10-Q

 

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 September 30, 2015
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 600, 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 November 4, 2015: 333,771,307
 


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 AND USE OF PROCEEDS
 
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," any variations 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, customer consolidation or ownership changes, or demand for our wireless infrastructure, (2) expectations regarding non-renewals of tenant leases (including the impact of Sprint decommissioning its iDEN network and the impact of our customers' decommissioning of the former Leap Wireless, MetroPCS and Clearwire networks), (3) availability and adequacy of cash flows and liquidity for, or plans regarding, future discretionary investments including capital expenditures, (4) potential benefits of our discretionary investments, (5) anticipated growth in our future revenues, margins, Adjusted EBITDA, and operating cash flows, (6) expectations regarding our capital structure and the credit markets, our availability and cost of capital, or our ability to service our debt and comply with debt covenants and the benefits of any future refinancings, (7) expectations related to remaining qualified as a real estate investment trust ("REIT") and the advantages, benefits or impact of, or opportunities created by, our REIT status, (8) the realization and utilization of our net operating loss carryforwards ("NOLs"), (9) expectations regarding the inclusion of portions of our small cells within our REIT, and (10) our dividend policy, including the timing, amount, growth or tax characterization of any dividends.
Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including prevailing market conditions, risk factors described in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 ("2014 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)
 
September 30,
2015
 
December 31,
2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
184,116

 
$
151,312

Restricted cash
116,653

 
147,411

Receivables, net
324,566

 
313,308

Prepaid expenses
143,675

 
138,873

Deferred income tax assets
33,110

 
24,806

Other current assets
222,251

 
94,503

Assets from discontinued operations (see note 3)
—

 
412,783

Total current assets
1,024,371

 
1,282,996

Deferred site rental receivables
1,282,752

 
1,202,058

Property and equipment, net of accumulated depreciation of $5,604,110 and $5,052,395, respectively
9,498,568

 
8,982,783

Goodwill
5,527,134

 
5,196,485

Other intangible assets, net
3,837,360

 
3,681,551

Long-term prepaid rent, deferred financing costs and other assets, net
825,459

 
797,403

Total assets
$
21,995,644

 
$
21,143,276

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
157,024

 
$
162,397

Accrued interest
69,184

 
66,943

Deferred revenues
314,648

 
279,882

Other accrued liabilities
181,498

 
182,081

Current maturities of debt and other obligations
102,188

 
113,335

Liabilities from discontinued operations (see note 3)
—

 
127,493

Total current liabilities
824,542

 
932,131

Debt and other long-term obligations
12,039,178

 
11,807,526

Deferred income tax liabilities
32,317

 
39,889

Other long-term liabilities
1,859,304

 
1,626,502

Total liabilities
14,755,341

 
14,406,048

Commitments and contingencies (note 10)

 

CCIC stockholders' equity:
 
 
 
Common stock, $.01 par value; 600,000,000 shares authorized; shares issued and outstanding: September 30, 2015—333,771,499 and December 31, 2014—333,856,632
3,339

 
3,339

4.50% Mandatory Convertible Preferred Stock, Series A, $.01 par value; 20,000,000 shares authorized; shares issued and outstanding: September 30, 2015 and December 31, 2014—9,775,000; aggregate liquidation value: September 30, 2015 and December 31, 2014—$977,500
98

 
98

Additional paid-in capital
9,532,597

 
9,512,396

Accumulated other comprehensive income (loss)
(3,754
)
 
15,820

Dividends/distributions in excess of earnings
(2,291,977
)
 
(2,815,428
)
Total CCIC stockholders' equity
7,240,303

 
6,716,225

Noncontrolling interest from discontinued operations
—

 
21,003

Total equity
7,240,303

 
6,737,228

Total liabilities and equity
$
21,995,644

 
$
21,143,276

 
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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net revenues:
 
 
 
 
 
 
 
Site rental
$
764,606

 
$
717,623

 
$
2,233,077

 
$
2,143,198

Network services and other
153,501

 
175,260

 
484,938

 
469,690

Net revenues
918,107

 
892,883

 
2,718,015

 
2,612,888

Operating expenses:
 
 
 
 
 
 
 
Costs of operations(a):
 
 
 
 
 
 
 
Site rental
247,000

 
230,599

 
716,244

 
676,275

Network services and other
86,859

 
101,814

 
263,177

 
275,514

General and administrative
76,699

 
65,212

 
223,880

 
187,171

Asset write-down charges
7,477

 
4,932

 
19,652

 
10,673

Acquisition and integration costs
7,608

 
4,068

 
12,001

 
28,852

Depreciation, amortization and accretion
261,662

 
247,206

 
766,621

 
738,965

Total operating expenses
687,305

 
653,831

 
2,001,575

 
1,917,450

Operating income (loss)
230,802

 
239,052

 
716,440

 
695,438

Interest expense and amortization of deferred financing costs
(129,877
)
 
(141,287
)
 
(398,782
)
 
(432,221
)
Gains (losses) on retirement of long-term obligations
—

 
—

 
(4,157
)
 
(44,629
)
Interest income
789

 
107

 
1,170

 
329

Other income (expense)
(1,214
)
 
(694
)
 
58,510

 
(9,350
)
Income (loss) from continuing operations before income taxes
100,500

 
97,178

 
373,181

 
209,567

Benefit (provision) for income taxes
3,801

 
1,977

 
9,380

 
8,118

Income (loss) from continuing operations
104,301

 
99,155

 
382,561

 
217,685

Discontinued operations (see note 3):
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of tax
—

 
8,882

 
19,690

 
28,502

Net gain (loss) from disposal of discontinued operations, net of tax
(522
)
 
—

 
981,018

 
—

Income (loss) from discontinued operations, net of tax
(522
)
 
8,882


1,000,708


28,502

Net income (loss)
103,779

 
108,037

 
1,383,269

 
246,187

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

 
1,100


3,343


3,744

Net income (loss) attributable to CCIC stockholders
103,779

 
106,937

 
1,379,926

 
242,443

Dividends on preferred stock
(10,997
)
 
(10,997
)
 
(32,991
)
 
(32,991
)
Net income (loss) attributable to CCIC common stockholders
$
92,782

 
$
95,940

 
$
1,346,935

 
$
209,452

Net income (loss)
$
103,779

 
$
108,037

 
$
1,383,269

 
$
246,187

Other comprehensive income (loss):
 
 
 
 
 
 
 
Amounts reclassified into "interest expense and amortization of deferred financing costs," net of taxes (see note 5)
3,744

 
15,551

 
18,725

 
47,895

Foreign currency translation adjustments
(632
)
 
(24,177
)
 
(13,493
)
 
(5,708
)
Amounts reclassified into discontinued operations for foreign currency translation adjustments (see note 3)
—

 
—

 
(25,678
)
 
—

Total other comprehensive income (loss)
3,112

 
(8,626
)
 
(20,446
)
 
42,187

Comprehensive income (loss)
106,891

 
99,411

 
1,362,823

 
288,374

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

 
(327
)
 
—

 
3,313

Comprehensive income (loss) attributable to CCIC stockholders
$
106,891

 
$
99,738

 
$
1,362,823

 
$
285,061

Net income (loss) attributable to CCIC common stockholders, per common share:
 
 
 
 
 
 
 
Income (loss) from continuing operations, basic
$
0.28

 
$
0.27

 
$
1.05

 
$
0.56

Income (loss) from discontinued operations, basic
$
—

 
$
0.02

 
$
3.00

 
$
0.07

Net income (loss) attributable to CCIC common stockholders, basic
$
0.28

 
$
0.29

 
$
4.05

 
$
0.63

Income (loss) from continuing operations, diluted
$
0.28

 
$
0.26

 
$
1.05

 
$
0.55

Income (loss) from discontinued operations, diluted
$
—

 
$
0.03

 
$
2.99

 
$
0.08

Net income (loss) attributable to CCIC common stockholders, diluted
$
0.28

 
$
0.29

 
$
4.04

 
$
0.63

Weighted-average common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic
333,049
 
332,413

 
332,951
 
332,264
Diluted
333,711
 
333,241

 
333,735
 
333,020
________________
(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)

 
Nine Months Ended September 30,
 
 
2015
 
2014
 
Cash flows from operating activities:
 
 
 
 
Net income (loss) from continuing operations
$
382,561

 
$
217,685

 
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used for) operating activities:
 
 
 
 
Depreciation, amortization and accretion
766,621

 
738,965

 
Gains (losses) on retirement of long-term obligations
4,157

 
44,629

 
Gains (losses) on settled swaps
(54,475
)
 
—

 
Amortization of deferred financing costs and other non-cash interest
32,394

 
61,322

 
Stock-based compensation expense
44,711

 
39,497

 
Asset write-down charges
19,652

 
10,673

 
Deferred income tax benefit (provision)
(16,199
)
 
(14,589
)
 
Other non-cash adjustments, net
(7,240
)
 
(1,967
)
 
Changes in assets and liabilities, excluding the effects of acquisitions:
 
 
 
 
Increase (decrease) in accrued interest
2,241

 
2,461

 
Increase (decrease) in accounts payable
(8,310
)
 
28,037

 
Increase (decrease) in deferred revenues, deferred ground lease payables, other accrued liabilities and other liabilities
214,607

 
259,178

 
Decrease (increase) in receivables
(703
)
 
(64,079
)
 
Decrease (increase) in prepaid expenses, deferred site rental receivables, long-term prepaid rent, restricted cash and other assets
(89,141
)
 
(170,886
)
 
Net cash provided by (used for) operating activities
1,290,876

 
1,150,926

 
Cash flows from investing activities:
 
 
 
 
Payments for acquisitions of businesses, net of cash acquired
(1,083,319
)
 
(174,356
)
 
Capital expenditures
(658,240
)
 
(498,960
)
 
Receipts from foreign currency swaps
54,475

 
—

 
Other investing activities, net
(1,561
)
 
2,787

 
Net cash provided by (used for) investing activities
(1,688,645
)
 
(670,529
)
 
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of long-term debt
1,000,000

 
845,750

 
Principal payments on debt and other long-term obligations
(78,049
)
 
(86,197
)
 
Purchases and redemptions of long-term debt
(1,069,337
)
 
(836,899
)
 
Purchases of capital stock
(29,576
)
 
(21,778
)
 
Borrowings under revolving credit facility
1,560,000

 
567,000

 
Payments under revolving credit facility
(1,240,000
)
 
(587,000
)
 
Payments for financing costs
(17,415
)
 
(15,899
)
 
Net (increase) decrease in restricted cash
28,435

 
39,882

 
Dividends/distributions paid on common stock
(821,056
)
 
(350,535
)
 
Dividends paid on preferred stock
(32,991
)
 
(33,357
)
 
Net cash provided by (used for) financing activities
(699,989
)
 
(479,033
)
 
Net increase (decrease) in cash and cash equivalents - continuing operations
(1,097,758
)
 
1,364

 
Discontinued operations (see note 3):
 
 
 
 
Net cash provided by (used for) operating activities
4,359

 
41,304

 
Net cash provided by (used for) investing activities
1,103,577

 
(20,154
)
 
Net increase (decrease) in cash and cash equivalents - discontinued operations
1,107,936


21,150

 
Effect of exchange rate changes
(1,682
)
 
(7,358
)
 
Cash and cash equivalents at beginning of period
175,620

(a) 
223,394

(a) 
Cash and cash equivalents at end of period
$
184,116

 
$
238,550

(a) 
________________
(a)
Inclusive of cash and cash equivalents included in discontinued operations.
See notes to condensed consolidated financial statements.

4

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

 
CCIC Stockholders
 
 
 
 
 
Common Stock
 
4.50% Mandatory Convertible Preferred Stock
 
 
 
AOCI
 
 
 
 
 
 
 
Shares
 
($.01 Par)
 
Shares
 
($.01 Par)
 
Additional
paid-in
capital
 
Foreign Currency Translation Adjustments
 
Derivative Instruments, net of tax
 
Dividends/Distributions in Excess of Earnings
 
Noncontrolling
Interest from discontinued operations
 
Total
Balance, July 1, 2015
333,762,344

 
$
3,339

 
9,775,000

 
$
98

 
$
9,518,103

 
$
(3,122
)
 
$
(3,744
)
 
$
(2,110,438
)
 
$
—

 
$
7,404,236

Stock-based compensation related activity, net of forfeitures
10,198

 
—

 
—

 
—

 
14,579

 
—

 
—

 
—

 
—

 
14,579

Purchases and retirement of capital stock
(1,043
)
 
—

 
—

 
—

 
(85
)
 
—

 
—

 
—

 
—

 
(85
)
Other comprehensive income (loss)(a)
—

 
—

 
—

 
—

 
—

 
(632
)
 
3,744

 
—

 
—

 
3,112

Common stock dividends/distributions
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(274,321
)
 
—

 
(274,321
)
Preferred stock dividends
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10,997
)
 
—

 
(10,997
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
103,779

 
—

 
103,779

Balance, September 30, 2015
333,771,499

 
$
3,339

 
9,775,000

 
$
98

 
$
9,532,597

 
$
(3,754
)
 
$
—

 
$
(2,291,977
)
 
$
—

 
$
7,240,303

    
(a)
See the condensed statement of operations and other comprehensive income (loss) for the components of "other comprehensive income (loss)" and note 5 with respect to the reclassification adjustments.

 
CCIC Stockholders
 
 
 
 
 
 
 
Common Stock
 
4.50% Mandatory Convertible Preferred Stock
 
 
 
AOCI
 
 
 
 
 
 
 
Shares
 
($.01 Par)
 
Shares
 
($.01 Par)
 
Additional
paid-in
capital
 
Foreign Currency Translation Adjustments
 
Derivative Instruments, net of tax
 
Dividends/Distributions in Excess of Earnings
 
Noncontrolling
Interest from discontinued operations
 
Total
Balance, July 1, 2014
333,861,080

 
$
3,339

 
9,775,000

 
$
98

 
$
9,488,414

 
$
75,734

 
$
(49,529
)
 
$
(2,656,718
)
 
$
18,098

 
$
6,879,436

Stock-based compensation related activity, net of forfeitures
(980
)
 
—

 
—

 
—

 
12,124

 
—

 
—

 
—

 
—

 
12,124

Purchases and retirement of capital stock
(653
)
 
—

 
—

 
—

 
(48
)
 
—

 
—

 
—

 
—

 
(48
)
Other comprehensive income (loss)(a)
—

 
—

 
—

 
—

 
—

 
(22,750
)
 
15,551

 
—

 
(1,427
)
 
(8,626
)
Common stock dividends/distributions
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(117,181
)
 
—

 
(117,181
)
Preferred stock dividends
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10,997
)
 
—

 
(10,997
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
106,937

 
1,100

 
108,037

Balance, September 30, 2014
333,859,447

 
$
3,339

 
9,775,000

 
$
98

 
$
9,500,490

 
$
52,984

 
$
(33,978
)
 
$
(2,677,959
)
 
$
17,771

 
$
6,862,745

    
(a)
See the condensed statement of operations and other comprehensive income (loss) for the components of "other comprehensive income (loss)" and note 5 with respect to the reclassification adjustments.

5

 
CCIC Stockholders
 
 
 
 
 
Common Stock
 
4.50% Mandatory Convertible Preferred Stock
 
 
 
AOCI
 
 
 
 
 
 
 
Shares
 
($.01 Par)
 
Shares
 
($.01 Par)
 
Additional
paid-in
capital
 
Foreign Currency Translation Adjustments
 
Derivative Instruments, net of tax
 
Dividends/Distributions in Excess of Earnings
 
Noncontrolling
Interest from discontinued operations
 
Total
Balance, January 1, 2015
333,856,632

 
$
3,339

 
9,775,000

 
$
98

 
$
9,512,396

 
$
34,545

 
$
(18,725
)
 
$
(2,815,428
)
 
$
21,003

 
$
6,737,228

Stock-based compensation related activity, net of forfeitures
250,443

 
2

 
—

 
—

 
49,775

 
—

 
—

 
—

 
—

 
49,777

Purchases and retirement of capital stock
(335,576
)
 
(2
)
 
—

 
—

 
(29,574
)
 
—

 
—

 
—

 
—

 
(29,576
)
Other comprehensive income (loss)(a)
—

 
—

 
—

 
—

 
—

 
(38,299
)
 
18,725

 
—

 
(872
)
 
(20,446
)
Disposition of CCAL
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(23,474
)
 
(23,474
)
Common stock dividends/distributions
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(823,484
)
 
—

 
(823,484
)
Preferred stock dividends
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(32,991
)
 
—

 
(32,991
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,379,926

 
3,343

 
1,383,269

Balance, September 30, 2015
333,771,499

 
$
3,339

 
9,775,000

 
$
98

 
$
9,532,597

 
$
(3,754
)
 
$
—

 
$
(2,291,977
)
 
$
—

 
$
7,240,303

    
(a)
See the condensed statement of operations and other comprehensive income (loss) for the components of "other comprehensive income (loss)" and notes 3 and 5 with respect to the reclassification adjustments.
 
CCIC Stockholders
 
 
 
 
 
 
 
Common Stock
 
4.50% Mandatory Convertible Preferred Stock
 
 
 
AOCI
 
 
 
 
 
 
 
Shares
 
($.01 Par)
 
Shares
 
($.01 Par)
 
Additional
paid-in
capital
 
Foreign Currency Translation Adjustments
 
Derivative Instruments, net of tax
 
Dividends/Distributions in Excess of Earnings
 
Noncontrolling
Interest from discontinued operations
 
Total
Balance, January 1, 2014
334,070,016

 
$
3,341

 
9,775,000

 
$
98

 
$
9,482,769

 
$
58,261

 
$
(81,873
)
 
$
(2,535,879
)
 
$
14,458

 
$
6,941,175

Stock-based compensation related activity, net of forfeitures
81,350

 
1

 
—

 
—

 
39,496

 
—

 
—

 
—

 
—

 
39,497

Purchases and retirement of capital stock
(291,919
)
 
(3
)
 
—

 
—

 
(21,775
)
 
—

 
—

 
—

 
—

 
(21,778
)
Other comprehensive income (loss)(a)
—

 
—

 
—

 
—

 
—

 
(5,277
)
 
47,895

 
—

 
(431
)
 
42,187

Common stock dividends/distributions
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(351,532
)
 
—

 
(351,532
)
Preferred stock dividends
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(32,991
)
 
—

 
(32,991
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
242,443

 
3,744

 
246,187

Balance, September 30, 2014
333,859,447

 
$
3,339

 
9,775,000

 
$
98

 
$
9,500,490

 
$
52,984

 
$
(33,978
)
 
$
(2,677,959
)
 
$
17,771

 
$
6,862,745

    
(a)
See the condensed statement of operations and other comprehensive income (loss) for the components of "other comprehensive income (loss)" and note 5 with respect to the reclassification adjustments.
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, 2014, and related notes thereto, included in the 2014 Form 10-K filed by Crown Castle International Corp. ("CCIC") with the SEC. References to the "Company" include CCIC and its predecessor, as applicable, and their subsidiaries, unless otherwise indicated or the context indicates otherwise.
The Company owns, operates and leases shared wireless infrastructure, including: (1) towers, and to a lesser extent, (2) small cell networks, and (3) third party land interests. The Company's wireless infrastructure is geographically dispersed throughout the United States, including Puerto Rico ("U.S."). See note 3 for a discussion of the May 2015 sale of the Company's formerly 77.6% owned subsidiary that operated towers in Australia (referred to as "CCAL").
The Company's core business is providing access, including space or capacity, to its wireless infrastructure via long-term contracts in various forms, including licenses, subleases and lease agreements. The Company's wireless infrastructure can accommodate multiple tenants for antennas or other equipment necessary for the transmission of signals for wireless communication.
As part of the Company's effort to provide comprehensive wireless infrastructure solutions, it offers certain network services relating to its wireless infrastructure, consisting of (1) the following site development services relating to existing or new antenna installations on its wireless infrastructure: site acquisition, architectural and engineering, or zoning and permitting and (2) tenant equipment installation or subsequent augmentations (collectively, "installation services").
Effective January 1, 2014, the Company commenced operating as a REIT for U.S. federal income tax purposes. In addition, the Company has certain taxable REIT subsidiaries ("TRSs"). See note 8.
Approximately 55% of the Company's towers are leased or subleased or operated and managed under master leases, subleases, and other agreements with Sprint, T-Mobile, and AT&T. The Company has the option to purchase these towers at the end of their respective lease terms. The Company has no obligation to exercise such purchase options.
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 state fairly the consolidated financial position of the Company at September 30, 2015, and the consolidated results of operations and the consolidated cash flows for the nine months ended September 30, 2015 and 2014. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full 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 condensed consolidated financial statements are disclosed in the 2014 Form 10-K.
Recently Adopted Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board ("FASB") issued new guidance on the implementation and presentation of discontinued operations. The guidance requires that only disposals that represent a strategic shift that has (or will have) a major effect on the entity's results and operations qualify as discontinued operations. In addition, the new guidance expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. The

7

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


new guidance was effective for the Company on January 1, 2015, and the Company has applied the new guidance for the sale of CCAL. See note 3.
Recent Accounting Pronouncements Not Yet Adopted
In April 2015, the FASB issued new guidance on the presentation of debt issuance costs. The guidance requires debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts and premiums. The update requires retrospective application and the guidance is effective for the Company on January 1, 2016. The Company will adopt the guidance on January 1, 2016. As of September 30, 2015, net deferred financing costs were $110.9 million and were recorded as a component of "long-term prepaid rent, deferred financing costs and other assets, net" on the Company's condensed consolidated balance sheet.
In May 2014, the FASB released updated guidance regarding the recognition of revenue from contracts with customers, exclusive of those contracts within lease accounting. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  To achieve that core principle, an entity should apply the following steps: (1) identify the contracts with the customer; (2) identify the performance obligations in the contract; (3) determine the contract price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.  This guidance is effective for the Company on January 1, 2018, following the FASB's July 2015 decision to defer the effective date of the standard by one year. This guidance is required to be applied, at the Company's election, either (1) retrospectively to each prior reporting period presented, or (2) with the cumulative effect being recognized at the date of initial application. The Company is evaluating the guidance, including the impact on its consolidated financial statements.
In September 2015, the FASB issued new guidance which requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The update requires prospective application and the guidance is effective for the Company on January 1, 2016, with early adoption permitted. The Company is evaluating the guidance, including the impact on its consolidated financial statements.
In October 2015, the FASB issued new guidance on the presentation of deferred tax assets and liabilities. The guidance requires deferred tax assets and liabilities to be presented as non-current on the balance sheet. The update requires prospective application and the guidance is effective for the Company on January 1, 2017, with early adoption permitted. The Company is evaluating the guidance, including the impact on its consolidated financial statements.

3.
Discontinued Operations
On May 14, 2015, the Company entered into a definitive agreement to sell CCAL to a consortium of investors led by Macquarie Infrastructure and Real Assets (collectively, “Buyer”). On May 28, 2015, the Company completed the sale. At closing, the Company received net proceeds of approximately $1.1 billion after accounting for the Company's 77.6% ownership interest, repayment of intercompany debt owed to the Company by CCAL and estimated transaction fees and expenses, exclusive of the impact of foreign currency swaps related to the CCAL sale (see note 6).
As part of the sale of CCAL, in January 2016, the Company is entitled to receive an installment payment from the Buyer totaling approximately $124 million, inclusive of the impact of the related foreign currency swap (see note 6). The Buyer's obligation related to the installment payment is unconditional and is substantiated by an irrevocable letter of credit. The installment payment is included within "other current assets" on the Company's condensed consolidated balance sheet.
During the second quarter 2015, the Company used net proceeds from the sale of CCAL to repay portions of outstanding borrowings under its 2012 Credit Facility.
The Company entered into foreign currency swaps to manage and reduce its foreign currency risk associated with the sale of CCAL. These swaps are not included in discontinued operations. See note 6.
CCAL has historically been a separate operating segment of the Company (see note 12). The sale of the Company's CCAL operating segment is treated as discontinued operations for all periods presented pursuant to ASU 2014-8, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which the Company adopted on January 1, 2015 (see note 2). The sale of CCAL represents a strategic shift of the Company to solely focus on U.S. operations. The gain from disposal of CCAL is included in discontinued operations on the condensed consolidated statement of operations. The tables below set forth

8

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


the assets and liabilities related to discontinued operations at December 31, 2014, and their results of operations and cash flows for the nine months ended September 30, 2015 and 2014.
 
 
 
As of December 31, 2014
Assets and liabilities related to discontinued operations:
 
 
 
 
 
Current assets
 
 
$
61,289
 
Property and equipment
 
 
165,528
 
Other non-current assets
 
 
185,966
 
Total assets related to discontinued operations


 
$
412,783
 
Current liabilities
 
 
94,297
 
Non-current liabilities
 
 
33,196
 
Total liabilities related to discontinued operations


 
$
127,493
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014(b)
 
2015 (b)(c)
 
2014(b)
Total revenues
$
37,142

 
$
65,293

 
$
109,432

Total cost of operations (a)
11,720

 
17,498

 
33,732

Depreciation, amortization, and accretion
7,656

 
10,168

 
20,323

Total other expenses
6,425

 
10,481

 
18,671

Pre-tax income from discontinued operations
11,341

 
27,146

 
36,706

Net income (loss) from discontinued operations(d)
$
8,882

 
$
19,690

 
$
28,502

    
(a)
Exclusive of depreciation, amortization, and accretion shown seperately.
(b)
No interest expense has been allocated to discontinued operations.
(c)
CCAL results are through May 28, 2015, which was the closing date of the Company's sale of CCAL.
(d)
Exclusive of the gain (loss) from disposal of discontinued operations, net of tax, as presented on the condensed consolidated statement of operations.
The Company recorded a gain on the sale of CCAL, which was comprised of the following items:
Cash received from sale of CCAL(a)
$
1,139,369

Installment payment receivable due January 2016(a)
117,384

Total proceeds from sale of CCAL
$
1,256,753

Adjusted for:
 
Net assets and liabilities related to discontinued operations(b)(c)
258,575

Transaction fees and expenses
21,688

Foreign currency translation reclassification adjustments(d)
(25,678
)
Pre-tax gain (loss) from disposal of discontinued operations
1,002,168

Income taxes related to the sale of CCAL
21,150

Gain (loss) from disposal of discontinued operations
$
981,018

    
(a)
Exclusive of foreign currency swaps and based on exchange rates as of May 28, 2015, which was the closing date of the Company's sale of CCAL. See note 6. The impact of fluctuations in the exchange rate subsequent to the closing date are reflected as a component of "other income (expense)" on the Company's condensed consolidated statement of operations.
(b)
Represents net assets attributable to CCIC, net of the disposition of noncontrolling interest of $23.5 million.
(c)
Inclusive of $11.1 million of cash.
(d)
Represents foreign currency translation adjustments previously included in "accumulated other comprehensive income (loss)" on the condensed consolidated balance sheet and reclassified to "gain (loss) from disposal of discontinued operations".

4.
Acquisitions
Sunesys Acquisition
In April 2015, the Company entered into a definitive agreement to acquire Quanta Fiber Networks, Inc. ("Sunesys") for approximately $1.0 billion in cash, subject to certain limited adjustments ("Sunesys Acquisition"). On August 4, 2015, the Company closed the Sunesys Acquisition. The results of operations from Sunesys have been included in the Company's consolidated statement of operations since the date of acquisition.
Prior to the closing, Sunesys was a wholly owned subsidiary of Quanta Services, Inc. and a fiber services provider that owned or had rights to nearly 10,000 miles of fiber in major metropolitan markets across the U.S., including Los Angeles, Philadelphia, Chicago, Atlanta, Silicon Valley, and northern New Jersey. Approximately 60% of Sunesys' fiber miles were located in the top 10 basic trading areas.
The Company utilized borrowings under the 2012 Revolver and cash on hand to fund the cash consideration of approximately $1.0 billion. See note 5.
The preliminary purchase price allocation for the Sunesys Acquisition is shown below. The preliminary purchase price allocation is based upon a preliminary valuation which is subject to change as the Company obtains additional information, with respect to fixed assets, intangible assets and certain liabilities.
Preliminary Purchase Price Allocation
 
Current assets
$
12,821

Property and equipment
432,106

Goodwill (a)
347,547

Other intangible assets, net
249,935

Current liabilities
(25,418
)
Other non-current liabilities
(29,065
)
Net assets acquired (b)
$
987,926

    
(a)
The preliminary purchase price allocation for the Sunesys Acquisition resulted in the recognition of goodwill based on the Company's expectation to leverage the Sunesys fiber footprint to support new small cell networks. The Sunesys fiber is complementary to the Company's existing fiber assets and is located where the Company expects to see wireless carrier network investments.
(b)
Assets acquired in the Sunesys Acquisition are included in the Company's REIT and as such, no deferred taxes were recorded in connection with the Sunesys Acquisition.


9

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


5.
Debt and Other Obligations
 
Original
Issue Date
 
Contractual
Maturity
Date (a)
 
Outstanding
Balance as of
September 30, 2015
 
Outstanding
Balance as of
December 31, 2014
 
Stated Interest
Rate as of
September 30, 2015(a)(b)
Bank debt - variable rate:
 
 
 
 
 
 
 
 
 
2012 Revolver
Jan. 2012
 
Jan. 2019
 
$
1,015,000

(c) 
$
695,000

 
2.0
%
Tranche A Term Loans
Jan. 2012
 
Jan. 2019
 
633,516

 
645,938

 
1.9
%
Tranche B Term Loans
Jan. 2012
 
Jan. 2021
 
2,252,747

(e) 
2,835,509

 
3.0
%
Total bank debt
 
 
 
 
3,901,263

 
4,176,447

 
 
Securitized debt - fixed rate:
 
 
 
 
 
 
 
 
 
January 2010 Tower Revenue Notes
Jan. 2010
 
2037 - 2040
(d) 
1,600,000

 
1,600,000

 
6.0
%
August 2010 Tower Revenue Notes
Aug. 2010
 
2037 - 2040
(d)(f) 
1,300,000

 
1,550,000

 
4.7
%
May 2015 Tower Revenue Notes
May 2015
 
2042 - 2045
(d)(f) 
1,000,000

 
—

 
3.5
%
2009 Securitized Notes
July 2009
 
2019/2029
 
146,399

 
160,822

 
7.6
%
WCP Securitized Notes
Jan. 2010
 
Nov. 2040
(f) 
—

 
262,386

 
N/A

Total securitized debt
 
 
 
 
4,046,399

 
3,573,208

 
 
Bonds - fixed rate:
 
 
 
 
 
 
 
 
 
5.25% Senior Notes
Oct. 2012
 
Jan. 2023
 
1,649,969

 
1,649,969

 
5.3
%
2012 Secured Notes
Dec. 2012
 
Dec. 2017/Apr. 2023
 
1,500,000

 
1,500,000

 
3.4
%
4.875% Senior Notes
Apr. 2014
 
Apr. 2022
 
846,405

 
846,062

 
4.9
%
Total bonds
 
 
 
 
3,996,374

 
3,996,031

 
 
Other:
 
 
 
 
 
 
 
 
 
Capital leases and other obligations
Various
 
Various
 
197,330

 
175,175

 
Various

Total debt and other obligations
 
 
 
 
12,141,366

 
11,920,861

 
 
Less: current maturities and short-term debt and other current obligations
 
 
 
 
102,188

 
113,335

 
 
Non-current portion of long-term debt and other long-term obligations
 
 
 
 
$
12,039,178

 
$
11,807,526

 
 
    
(a)
See the 2014 Form 10-K, including note 7, for additional information regarding the maturity and principal amortization provisions and interest rates relating to the Company's indebtedness.
(b)
Represents the weighted-average stated interest rate.
(c)
During January and February 2015, the Company amended its 2012 Credit Facility agreement and increased the capacity of the 2012 Revolver to an aggregate revolving commitment of approximately $2.2 billion. During August 2015, the Company utilized borrowings under the 2012 Revolver of $835.0 million, along with cash on hand, to fund the Sunesys Acquisition. See note 4. As of September 30, 2015, the undrawn availability under the 2012 Revolver was $1.2 billion.
(d)
If the respective series of such debt is not paid in full on or prior to an applicable date 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 additional interest (of an additional approximately 5% per annum) will accrue on the respective series. See the 2014 Form 10-K for additional information regarding these provisions.
(e)
During the second quarter of 2015, the Company repaid the portion of its Tranche B Term Loans that were due January 2019, which had an outstanding balance of $564.1 million.
(f)
In May 2015, the Company issued $1.0 billion aggregate principal amount of Senior Secured Tower Revenue Notes ("May 2015 Tower Revenue Notes"), which were issued by certain of its indirect subsidiaries pursuant to the existing indenture governing the 2010 Tower Revenue Notes and having similar terms and security as the 2010 Tower Revenue Notes. The 2015 Tower Revenue Notes consist of (1) $300.0 million aggregate principal amount of 3.222% Notes with an expected life of seven years and a final maturity date of May 2042 and (2) $700.0 million aggregate principal amount of 3.663% Notes with an expected life of ten years and a final maturity date of May 2045. The Company used the net proceeds received from the May 2015 Tower Revenue Notes offering (1) to repay $250.0 million aggregate principal amount of August 2010 Tower Revenue Notes with an anticipated repayment date of August 2015, (2) to repay all of the previously outstanding WCP Securitized Notes, (3) to repay portions of outstanding borrowings under its 2012 Credit Facility, and (4) to pay related fees and expenses. Collectively, the 2010 Tower Revenue Notes and the May 2015 Tower Revenue Notes are referred to herein as the "Tower Revenue Notes."

10

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 of the Company outstanding as of September 30, 2015. 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.
 
Three Months Ending
December 31,
 
Years Ending December 31,
 
 
 
 
 
Unamortized Adjustments, Net
 
Total Debt and Other Obligations Outstanding
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total Cash Obligations
 
 
Scheduled contractual maturities
$
23,049

 
$
105,640

 
$
601,859

 
$
98,208

 
$
1,602,265

 
$
9,713,940

 
$
12,144,961

 
$
(3,595
)
 
$
12,141,366

Purchases and Redemptions of Long-Term Debt
The following is a summary of purchases and redemptions of long-term debt during the nine months ended September 30, 2015.
 
Nine Months Ended September 30, 2015
 
Principal Amount
 
Cash Paid(a)
 
Gains (Losses)(b)
August 2010 Tower Revenue Notes
$
250,000

 
$
250,000

 
$
(159
)
WCP Securitized Notes
252,830

 
252,830

 
2,105

Tranche B Term Loans
564,137

 
564,137

 
(6,127
)
Other
2,394

 
2,370

 
24

Total
$
1,069,361

 
$
1,069,337

 
$
(4,157
)
    
(a)
Exclusive of accrued interest.
(b)
Inclusive of $4.2 million related to the net write off of deferred financing costs, premiums and discounts.
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 September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Interest expense on debt obligations
$
121,287

 
$
121,450

 
$
366,388

 
$
370,899

Amortization of deferred financing costs
5,451

 
5,516

 
16,624

 
16,678

Amortization of adjustments on long-term debt
116

 
(892
)
 
(1,146
)
 
(2,743
)
Amortization of interest rate swaps(a)
3,744

 
15,551

 
18,725

 
47,895

Other, net of capitalized interest
(721
)
 
(338
)
 
(1,809
)
 
(508
)
Total
$
129,877

 
$
141,287

 
$
398,782

 
$
432,221

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


11

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


6.
Foreign Currency Swaps
During May 2015, the Company entered into two foreign currency swaps to manage and reduce its foreign currency risk related to its sale of CCAL (see note 3). The Company does not enter into foreign currency swaps for speculative or trading purposes. The foreign currency swaps were originally comprised of the following:
Item Swapped
 
Notional
Amount
 
Forward Rate
 
Start Date
 
End Date
 
Pay Amount
 
Receive Amount
 
Fair Value at
September 30, 2015
 
May 2015 cash receipt from sale of CCAL
 
A$1,400,000
 
0.8072
 
May 2015
 
June 2015
 
Australian Dollar
 
US Dollar
 
N/A
(a) 
Installment payment from Buyer
 
A$155,000
 
0.79835
 
May 2015
 
January 2016
 
Australian Dollar
 
US Dollar
 
$15,524
(b) 
    
(a)
In conjunction with closing the CCAL sale on May 28, 2015, the Company cash settled the swap with a notional value of Australian dollar $1.4 billion and recorded a gain on foreign currency swaps of $54.5 million, which is included as a component of "other income (expense)" on the Company's condensed consolidated statement of operations.
(b)
As of September 30, 2015, the Company marked-to-market the swap with a notional value of Australian dollar $155 million and recorded (1) an asset within "other current assets" on the Company's condensed consolidated balance sheet and (2) a corresponding gain on foreign currency swaps, which is included as a component of "other income (expense)" on the Company's condensed consolidated statement of operations.
In total, the Company recorded a gain on foreign currency swaps of $10.2 million and $70.0 million for the three months and nine months ended September 30, 2015, respectively. This gain is included as a component of "other income (expense)" on the Company's condensed consolidated statement of operations.

7.
Fair Value Disclosures
 
Level in Fair Value Hierarchy
 
September 30, 2015
 
December 31, 2014
 
 
Carrying
 Amount
 
Fair
Value
 
Carrying
 Amount
 
Fair
Value
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
1
 
$
184,116

 
$
184,116

 
$
151,312

 
$
151,312

Restricted cash, current and non-current
1
 
121,653

 
121,653

 
152,411

 
152,411

Foreign currency swaps
2
 
15,524

 
15,524

 
—

 
—

Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt and other obligations
2
 
12,141,366

 
12,479,140

 
11,920,861

 
12,286,161

The fair value of cash and cash equivalents and restricted cash approximate the carrying value. The Company determines the 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. Foreign currency swaps are valued at settlement amounts using observable exchange rates and, if material, reflect an adjustment for the Company's and contract counterparty's credit risk. There were no changes since December 31, 2014 in the Company's valuation techniques used to measure fair values.

8.
Income Taxes
Effective January 1, 2014, the Company commenced operating as a REIT for U.S. federal income tax purposes. As a REIT, the Company is generally entitled to a deduction for dividends that it pays and therefore is not subject to U.S. federal corporate income tax on its net taxable income that is currently distributed to its stockholders. The Company also may be subject to certain federal, state, local, and foreign taxes on its income and assets, including (1) alternative minimum taxes, (2) taxes on any undistributed income, (3) taxes related to the TRSs, (4) certain state, local, or foreign income taxes, (5) franchise taxes, (6) property taxes, and (7) transfer taxes. In addition, the Company could in certain circumstances be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Internal Revenue Code 1986, as amended ("Code") to maintain qualification for taxation as a REIT.

12

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


The Company's small cells other than Sunesys (see note 4) are currently included in one or more wholly owned TRSs. In August 2014, the Company received a favorable private letter ruling from the Internal Revenue Service ("IRS"), which provides that the real property portion of the Company's small cells and the related rents qualify as real property and rents from real property, respectively, under the rules governing REITs. The Company is evaluating the impact of this private letter ruling and, subject to board approval, expects to take appropriate action to include at least some part of the Company's small cells (other than Sunesys (see note 4)) as part of the REIT during 2015 or 2016. Once the Company has completed its evaluation and necessary actions to include small cells in the REIT, the Company expects to de-recognize its net deferred tax liabilities related to such part of the Company's small cells.
The Company's TRS assets and operations (along with any part of the Company's small cells that may remain in a TRS) will continue to be subject, as applicable, to federal and state corporate income taxes or to foreign taxes in the jurisdictions in which such assets and operations are located. The Company's foreign assets and operations (including its tower operations in Puerto Rico) most likely will be subject to foreign income taxes in the jurisdictions in which such assets and operations are located, regardless of whether they are included in a TRS or not. The Company will be subject to a federal corporate level tax rate (currently 35%) on the gain recognized from the sale of assets occurring within a specified period (generally 10 years) after the REIT conversion up to the amount of the built in gain that existed on January 1, 2014, which is based upon the fair market value of those assets in excess of the Company's tax basis on January 1, 2014.  This gain can be offset by any remaining federal NOLs.
During the second quarter 2015, the Company recorded approximately $21.2 million in current state income tax expense related to the sale of CCAL. In conjunction with the sale of CCAL, the Company expects to utilize approximately $1.0 billion of its $2.0 billion NOLs to fully offset the tax gain from the sale of CCAL. Further, as a result of the sale of CCAL, the Company expects that a significant portion of its common stock dividend distributions during 2015 will be characterized as capital gains distributions. See note 3.
For the nine months ended September 30, 2015 and 2014, the Company's effective tax rate differed from the federal statutory rate predominately due to the Company's REIT status, including the dividends paid deduction. The income tax provision for the nine months ended September 30, 2015 and 2014 primarily related to the TRSs.


13

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


9.
Per Share Information
Basic net income (loss) attributable to CCIC common stockholders, per common share, excludes dilution and is computed by dividing net income (loss) attributable to CCIC common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) attributable to CCIC common stockholders, per common share is computed by dividing net income (loss) attributable to CCIC common stockholders by the weighted-average number of common shares outstanding during the period plus any potential dilutive common share equivalents, including shares issuable (1) upon the vesting of restricted stock awards and restricted stock units as determined under the treasury stock method and (2) upon conversion of the Company's Convertible Preferred Stock, as determined under the if-converted method.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss) from continuing operations
$
104,301

 
$
99,155

 
$
382,561

 
$
217,685

Dividends on preferred stock
(10,997
)
 
(10,997
)
 
(32,991
)
 
(32,991
)
Net income (loss) from continuing operations attributable to CCIC common stockholders for basic and diluted computations
$
93,304

 
$
88,158

 
$
349,570

 
$
184,694

 
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of tax
(522
)
 
8,882

 
1,000,708

 
28,502

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

 
1,100

 
3,343

 
3,744

Net income (loss) from discontinued operations attributable to CCIC common stockholders for basic and diluted computations
$
(522
)
 
$
7,782

 
$
997,365

 
$
24,758

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic weighted-average number of common stock outstanding
333,049

 
332,413

 
332,951

 
332,264

Effect of assumed dilution from potential common shares relating to restricted stock units and restricted stock awards
662

 
828

 
784

 
756

Diluted weighted-average number of common shares outstanding
333,711

 
333,241

 
333,735

 
333,020

 
 
 
 
 
 
 
 
Net income (loss) attributable to CCIC common stockholders, per common share:
 
 
 
 
 
 
 
Income (loss) from continuing operations, basic
0.28

 
0.27

 
1.05

 
0.56

Income (loss) from discontinued operations, basic
—

 
0.02

 
3.00

 
0.07

Net income (loss) attributable to CCIC common stockholders, basic
0.28

 
0.29

 
4.05

 
0.63

Income (loss) from continuing operations, diluted
0.28

 
0.26

 
1.05

 
0.55

Income (loss) from discontinued operations, diluted
—

 
0.03

 
2.99

 
0.08

Net income (loss) attributable to CCIC common stockholders, diluted
0.28

 
0.29

 
4.04

 
0.63

During the nine months ended September 30, 2015, the Company granted 1.0 million restricted stock units. For the nine months ended September 30, 2015 and 2014, 12.4 million common share equivalents and 12.3 million common share equivalents, respectively, related to the Convertible Preferred Stock were excluded from the dilutive common shares because the impact of such conversion would be anti-dilutive, based on the Company's common stock price as of the end of the respective periods.

10.
Commitments and Contingencies
The Company is involved in various claims, lawsuits or 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 or performance guarantees arising in the ordinary course of business, including certain letters of credit or surety bonds. In addition, the Company has the option to purchase approximately 55% of the Company's towers at the end of their respective lease terms. The Company has no obligation to exercise such purchase options.


14

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


11.
Equity
Declaration and Payment of Dividends
During the nine months ended September 30, 2015, the following dividends were declared or paid:
Equity Type
 
Declaration Date
 
Record Date
 
Payment Date
 
Dividends Per Share
 
Aggregate
Payment
Amount
(In millions)
 
Common Stock
 
February 12, 2015
 
March 20, 2015
 
March 31, 2015
 
$
0.82

 
$
274.7

(a) 
Common Stock
 
May 29, 2015
 
June 19, 2015
 
June 30, 2015
 
$
0.82

 
$
274.5

(a) 
Common Stock
 
July 30, 2015
 
September 18, 2015
 
September 30, 2015
 
$
0.82

 
$
274.3

(a) 
Convertible Preferred Stock
 
December 22, 2014
 
January 15, 2015
 
February 2, 2015
 
$
1.1250

 
$
11.0

 
Convertible Preferred Stock
 
March 27, 2015
 
April 15, 2015
 
May 1, 2015
 
$
1.1250

 
$
11.0

 
Convertible Preferred Stock
 
June 21, 2015
 
July 15, 2015
 
August 3, 2015
 
$
1.1250

 
$
11.0

 
Convertible Preferred Stock
 
September 23, 2015
 
October 15, 2015
 
November 2, 2015
 
$
1.1250

 
$
11.0

(b) 
    
(a)
Inclusive of dividends accrued for holders of unvested restricted stock units.
(b)
Represents amount paid on November 2, 2015 based on holders of record on October 15, 2015.
See note 14.
Purchases of the Company's Common Stock
For the nine months ended September 30, 2015, the Company purchased 0.3 million shares of its common stock utilizing $29.6 million in cash.
"At the Market" Stock Offering Program
In August 2015, the Company established an "at the market" stock offering program ("ATM Program") through which it may, from time to time, issue and sell shares of its common stock having an aggregate gross sales price of up to $500.0 million to or through sales agents. Sales, if any, under the ATM Program may be made by means of ordinary brokers' transactions on the New York Stock Exchange or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or, subject to specific instructions of the Company, at negotiated prices. The Company intends to use the net proceeds from any sales under the ATM Program for general corporate purposes, which may include the funding of future acquisitions or investments and the repayment or repurchase of any outstanding indebtedness. As of September 30, 2015, no shares of common stock were sold under the ATM Program.

12.
Operating Segments
The Company has determined that presently, following the sale of CCAL, it has one reportable operating segment, CCUSA, consisting of its U.S. operations, which is consistent with its current operational and financial reporting structure. Financial results for the Company are currently reported to the Company's management team and board of directors in this manner.
Prior to its sale in May 2015, CCAL, the Company's previously 77.6% owned subsidiary that owned and operated towers in Australia, was a reportable segment. As a result of the sale of CCAL, the Company's segment data has been reclassified for all periods presented to include CCAL on a discontinued operations basis.
The Company will continue its evaluation of its operating segments following the disposition of CCAL and its change in strategic focus to its U.S. business. To the extent the Company makes changes to its financial reporting or organizational structure, including the integration of the Sunesys Acquisition, the Company will evaluate any impact such changes may have to its segment reporting.


15

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
 
Nine Months Ended September 30,
 
2015
 
2014
Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
364,147

 
$
368,437

Income taxes paid
23,865

 
15,353

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Increase (decrease) in accounts payable for purchases of property and equipment
(5,399
)
 
2,827

Purchase of property and equipment under capital leases and installment purchases
41,331

 
27,772

Installment payment receivable for sale of CCAL (see note 3)
117,384

 
—


14.
Subsequent Events
Common Stock Dividend
On October 19, 2015, the Company declared a quarterly common stock cash dividend of $0.885 per share, which was approved by the Company's board of directors. The common stock dividend will be paid on December 31, 2015, to common stock holders of record as of December 18, 2015.

16

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 2014 Form 10-K. Capitalized terms used but not defined in this Item have the same meaning given to them in our 2014 Form 10-K. Unless this Form 10-Q indicates otherwise or the context otherwise 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 predecessor, as applicable, and their subsidiaries.

General Overview
Overview
We own, operate and lease shared wireless infrastructure that are geographically dispersed throughout the U.S. with a significant presence in the top 100 BTAs. Site rental revenues represented 83% of our third quarter 2015 consolidated net revenues. The vast majority of our site rental revenues is of a recurring nature and has been contracted for in a prior year.
Strategy
Our strategy is to create long-term stockholder value via a combination of (1) growing cash flows generated from our portfolio of wireless infrastructure, (2) returning a meaningful portion of our cash provided by operating activities to our stockholders in the form of dividends and (3) investing capital efficiently to grow long-term dividends per share. We measure our efforts to create "long-term stockholder value" by the combined payment of dividends to stockholders and growth in our per share results. The key elements of our strategy are to:
•
Grow cash flows from our wireless infrastructure. We seek to maximize the site rental cash flows derived from our wireless infrastructure by adding tenants on our wireless infrastructure through long-term leases as our customers deploy and improve their wireless networks. We seek to maximize new tenant additions or modifications of existing tenant installations (collectively, "new tenant additions") through our focus on customer service and deployment speed. Due to the relatively fixed nature of the costs to operate our wireless infrastructure (which tend to increase at approximately the rate of inflation), we expect increases in our site rental cash flows from new tenant additions and the related subsequent impact from contracted escalations to result in growth in our operating cash flows. We believe there is considerable additional future demand for our existing wireless infrastructure based on their location and the anticipated growth in the wireless communication services industry. Substantially all of our wireless infrastructure can accommodate additional tenancy, either as currently constructed or with appropriate modifications to the structure, which we expect to have high incremental returns.
•
Return cash provided by operating activities to stockholders in the form of dividends. We believe that distributing a meaningful portion of our cash provided by operating activities appropriately provides stockholders with increased certainty for a portion of expected long-term stockholder value while still retaining sufficient flexibility to invest in our business and deliver growth. We believe this decision reflects the translation of the high-quality, long-term contractual cash flows of our business into stable capital returns to stockholders.
•
Invest capital efficiently to grow long-term dividends per share. We seek to invest our capital available, including the net cash provided by our operating activities and external financing sources, in a manner that will increase long-term stockholder value on a risk-adjusted basis. Our historical investments have included the following (in no particular order):
◦
purchase shares of our common stock from time to time;
◦
acquire or construct wireless infrastructure;
◦
acquire land interests under towers;
◦
make improvements and structural enhancements to our existing wireless infrastructure; or
◦
purchase, repay or redeem our debt.
Our strategy to create long-term stockholder value is based on our belief that additional demand for our wireless infrastructure will be created by the expected continued growth in the wireless communication services industry, which is predominately driven by the demand for wireless data services by consumers. We believe that such demand for our wireless infrastructure will continue, will result in growth of our cash flows due to new tenant additions on our existing wireless infrastructure, and will create other growth opportunities for us, such as demand for new wireless infrastructure.

17

Business Fundamentals and Results
The following are certain highlights of our business fundamentals and results as of and for the nine months ended September 30, 2015.
•
Effective January 1, 2014, we commenced operating as a REIT for U.S. federal income tax purposes.
◦
As a REIT, we are generally entitled to a deduction for dividends that we pay and therefore are not subject to U.S. federal corporate income tax on our taxable income that is distributed to our stockholders.
◦
To qualify and be taxed as a REIT, we will generally be required to distribute at least 90% of our REIT taxable income, after the utilization of our NOLs (determined without regard to the dividends paid deduction and excluding net capital gain), each year to our stockholders.
◦
See note 8 to our condensed consolidated financial statements for further discussion of our REIT status.
•
Potential growth resulting from wireless network expansion and new entrants
◦
We expect wireless carriers will continue their focus on improving network quality and expanding capacity by adding additional antennas or other equipment on our wireless infrastructure.
◦
We expect existing and potential new customer demand for our wireless infrastructure will result from (1) new technologies, (2) increased usage of wireless data applications (including mobile entertainment, mobile internet usage, and machine-to-machine applications), (3) adoption of other emerging and embedded wireless devices (including laptops, tablets, and other devices), (4) increasing smartphone penetration, (5) wireless carrier focus on expanding quality and capacity, or (6) the availability of additional spectrum.
◦
Substantially all of our wireless infrastructure can accommodate additional tenancy, either as currently constructed or with appropriate modifications to the structure.
◦
U.S. wireless carriers continue to invest in their networks.
◦
Our site rental revenues grew $89.9 million, or 4%, from the nine months ended September 30, 2014 to the nine months ended September 30, 2015. This growth was predominately comprised of the following, exclusive of the impact of straight-line accounting:
▪
An approximate 6% increase from new leasing activity.
▪
An approximate 3% increase from cash escalations.
▪
An approximate 4% decrease in site rental revenues caused by the non-renewal of tenant leases.
•
Site rental revenues under long-term tenant leases 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 seven years, exclusive of renewals at the tenant's option, currently representing approximately $20 billion of expected future cash inflows.
•
Revenues predominately from large wireless carriers
◦
Approximately 91% of our consolidated site rental revenues were derived from AT&T, Sprint, T-Mobile, and Verizon Wireless. See also "Item 2. MD&A—General Overview—Outlook Highlights" presented below.
•
Majority of land interests under our towers under long-term control
◦
Nearly 90% and 75% of our site rental gross margin is derived from towers that reside on land that we own or control for greater than ten and 20 years, respectively. The aforementioned amounts include towers that reside on land interests that are owned, including fee interests and perpetual easements, which represent approximately one-third of our site rental gross margin.
•
Relatively fixed wireless infrastructure operating costs
◦
Our wireless infrastructure operating costs tend to increase at approximately the rate of inflation and are not typically influenced by new tenant additions.
•
Minimal sustaining capital expenditure requirements
◦
Sustaining capital expenditures represented approximately 3% of net revenues.
•
Debt portfolio with long-dated maturities extended over multiple years, with the 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)
◦
68% of our debt is fixed rate.
◦
Our debt service coverage and leverage ratios were comfortably within their respective financial maintenance covenants.
◦
During January and February 2015, we amended our 2012 Credit Facility agreement and increased the capacity of the 2012 Revolver to an aggregate revolving commitment of approximately $2.2 billion.
◦
During the second quarter 2015, we (1) issued $1.0 billion aggregate principal amount of the May 2015 Tower Revenue Notes, (2) repaid $250.0 million of August 2010 Tower Revenue Notes with an anticipated repayment date of August 2015, (3) repaid all of the previously outstanding WCP Securitized Notes, and (4) repaid a portion of our outstanding borrowings under our 2012 Credit Facility. See note 5 to our condensed consolidated financial statements.

18

•
Significant cash flows from operations
◦
Net cash provided by operating activities was $1.3 billion.
◦
We expect to grow our core business of providing access to our wireless infrastructure as a result of contractual escalators and future anticipated demand for our wireless infrastructure.
•
Returning cash flows provided by operations to stockholders in the form of dividends
◦
During each of the first three quarters of 2015, we paid common stock cash dividends totaling approximately $821.1 million. See "Item 2. MD&A—General Overview—Common Stock Dividend" below for a discussion of the increase to our quarterly cash dividend in the fourth quarter of 2015.
•
Investing capital efficiently to grow long-term dividends per share
◦
Discretionary capital expenditures were $582.8 million, including wireless infrastructure improvements in order to support additional site rentals, construction of wireless infrastructure and land purchases.
Common Stock Dividend
During each of the first three quarters of 2015, we paid a quarterly common stock cash dividend of $0.82 per share, totaling approximately $821.1 million. In October 2015, we increased our quarterly cash dividend, beginning in the fourth quarter of 2015, from an annual amount of $3.28 per share to an annual amount of $3.54 per share. As such, we declared a quarterly cash dividend of $0.885 per share in October 2015, which represented an increase of 8% from the quarterly cash dividend declared during each of the first three quarters of 2015. We currently expect such dividends to result in aggregate cash payments of approximately $1.2 billion during the next 12 months. Over time, we expect to increase our dividend per share generally commensurate with our realized growth in organic cash flows. Future dividends are subject to the approval of our board of directors. See notes 8, 11 and 14 to our condensed consolidated financial statements.
Sale of CCAL
In May 2015, we entered into a definitive agreement to sell our 77.6% owned Australian subsidiary, CCAL, to a consortium of investors led by Macquarie Infrastructure and Real Assets. On May 28, 2015, we completed the sale of CCAL. At closing, we received net proceeds of approximately $1.1 billion after accounting for our ownership interest, repayment of intercompany debt owed to us by CCAL and estimated transaction fees and expenses, exclusive of the impact of foreign currency swaps related to the CCAL sale.
As part of the sale of CCAL, in January 2016, we are entitled to receive an installment payment of $124 million from the Buyer, inclusive of the impact of the related foreign currency swap (see note 6 to our condensed consolidated financial statements). During the second quarter 2015, we used net proceeds from the sale of CCAL to repay portions of outstanding borrowings under our 2012 Credit Facility.
We entered into foreign currency swaps to manage and reduce our foreign currency risk associated with the sale of CCAL. These swaps are not included in discontinued operations. See note 6 to our condensed consolidated financial statements.
Sunesys Acquisition
In April 2015, we entered into a definitive agreement to acquire Sunesys for approximately $1.0 billion in cash, subject to certain limited adjustments. On August 4, 2015, we closed the Sunesys Acquisition utilizing $835.0 million in 2012 Revolver borrowings and cash on hand. Prior to the closing, Sunesys was a wholly owned subsidiary of Quanta Services, Inc., and a fiber services provider that owned or had rights to nearly 10,000 miles of fiber in major metropolitan markets across the U.S., including Los Angeles, Philadelphia, Chicago, Atlanta, Silicon Valley, and northern New Jersey. Approximately 60% of Sunesys' fiber miles were located in the top 10 basic trading areas. See note 4 to our condensed consolidated financial statements.
Outlook Highlights
The following are certain highlights of our full year 2015 and 2016 outlook that impact our business fundamentals described above.
•
We expect that our full year 2015 site rental revenue growth will be benefited by similar levels of tenant additions as in 2014, as large U.S. wireless carriers upgrade and enhance their networks, partially offset by an increase in non-renewals of tenant leases. During 2015, we expec