10-Q 1 sbac-20180331x10q.htm 10-Q 20180331 Q1 10Q_Taxonomy2017



 

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 March 31, 2018

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:  115,185,962  shares of Class A common stock as of April 26, 2018.




 

Table of Contents 





 

 



 

 

 

 

Page

PART I – FINANCIAL INFORMATION 



 

 

Item 1.

Financial Statements



Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017



Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2018 and 2017



Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2018 and 2017



Consolidated Statement of Shareholders’ Deficit (unaudited) for the three months ended March 31, 2018



Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2018 and 2017



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

39 

Item 4.

Controls and Procedures

42 



PART II – OTHER INFORMATION 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42 



Item 5.

Other Information

42 



Item 6.

Exhibits

43 





 

SIGNATURES 

44 











 


 

PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (in thousands, except par values)





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2018

 

2017

ASSETS

 

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

109,350 

 

$

68,783 

Restricted cash

 

 

28,372 

 

 

32,924 

Accounts receivable, net

 

 

101,103 

 

 

90,673 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

13,039 

 

 

17,437 

Prepaid and other current assets

 

 

50,916 

 

 

49,716 

Total current assets

 

 

302,780 

 

 

259,533 

Property and equipment, net

 

 

2,803,478 

 

 

2,812,346 

Intangible assets, net

 

 

3,600,640 

 

 

3,598,131 

Other assets

 

 

698,184 

 

 

650,195 

Total assets

 

$

7,405,082 

 

$

7,320,205 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

29,554 

 

$

33,334 

Accrued expenses

 

 

60,223 

 

 

69,862 

Current maturities of long-term debt

 

 

20,000 

 

 

20,000 

Deferred revenue

 

 

93,407 

 

 

97,969 

Accrued interest

 

 

33,862 

 

 

48,899 

Other current liabilities

 

 

13,882 

 

 

8,841 

Total current liabilities

 

 

250,928 

 

 

278,905 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt, net

 

 

9,363,686 

 

 

9,290,686 

Other long-term liabilities

 

 

378,709 

 

 

349,728 

Total long-term liabilities

 

 

9,742,395 

 

 

9,640,414 

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, 116,472

 

 

 

 

 

 

and 116,446 shares issued and outstanding at March 31, 2018

 

 

 

 

 

 

and December 31, 2017, respectively

 

 

1,165 

 

 

1,164 

Additional paid-in capital

 

 

2,184,989 

 

 

2,167,470 

Accumulated deficit

 

 

(4,395,286)

 

 

(4,388,288)

Accumulated other comprehensive loss, net

 

 

(379,109)

 

 

(379,460)

Total shareholders' deficit

 

 

(2,588,241)

 

 

(2,599,114)

Total liabilities and shareholders' deficit

 

$

7,405,082 

 

$

7,320,205 



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



 

ended March 31,



 

2018

 

2017

Revenues:

 

 

 

 

Site leasing

 

$

430,542 

 

$

397,550 

Site development

 

 

27,760 

 

 

25,813 

Total revenues

 

 

458,302 

 

 

423,363 

Operating expenses:

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation, accretion,

 

 

 

 

 

 

and amortization shown below):

 

 

 

 

 

 

Cost of site leasing

 

 

92,817 

 

 

89,382 

Cost of site development

 

 

22,520 

 

 

21,588 

Selling, general, and administrative (1)

 

 

36,049 

 

 

34,223 

Acquisition related adjustments and expenses

 

 

3,044 

 

 

2,969 

Asset impairment and decommission costs

 

 

8,506 

 

 

8,351 

Depreciation, accretion, and amortization

 

 

165,398 

 

 

159,031 

Total operating expenses

 

 

328,334 

 

 

315,544 

Operating income

 

 

129,968 

 

 

107,819 

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

1,295 

 

 

3,234 

Interest expense

 

 

(88,923)

 

 

(77,602)

Non-cash interest expense

 

 

(733)

 

 

(705)

Amortization of deferred financing fees

 

 

(5,388)

 

 

(6,698)

Loss from extinguishment of debt, net

 

 

(645)

 

 

 —

Other income, net

 

 

4,553 

 

 

14,948 

Total other expense

 

 

(89,841)

 

 

(66,823)

Income before provision for income taxes

 

 

40,127 

 

 

40,996 

Provision for income taxes

 

 

(8,582)

 

 

(3,398)

Net income

 

$

31,545 

 

$

37,598 

Net income per common share

 

 

 

 

 

 

Basic

 

$

0.27 

 

$

0.31 

Diluted

 

$

0.27 

 

$

0.31 

Weighted average number of common shares

 

 

 

 

 

 

Basic

 

 

116,494 

 

 

121,049 

Diluted

 

 

118,293 

 

 

121,734 



(1)

Includes non-cash compensation of $9,893 and $8,826 for the three months ended March 31, 2018 and 2017, 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

(unaudited) (in thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

For the three months



 

ended March 31,



 

 

 

 

 

 



 

2018

 

2017

Net income

 

$

31,545 

 

$

37,598 

Foreign currency translation adjustments

 

 

351 

 

 

27,285 

Comprehensive income

 

$

31,896 

 

$

64,883 



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, 2017

 

116,446 

 

$

1,164 

 

$

2,167,470 

 

$

(4,388,288)

 

$

(379,460)

 

$

(2,599,114)

Net income

 

 —

 

 

 —

 

 

 —

 

 

31,545 

 

 

 —

 

 

31,545 

Common stock issued in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock purchase/option plans

 

264 

 

 

 

 

6,883 

 

 

 —

 

 

 —

 

 

6,886 

Non-cash stock compensation

 

 —

 

 

 —

 

 

10,636 

 

 

 —

 

 

 —

 

 

10,636 

Repurchase and retirement of common stock

 

(238)

 

 

(2)

 

 

 —

 

 

(38,543)

 

 

 —

 

 

(38,545)

Foreign currency translation adjustments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

351 

 

 

351 

BALANCE, March 31, 2018

 

116,472 

 

$

1,165 

 

$

2,184,989 

 

$

(4,395,286)

 

$

(379,109)

 

$

(2,588,241)



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 three months ended March 31,



 

2018

 

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

31,545 

 

$

37,598 

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

 

 

 

 

 

 

Depreciation, accretion, and amortization

 

 

165,398 

 

 

159,031 

Non-cash asset impairment and decommission costs

 

 

8,446 

 

 

7,047 

Non-cash compensation expense

 

 

10,410 

 

 

9,277 

Amortization of deferred financing fees

 

 

5,388 

 

 

6,698 

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

 

 

(1,623)

 

 

(13,659)

Other non-cash items reflected in the Statements of Operations

 

 

1,296 

 

 

35 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable and costs and estimated earnings in excess of

 

 

 

 

 

 

billings on uncompleted contracts, net

 

 

(5,198)

 

 

1,444 

Prepaid expenses and other assets

 

 

(9,277)

 

 

(4,777)

Accounts payable and accrued expenses

 

 

(14,336)

 

 

(3,899)

Accrued interest

 

 

(15,137)

 

 

(25,290)

Other liabilities

 

 

1,665 

 

 

(1,199)

Net cash provided by operating activities

 

 

178,577 

 

 

172,306 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Acquisitions

 

 

(117,622)

 

 

(42,651)

Capital expenditures

 

 

(31,096)

 

 

(35,747)

Other investing activities

 

 

(2,879)

 

 

(5,879)

Net cash used in investing activities

 

 

(151,597)

 

 

(84,277)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Borrowings under Revolving Credit Facility

 

 

265,000 

 

 

 —

Repayments under Revolving Credit Facility

 

 

(70,000)

 

 

(110,000)

Repayment of Tower Securities

 

 

(755,000)

 

 

 —

Proceeds from issuance of Tower Securities, net of fees

 

 

631,848 

 

 

 —

Repayment of Term Loans

 

 

(5,000)

 

 

(5,000)

Repurchase and retirement of common stock

 

 

(38,545)

 

 

(4,419)

Other financing activities

 

 

5,746 

 

 

7,147 

Net cash provided by (used in) financing activities

 

 

34,049 

 

 

(112,272)

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

 

 

(504)

 

 

3,744 

NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

 

60,525 

 

 

(20,499)

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:

 

 

 

 

 

 

Beginning of period

 

 

104,295 

 

 

185,970 

End of period

 

$

164,820 

 

$

165,471 



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 three months ended March 31,



 

2018

 

2017



 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

104,011 

 

$

102,875 

Income taxes

 

$

2,148 

 

$

2,806 



 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

 

 

 

 

 

 

Assets acquired through capital leases

 

$

260 

 

$

 —



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, 2017 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.

Revenue Recognition and Accounts Receivable

Revenue from site leasing is recognized on a straight-line basis over the current term of the related lease agreements, which are generally five to ten years. Receivables recorded related to the straight-lining of site leases are reflected in other assets on the Consolidated Balance Sheets. Rental amounts received in advance are recorded as deferred revenue on the Consolidated Balance Sheets. Revenues from site leasing represent 94% of the Company’s total revenues.

Site development projects in which the Company performs consulting services include contracts on a fixed price basis.  Site development projects are billed at contractual rates and revenue is recognized over time based on milestones achieved, which are determined based on costs incurred. Amounts billed in advance (collected or uncollected) are recorded as deferred revenue on the Consolidated Balance Sheets.

Revenue from construction projects is recognized over time, determined by the percentage of cost incurred to date compared to management’s estimated total cost for each contract. This method is used because management considers total cost to be the best available measure of progress on the contracts. These amounts are based on estimates, and the uncertainty inherent in the estimates initially is reduced as work on the contracts nears completion. The asset “costs and estimated earnings in excess of billings on uncompleted contracts” represents costs incurred and revenues recognized in excess of amounts billed. The liability “billings in excess of costs and estimated earnings on uncompleted contracts,” included within other current liabilities on the Consolidated Balance Sheets, represents billings in excess of costs incurred and revenues recognized. Refer to Note 8 for further detail of costs and estimated earnings in excess of billings on uncompleted contracts. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined to be probable.

The site development segment represents approximately 6% of the Company’s total revenues. The Company accounts for site development revenue in accordance with ASC 606, Revenue from Contracts with Customers, which the Company adopted on January 1, 2018 by applying the modified retrospective transition method. Payment terms do not result in any significant financing arrangements. Furthermore, these contracts do not typically include variable consideration; therefore, the transaction price that is recognized over time is generally the amount of the total contract. The cumulative effect of initially applying the new revenue standard had no impact on the Company’s financial results. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the new standard will have no impact to net income on an ongoing basis.

The accounts receivable balance was $101.1 million and $90.7 million as of March 31, 2018 and December 31, 2017, respectively, of which $29.3 million and $20.8 million related to the site development segment as of March 31, 2018 and December 31, 2017, respectively. The Company performs periodic credit evaluations of its customers. In addition, the Company monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon historical experience, specific customer collection issues identified, and past due balances as determined based on contractual terms. Interest is charged on outstanding receivables from customers on a case by case basis in accordance with the terms of the respective contracts or agreements with those customers. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts in the period in which uncollectibility is determined to be probable. Refer to Note 14 for further detail of the site development segment.

7


 

Foreign Currency Translation

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.

For foreign subsidiaries where the U.S. dollar is the functional currency, 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. 

Intercompany Loans Subject to Remeasurement

The Company has two wholly owned subsidiaries, Brazil Shareholder I, LLC, a Florida limited liability company, and SBA Torres Brasil, Limitada, a limitada existing under the laws of the Republic of Brazil, which have entered into intercompany loan agreements pursuant to which the entities may from time to time agree to lend/borrow amounts under the terms of each agreement. The first agreement entered into in November 2014 was for $750.0 million and was created to fund the acquisition of 1,641 towers in Brazil. The second agreement entered into in December 2017 was for $500.0 million and was created to fund the acquisition of 941 towers in Brazil.

In accordance with Accounting Standards Codification (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.  For the three months ended March 31, 2018 and 2017, the Company recorded a $1.6 million gain and a $13.7 million gain, respectively, on the remeasurement of intercompany loans due to changes in foreign exchange rates.  As of March 31, 2018, the aggregate amount outstanding under the  two intercompany loan agreements with the Company’s Brazilian subsidiary was $560.9 million. 

Recent Accounting Pronouncements Not Yet Adopted

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. 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 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 significant impact on its lease classification or to have a material impact on its consolidated statement of operations.



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 $2.5 million as of March 31, 2018 and December 31, 2017. The maximum potential obligation related to the performance targets for these various acquisitions was $3.1 million as of March 31, 2018 and December 31, 2017. The maximum potential obligation related to the performance targets for acquisitions since January 1, 2017, which have not been recorded on the Company’s Consolidated Balance Sheet, were $15.5 million and $11.1 million as of March 31, 2018 and December 31, 2017, respectively.

The Company’s asset retirement obligations are measured at fair value on a recurring basis using Level 3 inputs and are recorded in Other long-term liabilities in the accompanying Consolidated Balance Sheets. The fair value of the asset retirement obligations is calculated using a discounted cash flow model.

8


 

Items Measured at Fair Value on a Nonrecurring Basis— The Company’s long-lived assets and intangibles 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 and intangibles is calculated using a discounted cash flow model.

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



 

ended March 31,



 

2018

 

2017



 

 

 

 

Asset impairment (1)

 

$

5,855 

 

$

3,014 

Write-off of carrying value of decommissioned towers

 

 

2,001 

 

 

3,971 

Other third party decommission costs

 

 

650 

 

 

1,366 

Total asset impairment and decommission costs

 

$

8,506 

 

$

8,351 

(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.

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 March 31, 2018 and December 31, 2017. 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 March 31, 2018 and December 31, 2017,  the carrying value and fair value of the held-to-maturity investments, including current portion, were $0.5 million. The current portion is recorded in Prepaid and other current assets in the accompanying Consolidated Balance Sheets, while held-to-maturity investments are recorded in Other assets.

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 was set for the Revolving Credit Facility (137.5 to 200.0 basis points as of March 31, 2018 and 112.5 to 175.0 basis points as of the date of this filing). 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

 

 



 

March 31, 2018

 

December 31, 2017

 

Included on Balance Sheet



 

 

 

 

 

 

 

 



 

 

(in thousands)

 

 

Cash and cash equivalents

 

$

109,350 

 

$

68,783 

 

 

Securitization escrow accounts

 

 

28,143 

 

 

32,699 

 

Restricted cash - current asset

Payment and performance bonds

 

 

229 

 

 

225 

 

Restricted cash - current asset

Surety bonds and workers compensation

 

 

2,596 

 

 

2,588 

 

Other assets - noncurrent

Cash held in escrow for acquisitions

 

 

24,502 

 

 

 —

 

Other assets - noncurrent

Total cash, cash equivalents, and restricted cash

 

$

164,820 

 

$

104,295 

 

 



9


 

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 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 March 31, 2018 and December 31, 2017, the Company had $39.6 million and $39.5 million in surety, payment and performance bonds, respectively.  As of March 31, 2018 and December 31, 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 March 31, 2018 and December 31, 2017, the Company had also pledged $2.5 million as collateral related to its workers compensation policy. 

During the quarter ended March 31, 2018, the Company placed $24.5 million into escrow accounts in anticipation of pending acquisitions. These amounts are designated for use in the acquisition of towers and their use is restricted for this activity. Should the acquisitions not be consummated and the Company is not in breach of the purchase and sale agreement, the funds would be returned back to the Company without penalty. Subsequent to March 31, 2018, the Company closed on one of the pending acquisitions and $10.0 million of the escrow deposits were transferred from the escrow account to the seller.

4.PREPAID EXPENSES AND OTHER CURRENT ASSETS AND OTHER ASSETS

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





 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

March 31, 2018

 

December 31, 2017



 

 

 

 

 

 



 

 

(in thousands)

Prepaid ground rent

 

$

31,257 

 

$

32,505 

Other

 

 

19,659 

 

 

17,211 

Total prepaid expenses and other current assets

 

$

50,916 

 

$

49,716 











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





 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

March 31, 2018

 

December 31, 2017



 

 

 

 

 

 



 

 

(in thousands)

Prepaid ground rent

 

$

230,327 

 

$

220,493 

Straight-line rent receivable

 

 

318,841 

 

 

313,650 

Deferred lease costs, net

 

 

27,519 

 

 

27,703 

Cash held in escrow for acquisitions

 

 

24,502 

 

 

 —

Other

 

 

96,995 

 

 

88,349 

Total other assets

 

$

698,184 

 

$

650,195 























10


 

5.ACQUISITIONS

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





 

 

 

 

 

 



 

 

 

 

 

 



 

For the three months



 

ended March 31,



 

2018

 

2017



 

 

 

 

 

 



 

(in thousands)

Acquisitions of towers and related intangible assets

 

$

108,355 

 

$

31,147 

Land buyouts and other assets (1)

 

 

9,267 

 

 

11,504 

Total cash acquisition capital expenditures

 

$

117,622 

 

$

42,651 



(1)

In addition, the Company paid $6.6 million and $2.7 million for ground lease extensions and term easements on land underlying the Company’s towers during the three months ended March 31, 2018 and 2017, 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 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. As of March 31, 2018, there were no purchase price allocations that were preliminary.

During the three months ended March 31, 2018, the Company acquired 334 completed towers and related assets and liabilities consisting of $23.2 million of property and equipment, $101.3 million of intangible assets, and $16.2 million of working capital adjustments. All acquisitions in the quarter ended March 31, 2018 were accounted for as asset acquisitions.

Subsequent to March 31, 2018, the Company acquired 190 towers and related assets for $119.5 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 March 31, 2018

 

As of December 31, 2017



 

Gross carrying

 

Accumulated

 

Net book

 

Gross carrying

 

Accumulated

 

Net book



 

amount

 

amortization

 

value

 

amount

 

amortization

 

value



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(in thousands)

Current contract intangibles

 

$

4,425,965 

 

$

(1,746,160)

 

$

2,679,805 

 

$

4,355,171 

 

$

(1,673,270)

 

$

2,681,901 

Network location intangibles

 

 

1,649,246 

 

 

(728,411)

 

 

920,835 

 

 

1,617,441 

 

 

(701,211)

 

 

916,230 

Intangible assets, net

 

$

6,075,211 

 

$

(2,474,571)

 

$

3,600,640 

 

$

5,972,612 

 

$

(2,374,481)

 

$

3,598,131 



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 $100.3 million and $94.9 million for the three months ended March 31, 2018 and 2017, respectively

11


 

7.PROPERTY AND EQUIPMENT, NET

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



 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

March 31, 2018

 

December 31, 2017



 

 

 

 

 

 



 

(in thousands)

Towers and related components

 

$

4,817,195 

 

$

4,772,807 

Construction-in-process

 

 

35,175 

 

 

34,689 

Furniture, equipment, and vehicles

 

 

53,485 

 

 

53,260 

Land, buildings, and improvements

 

 

638,609 

 

 

630,370 

Total property and equipment

 

 

5,544,464 

 

 

5,491,126 

Less: accumulated depreciation

 

 

(2,740,986)

 

 

(2,678,780)

Property and equipment, net

 

$

2,803,478 

 

$

2,812,346 



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 $64.1 million for the three months ended March 31, 2018 and 2017, respectively. At March 31, 2018 and December 31, 2017, non-cash capital expenditures that are included in accounts payable and accrued expenses were $10.4 million and $12.4 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



 

March 31, 2018

 

December 31, 2017



 

 

 

 

 

 



 

(in thousands)

Costs incurred on uncompleted contracts

 

$

33,232 

 

$

31,404 

Estimated earnings

 

 

11,836 

 

 

10,541 

Billings to date

 

 

(32,495)

 

 

(24,771)



 

$

12,573 

 

$

17,174 



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





 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

March 31, 2018

 

December 31, 2017



 

 

 

 

 

 



 

(in thousands)

Costs and estimated earnings in excess of billings on uncompleted contracts

 

$

13,039 

 

$

17,437 

Billings in excess of costs and estimated earnings on

 

 

 

 

 

 

uncompleted contracts (included in Other current liabilities)

 

 

(466)

 

 

(263)



 

$

12,573 

 

$

17,174 



At  March 31, 2018 and December 31, 2017, eight customers comprised 87.4% and 87.9% of the costs and estimated earnings in excess of billings on uncompleted contracts, net of billings in excess of costs and estimated earnings, respectively.





12


 

9. ACCRUED EXPENSES

The Company’s accrued expenses are comprised of the following:



 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

March 31, 2018

 

December 31, 2017



 

 

 

 

 

 



 

(in thousands)

Accrued earnouts on business combinations

 

$

2,503 

 

$

2,470 

Salaries and benefits

 

 

5,755 

 

 

13,506 

Real estate and property taxes

 

 

6,900 

 

 

7,125 

Non-cash capital expenditures

 

 

10,352 

 

 

12,408 

Other

 

 

34,713 

 

 

34,353 

Total accrued expenses

 

$

60,223 

 

$

69,862 















10.DEBT

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





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

As of

 

As of



 

 

 

March 31, 2018

 

December 31, 2017



 

Maturity Date

 

Principal Balance

 

Fair Value

 

Carrying Value

 

Principal Balance

 

Fair Value

 

Carrying Value

2014 Senior Notes

 

Jul. 15, 2022

 

$

750,000 

 

$

753,750 

 

$

739,617 

 

$

750,000 

 

$

770,625 

 

$

739,079 

2016 Senior Notes

 

Sep. 1, 2024

 

 

1,100,000 

 

 

1,075,250 

 

 

1,081,857 

 

 

1,100,000 

 

 

1,127,500 

 

 

1,081,262 

2017 Senior Notes

 

Oct. 1, 2022

 

 

750,000 

 

 

718,125 

 

 

741,846 

 

 

750,000 

 

 

750,938 

 

 

741,437 

2013-1C Tower Securities

 

Apr. 10, 2018

 

 

 —

 

 

 —

 

 

 —

 

 

425,000 

 

 

423,853 

 

 

424,482 

2013-2C Tower Securities

 

Apr. 11, 2023

 

 

575,000 

 

 

568,071 

 

 

568,881 

 

 

575,000 

 

 

578,433 

 

 

568,609 

2013-1D Tower Securities

 

Ap. 10, 2018

 

 

 —

 

 

 —

 

 

 —

 

 

330,000 

 

 

330,145 

 

 

329,585 

2014-1C Tower Securities

 

Oct. 8, 2019

 

 

920,000 

 

 

910,395 

 

 

915,621 

 

 

920,000 

 

 

915,216 

 

 

914,929 

2014-2C Tower Securities

 

Oct. 8, 2024

 

 

620,000 

 

 

607,067 

 

 

613,672 

 

 

620,000 

 

 

620,942 

 

 

613,461 

2015-1C Tower Securities

 

Oct. 8, 2020

 

 

500,000 

 

 

492,260 

 

 

494,028 

 

 

500,000 

 

 

496,840 

 

 

493,474 

2016-1C Tower Securities

 

Jul. 9, 2021

 

 

700,000 

 

 

691,726 

 

 

693,578 

 

 

700,000 

 

 

691,166 

 

 

693,118 

2017-1C Tower Securities

 

Apr. 11, 2022

 

 

760,000 

 

 

740,992 

 

 

751,548 

 

 

760,000 

 

 

751,404 

 

 

751,076 

2018-1C Tower Securities

 

Mar. 9, 2023

 

 

640,000 

 

 

638,650 

 

 

631,939 

 

 

 —

 

 

 —

 

 

 —

Revolving Credit Facility

 

Feb. 5, 2020

 

 

235,000 

 

 

235,000 

 

 

235,000 

 

 

40,000 

 

 

40,000 

 

 

40,000 

2014 Term Loan

 

Mar. 24, 2021

 

 

1,443,750 

 

 

1,447,359 

 

 

1,436,207 

 

 

1,447,500 

 

 

1,451,119 

 

 

1,439,373 

2015 Term Loan

 

Jun. 10, 2022

 

 

486,250 

 

 

486,250 

 

 

479,892 

 

 

487,500 

 

 

488,109 

 

 

480,801 

Total debt

 

 

 

$

9,480,000 

 

$

9,364,895 

 

$

9,383,686 

 

$

9,405,000 

 

$

9,436,290 

 

$

9,310,686 

Less: current maturities of long-term debt

 

 

 

 

 

(20,000)

 

 

 

 

 

 

 

 

(20,000)

Total long-term debt, net of current maturities

 

 

 

 

$

9,363,686 

 

 

 

 

 

 

 

$

9,290,686 



13


 

The table below reflects cash and non-cash interest expense amounts recognized by debt instrument for the periods presented:  







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended March 31,



 

2018

 

2017



 

Cash

 

Non-cash

 

Cash

 

Non-cash



 

Interest

 

Interest

 

Interest

 

Interest



 

 

 

 

 

 

 

 

 

 

 

 



 

(in thousands)

2014 Senior Notes

 

$

9,141 

 

$

187 

 

$

9,141 

 

$

178 

2016 Senior Notes

 

 

13,406 

 

 

246 

 

 

13,406 

 

 

234 

2017 Senior Notes

 

 

7,500 

 

 

 —

 

 

 —

 

 

 —

2012 Tower Securities

 

 

 —

 

 

 —

 

 

4,524 

 

 

 —

2013 Tower Securities

 

 

9,475 

 

 

 —

 

 

10,804 

 

 

 —

2014 Tower Securities

 

 

12,785 

 

 

 —

 

 

12,785 

 

 

 —

2015-1C Tower Securities

 

 

3,985 

 

 

 —

 

 

3,985 

 

 

 —

2016-1C Tower Securities

 

 

5,090 

 

 

 —

 

 

5,090 

 

 

 —

2017-1C Tower Securities

 

 

6,085 

 

 

 —

 

 

 —

 

 

 —

2018-1C Tower Securities

 

 

1,362 

 

 

 —

 

 

 —

 

 

 —

Revolving Credit Facility

 

 

1,601 

 

 

 —