Document
 

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

For the quarterly period ended June 30, 2017
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
____________________________________
ccmarkonlyblacka14.jpg
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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
 
Accelerated filer
o
 
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
 
 
Emerging growth company
o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 

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

Number of shares of common stock outstanding at August 4, 2017: 406,267,208
 



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
 
SIGNATURES
 
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 Securities and Exchange Commission ("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," "positioned," 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" ("MD&A") 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 industry, carriers' investments in their networks, 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 our customers' decommissioning of the former Leap Wireless, MetroPCS and Clearwire networks (collectively, "Acquired 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, including acquisitions, (5) anticipated growth in our financial results, including future revenues, margins, Adjusted EBITDA, segment site rental gross margin, segment network services and other gross margin, segment operating profit, 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) our dividend policy and the timing, amount, growth or tax characterization of any dividends, (10) the anticipated closing of the Proposed Lightower Acquisition (as defined in note 12), and (11) our anticipated use of proceeds for the July 2017 Equity Financings and August 2017 Senior Notes Offering (each of which is defined in note 12).
Such forward-looking statements should, therefore, be considered in light of various 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, 2016 ("2016 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 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 (Unaudited)
(In thousands of dollars, except share amounts)
 
June 30,
2017
 
December 31,
2016
 
 
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
199,663

 
$
567,599

Restricted cash
117,913

 
124,547

Receivables, net
305,982

 
373,532

Prepaid expenses
175,976

 
128,721

Other current assets
151,801

 
130,362

Total current assets
951,335

 
1,324,761

Deferred site rental receivables
1,299,440

 
1,317,658

Property and equipment, net of accumulated depreciation of $7,036,587 and $6,613,219, respectively
10,507,736

 
9,805,315

Goodwill
6,919,358

 
5,757,676

Other intangible assets, net
3,953,812

 
3,650,072

Long-term prepaid rent and other assets, net
851,943

 
819,610

Total assets
$
24,483,624

 
$
22,675,092

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
178,927

 
$
188,516

Accrued interest
107,764

 
97,019

Deferred revenues
387,065

 
353,005

Other accrued liabilities
209,224

 
221,066

Current maturities of debt and other obligations
114,932

 
101,749

Total current liabilities
997,912

 
961,355

Debt and other long-term obligations
13,726,333

 
12,069,393

Other long-term liabilities
2,169,070

 
2,087,229

Total liabilities
16,893,315

 
15,117,977

Commitments and contingencies (note 8)

 

CCIC stockholders' equity:
 
 
 
Common stock, $.01 par value; 600,000,000 shares authorized; shares issued and outstanding: June 30, 2017—366,115,800 and December 31, 2016—360,536,659
3,661

 
3,605

Additional paid-in capital
11,433,018

 
10,938,236

Accumulated other comprehensive income (loss)
(5,183
)
 
(5,888
)
Dividends/distributions in excess of earnings
(3,841,187
)
 
(3,378,838
)
Total equity
7,590,309

 
7,557,115

Total liabilities and equity
$
24,483,624

 
$
22,675,092

 
See notes to condensed consolidated financial statements.

2

CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In thousands of dollars, except per share amounts)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net revenues:
 
 
 
 
 
 
 
Site rental
$
868,806

 
$
804,600

 
$
1,725,742

 
$
1,603,893

Network services and other
169,529

 
157,809

 
328,535

 
292,899

Net revenues
1,038,335

 
962,409

 
2,054,277

 
1,896,792

Operating expenses:
 
 
 
 
 
 
 
Costs of operations(a):
 
 
 
 
 
 
 
Site rental
269,285

 
252,852

 
534,302

 
505,472

Network services and other
104,622

 
95,867

 
203,430

 
176,838

General and administrative
97,736

 
91,386

 
198,460

 
188,967

Asset write-down charges
4,327

 
11,952

 
4,972

 
19,912

Acquisition and integration costs
8,250

 
3,141

 
13,900

 
8,779

Depreciation, amortization and accretion
295,615

 
276,026

 
584,164

 
553,901

Total operating expenses
779,835

 
731,224

 
1,539,228

 
1,453,869

Operating income (loss)
258,500

 
231,185

 
515,049

 
442,923

Interest expense and amortization of deferred financing costs
(141,769
)
 
(129,362
)
 
(276,256
)
 
(255,740
)
Gains (losses) on retirement of long-term obligations

 
(11,468
)
 
(3,525
)
 
(42,017
)
Interest income
1,027

 
105

 
1,397

 
279

Other income (expense)
(1,106
)
 
(518
)
 
3,494

 
(3,791
)
Income (loss) before income taxes
116,652

 
89,942

 
240,159

 
141,654

Benefit (provision) for income taxes
(4,538
)
 
(3,884
)
 
(8,907
)
 
(7,756
)
Net income (loss) attributable to CCIC stockholders
112,114


86,058


231,252


133,898

Dividends on preferred stock

 
(10,997
)
 

 
(21,994
)
Net income (loss) attributable to CCIC common stockholders
$
112,114

 
$
75,061

 
$
231,252

 
$
111,904

Net income (loss)
$
112,114

 
$
86,058

 
$
231,252

 
$
133,898

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
530

 
971

 
705

 
392

Total other comprehensive income (loss)
530

 
971

 
705

 
392

Comprehensive income (loss) attributable to CCIC stockholders
$
112,644

 
$
87,029

 
$
231,957

 
$
134,290

Net income (loss) attributable to CCIC common stockholders, per common share:
 
 
 
 
 
 
 
Net income (loss) attributable to CCIC common stockholders, basic
$
0.31

 
$
0.22

 
$
0.64

 
$
0.33

Net income (loss) attributable to CCIC common stockholders, diluted
$
0.31

 
$
0.22

 
$
0.64

 
$
0.33

Weighted-average common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic
364,493
 
337,560

 
362,662
 
335,857
Diluted
365,832
 
338,609

 
363,892
 
336,658
________________
(a)
Exclusive of depreciation, amortization and accretion shown separately.

See notes to condensed consolidated financial statements.

3

CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands of dollars)

 
Six Months Ended June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income (loss)
$
231,252

 
$
133,898

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
 
 
 
Depreciation, amortization and accretion
584,164

 
553,901

Gains (losses) on retirement of long-term obligations
3,525

 
42,017

Amortization of deferred financing costs and other non-cash interest
5,256

 
7,993

Stock-based compensation expense
45,232

 
40,135

Asset write-down charges
4,972

 
19,912

Deferred income tax benefit (provision)
261

 
3,947

Other non-cash adjustments, net
(3,486
)
 
1,672

Changes in assets and liabilities, excluding the effects of acquisitions:
 
 
 
Increase (decrease) in accrued interest
10,745

 
29,964

Increase (decrease) in accounts payable
(16,928
)
 
(6,715
)
Increase (decrease) in deferred revenues, deferred ground lease payables, other accrued liabilities and other liabilities
23,146

 
60,896

Decrease (increase) in receivables
91,252

 
84,776

Decrease (increase) in prepaid expenses, deferred site rental receivables, long-term prepaid rent, restricted cash and other assets
(45,282
)
 
(54,215
)
Net cash provided by (used for) operating activities
934,109

 
918,181

Cash flows from investing activities:
 
 
 
Payments for acquisitions of businesses, net of cash acquired
(2,103,503
)
 
(493,932
)
Capital expenditures
(563,361
)
 
(392,997
)
Net (payments) receipts from settled swaps
(328
)
 
8,141

Other investing activities, net
(7,032
)
 
1,854

Net cash provided by (used for) investing activities
(2,674,224
)
 
(876,934
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
1,345,115

 
4,501,206

Principal payments on debt and other long-term obligations
(59,947
)
 
(43,838
)
Purchases and redemptions of long-term debt

 
(3,536,362
)
Borrowings under revolving credit facility
1,755,000

 
3,030,000

Payments under revolving credit facility
(1,405,000
)
 
(3,720,000
)
Payments for financing costs
(11,446
)
 
(35,604
)
Net proceeds from issuance of capital stock
464,023

 
323,798

Purchases of capital stock
(22,594
)
 
(24,460
)
Dividends/distributions paid on common stock
(696,025
)
 
(597,846
)
Dividends paid on preferred stock

 
(21,994
)
Net (increase) decrease in restricted cash
2,351

 
(6,089
)
Net cash provided by (used for) financing activities
1,371,477

 
(131,189
)
Net increase (decrease) in cash and cash equivalents - continuing operations
(368,638
)
 
(89,942
)
Discontinued operations:
 
 
 
Net cash provided by (used for) investing activities

 
113,150

Net increase (decrease) in cash and cash equivalents - discontinued operations


113,150

Effect of exchange rate changes
702

 
320

Cash and cash equivalents at beginning of period
567,599

 
178,810

Cash and cash equivalents at end of period
$
199,663

 
$
202,338


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 data) (Unaudited)


 
CCIC Stockholders
 
 
 
Common Stock
 
4.50% Mandatory Convertible Preferred Stock
 
 
 
Accumulated Other Comprehensive Income (Loss) ("AOCI")
 
 
 
 
 
Shares
 
($0.01 Par)
 
Shares
 
($0.01 Par)
 
Additional
paid-in
capital
 
Foreign Currency Translation Adjustments
 
Dividends/Distributions in Excess of Earnings
 
Total
Balance, April 1, 2017
361,355,043

 
$
3,614

 

 
$

 
$
10,968,564

 
$
(5,713
)
 
$
(3,602,985
)
 
$
7,363,480

Stock-based compensation related activity, net of forfeitures
16,710

 

 

 

 
23,005

 

 

 
23,005

Purchases and retirement of common stock
(5,953
)
 

 

 

 
(589
)
 

 

 
(589
)
Net proceeds from issuance of common stock
4,750,000

 
47

 

 

 
442,038

 

 

 
442,085

Other comprehensive income (loss)(a)

 

 

 

 

 
530

 

 
530

Common stock dividends/distributions

 

 

 

 

 

 
(350,316
)
 
(350,316
)
Net income (loss)

 

 

 

 

 

 
112,114

 
112,114

Balance, June 30, 2017
366,115,800

 
$
3,661

 

 
$

 
$
11,433,018

 
$
(5,183
)
 
$
(3,841,187
)
 
$
7,590,309

    
(a)
See the condensed statement of operations and other comprehensive income (loss) for the components of "other comprehensive income (loss)."
 
CCIC Stockholders
 
 
 
 
Common Stock
 
4.50% Mandatory Convertible Preferred Stock
 
 
 
AOCI
 
 
 
 
 
Shares
 
($0.01 Par)
 
Shares
 
($0.01 Par)
 
Additional
paid-in
capital
 
Foreign Currency Translation Adjustments
 
Dividends/Distributions in Excess of Earnings
 
Total
Balance, April 1, 2016
337,559,718

 
$
3,375

 
9,775,000

 
$
98

 
$
9,874,862

 
$
(4,977
)
 
$
(2,720,364
)
 
$
7,152,994

Stock-based compensation related activity, net of forfeitures
3,826

 

 

 

 
20,165

 

 

 
20,165

Purchases and retirement of common stock
(1,166
)
 

 

 

 
(106
)
 

 

 
(106
)
Other comprehensive income (loss)(a)

 

 

 

 

 
971

 

 
971

Common stock dividends/distributions

 

 

 

 

 

 
(300,778
)
 
(300,778
)
Preferred stock dividends

 

 

 

 

 

 
(10,997
)
 
(10,997
)
Net income (loss)

 

 

 

 

 

 
86,058

 
86,058

Balance, June 30, 2016
337,562,378

 
$
3,375

 
9,775,000

 
$
98

 
$
9,894,921

 
$
(4,006
)
 
$
(2,946,081
)
 
$
6,948,307

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

5


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


 
CCIC Stockholders
 
 
 
Common Stock
 
4.50% Mandatory Convertible Preferred Stock
 
 
 
AOCI
 
 
 
 
 
Shares
 
($0.01 Par)
 
Shares
 
($0.01 Par)
 
Additional
paid-in
capital
 
Foreign Currency Translation Adjustments
 
Dividends/Distributions in Excess of Earnings
 
Total
Balance, January 1, 2017
360,536,659

 
$
3,605

 

 
$

 
$
10,938,236

 
$
(5,888
)
 
$
(3,378,838
)
 
$
7,557,115

Stock-based compensation related activity, net of forfeitures
839,402

 
8

 

 

 
53,401

 

 

 
53,409

Purchases and retirement of capital stock
(252,561
)
 
(3
)
 

 

 
(22,591
)
 

 

 
(22,594
)
Net proceeds from issuance of common stock
4,992,300

 
51

 

 

 
463,972

 

 

 
464,023

Other comprehensive income (loss)(a)

 

 

 

 

 
705

 

 
705

Common stock dividends/distributions

 

 

 

 

 

 
(693,601
)
 
(693,601
)
Preferred stock dividends

 

 

 

 

 

 

 

Net income (loss)

 

 

 

 

 

 
231,252

 
231,252

Balance, June 30, 2017
366,115,800

 
$
3,661

 

 
$

 
$
11,433,018

 
$
(5,183
)
 
$
(3,841,187
)
 
$
7,590,309

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

 
CCIC Stockholders
 
 
 
 
Common Stock
 
4.50% Mandatory Convertible Preferred Stock
 
 
 
AOCI
 
 
 
 
 
Shares
 
($0.01 Par)
 
Shares
 
($0.01 Par)
 
Additional
paid-in
capital
 
Foreign Currency Translation Adjustments
 
Dividends/Distributions in Excess of Earnings
 
Total
Balance, January 1, 2016
333,771,660

 
$
3,338

 
9,775,000

 
$
98

 
$
9,548,580

 
$
(4,398
)
 
$
(2,458,397
)
 
$
7,089,221

Stock-based compensation related activity, net of forfeitures
246,936

 
2

 

 

 
47,038

 

 

 
47,040

Purchases and retirement of capital stock
(284,282
)
 
(3
)
 

 

 
(24,457
)
 

 

 
(24,460
)
Net proceeds from issuance of common stock
3,828,064

 
38

 

 

 
323,760

 


 

 
323,798

Other comprehensive income (loss)(a)

 

 

 

 

 
392

 

 
392

Common stock dividends/distributions

 

 

 

 

 

 
(599,588
)
 
(599,588
)
Preferred stock dividends

 

 

 

 

 

 
(21,994
)
 
(21,994
)
Net income (loss)

 

 

 

 

 

 
133,898

 
133,898

Balance, June 30, 2016
337,562,378

 
$
3,375

 
9,775,000

 
$
98

 
$
9,894,921

 
$
(4,006
)
 
$
(2,946,081
)
 
$
6,948,307

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

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, 2016, and related notes thereto, included in the 2016 Form 10-K filed by Crown Castle International Corp. ("CCIC") with the SEC. Capitalized terms used but not defined in these notes to the condensed consolidated financial statements have the same meaning given to them in our 2016 Form 10-K. References to the "Company" include CCIC and its predecessor, as applicable, and their subsidiaries, unless otherwise indicated or the context indicates otherwise. As used herein, the term "including," and any variation thereof means "including without limitation." The use of the word "or" herein is not exclusive.
The Company owns, operates and leases shared wireless infrastructure that has been acquired or constructed over time and is geographically dispersed throughout the United States and Puerto Rico ("U.S."), including: (1) towers and other structures, such as rooftops (collectively, "towers"), and (2) fiber primarily supporting small cell networks and fiber based solutions (collectively, "small cells" and, together with towers, "wireless infrastructure").
The Company's core business is providing access, including space or capacity, to its shared wireless infrastructure via long-term contracts in various forms, including licenses, subleases and lease agreements.
The Company's operating segments consist of (1) Towers and (2) Small Cells. See note 10.
As part of the Company's effort to provide comprehensive wireless infrastructure solutions, the Company offers certain network services relating to its wireless infrastructure, consisting of (1) site development services relating to existing or new tenant equipment installations on its wireless infrastructure, including: site acquisition, architectural and engineering, or zoning and permitting and (2) tenant equipment installation or subsequent augmentations.
The Company operates as a REIT for U.S. federal income tax purposes. In addition, the Company has certain taxable REIT subsidiaries ("TRSs"). See note 6.
Approximately 53% of the Company's towers are leased or subleased or operated and managed under master leases, subleases, and other agreements with AT&T, Sprint, and T-Mobile. 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 June 30, 2017, and the consolidated results of operations and the consolidated cash flows for the six months ended June 30, 2017 and 2016. 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 2016 Form 10-K, other than certain recent accounting pronouncements described below.
Recently Adopted Accounting Pronouncements
No accounting pronouncements adopted during the six months ended June 30, 2017 had a material impact on the Company's condensed consolidated financial statements.

7


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

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued new guidance on the recognition, measurement, presentation and disclosure of leases. The new guidance requires lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments for all leases with a term greater than 12 months. The accounting for lessors remains largely unchanged from existing guidance. This guidance is effective for the Company as of January 1, 2019 and is required to be applied using a modified retrospective approach for all leases existing at, or entered into after, the beginning of the earliest comparative period presented. Early adoption is permitted. The Company (1) has established and is progressing through the various steps of a cross functional project plan to assess the impact of the standard; (2) expects this guidance to have a material impact on its consolidated balance sheet due to the addition of right-of-use assets and lease liabilities for all leases with a term greater than 12 months; and (3) continues to assess additional impacts to its consolidated financial statements, including the consolidated statement of operations and the consolidated statement of cash flows.
In February 2017, the FASB issued new guidance which clarifies the scope and application on accounting for the de-recognition of non-financial assets and in substance non-financial assets, including sales and partial sales of real estate assets. The new guidance also eliminates the existing industry specific guidance for partial sales of real estate, and requires full gain recognition upon partial sales of real estate. The guidance is effective for the Company as of January 1, 2018. The guidance may be early adopted, but must be adopted concurrently with the FASB's May 2014 guidance on revenue from contracts with customers. The 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 does not expect this guidance to have a material impact on its condensed consolidated financial statements.

3.
Acquisitions
FiberNet Acquisition
On November 1, 2016, the Company announced that it had entered into a definitive agreement to acquire FPL FiberNet Holdings, LLC and certain other subsidiaries of NextEra Energy, Inc. (collectively, "FiberNet") for approximately $1.5 billion in cash, subject to certain limited adjustments ("FiberNet Acquisition"). FiberNet is a fiber services provider in Florida and Texas that, as of the agreement date, owned or had rights to approximately 11,500 route miles of fiber installed or under construction, inclusive of approximately 6,000 route miles in top metro markets. On January 17, 2017, the Company closed the FiberNet Acquisition which was financed using proceeds from its November 2016 Equity Financing and borrowings under the 2016 Revolver (see note 4).
The preliminary purchase price allocation for the FiberNet Acquisition is shown below and 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
$
56,569

Property and equipment
439,961

Goodwill(a)
772,177

Other intangible assets, net
328,138

Other non-current assets
72

Current liabilities
(34,552
)
Other non-current liabilities
(41,535
)
Net assets acquired(b)
$
1,520,830

    
(a)
The preliminary purchase price allocation for the FiberNet Acquisition resulted in the recognition of goodwill based on:
the Company's expectation to leverage the FiberNet fiber footprint to support new small cell networks and fiber based solutions,
the complementary nature of the FiberNet fiber to the Company's existing fiber assets and its location in top metro markets where the Company expects to see wireless carrier network investments,
the Company's belief that the acquired fiber assets are well-positioned to benefit from the continued growth trends in the wireless industry, and
other intangibles not qualified for separate recognition, including the assembled workforce.
(b)
The vast majority of assets acquired in the FiberNet Acquisition are expected to be included in the Company's REIT and as such, no deferred taxes were recorded in connection with the FiberNet Acquisition.

8


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


Net revenues attributable to the FiberNet Acquisition are included in the Company's consolidated statements of operations and comprehensive income (loss) since the date the acquisition was completed. For the six months ended June 30, 2017, the FiberNet Acquisition contributed $71.0 million to consolidated net revenues.
Wilcon Acquisition
On April 17, 2017, the Company announced that it had entered into a definitive agreement to acquire Wilcon Holdings LLC ("Wilcon") from Pamlico Holdings and other unit holders of Wilcon for approximately $600 million in cash, subject to certain limited adjustments ("Wilcon Acquisition"). Wilcon is a fiber services provider that owns approximately 1,900 route miles of fiber, primarily in Los Angeles and San Diego. On June 26, 2017, the Company closed the Wilcon Acquisition, which was financed using proceeds from the May 2017 Equity Financing (as defined in note 9) and the 4.75% Senior Notes (as defined in note 4).
The preliminary purchase price of approximately $600 million was primarily comprised of other intangible assets of approximately $130 million, property and equipment of approximately $130 million, and goodwill of approximately $380 million.
The preliminary purchase price allocation for the Wilcon Acquisition resulted in the recognition of goodwill based on (1) the Company's expectation to leverage the Wilcon fiber footprint to support new small cell networks and fiber based solutions, (2) the complementary nature of the Wilcon fiber to the Company's existing fiber assets and its location primarily in Los Angeles and San Diego, where the Company expects to see wireless carrier network investments, (3) the Company's belief that the acquired fiber assets are well positioned to benefit from the continued growth trends in the wireless industry, and (4) other intangibles not qualified for separate recognition, including the assembled workforce. The preliminary purchase price allocation for the Wilcon Acquisition 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.
See note 12 for a discussion of the Proposed Lightower Acquisition (as therein defined).


9


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

4.
Debt and Other Obligations
 
Original
Issue Date
 
Contractual
Maturity
Date (a)
 
Balance as of
June 30, 2017
 
Balance as of
December 31, 2016
 
Stated Interest
Rate as of
June 30, 2017(a)
Bank debt - variable rate:
 
 
 
 
 
 
 
 
 
2016 Revolver
Jan. 2016
 
Jan. 2022
(e) 
$
350,000

(b)(d)(f) 
$

 
2.6
%
2016 Term Loan A
Jan. 2016
 
Jan. 2022
(e) 
2,426,473

(e) 
1,954,173

 
2.6
%
Total bank debt
 
 
 
 
2,776,473

 
1,954,173

 
 
Securitized debt - fixed rate:
 
 
 
 
 
 
 
 
 
Secured Notes, Series 2009-1, Class A-1
July 2009
 
Aug. 2019
 
41,333

 
51,416

 
6.3
%
Secured Notes, Series 2009-1, Class A-2
July 2009
 
Aug. 2029
 
69,438

 
68,737

 
9.0
%
Tower Revenue Notes, Series 2010-3
Jan. 2010
 
Jan. 2040
(c) 
1,245,171

 
1,244,237

 
6.1
%
Tower Revenue Notes, Series 2010-6
Aug. 2010
 
Aug. 2040
(c) 
994,456

 
993,557

 
4.9
%
Tower Revenue Notes, Series 2015-1
May 2015
 
May 2042
(c) 
296,892

 
296,573

 
3.2
%
Tower Revenue Notes, Series 2015-2
May 2015
 
May 2045
(c) 
691,805

 
691,285

 
3.7
%
Total securitized debt
 
 
 
 
3,339,095

 
3,345,805

 
 
Bonds - fixed rate:
 
 
 
 
 
 
 
 
 
5.250% Senior Notes
Oct. 2012
 
Jan. 2023
 
1,638,153

 
1,637,099

 
5.3
%
3.849% Secured Notes
Dec. 2012
 
Apr. 2023
 
991,971

 
991,279

 
3.8
%
4.875% Senior Notes
Apr. 2014
 
Apr. 2022
 
841,202

 
840,322

 
4.9
%
3.400% Senior Notes
Feb./May 2016
 
Feb. 2021
 
849,811

 
849,698

 
3.4
%
4.450% Senior Notes
Feb. 2016
 
Feb. 2026
 
890,630

 
890,118

 
4.5
%
3.700% Senior Notes
May 2016
 
June 2026
 
742,316

 
741,908

 
3.7
%
2.250% Senior Notes
Sept. 2016
 
Sept. 2021
 
694,755

 
693,893

 
2.3
%
4.000% Senior Notes
Feb. 2017
 
March 2027
 
493,656

(d) 

 
4.0
%
4.750% Senior Notes
May 2017
 
May 2047
 
342,474

(f) 

 
4.8
%
Total bonds
 
 
 
 
7,484,968

 
6,644,317

 
 
Other:
 
 
 
 
 
 
 
 
 
Capital leases and other obligations
Various
 
Various
 
240,729

 
226,847

 
Various

Total debt and other obligations
 
 
 
 
13,841,265

 
12,171,142

 
 
Less: current maturities and short-term debt and other current obligations
 
 
 
 
114,932

 
101,749

 
 
Non-current portion of long-term debt and other long-term obligations
 
 
 
 
$
13,726,333

 
$
12,069,393

 
 
    
(a)
See the 2016 Form 10-K, including note 8, for additional information regarding the maturity and principal amortization provisions and interest rates relating to the Company's indebtedness.
(b)
As of June 30, 2017, the undrawn availability under the 2016 Revolver was $2.1 billion.
(c)
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 2016 Form 10-K for additional information regarding these provisions.
(d)
In February 2017, the Company issued $500 million aggregate principal amount of 4.000% senior unsecured notes with a maturity date of March 2027 ("4.0% Senior Notes"). The Company used the net proceeds from the 4.0% Senior Notes offering to repay a portion of the borrowings under the 2016 Revolver.
(e)
In February 2017, the Company entered into an amendment to the Credit Facility to (1) incur additional term loans in an aggregate principal amount of $500 million, and (2) extend the maturity of both the 2016 Term Loan A and the 2016 Revolver to January 2022.
(f)
In May 2017, the Company issued $350 million aggregate principal amount of 4.750% senior unsecured notes due May 2047 ("4.75% Senior Notes"). The Company used the net proceeds from the 4.75% Senior Notes offering to partially fund the Wilcon Acquisition and to repay a portion of the borrowings under the 2016 Revolver.

See note 12 for information regarding our August 2017 Senior Notes Offering (as defined therein).


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 June 30, 2017. 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.
 
Six Months Ending
December 31,
 
Years Ending December 31,
 
 
 
 
 
Unamortized Adjustments, Net
 
Total Debt and Other Obligations Outstanding
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Total Cash Obligations
 
 
Scheduled contractual maturities
$
58,607

 
$
113,125

 
$
166,127

 
$
154,255

 
$
1,824,027

 
$
11,619,021

 
$
13,935,162

 
$
(93,897
)
 
$
13,841,265

Interest Expense and Amortization of Deferred Financing Costs
The components of interest expense and amortization of deferred financing costs are as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Interest expense on debt obligations
$
139,349

 
$
125,580

 
$
271,000

 
$
247,747

Amortization of deferred financing costs and adjustments on long-term debt
4,540

 
4,815

 
9,091

 
9,921

Other, net of capitalized interest
(2,120
)
 
(1,033
)
 
(3,835
)
 
(1,928
)
Total
$
141,769

 
$
129,362

 
$
276,256

 
$
255,740


5.
Fair Value Disclosures
 
Level in Fair Value Hierarchy
 
June 30, 2017
 
December 31, 2016
 
 
Carrying
 Amount
 
Fair
Value
 
Carrying
 Amount
 
Fair
Value
Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
1
 
$
199,663

 
$
199,663

 
$
567,599

 
$
567,599

Restricted cash, current and non-current
1
 
122,913

 
122,913

 
129,547

 
129,547

Liabilities:
 
 
 
 
 
 
 
 
 
Total debt and other obligations
2
 
13,841,265

 
14,399,704

 
12,171,142

 
12,660,013

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. There were no changes since December 31, 2016 in the Company's valuation techniques used to measure fair values.

6.
Income Taxes
The Company operates 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 of 1986, as amended ("Code") to maintain qualification for taxation as a REIT.

11


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 TRS assets and operations 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.
For the six months ended June 30, 2017 and 2016, 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.

7.
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 previously outstanding 4.50% Mandatory Convertible Preferred Stock, which converted to common stock during the fourth quarter of 2016, as determined under the if-converted method, for the three and six months ended June 30, 2016.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income (loss) attributable to CCIC stockholders
$
112,114

 
$
86,058

 
$
231,252

 
$
133,898

Dividends on preferred stock

 
(10,997
)
 

 
(21,994
)
Net income (loss) attributable to CCIC common stockholders for basic and diluted computations
$
112,114

 
$
75,061

 
$
231,252

 
$
111,904

 
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic weighted-average number of common stock outstanding
364,493

 
337,560

 
362,662

 
335,857

Effect of assumed dilution from potential common shares relating to restricted stock units and restricted stock awards
1,339

 
1,049

 
1,230

 
801

Diluted weighted-average number of common shares outstanding
365,832

 
338,609

 
363,892

 
336,658

 
 
 
 
 
 
 
 
Net income (loss) attributable to CCIC common stockholders, per common share:
 
 
 
 
 
 
 
Basic
$
0.31

 
$
0.22

 
$
0.64

 
$
0.33

Diluted
$
0.31

 
$
0.22

 
$
0.64

 
$
0.33

During the six months ended June 30, 2017, the Company granted 1.3 million restricted stock units. For the six months ended June 30, 2016, 11.5 million common share equivalents related to the previously outstanding 4.50% Mandatory 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.

8.
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 53% of the Company's towers at the end of their respective lease terms. The Company has no obligation to exercise such purchase options.


12


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

9.
Equity
Declaration and Payment of Dividends
During the six months ended June 30, 2017, the following dividends were declared and paid:
Equity Type
 
Declaration Date
 
Record Date
 
Payment Date
 
Dividends Per Share
 
Aggregate
Payment
Amount
(In millions)
 
Common Stock
 
February 17, 2017
 
March 17, 2017
 
March 31, 2017
 
$
0.95

 
$
343.3

(a) 
Common Stock
 
May 18, 2017
 
June 16, 2017
 
June 30, 2017
 
$
0.95

 
$
350.3

(a) 
    
(a)
Inclusive of dividends accrued for holders of unvested restricted stock units, which will be paid at the time the restricted stock units vest.
Purchases of the Company's Common Stock
For the six months ended June 30, 2017, the Company purchased 0.3 million shares of its common stock utilizing $22.6 million in cash. The common stock shares purchased relate to shares withheld in connection with the payment of withholding taxes upon vesting of restricted stock.
"At the Market" Stock Offering Program
The Company maintains 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 cumulative 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. During the six months ended June 30, 2017, 0.2 million shares of common stock were sold under the ATM Program generating net proceeds of $22.0 million after giving effect to sales agent commissions of $0.2 million. As of June 30, 2017, the Company had approximately $150 million of gross sales of common stock availability remaining on the ATM Program.
May 2017 Equity Financing
On May 1, 2017, the Company completed an offering of 4.75 million shares of its common stock, which generated net proceeds of approximately $442 million ("May 2017 Equity Financing"). The Company used the net proceeds of the May 2017 Equity Financing to partially fund the Wilcon Acquisition.
See note 12 for information regarding our July 2017 Equity Financings (as defined therein).


13


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

10.
Operating Segments
The Company's operating segments are (1) Towers and (2) Small Cells. The Towers segment provides access, including space or capacity, to the Company's approximately 40,000 towers geographically dispersed throughout the U.S. The Towers segment also reflects certain network services relating to the Company's towers, consisting of site development services and installation services. The Small Cells segment provides access, including space or capacity, to the Company's approximately 29,000 route miles of fiber primarily supporting small cell networks and fiber based solutions.
The measurement of profit or loss used by the Company's chief operating decision maker to evaluate the results of operations of its operating segments are (1) segment site rental gross margin, (2) segment network services and other gross margin, and (3) segment operating profit. The Company defines segment site rental gross margin as segment site rental revenues less segment site rental cost of operations, which excludes stock-based compensation expense and prepaid lease purchase price adjustments recorded in consolidated cost of operations. The Company defines segment network services and other gross margin as segment network services and other revenues less segment network services and other cost of operations, which excludes stock-based compensation expense recorded in consolidated cost of operations. The Company defines segment operating profit as segment site rental gross margin plus segment network services and other gross margin, less general and administrative expenses attributable to the respective segment.
Costs that are directly attributable to Towers and Small Cells are assigned to those respective segments. The "Other" column (1) represents amounts excluded from specific segments, such as 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, gains (losses) on foreign currency swaps, impairment of available-for-sale securities, interest income, other income (expense), cumulative effect of a change in accounting principle, income (loss) from discontinued operations, and stock-based compensation expense, and (2) reconciles segment operating profit to income (loss) before income taxes, as the amounts are not utilized in assessing each segment’s performance. The "Other" total assets balance includes corporate assets such as cash and cash equivalents which have not been allocated to specific segments. There are no significant revenues resulting from transactions between the Company's operating segments.



14


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


 
Three Months Ended June 30, 2017
 
Three Months Ended June 30, 2016
 
Towers
 
Small Cells
 
Other
 
Consolidated
Total
 
Towers
 
Small Cells
 
Other
 
Consolidated
Total
Segment site rental revenues
$
717,645

 
$
151,161

 
 
 
$
868,806

 
$
705,716

 
$
98,884

 
 
 
$
804,600

Segment network services and other revenues
157,977

 
11,552

 
 
 
169,529

 
142,053

 
15,756

 
 
 
157,809

Segment revenues
875,622

 
162,713

 
 
 
1,038,335

 
847,769

 
114,640

 
 
 
962,409

Segment site rental cost of operations
211,204

 
51,861

 
 
 
263,065

 
210,444

 
34,165

 
 
 
244,609

Segment network services and other cost of operations
95,837

 
8,604

 
 
 
104,441

 
81,922

 
12,423

 
 
 
94,345

Segment cost of operations (a)
307,041

 
60,465

 
 
 
367,506

 
292,366

 
46,588

 
 
 
338,954

Segment site rental gross margin
506,441

 
99,300

 
 
 
605,741

 
495,272

 
64,719

 
 
 
559,991

Segment network services and other gross margin
62,140

 
2,948

 
 
 
65,088

 
60,131

 
3,333

 
 
 
63,464

Segment general and administrative expenses (a)
22,875

 
18,666

 
40,754

 
82,295

 
22,505

 
15,718

 
35,563

 
73,786

Segment operating profit
545,706

 
83,582

 
(40,754
)
 
588,534

 
532,898

 
52,334

 
(35,563
)
 
549,669

Stock-based compensation expense
 
 
 
 
16,835

 
16,835

 
 
 
 
 
21,998

 
21,998

Depreciation, amortization and accretion
 
 
 
 
295,615

 
295,615

 
 
 
 
 
276,026

 
276,026

Interest expense and amortization of deferred financing costs
 
 
 
 
141,769

 
141,769

 
 
 
 
 
129,362

 
129,362

Other income (expenses) to reconcile to income (loss) before income taxes(b)
 
 
 
 
17,663

 
17,663

 
 
 
 
 
32,341

 
32,341

Income (loss) before income taxes
 
 
 
 
 
 
$
116,652

 
 
 
 
 
 
 
$
89,942

Capital expenditures
$
106,950

 
$
188,090

 
$
5,906

 
$
300,946

 
$
104,180

 
$
87,450

 
$
7,878

 
$
199,508

Total assets (at period end)
$
18,207,697

 
$
5,810,961

 
$
464,966

 
$
24,483,624

 
$
18,479,117

 
$
3,199,577

 
$
474,380

 
$
22,153,074

    
(a)
Segment cost of operations exclude (1) stock-based compensation expense of $1.4 million and $4.4 million for the three months ended June 30, 2017 and 2016, respectively, and (2) prepaid lease purchase price adjustments of $5.0 million and $5.4 million for the three months ended June 30, 2017 and 2016, respectively. Segment general and administrative expenses exclude stock-based compensation expense of $15.4 million and $17.6 million for the three months ended June 30, 2017 and 2016, respectively.
(b)
See condensed consolidated statement of operations for further information.

15


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

 
Six Months Ended June 30, 2017
 
Six Months Ended June 30, 2016
 
Towers
 
Small Cells
 
Other
 
Consolidated
Total
 
Towers
 
Small Cells
 
Other
 
Consolidated
Total
Segment site rental revenues
$
1,434,181

 
$
291,561

 
 
 
$
1,725,742

 
$
1,408,555

 
$
195,338

 
 
 
$
1,603,893

Segment network services and other revenues
307,592

 
20,943

 
 
 
328,535

 
267,063

 
25,836

 
 
 
292,899

Segment revenues
1,741,773

 
312,504

 
 
 
2,054,277

 
1,675,618

 
221,174

 
 
 
1,896,792

Segment site rental cost of operations
420,668

 
99,107

 
 
 
519,775

 
415,009

 
71,648

 
 
 
486,657

Segment network services and other cost of operations
184,773

 
16,833

 
 
 
201,606

 
151,911

 
20,458

 
 
 
172,369

Segment cost of operations (a)
605,441

 
115,940

 
 
 
721,381

 
566,920

 
92,106

 
 
 
659,026

Segment site rental gross margin
1,013,513

 
192,454

 
 
 
1,205,967

 
993,546

 
123,690

 
 
 
1,117,236

Segment network services and other gross margin
122,819

 
4,110

 
 
 
126,929

 
115,152

 
5,378

 
 
 
120,530

Segment general and administrative expenses (a)
46,635

 
36,355

 
79,960

 
162,950

 
46,104

 
31,240

 
71,635

 
148,979

Segment operating profit
1,089,697

 
160,209

 
(79,960
)
 
1,169,946

 
1,062,594

 
97,828

 
(71,635
)
 
1,088,787

Stock-based compensation expense
 
 
 
 
41,777

 
41,777

 
 
 
 
 
52,703

 
52,703

Depreciation, amortization and accretion
 
 
 
 
584,164

 
584,164

 
 
 
 
 
553,901

 
553,901

Interest expense and amortization of deferred financing costs
 
 
 
 
276,256

 
276,256

 
 
 
 
 
255,740

 
255,740

Other income (expenses) to reconcile to income (loss) from continuing operations before income taxes(b)
 
 
 
 
27,590

 
27,590

 
 
 
 
 
84,789

 
84,789

Income (loss) from continuing operations before income taxes
 
 
 
 
 
 
$
240,159

 
 
 
 
 
 
 
$
141,654

Capital expenditures
$
208,425

 
$
342,356

 
$
12,580

 
$
563,361

 
$
215,221

 
$
167,603

 
$
10,173

 
$
392,997

    
(a)
Segment cost of operations exclude (1) stock-based compensation expense of $6.3 million and $12.7 million for the six months ended June 30, 2017 and 2016, respectively, and (2) prepaid lease purchase price adjustments of $10.1 million and $10.6 million for the six months ended June 30, 2017 and 2016, respectively. Segment general and administrative expenses exclude stock-based compensation expense of $35.5 million and $40.0 million for the six months ended June 30, 2017 and 2016, respectively.
(b)
See condensed consolidated statement of operations for further information.


16


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

11.
Supplemental Cash Flow Information
 
Six Months Ended June 30,
 
2017
 
2016
Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
260,255

 
$
217,783

Income taxes paid
10,372

 
10,186

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Increase (decrease) in accounts payable for purchases of property and equipment
(7,825
)
 
(10,197
)
Purchase of property and equipment under capital leases and installment purchases
17,933

 
25,444


12.
Subsequent Events
Proposed Lightower Acquisition
On July 18, 2017, the Company announced that it has entered into a definitive agreement ("Merger Agreement") to acquire LTS Group Holdings LLC ("Lightower") from Berkshire Partners, Pamlico Capital and other investors for approximately $7.1 billion in cash (subject to certain limited adjustments) ("Proposed Lightower Acquisition"). Lightower owns or has rights to approximately 32,000 route miles of fiber located primarily in top metro markets in the Northeast, including Boston, New York and Philadelphia. The Company expects to finance the Proposed Lightower Acquisition, including related fees and expenses, utilizing proceeds from (1) the July 2017 Common Stock Offering (as defined below), (2) the Mandatory Convertible Preferred Stock Offering (as defined below), and (3) the August 2017 Senior Notes Offering (as defined below). The Company expects the Proposed Lightower Acquisition to close by the end of 2017. Completion of the Proposed Lightower Acquisition is subject to customary closing conditions and does not require the approval of the Company's stockholders.
July 2017 Equity Financings
On July 26, 2017, the Company completed an offering of 40.15 million shares of common stock, including certain additional shares sold pursuant to the underwriters' option, which generated net proceeds of approximately $3.8 billion ("July 2017 Common Stock Offering"). The Company intends to use the net proceeds of the July 2017 Common Stock Offering to partially fund the Proposed Lightower Acquisition and pay related fees and expenses.
On July 26, 2017, the Company completed an offering of 1.65 million shares of the Company's 6.875% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share, at $1,000 per share ("Mandatory Convertible Preferred Stock"), including certain additional shares sold pursuant to the underwriters' option, which generated net proceeds of approximately $1.6 billion ("Mandatory Convertible Preferred Stock Offering"). The Company intends to use the net proceeds from the Mandatory Convertible Preferred Stock Offering to partially fund the Proposed Lightower Acquisition and pay related fees and expenses.
The holders of the Mandatory Convertible Preferred Stock are entitled to receive cumulative dividends, when and if declared by the Company's board of directors, at the rate of 6.875% on the liquidation preference of $1,000 per share. The dividends may be paid in cash or, subject to certain limitations, in shares of the Company's common stock or any combination of cash and shares of common stock on February 1, May 1, August 1 and November 1 of each year, commencing on November 1, 2017 and to, and including, August 1, 2020. The terms of the Mandatory Convertible Preferred Stock provide that, unless accumulated dividends have been paid or set aside for payment on all outstanding shares of Mandatory Convertible Preferred Stock for all past dividend periods, no dividends may be declared or paid on common stock.
Unless converted earlier, each outstanding share of the Mandatory Convertible Preferred Stock will automatically convert on August 1, 2020 into between 8.6806 and 10.4167 shares of the Company's common stock, depending on the applicable market value of the common stock and subject to certain anti-dilution adjustments. At any time prior to August 1, 2020, holders of the Mandatory Convertible Preferred Stock may elect to convert all or a portion of their shares into common stock at the minimum conversion rate of 8.6806, subject to certain anti-dilution adjustments.
The July 2017 Common Stock Offering and Mandatory Convertible Preferred Stock Offering are collectively referred to herein as "July 2017 Equity Financings."

17


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

August 2017 Senior Notes Offering

On August 1, 2017, the Company issued $750 million aggregate principal amount of 3.200% senior unsecured notes due 2024 ("3.2% Senior Notes") and $1.0 billion aggregate principal amount of 3.650% senior unsecured notes due 2027 ("3.65% Senior Notes") (collectively, "August 2017 Senior Notes Offering"). The Company intends to use the net proceeds of the August 2017 Senior Notes Offering to partially fund the Proposed Lightower Acquisition and pay related fees and expenses.
Common Stock Dividend
On August 3, 2017, the Company's board of directors declared a quarterly common stock cash dividend of $0.95 per share. The common stock dividend will be paid on September 29, 2017 to common stockholders of record as of September 15, 2017.


18


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 2016 Form 10-K. Capitalized terms used but not defined in this Item have the same meaning given to them in our 2016 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 has been acquired or constructed over time and is geographically dispersed throughout the U.S., and which consists of (1) approximately 40,000 towers and (2) approximately 29,000 route miles of fiber primarily supporting small cell networks and fiber based solutions. Our towers have a significant presence in the top 100 basic trading areas ("BTAs"), and the majority of our fiber is located in major metropolitan areas. Site rental revenues represented 84% of our second quarter 2017 consolidated net revenues. Our Towers operating segment and Small Cells operating segment accounted for 83% and 17% of our second quarter 2017 site rental revenues, respectively. See note 10 to our condensed consolidated financial statements. The vast majority of our site rental revenues is of a recurring nature and was 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 cash flows and 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 our site rental cash flows by working with our customers to provide them quick access to our wireless infrastructure and entering into associated long-term leases. Tenant additions or modifications of existing tenant equipment (collectively, "tenant additions") enable our customers to expand coverage and capacity in order to meet increasing demand for wireless connectivity, while generating high incremental returns for our business. We believe our product offerings of towers and small cells provide a comprehensive solution to our customers' growing connectivity needs through our shared wireless infrastructure model, which is an efficient and cost effective way to serve our customers. We also believe that there will be considerable future demand for our wireless infrastructure based on the location of our wireless infrastructure and the rapid growth in wireless connectivity, which will lead to future growth in the wireless industry.
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 cash flows and long-term dividends per share. We seek to invest our available capital, 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):
purchases of shares of our common stock from time to time;
acquisitions or construction of towers, fiber and small cells;
acquisitions of land interests under towers;
improvements and structural enhancements to our existing wireless infrastructure; or
purchases, repayments or redemptions of our debt.

19


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 demand for wireless connectivity. We believe that such demand for our wireless infrastructure will continue, will result in growth of our cash flows due to tenant additions on our existing wireless infrastructure, and will create other growth opportunities for us, such as demand for new wireless infrastructure.
Business Fundamentals and Results
The following are certain highlights of our business fundamentals and results as of and for the six months ended June 30, 2017.
We operate 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 6 to our condensed consolidated financial statements for further discussion of our REIT status.
Potential growth resulting from wireless network expansion and new entrants caused by increasing demand for data and connectivity
We expect wireless carriers will continue their focus on improving network quality and expanding capacity by utilizing a combination of towers and small cells solutions. We believe our product offerings of towers and small cells provide a comprehensive wireless solution to our customers' growing wireless infrastructure needs.
We expect existing and potential new customer demand for our wireless infrastructure will result from (1) new technologies, (2) increased usage of wireless applications (including mobile entertainment, mobile internet usage, and machine-to-machine applications), (3) adoption of other emerging and embedded wireless devices (including smartphones, laptops, tablets, and other devices), (4) increasing smartphone penetration, (5) wireless carrier focus on expanding both network quality and capacity, including the use of both towers and small cells or (6) the availability of additional spectrum.
Tenant additions are achieved at a low incremental operating cost, delivering high incremental returns.
Substantially all of our wireless infrastructure can accommodate additional tenancy, either as currently constructed or with appropriate modifications.
U.S. wireless carriers continue to invest in their networks.
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 six years, exclusive of renewals at the tenant's option, currently representing approximately $19 billion of expected future cash inflows.
Revenues predominately from large wireless carriers
Approximately 86% of our 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
Approximately 90% of our Towers site rental gross margin and more than 75% of our Towers 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 over one-third of our Towers site rental gross margin.
Minimal sustaining capital expenditure requirements
Sustaining capital expenditures represented less than 2% 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)
After giving effect to the August 2017 Senior Notes Offering, 82% of our debt is fixed rate.
Our debt service coverage and leverage ratios were comfortably within their respective financial maintenance covenants.
During 2017, we have completed the following debt and equity financing transactions. See notes 4, 9 and 12 to our condensed consolidated financial statements and "Item 2. MD&A—Liquidity and Capital Resources".
In February 2017, we issued the 4.0% Senior Notes and used the net proceeds to repay a portion of the borrowings under the 2016 Revolver.
In February 2017, we entered into an amendment to the Credit Facility to (1) incur additional term loans in an aggregate principal amount of $500 million and (2) extend the maturity of both the 2016 Term Loan A and the 2016 Revolver to January 2022.

20


In May 2017, we issued the 4.75% Senior Notes and used the net proceeds (1) to partially fund the Wilcon Acquisition and (2) to repay a portion of the borrowings under the 2016 Revolver.
During May 2017, we completed the May 2017 Equity Financing, which generated net proceeds of approximately $442 million, and used the net proceeds to partially fund the Wilcon Acquisition.
During July and August 2017, we completed the following financings, the collective proceeds of which we anticipate using to fund the Proposed Lightower Acquisition and pay related fees and expenses (see note 12):
the July 2017 Common Stock Offering, which generated net proceeds of approximately $3.8 billion;
the Mandatory Convertible Preferred Stock Offering, which generated net proceeds of approximately $1.6 billion; and
the August 2017 Senior Notes Offering, which generated net proceeds of approximately $1.7 billion.
Significant cash flows from operations
Net cash provided by operating activities was $934.1 million.
In addition to the positive impact of contractual escalators, we expect to grow our core business of providing access to our wireless infrastructure as a result of future anticipated additional demand for our wireless infrastructure.
Returning cash flows provided by operations to stockholders in the form of dividends
During each of March and June of 2017, we paid a common stock cash dividend of $0.95 per share, totaling approximately $696.0 million. We currently expect our anticipated common stock dividends over the next 12 months to be a cumulative amount of at least $3.80 per share, or an aggregate amount of approximately $1.5 billion. Over time, we expect to increase our dividend per share generally commensurate with our realized growth in cash flows. Any future dividends are subject to the approval of our board of directors.
Investing capital efficiently to grow long-term dividends per share
Discretionary capital expenditures were $527.9 million, including wireless infrastructure improvements in order to support additional site rentals, construction of wireless infrastructure and land purchases.
See note 3 to our condensed consolidated financial statements for a discussion of the FiberNet Acquisition and the Wilcon Acquisition and note 12 to our condensed consolidated financial statements for a discussion of the Proposed Lightower Acquisition, all of which we expect to leverage to support the construction of new small cells and fiber.
Outlook Highlights
The following are certain highlights of our full year 2017 outlook that impact our business fundamentals described above.
We expect that our full year 2017 site rental revenue growth will be impacted by (1) a healthy environment for tenant additions, as large wireless carriers upgrade and enhance their networks to meet the increasing need for wireless connectivity, (2) the FiberNet Acquisition and the Wilcon Acquisition (see note 3 to our condensed consolidated financial statements), and (3) anticipated non-renewals of tenant leases primarily resulting from our customers' decommissioning of the Acquired Networks.
We expect capital expenditures for 2017 to equal or exceed levels from 2016 with a continued increase in the construction of new small cells. We also expect sustaining capital expenditures to be approximately 2% of net revenues for full year 2017.
We expect the Proposed Lightower Acquisition to close by the end of 2017.

Results of Operations
The following discussion of our results of operations should be read in conjunction with our condensed consolidated financial statements and our 2016 Form 10-K.
The following discussion of our results of operations is based on our condensed 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 in our 2016 Form 10-K).
Our operating segments consist of (1) Towers and (2) Small Cells. See note 10 to our condensed consolidated financial statements for further discussion of our operating segments.
See "Item 2. MD&A—Accounting and Reporting Matters—Non-GAAP and Segment Financial Measures" for a discussion of our use of (1) segment site rental gross margin, (2) segment network services and other gross margin, (3) segment operating profit, including their respective definitions, and (4) Adjusted EBITDA, including its definition, and a reconciliation to net income (loss).

21


Highlights of the Company's results of operations for the three months ended June 30, 2017 and 2016 are depicted below.
($ in thousands)
 
Three Months Ended June 30,
 
 
 
 
 
2017
 
2016
 
$ Change
 
% Change
Site rental revenues:
 
 
 
 
 
 
 
 
Towers site rental revenues
 
$717,645
 
$705,716
 
+$11,929
 
+2%
Small Cells site rental revenues
 
$151,161
 
$98,884
 
+$52,277
 
+53%
Total site rental revenues
 
$868,806
 
$804,600
 
+$64,206
 
+8%
Segment site rental gross margin:
 
 
 
 
 
 
 
 
Towers site rental gross margin(b)
 
$506,441
 
$495,272
 
+$11,169
 
+2%
Small Cells site rental gross margin(b)
 
$99,300
 
$64,719
 
+$34,581
 
+53%
Segment network services and other gross margin:
 
 
 
 
 
 
 
 
Towers network services and other gross margin(b)
 
$62,140
 
$60,131
 
+$2,009