CrownCastle 10Q 033112
 

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 March 31, 2012
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 April 27, 2012: 293,010,896
 


CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES

INDEX

 
 
 
Page
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
ITEM 3.
 
ITEM 4.
 
 
ITEM 1A.
 
ITEM 2.
 
ITEM 6.
 
 


Cautionary Language Regarding Forward-Looking Statements
This Quarterly Report on 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" 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 and demand for our towers and small cell operations and technologies, including the expected impacts of the WCP acquisition and the NextG acquisition, (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, and (4) expectations regarding the credit markets, our availability and cost of capital, and our ability to service our debt and comply with debt covenants.
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, 2011 ("2011 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.
 



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)
 
March 31,
2012
 
December 31,
2011
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,063,684

 
$
80,120

Restricted cash
288,969

 
252,368

Receivables, net
79,872

 
77,258

Prepaid expenses
99,212

 
80,529

Deferred income tax assets
87,262

 
85,385

Deferred site rental receivables and other current assets, net
29,010

 
23,492

Total current assets
1,648,009

 
599,152

Deferred site rental receivables, net
680,876

 
621,103

Property and equipment, net of accumulated depreciation of $3,928,242 and $3,824,136, respectively
4,836,152

 
4,861,227

Goodwill
2,114,624

 
2,035,390

Other intangible assets, net
2,243,389

 
2,178,182

Long-term prepaid rent, deferred financing costs and other assets, net
601,606

 
250,042

Total assets
$
12,124,656

 
$
10,545,096

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
31,909

 
$
32,055

Accrued interest
55,259

 
65,392

Deferred revenues
174,176

 
167,238

Other accrued liabilities
86,722

 
104,904

Current maturities of debt and other obligations
77,776

 
32,517

Total current liabilities
425,842

 
402,106

Debt and other long-term obligations
8,343,156

 
6,853,182

Deferred income tax liabilities
104,290

 
97,562

Deferred ground lease payable and other liabilities
514,702

 
500,350

Total liabilities
9,387,990

 
7,853,200

Commitments and contingencies (note 10)

 

Redeemable convertible preferred stock, $0.1 par value; 20,000,000 shares authorized; shares issued and outstanding: March 31, 2012—0 and December 31, 2011—6,111,000; stated net of unamortized issue costs; mandatory redemption and aggregate liquidation value: March 31, 2012—$0 and December 31, 2011—$305,550
—

 
305,032

CCIC stockholders' equity:
 
 
 
Common stock, $.01 par value; 600,000,000 shares authorized; shares issued and outstanding: March 31, 2012—292,928,485 and December 31, 2011—284,449,372
2,929

 
2,844

Additional paid-in capital
5,591,191

 
5,312,342

Accumulated other comprehensive income (loss)
(93,043
)
 
(116,996
)
Accumulated deficit
(2,764,543
)
 
(2,811,945
)
Total CCIC stockholders' equity
2,736,534

 
2,386,245

Noncontrolling interest
132

 
619

Total equity
2,736,666

 
2,386,864

Total liabilities and equity
$
12,124,656

 
$
10,545,096

 
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 March 31,
 
2012
 
2011
Net revenues:
 
 
 
Site rental
$
497,529

 
$
456,196

Network services and other
54,216

 
42,843

Net revenues
551,745

 
499,039

Operating expenses:
 
 
 
Costs of operations(a):
 
 
 
Site rental
122,871

 
118,415

Network services and other
31,521

 
27,224

General and administrative
51,001

 
44,744

Asset write-down charges
3,044

 
4,401

Acquisition and integration costs
1,680

 
554

Depreciation, amortization and accretion
139,400

 
137,273

Total operating expenses
349,517

 
332,611

Operating income (loss)
202,228

 
166,428

Interest expense and amortization of deferred financing costs
(137,472
)
 
(126,686
)
Gains (losses) on retirement of long-term obligations
(7,068
)
 
—

Interest income
354

 
171

Other income (expense)
(1,077
)
 
(606
)
Income (loss) before income taxes
56,965

 
39,307

Benefit (provision) for income taxes
(6,695
)
 
817

Net income (loss)
50,270

 
40,124

Less: Net income (loss) attributable to the noncontrolling interest
239

 
107

Net income (loss) attributable to CCIC stockholders
50,031

 
40,017

Dividends on preferred stock
(2,629
)
 
(5,201
)
Net income (loss) attributable to CCIC stockholders after deduction of dividends on preferred stock
$
47,402

 
$
34,816

Net income (loss)
$
50,270

 
$
40,124

Other comprehensive income (loss):
 
 
 
Available-for-sale securities, net of tax of $0 and $0, respectively:
 
 
 
Unrealized gains (losses) on available-for-sale securities, net of taxes
—

 
(6,377
)
Derivative instruments net of taxes of $0 and $0, respectively:
 
 
 
Net change in fair value of cash flow hedging instruments, net of taxes
—

 
(425
)
Amounts reclassified into results of operations, net of taxes
16,338

 
17,889

Foreign currency translation adjustments
6,889

 
4,070

Total other comprehensive income (loss)
23,227

 
15,157

Comprehensive income (loss)
73,497

 
55,281

Less: Comprehensive income (loss) attributable to the noncontrolling interest
(487
)
 
483

Comprehensive income (loss) attributable to CCIC stockholders
$
73,984

 
$
54,798

Net income (loss) attributable to CCIC common stockholders, after deduction of dividends on preferred stock, per common share:
 
 
 
Basic
$
0.17

 
$
0.12

Diluted
$
0.17

 
$
0.12

Weighted-average common shares outstanding (in thousands):
 
 
 
Basic
284,913
 
286,998

Diluted
285,853
 
289,005

________________
(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)
 
Three Months Ended March 31,
 
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income (loss)
$
50,270

 
$
40,124

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
 
 
 
Depreciation, amortization and accretion
139,400

 
137,273

Gains (losses) on retirement of long-term obligations
7,068

 
—

Amortization of deferred financing costs and other non-cash interest
24,465

 
25,801

Stock-based compensation expense
9,035

 
9,496

Asset write-down charges
3,044

 
4,401

Deferred income tax benefit (provision)
4,813

 
(2,012
)
Other adjustments
4

 
180

Changes in assets and liabilities, excluding the effects of acquisitions:
 
 
 
Increase (decrease) in accrued interest
(10,853
)
 
(10,670
)
Increase (decrease) in accounts payable
(238
)
 
(9,471
)
Increase (decrease) in deferred revenues, deferred ground lease payables, other accrued liabilities and
     other liabilities
(3,270
)
 
(22,113
)
Decrease (increase) in receivables
(2,080
)
 
6,534

Decrease (increase) in prepaid expenses, deferred site rental receivables, long-term prepaid rent,
     restricted cash and other assets
(59,446
)
 
(52,029
)
Net cash provided by (used for) operating activities
162,212

 
127,514

Cash flows from investing activities:
 
 
 
Payments for acquisitions of businesses, net of cash acquired
(221,316
)
 
(435
)
Capital expenditures
(65,052
)
 
(52,650
)
Other investing activities, net
1,195

 
293

Net cash provided by (used for) investing activities
(285,173
)
 
(52,792
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
2,095,000

 
—

Proceeds from issuance of capital stock
195

 
651

Principal payments on debt and other long-term obligations
(13,631
)
 
(8,521
)
Purchases and redemptions of long-term debt
(648,385
)
 
—

Purchases of capital stock
(35,476
)
 
(42,225
)
Payments under revolving credit facility
(251,000
)
 
(50,000
)
Payments for financing costs
(40,237
)
 
—

Net (increase) decrease in restricted cash
948

 
(526
)
Dividends on preferred stock
(2,481
)
 
(4,969
)
Net cash provided by (used for) financing activities
1,104,933

 
(105,590
)
Effect of exchange rate changes on cash
1,592

 
657

Net increase (decrease) in cash and cash equivalents
983,564

 
(30,211
)
Cash and cash equivalents at beginning of period
80,120

 
112,531

Cash and cash equivalents at end of period
$
1,063,684

 
$
82,320


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
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
($.01 Par)
 
Additional
Paid-In
Capital
 
AOCI
 
Accumulated
Deficit
 
Noncontrolling
Interest
 
Total
Balance, January 1, 2012
6,111,000

 
$
305,032

 
284,449,372

 
$
2,844

 
$
5,312,342

 
$
(116,996
)
 
$
(2,811,945
)
 
$
619

 
$
2,386,864

Stock-based compensation related activity, net of forfeitures
—

 
—

 
883,941

 
9

 
9,221

 
—

 
—

 
—

 
9,230

Conversion of redeemable convertible preferred stock into common stock
(6,111,000
)
 
(305,180
)
 
8,285,905

 
83

 
305,097

 
—

 
—

 
—

 
305,180

Purchases and retirement of capital stock
—

 
—

 
(690,733
)
 
(7
)
 
(35,469
)
 
—

 
—

 
—

 
(35,476
)
Other comprehensive income (loss)(a)
—

 
—

 
—

 
—

 
—

 
23,953

 
—

 
(726
)
 
23,227

Dividends on preferred stock and amortization of issue costs
—

 
148

 
—

 
—

 
—

 
—

 
(2,629
)
 
—

 
(2,629
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
50,031

 
239

 
50,270

Balance, March 31, 2012
—

 
$
—

 
292,928,485

 
$
2,929

 
$
5,591,191

 
$
(93,043
)
 
$
(2,764,543
)
 
$
132

 
$
2,736,666


 
 
 
 
 
CCIC Stockholders
 
 
 
 
 
Redeemable Convertible Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
($.01 Par)
 
Additional
Paid-In
Capital
 
AOCI
 
Accumulated
Deficit
 
Noncontrolling
Interest
 
Total
Balance, January 1, 2011
6,361,000

 
$
316,581

 
290,826,284

 
$
2,908

 
$
5,581,525

 
$
(178,978
)
 
$
(2,960,082
)
 
$
(379
)
 
$
2,444,994

Stock-based compensation related activity, net of forfeitures
—

 
—

 
917,919

 
9

 
10,138

 
—

 
—

 
—

 
10,147

Purchases and retirement of capital stock
—

 
—

 
(1,026,331
)
 
(10
)
 
(42,215
)
 
—

 
—

 
—

 
(42,225
)
Other comprehensive income (loss)(a)
—

 
—

 
—

 
—

 
—

 
14,781

 
—

 
376

 
15,157

Dividends on preferred stock and amortization of issue costs
—

 
232

 
—

 
—

 
—

 
—

 
(5,201
)
 
—

 
(5,201
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
40,017

 
107

 
40,124

Balance, March 31, 2011
6,361,000

 
$
316,813

 
290,717,872

 
$
2,907

 
$
5,549,448

 
$
(164,197
)
 
$
(2,925,266
)
 
$
104

 
$
2,462,996

___________________________
(a)
See the statement of operations and other comprehensive income (loss) for the allocation of the components of "other comprehensive income (loss)."

See notes to condensed consolidated financial statements.

5

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, 2011, and related notes thereto, included in the 2011 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) distributed antenna systems ("DAS"), a type of small cell ("small cells"), and (3) third party land interests, including ground lease related assets, (unless the context otherwise suggests or requires, references herein to "wireless infrastructure" include towers, small cells and third party land interests). The Company's core business is renting space on its towers, small cells and, to a lesser extent, third party land interests (collectively, "site rental business") via long-term contracts in various forms. The Company also provides certain network services relating to its wireless infrastructure, primarily consisting of installation services, as well as site development services relating to existing and new antenna installations on its wireless infrastructure. The Company conducts its operations through wireless infrastructure portfolios in the United States (including Puerto Rico) and Australia.
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 present fairly the consolidated financial position of the Company at March 31, 2012, and the consolidated results of operations and the consolidated cash flows for the three months ended March 31, 2012 and 2011. 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 2011 Form 10-K.
New Accounting Pronouncements
No accounting pronouncements adopted during the three months ended March 31, 2012 had a material impact on the Company's consolidated financial statements. No new accounting pronouncements issued during the three months ended March 31, 2012 but not yet adopted are expected to have a material impact on the Company's consolidated financial statements.

3.
Acquisition
WCP Acquisition
On January 12, 2012, the Company announced a definitive agreement to acquire certain subsidiaries of Wireless Capital Partners, LLC ("WCP"). On January 31, 2012 the Company closed the acquisition (“WCP acquisition”). Upon closing, WCP held various contracts with wireless site owners, including approximately 2,300 ground lease related assets. The results of operations from WCP have been included in the consolidated statements of operations since the date of acquisition. The Company paid a purchase price that resulted in goodwill at CCUSA primarily because of the strategic opportunities.
The purchase price of $214.7 million includes $39.2 million of restricted cash and excludes the assumption of $336.3 million (after fair value adjustments) of debt. The Company utilized a portion of the borrowings under the senior secured term loans issued in January 2012 ("2012 Term Loans") to fund the cash consideration.

6
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


The preliminary purchase price allocation for the WCP acquisition is based upon a preliminary valuation and the Company's estimates and assumptions, which are subject to change as the Company obtains additional information within the measurement period. The preliminary allocation of the total purchase price for the WCP acquisition was primarily allocated to restricted cash, long-term prepaid rent, other intangible assets, goodwill and debt. The preliminary purchase price allocation to long-term prepaid rent was approximately $318 million and had a weighted-average amortization period of 38 years. See notes 4 and 5.
See also note 14.

4.
Goodwill and Intangible Assets

Goodwill of $76.9 million was recorded in connection with the WCP acquisition, of which $62.9 million is not expected to be deductible for tax purposes.

The following is a summary of the Company's intangible assets.
 
As of March 31, 2012
 
As of December 31, 2011
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Book Value
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Book Value
Site rental contracts and customer relationships
$
2,929,569

 
$
(785,754
)
 
$
2,143,815

 
$
2,823,832

 
$
(748,850
)
 
$
2,074,982

Other intangible assets
152,235

 
(52,661
)
 
99,574

 
152,375

 
(49,175
)
 
103,200

Total
$
3,081,804

 
$
(838,415
)
 
$
2,243,389

 
$
2,976,207

 
$
(798,025
)
 
$
2,178,182

The components of the additions to intangible assets during the three months ended March 31, 2012 are as follows:
 
Three Months Ended March 31,
 
2012
 
Amount
 
Weighted-Average Amortization Period
 
 
 
(In years)
Site rental contracts and customer relationships(a)
$
105,502

 
29.5
Other intangible assets
573

 
10.8
Total
$
106,075

 
29.4
________________
(a)
Predominately related to the WCP acquisition.
Amortization expense related to intangible assets is classified as follows on the Company's consolidated statement of operations and comprehensive income (loss):
 
Three Months Ended March 31,
Classification
2012
 
2011
Depreciation, amortization and accretion
$
40,172

 
$
39,571

Site rental costs of operations
808

 
1,120

Total amortization expense
$
40,980

 
$
40,691


7
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


The estimated annual amortization expense related to intangible assets (inclusive of those recorded to "site rental costs of operations") for the nine months ended December 31, 2012 and years ended December 31, 2013 to 2016 is as follows:
 
Nine Months Ended December 31,
 
Years Ending December 31,
 
2012
 
2013
 
2014
 
2015
 
2016
Estimated annual amortization
$
119,473

 
$
156,673

 
$
154,383

 
$
145,473

 
$
145,466

See note 14.

5.
Debt and Other Obligations
 
Original
Issue Date
 
Contractual
Maturity Date
 
Outstanding
Balance as of
March 31, 2012
 
Outstanding
Balance as of
December 31, 2011
 
Stated Interest
Rate as of
March 31, 2012(a)
 
Bank debt - variable rate:
 
 
 
 
 
 
 
 
 
 
Revolver
Jan. 2007
 
Sept. 2013
 
$
—

 
$
251,000

 
N/A

 
2012 Revolver
Jan. 2012
 
Jan. 2017
 
—

(b)
—

 
N/A

(c)
2007 Term Loans
Jan./March 2007
 
March 2014
 
—

 
619,125

 
N/A

 
2012 Term Loans
Jan. 2012
 
2017/2019
 
2,091,000

 
—

 
3.7
%
(c)
Total bank debt
 
 
 
 
2,091,000

 
870,125

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

 
1,900,000

 
5.8
%
(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)
211,954

 
216,431

 
7.0
%
 
WCP Securitized Notes
Nov. 2010
 
Nov. 2040
(f)
334,638

(f)
—

 
5.4
%
(g)
Total securitized debt
 
 
 
 
3,996,592

 
3,666,431

 
 
 
High yield bonds - fixed rate:
 
 
 
 
 
 
 
 
 
 
9% Senior Notes
Jan. 2009
 
Jan. 2015
 
815,914

 
817,799

 
9.0
%
(h)
7.75% Secured Notes
April 2009
 
May 2017
 
959,242

 
978,983

 
7.8
%
(i)
7.125% Senior Notes
Oct. 2009
 
Nov. 2019
 
497,954

 
497,904

 
7.1
%
(j)
7.5% Senior Notes
Dec. 2003
 
Dec. 2013
 
51

 
51

 
7.5
%
 
Total high yield bonds
 
 
 
 
2,273,161

 
2,294,737

 
 
 
Other:
 
 
 
 
 
 
 
 
 
 
Capital leases and other obligations
Various
 
Various
(k)
60,179

 
54,406

 
Various

(k)
Total debt and other obligations
 
 
 
 
8,420,932

 
6,885,699

 
 
 
Less: current maturities and short-term debt and other current obligations
 
 
 
 
77,776

 
32,517

 
 
 
Non-current portion of long-term debt and other long-term obligations
 
 
 
 
$
8,343,156

 
$
6,853,182

 
 
 
________________
(a)
Represents the weighted-average stated interest rate.
(b)
As of March 31, 2012, the undrawn availability under the $1.0 billion senior secured revolving credit facility ("2012 Revolver") is $1.0 billion.
(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. Term Loan B bears interest at a per annum rate equal to LIBOR plus 3.0% (with LIBOR subject to a floor of 1% per annum). The Company pays a commitment fee of 0.4% per annum on the undrawn available amount under the 2012 Revolver.
(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 $142.0 million of principal as of March 31, 2012 that amortizes through 2019, and $70.0 million of principal as of March 31, 2012 that amortizes during the period beginning in 2019 and ending in 2029.
(f)
The WCP securitized notes ("WCP Securitized Notes") were assumed in connection with the WCP acquisition. The WCP Securitized Notes include a fair

8
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


value adjustment that increases the debt carrying value by $15.6 million as of March 31, 2012. The anticipated repayment date is 2015 for each class of the debt assumed in connection with the WCP acquisition.
(g)
The effective yield is approximately 4.0%, inclusive of the fair value adjustment.
(h)
The effective yield is approximately 11.3%, inclusive of the discount.
(i)
The effective yield is approximately 8.2%, inclusive of the discount.
(j)
The effective yield is approximately 7.2%, inclusive of the discount.
(k)
The Company's capital leases and other obligations bear interest rates up to 10% and mature in periods ranging from less than one year to approximately 20 years.
2012 Credit Facility
In January 2012, the Company refinanced and repaid the Revolver and 2007 Term Loans with the proceeds of a $3.1 billion senior credit facility ("2012 Credit Facility") issued by CCOC. The 2012 Credit Facility consists of (1) a $1.0 billion 2012 Revolver which will mature in January 2017, (2) a $500 million Term Loan A which will mature in January 2017, and (3) a $1.6 billion Term Loan B which will mature in January 2019. The Term Loan B was fully drawn at closing and the Revolver and the Term Loan A were undrawn at closing. In March 2012, the Company drew the full amount under the Term Loan A.
The 2012 Credit Facility is secured by a pledge of certain equity interests of certain subsidiaries of CCIC, as well as a security interest in CCOC and certain of its subsidiaries' deposit accounts ($46.1 million as of March 31, 2012) and securities accounts. The 2012 Credit Facility is guaranteed by CCIC and certain of its subsidiaries.
The proceeds of the 2012 Credit Facility were used in part to repay the existing Revolver, repay the 2007 Term Loans and to fund the cash consideration of the WCP and NextG acquisitions (see note 14). The balance of the proceeds will be available for general corporate purposes, including purchases of shares of the Company's common stock.
WCP Securitized Notes
In January 2012, the Company assumed $320.1 million face value of secured debt in connection with the WCP acquisition. 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. The Company also acquired restricted cash of $29.5 million that if not spent on third party land interests by November 2012 will be required to be used to repay principal amounts outstanding on the WCP Securitized Notes. Interest and principal are paid monthly on the WCP Securitized Notes. The provisions of the WCP Securitized Notes are similar to those of our 2010 Tower Revenue Notes. See note 6 of our 2011 10-K for the provisions of our 2010 Tower Revenue Notes.
Contractual Maturities
The following are the scheduled contractual maturities of the total debt and other long-term obligations outstanding at March 31, 2012. 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. See herein for a further discussion on the WCP Securitized Notes.
 
Nine Months Ended December 31,
 
Years Ending December 31,
 
 
 
Unamortized Adjustments, Net
 
Total Debt and Other Obligations Outstanding
 
2012
 
2013
 
2014
 
2015
 
2016
 
Thereafter
 
Total Cash Obligations
 
 
Scheduled contractual maturities
$
61,715

 
$
86,360

 
$
95,984

 
$
969,577

 
$
110,499

 
$
7,148,726

 
$
8,472,861

 
$
(51,929
)
 
$
8,420,932


9
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


Retirement of Long-Term Obligations
The following is a summary of the retirement of long-term obligations during the three months ended March 31, 2012.
 
Three Months Ended March 31, 2012
 
Principal Amount
 
Cash Paid(a)
 
Gains (Losses)(c)
Revolver
$
251,000

 
$
251,000

 
$
(1,445
)
2007 Term Loans
619,125

 
619,125

 
(1,893
)
9% Senior Notes
5,624

 
6,207

 
(957
)
7.75% Secured Notes(b)
20,988

 
23,053

 
(2,773
)
Total
$
896,737

 
$
899,385

 
$
(7,068
)
________________
(a)
Exclusive of accrued interest.
(b)
These debt purchases were made by CCIC rather than by the subsidiaries that issued the debt, because of restrictions upon the subsidiaries that issued the debt; as a result, the debt remains outstanding at the Company's subsidiaries.
(c)
Inclusive of $3.7 million related to the write off of deferred financing costs.
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 March 31,
 
2012
 
2011
Interest expense on debt obligations
$
113,007

 
$
100,885

Amortization of deferred financing costs
4,812

 
3,722

Amortization of adjustments on long-term debt
3,763

 
3,865

Amortization of interest rate swaps
16,338

 
17,889

Other, net of capitalized interest
(448
)
 
325

Total
$
137,472

 
$
126,686


6.
Income Taxes
During the three months ended March 31, 2012 and 2011, the Company's provision for federal income taxes was reduced by a partial reversal of the valuation allowance on the Company's federal deferred tax assets, as a result of utilizing net operating losses that previously had a full valuation allowance. For the three months ended March 31, 2012 and 2011, the effective tax rate differed from the federal statutory rate predominately due to the Company's federal deferred tax valuation allowances. The Company expects to reverse up to $100 million of its federal valuation allowance as an income tax benefit in the second quarter of 2012 due to the NextG acquisition. See note 14.

7.
Redeemable Convertible Preferred Stock
In January 2012, the Company exercised its right to convert all of the outstanding 6.25% Redeemable Convertible Preferred Stock. In February 2012, the Company issued 8.3 million shares of common stock associated with the previously outstanding 6.25% Redeemable Convertible Preferred Stock.


10
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


8.
Fair Value Disclosures
 
Level in Fair Value Hierarchy
 
March 31, 2012
 
December 31, 2011
 
 
Carrying
 Amount
 
Fair
Value
 
Carrying
 Amount
 
Fair
Value
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
1
 
$
1,063,684

 
$
1,063,684

 
$
80,120

 
$
80,120

Restricted cash, current and non-current
1
 
293,969

 
293,969

 
257,368

 
257,368

Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt and other obligations
2
 
8,420,932

 
9,007,977

 
6,885,699

 
7,355,652

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, 2011 in the Company's valuation techniques used to measure fair values.


9.

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 March 31,
 
2012
 
2011
Net income (loss) attributable to CCIC stockholders
$
50,031

 
$
40,017

Dividends on preferred stock
(2,629
)
 
(5,201
)
Net income (loss) attributable to CCIC common stockholders after deduction of dividends on preferred stock for basic and diluted computations
$
47,402

 
$
34,816

Weighted-average number of common shares outstanding (in thousands):
 
 
 
Basic weighted-average number of common stock outstanding
284,913

 
286,998

Effect of assumed dilution from potential common shares relating to stock options and restricted stock awards
940

 
2,007

Diluted weighted-average number of common shares outstanding
285,853

 
289,005

Net income (loss) attributable to CCIC common stockholders after deduction of dividends on preferred stock, per common share:
 
 
 
Basic
$
0.17

 
$
0.12

Diluted
$
0.17

 
$
0.12

 For the three months ended March 31, 2012, 1.1 million restricted stock awards were excluded from the dilutive common shares because certain stock price hurdles would not have been achieved assuming that March 31, 2012 was the end of the contingency period. See note 12.

10.
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.

11
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


11.
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.
 
Three Months Ended March 31, 2012
 
Three Months Ended March 31, 2011
 
CCUSA
 
CCAL
 
Eliminations
 
Consolidated
Total
 
CCUSA
 
CCAL
 
Eliminations
 
Consolidated
Total
Net revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Site rental
$
468,119

 
$
29,410

 
$
—

 
$
497,529

 
$
430,643

 
$
25,553

 
$
—

 
$
456,196

Network services and other
46,968

 
7,248

 
—

 
54,216

 
37,664

 
5,179

 
—

 
42,843

Net revenues
515,087

 
36,658

 
—

 
551,745

 
468,307

 
30,732

 
—

 
499,039

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs of operations:(a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Site rental
113,944

 
8,927

 
—

 
122,871

 
110,425

 
7,990

 
—

 
118,415

Network services and other
26,802

 
4,719

 
—

 
31,521

 
23,957

 
3,267

 
—

 
27,224

General and administrative
43,653

 
7,348

 
—

 
51,001

 
39,597

 
5,147

 
—

 
44,744

Asset write-down charges
3,033

 
11

 
—

 
3,044

 
4,357

 
44

 
—

 
4,401

Acquisition and integration costs
1,652

 
28

 
—

 
1,680

 
554

 
—

 
—

 
554

Depreciation, amortization and accretion
131,641

 
7,759

 
—

 
139,400

 
129,976

 
7,297

 
—

 
137,273

Total operating expenses
320,725

 
28,792

 
—

 
349,517

 
308,866

 
23,745

 
—

 
332,611

Operating income (loss)
194,362

 
7,866

 
—

 
202,228

 
159,441

 
6,987

 
—

 
166,428

Interest expense and amortization of deferred financing costs
(137,459
)
 
(5,337
)
 
5,324

 
(137,472
)
 
(126,361
)
 
(5,942
)
 
5,617

 
(126,686
)
Gains (losses) on retirement of long-term obligations
(7,068
)
 
—

 
—

 
(7,068
)
 
—

 
—

 
—

 
—

Interest income
197

 
157

 
—

 
354

 
70

 
101

 
—

 
171

Other income (expense)
4,287

 
(40
)
 
(5,324
)
 
(1,077
)
 
5,013

 
(2
)
 
(5,617
)
 
(606
)
Benefit (provision) for income taxes
(6,174
)
 
(521
)
 
—

 
(6,695
)
 
1,369

 
(552
)
 
—

 
817

Net income (loss)
48,145

 
2,125

 
—

 
50,270

 
39,532

 
592

 
—

 
40,124

Less: Net income (loss) attributable to the noncontrolling interest
(210
)
 
449

 
—

 
239

 
—

 
107

 
—

 
107

Net income (loss) attributable to CCIC stockholders
$
48,355

 
$
1,676

 
$
—

 
$
50,031

 
$
39,532

 
$
485

 
$
—

 
$
40,017

Capital expenditures
$
62,214

 
$
2,838

 
$
—

 
$
65,052

 
$
51,246

 
$
1,404

 
$
—

 
$
52,650

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

12
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 months ended March 31, 2012 and 2011.
 
Three Months Ended March 31, 2012
 
Three Months Ended March 31, 2011
 
CCUSA
 
CCAL
 
Eliminations
 
Consolidated
Total
 
CCUSA
 
CCAL
 
Eliminations
 
Consolidated
Total
Net income (loss)
$
48,145

 
$
2,125

 
$
—

 
$
50,270

 
$
39,532

 
$
592

 
$
—

 
$
40,124

Adjustments to increase (decrease) net income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset write-down charges
3,033

 
11

 
—

 
3,044

 
4,357

 
44

 
—

 
4,401

Acquisition and integration costs
1,652

 
28

 
—

 
1,680

 
554

 
—

 
—

 
554

Depreciation, amortization and accretion
131,641

 
7,759

 
—

 
139,400

 
129,976

 
7,297

 
—

 
137,273

Amortization of prepaid lease purchase price adjustments
2,550

 
—

 
—

 
2,550

 
—

 
—

 
—

 
—

Interest expense and amortization of deferred financing costs
137,459

 
5,337

 
(5,324
)
 
137,472

 
126,361

 
5,942

 
(5,617
)
 
126,686

Gains (losses) on retirement of long-term obligations
7,068

 
—

 
—

 
7,068

 
—

 
—

 
—

 
—

Interest income
(197
)
 
(157
)
 
—

 
(354
)
 
(70
)
 
(101
)
 
—

 
(171
)
Other income (expense)
(4,287
)
 
40

 
5,324

 
1,077

 
(5,013
)
 
2

 
5,617

 
606

Benefit (provision) for income taxes
6,174

 
521

 
—

 
6,695

 
(1,369
)
 
552

 
—

 
(817
)
Stock-based compensation expense
9,035

 
2,123

 
—

 
11,158

 
9,496

 
1,169

 
—

 
10,665

Adjusted EBITDA
$
342,273

 
$
17,787

 
$
—

 
$
360,060

 
$
303,824

 
$
15,497

 
$
—

 
$
319,321


12.
Stock-Based Compensation
Restricted Stock Awards
 
Number of Shares
 
(In thousands of shares)
Shares outstanding at January 1, 2012
3,403

Shares granted(a)
836

Shares vested(b)
(1,942
)
Shares forfeited
(8
)
Shares outstanding at March 31, 2012
2,289

__________________
(a)
Weighted-average grant-date fair value of $38.28 per share and a weighted-average requisite service period of 2.5 years. The awards with market conditions included an expected volatility of 31% in the Monte Carlo simulation used to measure grant-date fair value.
(b)
Fair value on vesting date of $99.7 million.
During the three months ended March 31, 2012, the Company granted 0.4 million shares of restricted stock awards that time vest over a three-year period. During the three months ended March 31, 2012, the Company granted 0.4 million shares of restricted stock awards ("2012 Performance Awards") which may vest on the third anniversary of the grant date subject to a market condition based upon the Company's common stock price.
The Company recognized stock-based compensation expense related to restricted stock awards of $7.8 million and $8.2 million for the three months ended March 31, 2012 and 2011, respectively. The unrecognized compensation expense (net of estimated forfeitures) related to restricted stock awards as of March 31, 2012 is $48.7 million.


13
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)


13.
Supplemental Cash Flow Information
 
Three Months Ended March 31,
 
2012
 
2011
Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
123,140

 
$
111,555

Income taxes paid
884

 
642

Supplemental disclosure of non-cash financing activities:
 
 
 
Assets acquired through capital leases and installment sales
7,782

 
7,061

Conversion of redeemable convertible preferred stock (note 7)
305,180

 
—


14.
Subsequent Events
NextG Networks Acquisition
In December 2011, the Company entered into a definitive agreement to acquire NextG for approximately $1.0 billion in cash, subject to certain adjustments. On April 10, 2012 the Company closed the acquisition (“NextG acquisition”), pursuant to which a wholly owned indirect subsidiary of the Company merged with and into NextG, with NextG continuing as the surviving company following the merger and as a wholly owned indirect subsidiary of the Company. NextG has over 7,000 DAS nodes on-air and approximately 1,500 nodes under construction in the U.S. In addition, NextG has rights to over 4,600 miles of fiber. NextG is the largest provider of outdoor DAS, a network of antennas for the benefit of wireless carriers which is connected by fiber to a communications hub designed to facilitate wireless communications. Approximately 80% of NextG's nodes are located in the 10 largest basic trading areas in the U.S.
The Company utilized borrowings under the 2012 Term Loans to fund the cash consideration of $1.0 billion.

The preliminary purchase price allocation for the NextG acquisition is based upon a preliminary valuation and the Company's estimates and assumptions, which are subject to change as the Company obtains additional information within the measurement period. The preliminary allocation of the total purchase price for the NextG acquisition was primarily allocated to goodwill, other intangible assets, property and equipment, deferred tax liabilities and other liabilities. The purchase price allocation is expected to result in a substantial amount of goodwill, which may exceed 50% of the purchase price.
In connection with the purchase accounting related to the NextG acquisition, the Company recorded a U.S. federal deferred tax liability. The Company expects to reverse up to $100 million of its federal valuation allowance as an income tax benefit in the second quarter of 2012 as a result of the net U.S. federal deferred tax liability recorded in connection with the NextG acquisition.


14

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the response to Part I, Item 1 of this report and the consolidated financial statements of the Company including the related notes and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") included in our 2011 Form 10-K. Capitalized terms used but not defined in this Item have the same meaning given to them in our 2011 Form 10-K. Unless this Form 10-Q indicates otherwise or the context requires, the terms "we," "our," "our company," "the company," or "us" as used in this Form 10-Q refer to Crown Castle International Corp. and its subsidiaries.

General Overview
Overview
We own, operate or lease shared wireless infrastructure, including: (1) towers, (2) distributed antenna systems ("DAS"), a type of small cell ("small cells"), and (3) third party land interests, including ground lease related assets. Our core business is renting space on our towers, small cells and third party land interests via long-term contracts in various forms. Revenues generated from our core site rental business represented 90% of our first quarter 2012 consolidated net revenues, of which 94% was attributable to our CCUSA operating segment. The vast majority of our site rental revenues is of a recurring nature and has been contracted for in a prior year. See our 2011 Form 10-K for a further discussion of our business, including our long-term strategy, growth trends in the wireless communications industry and our wireless infrastructure portfolio.
The following are certain highlights of our business fundamentals as of and for the three months ended March 31, 2012.
•
Potential growth resulting from wireless network expansion and new entrants (see also the discussion below of wireless industry reports)
◦
We expect wireless carriers will continue their focus on improving network quality and expanding capacity by adding additional antennas and other equipment on our wireless infrastructure.
◦
We expect existing and potential new wireless carrier demand for our wireless infrastructure will result from (1) next generation technologies, (2) continued development of mobile internet applications, (3) adoption of other emerging and embedded wireless devices, (4) increasing smartphone penetration, and (5) wireless carrier focus on improving coverage and capacity.
◦
Substantially all of our wireless infrastructure can accommodate another tenant, either as currently constructed or with appropriate modifications to the structure.
◦
U.S. wireless carriers continue to invest in their networks.
◦
We expect our site rental revenues will grow approximately 10% from full year 2011 to full year 2012, inclusive of the impacts of the WCP and NextG acquisitions. We expect our new tenant additions, inclusive of the estimated impact from Sprint as it deploys network enhancements (referred to as Network Vision), will result in an approximately 5% year-over-year growth in site rental revenues from full year 2011 to full year 2012. Our 2012 site rental revenue growth expectations do not assume any net contribution to growth from the existing base of business (which has historically contributed approximately 4% per annum to our site rental revenue growth) as the increase attributable to lease escalations and straight-line impact of renewals is expected to be offset by the timing of expected cancellation of customer contracts due to prior wireless carrier consolidation.
•
Site rental revenues under long-term customer contracts with contractual escalations
◦
Initial terms of five to 15 years with multiple renewal periods at the option of the tenant of five to ten years each.
◦
Weighted-average remaining term of approximately nine years, exclusive of renewals at the customer's option, representing approximately $18 billion of expected future cash inflows, pro forma for the NextG acquisition.
•
Revenues predominately from large wireless carriers
◦
Verizon Wireless, AT&T, Sprint Nextel and T-Mobile accounted for 75% of consolidated revenues.
•
Majority of land interests under our towers under long-term control
◦
Approximately 89% and 72% of our site rental gross margin is derived from towers that we own or control for greater than ten and 20 years, respectively. The aforementioned percentages include towers that reside on land interests that are owned in fee or where we have perpetual or long-term easements in the land and other property interests, which represent approximately 34% of our site rental gross margin.
•
Relatively fixed wireless infrastructure operating costs with high incremental margins and cash flows on organic revenue growth
◦
Our wireless infrastructure operating costs tend to increase at approximately the rate of inflation and are not

15

typically influenced by new tenant additions.
◦
Our incremental margin on additional site rental revenues represents 91% of the related increase in site rental revenues.
•
Minimal sustaining capital expenditure requirements
◦
Sustaining capital expenditures were $4.2 million, which represented less than one quarter of a percent of net revenues.
•
Debt portfolio with long-dated maturities extended over multiple years, with the vast majority of such debt having a fixed rate (see "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for a further discussion of our debt)
◦
75% of our debt has fixed rate coupons.
◦
Our debt service coverage and leverage ratios were comfortably within their respective covenant requirements. See "Item 2. MD&A—Liquidity and Capital Resources" for a further discussion of our debt covenants.
•
Significant cash flows from operations
◦
Net cash provided by operating activities was $162.2 million.
◦
We believe our site rental business can be characterized as a stable cash flow stream, which we expect to grow as a result of future demand for our wireless infrastructure.
•
Capital allocated to drive long-term shareholder value (per share) (see also "Item 2. MD&A—Liquidity and Capital Resources")
◦
Historical discretionary investments include (in no particular order): purchasing our own common stock, acquiring or constructing wireless infrastructure, acquiring land interests under our towers, improving and structurally enhancing our existing wireless infrastructure, and purchasing or redeeming our debt.
◦
Discretionary investments included: (1) the acquisitions of WCP and NextG for an aggregate purchase price of approximately $1.5 billion, (2) $60.8 million in capital expenditures, (3) the purchase of 0.7 million shares of common stock for $35.5 million, and (4) the purchase of $26.6 million of face value of debt using $29.6 million.
◦
In December 2011, we entered into a definitive agreement to acquire NextG for approximately $1.0 billion in cash, subject to certain adjustments. Upon closing in April 2012, NextG had over 7,000 nodes on-air and approximately 1,500 nodes under construction.
◦
In January 2012, we acquired certain subsidiaries of WCP for a purchase price of $214.7 million, including $39.2 million of restricted cash and excluding the assumption of $336.3 million (after fair value adjustments) of debt.. Upon closing in January 2012, WCP held various contracts with wireless site owners, including approximately 2,300 ground lease related assets.
◦
In January 2012, we refinanced and repaid our credit facility and term loans with the proceeds of a $3.1 billion senior secured credit facility; the proceeds of such credit facility were also used to fund the cash consideration of the WCP and NextG acquisitions.
The following is a discussion of certain recent events and growth trends which may impact our business and strategy or the U.S. wireless communications industry:
•
Consumers have increased their use of wireless data services according to recent U.S. wireless industry reports.(a) 
◦
U.S. mobile data traffic grew 172% during 2011;
◦
The number of smartphones in the U.S. grew 59% during 2011, reaching 128 million, and is expected to grow to 232 million by 2016;
◦
Smartphones accounted for 24% of total mobile data traffic in the U.S. at the end of 2011 and are expected to account for 60% in 2016; and
◦
While 4G connections represent only 0.2% of mobile connections, they account for 6% of mobile data traffic. In 2011, a 4G connection generated 28 times more mobile data traffic on average than a non-4G connection.
_________________
(a)
Source: Cisco

Consolidated Results of Operations
The following discussion of our results of operations should be read in conjunction with our condensed consolidated financial statements and our 2011 Form 10-K. The following discussion of our results of operations is based on our consolidated financial statements prepared in accordance with GAAP, which requires us to make estimates and judgments that affect the reported amounts (see "Item 2. MD&A—Accounting and Reporting Matters—Critical Accounting Policies and Estimates" and note 2 to our consolidated financial statements on our 2011 Form 10-K).

16

Comparison of Consolidated Results
The following information is derived from our historical consolidated statements of operations for the periods indicated.
 
Three Months Ended March 31, 2012
 
Three Months Ended March 31, 2011
 
 
 
Amount
 
Percent
of Net
Revenues
 
Amount
 
Percent
of Net
Revenues
 
Percent
Change(b)
 
(Dollars in thousands)
Net revenues:
 
 
 
 
 
 
 
 
 
Site rental
$
497,529

 
90
%
 
$
456,196

 
91
%
 
9
%
Network services and other
54,216

 
10
%
 
42,843

 
9
%
 
27
%
Net revenues
551,745

 
100
%
 
499,039

 
100
%
 
11
%
Operating expenses:
 
 
 
 
 
 
 
 
 
Costs of operations(a):
 
 
 
 
 
 
 
 
 
Site rental
122,871

 
25
%
 
118,415

 
26
%
 
4
%
Network services and other
31,521

 
58
%
 
27,224

 
64
%
 
16
%
Total costs of operations
154,392

 
28
%
 
145,639

 
29
%
 
6
%
General and administrative
51,001

 
9
%
 
44,744

 
9
%
 
14
%
Asset write-down charges
3,044

 
1
%
 
4,401

 
1
%
 
*

Acquisition and integration costs
1,680

 
—

 
554

 
—

 
*

Depreciation, amortization and accretion
139,400

 
25
%
 
137,273

 
28
%
 
2
%
Total operating expenses
349,517

 
63
%
 
332,611

 
67
%
 
5
%
Operating income (loss)
202,228

 
37
%
 
166,428

 
33
%
 
22
%
Interest expense and amortization of deferred financing costs
(137,472
)
 
 
 
(126,686
)
 
 
 
 
Gains (losses) on retirement of long-term obligations
(7,068
)
 
 
 
—

 
 
 
 
Interest income
354

 
 
 
171

 
 
 
 
Other income (expense)
(1,077
)
 
 
 
(606
)
 
 
 
 
Income (loss) before income taxes
56,965

 
 
 
39,307

 
 
 
 
Benefit (provision) for income taxes
(6,695
)
 
 
 
817

 
 
 
 
Net income (loss)
50,270

 
 
 
40,124

 
 
 
 
Less: Net income (loss) attributable to the noncontrolling interest
239

 
 
 
107

 
 
 
 
Net income (loss) attributable to CCIC stockholders
$
50,031

 
 
 
$
40,017

 
 
 
 
________________
*
Percentage is not meaningful
(a)
Exclusive of depreciation, amortization and accretion shown separately.
(b)
Inclusive of the impact of foreign exchange rate fluctuations. See "Item 2. MD&A—Comparison of Operating Segments—CCAL."

First Quarter 2012 and 2011. Our consolidated results of operations for the first quarter of 2012 and 2011, respectively, consist predominately of our CCUSA segment, which accounted for (1) 93% and 94% of consolidated net revenues, (2) 94% and 94% of consolidated gross margins, and (3) 97% and 99% of net income (loss) attributable to CCIC stockholders. Our operating segment results, including CCUSA, are discussed below (see "Item 2. MD&A—Comparison of Operating Segments").
Comparison of Operating Segments
Our reportable operating segments for the first quarter of 2012 are (1) CCUSA, primarily consisting of our U.S. operations, and (2) CCAL, our Australian operations. Our financial results are reported to management and the board of directors in this manner.
See note 11 to our condensed consolidated financial statements for segment results, our definition of Adjusted EBITDA, and a reconciliation of net income (loss) attributable to CCIC stockholders to Adjusted EBITDA (defined below).
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. Our measure of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in the tower sector and other similar providers of wireless infrastructure, and is not a measure of performance calculated in accordance with GAAP. Adjusted EBITDA is discussed further under "Item 2. MD&A—Accounting and Reporting Matters—Non-GAAP Financial Measures."

17

We define 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 a change in accounting principle, income (loss) from discontinued operations and stock-based compensation expense (see note 12 to our consolidated financial statements). The reconciliation of Adjusted EBITDA to our net income (loss) is set forth in note 11 to our consolidated financial statements. Adjusted EBITDA is not intended as an alternative measure of operating results or cash flows 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 "Item 2. MD&A—Accounting and Reporting Matters—Non-GAAP Financial Measures."
CCUSA—First Quarter 2012 and 2011
Net revenues for the first quarter of 2012 increased by $46.8 million, or 10%, from the same period in the prior year. This increase in net revenues primarily resulted from an increase in site rental revenues of $37.5 million, or 9%, from the same period in the prior year. This increase in site rental revenues was impacted by the following items, inclusive of straight-line accounting, in no particular order: new tenant additions across our entire portfolio, renewals or extensions of customer contracts, escalations, assets acquired in connection with the WCP acquisition and cancellations of customer contracts. Tenant additions, predominately from amendments, were influenced by the previously mentioned growth in the wireless communications industry.
Site rental gross margins for the first quarter of 2012 increased by $34.0 million, or 11%, from the same period in the prior year. The increase in the site rental gross margins was related to the previously mentioned 9% increase in site rental revenues. Site rental gross margins for the first quarter of 2012 increased primarily as a result of the high incremental margins associated with tenant additions given the relatively fixed costs to operate wireless infrastructure. The $34.0 million incremental margin represents 91% of the related increase in site rental revenues.
Network services and other revenues for the first quarter of 2012 increased by $9.3 million, or 25%, and the related gross margin increased by $6.5 million, or 47%, from the same period in the prior year. The increase in our gross margin from our network services and other revenues is a reflection of the general volatility in the volume and mix of such work. Our network services business is of a variable nature as these revenues are not under long-term contracts. The increase in the gross margin from our network services and other revenue is related to a larger percentage of higher margin site development services as a percentage of total network services and other revenue.
General and administrative expenses for the first quarter of 2012 increased by $4.1 million, or approximately 10%, from the same period in the prior year. General and administrative expenses are inclusive of stock-based compensation charges, as discussed further in note 12 to our condensed consolidated financial statements. General and administrative expenses were 8% of net revenues for both the first quarter of 2012 and 2011. Typically, our general and administrative expenses do not significantly increase as a result of new tenant additions on our wireless infrastructure.
Adjusted EBITDA for the first quarter of 2012 increased by $38.4 million, or 13%, from the same period in the prior year. Adjusted EBITDA was positively impacted by the growth in our site rental business, including the high incremental site rental margin on the tenant additions.
Depreciation, amortization and accretion for the first quarter of 2012 increased by $1.7 million, or 1%, from the same period in the prior year. This increase is consistent with the insignificant movement in our fixed assets and intangible assets, which did not materially change between the first quarter of 2012 and the first quarter of 2011.
During the first quarter of 2012 we refinanced our credit facility through (1) a $500.0 million term loan due in 2017, (2) a $1.6 billion term loan due in 2019 and (3) a $1.0 billion revolving credit facility due in 2017. The refinancing of our credit facility effectively extended the maturity of our credit facility and provided funding for the cash consideration of the WCP and NextG acquisitions. This refinancing and the early retirement of $26.6 million face value of our debt resulted in a net loss of $7.1 million during the first quarter of 2012. The increase in interest expense and amortization of deferred financing costs of $11.1 million, or 9%, from the first quarter of 2011 to 2012 predominately resulted from the nominal increase in debt outstanding. For a further discussion of our debt, see note 6 to our consolidated financial statements in the 2011 Form 10-K.
The benefit (provision) for income taxes for the first quarter of 2012 was a provision of $6.2 million compared to a benefit of $1.4 million for the first quarter of 2011. During the first quarter of 2012 and 2011, our provision for federal income taxes was reduced by a partial reversal of the valuation allowance on our deferred tax assets, as a result of utilizing net operating losses that previously had a full valuation allowance. For the first quarter of 2012 and 2011, the effective tax rate differs from the federal statutory rate predominately due to our federal deferred tax valuation allowance. As a result of the NextG acquisition, we expect to reverse up to $100 million of our U.S. federal valuation allowance to earnings during the second quarter of 2012.

18

Net income (loss) attributable to CCIC stockholders for the first quarter of 2012 increased by $8.8 million from the first quarter of 2011. The increase in net income was predominately due to (1) growth in our site rental and services businesses, partially offset by (2) the previously mentioned increase in interest expense and amortization of deferred financing costs of $11.1 million, (3) change from an income tax benefit compared to an income tax provision and (4) the $7.1 million net loss on the purchase and early retirement of debt.
CCAL—First Quarter 2012 and 2011
The increases and decreases between the first quarter of 2012 and the first quarter of 2011 were inclusive of exchange rate fluctuations. The average exchange rate of one Australian dollar expressed in U.S. dollars for the first quarter of 2012 was approximately 1.06, an increase of 5% from approximately 1.01 for the same period in the prior year. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk."
Total net revenues for the first quarter of 2012 increased by $5.9 million, or 19%, from the same period in the prior year. Site rental revenues for the first quarter of 2012 increased by $3.9 million, or 15%, from the same period in the prior year. The increase in the exchange rate positively impacted net revenues and site rental revenues by approximately $1.7 million and $1.4 million, respectively, and accounted for an increase of 6% and 5%, respectively, for the first quarter of 2012 from the same period in the prior year. Site rental revenues were also impacted by various other factors, inclusive of straight-line accounting, including, in no particular order, tenant additions on our wireless infrastructure, renewals of customer contracts, escalations and cancellations of customer contracts. Net revenues were also impacted by a $2.1 million increase in network services and other revenues driven by the acquisition of a network services company.
Site rental gross margins increased by $2.9 million, or 17%, for the first quarter of 2012, from $17.6 million, for the first quarter of 2011. Adjusted EBITDA for the first quarter of 2012 increased by $2.3 million, or 15%, from the same period in the prior year. The increases in the site rental gross margin and Adjusted EBITDA were primarily due to the same factors that drove the increase in net revenues.
Net income (loss) attributable to CCIC stockholders for the first quarter of 2012 was net income of $1.7 million, compared to net income of $0.5 million for the first quarter of 2011. We are continuing to evaluate the valuation allowances on our deferred tax assets at CCAL. Due to CCAL's recent history of modest taxable income (loss) ($3.6 million loss in 2010 and $9.1 million income in 2011, respectively), we may reverse a small portion of CCAL's $64.1 million deferred tax valuation allowance during 2012 if CCAL continues to report income.

Liquidity and Capital Resources
Overview
General.    We believe our site rental business can be characterized as a stable cash flow stream generated by revenues under long-term contracts (see "Item 2. MD&A—General Overview—Overview"). Since we became a public company in 1998, our cumulative net cash provided by operating activities (net of cash interest payments) has exceeded our sustaining capital expenditures and provided us with cash available for discretionary investments. For the foreseeable future, we expect to continue to generate net cash provided by operating activities that exceeds our capital expenditures and will be available for discretionary investments. In addition to investing net cash provided by operating activities, in certain circumstances, we may also use debt financings and issuances of equity or equity related securities to fund discretionary investments.

We seek to allocate the net cash provided by our operating activities in a manner that will enhance per share operating results. Our historical discretionary investments include (in no particular order): purchasing our common stock, acquiring or constructing wireless infrastructure, acquiring land interests under our towers, improving and structurally enhancing our existing wireless infrastructure, and purchasing or redeeming our debt.
We seek to maintain a capital structure that we believe drives long-term stockholder value and optimizes our weighted-average cost of capital.  We target a leverage ratio of approximately four to six times Adjusted EBITDA and interest coverage of approximately three times Adjusted EBITDA, subject to various factors such as the availability and cost of capital and the potential long-term return on our discretionary investments. We may choose to increase or decrease our leverage and coverage from these targets for periods of time. 
We have never declared or paid any cash dividend on our common stock. Currently, we endeavor to utilize our net cash provided by operating activities to engage in discretionary investments. We seek to maintain flexibility in our discretionary investments with both net cash provided by operating activities and cash available from financing capacity. Periodically, our board of directors assesses the advisability of declaring and paying cash dividends at some point in the future, based on the then-

19

current and anticipated future conditions, including our earnings, net cash provided by operating activities, capital requirements, financial condition, our relative market capitalization, taxable income, taxpayer status, and other factors deemed relevant by the board of directors.
We pay minimal cash income taxes as a result of our net operating loss carryforwards. We may generate taxable income in the future, and if so, we may utilize all or a portion of our $2.5 billion of federal net operating losses to offset such income. We evaluate our options with respect to appropriately managing our tax position on an on-going basis. These options may include a conversion to a real estate investment trust ("REIT"), which would require the payment of dividends on our common stock. If we were to convert to a REIT, we expect that certain subsidiaries may be treated as taxable REIT subsidiaries and would continue to be subject to corporate income taxes.
Liquidity Position.    The following is a summary of our capitalization and liquidity position, pro forma for the NextG acquisition. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" and note 5 to our condensed consolidated financial statements for additional information regarding our debt.
 
March 31, 2012
 
(In thousands of dollars)
Cash and cash equivalents(a)
$
94,874

Undrawn revolving credit facility availability(b)
1,000,000

Debt and other long-term obligations
8,429,875

Stockholders' equity
2,724,699

________________
(a)
Exclusive of restricted cash.
(b)
Availability at any point in time is subject to certain restrictions based on the maintenance of financial covenants contained in our credit agreement. See "Item 2. MD&A—Liquidity and Capital Resources—Financing Activities" and "Item 2. MD&A—Liquidity and Capital Resources—Debt Covenants."
During January 2012, we refinanced and repaid our credit facility and term loans through (1) a $500.0 million term loan due in 2017, (2) a $1.6 billion term loan due in 2019, and (3) a $1.0 billion undrawn revolving credit facility due in 2017.  This refinancing effectively extended the maturity of our credit facility and provided funding for the cash consideration of the WCP and NextG acquisitions. See notes 3, 5 and 14 to our consolidated financial statements.
Over the next 12 months:
•
We expect that our cash on hand, undrawn revolving credit facility availability and net cash provided by operating activities (net of cash interest payments) should be sufficient to cover our expected (1) debt service obligations of $77.8 million (principal payments) and (2) capital expenditures of roughly $300 million (sustaining and discretionary). As CCIC and CCOC are holding companies, this cash flow from operations is generated by our operating subsidiaries.
•
We have no debt maturities other than principal payments on amortizing debt. We do not anticipate the need to access the capital markets to refinance our existing debt until at least 2015. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for a tabular presentation of our debt maturities as of March 31, 2012.
Summary Cash Flow Information
 
Three Months Ended March 31,
 
2012
 
2011
 
Change
 
(In thousands of dollars)
Net cash provided by (used for):
 
 
 
 
 
Operating activities
$
162,212

 
$
127,514

 
$
34,698

Investing activities
(285,173
)
 
(52,792
)
 
(232,381
)
Financing activities
1,104,933

 
(105,590
)
 
1,210,523

Effect of exchange rate changes on cash
1,592

 
657

 
935

Net increase (decrease) in cash and cash equivalents
$
983,564

 
$
(30,211
)
 
$
1,013,775

Operating Activities
The increase in net cash provided by operating activities for the first three months of 2012 of $34.7 million, or 27%, from 2011, was primarily due to growth in our core site rental business. Changes in working capital, particularly changes in deferred site rental receivables, deferred rental revenues, prepaid ground leases, restricted cash and accrued interest, can have a significant impact on our net cash from operating activities, largely due to the timing of payments and receipts. We expect to grow our cash flow provided by operating activities in the future (exclusive of movements in working capital) if we realize expected growth in our site rental business.

20

Investing Activities
Capital Expenditures.
 
Three Months Ended March 31,
 
2012
 
2011
 
Change
 
(In thousands of dollars)
Discretionary:
 
 
 
 
 
Purchases of land interests
$
27,949

 
$
22,379

 
$
5,570

Wireless infrastructure improvements and other
25,898

 
16,077

 
9,821

Construction of wireless infrastructure
6,986

 
11,067

 
(4,081
)
Sustaining
4,219

 
3,127

 
1,092

Total
$
65,052

 
$
52,650

 
$
12,402

Other than sustaining capital expenditures, which we expect to be approximately $23 million to $28 million for the year ended December 31, 2012, our capital expenditures are discretionary and are made with respect to activities which we believe exhibit sufficient potential to improve our long-term results of operations on a per share basis. We expect to use roughly $300 million of our cash flow on capital expenditures (sustaining and discretionary) for full year 2012, with less than one-fourth of our total capital expenditures targeted for our existing wireless infrastructure related to customer installations and related capacity improvement. Our decisions regarding capital expenditures are influenced by the availability and cost of capital and expected returns on alternative investments.
Wireless infrastructure improvement capital expenditures typically vary based on (1) the type of work performed on the wireless infrastructure, with initial installations typically requiring greater capital expenditures than a modification to an existing installation, (2) the existing capacity of the wireless infrastructure prior to installation and (3) changes in structural engineering standards. Wireless infrastructure construction capital expenditures increased from the first three months of 2011 to the same period in 2012 as a result of additional DAS network builds.
Acquisitions.  See notes 3, 4, 5 and 14 to our consolidated financial statements for a discussion of our acquisitions of WCP and NextG.
Financing Activities
We seek to allocate cash generated by our operations in a manner that will enhance per share operating results, which may include various financing activities such as (in no particular order) purchasing our common stock and purchasing or redeeming our debt. During the first three months of 2012, our financing activities predominately related to refinancing our credit facility, which effectively extended the maturity of our credit facility as well as provided funding for the cash consideration of the WCP and NextG acquisitions.
Credit Facility. The proceeds of our revolving credit facility may be used for general corporate purposes, which may include the financing of capital expenditures, acquisitions and purchases of our common stock. Typically, we have used our revolving credit facility to fund discretionary investments and not for operating activities such as working capital, which are typically funded by net cash provided by operating activities. As of April 27, 2012, there were no amounts outstanding under our revolving credit facility. During the first quarter of 2012, we borrowed $2.1 billion under our term loans. The proceeds of our term loans were used to fund the cash consideration of the WCP and NextG acquisitions. See notes