CrownCastle 10Q 063013
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
 
FORM 10-Q
____________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period              to             

Commission File Number 001-16441
____________________________________
CROWN CASTLE INTERNATIONAL
CORP.
(Exact name of registrant as specified in its charter)
 
Delaware
76-0470458
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
1220 Augusta Drive, Suite 500, Houston, Texas 77057-2261
(Address of principal executives office) (Zip Code)
(713) 570-3000
(Registrant's telephone number, including area code)
____________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer
x
 
Accelerated filer
o
 
 
Non-accelerated filer
o
 
Smaller reporting company
o
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o    No  x

Number of shares of common stock outstanding at July 29, 2013: 292,683,852
 



CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES

INDEX

 
 
 
Page
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
ITEM 3.
 
ITEM 4.
 
 
ITEM 1.
LEGAL PROCEEDINGS
 
ITEM 1A.
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES
 
ITEM 6.
 
 
EXHIBIT INDEX
 


Cautionary Language Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements that are based on our management's expectations as of the filing date of this report with the SEC. Statements that are not historical facts are hereby identified as forward-looking statements. In addition, words such as "estimate," "anticipate," "project," "plan," "intend," "believe," "expect," "likely," "predicted," forms of these words and similar expressions are intended to identify forward-looking statements. Such statements include plans, projections and estimates contained in "Part I—Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part I—Item 3. Quantitative and Qualitative Disclosures About Market Risk" herein. Such forward-looking statements include (1) expectations regarding anticipated growth in the wireless communication industry, carriers' investments in their networks, new tenant additions, cancellations of customer contracts, customer consolidation or ownership changes, and demand for our towers and small cell networks, (2) availability of cash flows and liquidity for, and plans regarding, future discretionary investments including capital expenditures, (3) anticipated growth in our future revenues, margins, Adjusted EBITDA and operating cash flows, (4) expectations regarding the credit markets, our availability and cost of capital, and our ability to service our debt and comply with debt covenants, and (5) our potential conversion to a REIT, including the impact and timing thereof.
Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including prevailing market conditions, risk factors described under "Part II—Item 1A. Risk Factors" herein and in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 ("2012 Form 10-K") 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. As used herein, the term "including," and any variation of thereof, means "including without limitation." The use of the word "or" herein is not exclusive.


1


PART I—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS

CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
 
June 30,
2013
 
December 31,
2012
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
126,886

 
$
441,364

Restricted cash
161,541

 
575,938

Receivables, net
201,028

 
192,833

Prepaid expenses
124,395

 
103,808

Deferred income tax assets
182,053

 
193,420

Other current assets
84,163

 
73,961

Total current assets
880,066

 
1,581,324

Deferred site rental receivables, net
977,498

 
864,819

Property and equipment, net of accumulated depreciation of $4,464,861 and $4,249,183, respectively
6,892,277

 
6,917,531

Goodwill
3,138,018

 
3,119,957

Other intangible assets, net
2,852,434

 
2,941,696

Deferred income tax assets
26,059

 
33,914

Long-term prepaid rent, deferred financing costs and other assets, net
626,233

 
629,468

Total assets
$
15,392,585

 
$
16,088,709

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
112,160

 
$
115,999

Accrued interest
87,154

 
52,592

Deferred revenues
242,420

 
241,127

Other accrued liabilities
105,451

 
140,084

Current maturities of debt and other obligations
97,013

 
688,056

Total current liabilities
644,198

 
1,237,858

Debt and other long-term obligations
10,691,509

 
10,923,186

Deferred income tax liabilities
110,756

 
65,830

Below-market tenant leases, deferred ground lease payable and other liabilities
1,021,230

 
910,571

Total liabilities
12,467,693

 
13,137,445

Commitments and contingencies (note 8)

 

CCIC stockholders' equity:
 
 
 
Common stock, $.01 par value; 600,000,000 shares authorized; shares issued and outstanding: June 30, 2013—292,685,462 and December 31, 2012—293,164,786
2,927

 
2,932

Additional paid-in capital
5,544,205

 
5,623,595

Accumulated other comprehensive income (loss)
(77,491
)
 
(61,791
)
Accumulated deficit
(2,558,169
)
 
(2,625,990
)
Total CCIC stockholders' equity
2,911,472

 
2,938,746

Noncontrolling interest
13,420

 
12,518

Total equity
2,924,892

 
2,951,264

Total liabilities and equity
$
15,392,585

 
$
16,088,709

 
See notes to condensed consolidated financial statements.

2


CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In thousands of dollars, except per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Net revenues:
 
 
 
 
 
 
 
Site rental
$
616,849

 
$
517,588

 
$
1,232,264

 
$
1,015,117

Network services and other
118,079

 
67,923

 
242,724

 
122,139

Net revenues
734,928

 
585,511

 
1,474,988

 
1,137,256

Operating expenses:
 
 
 
 
 
 
 
Costs of operations(a):
 
 
 
 
 
 
 
Site rental
179,015

 
131,571

 
356,621

 
254,442

Network services and other
70,199

 
40,262

 
147,576

 
71,783

General and administrative
54,790

 
47,078

 
113,035

 
98,079

Asset write-down charges
3,097

 
3,646

 
6,812

 
6,690

Acquisition and integration costs
7,215

 
7,495

 
8,817

 
9,175

Depreciation, amortization and accretion
190,651

 
152,482

 
377,110

 
291,882

Total operating expenses
504,967

 
382,534

 
1,009,971

 
732,051

Operating income (loss)
229,961

 
202,977

 
465,017

 
405,205

Interest expense and amortization of deferred financing costs
(140,256
)
 
(144,940
)
 
(304,625
)
 
(282,412
)
Gains (losses) on retirement of long-term obligations
(577
)
 
(7,518
)
 
(36,486
)
 
(14,586
)
Interest income
328

 
382

 
625

 
736

Other income (expense)
507

 
(2,249
)
 
(122
)
 
(3,326
)
Income (loss) before income taxes
89,963

 
48,652

 
124,409

 
105,617

Benefit (provision) for income taxes
(36,587
)
 
68,432

 
(54,295
)
 
61,737

Net income (loss)
53,376

 
117,084

 
70,114

 
167,354

Less: Net income (loss) attributable to the noncontrolling interest
1,017

 
1,071

 
2,293

 
1,310

Net income (loss) attributable to CCIC stockholders
52,359

 
116,013

 
67,821

 
166,044

Dividends on preferred stock

 

 

 
(2,629
)
Net income (loss) attributable to CCIC stockholders after deduction of dividends on preferred stock
$
52,359

 
$
116,013

 
$
67,821

 
$
163,415

Net income (loss)
$
53,376

 
$
117,084

 
$
70,114

 
$
167,354

Other comprehensive income (loss):
 
 
 
 
 
 
 
Interest rate swaps, net of taxes of $5,685, $5,712, $11,376, and $5,712, respectively:
 
 
 
 
 
 
 
Amounts reclassified into "interest expense and amortization deferred financing costs", net of taxes (see note 4)
10,557

 
10,609

 
21,127

 
26,947

Foreign currency translation adjustments
(37,827
)
 
(6,645
)
 
(38,218
)
 
244

Total other comprehensive income (loss)
(27,270
)
 
3,964

 
(17,091
)
 
27,191

Comprehensive income (loss)
26,106

 
121,048

 
53,023

 
194,545

Less: Comprehensive income (loss) attributable to the noncontrolling interest
(798
)
 
1,057

 
902

 
570

Comprehensive income (loss) attributable to CCIC stockholders
$
26,904

 
$
119,991

 
$
52,121

 
$
193,975

Net income (loss) attributable to CCIC common stockholders, after deduction of dividends on preferred stock, per common share:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.40

 
$
0.23

 
$
0.57

Diluted
$
0.18

 
$
0.40

 
$
0.23

 
$
0.57

Weighted-average common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic
291,225
 
290,649

 
291,164
 
287,781
Diluted
292,706
 
291,203

 
292,570
 
289,029
________________
(a)
Exclusive of depreciation, amortization and accretion shown separately.

See notes to condensed consolidated financial statements.

3


CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands of dollars)
 
Six Months Ended June 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income (loss)
$
70,114

 
$
167,354

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
 
 
 
Depreciation, amortization and accretion
377,110

 
291,882

Gains (losses) on retirement of long-term obligations
36,486

 
14,586

Amortization of deferred financing costs and other non-cash interest
57,471

 
48,780

Stock-based compensation expense
19,472

 
17,105

Asset write-down charges
6,812

 
6,690

Deferred income tax benefit (provision)
50,143

 
(65,544
)
Other adjustments
1,291

 
(41
)
Changes in assets and liabilities, excluding the effects of acquisitions:
 
 
 
Increase (decrease) in accrued interest
34,563

 
(1,950
)
Increase (decrease) in accounts payable
2,727

 
(2,488
)
Increase (decrease) in deferred revenues, deferred ground lease payables, other accrued liabilities and
     other liabilities
45,362

 
(3,145
)
Decrease (increase) in receivables
(11,647
)
 
(26,225
)
Decrease (increase) in prepaid expenses, deferred site rental receivables, long-term prepaid rent,
     restricted cash and other assets
(129,877
)
 
(122,662
)
Net cash provided by (used for) operating activities
560,027

 
324,342

Cash flows from investing activities:
 
 
 
Payments for acquisitions of businesses, net of cash acquired
(27,280
)
 
(1,199,316
)
Capital expenditures
(254,820
)
 
(159,697
)
Other investing activities, net
6,644

 
1,188

Net cash provided by (used for) investing activities
(275,456
)
 
(1,357,825
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
30,941

 
2,100,000

Proceeds from issuance of capital stock

 
238

Principal payments on debt and other long-term obligations
(51,085
)
 
(34,744
)
Purchases and redemptions of long-term debt
(675,480
)
 
(699,486
)
Purchases of capital stock
(98,867
)
 
(35,673
)
Borrowings under revolving credit facility
48,000

 

Payments under revolving credit facility
(255,000
)
 
(251,000
)
Payments for financing costs
(5,654
)
 
(40,237
)
Net (increase) decrease in restricted cash
411,048

 
12,620

Dividends on preferred stock

 
(2,481
)
Net cash provided by (used for) financing activities
(596,097
)
 
1,049,237

Effect of exchange rate changes on cash
(2,952
)
 
301

Net increase (decrease) in cash and cash equivalents
(314,478
)
 
16,055

Cash and cash equivalents at beginning of period
441,364

 
80,120

Cash and cash equivalents at end of period
$
126,886

 
$
96,175


See notes to condensed consolidated financial statements.

4


CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY
(In thousands of dollars, except share amounts) (Unaudited)

 
 
 
 
 
CCIC Stockholders
 
 
 
 
 
Redeemable Convertible Preferred Stock
 
Common Stock
 
 
 
AOCI
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
($.01 Par)
 
Additional
Paid-In
Capital
 
Foreign Currency Translation Adjustments
 
Derivative Instruments, net of tax
 
Accumulated
Deficit
 
Noncontrolling
Interest
 
Total
Balance, April 1, 2013

 
$

 
293,771,206

 
$
2,938

 
$
5,610,039

 
$
101,310

 
$
(153,346
)
 
$
(2,610,528
)
 
$
14,218

 
$
2,964,631

Stock-based compensation related activity, net of forfeitures

 

 
(6,032
)
 

 
9,443

 

 

 

 

 
9,443

Purchases and retirement of capital stock

 

 
(1,079,712
)
 
(11
)
 
(75,277
)
 

 

 

 

 
(75,288
)
Other comprehensive income (loss)(a)

 

 

 

 

 
(36,012
)
 
10,557

 

 
(1,815
)
 
(27,270
)
Net income (loss)

 

 

 

 

 

 

 
52,359

 
1,017

 
53,376

Balance, June 30, 2013

 
$

 
292,685,462

 
$
2,927

 
$
5,544,205

 
$
65,298

 
$
(142,789
)
 
$
(2,558,169
)
 
$
13,420

 
$
2,924,892


 
 
 
 
 
CCIC Stockholders
 
 
 
 
 
 
 
Redeemable Convertible Preferred Stock
 
Common Stock
 
 
 
AOCI
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
($.01 Par)
 
Additional
Paid-In
Capital
 
Foreign Currency Translation Adjustments
 
Derivative Instruments, net of tax
 
Accumulated
Deficit
 
Noncontrolling
Interest
 
Total
Balance, April 1, 2012

 
$

 
292,928,485

 
$
2,929

 
$
5,591,191

 
$
102,659

 
$
(195,702
)
 
$
(2,764,543
)
 
$
132

 
$
2,736,666

Stock-based compensation related activity, net of forfeitures

 

 
113,168

 
1

 
7,915

 

 

 

 

 
7,916

Purchases and retirement of capital stock

 

 
(3,640
)
 

 

 

 

 

 

 

Other comprehensive income (loss)(a)

 

 

 

 

 
(6,631
)
 
10,609

 

 
(14
)
 
3,964

Disposition of noncontrolling interest

 

 

 

 

 

 
 
 

 
368

 
368

Net income (loss)

 

 

 

 

 

 

 
116,013

 
1,071

 
117,084

Balance, June 30, 2012

 
$

 
293,038,013

 
$
2,930

 
$
5,599,106

 
$
96,028

 
$
(185,093
)
 
$
(2,648,530
)
 
$
1,557

 
$
2,865,998

___________________________
(a)
See the statement of operations and other comprehensive income (loss) for the components of "other comprehensive income (loss)" and note 4 with respect to the reclassification adjustment.

See notes to condensed consolidated financial statements.

5


 
 
 
 
 
CCIC Stockholders
 
 
 
 
 
Redeemable Convertible Preferred Stock
 
Common Stock
 
 
 
AOCI
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
($.01 Par)
 
Additional
Paid-In
Capital
 
Foreign Currency Translation Adjustments
 
Derivative Instruments, net of tax
 
Accumulated
Deficit
 
Noncontrolling
Interest
 
Total
Balance, January 1, 2013

 
$

 
293,164,786


$
2,932


$
5,623,595


$
102,125


$
(163,916
)

$
(2,625,990
)

$
12,518

 
$
2,951,264

Stock-based compensation related activity, net of forfeitures

 

 
941,947

 
9

 
19,463









 
19,472

Purchases and retirement of capital stock

 

 
(1,421,271
)
 
(14
)
 
(98,853
)








 
(98,867
)
Other comprehensive income (loss)(a)

 

 

 

 


(36,827
)

21,127




(1,391
)
 
(17,091
)
Net income (loss)

 

 

 

 






67,821


2,293

 
70,114

Balance, June 30, 2013

 
$

 
292,685,462

 
2,927

 
5,544,205

 
65,298

 
(142,789
)
 
(2,558,169
)
 
13,420

 
2,924,892


 
 
 
 
 
CCIC Stockholders
 
 
 
 
 
 
 
Redeemable Convertible Preferred Stock
 
Common Stock
 
 
 
AOCI
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
($.01 Par)
 
Additional
Paid-In
Capital
 
Foreign Currency Translation Adjustments
 
Derivative Instruments, net of tax
 
Accumulated
Deficit
 
Noncontrolling
Interest
 
Total
Balance, January 1, 2012
6,111,000

 
$
305,032

 
$
284,449,372

 
$
2,844

 
$
5,312,342

 
$
95,044

 
(212,040
)
 
$
(2,811,945
)
 
$
619

 
$
2,386,864

Stock-based compensation related activity, net of forfeitures

 

 
997,109

 
10

 
17,333

 







 
17,343

Purchases and retirement of capital stock

 


(694,373
)

(7
)

(35,666
)








 
(35,673
)
Conversion of redeemable preferred stock into common stock
(6,111,000
)
 
(305,180
)

8,285,905


83


305,097









 
305,180

Other comprehensive income (loss)(a)

 








984


26,947




(740
)
 
27,191

Dividends on preferred stock and amortization of issue costs

 
148












(2,629
)


 
(2,629
)
Disposition of noncontrolling interest

 














368

 
368

Net income (loss)

 












166,044


1,310

 
167,354

Balance, June 30, 2012

 
$

 
293,038,013

 
$
2,930

 
$
5,599,106

 
$
96,028

 
(185,093
)
 
$
(2,648,530
)
 
$
1,557

 
$
2,865,998

___________________________
(a)
See the statement of operations and other comprehensive income (loss) for the components of "other comprehensive income (loss)" and note 4 with respect to the reclassification adjustment.

See notes to condensed consolidated financial statements.


6


CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited
(Tabular dollars in thousands, except per share amounts)

1.
General
The information contained in the following notes to the consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2012, and related notes thereto, included in the 2012 Form 10-K filed by Crown Castle International Corp. ("CCIC") with the SEC. All references to the "Company" include CCIC and its subsidiary companies unless otherwise indicated or the context indicates otherwise.
The Company owns, operates and leases shared wireless infrastructure, including: (1) towers, (2) DAS, a type of small cell network, and (3) third party land interests. The Company conducts operations through subsidiaries of CCOC, including (1) certain subsidiaries which operate wireless infrastructure portfolios in the United States, including Puerto Rico ("U.S." or "CCUSA") and (2) a 77.6% owned subsidiary that operates towers in Australia (referred to as "CCAL"). The Company's core business is providing access, including space or capacity, to (1) its approximately 31,600 towers (of which approximately 29,900 towers are in CCUSA and approximately 1,700 towers are in CCAL) and, to a lesser extent, to (2) its small cell networks, and (3) third party land interests, to wireless communication companies via long-term contracts in various forms. As further discussed in the 2012 Form 10-K, approximately 12,700 of the Company's towers are leased or operated under master leases and subleases.
To a lesser extent, the Company also provides certain network services relating to its wireless infrastructure, consisting of (1) customer equipment installation and subsequent augmentation (collectively, "installation services") and (2) the following additional site development services relating to existing and new antenna installations on its wireless infrastructure: site acquisition, architectural and engineering, zoning and permitting, other construction and network development related services.
Basis of Presentation
The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to fairly state the consolidated financial position of the Company at June 30, 2013, and the consolidated results of operations and the consolidated cash flows for the six months ended June 30, 2013 and 2012. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire year.
The preparation of financial statements in conformity with GAAP 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.

2.
Summary of Significant Accounting Policies
The significant accounting policies used in the preparation of the Company's consolidated financial statements are disclosed in the Company's 2012 Form 10-K.
New Accounting Pronouncements
No accounting pronouncements adopted during the six months ended June 30, 2013 had a material impact on the Company's consolidated financial statements. No new accounting pronouncements issued during the six months ended June 30, 2013 but not yet adopted are expected to have a material impact on the Company's consolidated financial statements.


7

CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


3.
Acquisitions
NextG Networks Acquisition
During the second quarter of 2013, the Company finalized the purchase price allocation for the NextG Acquisition. The final purchase price allocation is approximately the same as the preliminary purchase price allocation disclosed in the Company's 2012 Form 10-K.
T-Mobile Acquisition
In September 2012, the Company entered into a definitive agreement with T-Mobile to acquire the exclusive rights to lease, operate or otherwise acquire approximately 7,100 T-Mobile towers for approximately $2.5 billion. On November 30, 2012, the Company closed on the T-Mobile Acquisition. Upon closing, the Company obtained the exclusive right to lease and operate the T-Mobile towers (that are otherwise not owned by the Company). See the 2012 Form 10-K for further discussion of the terms of the T-Mobile lease including the purchase option. The Company utilized cash on hand, inclusive of the proceeds from the 5.25% Senior Notes, and borrowings from the 2012 Revolver to fund the T-Mobile Acquisition.
The purchase price and the purchase price allocation for the T-Mobile Acquisition is not finalized as of June 30, 2013. As such, the preliminary purchase price allocation presented below is based upon a preliminary valuation which is subject to change as the Company obtains additional information during calendar 2013, including with respect to fixed assets, intangible assets, deferred taxes and certain liabilities. The principal changes in the preliminary purchase price allocation between December 31, 2012 and June 30, 2013 relate to (1) a $31.2 million increase in property and equipment, (2) a $45.0 million increase to the above-market lease deferred credit, and (3) a corresponding increase in goodwill. The effect of the change in the preliminary purchase price allocation on the Company's Statement of Operations and Comprehensive Income (Loss) is immaterial to the periods presented. The preliminary purchase price allocation for the T-Mobile Acquisition, as of June 30, 2013, is shown below.
 
Preliminary Purchase Price Allocation
 
Presented June 30, 2013
Current assets
$
17,854

Property and equipment
1,490,594

Goodwill(a)
438,758

Other intangible assets, net
407,000

Deferred income tax assets
207,929

Below-market tenant leases and other non-current liabilities(b)
(76,349
)
Net assets acquired
$
2,485,786

    
(a)
The preliminary purchase price allocation for the T-Mobile Acquisition resulted in the recognition of goodwill at CCUSA primarily because of the anticipated growth opportunities in the tower portfolio. In addition, $371.3 million is not expected to be deductible for tax purposes.
(b)
Inclusive of above-market leases for land interests under the Company's towers.
Unaudited Pro Forma Operating Results
The unaudited pro forma condensed consolidated results of operations combine the historical results of the Company, along with the historical results of the WCP Acquisition, NextG Acquisition and T-Mobile Acquisition for the period presented below. The following table presents the unaudited pro forma condensed consolidated results of operations of the Company for the period presented as if each acquisition was completed as of January 1, 2011. The unaudited pro forma amounts are presented for illustrative purposes only and are not necessarily indicative of future consolidated results of operations.
 
Six Months Ended June 30, 2012
 
Net revenues
$
1,309,132

(a) 
Net income (loss)
$
155,872

(b)(c) 
Basic net income (loss) attributable to CCIC common stockholders, after deduction of dividends on preferred stock, per common share
$
0.53

 
Diluted net income (loss) attributable to CCIC common stockholders, after deduction of dividends on preferred stock, per common share
$
0.53

 
    
(a)
For the six months ended June 30, 2012, amounts are inclusive of pro forma adjustments to increase net revenues of $129.9 million that we expect to recognize from the T-Mobile towers, including T-Mobile's contracted lease of space on the towers acquired in the T-Mobile Acquisition.

8

CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


(b)
For the six months ended June 30, 2012, amounts are inclusive of pro forma adjustments to increase depreciation and amortization of $77.8 million related to property and equipment and intangibles recorded as a result of the combined effect of the WCP Acquisition, NextG Acquisition, and T-Mobile Acquisition.
(c)
For the six months ended June 30, 2012, the pro forma adjustments are tax effected using the federal statutory rate and no adjustment was made with respect to the Company's reversal of valuation allowance.

4.
Debt and Other Obligations
 
Original
Issue Date
 
Contractual
Maturity Date
 
Outstanding
Balance as of
June 30, 2013
 
Outstanding
Balance as of
December 31, 2012
 
Stated Interest
Rate as of
June 30, 2013(a)
 
Bank debt - variable rate:
 
 
 
 
 
 
 
 
 
 
2012 Revolver
Jan. 2012
 
Jan. 2017
(b) 
1,046,000

(b) 
1,253,000

 
2.7
%
(c) 
2012 Term Loans
Jan. 2012
 
2017/2019
 
2,044,800

 
2,065,250

 
3.1
%
(c) 
Total bank debt
 
 
 
 
3,090,800

 
3,318,250

 
 
 
Securitized debt - fixed rate:
 
 
 
 
 
 
 
 
 
 
January 2010 Tower Revenue Notes
Jan. 2010
 
2035 - 2040
(d) 
1,900,000

 
1,900,000

 
5.7
%
(d) 
August 2010 Tower Revenue Notes
Aug. 2010
 
2035 - 2040
(d) 
1,550,000

 
1,550,000

 
4.5
%
(d) 
2009 Securitized Notes
July 2009
 
2019/2029
(e) 
189,137

 
198,463

 
7.2
%
 
WCP Securitized Notes
Jan. 2010
 
Nov. 2040
(f) 
297,139

(f) 
307,739

 
5.5
%
 
Total securitized debt
 
 
 
 
3,936,276

 
3,956,202

 
 
 
Bonds - fixed rate:
 
 
 
 
 
 
 
 
 
 
9% Senior Notes
Jan. 2009
 
Jan. 2015
 

 
304,718

 
N/A

 
7.75% Secured Notes
Apr. 2009
 
May 2017
 

 
291,394

 
N/A

 
7.125% Senior Notes
Oct. 2009
 
Nov. 2019
 
498,219

 
498,110

 
7.1
%
 
     5.25% Senior Notes
Oct. 2012
 
Jan. 2023
 
1,649,970

 
1,650,000

 
5.3
%
 
2012 Senior Notes
Dec. 2012
 
2017/2023
(g) 
1,500,000

 
1,500,000

 
3.4
%
 
Total bonds
 
 
 
 
3,648,189

 
4,244,222

 
 
 
Other:
 
 
 
 
 
 
 
 
 
 
Capital leases and other obligations
Various
 
Various
 
113,257

 
92,568

 
Various

 
Total debt and other obligations
 
 
 
 
10,788,522

 
11,611,242

 
 
 
Less: current maturities and short-term debt and other current obligations
 
 
 
 
97,013

 
688,056

 
 
 
Non-current portion of long-term debt and other long-term obligations
 
 
 
 
$
10,691,509

 
$
10,923,186

 
 
 
________________
(a)
Represents the weighted-average stated interest rate.
(b)
As of June 30, 2013, the undrawn availability under the $1.5 billion 2012 Revolver is $454.0 million.
(c)
The 2012 Revolver and the Term Loan A bear interest at a per annum rate equal to LIBOR plus 2.0% to 2.75%, based on CCOC's total net leverage ratio. In April 2013, the Company refinanced the outstanding Term Loan B with a new loan pursuant to our existing credit agreement in an aggregate principal amount of $1.58 billion. The terms of the new Term Loan B are substantially the same as the terms of the refinanced Term Loan B and effectively lowered the rate on the loan by 75 basis points. Term Loan B currently bears interest at a per annum rate equal to LIBOR plus 2.25% to 2.5% (with LIBOR subject to a floor of 0.75% per annum), based on CCOC's total net leverage ratio.
(d)
If the respective series of the January 2010 Tower Revenue Notes and August 2010 Tower Revenue Notes are not paid in full on or prior to 2015, 2017 and 2020, as applicable, then Excess Cash Flow (as defined in the indenture) of the issuers (of such notes) will be used to repay principal of the applicable series and class of the 2010 Tower Revenue Notes, and additional interest (of approximately 5% per annum) will accrue on the respective 2010 Tower Revenue Notes. The January 2010 Tower Revenue Notes consist of three series of notes with principal amounts of $300.0 million, $350.0 million and $1.3 billion, having anticipated repayment dates in 2015, 2017 and 2020, respectively. The August 2010 Tower Revenue Notes consist of three series of notes with principal amounts of $250.0 million, $300.0 million and $1.0 billion, having anticipated repayment dates in 2015, 2017 and 2020, respectively.
(e)
The 2009 Securitized Notes consist of $119.1 million of principal as of June 30, 2013 that amortizes through 2019, and $70.0 million of principal as of June 30, 2013 that amortizes during the period beginning in 2019 and ending in 2029.
(f)
The anticipated repayment date is 2015 for each class of the WCP Securitized Notes. If the WCP Securitized Notes are not repaid in full by their anticipated repayment dates, the applicable interest rate increases by an additional approximately 5% per annum. If the WCP Securitized Notes are not repaid in full by their rapid amortization date of 2017, monthly principal payments commence using the excess cash flows of the issuers of the WCP Securitized Notes.
(g)
The 2012 Secured Notes consist of $500 million aggregate principal amount of 2.381% secured notes due 2017 and $1.0 billion aggregate principal amount of 3.849% secured notes due 2023.

9

CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


Contractual Maturities
The following are the scheduled contractual maturities of the total debt and other long-term obligations outstanding at June 30, 2013. These maturities reflect contractual maturity dates and do not consider the principal payments that will commence following the anticipated repayment dates on the Tower Revenue Notes and the rapid amortization date on the WCP Securitized Notes.
 
Six Months Ended December 31,
 
Years Ending December 31,
 
 
 
 
 
Unamortized Adjustments, Net
 
Total Debt and Other Obligations Outstanding
 
2013
 
2014
 
2015
 
2016
 
2017
 
Thereafter
 
Total Cash Obligations
 
 
Scheduled contractual maturities
$
46,661

 
$
101,906

 
$
114,272

 
$
115,110

 
$
1,934,799

 
$
8,467,889

 
$
10,780,637

 
$
7,885

 
$
10,788,522

Purchases and Redemptions of Long-Term Debt
The following is a summary of purchases and redemptions of long-term debt during the six months ended June 30, 2013.
 
Six Months Ended June 30, 2013
 
Principal Amount
 
Cash Paid(a)
 
Gains (Losses)(c)
 

 

 


9% Senior Notes
314,170

 
332,045

 
(17,894
)
7.75% Secured Notes(b)
294,362

 
312,464

 
(18,102
)
5.25% Senior Notes
30

 
30

 

2012 Term Loans
30,941

 
30,941

 
(490
)
Total
$
639,503

 
$
675,480

 
$
(36,486
)
________________
(a)
Exclusive of accrued interest.
(b)
The redemption of the 7.75% Secured Notes was funded by the release of restricted cash.
(c)
The losses predominantly relate to cash losses, including with respect to make whole payments.
Interest Expense and Amortization of Deferred Financing Costs
The components of "interest expense and amortization of deferred financing costs" are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Interest expense on debt obligations
$
119,705

 
$
120,625

 
$
247,154

 
$
233,632

Amortization of deferred financing costs
5,013

 
5,278

 
14,060

 
10,090

Amortization of adjustments on long-term debt
(965
)
 
2,961

 
10,471

 
6,724

Amortization of interest rate swaps(a)
16,242

 
16,319

 
32,504

 
32,657

Other, net of capitalized interest
261

 
(243
)
 
436

 
(691
)
Total
$
140,256

 
$
144,940

 
$
304,625

 
$
282,412

    
(a)
Amounts reclassified from accumulated other comprehensive income (loss).

5.
Income Taxes
For the six months ended June 30, 2013, the Company's effective rate differed from the federal statutory rate predominately due to state taxes of $14.3 million, including the impact of certain subsidiaries without state income tax filing requirements incurring taxable losses for which no state benefit could be recorded.   As further discussed in our 2012 Form 10-K, for the six months ended June 30, 2012, the Company's effective tax rate differed from the federal statutory rate predominately due to its reversal of a total of $70.1 million of federal and $20.0 million of state valuation allowances to the benefit (provision) for income taxes.


10

CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


6.
Fair Value Disclosures
 
Level in Fair Value Hierarchy
 
June 30, 2013
 
December 31, 2012
 
 
Carrying
 Amount
 
Fair
Value
 
Carrying
 Amount
 
Fair
Value
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
1
 
$
126,886

 
$
126,886

 
$
441,364

 
$
441,364

Restricted cash, current and non-current
1
 
166,541

 
166,541

 
580,938

 
580,938

Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt and other obligations
2
 
10,788,522

 
11,107,927

 
11,611,242

 
12,438,032

The fair value of cash and cash equivalents and restricted cash approximate the carrying value. The Company determines fair value of its debt securities based on indicative, non-binding quotes from brokers. Quotes from brokers require judgment and are based on the brokers' interpretation of market information including implied credit spreads for similar borrowings on recent trades or bid/ask prices or quotes from active markets if available. There were no changes since December 31, 2012 in the Company's valuation techniques used to measure fair values.

7.
Per Share Information
Basic net income (loss) attributable to CCIC common stockholders, after deduction of dividends on preferred stock, per common share excludes dilution and is computed by dividing net income (loss) attributable to CCIC stockholders after deduction of dividends on preferred stock, by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) attributable to CCIC common stockholders, after deduction of dividends on preferred stock, per common share is computed by dividing net income (loss) attributable to CCIC stockholders, after deduction of dividends on preferred stock, by the weighted-average number of common shares outstanding during the period plus any potential dilutive common share equivalents as determined under the if-converted method. The Company's restricted stock awards are considered participating securities and may be included in the computation pursuant to the two-class method. However, the Company does not present the two-class method when there is no difference between the per share amount under the two-class method and the treasury stock method.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
Net income (loss) attributable to CCIC stockholders
$
52,359

 
$
116,013

 
$
67,821

 
$
166,044

Dividends on preferred stock

 

 

 
(2,629
)
Net income (loss) attributable to CCIC common stockholders after deduction of dividends on preferred stock for basic and diluted computations
$
52,359

 
$
116,013

 
$
67,821

 
$
163,415

Weighted-average number of common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic weighted-average number of common stock outstanding
291,225

 
290,649

 
291,164

 
287,781

Effect of assumed dilution from potential common shares relating to stock options and restricted stock awards
1,481

 
554

 
1,406

 
1,248

Diluted weighted-average number of common shares outstanding
292,706

 
291,203

 
292,570

 
289,029

Net income (loss) attributable to CCIC common stockholders after deduction of dividends on preferred stock, per common share:
 
 
 
 
 
 
 
Basic
$
0.18

 
$
0.40

 
$
0.23

 
$
0.57

Diluted
$
0.18

 
$
0.40

 
$
0.23

 
$
0.57

 For the three and six months ended June 30, 2013, 0.6 million restricted stock awards were excluded from the dilutive common shares because certain stock price hurdles would not have been achieved assuming that June 30, 2013 was the end of the contingency period.

11

CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


8.
Commitments and Contingencies
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 or losses that may be incurred, if any, 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. Additionally, the Company and certain of its subsidiaries are contingently liable for commitments and performance guarantees arising in the ordinary course of business.

9.
Equity
Purchases of the Company's Common Stock
For the six months ended June 30, 2013, the Company purchased 1.4 million shares of common stock utilizing $98.9 million in cash.

10.
Operating Segments
The Company's reportable operating segments are (1) CCUSA, primarily consisting of the Company's U.S. operations and (2) CCAL, the Company's Australian operations. Financial results for the Company are reported to management and the board of directors in this manner.
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 restructuring charges (credits), asset write-down charges, acquisition and integration costs, depreciation, amortization and accretion, amortization of prepaid lease purchase price adjustments, interest expense and amortization of deferred financing costs, gains (losses) on retirement of long-term obligations, net gain (loss) on interest rate swaps, impairment of available-for-sale securities, interest income, other income (expense), benefit (provision) for income taxes, cumulative effect of change in accounting principle, income (loss) from discontinued operations and stock-based compensation expense. Adjusted EBITDA is not intended as an alternative measure of operating results or cash flow from operations (as determined in accordance with GAAP), 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. Inter-company borrowings and related interest between segments are eliminated to reconcile segment results and assets to the consolidated basis.


12

CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


 
Three Months Ended June 30, 2013
 
Three Months Ended June 30, 2012
 
CCUSA
 
CCAL
 
Eliminations
 
Consolidated
Total
 
CCUSA
 
CCAL
 
Eliminations
 
Consolidated
Total
Net revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Site rental
$
583,584

 
$
33,265

 
$

 
$
616,849

 
$
487,761

 
$
29,827

 
$

 
$
517,588

Network services and other
113,057

 
5,022

 

 
118,079

 
62,049

 
5,874

 

 
67,923

Net revenues
696,641

 
38,287

 

 
734,928

 
549,810

 
35,701

 

 
585,511

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs of operations:(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Site rental
169,234

 
9,781

 

 
179,015

 
123,063

 
8,508

 

 
131,571

Network services and other
66,035

 
4,164

 

 
70,199

 
36,846

 
3,416

 

 
40,262

General and administrative
49,225

 
5,565

 

 
54,790

 
41,541

 
5,537

 

 
47,078

Asset write-down charges
3,008

 
89

 

 
3,097

 
3,646

 

 

 
3,646

Acquisition and integration costs
7,030

 
185

 

 
7,215

 
7,469

 
26

 

 
7,495

Depreciation, amortization and accretion
183,304

 
7,347

 

 
190,651

 
144,793

 
7,689

 

 
152,482

Total operating expenses
477,836

 
27,131

 

 
504,967

 
357,358

 
25,176

 

 
382,534

Operating income (loss)
218,805

 
11,156

 

 
229,961

 
192,452

 
10,525

 

 
202,977

Interest expense and amortization of deferred financing costs
(140,256
)
 
(4,316
)
 
4,316

 
(140,256
)
 
(144,940
)
 
(5,000
)
 
5,000

 
(144,940
)
Gains (losses) on retirement of long-term obligations
(577
)
 

 

 
(577
)
 
(7,518
)
 

 

 
(7,518
)
Interest income
246

 
82

 

 
328

 
258

 
124

 

 
382

Other income (expense)
4,808

 
15

 
(4,316
)
 
507

 
2,756

 
(5
)
 
(5,000
)
 
(2,249
)
Benefit (provision) for income taxes
(34,304
)
 
(2,283
)
 

 
(36,587
)
 
68,921

 
(489
)
 

 
68,432

Net income (loss)
48,722

 
4,654

 

 
53,376

 
111,929

 
5,155

 

 
117,084

Less: Net income (loss) attributable to the noncontrolling interest

 
1,017

 

 
1,017

 
(58
)
 
1,129

 

 
1,071

Net income (loss) attributable to CCIC stockholders
$
48,722

 
$
3,637

 
$

 
$
52,359

 
$
111,987

 
$
4,026

 
$

 
$
116,013

Capital expenditures
$
134,513

 
$
3,954

 
$

 
$
138,467

 
$
88,687

 
$
5,958

 
$

 
$
94,645

________________
(a)
Exclusive of depreciation, amortization and accretion shown separately.

13

CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


 
Six Months Ended June 30, 2013
 
Six Months Ended June 30, 2012
 
CCUSA
 
CCAL
 
Eliminations
 
Consolidated
Total
 
CCUSA
 
CCAL
 
Eliminations
 
Consolidated
Total
Net revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Site rental
1,164,851

 
67,413

 

 
$
1,232,264

 
955,880

 
59,237

 

 
$
1,015,117

Network services and other
230,918

 
11,806

 

 
242,724

 
109,017

 
13,122

 

 
122,139

Net revenues
1,395,769

 
79,219

 

 
1,474,988

 
1,064,897

 
72,359

 

 
1,137,256

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs of operations:(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Site rental
336,826

 
19,795

 

 
356,621

 
237,007

 
17,435

 

 
254,442

Network services and other
137,884

 
9,692

 

 
147,576

 
63,648

 
8,135

 

 
71,783

General and administrative
101,786

 
11,249

 

 
113,035

 
85,194

 
12,885

 

 
98,079

Asset write-down charges
6,611

 
201

 

 
6,812

 
6,679

 
11

 

 
6,690

Acquisition and integration costs
8,631

 
186

 

 
8,817

 
9,121

 
54

 

 
9,175

Depreciation, amortization and accretion
362,430

 
14,680

 

 
377,110

 
276,434

 
15,448

 

 
291,882

Total operating expenses
954,168

 
55,803

 

 
1,009,971

 
678,083

 
53,968

 

 
732,051

Operating income (loss)
441,601

 
23,416

 

 
465,017

 
386,814

 
18,391

 

 
405,205

Interest expense and amortization of deferred financing costs
(304,625
)
 
(8,762
)
 
8,762

 
(304,625
)
 
(282,399
)
 
(10,337
)
 
10,324

 
(282,412
)
Gains (losses) on retirement of long-term obligations
(36,486
)
 

 

 
(36,486
)
 
(14,586
)
 

 

 
(14,586
)
Interest income
449

 
176

 

 
625

 
455

 
281

 

 
736

Other income (expense)
8,628

 
12

 
(8,762
)
 
(122
)
 
7,043

 
(45
)
 
(10,324
)
 
(3,326
)
Benefit (provision) for income taxes
(49,917
)
 
(4,378
)
 

 
(54,295
)
 
62,747

 
(1,010
)
 

 
61,737

Net income (loss)
59,650

 
10,464

 

 
70,114

 
160,074

 
7,280

 

 
167,354

Less: Net income (loss) attributable to the noncontrolling interest

 
2,293

 

 
2,293

 
(268
)
 
1,578

 

 
1,310

Net income (loss) attributable to CCIC stockholders
$
59,650

 
$
8,171

 
$

 
$
67,821

 
$
160,342

 
$
5,702

 
$

 
$
166,044

Capital expenditures
247,713

 
7,107

 
$

 
$
254,820

 
$
150,901

 
$
8,796

 
$

 
$
159,697

________________
(a)
Exclusive of depreciation, amortization and accretion shown separately.


14

CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


The following are reconciliations of net income (loss) to Adjusted EBITDA for the three and six months ended June 30, 2013 and 2012.
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