10-Q 1 sbac-20170930x10q.htm 10-Q 20170930 Q3 10Q - Taxonomy2016



 

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 September 30, 2017

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: 001-16853



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.)







 

8051 Congress Avenue

 

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, 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

Accelerated filer



 

 

 

Non-Accelerated filer

Smaller reporting company



 

 

 



 

Emerging growth company



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.



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: 117,542,678  shares of Class A common stock as of October 27, 2017.




 

Table of Contents 





 

 



 

 

 

 

Page

PART I – FINANCIAL INFORMATION 



 

 

Item 1.

Financial Statements



Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016



Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2017 and 2016



Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2017 and 2016



Consolidated Statement of Shareholders’ Deficit (unaudited) for the nine months ended September 30, 2017



Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2017 and 2016



Condensed Notes to Consolidated Financial Statements (unaudited)

Item 2.

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

23 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

44 

Item 4.

Controls and Procedures

46 



PART II – OTHER INFORMATION 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47 



Item 5.

Other Information

47 



Item 6.

Exhibits

48 





 

SIGNATURES 

49 











 


 

PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (in thousands, except par values)





 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,

 

December 31,



 

2017

 

2016

ASSETS

 

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

139,711 

 

$

146,109 

Restricted cash

 

 

30,168 

 

 

36,786 

Accounts receivable, net

 

 

87,417 

 

 

78,344 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

12,508 

 

 

11,127 

Prepaid expenses and other current assets

 

 

54,262 

 

 

52,205 

Total current assets

 

 

324,066 

 

 

324,571 

Property and equipment, net

 

 

2,777,339 

 

 

2,792,076 

Intangible assets, net

 

 

3,550,710 

 

 

3,656,924 

Other assets

 

 

648,355 

 

 

587,374 

Total assets

 

$

7,300,470 

 

$

7,360,945 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

32,429 

 

$

28,320 

Accrued expenses

 

 

85,052 

 

 

61,129 

Current maturities of long-term debt

 

 

773,289 

 

 

627,157 

Deferred revenue

 

 

101,168 

 

 

101,098 

Accrued interest

 

 

19,668 

 

 

44,503 

Other current liabilities

 

 

11,109 

 

 

11,240 

Total current liabilities

 

 

1,022,715 

 

 

873,447 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt, net

 

 

8,185,512 

 

 

8,148,426 

Other long-term liabilities

 

 

350,041 

 

 

334,993 

Total long-term liabilities

 

 

8,535,553 

 

 

8,483,419 

Shareholders' deficit:

 

 

 

 

 

 

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

 

 

 —

 

 

 —

Common stock - Class A, par value $.01,  400,000 shares authorized, 118,428

 

 

 

 

 

 

and 121,004 shares issued and outstanding at September 30, 2017

 

 

 

 

 

 

and December 31, 2016, respectively

 

 

1,184 

 

 

1,210 

Additional paid-in capital

 

 

2,148,273 

 

 

2,010,520 

Accumulated deficit

 

 

(4,064,805)

 

 

(3,637,467)

Accumulated other comprehensive loss, net

 

 

(342,450)

 

 

(370,184)

Total shareholders' deficit

 

 

(2,257,798)

 

 

(1,995,921)

Total liabilities and shareholders' deficit

 

$

7,300,470 

 

$

7,360,945 



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 nine months



 

ended September 30,

 

ended September 30,



 

2017

 

2016

 

2017

 

2016

Revenues:

 

 

 

 

 

 

 

 

 

Site leasing

 

$

408,538 

 

$

388,168 

 

$

1,209,089 

 

$

1,144,461 

Site development

 

 

25,407 

 

 

23,151 

 

 

75,513 

 

 

72,159 

Total revenues

 

 

433,945 

 

 

411,319 

 

 

1,284,602 

 

 

1,216,620 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation, accretion,

 

 

 

 

 

 

 

 

 

 

 

 

and amortization shown below):

 

 

 

 

 

 

 

 

 

 

 

 

Cost of site leasing

 

 

90,351 

 

 

86,354 

 

 

269,070 

 

 

255,609 

Cost of site development

 

 

21,117 

 

 

19,114 

 

 

62,713 

 

 

59,021 

Selling, general, and administrative (1)(2)

 

 

32,559 

 

 

32,255 

 

 

100,177 

 

 

110,326 

Acquisition related adjustments and expenses

 

 

1,583 

 

 

2,970 

 

 

6,857 

 

 

8,974 

Asset impairment and decommission costs

 

 

9,417 

 

 

2,305 

 

 

25,908 

 

 

23,180 

Depreciation, accretion, and amortization

 

 

161,907 

 

 

160,111 

 

 

480,457 

 

 

479,635 

Total operating expenses

 

 

316,934 

 

 

303,109 

 

 

945,182 

 

 

936,745 

Operating income

 

 

117,011 

 

 

108,210 

 

 

339,420 

 

 

279,875 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,505 

 

 

3,101 

 

 

8,648 

 

 

7,704 

Interest expense

 

 

(81,357)

 

 

(83,426)

 

 

(237,415)

 

 

(250,913)

Non-cash interest expense

 

 

(725)

 

 

(585)

 

 

(2,146)

 

 

(1,500)

Amortization of deferred financing fees

 

 

(4,957)

 

 

(5,445)

 

 

(16,603)

 

 

(16,035)

Loss from extinguishment of debt, net

 

 

 —

 

 

(34,512)

 

 

(1,961)

 

 

(34,512)

Other income (expense), net

 

 

20,062 

 

 

(1,139)

 

 

16,218 

 

 

92,137 

Total other expense

 

 

(64,472)

 

 

(122,006)

 

 

(233,259)

 

 

(203,119)

Income (loss) before provision for income taxes

 

 

52,539 

 

 

(13,796)

 

 

106,161 

 

 

76,756 

Provision for income taxes

 

 

(3,378)

 

 

(1,574)

 

 

(10,167)

 

 

(5,780)

Net income (loss)

 

$

49,161 

 

$

(15,370)

 

$

95,994 

 

$

70,976 

Net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.41 

 

$

(0.12)

 

$

0.80 

 

$

0.57 

Diluted

 

$

0.41 

 

$

(0.12)

 

$

0.79 

 

$

0.56 

Weighted average number of common shares

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

119,746 

 

 

124,604 

 

 

120,745 

 

 

125,041 

Diluted

 

 

121,026 

 

 

124,604 

 

 

121,727 

 

 

125,761 



(1)

Includes non-cash compensation of $9,213 and $7,970 for the three months ended September 30, 2017 and 2016, respectively, and $28,069 and $24,440 for the nine months ended September 30, 2017 and 2016, respectively.

(2)

Includes the impact of the $16,498 Oi reserve for the nine months ended September 30, 2016.

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 nine months



 

ended September 30,

 

ended September 30,



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2017

 

2016

Net income (loss)

 

$

49,161 

 

$

(15,370)

 

$

95,994 

 

$

70,976 

Foreign currency translation adjustments

 

 

36,472 

 

 

(5,525)

 

 

27,734 

 

 

131,659 

Comprehensive income (loss)

 

$

85,633 

 

$

(20,895)

 

$

123,728 

 

$

202,635 



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



3


 

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIT

(unaudited) (in thousands)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

Class A

 

Additional

 

 

 

 

Other

 

 

 



 

Common Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

 

 



 

Shares

 

Amount

 

Capital

 

Deficit

 

Loss

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 2016

 

121,004 

 

$

1,210 

 

$

2,010,520 

 

$

(3,637,467)

 

$

(370,184)

 

$

(1,995,921)

Net income

 

 —

 

 

 —

 

 

 —

 

 

95,994 

 

 

 —

 

 

95,994 

Common stock issued in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock purchase/option plans

 

711 

 

 

 

 

45,098 

 

 

 —

 

 

 —

 

 

45,105 

Non-cash stock compensation

 

 —

 

 

 —

 

 

29,347 

 

 

 —

 

 

 —

 

 

29,347 

Common stock issued in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

acquisitions

 

488 

 

 

 

 

63,308 

 

 

 —

 

 

 —

 

 

63,313 

Repurchase and retirement of common stock

 

(3,775)

 

 

(38)

 

 

 —

 

 

(523,332)

 

 

 —

 

 

(523,370)

Foreign currency translation adjustments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

27,734 

 

 

27,734 

BALANCE, September 30, 2017

 

118,428 

 

$

1,184 

 

$

2,148,273 

 

$

(4,064,805)

 

$

(342,450)

 

$

(2,257,798)



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 nine months



 

ended September 30,



 

2017

 

2016

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

95,994 

 

$

70,976 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation, accretion, and amortization

 

 

480,457 

 

 

479,635 

Non-cash asset impairment and decommission costs

 

 

22,316 

 

 

19,050 

Non-cash compensation expense

 

 

28,894 

 

 

24,752 

Amortization of deferred financing fees

 

 

16,603 

 

 

16,035 

Gain on remeasurement of U.S. dollar denominated intercompany loan

 

 

(11,649)

 

 

(88,964)

Provision for doubtful accounts (1)

 

 

1,498 

 

 

20,516 

Loss from extinguishment of debt, net

 

 

1,961 

 

 

34,512 

Other non-cash items reflected in the Statements of Operations

 

 

(2,481)

 

 

(3,418)

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable and costs and estimated earnings in excess of

 

 

 

 

 

 

billings on uncompleted contracts, net

 

 

(11,950)

 

 

(3,644)

Prepaid expenses and other assets

 

 

(18,168)

 

 

(30,973)

Accounts payable and accrued expenses

 

 

4,846 

 

 

(4,263)

Accrued interest

 

 

(24,836)

 

 

(17,825)

Other liabilities

 

 

7,987 

 

 

10,842 

Net cash provided by operating activities

 

 

591,472 

 

 

527,231 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Acquisitions

 

 

(161,007)

 

 

(191,402)

Capital expenditures

 

 

(106,310)

 

 

(104,320)

Other investing activities

 

 

(23,598)

 

 

(4,491)

Net cash used in investing activities

 

 

(290,915)

 

 

(300,213)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Borrowings under Revolving Credit Facility

 

 

415,000 

 

 

290,000 

Repayments under Revolving Credit Facility

 

 

(375,000)

 

 

(140,000)

Repayment of Tower Securities

 

 

(610,000)

 

 

(550,000)

Proceeds from issuance of Tower Securities, net of fees

 

 

749,811 

 

 

690,584 

Repurchase and retirement of common stock, inclusive of fees

 

 

(523,370)

 

 

(202,349)

Proceeds from 2016 Senior Notes, net of fees

 

 

 —

 

 

1,078,387 

Payment for the redemption of 5.75% Senior Notes

 

 

 —

 

 

(825,795)

Other financing activities

 

 

25,957 

 

 

(7,293)

Net cash (used in) provided by financing activities

 

 

(317,602)

 

 

333,534 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

3,537 

 

 

13,760 

NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

 

(13,508)

 

 

574,312 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:

 

 

 

 

 

 

Beginning of period

 

 

185,970 

 

 

146,619 

End of period

 

$

172,462 

 

$

720,931 



(1)

Includes the impact of the $16,498  Oi reserve for the nine months ended September 30, 2016.



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 nine months



 

ended September 30,



 

2017

 

2016



 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

262,257 

 

$

268,997 

Income taxes

 

$

11,323 

 

$

8,133 



 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

 

 

 

 

 

 

Assets acquired through capital leases

 

$

254 

 

$

1,386 

Common stock issued in connection with acquisitions

 

$

63,313 

 

$

 —



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, 2016 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 amounts, when known, may vary from these estimates.

Foreign Currency Translation

The functional currency for the Company’s Central American subsidiaries is the U.S. dollar. Monetary assets and liabilities of such subsidiaries which are not denominated in U.S. dollars are remeasured at exchange rates in effect at the balance sheet date, and revenues and expenses are remeasured at monthly average rates prevailing during the year. Unrealized translation gains and losses are reported as other income (expense), net in the Consolidated Statement of Operations.

All assets and liabilities of foreign subsidiaries that do not utilize the U.S. dollar as its functional currency are translated at period-end rates of exchange, while revenues and expenses are translated at monthly average rates of exchange prevailing during the period. Unrealized remeasurement gains and losses are reported as foreign currency translation adjustments through Accumulated Other Comprehensive Loss in the accompanying Consolidated Statement of Shareholders’ Deficit.

Intercompany Loans

In accordance with ASC 830, the Company remeasures foreign denominated intercompany loans with the corresponding change in the balance being recorded in Other income (expense), net in the Consolidated Statement of Operations as settlement is anticipated or planned in the foreseeable future. The Company recorded an $18.4 million gain and a $3.2 million loss on the remeasurement of intercompany loans for the three months ended September 30, 2017 and 2016, respectively, and an $11.6 million gain and an $89.0 million gain on the remeasurement of intercompany loans for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the outstanding balance under the intercompany loan agreement with our Brazilian subsidiary was $433.3 million.

Accounting Pronouncements Recently Adopted

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business. The standard provides guidance to help entities determine whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 provides revised guidance to determine when an acquisition meets the definition of a business or should be accounted for as an asset acquisition, likely resulting in more acquisitions being accounted for as asset acquisitions as opposed to business combinations. The Company adopted this standard prospectively effective January 1, 2017. Under this update, substantially all of the Company’s acquisitions are expected to qualify for asset acquisition treatment under ASC 360, Property, Plant, and Equipment, rather than business combination treatment under ASC 805 Business Combinations. For asset acquisitions, external, direct transaction costs will be capitalized as a component of the cost of the asset acquired, while internal costs related to the asset acquisition will continue to be expensed as incurred. Additionally, earnout liabilities will be recognized at the time when the contingency is resolved or becomes payable and will increase the cost basis of the assets acquired. The adoption of ASU 2017-01 did not have a material impact on the Company’s unaudited consolidated financial statements and related disclosures.

7


 

Recent Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB released an updated standard regarding the recognition of revenue from contracts with customers, exclusive of those contracts within lease accounting. The core principle of the standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contracts with the customer; (2) identify the performance obligations in the contract; (3) determine the contract price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This standard is effective for the Company in the first quarter of 2018. Early adoption is permitted. This standard is required to be applied retrospectively to each prior reporting period presented or with the cumulative effect being recognized at the date of initial application. The Company is evaluating the standard and does not expect a material financial statement impact upon adoption since the standard only affects the Company’s site development segment, which represents approximately 6% of the Company’s total revenues.

In February 2016, the FASB issued ASU 2016-02, Leases. The standard 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 standard is effective for annual and interim periods beginning after December 15, 2018 and requires a modified retrospective transition approach for all leases existing at, or entered into after, the beginning of the earliest comparative period presented. Early adoption is permitted; however, the Company does not currently plan to early adopt. The Company has established a cross functional project plan and is currently assessing the impact of the standard on its consolidated financial statements. The Company expects this guidance to have a material impact on its consolidated balance sheet due to the recognition of right-of-use assets and lease liabilities for its ground leases. The Company does not expect adoption to have a material impact on its consolidated statement of operations, nor does it expect accounting for capital leases to change substantially.



2.FAIR VALUE MEASUREMENTS

Items Measured at Fair Value on a Recurring Basis— The Company’s earnout liabilities related to business combinations are measured at fair value on a recurring basis using Level 3 inputs and are recorded in Accrued expenses in the accompanying Consolidated Balance Sheets. Changes in estimates are recorded in Acquisition related adjustments and expenses in the accompanying Consolidated Statement of Operations. The Company determines the fair value of earnouts (contingent consideration) and any subsequent changes in fair value using a discounted probability-weighted approach 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 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 contained in various acquisitions prior to January 1, 2017 (adoption of ASU 2017-01) was $2.8 million and $4.1 million as of September 30, 2017 and December 31, 2016, respectively. The maximum potential obligation related to the performance targets for these various acquisitions was $4.2 million and $5.8 million as of September 30, 2017 and December 31, 2016, respectively. The maximum potential obligation related to the performance targets for acquisitions after January 1, 2017 was $7.9 million as of September 30, 2017.



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.

8


 

Asset impairment and decommission costs for all periods presented and the related impaired assets primarily relate to the Company’s site leasing operating segment. The following summarizes the activity of asset impairment and decommission costs (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months

 

For the nine months



 

ended September 30,

 

ended September 30,



 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

Asset impairment (1)

 

$

4,128 

 

$

6,673 

 

$

10,162 

 

$

14,138 

Write-off of carrying value of decommissioned towers

 

 

4,496 

 

 

3,587 

 

 

12,143 

 

 

11,449 

Write-off and disposal of former corporate headquarters

 

 

 —

 

 

 —

 

 

 —

 

 

2,346 

Gain on sale of fiber assets (2)

 

 

 —

 

 

(8,965)

 

 

 —

 

 

(8,965)

Other third party decommission costs

 

 

793 

 

 

1,010 

 

 

3,603 

 

 

4,212 

Total asset impairment and decommission costs

 

$

9,417 

 

$

2,305 

 

$

25,908 

 

$

23,180 

(1)

Represents impairment charges resulting from the Company’s regular analysis of whether the future cash flows from certain towers are adequate to recover the carrying value of the investment in those towers.

(2)

Related to the sale of fiber assets acquired in the 2012 Mobilitie transaction.

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 $0.2 million in Treasury securities as of September 30, 2017 and December 31, 2016. 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 September 30, 2017 and December 31, 2016,  the carrying value and fair value of the held-to-maturity investments, including current portion, were $0.7 million. These amounts are recorded in Prepaid expenses and other current assets and Other assets in the accompanying Consolidated Balance Sheets.

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 monthly or more frequently. The Company does not believe its credit risk has changed materially from the date the applicable Eurodollar Rate plus 137.5 to 200.0 basis points was set for the Revolving Credit Facility. Refer to Note 10 for the fair values, principal balances, and carrying values of the Company’s debt instruments.

3.RESTRICTED CASH

The cash, cash equivalents, and restricted cash balances on the consolidated statement of cash flows consists of the following:





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

As of

 

As of

 

 



 

September 30, 2017

 

December 31, 2016

 

Included on Balance Sheet



 

 

 

 

 

 

 

 



 

 

(in thousands)

 

 

Cash and cash equivalents

 

$

139,711 

 

$

146,109 

 

 

Securitization escrow accounts

 

 

29,929 

 

 

36,607 

 

Restricted cash - current asset

Payment and performance bonds

 

 

239 

 

 

179 

 

Restricted cash - current asset

Surety bonds and workers compensation

 

 

2,583 

 

 

3,075 

 

Other assets - noncurrent

Total cash, cash equivalents, and restricted cash

 

$

172,462 

 

$

185,970 

 

 



Pursuant to the terms of the Tower Securities (see Note 10), the Company is required to establish a securitization escrow account, held by the 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

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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. The restricted cash in the securitization escrow account in excess of required reserve balances is subsequently released to the Borrowers (as defined in Note 10) 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 related to the Company’s tower removal obligations. As of September 30, 2017 and December 31, 2016, the Company had $39.1 million and $39.2 million in surety, payment and performance bonds, respectively, for which it was only required to post $0.5 million in collateral as of December 31, 2016.  As of September 30, 2017,  no  collateral was required to be posted. The Company periodically evaluates the collateral posted for its bonds to ensure that it meets the minimum requirements. As of September 30, 2017 and December 31, 2016, the Company had also pledged $2.5 million as collateral related to its workers compensation policy. 

4.PREPAID EXPENSES AND OTHER CURRENT ASSETS

The Company’s prepaid expenses and other current assets are comprised of the following:





 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

September 30, 2017

 

December 31, 2016



 

 

 

 

 

 



 

 

(in thousands)

Prepaid land rent

 

$

30,932 

 

$

33,975 

Other

 

 

23,330 

 

 

18,230 

Total prepaid expenses and other current assets

 

$

54,262 

 

$

52,205 























5.ACQUISITIONS

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







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months

 

For the nine months



 

ended September 30,

 

ended September 30,



 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 



 

(in thousands)

Towers and related intangible assets (1)(2)

 

$

66,338 

 

$

31,022 

 

$

124,476 

 

$

144,534 

Land buyouts and other assets (3)

 

 

12,488 

 

 

11,676 

 

 

36,531 

 

 

46,868 

Total cash acquisition capital expenditures

 

$

78,826 

 

$

42,698 

 

$

161,007 

 

$

191,402 



(1)

The nine months ended September 30, 2017 excludes $63.3 million of acquisition costs funded through the issuance of 487,963 shares of Class A common stock.

(2)

The three and nine months ended September 30, 2017 exclude $21.0 million of acquisitions completed during the second quarter of 2017 which were not funded as of September 30, 2017.

(3)

In addition, the Company paid $2.4 million and $2.2 million for ground lease extensions and term easements on land underlying our towers during the three months ended September 30, 2017 and 2016, respectively, and paid $10.6 million and $8.7 million for ground lease extensions and term easements on land underlying our towers during the nine months ended September 30, 2017 and 2016, respectively. The Company recorded these amounts in prepaid rent on its Consolidated Balance Sheets.

For acquisitions which qualify as asset acquisitions, the aggregate purchase price is allocated on a relative fair value basis to towers and related intangible assets. The fair values of these net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures

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and techniques. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management at the time. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the consolidated financial statements could be subject to a possible impairment of the intangible assets, or require acceleration of the amortization expense of intangible assets in subsequent periods.

For business combinations, the estimates of the fair value of the assets acquired and liabilities assumed at the date of an acquisition are subject to adjustment during the measurement period (up to one year from the particular acquisition date). During the measurement period, the Company will adjust assets and/or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in a revised estimated value of those assets and/or liabilities as of that date. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, including contingent consideration and any related tax impact.

During the nine months ended September 30, 2017, the Company acquired 436 completed towers and related assets and liabilities consisting of $48.0 million of property and equipment, $160.0 million of intangible assets, and $0.2 million of working capital adjustments.

Subsequent to September 30, 2017, the Company acquired 35 towers and related assets for $24.4 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 September 30, 2017

 

As of December 31, 2016



 

Gross carrying

 

Accumulated

 

Net book

 

Gross carrying

 

Accumulated

 

Net book



 

amount

 

amortization

 

value

 

amount

 

amortization

 

value



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(in thousands)

Current contract intangibles

 

$

4,284,068 

 

$

(1,612,010)

 

$

2,672,058 

 

$

4,141,968 

 

$

(1,401,025)

 

$

2,740,943 

Network location intangibles

 

 

1,555,579 

 

 

(676,927)

 

 

878,652 

 

 

1,515,348 

 

 

(599,367)

 

 

915,981 

Intangible assets, net

 

$

5,839,647 

 

$

(2,288,937)

 

$

3,550,710 

 

$

5,657,316 

 

$

(2,000,392)

 

$

3,656,924 



All intangible assets noted above are included in the Company’s site leasing segment. The Company amortizes its intangible assets using the straight-line method over 15 years. Amortization expense relating to the intangible assets above was $96.8 million and $93.6 million for the three months ended September 30, 2017 and 2016, respectively, and $286.8 million and $276.4 million for the nine months ended September 30, 2017 and 2016, respectively

7.PROPERTY AND EQUIPMENT, NET

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





 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

September 30, 2017

 

December 31, 2016



 

 

 

 

 

 



 

(in thousands)

Towers and related components

 

$

4,691,935 

 

$

4,563,756 

Construction-in-process

 

 

36,429 

 

 

38,926 

Furniture, equipment, and vehicles

 

 

51,713 

 

 

50,671 

Land, buildings, and improvements

 

 

617,032 

 

 

578,680 

Total property and equipment

 

 

5,397,109 

 

 

5,232,033 

Less: accumulated depreciation

 

 

(2,619,770)

 

 

(2,439,957)

Property and equipment, net

 

$

2,777,339 

 

$

2,792,076 

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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 $65.0 million and $66.4 million for the three months ended September 30, 2017 and 2016, respectively, and $193.2 million and $202.8 million for the nine months ended September 30, 2017 and 2016, respectively. At September 30, 2017 and December 31, 2016, non-cash capital expenditures that are included in accounts payable and accrued expenses were $7.5 million and $7.0 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



 

September 30, 2017

 

December 31, 2016



 

 

 

 

 

 



 

(in thousands)

Costs incurred on uncompleted contracts

 

$

31,845 

 

$

34,577 

Estimated earnings

 

 

11,255 

 

 

11,185 

Billings to date

 

 

(30,861)

 

 

(36,027)



 

$

12,239 

 

$

9,735 



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





 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

September 30, 2017

 

December 31, 2016



 

 

 

 

 

 



 

(in thousands)

Costs and estimated earnings in excess of billings on uncompleted contracts

 

$

12,508 

 

$

11,127 

Billings in excess of costs and estimated earnings on

 

 

 

 

 

 

uncompleted contracts (included in Other current liabilities)

 

 

(269)

 

 

(1,392)



 

$

12,239 

 

$

9,735 



Eight customers comprised 82.3% and 81.6% of the costs and estimated earnings in excess of billings on uncompleted contracts, net of billings in excess of costs and estimated earnings at September 30, 2017 and December 31, 2016, respectively.



9.EARNINGS PER SHARE

Basic earnings per share was computed by dividing net income from continuing operations attributable to common shareholders by the weighted-average number of shares of Common Stock outstanding for each respective period. Diluted earnings per share was calculated by dividing net income from continuing operations attributable to common shareholders by the weighted-average number of shares of Common Stock outstanding adjusted for any dilutive Common Stock equivalents, including unvested restricted stock and shares issuable upon exercise of stock options as determined under the “If-Converted” method and also Common Stock warrants as determined under the “Treasury Stock” method.

12


 

The following table sets forth basic and diluted net income per common share for the three and nine months ended September 30, 2017 and 2016 (in thousands, except per share data):





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months

 

For the nine months



 

ended September 30,

 

ended September 30,



 

2017

 

2016

 

2017

 

2016

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

49,161 

 

$

(15,370)

 

$

95,994 

 

$

70,976 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

119,746 

 

 

124,604 

 

 

120,745 

 

 

125,041 

Dilutive impact of stock options and restricted shares

 

 

1,280 

 

 

 —

 

 

982 

 

 

720 

Diluted weighted-average shares outstanding

 

 

121,026 

 

 

124,604 

 

 

121,727 

 

 

125,761 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.41 

 

$

(0.12)

 

$

0.80 

 

$

0.57 

Diluted

 

$

0.41 

 

$

(0.12)

 

$

0.79 

 

$

0.56 



For the three and nine months ended  September 30, 2017, the diluted weighted average number of common shares outstanding excluded an additional 11,674 and 1.8 million shares, respectively, issuable upon exercise of the Company’s stock options because the impact would be anti-dilutive.



For the three months ended September 30, 2016, all potential common stock equivalents, including 4.5 million shares of stock options outstanding and 0.3 million shares of restricted stock units outstanding, were excluded as the effect would be anti-dilutive.



For the nine months ended September 30, 2016, the diluted weighted average number of common shares outstanding excluded an additional 2.2 million shares issuable upon exercise of the Company’s stock options because the impact would be anti-dilutive.

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10.DEBT

The principal values, fair values, and carrying values of debt consist of the following (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

As of

 

As of



 

 

 

September 30, 2017

 

December 31, 2016



 

Maturity Date

 

Principal Balance

 

Fair Value

 

Carrying Value

 

Principal Balance

 

Fair Value

 

Carrying Value

2014 Senior Notes

 

July 15, 2022

 

$

750,000 

 

$

772,500 

 

$

738,547 

 

$

750,000 

 

$

763,125 

 

$

736,992 

2016 Senior Notes

 

Sep. 1, 2024

 

 

1,100,000 

 

 

1,134,375 

 

 

1,080,674 

 

 

1,100,000 

 

 

1,083,500 

 

 

1,078,954 

2012-1C Tower Securities

 

Dec. 11, 2017

 

 

 —

 

 

 —

 

 

 —

 

 

610,000 

 

 

610,165 

 

 

607,157 

2013-1C Tower Securities

 

April 10, 2018

 

 

425,000 

 

 

423,959 

 

 

424,049 

 

 

425,000 

 

 

423,381 

 

 

422,768 

2013-2C Tower Securities

 

April 11, 2023

 

 

575,000 

 

 

586,103 

 

 

568,339 

 

 

575,000 

 

 

563,322 

 

 

567,545 

2013-1D Tower Securities

 

April 10, 2018

 

 

330,000 

 

 

330,234 

 

 

329,240 

 

 

330,000 

 

 

334,521 

 

 

328,225 

2014-1C Tower Securities

 

Oct. 8, 2019

 

 

920,000 

 

 

921,168 

 

 

914,244 

 

 

920,000