0001034054-14-000009.txt : 20140805 0001034054-14-000009.hdr.sgml : 20140805 20140805171624 ACCESSION NUMBER: 0001034054-14-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20140630 FILED AS OF DATE: 20140805 DATE AS OF CHANGE: 20140805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SBA COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001034054 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 650716501 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30110 FILM NUMBER: 141017059 BUSINESS ADDRESS: STREET 1: 5900 BROKEN SOUND PARKWAY CITY: BOCA RATON STATE: FL ZIP: 33487 BUSINESS PHONE: 5619957670 MAIL ADDRESS: STREET 1: 5900 BROKEN SOUND PARKWAY CITY: BOCA RATON STATE: FL ZIP: 33487 10-Q 1 sbac-20140630x10q.htm 10-Q c4530a85e8be4b3

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2014

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                       to                     

 

Commission file number: 000-30110

 

SBA COMMUNICATIONS CORPORATION

(Exact name of Registrant as specified in its charter)

 

 

 

 

Florida

65-0716501

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

 

 

5900 Broken Sound Parkway NW

 

Boca Raton, Florida

33487

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code (561) 995-7670

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of Each Class

Name of Each Exchange on Which Registered

Class A Common Stock, $0.01 par value per share

The NASDAQ Stock Market LLC

 

(NASDAQ Global Select Market)

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

 

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      No   

 

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 (Section 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     No  

 

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

Accelerated filer

 

 

 

 

Non-Accelerated filer

Smaller reporting company

 

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

 

Indicate the number of shares outstanding of each issuer’s classes of common stock, as of the latest practicable date: 129,006,538 shares of Class A common stock as of July 25, 2014.

 


 

Table of Contents 

 

 

 

 

 

 

 

 

 

Page

PART I – FINANCIAL INFORMATION 

 

 

 

Item 1.

Financial Statements

 

Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013

 

Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2014 and 2013

 

Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and six months ended June 30, 2014 and 2013

 

Consolidated Statement of Shareholders’ Equity (unaudited) for the six months ended June 30, 2014

 

Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2014 and 2013

 

Condensed Notes to Consolidated Financial Statements (unaudited)

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

21 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39 

Item 4.

Controls and Procedures

42 

 

PART II – OTHER INFORMATION 

 

 

 

ITEM 5.

Other Information

42 

ITEM 6.

Exhibits

42 

 

 

 

SIGNATURES 

43 

 

 

 

 

 

 


 

PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except par values)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2014

 

2013

ASSETS

 

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

107,652 

 

$

122,112 

Restricted cash

 

 

36,419 

 

 

47,305 

Short-term investments

 

 

5,828 

 

 

5,446 

Accounts receivable, net of allowance of $833 and $686

 

 

 

 

 

 

at June 30, 2014 and December 31, 2013, respectively

 

 

72,782 

 

 

71,339 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

25,704 

 

 

27,864 

Prepaid and other current assets

 

 

65,633 

 

 

69,586 

Total current assets

 

 

314,018 

 

 

343,652 

Property and equipment, net

 

 

2,691,302 

 

 

2,578,444 

Intangible assets, net

 

 

4,041,190 

 

 

3,387,198 

Deferred financing fees, net

 

 

75,241 

 

 

73,042 

Other assets

 

 

442,832 

 

 

400,852 

Total assets

 

$

7,564,583 

 

$

6,783,188 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

27,502 

 

$

24,302 

Accrued expenses

 

 

76,431 

 

 

86,131 

Current maturities of long-term debt

 

 

1,080,200 

 

 

481,886 

Deferred revenue

 

 

91,020 

 

 

94,658 

Accrued interest

 

 

54,021 

 

 

46,689 

Other current liabilities

 

 

10,836 

 

 

14,007 

Total current liabilities

 

 

1,340,010 

 

 

747,673 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

5,778,891 

 

 

5,394,721 

Other long-term liabilities

 

 

286,394 

 

 

283,828 

Total long-term liabilities

 

 

6,065,285 

 

 

5,678,549 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Preferred stock - par value $.01, 30,000 shares authorized, no shares issued

 

 

 

 

 

 

or outstanding

 

 

 —

 

 

 —

Common stock - Class A, par value $.01, 400,000 shares authorized, 129,104 and

 

 

 

 

 

 

128,432 shares issued and outstanding at June 30, 2014 and

 

 

 

 

 

 

December 31, 2013, respectively

 

 

1,291 

 

 

1,284 

Additional paid-in capital

 

 

2,649,827 

 

 

2,907,446 

Accumulated deficit

 

 

(2,526,146)

 

 

(2,518,085)

Accumulated other comprehensive loss (income), net

 

 

34,316 

 

 

(33,679)

Total shareholders' equity

 

 

159,288 

 

 

356,966 

Total liabilities and shareholders' equity

 

$

7,564,583 

 

$

6,783,188 

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

1


 

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS 

(unaudited) (in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

For the six months

 

 

ended June 30,

 

ended June 30,

 

 

2014

 

2013

 

2014

 

2013

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Site leasing

 

$

340,452 

 

$

279,501 

 

$

649,771 

 

$

553,005 

Site development

 

 

42,968 

 

 

44,804 

 

 

79,198 

 

 

84,372 

Total revenues

 

 

383,420 

 

 

324,305 

 

 

728,969 

 

 

637,377 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation, accretion, and

 

 

 

 

 

 

 

 

 

 

 

 

amortization shown below):

 

 

 

 

 

 

 

 

 

 

 

 

Cost of site leasing

 

 

75,382 

 

 

67,784 

 

 

145,122 

 

 

135,885 

Cost of site development

 

 

32,056 

 

 

35,941 

 

 

59,483 

 

 

68,535 

Selling, general, and administrative (1)

 

 

25,441 

 

 

21,507 

 

 

50,118 

 

 

41,938 

Acquisition related expenses

 

 

2,225 

 

 

1,957 

 

 

10,786 

 

 

7,779 

Asset impairment and decommission costs

 

 

3,994 

 

 

6,493 

 

 

7,562 

 

 

10,215 

Depreciation, accretion, and amortization

 

 

161,005 

 

 

141,089 

 

 

305,447 

 

 

266,725 

Total operating expenses

 

 

300,103 

 

 

274,771 

 

 

578,518 

 

 

531,077 

Operating income

 

 

83,317 

 

 

49,534 

 

 

150,451 

 

 

106,300 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

180 

 

 

697 

 

 

266 

 

 

1,338 

Interest expense

 

 

(71,498)

 

 

(63,117)

 

 

(137,525)

 

 

(122,582)

Non-cash interest expense

 

 

(8,293)

 

 

(12,144)

 

 

(18,596)

 

 

(29,509)

Amortization of deferred financing fees

 

 

(4,278)

 

 

(3,923)

 

 

(8,516)

 

 

(7,527)

Loss from extinguishment of debt, net

 

 

(8,236)

 

 

(5,618)

 

 

(10,187)

 

 

(5,760)

Other income, net

 

 

1,384 

 

 

547 

 

 

19,774 

 

 

699 

Total other expense

 

 

(90,741)

 

 

(83,558)

 

 

(154,784)

 

 

(163,341)

Loss before provision for income taxes

 

 

(7,424)

 

 

(34,024)

 

 

(4,333)

 

 

(57,041)

Provision for income taxes

 

 

(2,043)

 

 

(1,875)

 

 

(3,728)

 

 

(1,234)

Net loss

 

$

(9,467)

 

$

(35,899)

 

$

(8,061)

 

$

(58,275)

Net loss per common share

 

$

(0.07)

 

$

(0.28)

 

$

(0.06)

 

$

(0.46)

Weighted average number of common shares

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

128,950 

 

 

127,713 

 

 

128,756 

 

 

127,387 

(1)Includes non-cash compensation of $6,090 and $4,874 for the three months ended June 30, 2014 and 2013, respectively, and $10,631 and $8,691 for the six months ended June 30, 2014 and 2013, respectively.

The accompanying condensed notes are an integral part of these consolidated financial statements.

2


 

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 

(unaudited) (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

For the six months

 

 

ended June 30,

 

ended June 30,

 

 

2014

 

2013

 

2014

 

2013

Net loss

 

$

(9,467)

 

$

(35,899)

 

$

(8,061)

 

$

(58,275)

Foreign currency translation adjustments

 

 

34,988 

 

 

(18,518)

 

 

67,995 

 

 

(16,964)

Comprehensive income (loss)

 

$

25,521 

 

$

(54,417)

 

$

59,934 

 

$

(75,239)

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

3


 

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

 (unaudited) (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

Class A

 

Additional

 

 

 

 

Other

 

 

 

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

(Loss) Income

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2013

 

128,432 

 

$

1,284 

 

$

2,907,446 

 

$

(2,518,085)

 

$

(33,679)

 

$

356,966 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(8,061)

 

 

 —

 

 

(8,061)

Common stock issued in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock purchase/option plans

 

533 

 

 

 

 

5,619 

 

 

 —

 

 

 —

 

 

5,624 

Non-cash compensation

 

 —

 

 

 —

 

 

10,972 

 

 

 —

 

 

 —

 

 

10,972 

Settlement of convertible notes

 

2,742 

 

 

28 

 

 

1,987 

 

 

 —

 

 

 —

 

 

2,015 

Settlement of convertible note hedges

 

(2,604)

 

 

(26)

 

 

30 

 

 

 —

 

 

 —

 

 

Settlement of common stock warrants

 

 

 

 —

 

 

(276,227)

 

 

 —

 

 

 —

 

 

(276,227)

Foreign currency translation adjustments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

67,995 

 

 

67,995 

BALANCE, June 30, 2014

 

129,104 

 

$

1,291 

 

$

2,649,827 

 

$

(2,526,146)

 

$

34,316 

 

$

159,288 

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

4


 

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited) (in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months

 

 

ended June 30,

 

 

2014

 

2013

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(8,061)

 

$

(58,275)

Adjustments to reconcile net loss to net cash provided by operating

 

 

 

 

 

 

activities:

 

 

 

 

 

 

Depreciation, accretion, and amortization

 

 

305,447 

 

 

266,725 

Non-cash interest expense

 

 

18,596 

 

 

29,509 

Deferred income tax expense (benefit)

 

 

37 

 

 

(1,396)

Non-cash asset impairment and decommission costs

 

 

5,263 

 

 

7,426 

Non-cash compensation expense

 

 

10,814 

 

 

8,804 

Amortization of deferred financing fees

 

 

8,516 

 

 

7,527 

Loss from extinguishment of debt, net

 

 

10,187 

 

 

5,760 

Other non-cash items reflected in the Statements of Operations

 

 

2,028 

 

 

(1,208)

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable and costs and estimated earnings in excess of

 

 

 

 

 

 

billings on uncompleted contracts, net

 

 

(656)

 

 

(20,276)

Prepaid and other assets

 

 

(16,397)

 

 

(33,656)

Accounts payable and accrued expenses

 

 

(2,044)

 

 

2,416 

Accrued interest

 

 

7,331 

 

 

4,401 

Other liabilities

 

 

11,775 

 

 

10,402 

Net cash provided by operating activities

 

 

352,836 

 

 

228,159 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Acquisitions

 

 

(967,474)

 

 

(255,409)

Capital expenditures

 

 

(72,151)

 

 

(70,202)

Other investing activities

 

 

(4,916)

 

 

213 

Net cash used in investing activities

 

 

(1,044,541)

 

 

(325,398)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Borrowings under Revolving Credit Facility

 

 

275,000 

 

 

125,000 

Repayments under Revolving Credit Facility

 

 

(390,000)

 

 

(225,000)

Repayment of Term Loans

 

 

(295,500)

 

 

(507,000)

Proceeds from employee stock purchase/stock option plans

 

 

5,624 

 

 

6,105 

Proceeds from Term Loans, net of fees

 

 

1,483,450 

 

 

 —

Proceeds from settlement of convertible note hedges

 

 

 

 

182,853 

Proceeds from issuance of Tower Securities

 

 

 —

 

 

1,305,935 

Repayment of BNDES Loans

 

 

(6,320)

 

 

 —

Payment of deferred financing fees

 

 

(812)

 

 

(1,268)

Payment for purchase of noncontrolling interests

 

 

 —

 

 

(6,008)

Payments for settlement of convertible debt

 

 

(121,289)

 

 

(794,996)

Payments for settlement of common stock warrants

 

 

(276,227)

 

 

(23,648)

Payment of restricted cash relating to SBA Tower Trust

 

 

 —

 

 

(7,333)

Other financing activities

 

 

(14,935)

 

 

(1,642)

Net cash provided by financing activities

 

 

658,995 

 

 

52,998 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

18,250 

 

 

584 

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(14,460)

 

 

(43,657)

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

Beginning of period

 

 

122,112 

 

 

233,099 

End of period

 

$

107,652 

 

$

189,442 

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

5


 

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months

 

 

ended June 30,

 

 

2014

 

2013

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

129,961 

 

$

118,155 

Income taxes

 

$

4,354 

 

$

3,249 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION OF NON-CASH ACTIVITIES:

 

 

 

 

 

 

Assets acquired through capital leases

 

$

947 

 

$

690 

Issuance of stock for settlement of convertible debt and warrants, net of hedges

 

$

283 

 

$

18,134 

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

6


 

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.BASIS OF PRESENTATION 

The accompanying consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 for SBA Communications Corporation and its subsidiaries (the “Company”). These financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States. In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. The results of operations for an interim period may not give a true indication of the results for the year. Certain reclassifications have been made to prior year amounts or balances to conform to the presentation adopted in the current year.

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in consolidated financial statements and accompanying notes. While the Company believes that such estimates are fair when considered in conjunction with the consolidated financial statements and accompanying notes, the actual amount of such estimates, when known, will vary from these estimates.

Foreign Currency Translation 

All assets and liabilities of foreign subsidiaries that do not utilize the United States dollar as its functional currency are translated at period-end rates of exchange, while revenues and expenses are translated at monthly weighted average rates of exchange for the year. Unrealized translation gains and losses are reported as foreign currency translation adjustments through other comprehensive income (loss) in shareholders’ equity.

 

2.FAIR VALUE MEASUREMENTS

Items Measured at Fair Value on a Recurring Basis— The Company’s earnouts related to acquisitions are measured at fair value on a recurring basis using Level 3 inputs. Level 3 valuations rely on unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The Company determines the fair value of acquisition-related contingent consideration and any subsequent changes in fair value using a discounted probability-weighted approach using Level 3 inputs. The fair value of the earnouts is reviewed quarterly and is based on the payments the Company expects to make based on historical internal observations related to the anticipated performance of the underlying assets. The Company’s estimate of the fair value of its obligation if the performance targets contained in various acquisition agreements were met was $19.8 million and $30.1 million as of June 30, 2014 and December 31, 2013, respectively, which the Company recorded in accrued expenses on its Consolidated Balance Sheets. The maximum potential obligation related to the performance targets was $31.6 million as of June 30, 2014.

The following summarizes the activity of the accrued earnouts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

2013

 

 

 

 

 

 

 

 

 

(in thousands)

Beginning balance, December 31,

 

$

30,063 

 

$

9,840 

Additions

 

 

5,375 

 

 

534 

Payments

 

 

(14,439)

 

 

(1,311)

Expirations

 

 

(274)

 

 

(1,786)

Change in Estimate

 

 

(1,373)

 

 

(280)

Foreign currency translation adjustments

 

 

427 

 

 

18 

Ending balance, June 30,

 

$

19,779 

 

$

7,015 

Items Measured at Fair Value on a Nonrecurring Basis— The Company’s long-lived assets, intangibles, and asset retirement obligations are measured at fair value on a nonrecurring basis using Level 3 inputs. The Company considers many factors and makes certain assumptions when making this assessment, including but not limited to: general market and economic conditions, historical operating results, geographic location, lease-up potential and expected timing of lease-up. The fair value of the long-lived assets, intangibles, and asset retirement obligations is calculated using a discounted cash flow model. During the three and six months ended June 30, 2014, the Company recognized an impairment charge of $4.0 million and $7.6 million, respectively. The impairment charge

7


 

includes the write off of $3.3 million and $5.6 million in carrying value of decommissioned towers and other third party decommission costs incurred related to the Company’s long-lived assets and intangibles for the three and six months ended June 30, 2014,  respectively.  During the three and six months ended June 30, 2013, the Company recognized an impairment charge of $6.5 million and $10.2 million, respectively. The impairment charge includes the write off of $6.1 million and $7.4 million in carrying value of decommissioned towers and other third party decommission costs incurred related to the Company’s long-lived assets and intangibles for the three and six months ended June 30, 2013, respectively. These write offs result from the Company’s analysis that the future cash flows from certain towers would not recover the carrying value of the investment in those towers. Impairment charges and the related impaired assets relate to the Company’s site leasing operating segment.

Fair Value of Financial Instruments— The carrying values of cash and cash equivalents, accounts receivable, restricted cash, accounts payable, and short-term investments approximate their estimated fair values due to the short maturity of these instruments. Short-term investments consisted of $5.6 million and $5.2 million in certificate of deposits, as of June 30, 2014 and December 31, 2013, respectively. The Company’s estimate of the fair value of its held-to-maturity investments in treasury and corporate bonds, including current portion, are based primarily upon Level 1 reported market values. As of June 30, 2014, the carrying value and fair value of the held-to-maturity investments, including current portion, were $1.2 million and $1.3 million, respectively. As of December 31, 2013, the carrying value and fair value of the held-to-maturity investments, including current portion, was $1.1 million and $1.3 million, respectively.

The Company determines fair value of its debt instruments utilizing various Level 2 sources including quoted prices and indicative quotes (non-binding quotes) from brokers that require judgment to interpret market information including implied credit spreads for similar borrowings on recent trades or bid/ask prices. The fair value of the Revolving Credit Facility is considered to approximate the carrying value because the interest payments are based on Eurodollar rates that reset every month. The Company does not believe its credit risk has changed materially from the date the applicable Eurodollar Rate plus 187.5 basis points was set for the Revolving Credit Facility. The following table reflects fair values, principal balances, and carrying values of the Company’s debt instruments (see Note 11).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2014

 

As of December 31, 2013

 

 

Fair Value

 

Principal Balance

 

Carrying Value

 

Fair Value

 

Principal Balance

 

Carrying Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

4.000% Convertible Senior Notes due 2014

 

$

1,266,140 

 

$

378,370 

 

$

370,200 

 

$

1,479,859 

 

$

499,944 

 

$

468,394 

8.250% Senior Notes due 2019

 

 

254,719 

 

 

243,750 

 

 

242,484 

 

 

262,031 

 

 

243,750 

 

 

242,387 

5.625% Senior Notes due 2019

 

 

528,750 

 

 

500,000 

 

 

500,000 

 

 

514,375 

 

 

500,000 

 

 

500,000 

5.750% Senior Notes due 2020

 

 

848,000 

 

 

800,000 

 

 

800,000 

 

 

832,000 

 

 

800,000 

 

 

800,000 

4.254% 2010-1 Tower Securities

 

 

680,564 

 

 

680,000 

 

 

680,000 

 

 

689,717 

 

 

680,000 

 

 

680,000 

5.101% 2010-2 Tower Securities

 

 

579,508 

 

 

550,000 

 

 

550,000 

 

 

586,586 

 

 

550,000 

 

 

550,000 

2.933% 2012-1Tower Securities

 

 

618,418 

 

 

610,000 

 

 

610,000 

 

 

604,736 

 

 

610,000 

 

 

610,000 

2.240% 2013-1C Tower Securities

 

 

422,510 

 

 

425,000 

 

 

425,000 

 

 

408,442 

 

 

425,000 

 

 

425,000 

3.722% 2013-2C Tower Securities

 

 

569,543 

 

 

575,000 

 

 

575,000 

 

 

530,098 

 

 

575,000 

 

 

575,000 

3.598% 2013-1D Tower Securities

 

 

332,251 

 

 

330,000 

 

 

330,000 

 

 

318,856 

 

 

330,000 

 

 

330,000 

Revolving Credit Facility

 

 

100,000 

 

 

100,000 

 

 

100,000 

 

 

215,000 

 

 

215,000 

 

 

215,000 

2011 Term Loan

 

 

 —

 

 

 —

 

 

 —

 

 

180,980 

 

 

180,529 

 

 

180,234 

2012-1 Term Loan

 

 

179,550 

 

 

180,000 

 

 

180,000 

 

 

184,538 

 

 

185,000 

 

 

185,000 

2012-2 Term Loan

 

 

 —

 

 

 —

 

 

 —

 

 

110,383 

 

 

109,971 

 

 

109,745 

2014 Term Loan

 

 

1,488,750 

 

 

1,500,000 

 

 

1,496,407 

 

 

 —

 

 

 —

 

 

 —

BNDES Loans

 

 

 —

 

 

 —

 

 

 —

 

 

5,847 

 

 

5,847 

 

 

5,847 

    Totals

 

$

7,868,703 

 

$

6,872,120 

 

$

6,859,091 

 

$

6,923,448 

 

$

5,910,041 

 

$

5,876,607 

 

 

 

 

8


 

3.RESTRICTED CASH

Restricted cash consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

 

 

June 30, 2014

 

December 31, 2013

 

Included on Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

Securitization escrow accounts

 

$

35,428 

 

$

46,364 

 

Restricted cash - current asset

Payment and performance bonds

 

 

991 

 

 

941 

 

Restricted cash - current asset

Surety bonds and workers compensation

 

 

9,342 

 

 

8,991 

 

Other assets - noncurrent

   Total restricted cash

 

$

45,761 

 

$

56,296 

 

 

 

Pursuant to the terms of the Tower Securities (see Note 11), the Company is required to establish a securitization escrow account, held by an indenture trustee, into which all rents and other sums due on the towers that secure the Tower Securities are directly deposited by the lessees. These restricted cash amounts are used to fund reserve accounts for the payment of (1) debt service costs, (2) ground rents, real estate and personal property taxes and insurance premiums related to towers, (3) trustee and servicing expenses, and (4) management fees and to reserve a portion of advance rents from tenants. The restricted cash in the controlled deposit account in excess of required reserve balances is subsequently released to the Borrowers (as defined in Note 11) monthly, provided that the Borrowers are in compliance with their debt service coverage ratio and that no event of default has occurred. All monies held by the indenture trustee are classified as restricted cash on the Company’s Consolidated Balance Sheets.

Payment and performance bonds relate primarily to collateral requirements for tower construction currently in process by the Company. Cash is pledged as collateral related to surety bonds issued for the benefit of the Company or its affiliates in the ordinary course of business and primarily relates to the Company’s tower removal obligations. As of June 30, 2014, the Company had $40.7 million in surety bonds and payment and performance bonds for which it was only required to post $3.1 million in collateral. As of December 31, 2013, the Company had $42.0 million in surety, payment and performance bonds for which it was only required to post $6.1 million in collateral. The Company periodically evaluates the collateral posted for its bonds to ensure that it meets the minimum requirements. As of June 30, 2014 and December 31, 2013, the Company had also pledged $2.6 million and $2.3 million, respectively, as collateral related to its workers compensation policy.

 

4.OTHER ASSETS

The Company’s other assets are comprised of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

June 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

(in thousands)

Restricted cash

 

$

9,342 

 

$

8,991 

Long-term investments

 

 

52,824 

 

 

52,801 

Prepaid land rent

 

 

128,153 

 

 

119,047 

Straight-line rent receivable

 

 

204,128 

 

 

179,292 

Other

 

 

48,385 

 

 

40,721 

Total other assets

 

$

442,832 

 

$

400,852 

 

 

 

5.ACQUISITIONS

The Company acquired 45 communication sites and related assets and liabilities and the rights to manage 4 additional communication sites during the three months ended June 30, 2014. These acquisitions were not significant to the Company and, accordingly, a preliminary estimate of the fair value of the assets acquired and liabilities assumed has not been presented. The Company evaluates all acquisitions after the applicable closing date of each transaction to determine whether any additional adjustments are needed to the allocation of the purchase price paid for the assets acquired and liabilities assumed by major balance sheet caption, as well as the separate recognition of intangible assets from goodwill if certain criteria are met.

 

9


 

The following table summarizes all of the Company’s cash acquisition capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months

 

For the six months

 

 

ended June 30,

 

ended June 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Towers and related intangible assets

 

$

29,315 

 

$

35,112 

 

$

948,045 

 

$

230,865 

Ground lease buyouts (1)

 

 

9,847 

 

 

11,156 

 

 

19,429 

 

 

24,544 

Total cash acquisition capital expenditures

 

$

39,162 

 

$

46,268 

 

$

967,474 

 

$

255,409 

 

(1)

In addition, the Company paid $3.7 million and $3.1 million for ground lease extensions and term easements during the three months ended June 30, 2014 and 2013, respectively, and $5.0 million and $4.9 million for ground lease extensions during the six months ended June 30, 2014 and 2013, respectively. The Company recorded these amounts in prepaid rent on its Consolidated Balance Sheets.

 

Subsequent to June 30, 2014, the Company acquired 11 communication sites and related assets and liabilities and the rights to manage 1 additional communication site for $8.1 million in cash.

 

6.INTANGIBLE ASSETS, NET

The following table provides the gross and net carrying amounts for each major class of intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2014

 

As of December 31, 2013

 

 

Gross carrying

 

Accumulated

 

Net book

 

Gross carrying

 

Accumulated

 

Net book

 

 

amount

 

amortization

 

value

 

amount

 

amortization

 

value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Current contract intangibles

 

$

3,864,470 

 

$

(772,211)

 

$

3,092,259 

 

$

3,154,616 

 

$

(649,861)

 

$

2,504,755 

Network location intangibles

 

 

1,317,793 

 

 

(368,862)

 

 

948,931 

 

 

1,209,142 

 

 

(326,699)

 

 

882,443 

Intangible assets, net

 

$

5,182,263 

 

$

(1,141,073)

 

$

4,041,190 

 

$

4,363,758 

 

$

(976,560)

 

$

3,387,198 

 

All intangible assets noted above are included in the Company’s site leasing segments. The Company amortizes its intangible assets using the straight-line method over an estimated economic life of 15 years. Amortization expense relating to the intangible assets was $89.5 million and $71.6 million for the three months ended June 30, 2014  and 2013, respectively, and $164.3 million and $133.6 million for the six months ended June 30, 2014 and 2013, respectively. These amounts are subject to changes in estimates resulting from purchase price adjustments.

7.PROPERTY AND EQUIPMENT, NET

Property and equipment, net (including assets held under capital leases) consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

June 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

 

 

(in thousands)

Towers and related components

 

$

4,037,823 

 

$

3,821,482 

Construction-in-process

 

 

27,417 

 

 

24,275 

Furniture, equipment, and vehicles

 

 

44,725 

 

 

40,274 

Land, buildings, and improvements

 

 

390,254 

 

 

364,830 

 

 

 

4,500,219 

 

 

4,250,861 

Less: accumulated depreciation

 

 

(1,808,917)

 

 

(1,672,417)

Property and equipment, net

 

$

2,691,302 

 

$

2,578,444 

 

Construction-in-process represents costs incurred related to towers that are under development and will be used in the Company’s operations. Depreciation expense was $71.7 million and $69.5 million for the three months ended June 30, 2014 and 2013, respectively, and $140.7 million and $133.0 million for the six months ended June 30, 2014 and 2013, respectively. At June 30, 2014 

10


 

and December 31, 2013, non-cash capital expenditures that are included in accounts payable and accrued expenses were $13.3 million and $11.4 million, respectively. 

 

8.COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Costs and estimated earnings on uncompleted contracts consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

June 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

 

 

(in thousands)

Costs incurred on uncompleted contracts

 

$

102,086 

 

$

94,145 

Estimated earnings

 

 

42,934 

 

 

32,547 

Billings to date

 

 

(126,344)

 

 

(108,070)

 

 

$

18,676 

 

$

18,622 

 

These amounts are included in the accompanying Consolidated Balance Sheets under the following captions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

June 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

 

 

(in thousands)

Costs and estimated earnings in excess of

 

 

 

 

 

 

    billings on uncompleted contracts

 

$

25,704 

 

$

27,864 

Other current liabilities (Billings in excess of costs and

 

 

 

 

 

 

    estimated earnings on uncompleted contracts)

 

 

(7,028)

 

 

(9,242)

 

 

$

18,676 

 

$

18,622 

 

Eight significant customers comprised 87.8% and 89.6% of the costs and estimated earnings in excess of billings on uncompleted contracts, net of billings in excess of costs and estimated earnings on uncompleted contracts at June 30, 2014 and December 31, 2013, respectively.

9.CONCENTRATION OF CREDIT RISK

The Company’s credit risks consist primarily of accounts receivable with national, regional, and local wireless service providers and federal and state government agencies. The Company performs periodic credit evaluations of its customers’ financial condition and provides allowances for doubtful accounts, as required, based upon factors surrounding the credit risk of specific customers, historical trends, and other information. The Company generally does not require collateral on its lease agreements or site development contracts.  

 

11


 

The following is a list of significant customers (representing at least 10% of segment revenues for the periods reported) and the percentage of total segment revenues for the specified time periods derived from such customers.