QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period to
Commission File Number 001-16441
____________________________________
CROWN CASTLE INTERNATIONAL
CORP.
(Exact name of registrant as specified in its charter)
Delaware
76-0470458
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
1220 Augusta Drive, Suite 500, Houston, Texas 77057-2261
(Address of principal executives office) (Zip Code)
(713) 570-3000
(Registrant's telephone number, including area code)
____________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Number of shares of common stock outstanding at October 29, 2012: 293,159,220
Cautionary Language Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that are based on our management's expectations as of the filing date of this report with the SEC. Statements that are not historical facts are hereby identified as forward-looking statements. In addition, words such as "estimate," "anticipate," "project," "plan," "intend," "believe," "expect," "likely," "predicted," forms of these words and similar expressions are intended to identify forward-looking statements. Such statements include plans, projections and estimates contained in "Part I—Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part I—Item 3. Quantitative and Qualitative Disclosures About Market Risk" herein. Such forward-looking statements include (1) expectations regarding anticipated growth in the wireless communication industry, carriers' investments in their networks, new tenant additions, cancellations of customer contracts and demand for our towers and small cell operations and technologies, including the expected impact of the NextG Networks, Inc. acquisition and the expected closing of the proposed acquisition of rights to towers from T-Mobile USA, Inc. ("T-Mobile"), (2) availability of cash flows and liquidity for, and plans regarding, future discretionary investments including capital expenditures and the funding of the proposed acquisition of rights to the T-Mobile towers, (3) anticipated growth in our future revenues, margins, Adjusted EBITDA and operating cash flows, and (4) expectations regarding the credit markets, our availability and cost of capital, and our ability to service our debt and comply with debt covenants.
Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including prevailing market conditions, risk factors described under "Part II—Item 1A. Risk Factors" herein and in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 ("2011 Form 10-K") and other factors. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected.
1
PART I—FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
September 30, 2012
December 31, 2011
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
118,903
$
80,120
Restricted cash
273,305
252,368
Receivables, net
141,399
77,258
Prepaid expenses
104,646
80,529
Deferred income tax assets
78,937
85,385
Deferred site rental receivables and other current assets, net
60,186
23,492
Total current assets
777,376
599,152
Deferred site rental receivables, net
804,231
621,103
Property and equipment, net of accumulated depreciation of $4,140,879 and $3,824,136, respectively
5,380,541
4,861,227
Goodwill
2,801,161
2,035,390
Other intangible assets, net
2,368,650
2,178,182
Long-term prepaid rent, deferred financing costs and other assets, net
604,460
250,042
Total assets
$
12,736,419
$
10,545,096
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
$
48,373
$
32,055
Accrued interest
54,587
65,392
Deferred revenues and below-market tenant leases
220,744
167,238
Other accrued liabilities
120,020
104,904
Current maturities of debt and other obligations
88,093
32,517
Total current liabilities
531,817
402,106
Debt and other long-term obligations
8,295,071
6,853,182
Deferred income tax liabilities
96,735
97,562
Below-market tenant leases, deferred ground lease payable and other liabilities
869,991
500,350
Total liabilities
9,793,614
7,853,200
Commitments and contingencies (note 11)
Redeemable convertible preferred stock, $0.1 par value; 20,000,000 shares authorized; shares issued and outstanding: September 30, 2012—0 and December 31, 2011—6,111,000; stated net of unamortized issue costs; mandatory redemption and aggregate liquidation value: September 30, 2012—$0 and December 31, 2011—$305,550
—
305,032
CCIC stockholders' equity:
Common stock, $.01 par value; 600,000,000 shares authorized; shares issued and outstanding: September 30, 2012—293,161,069 and December 31, 2011—284,449,372
2,932
2,844
Additional paid-in capital
5,615,263
5,312,342
Accumulated other comprehensive income (loss)
(71,633
)
(116,996
)
Accumulated deficit
(2,606,485
)
(2,811,945
)
Total CCIC stockholders' equity
2,940,077
2,386,245
Noncontrolling interest
2,728
619
Total equity
2,942,805
2,386,864
Total liabilities and equity
$
12,736,419
$
10,545,096
See notes to condensed consolidated financial statements.
2
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In thousands of dollars, except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2012
2011
2012
2011
Net revenues:
Site rental
$
538,761
$
468,920
$
1,553,878
$
1,382,219
Network services and other
82,576
44,963
204,715
131,039
Net revenues
621,337
513,883
1,758,593
1,513,258
Operating expenses:
Costs of operations(a):
Site rental
135,314
121,759
389,756
361,317
Network services and other
50,029
25,083
121,812
78,213
General and administrative
55,862
42,922
153,941
128,925
Asset write-down charges
1,560
3,090
8,250
13,696
Acquisition and integration costs
2,937
617
12,112
1,661
Depreciation, amortization and accretion
154,867
138,523
446,749
413,987
Total operating expenses
400,569
331,994
1,132,620
997,799
Operating income (loss)
220,768
181,889
625,973
515,459
Interest expense and amortization of deferred financing costs
(144,949
)
(127,119
)
(427,361
)
(380,288
)
Gains (losses) on retirement of long-term obligations
—
—
(14,586
)
—
Interest income
291
175
1,027
554
Other income (expense)
(632
)
(737
)
(3,958
)
(5,441
)
Income (loss) before income taxes
75,478
54,208
181,095
130,284
Benefit (provision) for income taxes
(32,300
)
(2,825
)
29,437
(7,763
)
Net income (loss)
43,178
51,383
210,532
122,521
Less: Net income (loss) attributable to the noncontrolling interest
1,133
105
2,443
355
Net income (loss) attributable to CCIC stockholders
42,045
51,278
208,089
122,166
Dividends on preferred stock
—
(7,541
)
(2,629
)
(17,944
)
Net income (loss) attributable to CCIC stockholders after deduction of dividends on preferred stock
$
42,045
$
43,737
$
205,460
$
104,222
Net income (loss)
$
43,178
$
51,383
$
210,532
$
122,521
Other comprehensive income (loss):
Available-for-sale securities, net of tax of $0, $0, $0 and $0, respectively:
Unrealized gains (losses) on available-for-sale securities, net of taxes
—
—
—
(7,537
)
Derivative instruments, net of taxes of $5,705, $0, $11,415 and $0, respectively:
Net change in fair value of cash flow hedging instruments, net of taxes
—
(43
)
—
(893
)
Amounts reclassified into results of operations, net of taxes
10,594
17,986
37,541
53,834
Foreign currency translation adjustments
6,876
(16,816
)
7,120
(6,662
)
Total other comprehensive income (loss)
17,470
1,127
44,661
38,742
Comprehensive income (loss)
60,648
52,510
255,193
161,263
Less: Comprehensive income (loss) attributable to the noncontrolling interest
1,171
88
1,741
721
Comprehensive income (loss) attributable to CCIC stockholders
$
59,477
$
52,422
$
253,452
$
160,542
Net income (loss) attributable to CCIC common stockholders, after deduction of dividends on preferred stock, per common share:
Basic
$
0.14
$
0.16
$
0.71
$
0.37
Diluted
$
0.14
$
0.15
$
0.71
$
0.36
Weighted-average common shares outstanding (in thousands):
Basic
290,762
282,031
288,775
284,770
Diluted
292,098
283,899
290,527
286,868
________________
(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,
2012
2011
Cash flows from operating activities:
Net income (loss)
$
210,532
$
122,521
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation, amortization and accretion
446,749
413,987
Gains (losses) on retirement of long-term obligations
14,586
—
Amortization of deferred financing costs and other non-cash interest
74,269
77,221
Stock-based compensation expense
33,573
24,937
Asset write-down charges
8,250
13,696
Deferred income tax benefit (provision)
(35,140
)
6,684
Other adjustments
13
4,848
Changes in assets and liabilities, excluding the effects of acquisitions:
Increase (decrease) in accrued interest
(11,525
)
(9,925
)
Increase (decrease) in accounts payable
(494
)
(9,713
)
Increase (decrease) in deferred revenues, deferred ground lease payables, other accrued liabilities and
other liabilities
31,230
(18,231
)
Decrease (increase) in receivables
(44,213
)
(5,318
)
Decrease (increase) in prepaid expenses, deferred site rental receivables, long-term prepaid rent,
restricted cash and other assets
(203,372
)
(165,433
)
Net cash provided by (used for) operating activities
524,458
455,274
Cash flows from investing activities:
Payments for acquisitions of businesses, net of cash acquired
(1,236,238
)
(17,997
)
Capital expenditures
(283,386
)
(265,115
)
Other investing activities, net
1,244
(14,375
)
Net cash provided by (used for) investing activities
(1,518,380
)
(297,487
)
Cash flows from financing activities:
Proceeds from issuance of long-term debt
2,100,000
—
Proceeds from issuance of capital stock
239
1,523
Principal payments on debt and other long-term obligations
(59,579
)
(26,026
)
Purchases and redemptions of long-term debt
(699,486
)
—
Purchases of capital stock
(35,984
)
(301,369
)
Purchases of preferred stock
—
(15,002
)
Borrowings under revolving credit agreement
—
273,000
Payments under revolving credit facility
(251,000
)
(125,000
)
Payments for financing costs
(40,255
)
(82
)
Net (increase) decrease in restricted cash
19,533
12,153
Dividends on preferred stock
(2,481
)
(14,713
)
Net cash provided by (used for) financing activities
1,030,987
(195,516
)
Effect of exchange rate changes on cash
1,718
722
Net increase (decrease) in cash and cash equivalents
38,783
(37,007
)
Cash and cash equivalents at beginning of period
80,120
112,531
Cash and cash equivalents at end of period
$
118,903
$
75,524
See notes to condensed consolidated financial statements.
4
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY
(In thousands of dollars, except share amounts) (Unaudited)
CCIC Stockholders
Redeemable Convertible Preferred Stock
Common Stock
Shares
Amount
Shares
($.01 Par)
Additional
Paid-In
Capital
AOCI
Accumulated
Deficit
Noncontrolling
Interest
Total
Balance, July 1, 2012
—
$
—
293,038,013
$
2,930
$
5,599,106
$
(89,065
)
$
(2,648,530
)
$
1,557
$
2,865,998
Stock-based compensation related activity, net of forfeitures
—
—
127,860
2
16,468
—
—
—
16,470
Purchases and retirement of capital stock
—
—
(4,804
)
—
(311
)
—
—
—
(311
)
Other comprehensive income (loss)(a)
—
—
—
—
—
17,432
—
38
17,470
Disposition of noncontrolling interest
—
—
—
—
—
—
—
—
—
Net income (loss)
—
—
—
—
—
—
42,045
1,133
43,178
Balance, September 30, 2012
—
$
—
293,161,069
$
2,932
$
5,615,263
$
(71,633
)
$
(2,606,485
)
$
2,728
$
2,942,805
CCIC Stockholders
Redeemable Convertible Preferred Stock
Common Stock
Shares
Amount
Shares
($.01 Par)
Additional
Paid-In
Capital
AOCI
Accumulated
Deficit
Noncontrolling
Interest
Total
Balance, July 1, 2011
6,361,000
$
317,045
287,099,439
$
2,871
$
5,407,010
$
(141,746
)
$
(2,899,597
)
$
254
$
2,368,792
Stock-based compensation related activity, net of forfeitures
—
—
88,793
1
8,448
—
—
—
8,449
Purchases and retirement of capital stock
—
—
(2,692,152
)
(27
)
(108,779
)
—
—
—
(108,806
)
Purchases and retirement of preferred stock and losses on purchases of preferred stock
(250,000
)
(12,464
)
—
—
—
—
(2,538
)
—
(2,538
)
Other comprehensive income (loss)(a)
—
—
—
—
—
1,144
—
(17
)
1,127
Dividends on preferred stock and amortization of issue costs
—
229
—
—
—
—
(5,003
)
—
(5,003
)
Acquisition of noncontrolling interest
—
—
—
—
—
—
—
248
248
Net income (loss)
—
—
—
—
—
—
51,278
105
51,383
Balance, September 30, 2011
6,111,000
$
304,810
284,496,080
$
2,845
$
5,306,679
$
(140,602
)
$
(2,855,860
)
$
590
$
2,313,652
___________________________
(a)
See the statement of operations and other comprehensive income (loss) for the allocation of the components of "other comprehensive income (loss)."
5
CCIC Stockholders
Redeemable Convertible Preferred Stock
Common Stock
Shares
Amount
Shares
($.01 Par)
Additional
Paid-In
Capital
AOCI
Accumulated
Deficit
Noncontrolling
Interest
Total
Balance, January 1, 2012
6,111,000
$
305,032
284,449,372
$
2,844
$
5,312,342
$
(116,996
)
$
(2,811,945
)
$
619
$
2,386,864
Stock-based compensation related activity, net of forfeitures
—
—
1,124,969
12
33,801
—
—
—
33,813
Conversion of redeemable convertible preferred stock into common stock
(6,111,000
)
(305,180
)
8,285,905
83
305,097
—
—
—
305,180
Purchases and retirement of capital stock
—
—
(699,177
)
(7
)
(35,977
)
—
—
—
(35,984
)
Other comprehensive income (loss)(a)
—
—
—
—
—
45,363
—
(702
)
44,661
Dividends on preferred stock and amortization of issue costs
—
148
—
—
—
—
(2,629
)
—
(2,629
)
Disposition of noncontrolling interest
—
—
—
—
—
—
—
368
368
Net income (loss)
—
—
—
—
—
—
208,089
2,443
210,532
Balance, September 30, 2012
—
$
—
293,161,069
$
2,932
$
5,615,263
$
(71,633
)
$
(2,606,485
)
$
2,728
$
2,942,805
CCIC Stockholders
Redeemable Convertible Preferred Stock
Common Stock
Shares
Amount
Shares
($.01 Par)
Additional
Paid-In
Capital
AOCI
Accumulated
Deficit
Noncontrolling
Interest
Total
Balance, January 1, 2011
6,361,000
$
316,581
290,826,284
$
2,908
$
5,581,525
$
(178,978
)
$
(2,960,082
)
$
(379
)
$
2,444,994
Stock-based compensation related activity, net of forfeitures
—
—
1,000,308
10
26,450
—
—
—
26,460
Purchases and retirement of capital stock
—
—
(7,330,512
)
(73
)
(301,296
)
—
—
—
(301,369
)
Purchases and retirement of preferred stock and losses on purchases of preferred stock
(250,000
)
(12,464
)
—
—
—
—
(2,538
)
—
(2,538
)
Other comprehensive income (loss)(a)
—
—
—
—
—
38,376
—
366
38,742
Dividends on preferred stock and amortization of issue costs
—
693
—
—
—
—
(15,406
)
—
(15,406
)
Acquisition of noncontrolling interest
—
—
—
—
—
—
—
248
248
Net income (loss)
—
—
—
—
—
—
122,166
355
122,521
Balance, September 30, 2011
6,111,000
$
304,810
284,496,080
$
2,845
$
5,306,679
$
(140,602
)
$
(2,855,860
)
$
590
$
2,313,652
___________________________
(a)
See the statement of operations and other comprehensive income (loss) for the allocation of the components of "other comprehensive income (loss)."
See notes to condensed consolidated financial statements.
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, 2011, and related notes thereto, included in the 2011 Form 10-K filed by Crown Castle International Corp. ("CCIC") with the SEC. All references to the "Company" include CCIC and its subsidiary companies unless otherwise indicated or the context indicates otherwise.
The Company owns, operates and leases shared wireless infrastructure, including: (1) towers, (2) distributed antenna systems ("DAS"), a type of small cell ("small cells"), and (3) third party land interests, including ground lease related assets (unless the context otherwise suggests or requires, references herein to "wireless infrastructure" include towers, small cells and third party land interests). The Company's core business is providing access to its approximately 24,400 towers (of which approximately 22,700 towers are in the U.S. and approximately 1,700 towers are in Australia), its small cells and, to a lesser extent, its third party land interests (collectively, "site rental business") via long-term contracts in various forms. Certain of the Company's towers are leased or operated for an initial period under master lease and sublease agreements, including the master lease and sublease agreements for approximately 6,500 Sprint Towers. In 2037, the Company has the option to purchase all (but not less than all) of the Sprint towers that it does not already own after the initial term expires (see also note 15). The Company also provides certain network services relating to its wireless infrastructure, consisting of installation services, and site development services relating to existing and new antenna installations on its wireless infrastructure. The Company conducts its operations through wireless infrastructure portfolios in the United States (including Puerto Rico) and Australia.
Basis of Presentation
The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company at September 30, 2012, and the consolidated results of operations and the consolidated cash flows for the nine months ended September 30, 2012 and 2011. The year end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire year.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
2.
Summary of Significant Accounting Policies
The significant accounting policies used in the preparation of the Company's consolidated financial statements are disclosed in the Company's 2011 Form 10-K, other than certain changes to deferred credits.
Deferred Credits
Deferred credits are included in “deferred revenues and below-market tenant leases” and “below-market tenant leases, deferred ground lease payable and other liabilities” on the Company's consolidated balance sheet and consist of the estimated fair value of the following items recorded in conjunction with acquisitions: (1) below-market tenant leases for contractual interests with tenants on the acquired wireless infrastructure and (2) above-market leases for land interests under the Company's wireless infrastructure.
Fair value for these deferred credits represents the difference between the stated contractual payments to be made pursuant to the in-place lease and management's estimate of fair market lease rates for each corresponding lease. Deferred credits are measured over a period equal to the estimated remaining economic lease term considering renewal provisions, and economics associated with those renewal provisions, to the extent applicable. Below-market tenant leases and above-market leases for land interests are amortized to site rental revenues and site rental costs of operations, respectively, over their respective estimated
7
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)
remaining lease term at the acquisition date.
New Accounting Pronouncements
No accounting pronouncements adopted during the nine months ended September 30, 2012 had a material impact on the Company's consolidated financial statements. No new accounting pronouncements issued during the nine months ended September 30, 2012 but not yet adopted are expected to have a material impact on the Company's consolidated financial statements.
3.
Acquisitions
WCP Acquisition
On January 12, 2012, the Company announced a definitive agreement to acquire certain subsidiaries of Wireless Capital Partners, LLC ("WCP"). On January 31, 2012 the Company closed the acquisition (“WCP Acquisition”). Upon closing, WCP held various contracts with wireless site owners, including approximately 2,300 ground lease related assets. The results of operations from WCP have been included in the consolidated statements of operations since the date of acquisition. The Company paid a purchase price that resulted in goodwill at CCUSA primarily because of the strategic opportunities related to the acquired portfolio.
The purchase price of $214.7 million includes $39.2 million of restricted cash and excludes the assumption of $336.3 million (after fair value adjustments) of debt. The Company utilized a portion of the borrowings under the senior secured term loans issued in January 2012 ("2012 Term Loans") to fund the cash consideration.
The final allocation of the total purchase price for the WCP Acquisition was primarily allocated to restricted cash, long-term prepaid rent, other intangible assets, deferred tax assets, goodwill and debt. The final purchase price allocation to long-term prepaid rent was approximately $322.4 million and had a weighted-average amortization period of 38 years. See notes 4 and 5.
NextG Networks Acquisition
In December 2011, the Company entered into a definitive agreement to acquire NextG Networks, Inc. ("NextG") for approximately $1.0 billion in cash, subject to certain adjustments. On April 10, 2012, the Company closed the acquisition (“NextG Acquisition”). The results of operations from NextG have been included in the consolidated statements of operations since the date of acquisition.
Prior to the NextG Acquisition, NextG was the largest U.S. provider of outdoor DAS, a network of antennas connected by fiber to a communications hub designed to facilitate wireless communications for wireless carriers. Approximately 75% of NextG's nodes at the time of the acquisition were located in the ten largest metropolitan statistical areas in the U.S.
The Company utilized borrowings under the 2012 Term Loans to fund the cash consideration of approximately $1.0 billion.
8
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)
The preliminary purchase price allocation for the NextG Acquisition is shown below. The effect of the change in the preliminary purchase price allocation on the Company's Statement of Operations and Comprehensive Income (Loss) is immaterial to the periods presented. The preliminary purchase price allocation is not finalized as of September 30, 2012, and is based upon a preliminary valuation which is subject to change as the Company obtains additional information,including with respect to fixed assets, intangibles assets and certain liabilities.
Preliminary Purchase Price Allocation
Presented September 30, 2012
Presented June 30, 2012
Current assets
$
73,851
$
74,246
Property and equipment
520,361
515,984
Goodwill
697,448
682,148
Other intangible assets, net
195,000
195,000
Other assets
4,251
4,251
Current liabilities
(104,083
)
(86,433
)
Below-market tenant leases and other non-current liabilities
(337,806
)
(330,045
)
Deferred income tax liabilities
(51,304
)
(57,433
)
Net assets acquired
$
997,718
$
997,718
Subsequent to the closing of the NextG Acquisition, the Company finalized plans for the integration of NextG's operations and DAS into the Company's operations, including with respect to the Company's policies, procedures and systems. As a result, for the nine months ended September 30, 2012 the Company recognized integration costs of: (1) $4.2 million related to severance and retention bonuses payable to involuntarily terminated employees of NextG and (2) other incremental costs directly related to the integration of $4.7 million, including costs associated with temporary employees assisting with the NextG integration. These costs are classified as acquisition and integration costs in the Company's consolidated statement of operation and comprehensive income (loss).
Unaudited Pro Forma Operating Results
The following table presents the unaudited pro forma condensed consolidated results of operations of the Company as if the NextG Acquisition was completed as of January 1, 2011 for the periods presented below. The unaudited pro forma amounts are presented for illustrative purposes only and are not necessarily indicative of future consolidated results of operations.
Nine Months Ended September 30,
2012
2011
Net revenues
$
1,793,787
$
1,600,528
Net income (loss)
$
190,451
$
97,899
(a)
Basic net income (loss) attributable to CCIC common stockholders, after deduction of dividends on preferred stock, per common share
$
0.64
$
0.28
Diluted net income (loss) attributable to CCIC common stockholders, after deduction of dividends on preferred stock, per common share
$
0.64
$
0.28
________________
(a)
Inclusive of $46.3 million in NextG stock-based compensation charges and $15.7 million in acquisition and integration costs incurred by NextG.
The unaudited pro forma condensed consolidated results of operations include non-recurring pro forma adjustments predominately related to a $11.7 million decrease for the nine months ended September 30, 2012 and a $50.4 million increase for the nine months ended September 30, 2011 in income tax benefit predominately related to the reversal of U.S. federal deferred income tax valuation allowances as a result of recording deferred tax liabilities.
See note 4 for discussion of goodwill and other intangible assets recognized in conjunction with the NextG Acquisition and note 6 for discussion of the income tax impact of the NextG Acquisition.
9
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)
4.
Goodwill and Intangible Assets
Goodwill of $697.4 million was recorded in the CCUSA segment in connection with the preliminary purchase price allocation for the NextG Acquisition, none of which is expected to be deductible for tax purposes. Goodwill of $54.8 million was recorded in connection with the WCP Acquisition, of which $40.9 million is not expected to be deductible for tax purposes.
The preliminary purchase price allocation for the NextG Acquisition resulted in the recognition of a substantial amount of goodwill based on the following:
•
the acquired and in-process DAS have low average tenancy, which the Company believes provides an opportunity to co-locate additional tenants on those systems;
•
the Company believes that the economics associated with DAS are similar to the economics associated with the Company's towers, whereby expected increases in revenues from additional tenants on existing DAS are expected to result in high incremental margins due to relatively fixed operating costs;
•
the Company believes the demand for tenants to co-locate on DAS will be driven by the continued growth trends in the wireless communication industry as wireless carriers continue to focus on improving network quality and expanding capacity;
•
the Company believes the acquired DAS are well-positioned to benefit from the anticipated growth in the wireless industry with their previously mentioned locations in the ten largest metropolitan statistical areas in the U.S.; and
•
other intangibles not qualified for separate recognition, including the assembled work force.
To a lesser extent, a portion of the goodwill recognized is the result of recording the tax impact of the NextG Acquisition. See also note 6.
The following is a summary of the Company's intangible assets.
As of September 30, 2012
As of December 31, 2011
Gross Carrying Value
Accumulated Amortization
Net Book Value
Gross Carrying Value
Accumulated Amortization
Net Book Value
Site rental contracts and customer relationships
$
3,112,773
$
(865,227
)
$
2,247,546
$
2,823,832
$
(748,850
)
$
2,074,982
Other intangible assets
181,477
(60,373
)
121,104
152,375
(49,175
)
103,200
Total
$
3,294,250
$
(925,600
)
$
2,368,650
$
2,976,207
$
(798,025
)
$
2,178,182
The components of the additions to intangible assets during the nine months ended September 30, 2012 are as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2012
2012
Amount
Weighted-Average Amortization Period
Amount(a)
Weighted-Average Amortization Period
(In years)
(In years)
Site rental contracts and customer relationships
$
20,481
20.0
$
288,045
23.3
Other intangible assets
—
—
30,440
18.8
Total
$
20,481
20.0
$
318,485
22.9
________________
(a)
$94.5 million related to the WCP Acquisition.
10
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)
Amortization expense related to intangible assets is classified as follows on the Company's consolidated statement of operations and comprehensive income (loss):
Three Months Ended September 30,
Nine Months Ended September 30,
Classification
2012
2011
2012
2011
Depreciation, amortization and accretion
$
42,970
$
39,977
$
125,496
$
119,212
Site rental costs of operations
763
857
2,326
2,852
Total amortization expense
$
43,733
$
40,834
$
127,822
$
122,064
The estimated annual amortization expense related to intangible assets (inclusive of those recorded to "site rental costs of operations") for the three months ended December 31, 2012 and years ended December 31, 2013 to 2016 is as follows:
Three Months Ended December 31,
Years Ending December 31,
2012
2013
2014
2015
2016
Estimated annual amortization
$
42,592
$
164,517
$
161,186
$
155,572
$
155,544
During the nine months ended September 30, 2012, the Company recorded deferred credits of $298.1 million related to below-market tenant leases as a result of the preliminary purchase price allocation for the NextG Acquisition (see note 3). The below-market tenant leases recorded during the nine months ended September 30, 2012 have a weighted-average amortization period of 11 years and are amortized to site rental revenues on the consolidated statement of operations and comprehensive income (loss).
The estimated annual amounts related to below-market tenant leases expected to be amortized into site rental revenues for the three months ended December 31, 2012 and years ended December 31, 2013 to 2016 are as follows:
Three Months Ended December 31,
Years Ending December 31,
2012
2013
2014
2015
2016
Estimated annual amortization
$
7,132
$
28,518
$
28,479
$
27,578
$
26,791
11
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
Outstanding
Balance as of
September 30, 2012
Outstanding
Balance as of
December 31, 2011
Stated Interest
Rate as of
September 30, 2012(a)
Bank debt - variable rate:
Revolver
Jan. 2007
Sept. 2013
$
—
$
251,000
N/A
2012 Revolver
Jan. 2012
Jan. 2017
—
(b)
—
N/A
(c)
2007 Term Loans
Jan./March 2007
March 2014
—
619,125
N/A
2012 Term Loans
Jan. 2012
2017/2019
2,075,500
—
3.7
%
(c)
Total bank debt
2,075,500
870,125
Securitized debt - fixed rate:
January 2010 Tower Revenue Notes
Jan. 2010
2035 - 2040
(d)
1,900,000
1,900,000
5.7
%
(d)
August 2010 Tower Revenue Notes
Aug. 2010
2035 - 2040
(d)
1,550,000
1,550,000
4.5
%
(d)
2009 Securitized Notes
July 2009
2019/2029
(e)
203,001
216,431
7.0
%
WCP Securitized Notes
Nov. 2010
Nov. 2040
(f)
328,764
(f)
—
5.4
%
(g)
Total securitized debt
3,981,765
3,666,431
High yield bonds - fixed rate:
9% Senior Notes
Jan. 2009
Jan. 2015
792,753
817,799
9.0
%
(h)
7.75% Secured Notes
Apr. 2009
May 2017
946,648
978,983
7.8
%
(i)
7.125% Senior Notes
Nov. 2009
Nov. 2019
498,056
497,904
7.1
%
(j)
7.5% Senior Notes
Dec. 2003
Dec. 2013
—
51
N/A
Total high yield bonds
2,237,457
2,294,737
Other:
Capital leases and other obligations
Various
Various
(k)
88,442
54,406
Various
(k)
Total debt and other obligations
8,383,164
6,885,699
Less: current maturities and short-term debt and other current obligations
88,093
32,517
Non-current portion of long-term debt and other long-term obligations
$
8,295,071
$
6,853,182
________________
(a)
Represents the weighted-average stated interest rate.
(b)
As of September 30, 2012, the undrawn availability under the $1.0 billion senior secured revolving credit facility ("2012 Revolver") is $1.0 billion.
(c)
The 2012 Revolver and the Term Loan A bear interest at a per annum rate equal to LIBOR plus 2.0% to 2.75%, based on CCOC's total net leverage ratio. Term Loan B bears interest at a per annum rate equal to LIBOR plus 3.0% (with LIBOR subject to a floor of 1% per annum). The Company pays a commitment fee of 0.4% per annum on the undrawn available amount under the 2012 Revolver.
(d)
If the respective series of the January 2010 Tower Revenue Notes and August 2010 Tower Revenue Notes are not paid in full on or prior to 2015, 2017 and 2020, as applicable, then Excess Cash Flow (as defined in the indenture) of the issuers (of such notes) will be used to repay principal of the applicable series and class of the 2010 Tower Revenue Notes, and additional interest (of approximately 5% per annum) will accrue on the respective 2010 Tower Revenue Notes. The January 2010 Tower Revenue Notes consist of three series of notes with principal amounts of $300.0 million, $350.0 million and $1.3 billion, having anticipated repayment dates in 2015, 2017 and 2020, respectively. The August 2010 Tower Revenue Notes consist of three series of notes with principal amounts of $250.0 million, $300.0 million and $1.0 billion, having anticipated repayment dates in 2015, 2017 and 2020, respectively.
(e)
The 2009 Securitized Notes consist of $133.0 million of principal as of September 30, 2012 that amortizes through 2019, and $70.0 million of principal as of September 30, 2012 that amortizes during the period beginning in 2019 and ending in 2029.
(f)
The WCP securitized notes ("WCP Securitized Notes") were assumed in connection with the WCP Acquisition. The WCP Securitized Notes include a fair value adjustment that increased the debt carrying value by $13.3 million as of September 30, 2012. The anticipated repayment date is 2015 for each class of the debt assumed in connection with the WCP Acquisition.
(g)
The effective yield is approximately 4.0%, inclusive of the fair value adjustment.
(h)
The effective yield is approximately 11.3%, inclusive of the discount.
(i)
The effective yield is approximately 8.2%, inclusive of the discount.
(j)
The effective yield is approximately 7.2%, inclusive of the discount.
(k)
The Company's capital leases and other obligations bear interest rates up to 10% and mature in periods ranging from less than 1 year to approximately 20 years.
See note 15 for a discussion of the issuance of debt in October 2012.
12
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)
2012 Credit Facility
In January 2012, the Company refinanced and repaid the Revolver and 2007 Term Loans with the proceeds of a $3.1 billion senior credit facility ("2012 Credit Facility") issued by CCOC. The 2012 Credit Facility consists of (1) a $1.0 billion 2012 Revolver which will mature in January 2017, (2) a $500.0 million Term Loan A which will mature in January 2017, and (3) a $1.6 billion Term Loan B which will mature in January 2019. The Term Loan B was fully drawn at closing and the Revolving Credit Facility and the Term Loan A were undrawn at closing. In March 2012, the Company drew the full amount under the Term Loan A. The proceeds of the 2012 Term Loans were used in part to repay the existing Revolver, repay the 2007 Term Loans and to fund the cash consideration of the WCP Acquisition and NextG Acquisition (see note 3).
The 2012 Credit Facility is secured by a pledge of certain equity interests of certain subsidiaries of CCIC, as well as a security interest in CCOC and certain of its subsidiaries' deposit accounts ($50.3 million as of September 30, 2012) and securities accounts. The 2012 Credit Facility is guaranteed by CCIC and certain of its subsidiaries.
WCP Securitized Notes
In January 2012, the Company assumed $320.1 million face value of secured debt in connection with the WCP Acquisition. The anticipated repayment date is 2015 for each class of the WCP Securitized Notes. If the WCP Securitized Notes are not repaid in full by their anticipated repayment dates, the applicable interest rate increases by an additional approximately 5% per annum. If the WCP Securitized Notes are not repaid in full by their rapid amortization date of 2017, monthly principal payments commence using the excess cash flows of the issuers of the WCP Securitized Notes. The Company also acquired restricted cash of $29.5 million that if not spent on third party land interests by November 2012 will be required to be used to repay principal amounts outstanding on the WCP Securitized Notes. Interest and principal are paid monthly on the WCP Securitized Notes. The provisions of the WCP Securitized Notes are similar to those of the 2010 Tower Revenue Notes (see note 6 of the Company's 2011 10-K for a discussion of the Company's 2010 Tower Revenue Notes).
Contractual Maturities
The following are the scheduled contractual maturities of the total debt and other long-term obligations outstanding at September 30, 2012. These maturities reflect contractual maturity dates and do not consider the principal payments that will commence following the anticipated repayment dates on the Tower Revenue Notes and the rapid amortization date on the WCP Securitized Notes. See above for a further discussion on the WCP Securitized Notes.
Three Months Ended December 31,
Years Ending December 31,
Unamortized Adjustments, Net
Total Debt and Other Obligations Outstanding
2012
2013
2014
2015
2016
Thereafter
Total Cash Obligations
Scheduled contractual maturities
$
19,839
$
89,795
$
99,336
$
941,179
$
113,198
$
7,163,572
$
8,426,919
$
(43,755
)
$
8,383,164
Retirement of Long-Term Obligations
The following is a summary of the retirement of long-term obligations during the nine months ended September 30, 2012.
Nine Months Ended September 30, 2012
Principal Amount
Cash Paid(a)
Gains (Losses)(c)
Revolver
$
251,000
$
251,000
$
(1,445
)
2007 Term Loans
619,125
619,125
(1,893
)
9% Senior Notes
37,257
41,334
(6,517
)
7.75% Secured Notes(b)
35,488
39,027
(4,731
)
Total
$
942,870
$
950,486
$
(14,586
)
________________
(a)
Exclusive of accrued interest.
(b)
These debt purchases were made by CCIC rather than by the subsidiaries that issued the debt, because of restrictions upon the subsidiaries that issued the debt; as a result, the debt remains outstanding at the Company's subsidiaries.
(c)
Inclusive of an aggregate $7.0 million related to the write-off of deferred financing costs and discounts.
13
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-Unaudited (Continued)
(Tabular dollars in thousands, except per share amounts)
Interest Expense and Amortization of Deferred Financing Costs
The components of "interest expense and amortization of deferred financing costs" are as follows:
