assets............................................................................
Restricted cash (note 1)........................................................................................................
Assets of discontinued operations (notes 1 and 3) ...............................................................
$ 566,707
$
65,408
16,369
11,997
6,395
33,552
—
3,693
13,054
3,776
9,307
37,811
91,939
—
Total current assets ..............................................................................................
Restricted cash (note 1)................................................................................................................
Property and equipment, net ........................................................................................................
Goodwill ......................................................................................................................................
Deferred site rental receivable .....................................................................................................
Deferred financing costs and other assets, net of accumulated amortization of $35,961 and
638,713
—
3,375,022
332,493
82,342
221,295
3,814
3,294,333
340,412
87,392
$31,261, respectively..............................................................................................................
145,997
184,071
$ 4,574,567
$
4,131,317
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable.................................................................................................................
Accrued interest ...................................................................................................................
Accrued compensation and related benefits.........................................................................
Deferred rental revenues and other accrued liabilities .........................................................
Liabilities of discontinued operations (notes 1 and 3)..........................................................
Long-term debt, current maturities ......................................................................................
$
12,168
43,308
15,445
116,326
568
97,250
$
12,230
8,281
16,231
132,472
—
295,000
Total current liabilities.........................................................................................
Long-term debt, less current maturities .......................................................................................
Deferred ground lease payable.....................................................................................................
Other liabilities ............................................................................................................................
285,065
1,753,148
102,502
44,302
464,214
1,975,686
118,747
55,559
Total liabilities .....................................................................................................
2,185,017
2,614,206
Commitments and contingencies (note 14)
Minority interests.........................................................................................................................
Redeemable preferred stock.........................................................................................................
Stockholders’ equity:
Common stock, $.01 par value; 690,000,000 shares authorized; shares issued: December
31, 2004—224,064,124 and December 31, 2005—214,188,524....................................
Additional paid-in capital ....................................................................................................
Accumulated other comprehensive income (loss)................................................................
Unearned stock compensation .............................................................................................
Accumulated deficit.............................................................................................................
Total stockholders’ equity....................................................................................
See notes to consolidated financial statements.
58
32,016
508,040
26,792
311,943
2,241
3,386,748
55,921
(8,395)
(1,587,021)
1,849,494
$ 4,574,567
2,142
3,173,709
41,937
(1,498)
(2,037,914)
1,178,376
$
4,131,317
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands of dollars, except per share amounts)
Years Ended December 31,
2004
2003
2005
(As restated)
(As restated)
Net revenues:
Site rental............................................................................................................................... $
Network services and other...................................................................................................
Operating expenses:
Costs of operations (exclusive of depreciation, amortization and accretion):
Site rental (including non-cash compensation charges of $279, $553 and $715) ......
Network services and other (including non-cash compensation charges of $142,
$
484,841
72,316
557,157
538,309
65,893
604,202
$
597,125
79,634
676,759
179,305
184,273
197,355
$280 and $349) ......................................................................................................
46,888
46,752
54,630
General and administrative (including non-cash compensation charges of $13,565,
$12,255 and $18,883) .....................................................................................................
Corporate development .........................................................................................................
Restructuring charges (including non-cash compensation charges of $-0-, $2,859 and
$6,424) ............................................................................................................................
Asset write-down 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
95,155
5,564
1,291
14,317
281,028
97,665
1,455
3,729
7,652
284,991
(66,391)
(22,315)
105,763
3,896
8,477
2,925
281,118
22,595
(131,792)
(78,264)
(282,443)
on preferred stock ...........................................................................................................
(258,834)
(206,770)
(133,806)
Loss from continuing operations before income taxes, minority interests and
cumulative effect of change in accounting principle............................................................
Benefit (provision) for income taxes .............................................................................................
Minority interests ...........................................................................................................................
(457,017)
(2,465)
3,992
(307,349)
5,370
398
(393,654)
(3,225)
3,525
Loss from continuing operations before cumulative effect of change in accounting
principle ..........................................................................................................................
(455,490)
(301,581)
(393,354)
Discontinued operations (notes 1 and 3):
Income (loss) from discontinued operations, net of tax (including non-cash compensation
charges of $6,668, $2,705 and $-0-) ...............................................................................
Net gain (loss) on disposal of discontinued operations, net of tax (including non-cash
compensation charges of $-0-, $8,617 and $-0-)............................................................
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 losses on purchases of preferred stock ...............................
Net income (loss) after deduction of dividends on preferred stock, net of losses on purchases of
4,430
—
4,430
(451,060)
(551)
(451,611)
(55,897)
40,578
(1,953)
494,110
534,688
233,107
—
233,107
(38,618)
2,801
848
(392,506)
(9,031)
(401,537)
(49,356)
preferred stock.......................................................................................................................... $
(507,508) $
194,489 $
(450,893)
Net income (loss) ........................................................................................................................... $
Other comprehensive income (loss):
Foreign currency translation adjustments .............................................................................
Less: reclassification adjustment for foreign currency translation adjustments
(451,611) $
233,107 $
(401,537)
205,702
25,540
(9,922)
included in net income (loss) ..........................................................................................
—
(232,893)
Derivative instruments:
Net change in fair value of cash flow hedging instruments ........................................
Amounts reclassified into results of operations ..........................................................
Minimum pension liability adjustment .................................................................................
(1,308)
6,874
(1,888)
75
3,179
11,513
—
(5,705)
1,643
—
Comprehensive income (loss)........................................................................................................ $
(242,231) $
40,521
$
(415,521)
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...........................................................
(2.35) $
0.02
(0.01)
(1.54) $
2.42
—
Net income (loss) .................................................................................................................. $
(2.34) $
0.88
$
(2.03)
⎯
(0.04)
(2.07)
Weighted average common shares outstanding – basic and diluted (in thousands) .....................
216,947
221,693
217,759
See notes to consolidated financial statements.
59
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
2003
(As restated)
Years Ended December 31,
2004
(As restated)
2005
Cash flows from operating activities:
Net income (loss)..........................................................................................................................
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
$
(451,611 )
$
233,107
$
(401,537 )
Depreciation, amortization and accretion ..............................................................................
Losses on purchases and redemptions of long-term debt ......................................................
Non-cash compensation charges............................................................................................
Amortization of deferred financing costs, discounts on long-term debt
and dividends on preferred stock........................................................................................
Asset write-down charges ......................................................................................................
Equity in losses and write-downs of unconsolidated affiliates .............................................
(Income) loss 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............................................................
Interest rate swap termination payment .................................................................................
Amortization of interest rate swap payment..........................................................................
Changes in assets and liabilities, excluding the effects of acquisitions:
Increase (decrease) in accrued interest............................................................................
Increase (decrease) in accounts payable..........................................................................
Increase (decrease) in deferred rental revenues, deferred ground lease
payable and other liabilities ......................................................................................
Decrease (increase) in receivables ...................................................................................
Decrease (increase) in inventories, prepaid expenses, deferred site rental
receivable and other assets........................................................................................
Net cash provided by (used for) operating activities................................................
Cash flows from investing activities:
Maturities of investments .............................................................................................................
Purchases of investments..............................................................................................................
Proceeds from investments and disposition of property and equipment .....................................
Acquisitions of assets and minority interests in joint ventures.....................................................
Capital expenditures .....................................................................................................................
Investments in unconsolidated affiliates and other ......................................................................
281,028
87,112
13,986
72,159
14,317
1,817
(4,430 )
7,122
32,293
551
—
—
3,755
(7,775 )
12,889
30,757
(8,646 )
85,324
877,260
(725,163 )
13,520
(5,873 )
(27,355 )
(13,308 )
284,991
77,659
15,947
9,512
7,652
5,945
(534,688 )
(398 )
—
—
—
—
(5,755 )
2,386
10,181
20,557
(8,774
)
1
18,322
517,500
(490,900 )
3,237
(295,000 )
(42,918 )
(11,119 )
281,118
283,797
26,371
6,174
2,925
4,674
(848 )
(3,525 )
—
9,031
655
572
(35,027 )
149
33,767
11,221
(15,021 )
2
04,496
—
—
2,827
(147,255 )
(64,678 )
(55,034 )
Net cash provided by (used for) investing activities ................................................
119,081
(319,200 )
(264,140 )
Cash flows from financing activities:
Proceeds from issuance of long-term debt ...................................................................................
Proceeds from issuance of capital stock.......................................................................................
Principal payments on long-term debt .........................................................................................
Purchases and redemptions of long-term debt .............................................................................
Purchases of capital stock.............................................................................................................
Purchases and redemption of preferred stock ..............................................................................
Borrowings under revolving credit agreements ...........................................................................
Payments under revolving credit agreements ..............................................................................
Incurrence of financing costs .......................................................................................................
Initial funding of restricted cash...................................................................................................
Net (increase) decrease in restricted cash ....................................................................................
Interest rate swap payments .........................................................................................................
Dividends on preferred stock .......................................................................................................
Net cash provided by (used for) financing activities................................................
Effect of exchange rate changes on cash.........................................................................................
Cash flows from discontinued operations:
Net cash provided by (used for) operating activities ....................................................................
Net cash provided by (used for) investing activities.....................................................................
Net cash provided by (used for) financing activities ....................................................................
Effect of exchange rate changes on cash ......................................................................................
Net increase (decrease) in cash and cash equivalents...................................................................
$
Net cash provided by (used for) discontinued operations (notes 1 and 3)...................................
Net increase (decrease) in cash and cash equivalents....................................................................
Cash and cash equivalents at beginning of year ............................................................................
1,532,000
7,992
(112,250 )
(928,388 )
(52,409 )
(291,325 )
—
(55,000 )
(29,534 )
—
—
—
—
71,086
4,964
—
32,094
(1,289,750 )
(353,958 )
(59,364 )
—
—
(15,000 )
(444 )
—
—
—
—
1,900,000
59,054
—
(1,848,222 )
(314,889 )
(200,000 )
295,000
(180,000 )
(32,405 )
(48,873 )
(46,880 )
(6,381 )
(
21,624)
(1,686,422 )
(445,220 )
1,178
(408 )
$
174,714
(91,557 )
(384,748 )
3,790
87,093
(210,708)
69,747
339,837
$
8,803
2,002,366
—
6,274
25,802
2,043,245
157,123
409,584
3,604
(73 )
—
—
442
3,973
(501,299 )
6,707
56
Cash and cash equivalents at end of year.......................................................................................
$
409,584
$
566,707
$
65,408
See notes to consolidated financial statements.
60
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands of dollars, except share amounts)
Common Stock
Cumulative effect of restatement................................................
Additional
Paid-In Capital
Balance, January 1, 2003, as previously reported ............................ 215,983,294 $ 2,160 $ 3,318,830
—
Balance, January 1, 2003, as restated ............................................... 215,983,294 2,160 3,318,830
31,889
(52,515 )
1,512
—
Issuances of capital stock, net of forfeitures...............................
Purchases and retirement of capital stock...................................
Non-cash compensation charges.................................................
Foreign currency translation adjustments...................................
Derivative instruments:
74
(80)
— —
— —
7,365,611
(8,034,053)
— —
($.01
Par)
Shares
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 ......................................
Net loss, as restated.....................................................................
—
—
—
37,301
12,442
—
Balance, December 31, 2003, as restated ......................................... 220,758,321 2,208 3,349,459
50,416
(59,322)
3,308
⎯
Issuances of capital stock, net of forfeitures...............................
Purchases and retirement of capital stock...................................
Non-cash compensation charges.................................................
Foreign currency translation adjustments...................................
Derivative instruments:
—
— —
— —
54
— —
— —
49
(42)
⎯ ⎯
⎯ ⎯
4,919,208
(4,251,766)
5,443,469
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, as restated ...............................................................
⎯
⎯
37,253
5,634
⎯
Balance, December 31, 2004, as restated ......................................... 224,064,124 2,241 3,386,748
70,950
(314,727)
6,973
—
5,441,626
Issuances of capital stock, net of forfeitures...............................
Purchases and retirement of capital stock................................... (16,193,964)
Non-cash compensation charges.................................................
Foreign currency translation adjustments...................................
Derivative instruments:
⎯ ⎯
⎯ ⎯
26
⎯ ⎯
⎯ ⎯
54
(162)
— —
— —
2,638,361
Net change in fair value of cash flow hedging
instruments................................................................
Amounts reclassified into results of operations .............
Dividends on preferred stock......................................................
Losses on purchases of preferred stock ......................................
Net loss........................................................................................
—
—
14,363
9,402
—
Balance, December 31, 2005 ............................................................ 214,188,524 $ 2,142 $ 3,173,709
— —
— —
9
— —
— —
876,738
Accumulated Other Comprehensive
Income (Loss)
Foreign
Currency
Translation
Adjustments
$
57,312 $
143
57,455
—
—
—
206,789
Derivative
Instruments
Minimum
Pension
Liability
Adjustment
Unearned
Stock
Compensation
Accumulated
Deficit
Total
(9,911) $
—
(9,911)
—
—
—
—
(8,417) $
—
(8,417)
—
—
—
(1,087)
— $ (1,285,682) $ 2,074,292
11,823
—
2,086,115
—
7,991
(23,972 )
(52,595)
⎯
17,362
15,850
205,702
⎯
11,680
(1,274,002)
—
—
—
—
—
—
—
—
—
—
264,244
⎯
⎯
⎯
25,661
⎯
⎯
⎯
(232,893)
⎯
57,012
—
—
—
(9,922)
—
—
—
—
—
$
47,090 $
(1,308)
6,874
—
—
—
—
(4,345)
⎯
⎯
⎯
⎯
75
3,179
⎯
⎯
⎯
(1,091)
—
—
—
—
—
—
(1,888)
—
—
—
(11,392)
⎯
⎯
⎯
(121)
⎯
⎯
⎯
11,513
⎯
⎯
—
—
—
—
⎯
⎯
⎯
⎯
⎯
⎯
(8,122 )
(18,465)
⎯
15,209
⎯
⎯
⎯
⎯
2,983
⎯
(8,395 )
(12,450)
—
19,347
—
—
—
—
(54,294)
(1,603)
(451,611)
(1,781,510)
⎯
⎯
⎯
⎯
(1,308)
6,874
(1,888)
(16,939)
10,839
(451,611)
1,810,542
32,000
(59,364)
18,517
25,540
⎯
⎯
(38,618)
⎯
233,107
(1,587,021)
—
—
—
—
75
3,179
(1,339)
(212,763)
233,107
1,849,494
58,554
(314,889)
26,320
(9,922)
(5,705)
1,643
—
—
—
(5,153) $
—
—
—
—
—
—
$
—
—
—
—
—
(5,705)
—
1,643
—
(22,982)
(37,354)
(2,600)
(12,002)
(401,537)
(401,537)
(1,498 ) $ (2,037,914) $ 1,178,376
See notes to consolidated financial statements.
61
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Crown Castle International Corp. (“CCIC”) and
its majority and wholly owned subsidiaries, collectively referred to herein as the “Company”. All significant
intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been
made to the prior year’s financial statements to be consistent with the presentation in the current year.
The Company owns, operates and manages wireless communications sites. The Company’s primary business is
the leasing of antenna space to wireless communication companies under long-term contracts. 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 and
Puerto Rico (collectively, “U.S.”), and in Australia.
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”). CCUK’s assets, liabilities, results of operations and cash
flows are classified as amounts from discontinued operations for all periods presented. On August 31, 2004, the
Company completed the sale of CCUK (see note 3).
In January 2005, the Company adopted a plan to exit the business of OpenCell Corp. (“OpenCell”), a business
which manufactures distributed antenna systems and is a supplier to Crown Castle Solutions. OpenCell was included
in the Corporate Office and Other segment through March 31, 2004 and in CCUSA thereafter. For all periods
presented, the assets, liabilities, results of operations and cash flows of the business of OpenCell are classified as
amounts from discontinued operations (see note 3).
The preparation of financial statements in conformity with U.S. 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, 2003 and 2004 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 (“SEC”) 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 adjusted its method of
accounting for tenant leases, ground leases and depreciation, and restated its consolidated financial statements for
the years ended December 31, 2002 and 2003, and its interim financial statements for the four quarters of 2003 and
the first three quarters of 2004 to reflect corrections in the proper periods. Subsequent to this restatement, as part of
the Company’s 2005 control procedures, the Company engaged in a lease by lease review of the leases that
generated the non-cash adjustments attributable to increases in site rental revenues, ground lease expense and
depreciation expense. The Company completed this review in the first quarter of 2006 and determined that the
required adjustments, as a result of this review, would be material to the results of the fourth quarter of 2005 if
recorded as a single adjustment in the fourth quarter of 2005. Therefore, the Company determined that the errors are
most appropriately corrected through the restatement of previously issued financial statements for the years ended
December 31, 2003 and 2004, for each of the quarters of 2004 and for the first three quarters of 2005 to reflect these
non-cash adjustments in the proper periods. As such, the Company restated the consolidated financial statements for
the years ended December 31, 2003 and 2004. In addition to restating the consolidated financial statements for the
years ended December 31, 2003 and 2004, the Company has also restated its interim financial statements for the
four quarters of 2004 and the first three quarters of 2005 to reflect these corrections in the proper periods (see Note
18). The required adjustments are not material to any prior year or quarter.
62
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The corrections to the Company’s consolidated financial statements for the years ended December 31, 2003 and
2004, each of the quarters of 2004 and the first three quarters of 2005, consist of non-cash adjustments primarily
attributable to decreases in site rental revenues, ground lease expense (included in site rental costs of operations) and
depreciation expense (included in deprecation, amortization and accretion expense). Since the adjustments affected
results of operations at Crown Castle Australia Holdings Pty Ltd. (“CCAL”) and the Company’s two joint ventures
(“Crown Atlantic” and “Crown Castle GT”) with Verizon Communications (“Verizon”), they also resulted in
changes to minority interests and the purchase price allocation for the acquisition of a minority interest in 2003 and
2004 (see note 2). The cumulative effects of these adjustments on the Company’s consolidated statements of
operations from inception through September 30, 2005 are as follows: a decrease in site rental revenues of $652,000;
a decrease in site rental costs of operations of $12,057,000; a decrease in depreciation expense of $12,030,000; a
decrease in operating losses of $23,435,000; a decrease in other expense (attributable to the gain on the issuance of
an interest in Crown Atlantic) of $126,000; a decrease in minority interests of $3,706,000; and a decrease in net
losses of $19,855,000. 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 value of the Company’s leaseholds and its
tower assets.
In addition, incremental non-cash compensation expense (included in general and administrative expenses)
totaling $883,000 was charged to results of operations in 2005. Such corrections were made to reflect the
performance requirements in certain performance-based awards.
In addition, non-cash compensation expense ($1,497,000) previously charged to results of operations during
2005 related to restricted stock awards issued to the Company’s former CCUK employees was charged to the net
gain on disposal of CCUK in 2004 (see note 3). Such corrections were made to reflect changes in the vesting
requirements for the former CCUK employees’ awards.
The adjustments to amounts previously presented in the consolidated statement of operations and
comprehensive income (loss) for the years ended December 31, 2003 and 2004 are summarized as follows:
As Previously
Stated
Restatement
Adjustments
As
Restated
Adjustments
to Present
OpenCell as
Discontinued
Operations
Adjustments
to Present
Non-Cash
Compensation
in Accordance
with SAB 107
As Restated
on Continuing
Operations
Basis
2003:
Site rental revenues ........................................
Site rental costs of operations..........................
Network service cost of operations .................
General and administrative.............................
.
.
Non-cash compensation charges ....................
Depreciation, amortization and
.$ 482,747
179,549
46,746
87,061
13,986
(In thousands of dollars, except per share amounts)
$
$
2,094 $
484,841
(523) 179,026
46,746
87,061
13,986
—
—
—
—
—
—
(5,471)
—
$
— $
279
142
13,565
(13,986)
484,841
179,305
46,888
95,155
—
.
accretion expense ......................................
Operating income (loss) ..................................
Interest and other income (expense)................
Minority interests ...........................................
.
Net income (loss) ............................................
Net income (loss) per common share – basic
.
and diluted.................................................
281,980
(75,431)
(132,075)
4,036
(454,862)
(552)
3,169
126
(44)
3,251
281,428
(72,262)
(131,949)
3,992
(451,611)
(400)
5,871
157
—
—
(2.36)
0.02
(2.34)
—
—
—
—
—
—
—
281,028
(66,391)
(131,792)
3,992
(451,611)
(2.34)
63
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As Previously
Stated
Restatement
Adjustments
As
Restated
Adjustments
to Present
OpenCell as
Discontinued
Operations
Adjustments
to Present
Non-Cash
Compensation
in Accordance
with SAB 107
As Restated
on Continuing
Operations
Basis
(In thousands of dollars, except per share amounts)
2004:
Site rental revenues .........................................$ 537,465
66,400
.
Network services and other revenues .............
Site rental costs of operations..........................
183,600
47,315
Network service cost of operations .................
General and administrative.............................
90,230
.
870
Restructuring charges......................................
Non-cash compensation charges .....................
15,947
Depreciation, amortization and
$
$
844
—
120
—
—
—
—
$ 538,309
66,400
183,720
47,315
90,230
870
15,947
accretion expense ......................................
.
Operating income (loss) .................................
Minority interests ............................................
Income (loss) from discontinued operations,
net of tax...................................................
Net income (loss) ...........................................
Net income (loss) per common share – basic
and diluted.................................................
.
.
.
283,986
(27,190)
202
542,006
235,110
1,426
(702)
196
285,412
(27,892)
398
(1,497) 540,509
(2,003) 233,107
0.89
(0.01)
0.88
—
—
(507)
—
(843)
(4,820)
—
—
(421)
5,577
—
(5,821)
—
$
— $
—
553
280
12,255
2,859
(15,947)
538,309
65,893
184,273
46,752
97,665
3,729
—
—
—
—
—
—
—
284,991
(22,315)
398
534,688
233,107
0.88
The following table describes the effects of the restatement on comprehensive income (loss) for the years ended
December 31, 2003 and 2004.
Comprehensive income (loss), as previously stated.............................................................$
Adjustments to net income (loss) ......................................................................
Adjustments to foreign currency translation adjustments..................................
Com
prehensive income (loss), as restated ...........................................................................$
Years Ended December 31,
2003
2
004
(In thousands of dollars)
(246,597) $
3,251
1,115
(
242,231) $
42,337
(2,003)
187
40,521
The following table describes the cumulative effects of the restatement on the consolidated balance sheet as of
December 31, 2004.
Deferred Site
Rental
Property and
Equipment Receivable(a)
Deferred
Ground Lease
Payable
Goodwill
Minority
Interests
Stockholders’
Equity
Balances as of December 31, 2004, as previously stated ..... $ 3,369,565 $
Adjustments to site rental revenues
.
Adjustments to site rental costs of operations ............
Adjustments to depreciation expense ..........................
Adjustments to minority interests ................................
Adjustments to purchase price allocation for
acquisition.............................................................
.
Foreign currency translation adjustments (b)
—
—
6,086
—
(1,008)
1,778
91,323
(2,278)
—
—
—
—
(308)
(In thousands of dollars)
$333,718 $
—
—
—
—
116,874
—
(13,985)
—
—
$
30,468 $
—
—
—
3,494
1,833,625
(2,278)
13,985
6,086
(3,494)
(1,225)
—
—
(387)
—
(1,946)
126
1,444
Balances as of December 31, 2004, as restated .................... 3,376,421
88,737
332,493
102,502
32,016
1,849,494
Adjustment to present OpenCell’s assets and
liabilities as discontinued operations....................
.
(1,399)
—
—
—
—
—
Balances as of December 31, 2004, as restated on
continuing operations basis............................................. $ 3,375,022
$
88,737 $
332,493 $
102,502
$
32,016
$
1,849,494
(a) Balance as of December 31, 2004, as restated on continuing operations basis, includes current portion of $6,395,000.
(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, 2003.
64
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Accumulated
Deficit
(In thousands of dollars)
Balance as of January 1, 2003, as previously stated ..................................................................................... $
Adjustments to site rental revenues ....................................................................................................
Adjustments to site rental costs of operations ....................................................................................
Adjustments to depreciation expense .................................................................................................
Adjustments to minority interests.......................................................................................................
Total adjustments ...............................................................................................................................
Balance as of January 1, 2003, as restated .................................................................................................... $
(1,285,682)
(5,216)
13,582
6,960
(3,646)
11,680
(1,274,002
)
Revision to Presentation of Cash Flows Relating to Discontinued Operations
In 2005, the Company separately disclosed the operating, investing and financing portions of the cash flows
attributable to its discontinued operations which, in prior periods, were reported on a combined basis as a single
amount.
Summary of Significant Accounting Policies
Cash Equivalents
Cash equivalents consist of highly liquid investments with original maturities of three months or less.
Restricted Cash
Restricted cash represents the cash held in escrow pursuant to the Indenture (as defined in note 7) governing the
Tower Revenue Notes to fund certain reserve accounts for the payment of debt service costs, ground rents, real
estate and personal property taxes, insurance premiums related to towers, other assessments by governmental
authorities and potential environmental remediation costs, and to reserve a portion of advance rents from customers.
Based on the terms of the Indenture, all rental cash receipts each month are restricted and held by the Indenture
Trustee (as defined in note 7). The monies held by the Indenture Trustee as of December 31, 2005 are classified as
restricted cash. The monies held by the Indenture Trustee in excess of required reserve balances are subsequently
released to the Company on the 15th calendar day following month end. On January 15, 2006, $34,253,000 of the
restricted cash balance was released to the Company. There was no restricted cash at December 31, 2004.
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 and are classified as prepaid expenses and other current
assets on the consolidated balance sheet. Cost is determined using the first-in, first-out (FIFO) method. Inventories
totaled $4,781,000 and $3,573,000 at December 31, 2004 and 2005, respectively, and include work in process
amounting to $2,860,000 and $3,186,000 at December 31, 2004 and 2005, 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 towers is generally computed with a useful life equal to the shorter of 20 years or the term of the underlying
65
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 5). 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. The Company’s 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.
Investments in Unconsolidated Affiliates
The Company uses the cost method to account for investments in those entities where the Company owns less
then twenty percent of the voting stock of the individual entity and does not exercise significant influence over the
entity and is not the primary beneficiary. The Company uses the equity method to account for investments in those
entities where the Company does not have control or is not the primary beneficiary but has the ability to exercise
significant influence over the entity. The Company reviews investments in unconsolidated affiliates for impairment
whenever events or changes in circumstances indicate that the carrying amount may be greater then the fair market
value. If an evaluation was required, carrying value of the investment would be compared to the asset’s fair market
value, and an impairment charge would be recorded to adjust the carrying value to the fair market value.
Revenue Recognition
Site rental revenues are recognized on a monthly basis over the fixed, non-cancelable term of the relevant lease
or agreement, with such terms generally ranging from five to 10 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. When calculating straight-line rental revenues, the Company considers all fixed
elements of tenant leases escalation provisions, even if such escalation provisions also include a variable element.
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
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
66
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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. A valuation allowance is provided on deferred tax assets if it is determined that it is more
likely than not that the asset will not be realized.
Reclassifications
Certain reclassifications have been made to the 2004 and 2003 financial statements and related notes to conform
with the 2005 presentation (including the classification of non-cash compensation; see “Recent Accounting
Pronouncements”).
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.
A reconciliation of the numerators and denominators of the basic and diluted per share computations is as
follows:
Years Ended December 31,
2004
2003
(As restated)
(As restated)
(In thousands of dollars, except per share amounts)
2005
Loss from continuing operations before cumulative effect of change in accounting
principle ............................................................................................................ $ (455,490) $ (301,581)
Dividends on preferred stock..................................................................................
Losses on purchases of preferred stock ..................................................................
(54,294)
(1,603)
(38,618)
—
$ (393,354)
(37,354)
(12,002)
Loss from continuing operations before cumulative effect of change in accounting
principle applicable to common stock for basic and diluted computations .......
Income (loss) from discontinued operations...........................................................
Cumulative effect of change in accounting principle..............................................
(511,387)
4,430
(551)
(340,199)
534,688
—
(442,710)
848
(9,031)
Net income (loss) applicable to common stock for basic and diluted computations $ (507,508) $ 194,489
$ (450,893)
Weighted-average number of common shares outstanding during the period for
basic and diluted computations (in thousands) ..................................................
216,947
221,693
217,759
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......................................
(2.35) $
0.02
(0.01)
(1.54)
2.42
$
—
(2.03)
⎯
(0.04)
Net income (loss)............................................................................................ $
(2.34) $
0.88
$
(2.07)
67
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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, 2005.
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 $26.875 per
share ..................................................................................................................
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, 2005) ........................................
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 .......................................................................
2003
18,994
640
1,000
7,442
8,625
1,873
21,237
59,811
December 31,
2004
(In thousands)
14,433
640
⎯
7,442
8,625
918
16,807
48,865
2005
8,598
640
⎯
⎯
8,625
94
5,906
23,863
As of December 31, 2005, outstanding stock options include (1) 52,108 options at exercise prices ranging from
$-0- to $4.00 per share and a weighted-average exercise price of $2.25 per share, (2) 6,866,458 options at exercise
prices ranging from $4.01 to $27.00 per share and a weighted-average exercise price of $14.72 per share and (3)
1,679,584 options at exercise prices ranging from $27.01 to $39.75 per share and a weighted-average exercise price
of $30.98 per share.
Foreign Currency Translation
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 is recorded as
translation adjustments in stockholders’ equity.
Derivative Instruments
The Company utilizes certain derivative financial instruments, consisting of interest rate swaps, to enhance its
ability to manage interest rate risk that exists as part of its ongoing operations. Derivative financial instruments are
entered into for periods that match the related underlying exposures and do not constitute positions independent of
these exposures. The Company can designate derivative financial instruments as hedges. The Company can also
enter into derivative financial instruments that are not designated as accounting hedges.
Derivatives are recognized on the balance sheet at fair value. If the derivative is designated as a cash flow
hedge, the effective portion of the change in the fair value of the derivative is recorded as a separate component of
stockholders’ equity, captioned accumulated other comprehensive loss, and recognized in earnings when the hedged
item affects earnings. Derivatives that do not meet the requirements for hedge accounting are marked to market
through interest and other income (expense) on the consolidated statement of operations and comprehensive income
(loss).
To qualify for hedge accounting, the details of the hedging relationship must be formally documented at the
inception of the arrangement, including the risk management objective, hedging strategy, hedged item, specific risks
that are being hedged, the derivative instrument, how effectiveness is being assessed and how ineffectiveness will be
measured. The derivative must be highly effective in offsetting changes in cash flows for the risk being hedged. In
the context of hedging relationships, effectiveness refers to the degree to which fair value changes in the hedging
instrument offset the corresponding expected earnings effects of the hedged item. The Company assesses the
effectiveness of hedging relationships both at the inception of the hedge and on an on-going basis.
68
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximates fair value for these instruments. The estimated
fair value of the Company’s public debt securities is based on quoted market prices, and the estimated fair value of
the other long-term debt is determined based on the current rates offered for similar borrowings. The estimated fair
value of the interest rate swap agreements are based on the amount that the Company would receive or pay to
terminate the agreement at the balance sheet date. The estimated fair values of the Company’s financial instruments,
along with the carrying amounts of the related assets (liabilities), are as follows:
December 31, 2004
December 31, 2005
Cash and cash equivalents ....................................................... $
Restricted cash.........................................................................
Long-term debt ........................................................................
Interest rate swap agreements ..................................................
Stock-Based Compensation
Carrying
Amount
566,707
⎯
$
Carrying
Amount
Fair
Value
(In thousands of dollars)
566,707 $
⎯
(1,850,398)
(1,091)
(2,119,760)
(1,091)
$
65,408
95,753
(2,270,686)
(475)
Fair
Value
65,408
95,753
(2,348,000)
(475)
The Company used the “intrinsic value based method” of accounting for its stock-based employee
compensation plans until December 31, 2002 (see note 11). 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. 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 “Basis of Presentation and Summary of Significant Accounting Policies—
Summary of Significant Accounting Policies—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
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.
Net income (loss), as reported............................................................................ $
Add: Stock-based employee compensation expense included in reported net
income (loss) ................................................................................................
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 preferred
stock .............................................................................................................
Net income (loss) applicable to common stock for basic and diluted
Years Ended December 31,
2004
2003
(As restated)
(As restated)
(In thousands of dollars, except per share amounts)
$ (401,537)
(451,611) $
233,107
2005
20,654
27,269
26,371
(45,329)
(35,150)
(32,516)
(476,286)
225,226
(407,682)
(55,897)
(38,618)
(49,356)
computations, as adjusted............................................................................. $
(532,183)
$
186,608
$
(457,038)
Net income (loss) per common share—basic and diluted:
As reported.............................................................................................. $
As adjusted.............................................................................................. $
(2.34) $
(2.45) $
0.88
$
0.84
$
(2.07)
(2.10)
Recent Accounting Pronouncements
In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143 (“SFAS 143”),
Accounting for Asset Retirement Obligations. 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
69
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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. See further discussion of asset retirement obligations below under FASB Interpretation No.
47 (“FIN 47”), Accounting for Conditional Asset Retirement Obligations – An Interpretation of FASB Statement No.
143.
In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”),
Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 replaces the previous accounting
guidance provided by Emerging Issues Task Force Issue No. 94-3, (“EITF 94-3”) “Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)”. 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 16).
In November 2002, the FASB’s Emerging Issues Task Force (“EITF”) released its final consensus on Issue No.
00-21 (“EITF 00-21”), Revenue Arrangements with Multiple Deliverables. 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 (“SFAS 148”),
Accounting for Stock-Based Compensation—Transition and Disclosure. SFAS 148 amends Statement of Financial
Accounting Standards No. 123 (“SFAS 123”), Accounting for Stock-Based Compensation, 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 (“FIN 46”), Consolidation of Variable Interest
Entities. 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 (“SFAS 150”),
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150
70
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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% Cumulative Convertible
Redeemable Preferred Stock (“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 and
comprehensive income (loss) beginning on July 1, 2003. The Company redeemed the remaining outstanding shares
of 12¾% Exchangeable Preferred Stock in December 2003 and the remaining 8¼% Convertible Preferred Stock in
December 2005 (see note 10).
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 123 (“SFAS 123(R)”) (revised 2004), Share-Based Payment. 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 (“APB 25”),
Accounting for Stock Issued to Employees. 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) were originally to be effective for the
Company as of the beginning of the first interim or annual reporting period that begins after June 15, 2005.
However, on April 14, 2005, the SEC announced that the compliance date for SFAS 123(R) had been amended. The
provisions of SFAS 123(R) are now required to be implemented by the Company at the beginning of its next fiscal
year. As such, the Company will adopt the provisions of SFAS 123(R) on January 1, 2006. 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 compensation charges by approximately $450,000 for the year ending December
31, 2006.
In March 2005, the SEC staff issued Staff Accounting Bulletin No. 107 (“SAB 107”) to assist preparers by
simplifying some of the implementation challenges of SFAS 123(R) while enhancing the information that investors
receive. SAB 107 creates a framework that is premised on two overarching themes: (a) considerable judgment will
be required by preparers to successfully implement SFAS 123(R), specifically when valuing employee stock
options; and (b) reasonable individuals, acting in good faith, may conclude differently on the fair value of employee
stock options. Key topics covered by SAB 107 include: (a) valuation models—SAB 107 reinforces the flexibility
allowed by SFAS 123(R) to choose an option-pricing model that meets the standard’s fair value measurement
objective; (b) expected volatility—SAB 107 provides guidance on when it would be appropriate to rely exclusively
on either historical or implied volatility in estimating expected volatility; and (c) expected term—the new guidance
includes examples and some simplified approaches to determining the expected term under certain circumstances.
The Company will apply the principles of SAB 107 in conjunction with its adoption of SFAS 123(R). However, the
Company has reclassified non-cash compensation charges to the same line items within the consolidated statement
of operations and comprehensive income (loss) as cash compensation paid to employees, in accordance with the
provisions of SAB 107. The amount of each line item that is attributable to non-cash compensation charges is
provided parenthetically on the face of the consolidated statement of operations and comprehensive income (loss).
In March 2005, the FASB issued FIN 47. FIN 47 clarifies the term conditional asset retirement obligation as
used in SFAS 143. SFAS 143 requires a liability to be recorded if the fair value of the obligation can be reasonably
estimated. The types of asset retirement obligations that are covered by FIN 47 are those for which an entity has a
legal obligation to perform an asset retirement activity, but the timing and (or) method of settling the obligation are
conditional on a future event that may or may not be within the control of the entity. FIN 47 also clarifies when an
entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN
71
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
47 is effective no later than fiscal years ending after December 15, 2005. The Company adopted FIN 47 on
December 31, 2005. The adoption of FIN 47 resulted in the recognition of liabilities amounting to $13,948,000 for
contingent retirement obligations under certain tower site land leases, asset retirement costs amounting to
$4,917,000, and the recognition of a charge for the cumulative effect of the change in accounting principle
amounting to $9,031,000. Accretion expense related to liabilities for contingent retirement obligations (included in
depreciation, amortization and accretion on the Company’s consolidated statement of operations and comprehensive
income (loss)) amounted to $180,000, $204,000 and $228,000 for the years ended December 31, 2003, 2004 and
2005, respectively. At December 31, 2004 and 2005, liabilities for contingent retirement obligations amounted to
$1,702,000 and $16,742,000, respectively.
In May 2005, the FASB issued Statement of Financial Accounting Standard No. 154 (“SFAS 154”), Accounting
Changes and Error Corrections. SFAS 154 replaces Accounting Principles Board Opinion No. 20 (“APB 20”),
Accounting Changes, and Financial Accounting Standards No. 3 (“SFAS 3”), Reporting Accounting Changes in
Interim Financial Statements. SFAS 154 requires retrospective application to prior periods’ financial statements for
reporting a voluntary change in accounting principle, unless impracticable. APB 20 previously required that most
voluntary changes in accounting principle be recognized by including in net income of the period of the change the
cumulative effect of changing to the new accounting principle. This standard also distinguishes between
retrospective application and restatement. It redefines restatement as the revising of previously issued financial
statements to reflect the correction of an error. The provisions of SFAS 154 are effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not believe the
adoption of SFAS No. 154 will have a significant effect on its consolidated financial statements.
In June 2005, the EITF reached a consensus on Issue No. 05-06 (“EITF 05-06”), Determining the Amortization
Period for Leasehold Improvements. EITF 05-06 requires that the amortization period for leasehold improvements
acquired in a business combination or acquired subsequent to lease inception should be based on the lesser of the
useful life of the leasehold improvements or the period of the lease including all renewal periods that are reasonably
assured of exercise at the time of the acquisition. The consensus is to be applied prospectively to leasehold
improvements acquired subsequent to June 29, 2005. This consensus is consistent with the accounting policy
followed by the Company and thus had no impact upon adoption.
In October 2005, the FASB issued Staff Position FAS 13-1 (“FAS 13-1”), Accounting for Rental Costs Incurred
During a Construction Period, which requires rental costs associated with ground or building operating leases that
are incurred during a construction period to be recognized as rental expense. FAS 13-1 is effective for reporting
periods beginning after December 15, 2005, and retrospective application is permitted but not required. The
Company does not expect the adoption of FAS 13-1 to have a significant effect on its consolidated financial
statements.
In October 2005, the FASB issued FASB Staff Position FAS 123R-2 (“FSP FAS 123R-2”), Practical
Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R), in response to requests
for guidance about the mutual understanding concept in the definition of “grant date” as used in SFAS 123R.
Assuming all other criteria have been met, the FASB concludes in this FSP that mutual understanding means (1) the
recipient does not have the ability to negotiate the key terms and conditions of the award with the employer, and (2)
the key terms and conditions of the award are expected to be communicated to an individual recipient within a
relatively short time period from the date of approval. The FASB defines “relatively short time period” as that
period an entity could reasonably complete all actions necessary to communicate the awards to the recipients in
accordance with the entity’s customary human resources practices. The FASB noted that this guidance shall be
applied upon initial adoption of SFAS 123R, however, an entity that adopted SFAS 123R, prior to the issuance of
this FSP, shall apply the guidance in this FSP in the first reporting period for which financial statements or interim
reports have not been issued as of October 18, 2005. The Company will adopt SFAS 123R on January 1, 2006;
therefore, the Company will apply this guidance beginning January 1, 2006. The Company does not expect the
application of FSP FAS 123R-2 will have a material impact on the Company’s consolidated financial statements.
In November 2005, the FASB issued FSP FAS 123(R)-3 (“FAS 123(R)-3”), Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment Awards. FAS 123(R)-3 provides an alternative method of
calculating the excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of
SFAS No. 123(R). An entity that adopts SFAS 123(R) using either the modified retrospective application or
72
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
modified prospective application may make a one-time election to adopt the transition method described in FAS
123(R)-3 and may take up to one year from the later of its initial adoption of SFAS 123(R) or the effective date of
this FSP to evaluate its available transition alternatives and make its one-time election. The Company is currently
evaluating FAS 123(R)-3; the one-time election is not expected to have a significant effect on its consolidated
financial statements.
In February 2006, the FASB issued FSP FAS 123(R)-4 (“FAS 123(R)-4”), Classification of Options and
Similar Instruments Issued as Employee Compensation that Allow for Cash Settlement upon the Occurrence of a
Contingent Event. Certain provisions in some share-based payment plans may require an entity to settle outstanding
options in cash upon the occurrence of certain contingent events. Under SFAS 123(R), options or similar
instruments were required to be classified as liabilities if the entity can be required under any circumstances to settle
the option or similar instruments by transferring cash or other assets. FAS 123(R)-4 amends SFAS 123(R) such that
a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the
employee’s control is not classified as a liability until it becomes probable that the event will occur. The Company
will adopt SFAS 123(R) on January 1, 2006; therefore, the Company will apply this guidance beginning January 1,
2006.
2. Acquisition
Crown Atlantic and Crown Castle GT Joint Ventures
On May 2, 2003, the Company entered into several agreements (“Agreements”), dated effective May 1, 2003,
relating to the Company’s two joint ventures with Verizon: Crown Atlantic and 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
common stock (“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
these transactions and the 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 towers from the two ventures (for which the Company’s proportion of their
estimated fair value aggregated $10,272,000). 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 towers, 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.
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
73
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 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, (1) a net
decrease in the carrying value of its towers (included in property and equipment) of $29,580,000 (as restated), (2)
goodwill of $50,941,000 (as restated), which is currently expected to be deductible for tax purposes (see note 5), (3)
other intangible assets (included in deferred financing costs and other assets) of $4,005,000 (see note 5), (4) the
elimination of minority interest related to Crown Castle GT of $47,259,000 (as restated), (5) an increase in minority
interest related to Crown Atlantic of $77,866,000 (as restated), and (6) a loss on the issuance of the interest in Crown
Atlantic of $11,115,000 (as restated) (included in interest and other income (expense) on the Company’s
consolidated statement of operations and comprehensive income (loss)). The net decrease in the carrying value of
the towers 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 towers 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 towers. The amounts recorded
for the net decrease in the carrying value of the towers 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 towers (included in property and equipment) of
$16,949,000 (as restated), (2) goodwill of $62,762,000 (as restated), which is currently expected to be deductible for
tax purposes (see note 5), (3) other intangible assets (included in deferred financing costs and other assets) of
$67,045,000 (see note 5), and (4) the elimination of minority interest related to Crown Atlantic of $148,244,000 (as
restated). The increase in the carrying value of the towers 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 towers. The amounts recorded for the increase in the
carrying value of the towers 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 15). As a result of acquiring this
remaining interest, Crown Atlantic has been presented in the CCUSA operating segment for all periods presented.
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
Crown Atlantic and Crown Castle GT towers, and such rights terminate should Verizon Wireless cease to occupy
the towers.
Purchase of Trintel Assets
On July 11, 2005, the Company signed a definitive agreement to purchase 467 towers from affiliates of Trintel
Communications, Inc. (“Trintel”) for approximately $145,000,000. The Company believes the acquisition of the
towers from Trintel is consistent with the Company’s mission, which is to deliver the highest level of service to its
customers at all times – striving to be their critical partner as it assists them in growing efficient, ubiquitous wireless
networks. The expansion into major markets, such as Detroit and Dallas, resulting from this acquisition further
positions the Company to accomplish this mission. The Company also believes acquiring these towers from Trintel
is consistent with the Company’s strategy of increasing recurring revenue and cash flow. Trintel’s portfolio
produced approximately $14,400,000 in annualized site rental revenues and approximately $9,000,000 in annualized
site rental gross margin prior to the acquisition. On August 1, 2005, the Company completed the purchase of the
Trintel towers. The results of operations from the towers acquired from Trintel have been included in the
74
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
consolidated statement of operations and comprehensive income (loss) from August 1, 2005. The Company funded
the acquisition entirely through borrowings under its 2005 Credit Facility (see note 7).
The total purchase price for the Trintel acquisition has been allocated as follows:
Receivables .........................................................................................................
Prepaid expenses and other current assets...........................................................
Property and equipment ......................................................................................
Goodwill .............................................................................................................
Deferred rental revenues and other accrued liabilities.........................................
(In thousands of dollars)
$
$
7
352
136,831
8,218
(828)
144,580
3. Dispositions
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
(as defined in note 7), 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 7). The remaining proceeds from the
transaction were used for general corporate purposes, which included 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 7).
The carrying amounts of CCUK’s assets and liabilities were as follows:
August 31, 2004
(Date of Sale)
(In thousands of dollars)
Assets:
Cash and cash equivalents ...............................................................................................................
Receivables......................................................................................................................................
Inventories.......................................................................................................................................
Prepaid expenses and other current assets .......................................................................................
Property and equipment, net............................................................................................................
Goodwill..........................................................................................................................................
Other assets, net...............................................................................................................................
$
53,621
37,923
6,384
40,458
972,403
949,782
809
Assets of discontinued operations ...................................................................................................
$ 2,061,380
Liabilities:
.
Accounts payable ...........................................................................................................................
Other current liabilities....................................................................................................................
Other liabilities ................................................................................................................................
$
30,930
133,545
182,522
Liabilities of discontinued operations..............................................................................................
$
346,997
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
75
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 recognized a net gain of $494,110,000 (as restated) during 2004 in connection with the sale of
CCUK. Such gain is net of taxes of $18,000,000, representing the Company’s estimated U.S. federal alternative
minimum tax resulting from the transaction (see note 8). 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 (as restated) is calculated as follows:
(In thousands of dollars)
Proceeds from sale.....................................................................................................................................
Assets of discontinued operations .............................................................................................................
Liabilities of discontinued operations........................................................................................................
Foreign currency translation adjustments ..................................................................................................
Minimum pension liability adjustment ......................................................................................................
Fees and expenses .....................................................................................................................................
Severance costs .........................................................................................................................................
Compensation charges related to modified stock-based employee awards (as restated) ...........................
Net gain on disposal of CCUK before income taxes (as restated) .............................................................
Estimated federal alternative minimum tax ...............................................................................................
$
2,029,460
(2,061,380)
346,997
232,893
(11,513)
(12,959)
(2,771)
(8,617)
512,110
(18,000)
Net gain on disposal of CCUK, net of tax (as restated) .............................................................................
$
494,110
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. The
modifications to these awards have generally been treated as the grant of new awards for accounting purposes. The
compensation charges related to the modified awards were $8,617,000 (as restated) recognized as part of the
calculation of the net gain on the sale of CCUK for the year ended December 31, 2004. The awards held by the
President and Managing Director of CCUK are subject to a severance agreement with stock options vesting over a
period of 36 months from the closing date of the CCUK transaction.
CCUK’s financial results have historically been presented as a separate operating segment (see note 15). A
summary of CCUK’s operating results is as follows:
Years Ended
December 31,
Eight Months Ended
August 31, 2004
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
2003
(Date of sale)
(In thousands of dollars)
381,878 $
291,399
18,995 $
(7,053)
73,561
(27,162)
of related income tax benefits of $636..............................................................................
(1,484)
⎯
Income from discontinued operations .................................................................................... $
10,458 $
46,399
Sale of OpenCell
In January 2005, the Company adopted a plan to exit the business of OpenCell, a business which manufactures
distributed antenna systems and is a supplier to Crown Castle Solutions. OpenCell was included in the Corporate
Office and Other segment through March 31, 2004 and in CCUSA thereafter. For all periods presented, the assets,
liabilities, results of operations and cash flows of the business of OpenCell are classified as amounts from
discontinued operations. On May 9, 2005, the Company completed the sale of OpenCell. The Company recognized
a gain of $2,801,000 in the year ended December 31, 2005 related to the sale, calculated as follows:
76
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Proceeds from sale ...........................................................................................................................
Net assets of discontinued operations...............................................................................................
Fees and expenses ............................................................................................................................
Severance costs ................................................................................................................................
$
7,135
(2,472)
(1,422)
(440)
Net gain on disposal of OpenCell.....................................................................................................
$
2,801
(In thousands of dollars)
4. Property and Equipment
The major classes of property and equipment are as follows:
Land and buildings....................................................................................
Telecommunications towers......................................................................
Transportation and other equipment .........................................................
Office furnitur
e and equipment .................................................................
Less: accumulated depreciation ...............................................................
Estimated
Useful Lives
0-40 years
1-20 years
3-5 years
2-10 years
December 31,
2004
(As restated)
2005
(In thousands of dollars)
$
116,771
4,510,731
15,784
85,206
4,728,492
(1,353,470)
$
127,145
4,670,884
19,934
87,682
4,905,645
(1,611,312)
$ 3,375,022
$ 3,294,333
Depreciation expense for the years ended December 31, 2003, 2004 and 2005 was $279,297,000 (as restated),
$282,005,000 (as restated) and $272,230,000, respectively. Accumulated depreciation on telecommunications
towers was $1,276,396,000 (as restated) and $1,525,909,000 at December 31, 2004 and 2005, respectively. At
December 31, 2005, minimum rentals receivable under existing operating leases for towers are as follows: years
ending December 31, 2006—$569,263,000; 2007—$535,680,000; 2008—$500,109,000; 2009—$395,707,000;
2010—$210,289,000; thereafter—$402,462,000.
5. Goodwill and Other Intangible Assets
A summary of goodwill at CCUSA is as follows:
Balance at December 31, 2002 ...............................................................................................................
Goodwill acquired in 2003......................................................................................................................
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, as restated.............................................................................................
Goodwill acquired in 2005......................................................................................................................
Goodwill written off related to sale of subsidiary in 2005......................................................................
Balan
ce at December 31, 2005 ...............................................................................................................
$
$
(In thousands of dollars)
219,400
50,941
(610)
269,731
62,762
332,493
8,218
(299)
340,412
During the fourth quarter of 2005, 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 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. The weighted average amortization period of site rental contracts is 11.4 years.
77
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
A summary of other intangible assets with finite useful lives is as follows:
Year Ended December 31, 2003
Balance at beginning of year.................................................................... $
Other intangible assets acquired ..............................................................
Amortization expense ..............................................................................
26,000
4,005
—
Gross
Carrying
Amount
Accumulated
Amortization
(In thousands of dollars)
$
(12,935)
$
—
(1,718)
Balan
ce at end of year.............................................................................. $
30,005
$
(14,653)
$
Net Book
Value
13,065
4,005
(1,718)
15,352
Net Book
Value
15,352
67,045
(2,969)
79,428
Year Ended December 31, 2004
Gross
Carrying
Amount
30,005
67,045
—
97,050
Accumulated
Amortization
(In thousands of dollars)
$
(14,653)
$
—
(2,969)
$
(17,622
)
$
Year Ended December 31, 2005
Gross
Carrying
Amount
97,050
—
97,050
Accumulated
Amortization
(In thousands of dollars)
Net Book
Value
$
$
$
(17,622)
(8,556)
(26,178)
$
$
79,428
(8,556)
70,872
8,556
Balance at beginning of year.................................................................... $
Other intangible assets acquired ..............................................................
Amortization expense ..............................................................................
Balance at end of year..............................................................................
Balance at beginning of year....................................................................
Amortization expense ..............................................................................
Balance at end of year..............................................................................
Estimated annual amortization expense:
Years ending December 31, 2006 through 2010 (in thousands)..........
$
$
$
Effective May 1, 2003, the Company acquired all of Verizon’s equity interests in Crown Castle GT in a
transaction accounted for using the purchase method (see note 2). In connection with the purchase price allocation
for this transaction, the Company recorded goodwill of $50,941,000 (as restated) 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’s remaining equity interests in Crown Atlantic in a
transaction accounted for using the purchase method (see note 2). In connection with the purchase price allocation
for this transaction, the Company recorded goodwill of $62,762,000 (as restated) 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.
On August 1, 2005, the Company completed the purchase of 467 towers from affiliates of Trintel (see note 2).
In connection with the purchase price allocation for this transaction, the Company recorded goodwill of $8,218,000.
6. Investments in Unconsolidated Affiliates
Investment in FiberTower Corporation
On July 8, 2005, the Company invested an additional $55,000,000 in FiberTower Corporation (“FiberTower”),
a privately-held provider of wireless backhaul services. FiberTower raised a total of $150,000,000 through a private
equity offering, inclusive of the Company’s $55,000,000 investment. The Company owns a 36% minority interest
position (without dilution) in FiberTower. The investment in FiberTower is included in deferred financing costs and
other assets on the Company’s consolidated balance sheet. The investment in FiberTower totaled $18,595,000 and
$68,987,000 as of December 31, 2004 and 2005, respectively. For the years ended December 31, 2003, 2004 and
78
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2005, losses from investments in FiberTower totaled $1,405,000, $5,722,000 and $4,643,000. These non-cash losses
are included in interest and other income (expense) on the Company’s consolidated statement of operations and
comprehensive income (loss).
7. Long-term Debt
Long-term debt consists of the following:
Senior Secured Tower Revenue Notes due 2035 ......................................................................... $
Crown Atlantic Credit Facility.....................................................................................................
2005 Credit Facility .....................................................................................................................
4% Convertible Senior Notes due 2010 .......................................................................................
10⅜% Senior Discount Notes due 2011, net of discount .............................................................
9% Senior Notes due 2011...........................................................................................................
11¼% Senior Discount Notes due 2011, net of discount .............................................................
9½% Senior Notes due 2011........................................................................................................
10¾% Senior Notes due 2011......................................................................................................
9⅜% Senior Notes due 2011........................................................................................................
7.5% Senior Notes due 2013........................................................................................................
7.5% Series B Senior Notes due 2013 ..........................................................................................
December 31,
2004
2005
(In thousands of dollars)
—
180,000
—
182,016
11,341
26,133
10,700
4,753
428,280
407,218
299,995
299,962
$ 1,900,000
—
295,000
63,964
—
—
—
—
9,976
1,695
51
—
Less: current maturities................................................................................................................
(97,250)
1,850,398
2,270,686
(295,000)
$
1,753,148
$ 1,975,686
Senior Secured Tower Revenue Notes
On June 8, 2005, Crown Castle Towers LLC (“Issuer Entity”) and certain of its direct wholly owned
subsidiaries (collectively, the “Issuers”) issued $1,900,000,000 aggregate principal amount of Senior Secured Tower
Revenue Notes, Series 2005-1 (“Tower Revenue Notes”), pursuant to an indenture (“Indenture”) dated as of June 1,
2005, by and among the Issuers and JPMorgan Chase Bank, N.A., as trustee (“Indenture Trustee”) and an indenture
supplement (“Indenture Supplement”) dated as of June 1, 2005, by and among the Issuers and the Indenture Trustee.
All of the Issuers are indirect wholly owned subsidiaries of the Company. The Tower Revenue Notes were issued in
five separate classes, each investment grade, as indicated in the table below. Each of the Class B, Class C and Class
D Tower Revenue Notes are subordinated in right of payment to any other Class which has an earlier alphabetical
designation.
Class
Class A – FX ....................................................................................................................................
Class A – FL.....................................................................................................................................
Class B .............................................................................................................................................
Class C .............................................................................................................................................
Class D .............................................................................................................................................
Initial Class Principal Balance
(in thousands of dollars)
$
948,460
250,000
233,845
233,845
233,850
$
1,900,000
The proceeds from the sale of the Tower Revenue Notes were used to fund the purchase of the Company’s
tendered 10¾% Senior Notes, 9⅜% Senior Notes, 7.5% Senior Notes and 7.5% Series B Senior Notes (with each of
such notes as defined below), to fund the redemption of the Company’s 9% Senior Notes, 9½% Senior Notes, 10⅜%
Discount Notes and 11¼% Discount Notes (with each of such notes as defined below) (see “Purchases and
Redemption of the Company’s Debt Securities”), and to repay the Company’s outstanding Crown Atlantic Credit
Facility (“Crown Atlantic Credit Facility”). In addition, on June 8, 2005, proceeds of $48,873,000 were used to fund
certain reserve accounts pursuant to the Indenture for the Asset Entities (as defined below) for the payment of
ground rents, real estate and personal property taxes, insurance premiums related to the towers, other assessments by
79
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
governmental authorities and potential environmental remediation costs, and to reserve a portion of advance rents
from customers. Those reserve accounts are classified as restricted cash on the consolidated balance sheet. The
remaining proceeds were transferred to affiliates of the Issuers including the Company, which will use such
proceeds for general corporate purposes (see also “Purchases and Redemptions of the Company’s Debt Securities”
and “Crown Atlantic Credit Facility”).
The Issuer Entity is a special purpose entity that owns no assets other than, directly or indirectly, all of the
equity interests of the entities holding substantially all of the U.S. towers of the Company at the time of the issuance
(“Asset Entities”), totaling over 10,600. In connection with the issuance of the Tower Revenue Notes, the Issuer
Entity and its subsidiaries were formed as, or converted into, special purpose entities that are prohibited from
owning any assets other than their towers and related assets and from incurring any debt other than as contemplated
by the Indenture. Approximately 4,919 towers are held by Crown Atlantic Company LLC (“Crown Atlantic
Company”) and Crown Castle GT Company LLC (“Crown GT Company”), indirect subsidiaries of the Issuer
Entity, whose governing instruments generally prevent them from issuing debt and granting liens on their assets
without the approval of a subsidiary of Verizon. Consequently, while distributions paid to the Issuer Entity by
Crown Atlantic Company and Crown GT Company will service the Tower Revenue Notes, the Tower Revenue
Notes are not obligations of, nor are the Tower Revenue Notes secured directly by the cash flows or any other assets
of, Crown Atlantic Company and Crown GT Company.
The Tower Revenue Notes are the obligations of the Issuers and are payable solely from assets and cash flows
of the Issuers along with the distributions from the other Asset Entities. The Tower Revenue Notes are secured by
the Issuers’ assignable personal property, the license agreements with the Issuers’ customers and the revenue
thereunder and all of the Issuer Entity’s distributions received from the Asset Entities.
Interest due to the holders of the Tower Revenue Notes will be payable on the 15th of each month, commencing
in July 2005 (each, a “Payment Date”). The notes are fixed rate obligations of the Company with interest rates
ranging from 4.643% to 5.612% (see “Derivative Instrument Between Indenture Trustee and Noteholders”). The
weighted average interest rate on the classes is 4.890%.
No principal payments on the Tower Revenue Notes are scheduled prior to the Payment Date in June of 2010
(“Anticipated Repayment Date”). On the Anticipated Repayment Date, payment in full is expected to occur for the
Tower Revenue Notes based on the assumption that the Tower Revenue Notes are not prepaid in whole or in part
prior to such date except that if the Issuers’ DSCR (as defined below) falls below 1.45 times as of the end of any
calendar quarter, the Issuers will be required to make principal payments out of excess cash flow (as defined in the
Indenture). The Issuers may not voluntarily prepay the Tower Revenue Notes in whole or in part at any time prior to
the second anniversary of the closing date, except for prepayments (1) made to cure a breach of representation,
warranty, or other default with respect to a particular tower site and (2) in connection with certain casualty and
condemnation events. Thereafter, prepayment is permitted provided it is accompanied by any applicable prepayment
consideration. If the Tower Revenue Notes are not paid in full on the Anticipated Repayment Date, the entire unpaid
principal balance of the Tower Revenue Notes will be due and payable in full on the Payment Date in June of 2035.
However, material penalties are imposed if the Issuers fail to repay the Tower Revenue Notes on Anticipated
Repayment Date, including a significant increase in the interest rate and the application of all excess cash flows,
after the payment of principal, interest, reserves and certain operating expenses to repay the Tower Revenue Notes.
On a monthly basis, the excess cash flows from the Issuer Entity and its subsidiaries, after the payment of
principal, interest, reserves, and expenses, are distributed to the Company (see discussion of restricted cash in note
1). The Tower Revenue Notes require the Issuers and the Company to each maintain a minimum debt service
coverage ratio (“DSCR”). If the Issuers’ DSCR (defined as the ratio of the net cash flow (as defined in the
Indenture) to the amount of interest that the Issuers will be required to pay over the succeeding 12 months on the
principal balance of the Tower Revenue Notes, assuming all Tower Revenue Notes then outstanding will be
outstanding for such 12 month period), as of the end of any calendar quarter falls to 1.75 times or lower, then all
excess cash flow of the Issuer Entity and its subsidiaries will be deposited into a reserve account instead of being
released to the Company. The funds in the reserve account will not be released to the Company unless the Issuer’s
DSCR exceeds 1.75 times for two consecutive calendar quarters. Similarly, if the Company’s DSCR, defined as the
ratio of consolidated Adjusted EBITDA for the trailing 12 month period to the sum of (a) the amount of interest that
the Issuers will be required to pay over the succeeding 12 months on the outstanding principal balance of the Tower
80
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Revenue Notes, assuming, among other things, all Tower Revenue Notes then outstanding will be outstanding for
such 12 month period, and (b) the amount of interest that the Company will be required to pay over the succeeding
12 months on the principal balance of all other debt securities then outstanding based on the then current interest rate
for such debt securities, as of the end of any calendar quarter falls to 2.00 or lower, then all excess cash flow of the
Issuer Entity and its subsidiaries will be deposited into a reserve account instead of being released to the Company,
and will not be released to the Company unless the Company’s DSCR exceeds 2.00 for two consecutive calendar
quarters. If the Issuers’ DSCR falls below 1.45 times as of the end of any calendar quarter, then all funds on deposit
in the reserve account along with future excess cash flows of the Issuers will be applied to prepay the Tower
Revenue Notes and will continue until the end of any calendar quarter for which the DSCR exceeds 1.45. The
Issuers’ future DSCR will be affected by net cash flows which are primarily a result of new leasing activities on
existing communications sites, existing tenant credit worthiness and lease renewals, ground lease extensions and the
future expenses incurred to maintain their sites. As of December 31, 2005, the Issuers’ DSCR was 3.57 and the
Company’s DSCR was 2.77.
The Indenture contains certain covenants that require the Issuer Entity to provide the Indenture Trustee
reasonable access rights to Asset Entities’ towers, including the right to conduct site investigations with respect to
environmental matters; promptly notify the Indenture Trustee of any material adverse changes or the existence of an
event of default under the Indenture; and provide regular financial reports.
CC Towers Guarantor LLC (“Guarantor”), a subsidiary of CC Towers Holding, a wholly owned indirect
subsidiary of the Company and the direct parent of the Issuer Entity, guarantees all of the payment and other
obligations of the Issuers under the Indenture. The Guarantor is a special purpose company established for the sole
purpose of holding the equity interest of the Issuer Entity. As security for its guaranty, the Guarantor grants a first
priority security interest in 100% of the equity interest of the Issuer Entity. The Guarantor owns no assets other than
the equity interest of the Issuer Entity, is prohibited from acquiring any other assets or incurring any liabilities, and
has no employees. No other affiliate of the Company guarantees repayment of the Tower Revenue Notes.
Derivative Instrument Between Indenture Trustee and Noteholders
On June 1, 2005, the Indenture Trustee and Morgan Stanley Capital Services, Inc., entered into a swap contract
(“Swap Contract”) relating to the Class A – FL Tower Revenue Notes (“Swap Counterparty”). The Swap Contract
was entered into to provide investors a floating rate note alternative, via exchanging a fixed rate paid by the
Company into a floating rate coupon for investors. The Company is not party to the Swap Contract and has no
obligations under the Swap Contract; rather, the Company’s obligation for interest relating to the Class A – FL
Tower Revenue Notes is the same as the Class A – FX Tower Revenue Notes.
The Swap Contract provides that, on each Payment Date, commencing in July 2005, the Indenture Trustee will
pay interest at a fixed rate to the Swap Counterparty equal to the rate on the Class A – FX Notes on a notional
amount equal to the Class A – FL Notes principal balance. In turn, the Swap Counterparty will pay interest at a rate
equal to one-month LIBOR plus 0.380%. Required payments under the Swap Contract will be made by the Swap
Counterparty or the Indenture Trustee on a net basis and deposited into a separate account which will be used to pay
the holders of the Class A – FL Notes on any Payment Date.
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
81
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 and
comprehensive income (loss) 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 and comprehensive income (loss) for 2004 (see note 3).
Crown Atlantic Credit Facility
Crown Atlantic previously had the Crown Atlantic Credit Facility, a credit agreement with a syndicate of banks
which consisted of a $301,050,000 secured revolving line of credit. In February 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. Such loss is included in
interest and other income (expense) on the Company’s consolidated statement of operations and comprehensive
income (loss) for 2004.
During 2003, 2004 and 2005, Crown Atlantic repaid $55,000,000, $15,000,000 and $71,987,000, respectively,
in outstanding borrowings under the Crown Atlantic Credit Facility. Crown Atlantic utilized cash provided by its
operations to effect these repayments. On June 8, 2005, the Company terminated the Credit Facility and repaid the
remaining $108,013,000 in outstanding borrowings with proceeds from the Tower Revenue Notes.
2005 Credit Facility
On August 1, 2005, a subsidiary of the Company entered into a credit agreement with a syndicate of banks on a
$275,000,000 revolving credit facility (“2005 Credit Facility”). The 2005 Credit Facility is a 364 day facility, and is
fully and unconditionally guaranteed by the CCIC. Borrowings under the 2005 Credit Facility may be used for
general corporate purposes, including capital expenditures, acquisitions, common stock purchases and dividends.
Under the terms of the facility, the Company may use up to $100,000,000 of the borrowings for stock purchases and
dividends. Borrowings under the facility bear interest at a rate per annum of 200 to 275 basis points (based on
interest expense coverage) plus LIBOR. In August 2005, the Company borrowed $145,000,000 to fund the
acquisition of towers from an affiliate of Trintel (see note 2). On November 2, 2005, the Company borrowed an
additional $55,000,000 for general corporate purposes. On December 1, 2005, the 2005 Credit Facility was
amended. As a result of this amendment, the total facility is now $325,000,000 and the maturity is November 28,
2006. In conjunction with the amendment, the Company borrowed an additional $95,000,000 under the 2005 Credit
Facility to partially fund the redemption of 8¼% Convertible Preferred Stock (see note 10). At December 31, 2005,
the weighted average interest for outstanding borrowings under the 2005 Credit Facility was 6.59%. Additional
borrowings under the 2005 Credit Facility may be used for capital expenditures and acquisitions, subject to certain
conditions.
4% Convertible Senior Notes due 2010 (“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 10⅝% Senior Discount Notes due 2007
82
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(“10⅝% 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. In November 2004 and January and April 2005, the Company purchased a significant portion of the
outstanding 4% Convertible Senior Notes (see “Purchases and Redemption of the Company’s Debt Securities”
below).
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 common stock at a conversion price of $10.83 per share of common
stock. As of December 31, 2005, conversion of all the outstanding 4% Convertible Senior Notes would result in the
issuance of 5,906,000 shares of the Company’s common stock (see note 19).
10⅜% Senior Discount Notes due 2011 (“10⅜% Discount Notes”) and 9% Senior Notes due 2011 (“9% Senior
Notes”)
The Company had originally issued $500,000,000 aggregate principal amount (at maturity) of its 10⅜%
Discount Notes and $180,000,000 aggregate principal amount of its 9% Senior Notes. The 10⅜% 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 10⅜% Discount Notes and the 9% Senior Notes
is May 15, 2011.
In December 2003 and January 2004, the Company purchased a significant portion of the outstanding 10⅜%
Discount Notes and 9% Senior Notes in two cash tender offers and consent solicitations. In July 2005, the Company
redeemed the remaining outstanding balance of the 10⅜% Discount Notes and the 9% Senior Notes (see “Purchases
and Redemption of the Company’s Debt Securities” below).
11¼% Senior Discount Notes due 2011 (“11¼% Discount Notes”) and 9½% Senior Notes due 2011 (“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. In July 2005, the Company redeemed the remaining outstanding balance of the 11¼%
Discount Notes and the 9½% Senior Notes (see “Purchases and Redemption of the Company’s Debt Securities”
below).
10¾% Senior Notes due 2011 (“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. In June 2005, the Company
purchased a significant portion of the outstanding 10¾% Senior Notes (see “Purchases and Redemption of the
Company’s Debt Securities” below).
9⅜% Senior Notes due 2011 (“9⅜% Senior Notes”)
On May 10, 2001, the Company issued $450,000,000 aggregate principal amount of its 9⅜% Senior Notes for
proceeds of $441,000,000 (after underwriting discounts of $9,000,000). The proceeds from the sale of these
83
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
securities were used to fund the initial interest payments on the 9⅜% Senior Notes and for general corporate
purposes. Semi-annual interest payments for the 9⅜% Senior Notes are due on each February 1 and August 1. The
maturity date of the 9⅜% Senior Notes is August 1, 2011.
The 9⅜% 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 9⅜% Senior Notes are redeemable at par. In June 2005, the Company
purchased a significant portion of the outstanding 9⅜% Senior Notes (see “Purchases and Redemption of the
Company’s Debt Securities” below).
7.5% Senior Notes due 2013 (“7.5% Senior Notes”) and 7.5% Series B Senior Notes due 2013 (“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 10⅜% Discount Notes and 11¼%
Discount Notes (see “Purchases and Redemption 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 were 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
and Redemption 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. In June 2005, the Company purchased a significant portion of the outstanding 7.5% Senior Notes
and the 7.5% Series B Senior Notes (see “Purchases and Redemption of the Company’s Debt Securities” below).
Purchases and Redemption of the Company’s Debt Securities
On May 30, 2003, the Company announced that it had elected to redeem all of the 10⅝% 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 10⅝% 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 and comprehensive income (loss).
In October 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 affect 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 and comprehensive income (loss) 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 10⅜% 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 10⅜% 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
principal amount at maturity of the tendered notes. On December 24, 2003, the Company (1) utilized approximately
84
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
$456,218,000 of its cash to purchase the $436,284,000 in outstanding principal amount at maturity of the tendered
10⅜% 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 10⅜%
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 and comprehensive income (loss) for the year ended December 31, 2003.
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 and comprehensive income (loss) for the year ended December 31,
2004.
In January 2004, the Company (1) utilized $1,570,000 of its cash to purchase $1,500,000 in outstanding
principal amount at maturity of its 10⅜% 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 and comprehensive income (loss) for the year
ended December 31, 2004.
The Company’s purchases of its debt securities in 2003 and January 2004, including the redemption of the
10⅝% 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:
Principal
Amount
Carrying
Value
10⅝% Senior Discount Notes due 2007.............. $ 239,160 $ 239,160 $ 251,867 $
456,218
10⅜% Senior Discount Notes due 2011..............
4,197
9% Senior Notes due 2011 ..................................
200,158
11¼% Senior Discount Notes due 2011..............
—
9½% Senior Notes due 2011 ...............................
15,949
10¾% Senior Notes due 2011 .............................
437,784
139,567
192,350
109,512
14,190
420,162
139,567
179,853
109,512
14,190
Cash Paid
Losses on Purchases
January
2004
2003
(In thousands of dollars)
—
1,570
145,221
1,046
119,522
—
$
2003
18,857
42,948
294
22,910
⎯
2,103
$
January
2004
—
139
12,466
110
11,652
—
$ 1,132,563 $ 1,102,444 $ 928,389 $ 267,359
$
87,112
$
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
85
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Company’s bondholders at the outstanding principal amount plus accrued interest (see note 3). On September 10,
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 10¾% Senior Notes, $205,574,000 of its 9⅜% 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 and comprehensive income (loss) 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
and comprehensive income (loss) for the year ended December 31, 2004. The purchase eliminated the potential
future conversion of the purchased notes into 4,430,000 shares of common stock.
In January 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 twelve months ended December
31, 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 are included in interest and other
income (expense) on the Company’s consolidated statement of operations and comprehensive income (loss) for the
twelve months ended December 31, 2005. The purchase eliminated the potential future conversion of the purchased
notes into 8,633,000 shares of common stock.
In April 2005, the Company utilized $43,650,000 of its cash to purchase $24,552,000 in outstanding principal
amount of its 4% Convertible Senior Notes, including accrued interest thereon of $218,000, in public market
transactions. The purchase resulted in a loss of $19,483,000 being recorded for the twelve months ended December
31, 2005, consisting of the write-off of unamortized deferred financing costs ($603,000) and the excess of the total
purchase price over the carrying value of the notes ($18,880,000). Such loss is included in interest and other income
(expense) on the Company’s consolidated statement of operations and comprehensive income (loss) for the twelve
months ended December 31, 2005. The purchase eliminated the potential future conversion of the purchased notes
into 2,267,000 shares of common stock. After the 2004 and 2005 purchases, the remaining amount of 4%
Convertible Senior Notes is $63,964,000, which is convertible into 5,906,000 shares of common stock.
On May 17, 2005, the Company commenced cash tender offers and consent solicitations for all of its
outstanding 10¾% Senior Notes, 9⅜% Senior Notes, 7.5% Senior Notes and 7.5% Series B Senior Notes. On May
31, 2005, in accordance with the terms of the tender offers, the purchase prices were determined to be 106.422%,
110.480%, 113.856% and 113.856% of the outstanding principal amount at maturity for the 10¾% Senior Notes,
9⅜% Senior Notes, 7.5% Senior Notes and 7.5% Series B Senior Notes, respectively. Such purchase prices include a
consent payment of $40.00 per $1,000 principal amount of the notes tendered on or prior to the consent date. In June
2005, the Company (1) utilized approximately $461,029,000 of its cash to purchase the $418,304,000 in outstanding
principal amount of the tendered 10¾% Senior Notes, including accrued interest thereon of $15,864,000, (2) utilized
approximately $461,430,000 of its cash to purchase the $405,523,000 in outstanding principal amount of the
tendered 9⅜% Senior Notes, including accrued interest thereon of $13,412,000, (3) utilized approximately
$341,903,000 of its cash to purchase the $299,944,000 in outstanding principal amount of the tendered 7.5% Senior
Notes, including accrued interest thereon of $439,000, and (4) utilized approximately $341,954,000 of its cash to
purchase the $299,962,000 in outstanding principal amount of the tendered 7.5% Series B Senior Notes, including
86
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
accrued interest thereon of $437,000. The purchase of the tendered 10¾% Senior Notes resulted in a loss of
$35,037,000 for the twelve months ended December 31, 2005, consisting of the write-off of the unamortized
deferred financing costs ($8,176,000) and the excess of the total purchase price over the carrying value of the
tendered notes ($26,861,000). The purchase of the tendered 9⅜% Senior Notes resulted in a loss of $47,872,000 for
the twelve months ended December 31, 2005, consisting of the write-off of the unamortized deferred financing costs
($5,377,000) and the excess of the total purchase price over the carrying value of the tendered notes ($42,495,000).
The purchase of the tendered 7.5% Senior Notes resulted in a loss of $47,599,000 for the twelve months ended
December 31, 2005, consisting of the write-off of the unamortized deferred financing costs ($6,079,000) and the
excess of the total purchase price over the carrying value of the tendered notes ($41,520,000). The purchase of the
tendered 7.5% Series B Senior Notes resulted in a loss of $48,543,000 for the twelve months ended December 31,
2005, consisting of the write-off of the unamortized deferred financing costs ($6,988,000) and the excess of the total
purchase price over the carrying value of the tendered notes ($41,555,000).
On July 8, 2005, the Company redeemed the outstanding 9% Senior Notes, 9½% Senior Notes, 10⅜% Discount
Notes and 11¼% Discount Notes (“Redeemed Notes”). The Company utilized approximately $56,172,000 to
redeem the $52,927,000 in outstanding principal amount of the Redeemed Notes, including accrued interest of
$1,241,000. The redemptions resulted in losses of $2,676,000 for the twelve months ended December 31, 2005,
consisting of the write-off of the unamortized deferred financing costs ($672,000) and the excess of the total
purchase price over the carrying value of the Redeemed Notes ($2,004,000).
The Company’s purchases of its debt securities in 2005, including the redemption of the 9% Senior Notes, 9½%
Senior Notes, 10⅜% Discount Notes and 11¼% Discount Notes and the purchases pursuant to the cash tender offers
discussed above, resulted in losses of $283,797,000 ($1.30 per share), including the write-off of unamortized
deferred financing costs of $30,287,000, for the year ended December 31, 2005. Such loss is included in interest and
other income (expense) on the Company’s consolidated statement of operations and comprehensive income (loss)
for the year ended December 31, 2005.
Such purchases were as follows:
Principal
Amount and Carrying
Value
Cash Paid
Losses on Purchases
2005
2005
4% Convertible Senior Notes due 2010.................................$
10⅜% Senior Discount Notes due 2011 ................................
9% Senior Notes due 2011 ....................................................
11¼% Senior Discount Notes due 2011 ................................
9½% Senior Notes due 2011 .................................................
10¾% Senior Notes due 2011 ...............................................
9⅜% Senior Notes due 2011 .................................................
7.5% Senior Notes due 2013 .................................................
7.5% Series B Senior Notes due 2013 ...................................
118,052
11,341
26,133
10,700
4,753
418,304
405,523
299,944
299,962
(In thousands of dollars)
$
$
217,127
11,733
26,917
11,302
4,979
445,166
448,018
341,464
341,517
$
1,594,712
$
1,848,223
$
102,070
504
1,214
676
283
35,037
47,872
47,598
48,543
283,797
Structural Subordination of the Debt Securities
The 4% Convertible Senior Notes, the 10⅜% Discount Notes, the 9% Senior Notes, the 11¼% Discount Notes,
the 9½% Senior Notes, the 10¾% Senior Notes, the 9⅜% Senior Notes, the 7.5% Senior Notes and the 7.5% Series
B Senior Notes (collectively, the “Debt Securities”) are or were senior indebtedness of the Company; however, they
are unsecured and effectively subordinate to the liabilities of the Company’s subsidiaries. The indentures governing
the Debt Securities (“Debt Securities Indentures”) placed 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. In conjunction with the
aforementioned tender offers, along with the prior tender offers for the outstanding 9% Senior Notes, 9½% Senior
Notes, 10⅜% Discount Notes and 11¼% Discount Notes, certain of the requirements in the related Debt Securities
Indentures were removed via consents obtained in connection with the tendered notes. The amendments to the Debt
87
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Securities Indentures removed substantially all of the covenant limitations previously imposed on the Company by
the Debt Securities Indentures.
Maturities
Scheduled maturities of total long-term debt outstanding at December 31, 2005 are as follows: years ending
December 31, 2006—$295,000,000; 2007—$-0-; 2008—$-0-; 2009—$-0-; 2010—$1,963,964,000; thereafter—
$11,722,000.
The $295,000,000 outstanding under the 2005 Credit Facility at December 31, 2005 is scheduled to mature
during the year ending December 31, 2006.
Interest Rate Swap Agreements
The Company had 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 was $51,250,000. The Company paid a fixed
rate of 5.79% 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 5.79% plus the applicable margin. On June 8, 2005, in conjunction with the repayment of the
Crown Atlantic Credit Facility, the Company paid $655,000 to terminate this interest rate swap agreement.
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.
On May 18, 2005, the Company entered into a five-year forward starting interest rate swap agreement (“May
2005 Interest Rate Swap”) with a notional amount of $1,900,000,000 to fix its interest cash outflows, in
contemplation of the $1,900,000,000 aggregate principal amount of Tower Revenue Notes that were issued on June
8, 2005, at 4.295% plus the applicable credit spread. The terms of the May 2005 Interest Rate Swap call for the
Company to receive interest at a variable rate equal to LIBOR and to pay interest at a fixed annual rate of 4.295%.
On May 27, 2005, the effective date of the May 2005 Interest Rate Swap, the May 2005 Interest Rate Swap was
terminated, resulting in a $5,726,000 settlement payment by the Company. The settlement payment is included in
accumulated other comprehensive income (loss) and will be amortized into interest expense on the statement of
operations and comprehensive income (loss) on a straight-line basis through June of 2010, the Anticipated
Repayment Date on the $1,900,000,000 aggregate principal amount of Tower Revenue Notes. The estimated
amortization into interest expense is $1,145,000 for the twelve months ended December 31, 2006. The amortization
of the settlement payment into interest expense increases the effective interest rate paid by the Company on the
Tower Revenue Notes by approximately 0.06%.
On December 15, 2005, the Company entered into two five-year forward starting interest rate swap agreements
(“December 2005 Interest Rate Swaps”) with notional amounts of $175,000,000 and $75,000,000, respectively, to
fix its interest cash outflows, in contemplation of refinancing the 2005 Credit Facility in June 2006. The terms of the
December 2005 Interest Rate Swaps call for the Company to receive interest at a variable rate equal to LIBOR and
to pay interest at fixed rates of 4.935% and 4.95% on the notional amounts of $175,000,000 and $75,000,000,
respectively. The December 2005 Interest Rate Swaps will effectively change the interest rate on the refinance
borrowings expected to occur in June 2006 from a floating rate based on LIBOR to an average rate of 4.9395% plus
the applicable margin. The change in fair value of the December 2005 Interest Rate Swaps, from December 15, 2005
to December 31, 2005, totaled $475,000 and is recognized as an expense in interest and other income (expense) on
the consolidated statement of operations and comprehensive income (loss). The December 2005 Interest Rate Swaps
were terminated on January 27, 2006 (see note 19).
88
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In March 2006, the Company entered into three forward starting interest rate swap agreements with a combined
notional amount of $1,900,000,000 to fix its interest cash outflows in contemplation of a June 2010 refinancing of
the Tower Revenue Notes (see note 19).
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 the Company’s lenders in amounts aggregating $7,780,000 and
expire on various dates through May of 2007.
8. 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.......................................................................................................
(440,315)
(16,702)
2003
(As restated)
Years Ended December 31,
2004
(As restated)
(In thousands of dollars)
(290,130) $
$
(17,219)
2005
(384,798)
(8,856)
$
(457,017)
$
(307,349 $
)
(393,654
)
The credit (provision) for income taxes consists of the following:
Current:
Foreign ................................................................................................. $
State......................................................................................................
Deferred:
Federal..................................................................................................
State......................................................................................................
$
2003
Years Ended December 31,
2004
(In thousands of dollars)
2005
(465) $
—
(2,000)
—
(2,465) $
(630) $
—
6,000
—
5,370 $
(521)
(1,085)
—
)
(1,619
(3,225
)
For the years ended December 31, 2003, 2004 and 2005, the Company has recognized deferred foreign income
tax provisions of $7,053,000, $27,162,000 and $-0-, respectively, related to CCUK’s operating results. These
income tax provisions are included in discontinued operations on the Company’s consolidated statement of
operations and comprehensive income (loss). 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 and comprehensive income (loss). See note 3.
For the year ended December 31, 2004, the Company has recognized a 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 and comprehensive income (loss) (see note 3). The alternative
minimum tax credit has an indefinite carryforward period.
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:
89
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Benefit for income taxes at statutory rate .................................................. $
Tax effect of foreign losses........................................................................
Expenses for which no federal tax benefit was recognized........................
Losses for which no tax benefit was recognized........................................
State tax provision .....................................................................................
2003
(As restated)
Years Ended December 31,
2004
(As restated)
(In thousands of dollars)
$
(6,027)
(168)
(96,007)
⎯
107,572
159,956 $
(5,846)
(117)
(156,458)
⎯
2005
137,779
(3,100)
(1,842)
(133,358)
(2,704)
The components of the net deferred income tax assets and liabilities are as follows:
$
(2,465) $
5,370
$
(3,225)
December 31,
2004
(As restated)
2005
(In thousands of dollars)
Deferred income tax liabilities:
Property and equipment ....................................................................................................... $
Deferred site rental receivable .............................................................................................
Other ....................................................................................................................................
Total deferred income tax liabilities ............................................................................
$
504,154
29,415
683
534,252
425,146
30,383
—
455,529
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 .........................................................................................................
Intangible assets...................................................................................................................
Valuation allowances ...........................................................................................................
476,841
36,682
18,000
4,291
1,138
2,350
382
88,968
(94,400)
Total deferred income tax assets, net ...........................................................................
534,252
592,220
42,235
18,000
9,516
1,308
1,084
190
91,041
(301,684)
453,910
Net deferred income tax liabilities ............................................................................................... $
⎯
$
(1,619)
Valuation allowances of $94,400,000 and $301,684,000 were recognized to offset net deferred income tax
assets as of December 31, 2004 and 2005, 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 ...............................................................................................................................
$
(In thousands)
258,506
—
43,178
301,684
At December 31, 2005, the Company had U.S. federal, state and foreign net operating loss carryforwards of
approximately $1,437,000,000, $1,313,000,000 and $78,000,000, respectively, which are available to offset future
federal taxable income. The federal loss carryforwards will expire in 2020 through 2025. The state net operating loss
carryforwards expire in 2015 through 2025. The foreign net operating loss carryforwards remain available
indefinitely provided certain continuity of business requirements are met. The utilization of the loss carryforwards is
subject to certain limitations.
The Company has established, and periodically reviews and re-evaluates, an estimated contingent tax liability to
provide for the possibility of unfavorable outcomes in tax matters. Contingent tax liabilities totaled $9,385,000 as of
December 31, 2005, and are included in “Deferred rental revenues and other accrued liabilities”. These liabilities are
90
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
provided for in accordance with the requirements of SFAS No. 5, “Accounting for Contingencies”. The Company
believes its contingent tax liabilities are adequate in the event certain tax positions are not ultimately upheld.
9. Minority Interests
Minority interests represent the minority partner’s interest in the operation of Crown Atlantic (43.1% through
April 30, 2003, 37.245% from May 1, 2003 through November 4, 2004 and none thereafter), the minority partner’s
interest in the operation of Crown Castle GT (17.8% through April 30, 2003 and none thereafter) and the minority
shareholder’s 22.4% interest in the CCAL operations.
10. Redeemable Preferred Stock
Redeemable preferred stock ($.01 par value, 20,000,000 shares authorized) consists of the following:
December 31,
2004
2005
(In thousands of dollars)
8¼% Cumulative Convertible Redeemable Preferred Stock; shares issued and outstanding: December
31, 2004—200,000 (stated net of unamortized value of warrants; mandatory redemption and
aggregate liquidation value of $200,000) .......................................................................................... $ 197,025
$
—
6.25% Convertible Preferred Stock; shares issued and outstanding: 6,361,000 (stated net
of unamortized issue costs; mandatory redemption and aggregate liquidation value of $318,050)...
311,015
311,943
$ 508,040 $ 311,943
8¼% Convertible Preferred Stock
The Company had originally issued 200,000 shares of its 8¼% Convertible Preferred Stock at a price of $1,000
per share (the liquidation preference per share) to General Electric Capital Corporation (“GECC”). While the 8¼%
Convertible Preferred Stock was outstanding, GECC was 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, and the Company had the
option to pay such dividends in cash or in shares of its common stock having a current market value equal to the
stated dividend amount. On December 16, 2005, the Company redeemed the outstanding balance of the 8¼%
Convertible Preferred Stock (see “Purchases and Redemptions of the Company’s Preferred Stock” below).
For the years ended December 31, 2003 and 2004, dividends on our 8¼% Convertible Preferred Stock were
paid with 2,190,000 and 1,140,000 shares of common stock. For the year ended December 31, 2005, dividends on
our 8¼% Convertible Preferred Stock were paid with 245,000 shares of common stock and approximately
$12,375,000 in cash.
In March, June and September 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 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. In March 2005, the Company paid its quarterly dividend on
the 8¼% Convertible Preferred Stock by issuing a total of 245,000 shares of common stock. The Company
purchased the 245,000 shares of common stock from the dividend paying agent for a total of $4,074,350 in cash.
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
91
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
31, 2003, 2004 and 2005, dividends were paid with 3,253,469, 1,498,361 and 631,700 shares of common stock,
respectively, and were paid with approximately $9,939,000 of cash for 2005. 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, we generally have the right to convert the 6.25% Convertible Preferred Stock, in
whole or in part, into 8,625,085 million shares of common stock at 120% of the conversion price or $44.25.
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.
Purchases and Redemption of the Company’s Preferred Stock
From March through October 2003, the Company purchased 222,898 shares of its 12¾% Senior Exchangeable
Preferred Stock due in 2010 (“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) of $212,622,000. The Company utilized $241,357,000 in cash to affect these preferred stock purchases. The
preferred stock purchases resulted in a net loss of $28,735,000 for the year ended December 31, 2003. Of that
amount, (1) $1,603,000 in net losses 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 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) 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 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 and comprehensive income (loss).
On November 30, 2005, the Company exercised its redemption right for the 8¼% Convertible Preferred Stock,
On December 16, 2005, the Company redeemed its 8¼% Convertible Preferred Stock for $204,125,000 in cash,
including accrued interest of $4,125,000. The redemption resulted in losses of $12,002,000 for the three months
ended December 31, 2005, consisting of the write-off of deferred financing costs included in additional paid-in
capital ($9,402,000) and the excess of the total purchase price over the carrying value of the 8¼% Convertible
Preferred Stock ($2,599,000). Such loss is included in dividends on preferred stock, net of losses on purchases of
preferred stock on the Company’s consolidated statement for the year ended December 31, 2005. The redemption
eliminated the potential future conversion of the 8¼% Convertible Preferred Stock into 7,442,000 shares of common
stock.
Mandatory Redemptions
The scheduled mandatory redemption of redeemable preferred stock outstanding at December 31, 2005 is
$318,050,000 for years ending after December 31, 2010.
11. Stockholders’ Equity
Purchases of Common Stock
In May 2003, the Company purchased 5,063,731 shares of its common stock from Verizon for $31,000,000 in
cash (see note 2).
92
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In August 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 to effect these common stock purchases. From April through November 2005, the Company
purchased 15,439,304 shares of common stock in public market transactions. The Company utilized $298,271,000 in
cash to affect these purchases. The Company may choose to continue purchases of common stock in the future.
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.
On April 29, 2003, the market performance of the common stock reached the first target level for accelerated
vesting of the restricted common stock that had been issued during the first quarter of 2003. This first target level
was reached when the market price of the common stock closed at or above $5.54 per share for 20 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
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.
On July 30, 2003, the market performance of the common stock reached the second target level for accelerated
vesting of the restricted common stock that had been issued during the first quarter of 2003. This second target level
was reached when the market price of the common stock closed at or above $8.30 per share (150% of the first target
level of $5.54 per share) for 20 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 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.
In March, April and May 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 common stock on the grant dates. The restrictions on the shares were to expire in various annual
amounts over the vesting period of four years, with provisions for accelerated vesting based on the market
performance of the common stock. In connection with these restricted shares, the Company was to recognize non-
cash compensation charges of approximately $18,800,000 over the vesting period.
On April 27, 2004, the market performance of the common stock reached the third (and final) target level for
accelerated vesting of the restricted common stock that had been issued during the first quarter of 2003. This third
target level was reached when the market price of the common stock closed at or above $12.45 per share (150% of
the second target level of $8.30 per share) for 20 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 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.
93
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
On October 27, 2004, the market performance of the common stock reached the first target level for accelerated
vesting of the restricted common stock that had been issued during March, April and May 2004. This first target
level was reached when the market price of the common stock closed at or above $14.81 per share (125% of the
base price of $11.85 per share) for 20 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 compensation charges of approximately $2,495,000 for the three
months ended December 31, 2004. 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. Included in the 153,100 shares
purchased were 55,748 shares related to former CCUK employees. The Company had previously recognized the
compensation charges associated with the vesting of those restricted shares in the net gain on disposal of CCUK.
In February, March and April 2005, the Company granted a total of 376,901 shares of restricted common stock
to certain of its non-executive employees. These restricted shares had a weighted average grant-date fair value of
$16.16 per share, determined based on the closing market price of the common stock on the grant dates. The
restrictions on the shares were to expire in various annual amounts over the vesting period of four years, with
provisions for accelerated vesting based on the market performance of the common stock. In connection with these
restricted shares, the Company was to recognize non-cash compensation charges of approximately $6,092,000 over
the vesting period.
In February 2005, the Company granted 317,005 shares of restricted common stock to certain of its executives.
The restrictions on the shares were to expire in various amounts over the vesting period of four years if the market
performance of the common stock reached certain levels. Specifically, in the event the performance market target,
$19.44 (20% above market price on the grant date) for 20 consecutive days during the vesting period, was met,
100% of any remaining shares not otherwise vested shall vest on the fourth anniversary of the grant date (February
24, 2009). Additionally, accelerated vesting of these restricted shares was to occur in one third increments if and
when the per share market price of the common stock closes at or above $18.63, $21.42, and $24.64 per share,
respectively for 20 consecutive trading days. However, in the event the common stock did not achieve the
performance market target of $19.44 per share for 20 consecutive days during the vesting period, any remaining
amounts unvested are subject to forfeiture at the end of the vesting period. In connection with these restricted shares,
the Company was to recognize non-cash compensation charges totaling $6,404,000 based on fair value of the award
at grant date for these performance-based awards.
On July 19, 2005, the market performance of the common stock reached the second target level for accelerated
vesting of the restricted common stock that had been issued during the first quarter of 2004. This second target level
was reached when the market price of the common stock closed at or above $18.52 per share (125% of the first
target level of $14.81 per share) for 20 consecutive days. As a result, the restrictions expired with respect to an
additional one third of such shares during the third quarter of 2005. The acceleration of the vesting for these shares
resulted in the recognition of non-cash compensation charges of $1,957,000 for the twelve months ended December
31, 2005. 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 130,672 of such shares of common stock (at a price of $20.28
per share) for a total of $2,650,000 in cash. Included in the 130,672 shares purchased were 27,760 shares related to
former CCUK employees. The Company had previously recognized the compensation charges associated with the
vesting of those restricted shares in the net gain on disposal of CCUK.
On July 19, 2005, the market performance of the common stock reached the first target level for accelerated
vesting of the restricted common stock that had been issued during the first quarter of 2005. This first target level
was reached when the market price of the common stock closed at or above $18.63 per share (approximately 115%
of the base price of $16.20 per share for executives and non-executive employees) for 20 consecutive days. As a
result, the restrictions expired with respect to one third of such shares during the third quarter of 2005. The
acceleration of the vesting for these shares resulted in the recognition of non-cash compensation charges of
$1,570,000 for executives and $1,312,000 for non-executive employees, respectively, for the twelve months ended
December 31, 2005. 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
94
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
the stock sales. The Company purchased approximately 76,090 of such shares of common stock (at a price of $20.28
per share) for a total of $1,543,000 in cash.
On July 20, 2005, the market performance of the common stock reached the performance market target, $19.44
per share (20% above market price at the grant date), stipulated in the executive’s restricted stock agreements
relating to the restricted stock awards granted in the first quarter of 2005. As a result, 100% of the executive’s
remaining restricted common stock relating to such awards became eligible to vest on the fourth anniversary of the
grant date (February 24, 2009), if not earlier based on stock market performance. Accelerated vesting of the
remaining restricted common stock would still occur if and when the market price of the common stock closed at or
above $21.42 and $24.64 per share, respectively, for 20 consecutive days.
On August 30, 2005, the market performance of the common stock reached the second target level for
accelerated vesting of the restricted common stock that had been issued during the first quarter of 2005. This second
target level was reached when the market price of the common stock closed at or above $21.42 per share (115% of
the first target level of $18.63 per share) for 20 consecutive days. As a result, the restrictions expired with respect to
an additional one third of such shares during the third quarter of 2005. The acceleration of the vesting for these
shares resulted in the recognition of non-cash compensation charges of $1,962,000 for executives and $1,874,000
for non-executive employees, respectively, for the twelve months ended December 31, 2005. 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
76,299 of such shares of common stock (at a price of $24.48 per share) for a total of $1,868,000 in cash.
On September 16, 2005, the market performance of the common stock reached the third and final target level
for accelerated vesting of the restricted common stock that had been issued during the first quarter of 2004. This
third and final target level was reached when the market price of the common stock closed at or above $23.14 per
share (125% of the second target level of $18.52 per share) for 20 consecutive days. As a result, the restrictions
expired with respect to the final third of such shares during the third quarter of 2005. The acceleration of the vesting
for these shares resulted in the recognition of non-cash compensation charges of $2,993,000 for the twelve months
ended December 31, 2005. 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 134,046 of such shares of common stock (at a price of $24.65 per
share) for a total of $3,304,000 in cash. Included in the 134,046 shares purchased were 27,775 shares related to
former CCUK employees. The Company had previously recognized the compensation charges associated with the
vesting of those restricted shares in the net gain on disposal of CCUK.
On November 29, 2005, the market performance of the common stock reached the third and final target level
for accelerated vesting of the restricted common stock that had been issued during the first quarter of 2005. This
third and final target level was reached when the market price of the common stock closed at or above $24.64 per
share (115% of the second target level of $18.63 per share) for 20 consecutive trading days. As a result, the
restrictions expired with respect to the final third of such shares during the fourth quarter of 2005. The acceleration
of the vesting of these shares resulted in the recognition of non-cash compensation charges of $1,943,000 for
executives and $1,603,000 for non-executive employees, respectively, for the three months ended December 31,
2005. Most of the executives and non-executive 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 74,637 of such shares of common stock (at a price of $26.61
per share) for a total of $1,986,000 in cash.
A summary of restricted common stock activity described above for the years ended December 31, 2003, 2004
and 2005 is as follows:
95
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 ................................................................................................................
Shares granted during March, April and May 2005 (weighted-average grant-date fair value of $16.16
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
per share) .............................................................................................................................................................
Other shares granted during 2005 (weighted-average grant-date fair value of $22.90 per share) .............................
Shares vested during 2005 ........................................................................................................................................
Shares forfeited during 2005.....................................................................................................................................
693,906
67,950
(1,460,507)
(125,291)
Shares outstanding at December 31, 2005 ................................................................................................................
94,416
Other Compensation Charges Related to Stock Awards
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 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 2003, the Company issued 105,000 shares of common stock to the non-employee 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 compensation charges of $415,000 for the year ended December 31, 2003.
In February 2004, the Company issued 35,400 shares of common stock to the non-employee 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 compensation charges of $419,000 for the year ended December 31, 2004.
In December 2004, the Company modified the vesting and exercise terms of outstanding stock options for
certain terminated executives (see note 15). As a result, the Company recognized non-cash restructuring charges of
$2,790,000 for the fourth quarter of 2004.
In February and June 2005, the Company issued 35,650 and 5,357 shares, respectively, of common stock to the
non-employee members of its Board of Directors. These shares had a grant-date fair value of $16.20 and $16.80 per
share, respectively. In connection with these shares, the Company recognized non-cash compensation charges of
approximately $668,000 for the year ended December 31, 2005.
In the first quarter of 2005, the Company modified the vesting and exercise terms of outstanding stock options
and restricted stock awards for certain terminated employees relating to the consolidation of certain corporate
management functions as a result of the sale of CCUK (see note 3). As a result, the Company recognized non-cash
restructuring charges of $6,012,000 and $412,000 for the year ended December 31, 2005, for outstanding stock
options and restricted stock awards, respectively (see note 16).
96
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Stock Options
In 2001, the Company adopted the Crown Castle International Corp. 2001 Stock Incentive Plan (“2001 Stock
Incentive Plan”). Up to 8,000,000 shares of common stock have been reserved under the 2001 Stock Incentive Plan
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 (“2004 Stock
Incentive Plan”). Up to 6,000,000 shares of common stock have been reserved under the 2004 Stock Incentive Plan
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. 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 Crown Castle International Corp. 1995 Stock Option Plan (as amended, the “1995 Stock Option
Plan”); provided, however, that the aggregate number of shares added shall not exceed 10,000,000 shares. Pursuant
to this provision, in 2005, the Company transferred 5,200,000 shares from the Crown Castle International Corp.
1995 Stock Option Plan to the 2004 Stock Incentive Plan.
A summary of stock options granted under the various equity incentive plans is as follows for the years ended
December 31, 2003, 2004 and 2005:
2003
2004
2005
Number of
Shares
Weighted-
Average
Exercise
Price
Number of
Shares
Weighted-
Average
Exercise
Price
Number of
Shares
Weighted-
Average
Exercise
Price
Options outstanding at beginning
of year..............................................
57,500
Options granted.....................................
Options exercised..................................
(1,570,687)
Options forfeited................................... (2,467,533)
22,975,116
$ 14.71
6.86
5.09
16.10
18,994,396
$
⎯ ⎯
15.30
(3,592,071)
(969,053)
8.93
22.43
14,433,272
$
—
(4,764,054)
(1,071,068)
Options outstanding at end of year ....... 18,994,396
15.30
14,433,272
16.46
8,598,150
Options exercisable at end of year ........ 13,801,678
16.93
10,530,164
19.06
8,535,690
A summary of options outstanding as of December 31, 2005 is as follows:
16.46
—
12.29
24.00
17.82
17.86
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
52,108
752,601
2,553,000
505,000
1,011,317
2,764,840
959,284
8,598,150
Weighted-Average
Remaining
Contractual Life
6.00
3.90
5.38
3.50
3.45
3.77
3.50
Number of Options
Exercisable
41,748
723,521
2,547,080
504,000
1,007,017
2,753,040
959,284
8,535,690
The weighted-average fair value of options granted during the year ended December 31, 2003 was $4.51. 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:
97
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Years Ended
December 31,
2003
Risk-free interest rate......................................................................................................................
3.06%
Expected life................................................................................................................................... 5.0 years
80%
Expected volatility..........................................................................................................................
0%
Expected dividend yield .................................................................................................................
CCAL Share Option Scheme
In 2000, CCAL adopted the Crown Castle Australia Holdings Pty Ltd. Director and Employee Share Option
Scheme (“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 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 and 2005 have an exercise price of Australian $0.92
and $1.22 per share (approximately $0.69 and $0.93), respectively.
A summary of awards granted under the CCAL Share Option Scheme is as follows for the years ended
December 31, 2003, 2004 and 2005:
Options outstanding at beginning of year ..........................................................
Options granted..................................................................................................
Options forfeited................................................................................................
2003
5,932,062
1,470,000
(875,000)
2004
6,527,062
⎯
(3,341,062)
2005
3,186,000
3,207,500
(535,000)
Options outstanding at end of year ....................................................................
6,527,062
3,186,000
5,858,500
Options exercisable at end of year .....................................................................
2,094,625
1,578,800
1,910,000
The estimated fair value of options granted under the CCAL Share Option Scheme was Australian $0.49 and
$0.81 per share (approximately $0.37 and $0.62) in 2003 and 2005, respectively, based on the Black-Scholes option
pricing model using the following weighted-average assumptions:
2003
Risk-free interest rate.....................................................................................................................
5.95%
Expected life .................................................................................................................................. 5.0 years
45%
Expected volatility .........................................................................................................................
0%
Expected dividend yield.................................................................................................................
2005
3.90%
5.0 Years
80%
0%
Years Ended December 31,
Shares Reserved For Issuance
At December 31, 2005, the Company had the following shares reserved for future issuance:
Common Stock:
5,906,187
Convertible Senior Notes ...................................................................................................................................
8,625,085
Convertible Preferred Stock ...............................................................................................................................
U.S. Stock compensation plans .......................................................................................................................... 20,548,476
639,990
Warrants .............................................................................................................................................................
35,719,738
12. 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
98
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
for these plans amounted to $2,935,000, $2,871,000 and $3,166,000 for the years ended December 31, 2003, 2004
and 2005, respectively.
13. Related Party Transactions
Included in other receivables at December 31, 2004 and 2005 are amounts due from employees of the Company
totaling $89,000 and $52,000, respectively.
For the years ended December 31, 2003 and 2004, the Company had revenues from Verizon Wireless of
$128,131,000 and $131,724,000, respectively. Verizon Wireless is a majority owned subsidiary of Verizon, the
Company’s former partner in Crown Atlantic and Crown Castle GT (see note 7).
Included in trade receivables at December 31, 2005, are amounts due from FiberTower totaling $197,000. For
the year ended December 31, 2005, the Company had revenues from FiberTower of $347,000. The Company owns a
36% minority interest position in FiberTower (see note 6).
Included in other receivables at December 31, 2005 are amounts due from CCAL’s minority shareholder
totaling $308,000.
14. Commitments and Contingencies
At December 31, 2005, minimum rental commitments under operating leases are as follows: years ending
December 31, 2006—$112,928,000; 2007—$114,344,000; 2008—$115,121,000; 2009—$115,678,000; 2010—
$116,762,000; thereafter—$1,434,432,000. 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 $124,878,000 (as restated), $129,920,000
(as restated) and $135,529,000 for the years ended December 31, 2003, 2004 and 2005, 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.
15. Operating Segments and Concentrations of Credit Risk
Operating Segments
The Company’s reportable operating segments for 2005 are (1) US tower operations (“CCUSA”), (2) CCAL,
(3) Emerging Businesses and (4) Corporate Office and Other. Financial results for the Company are reported to
management and the Board of Directors in this manner.
Prior to its sale in June 2004, CCUK, the Company’s UK tower and broadcasting operations, was a reportable
segment. For all periods presented, CCUK has been classified as a component of Corporate Office and Other on a
discontinued operations basis (see note 3).
On November 4, 2004, the Company entered into an agreement with a subsidiary of Verizon to acquire
Verizon’s remaining 37.245% equity interest in Crown Atlantic. Following this transaction, the Company has
combined the Crown Atlantic operating segment with the CCUSA operating segment. As a result of acquiring this
remaining interest, Crown Atlantic has been presented in the CCUSA operating segment for all periods presented
(see note 2).
The Company has pursued and is currently pursuing emerging strategic opportunities and adjacent businesses,
including the Modeo, formerly known as Crown Castle Mobile Media, and Crown Castle Solutions businesses. For
99
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
all periods presented, Modeo and Crown Castle Solutions have been classified as the segment Emerging Businesses.
Modeo had previously been reported within the Corporate Office and Other segment, while Crown Castle Solutions
had previously been reported within the CCUSA segment.
The measurement of profit or loss currently used by management to evaluate the results of operations for the
Company and its operating segments is earnings before interest, taxes, depreciation, amortization, and accretion, as
adjusted (“Adjusted EBITDA”). The Company defines 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 and amortization of deferred financing costs, interest and other income (expense),
depreciation, amortization and accretion, operating non-cash 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 U.S. 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.
The financial results for the Company’s operating segments are as follows:
Year Ended December 31, 2003
CCUSA
(As restated)
CCAL
(As restated)
Emerging
Businesses
Corporate
Office and
Other
Consolidated
Total
(As restated)
(In thousands of dollars)
Net revenues:
Site rental ..................................................$
Network services and other.......................
454,481 $
68,828
30,360 $
3,488
Costs of operations (exclusive of depreciation
and amortization).........................................
General and administrative ...............................
Corporate development.....................................
Restructuring charges .......................................
Asset write-down charges .................................
Depreciation and amortization.........................
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 continuing operations ........
Income from discontinued operations...............
Cumulative effect of a change in accounting
523,309
33,848
211,456
64,736
—
1,291
14,317
253,730
(22,221)
(13,001)
(55,072)
(2,000)
(1,170)
(93,464)
—
14,737
7,856
—
—
—
25,733
(14,478)
1,539
(3,763)
(465)
5,162
(12,005)
—
— $
—
—
—
214
—
—
—
188
— $
—
—
—
22,349
5,564
—
—
1,377
484,841
72,316
557,157
226,193
95,155
5,564
1,291
14,317
281,028
(402)
—
(29,290)
(120,330)
(66,391)
(131,792)
—
—
—
(199,999)
—
—
(402)
—
(349,619)
4,430
(258,834)
(2,465)
3,992
(455,490)
4,430
principle.......................................................
(494)
(57)
—
—
(551)
Net income (loss)..............................................$
(93,958) $
(12,062) $
(402) $
(345,189) $
(451,611)
Capital expenditures .........................................$
23,565 $
3,381 $
298 $
111 $
27,355
100
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
CCUSA
(As restated)
CCAL
(As restated)
Year Ended December 31, 2004
Emerging
Businesses
(In thousands of dollars)
Corporate Office
and Other
(As restated)
Consolidated
Total
(As restated)
Net revenues:
Site rental ................................................. $
Network services and other......................
497,984 $
61,380
40,325 $
4,305
Costs of operations (exclusive of depreciation,
amortization and accretion) ........................
General and administrative ..............................
Corporate development....................................
Restructuring charges (credits) ........................
Asset write-down 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 ...........................................................
Benefit (provision) for income taxes ...............
Minority interests.............................................
Income (loss) from continuing operations .......
Income (loss) from discontinued operations ....
559,364
44,630
209,949
59,486
—
(419)
7,652
256,914
25,782
(9,281)
(53,595)
6,000
(5,109)
(36,203)
(4,279)
19,255
10,607
—
—
—
27,141
(12,373)
(405)
(4,441)
(630)
5,507
(12,342)
—
— $
208
208
1,821
4,205
—
—
—
464
— $
—
538,309
65,893
—
604,202
—
23,367
1,455
4,148
—
472
231,025
97,665
1,455
3,729
7,652
284,991
(22,315)
(78,264)
(6,282)
(27)
(29,442)
(68,551)
—
—
—
(148,734)
—
—
(6,309)
—
(246,727)
538,967
(206,770)
5,370
398
(301,581)
534,688
Net income (loss)............................................. $
(40,482) $
(12,342) $
(6,309) $
292,240 $
233,107
Capital expenditures ........................................ $
37,680 $
2,682 $
2,501 $
55 $
42,918
Total assets (at year end) ................................. $ 3,828,963 $
291,156 $
15,544 $
438,904 $ 4,574,567
101
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Year Ended December 31, 2005
CCUSA
CCAL
Emerging
Businesses
(In thousands of dollars)
Corporate
Office and
Other
Consolidated
Total
Net revenues:
Site rental ................................................. $
Network services and other......................
549,363 $
72,537
47,481 $
7,097
621,900
54,578
Costs of operations (exclusive of depreciation,
amortization and accretion) ........................
General and administrative ..............................
Corporate development....................................
Restructuring charges (credits) ........................
Asset write-down 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 continuing operations .......
Income from discontinued operations..............
Cumulative effect of a change in accounting
228,815
61,509
—
—
2,359
253,263
75,954
5,552
(64,607)
(2,704)
—
14,195
848
21,025
11,787
—
—
566
26,898
(5,698)
791
(3,949)
(521)
3,462
(5,915)
—
281 $
—
281
2,145
3,694
3,702
—
—
685
— $
—
—
597,125
79,634
676,759
—
28,773
194
8,477
—
272
251,985
105,763
3,896
8,477
2,925
281,118
(9,945)
—
(37,716)
(288,786)
22,595
(282,443)
(1)
—
63
(65,249)
—
—
(9,883)
—
(391,751)
—
(133,806)
(3,225)
3,525
(393,354)
848
principle......................................................
(7,920)
(1,111)
—
—
(9,031)
Net income (loss)............................................. $
7,123 $
(7,026) $
(9,883) $
(391,751) $
(401,537)
Capital expenditures ........................................ $
45,797 $
2,630 $
16,206 $
45 $
64,678
Total assets (at year end) ................................. $ 3,746,432 $
245,346 $
30,702 $
108,837 $ 4,131,317
The following are reconciliations of net income (loss) to Adjusted EBITDA for the years ended December 31,
2003, 2004, and 2005:
Year Ended December 31, 2003
CCUSA
CCAL
(As restated)
(As restated)
Emerging
Businesses
Corporate
Office
and Other
Consolidated
Total
(As restated)
Net loss ............................................................. $
Adjustments:
(93,958)
$
Income (loss) from discontinued
operations, net of tax ...........................
Minority interests.........................................
Provision for income taxes ..........................
Interest expense and amortization of
deferred financing costs.......................
Interest and other income (expense) ............
Depreciation, amortization and accretion ....
Operating non-cash compensation charges..
Asset write-down charges............................
Cumulative effect of a change in
accounting principle ............................
Restructuring charges, including non-cash
compensation charges..........................
—
1,170
2,000
55,072
13,001
253,730
8,048
14,317
494
1,291
(12,062)
(In thousands of dollars)
$
(402)
$
—
(5,162)
465
3,763
(1,539)
25,733
20
—
57
—
—
—
—
—
—
188
—
—
—
—
(345,189)
$
(451,611)
(4,430)
—
—
199,999
120,330
1,377
5,918
—
—
—
(4,430)
(3,992)
2,465
258,834
131,792
281,028
13,986
14,317
551
1,291
Adjusted EBITDA.......................... $
255,165
$
11,275
$
(214)
$
(21,995)
$
244,231
102
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Year Ended December 31, 2004
CCUSA
CCAL
Emerging
Businesses
Corporate
Office
and Other
Consolidated
Total
(As restated)
(As restated)
(As restated)
(As restated)
Net income (loss) ............................................... $
Adjustments:
(40,482)
$
(12,342)
(In thousands of dollars)
$
(6,309)
$
Income (loss) from discontinued operations,
net of tax ...............................................
Minority interests ..........................................
(Benefit) provision for income taxes.............
Interest expense and amortization of
deferred financing costs ........................
Interest and other income (expense)..............
Depreciation, amortization and accretion......
Operating non-cash compensation charges ...
Asset write-down charges .............................
Restructuring charges (credits), including
4,279
5,109
(6,000)
53,595
9,281
256,914
7,253
7,652
—
(5,507)
630
4,441
405
27,141
66
—
non-cash compensation .........................
(419)
—
—
—
—
—
27
464
—
—
—
292,240
$
233,107
(538,967)
—
—
148,734
68,551
472
5,769
—
(534,688)
(398)
(5,370)
206,770
78,264
284,991
13,088
7,652
4,148
3,729
Adjusted EBITDA ........................... $
297,182
$
14,834
$
(5,818)
$
(19,053)
$
287,145
Year Ended December 31, 2005
CCUSA
CCAL
Emerging
Businesses
Corporate
Office and
Other
Consolidated
Total
7,123
$
(7,026)
$
(9,883)
$ (391,751)
$
(401,537)
(In thousands of dollars)
Net income (loss).............................................. $
Adjustments:
Income from discontinued operations, net
of tax....................................................
Minority interests.........................................
Provision for income taxes ..........................
Interest expense and amortization of
deferred financing costs.......................
Interest and other income (expense) ............
Depreciation, amortization and accretion ....
Operating non-cash compensation charges..
Asset write-down charges............................
Cumulative effect of a change in
(848)
—
2,704
64,607
(5,552)
253,263
7,922
2,359
—
(3,462)
521
3,949
(791)
26,898
344
566
accounting principle ............................
7,920
1,111
Restructuring charges (credits), including
non-cash compensation........................
—
—
—
(63)
—
1
—
685
967
—
—
—
—
—
—
65,249
288,786
272
10,714
—
—
8,477
(848)
(3,525)
3,225
133,806
282,443
281,118
19,947
2,925
9,031
8,477
Adjusted EBITDA.......................... $
339,498
$
22,110
$
(8,293)
$
(18,253)
$
335,062
103
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The components of operating non-cash compensation are as follows:
Operating non-cash compensation:
Site rental costs of operations........................ $
Network services and other costs of
operations............................................
General and administrative expenses ............
Operating non-cash compensation charges ...
Restructuring charges .........................................
142
7,627
8,048
—
Total non-cash compensation........... $
8,048
$
CCUSA
CCAL
Year Ended December 31, 2003
Emerging
Businesses
Corporate
Office and
Other
Consolidated
Total
(In thousands of dollars)
279
$
—
$
—
$
—
$
279
—
20
20
—
20
$
—
—
—
—
—
$
—
5,918
5,918
—
5,918
142
13,565
13,986
—
$
13,986
Operating non-cash compensation:
Site rental costs of operations........................ $
Network services and other costs of
operations..............................................
General and administrative expenses ............
Operating non-cash compensation charges ...
Restructuring charges .........................................
280
6,420
7,253
—
Total non-cash compensation........... $
7,253
$
CCUSA
CCAL
Year Ended December 31, 2004
Emerging
Businesses
Corporate
Office and
Other
Consolidated
Total
(In thousands of dollars)
553
$
—
$
—
$
—
$
553
—
66
66
—
66
$
—
—
—
—
—
$
—
5,769
5,769
2,859
8,628
280
12,255
13,088
2,859
$
15,947
Year Ended December 31, 2005
CCUSA
CCAL
Emerging
Businesses
Corporate
Office
and Other
Consolidated
Total
(In thousands of dollars)
715
$
—
$
—
$
—
$
715
—
344
344
—
344
—
967
967
—
—
10,714
10,714
6,424
349
18,883
19,947
6,424
$
967
$
17,138
$
26,371
Operating non-cash compensation:
Site rental costs of operations ...................... $
Network services and other costs of
operations ............................................
General and administrative expenses...........
Operating non-cash compensation charges..
Restructuring charges........................................
349
6,858
7,922
—
Total non-cash compensation ......... $
7,922
$
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 ........................................................................................................
513,312 $
9,997
2003
(As restated)
Years Ended December 31,
2004
(As restated)
(In thousands of dollars)
549,906 $
9,666
Total domestic operations .......................................................................
523,309
559,572
Australia ............................................................................................................
33,848
44,630
2005
612,362
9,819
622,181
54,578
$
557,157 $
604,202 $
676,759
104
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
A summary of long-lived assets by country of location is as follows:
United States
and
Puerto Rico
(As restated)
December 31, 2004
Australia
(As restated)
(In thousands of dollars)
Property and equipment, net ............................................ $
Goodwill ..........................................................................
Deferred site rental receivable .........................................
Deferred financing costs and other assets, net .................
3,130,945
332,493
65,892
145,526
$
$
3,674,856
$
244,077
—
16,450
471
260,998
$
$
United States and
Puerto Rico
December 31, 2005
Australia
(In thousands of dollars)
Property and equipment, net ............................................
Goodwill ..........................................................................
Deferred site rental receivable .........................................
Deferred financing costs and other assets, net .................
$
3,087,947
340,412
68,118
183,664
$
$
3,680,141
$
206,386
—
19,274
407
226,067
Major Customers
Consolidated
Total
(As restated)
3,375,022
332,493
82,342
145,997
3,935,854
Consolidated
Total
$
3,294,333
340,412
87,392
184,071
$
3,906,208
For the years ended December 31, 2003 (as restated), 2004 (as restated) and 2005, consolidated net revenues
include $116,779,000, $150,417,000 and $159,341,000, respectively, from Cingular Wireless and its predecessor
companies, a customer of CCUSA. For the years ended December 31, 2003 (as restated), 2004 (as restated) and
2005, consolidated net revenues include $128,131,000, $131,724,000 and $158,054,000, respectively, from Verizon
Wireless, a customer of CCUSA. For the years ended December 31, 2003 (as restated), 2004 (as restated) and 2005,
consolidated net revenues include $66,746,000, $75,090,000 and $85,495,000, 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 U.S.). The Company mitigates its concentrations of credit risk with respect to trade receivables by
actively monitoring the creditworthiness of its customers.
16. Restructuring Charges and Asset Write-Down Charges
In October 2002, the Company announced a restructuring of its U.S. business in order to flatten its
organizational structure to better align with customer demand and enhance the Company’s regional focus to improve
customer service. The continued execution of this October 2002 restructuring plan lead to further headcount
reductions in the U.S. businesses during the second quarter of 2003. As a result, the Company reduced its U.S.
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
105
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 3), the Company consolidated certain corporate management
functions in December 2004 and January 2005. In connection with this restructuring, the Company recorded cash
charges of $1,348,000 for the fourth quarter of 2004 related to employee severance payments. In addition, in the
fourth quarter of 2004 the Company recorded non-cash restructuring charges in connection with the modification of
stock options for certain terminated executives (see note 11).
During the first quarter of 2005, the Company completed the consolidation of certain management functions as
a result of the sale of CCUK. In connection with this restructuring, the Company recorded cash charges of
$2,053,000 for the year ended December 31, 2005 related to employee severance payments. In addition to the cash
charges, during this same period the Company recorded non-cash restructuring charges of $6,424,000 in connection
with the modification of stock options and restricted stock awards for certain terminated executives (see note 11).
At December 31, 2004 and 2005, other accrued liabilities includes $1,942,000 and $1,694,000, respectively,
related to restructuring charges. A summary of the restructuring charges by operating segment is as follows:
Year Ended December 31, 2003
Corporate
Office and
Other
(In thousands of dollars)
Consolidated
Total
CCUSA
Amounts accrued at beginning of year:
Employee severance ..................................................................$
Costs of office closures and other ..............................................
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 ..............................................
Amounts accrued at end of year:
Employee severance ..................................................................
Costs of office closures and other ..............................................
$
1,759
2,854
4,613
999
292
1,291
(2,265)
(956)
(3,221)
493
2,190
$
2,683
$
341
⎯
341
⎯
⎯
⎯
(308)
⎯
(308)
33
⎯
33
$
$
2,100
2,854
4,954
999
292
1,291
(2,573)
(956)
(3,529)
526
2,190
2,716
106
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 .........................................
Amounts accrued at end of year:
Employee severance..............................................................
Costs of office closures and other .........................................
$
Year Ended December 31, 2004
Corporate
Office
and Other
(In thousands of dollars)
Consolidated
Total
CCUSA
$
493
2,190
2,683
25
(444)
(419)
(518)
(342)
(860)
⎯
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
Year Ended December 31, 2005
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 ..............................................
Amounts accrued at end of year:
Employee severance ..................................................................
Costs of office closures and other ..............................................
$
—
1,404
1,404
—
—
—
—
(323)
(323)
—
1,081
$
1,081
$
$
538
—
538
2,053
—
2,053
(1,978)
—
(1,978)
613
—
613
$
538
1,404
1,942
2,053
—
2,053
(1,978)
(323)
(2,301)
613
1,081
1,694
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 years ended December 31, 2004 and 2005, the Company abandoned or disposed of certain towers,
towers in development and certain other assets and recorded asset write-down charges of $7,652,000 and
$2,359,000, respectively, for CCUSA and $-0- and $566,000, respectively, for CCAL.
107
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
17. Supplemental Cash Flow Information
Supplementary schedule of non-cash investing and financing activities:
2003
(As restated)
Year Ended December 31,
2004
(As restated)
(In thousands of dollars)
2005
Amounts recorded in connection with acquisitions (see note 2):
Fair value of net assets recorded, including goodwill and
other intangible assets........................................................... $
Minority interest acquired .......................................................
Minority interest issued...........................................................
25,366
47,259
(66,752)
$ 146,756
148,244
—
$
—
—
—
Supplemental disclosure of cash flow information:
Interest paid .................................................................................. $ 177,547
Income taxes paid (refund) (including $-0-, $11,000 and
2003
Year Ended December 31,
2004
(In thousands of dollars)
2005
$ 199,836
$ 158,165
$(2,385) related to CCUK) (notes 3 and 8) .............................
465
11,630
(1,864)
18. Quarterly Financial Information (Unaudited)
Summary quarterly financial information for the years ended December 31, 2004 and 2005 is as follows:
Three Months Ended
March 31
(As restated)
June 30
(As restated)
September 30
(As restated)
December 31
(As restated)
(In thousands of dollars, except per share amounts)
2004:
Net revenues ........................................................................... $
Operating income (loss)..........................................................
Loss from continuing operations ............................................
Income (loss) from discontinued operations ...........................
Net income (loss) ....................................................................
Per common share – basic and diluted:
$
145,086
(6,291)
(89,753)
13,002
(76,751)
$
150,972
(7,224)
(66,003)
15,108
(50,895)
150,403
859
(58,601)
507,005
448,404
$ 157,741
(9,659)
(87,224)
(427)
(87,651)
Loss from continuing operations .......................................
Income (loss) from discontinued operations......................
Net income (loss)...............................................................
(0.45)
0.06
(0.39)
(0.34)
0.07
(0.27)
(0.31)
2.28
1.97
(0.44)
—
(0.44)
2005:
Net revenues ...........................................................................
Operating income (loss)..........................................................
Income (loss) from continuing operations ..............................
Income (loss) from discontinued operations ...........................
Net income (loss) ....................................................................
Per common share – basic and diluted:
$
$
157,647
(4,222)
(125,448)
(1,499)
(126,947)
$
168,227
9,350
(228,098)
2,347
(225,751)
172,259
1,730
(25,536)
—
$ 178,626
15,737
(14,272)
—
(25,536)
(23,303)*
Loss from continuing operations .......................................
Income from discontinued operations................................
Cumulative effect of change in accounting principle.........
Net income (loss)...............................................................
(0.60)
(0.01)
—
(0.61)
(1.09)
0.01
—
(1.08)
(0.16)
—
—
(0.16)
(0.17)
—
(0.04)
(0.21)
______________________
* Inclusive of a $9,031,000 charge for the cumulative effect of a change in accounting principle relating to asset retirement obligations (see note 1).
108
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As Previously
Stated
Restatement
Adjustments
As
Restated
(In thousands of dollars, except per share amounts)
Three Months Ended March 31, 2004:
Site rental revenues............................................................................................$
Site rental costs of operations ............................................................................
Depreciation, amortization and accretion expense.............................................
Operating income (loss).....................................................................................
Minority interests...............................................................................................
Net income (loss) ...............................................................................................
Net income (loss) per common share – basic and diluted ..........................................
$
130,180
44,602
70,743
)
(6,117
(131)
(76,637)
(0.39)
$
203
30
347
(174)
60
(114)
—
130,383
44,632
71,090
(6,291)
(71)
(76,751)
(0.39)
Three Months Ended June 30, 2004:
Site rental revenues............................................................................................$
Site rental costs of operations ............................................................................
Depreciation, amortization and accretion expense.............................................
Operating income (loss).....................................................................................
Minority interests...............................................................................................
Net income (loss) ...............................................................................................
Net income (loss) per common share – basic and diluted ..........................................
$
132,507
45,618
70,473
)
(7,048
(277)
(50,780)
(0.27)
$
217
30
363
(176)
61
(115)
—
132,724
45,648
70,836
(7,224)
(216)
(50,895)
(0.27)
Three Months Ended September 30, 2004:
Site rental revenues............................................................................................$
Site rental costs of operations ............................................................................
Depreciation, amortization and accretion expense.............................................
Operating income (loss).....................................................................................
Minority interests...............................................................................................
Income from discontinued operations, net of tax ...............................................
Net income (loss) ...............................................................................................
Net income (loss) per common share – basic and diluted ..........................................
135,229
45,804
69,925
1,037
(544)
509,140
450,656
1.98
$
$
218
30
366
(178)
61
(2,135)
(2,252)
(0.01)
135,447
45,834
70,291
859
(483)
507,005
448,404
1.97
As Previously
Stated
Restatement
Adjustments
As
Restated
Adjustments
to Present
OpenCell as
Discontinued
Operations
Adjustments
to Present
Non-Cash
Compensation
in Accordance
with SAB 107
As Restated on
Continuing
Operations
Basis
Three Months Ended December 31, 2004:
Site rental revenues ....................................$ 139,549 $
Network services and other revenues.........
Site rental costs of operations ...................
Network services cost of operations
18,228
47,918
and other ...............................................
.
General and administrative .......................
Restructuring charges.................................
Non-cash compensation charges ................
Depreciation, amortization and
accretion expense .................................
Operating income (loss) .............................
Interest and other income (expense)...........
Minority interests .......................................
Income from discontinued operations,
net of tax...............................................
Net income (loss) .......................................
13,261
23,294
1,348
6,087
72,537
(10,938)
(38,155)
1,154
558
(88,129)
206 $ 139,755 $
—
30
—
—
—
—
18,228
47,948
13,261
23,294
1,348
6,087
350
(174)
—
14
72,887
(11,112)
(38,155)
1,168
(474)
(1,108)
—
—
(113)
1,453
170
—
638
478
1,196
(87,651)
(1,623)
—
Net income (loss) per common share – basic
and diluted .................................................
(0.44
)
—
(0.44)
—
109
— $
(242)
—
— $ 139,755
—
17,986
48,159
211
107
2,910
2,859
(6,087)
—
—
—
—
—
—
—
12,894
25,096
4,207
—
72,774
(9,659)
(37,985)
1,168
(427)
(87,651)
(0.44)
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As Previously
Stated
Restatement
Adjustments
As
Restated
(In thousands of dollars,
except per share amounts)
Three Months Ended March 31, 2005:
Site rental revenues .....................................................................................................$ 140,926 $
Site rental costs of operations......................................................................................
General and administrative..........................................................................................
Depreciation, amortization and accretion expense ......................................................
Operating income (loss) ..............................................................................................
Minority interests .......................................................................................................
.
Net income (loss) ........................................................................................................
Net income (loss) per common share – basic and diluted ...................................................
47,680
22,547
72,172
(6,107)
1,275
(128,761)
(0.62)
542 $ 141,468
48,323
643
22,546
(1)
70,187
(1,985)
(4,222
1,885
)
1,204
(71)
(126,947)
1,814
(0.61)
0.01
Three Months Ended June 30, 2005:
Site rental revenues .....................................................................................................$ 146,867 $
Site rental costs of operations......................................................................................
General and administrative..........................................................................................
Depreciation, amortization and accretion expense ......................................................
Operating income (loss) ..............................................................................................
Minority interests ........................................................................................................
Net income (loss) ........................................................................................................
Net income (loss) per common share – basic and diluted ...................................................
47,759
23,890
72,712
7,579
798
(227,451)
(1.09)
542 $ 147,409
48,402
643
24,000
110
70,730
(1,982)
9,350
1,771
727
(71)
(225,751)
1,700
(1.08)
0.01
Three Months Ended September 30, 2005:
Site rental revenues ....................................................................................................
Site rental costs of operations......................................................................................
General and administrative..........................................................................................
Depreciation, amortization and accretion expense ......................................................
Operating income (loss) ..............................................................................................
.
Minority interests .......................................................................................................
Income from discontinued operations, net of tax ........................................................
.
Net income (loss) .......................................................................................................
Net income (loss) per common share – basic and diluted ..................................................
.
50,029
33,484
72,192
627
904
(1,497)
(28,066)
(0.17)
.$ 152,260 $
542 $ 152,802
50,671
642
34,258
774
70,215
(1,977)
1,730
1,103
834
—
(25,536)
(0.16)
1,497
2,530
0.01
(70)
19. Subsequent Events
Convertible Senior Notes
On January 23, 2006, a holder converted $100,000 of the 4% Convertible Senior Notes into 9,233 shares of
common stock. Conversion of the remaining outstanding 4% Convertible Senior Notes would result in the issuance
of approximately 5,897,000 shares of common stock.
Interest Rate Swaps
On January 27, 2006, the Company terminated the December 2005 Interest Rate Swaps. No settlement payment
was required to terminate the swaps. Two new interest rate swaps with similar terms were entered into on January
27, 2006 to fix its interest cash outflows, in contemplation of refinancing the 2005 Credit Facility in June 2006. The
terms of the interest rate swaps call for the Company to receive interest at a variable rate equal to LIBOR and to pay
interest at a weighted average fixed annual rate of 4.9045%.
On March 2, 2006, the Company entered into three five-year forward starting interest rate swap agreements
with a combined notional amount of $1.9 billion to fix its interest cash outflows, in contemplation of refinancing the
$1.9 billion Tower Revenue Notes issued in June 2005. The terms of the interest rate swap call for the Company to
receive interest at a variable rate equal to LIBOR and to pay interest at a fixed annual rate of 5.111% plus the
applicable margin.
110
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Stock-Based Compensation
In February 2006, the Company issued 24,120 shares of common stock to the non-employee members of its
Board of Directors. These shares have a grant-date fair value of $30.89 per share. In connection with the shares, the
Company will recognize non-cash compensation charges of $745,000 for the first quarter of 2006.
In February 2006, the Company issued 1,137,029 shares of restricted common stock to certain of its executives
and non-executive employees. These shares have a weighted average grant-date fair value of $23.94 per share. The
restrictions on the shares will expire in various amounts over the respective service periods. In connection with the
shares, the Company will recognize non-cash compensation charges of approximately $26,000,000 over the vesting
periods of these awards.
In February 2006, the Company developed a phantom common equity interest plan, pursuant to which an
amount equal to 5% of the outstanding common equity interests (on a fully diluted basis) of Modeo may be reserved
and available for grant as phantom common equity interest options to employees of Modeo. The Company issued
12,450 units, representing a 1.245% equity interest, pursuant to this plan in February. The grant date fair value of the
award is $4,365,000, which will be recognized over the service period and will be adjusted based on the fair value of
the award at each reporting date.
111
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,
2003 and 2004 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, 2003 and 2004, the Company also has restated its interim financial statements for each of the quarters
of 2004 and the first three quarters of 2005 to reflect these corrections in the proper periods. For further discussion
of the restatement see notes 1 and 18 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, 2005, the
Company’s management conducted an evaluation, under the supervision and with the participation of the
Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). In making
this evaluation, management considered, among other things, the matters relating to the restatement of the
Company’s financial statements and the control deficiency discussed below under “Management’s Consideration of
the Restatement”. Based upon their evaluation, the CEO and CFO concluded that the Company’s disclosure controls
and procedures, as of December 31, 2005, were effective to provide reasonable assurance that information required
to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide
reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and
communicated to the Company’s management, including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.
(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 the Company. Under the supervision and with the
participation of the Company’s CEO and CFO, 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:
•
•
•
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.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2005. In performing this assessment, management considered, among other things, the matters
relating to the restatement of the Company’s financial statements and the control deficiency discussed below under
“Management’s Consideration of the Restatement”. Based on our assessment, management has concluded that the
Company’s internal control over financial reporting was effective as of the end of the fiscal year to provide
112
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external reporting purposes in accordance with generally accepted accounting principles. Management of the
Company reviewed the results of their assessment with the Audit Committee of the Board of Directors.
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.
Management’s Consideration of the Restatement
In coming to the conclusion that the Company’s internal control over financial reporting was effective as of
December 31, 2005, management carefully considered, among other things, the control deficiency related to
periodic review of assumptions and factors affecting depreciation practices which contributed to the need to restate
our previously issued financial statements as disclosed in note 1 to the accompanying consolidated financial
statements included in this Form 10-K. After reviewing and analyzing the SEC Staff Accounting Bulletin (“SAB”)
No. 99, “Materiality”, Accounting Principles Board Opinion No. 28, “Interim Financial Reporting”, paragraph 29
and SAB Topic 5F, “Accounting Changes Not Retroactively Applied Due to Immateriality”, and taking into
consideration (1) that the restatement adjustments did not have a material impact on the financial statements of prior
interim or annual periods taken as a whole; (2) that the cumulative impact of the restatement adjustments on
stockholders’ equity was not material to the financial statements of prior interim or annual periods; and (3) that the
Company decided to restate its previously issued financial statements solely because the cumulative impact of the
error, if recorded in the current period, would have been material to the reported net income (loss) for the fourth
quarter of 2005, management concluded that the control deficiency that resulted in the restatement of the prior
period financial statements was not a material weakness. Furthermore, management concluded that, as of December
31, 2005, we had no material weaknesses.
(c) Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is
defined in Rules 13a-15f) and 15d-15(f) of the Securities Exchange Act of 1934) during the most recent fiscal
quarter that have materially affected or are reasonably likely to materially affect our internal control over financial
reporting.
(d) Limitations on the Effectiveness of Controls
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.
113
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”) maintained
effective internal control over financial reporting as of December 31, 2005, 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.
In our opinion, management’s assessment that the Company maintained effective internal control over financial
reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in
“Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Also, in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2005, based on the criteria established in “Internal Control –
Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
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, 2004 and 2005, 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, 2005,
and our report dated March 22, 2006 expressed an unqualified opinion on those consolidated financial statements.
KPMG LLP
Pittsburgh, Pennsylvania
March 22, 2006
114
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 2006 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 2006 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 2006 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, 2005:
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)(4)
Plan category(1)(2)(5)
Equity compensation plans approved by
security holders...................................................
8,598,150
Equity compensation plans not approved by
security holders...................................................
otal.........................................................................
T
—
8,598,150
$ 17.82
—
$ 17.82
11,950,326
—
11,950,326
(3)
(1) See note 11 to the consolidated financial statements for more detailed information regarding the registrant’s equity compensation plans.
(2) CCAL 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 11 to the Consolidated Financial Statements for more detailed
information regarding this plan.
In February 2006, the Company issued 24,120 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 19 to the
consolidated financial statements.
In February 2006, the Company issued 1,137,029 shares of restricted common stock to certain of its executives and non-executives. This
share award was granted under an equity compensation plan that was approved by the registrant’s security holders. See note 19 to the
consolidated financial statements.
In February 2006, the Company developed a phantom common equity interest plan, pursuant to which an amount equal to 5% of the
outstanding common equity interests (on a fully diluted basis) of Modeo may be reserved and available for grant as phantom common
equity interest options to employees of Modeo. The Company issued 12,450 units, representing a 1.245% equity interest, pursuant to this
plan in February. This plan has not been approved by the registrant’s security holders. See note 19 to the consolidated financial statements.
(4)
(5)
115
ITEM 13. Certain Relationships and Related Transactions
The information required to be furnished pursuant to this item will be set forth in the 2006 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 2006 Proxy Statement and
is incorporated herein by reference.
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 56.
(a)(2) Financial Statement Schedules:
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.
116
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2003, 2004, AND 2005
(In thousands of dollars)
Description
Allowance for Doubtful Accounts Receivable:
2003..................................................................
2004..................................................................
2005..................................................................
Additions
Deductions
Balance at
Beginning
of Year
Amounts
Charged to
Operations
Amounts
Credited to
Operations
Amounts
Written
Off
Effect of
Exchange
Rate
Changes
Balance
at End of
Year
$ 10,522 $
$
7,603
$
$
6,577
$
2,246
$
(1,122 $ (4,210) $
)
167
$
7,603
994 $
(650)
$
(1,400) $
30 $
6,577
584 $
(3,828)
$
(339)
$
(26) $
2,968
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
# 4.1
##
@
4.2
4.3
@@
4.4
^^ 4.5
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 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 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)
First Supplemental Indenture, dated as of June 1, 2005, between Crown Castle International
Corp. and The Bank of New York (as successor trustee to United States Trust Company of
New York), as Trustee, relating to the 10¾% Notes
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
118
Exhibit Number
@@ 4.6
†† 4.7
†† 4.8
†† 4.9
@@ 4.10
†† 4.11
† 4.12
† 4.13
# 10.1
## 10.2
## 10.3
## 10.4
** 10.5
+++ 10.6
++ 10.7
^ 10.8
++++ 10.9
@@@ 10.10
@@@ 10.11
^^^ 10.12
== 10.13
== 10.14
== 10.15
Ω 10.16
ΩΩ 10.17
¶ 10.18
P⅜% Notes
Exhibit Description
Exhibits)
First Supplemental Indenture, dated as of June 1, 2005, between Crown Castle International
Corp. and The Bank of New York, as Trustee, relating to the 9P
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)
First Supplemental Indenture, dated as of June 1, 2005, between Crown Castle International
Corp. and The Bank of New York, as Trustee, relating to the 7.5% Notes
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.
Indenture, dated as of June 1, 2005, relating to the Senior Secured Tower Revenue Notes,
by and among JPMorgan Chase Bank, N.A., as Indenture Trustee, and Crown Castle
Towers LLC, Crown Castle South LLC, Crown Communication Inc., Crown Castle PT Inc.,
Crown Communication New York, Inc. and Crown Castle International Corp. de Puerto
Rico, collectively as Issuers
Indenture Supplement, dated as of June 1, 2005, relating to the Senior Secured Tower
Revenue Notes, Series 2005-1, by and among JPMorgan Chase Bank, N.A., as Indenture
Trustee, and Crown Castle Towers LLC, Crown Castle South LLC, Crown Communication
Inc., Crown Castle PT Inc., Crown Communication New York, Inc. and Crown Castle
International Corp. de Puerto Rico, collectively as Issuers
Castle Tower Holding Corp. 1995 Stock Option Plan (Third Restatement)
Crown Castle International Corp. 1995 Stock Option Plan (Fourth Restatement)
Rules of the Castle Transmission Services (Holdings) Ltd. Bonus Share Plan
Castle Transmission Services (Holdings) Ltd. Unapproved Share Option Scheme dated as
of January 23, 1998
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 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 each of Jed
P. Fawaz, James D. Young and James D. Cordes
Crown Castle International Corp. 2006 EMT Annual Incentive Plan
Summary of Non-Employee Director Compensation
Credit Agreement, dated as of July 27, 2005, by and among Crown Castle Operating
Company, as the Borrower, Crown Castle International Corp. and certain of its Subsidiaries,
119
Exhibit Number
† 10.19
† 10.20
† 10.21
11
12
21
23
24
31.1
31.2
32.1
Exhibit Description
as Guarantors, KeyBank National Association, as Administrative Agent, Co-Lead Arranger
and Sole Bookrunner, Calyon New York Branch, as Co-Lead Arranger, The Royal Bank of
Scotland plc, as Documentation Agent, and the financial institutions listed therein
Management Agreement, dated as of June 8, 2005, by and among Crown Castle USA Inc.,
as Manager, and Crown Castle Towers LLC, Crown Castle South LLC, Crown
Communication Inc., Crown Castle PT Inc., Crown Communication New York, Inc.,
Crown Castle International Corp. de Puerto Rico, Crown Castle GT Holding Sub LLC and
Crown Castle Atlantic LLC, collectively as Owners
Cash Management Agreement, dated as of June 8, 2005, by and among Crown Castle
Towers LLC, Crown Castle South LLC, Crown Communication Inc., Crown Castle PT Inc.,
Crown Communication New York, Inc. and Crown Castle International Corp. de Puerto
Rico, as Issuers, JPMorgan Chase Bank, N.A., as Indenture Trustee, Crown Castle USA
Inc., as Manager, Crown Castle GT Holding Sub LLC, as Member of Crown Castle GT
Company LLC, and Crown Castle Atlantic LLC, as Member of Crown Atlantic Company
LLC
Servicing Agreement, dated as of June 8, 2005, by and among Midland Loan Services, Inc.,
as Servicer, and JPMorgan Chase Bank, N.A., as Indenture Trustee
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
#
##
*
**
###
***
+
****
++
@
+++
^
^^
++++
@@@
††
§
^^^
=
==
Ω
ΩΩ
¶
†
@@
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 exhibit previously filed by the Registrant on Form 8-K (Registration No. 0-24737) dated November 7, 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 January 7, 2003.
Incorporated by reference to the exhibits in the Registration Statement on Form S-4 previously filed by the Registrant (Registration No. 333-112176).
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.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-16441) dated February 22, 2006.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-16441) dated December 15, 2005.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-16441) dated July 27, 2005.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-16441) dated June 8, 2005.
Incorporated by reference to the exhibit previously filed by the Registrant on Form 8-K (Registration No. 001-16441) dated June 1, 2005.
120
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 22nd day of March, 2006.
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, 2005 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 22nd day of March, 2006.
Name
/s/ JOHN P. KELLY
John P. Kelly
President, Chief Executive Officer and Director
(Principal Executive Officer)
Title
/s/ W. BENJAMIN MORELAND
W. Benjamin Moreland
/s/ ROB A. FISHER
Rob A. Fisher
/s/ CARL FERENBACH
Carl Ferenbach
/s/ ARI Q. FITZGERALD
Ari Q. Fitzgerald
/s/ ROBERT E. GARRISON II
Robert E. Garrison II
/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.
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
121
Name
/s/ J. LANDIS MARTIN
J. Landis Martin
/s/ ROBERT F. MCKENZIE
Robert F. McKenzie
Chairman of the Board
Title
Director
122