10-Q 1 sbac-20180930x10q.htm 10-Q 20180930 Q3 2018 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 September 30, 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 every Interactive Data File required to be submitted 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 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: 113,321,450 shares of Class A common stock as of October 31, 2018.




 

Table of Contents 





 

 



 

 

 

 

Page

PART I – FINANCIAL INFORMATION 



 

 

Item 1.

Financial Statements



Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017



Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2018 and 2017



Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2018 and 2017



Consolidated Statement of Shareholders’ Deficit (unaudited) for the nine months ended September 30, 2018



Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2018 and 2017



Condensed Notes to Consolidated Financial Statements (unaudited)

Item 2.

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

24 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45 

Item 4.

Controls and Procedures

48 



PART II – OTHER INFORMATION 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48 



Item 5.

Other Information

49 



Item 6.

Exhibits

49 





 

SIGNATURES 

50 











 


 

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,



 

2018

 

2017

ASSETS

 

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

136,221 

 

$

68,783 

Restricted cash

 

 

24,700 

 

 

32,924 

Accounts receivable, net

 

 

89,302 

 

 

90,673 

Costs and estimated earnings in excess of billings on uncompleted contracts

 

 

17,799 

 

 

17,437 

Prepaid expenses and other current assets

 

 

59,641 

 

 

49,716 

Total current assets

 

 

327,663 

 

 

259,533 

Property and equipment, net

 

 

2,787,714 

 

 

2,812,346 

Intangible assets, net

 

 

3,387,955 

 

 

3,598,131 

Other assets

 

 

710,491 

 

 

650,195 

Total assets

 

$

7,213,823 

 

$

7,320,205 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

32,087 

 

$

33,334 

Accrued expenses

 

 

68,129 

 

 

69,862 

Current maturities of long-term debt

 

 

24,000 

 

 

20,000 

Deferred revenue

 

 

96,577 

 

 

97,969 

Accrued interest

 

 

34,186 

 

 

48,899 

Other current liabilities

 

 

10,533 

 

 

8,841 

Total current liabilities

 

 

265,512 

 

 

278,905 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt, net

 

 

9,710,145 

 

 

9,290,686 

Other long-term liabilities

 

 

383,249 

 

 

349,728 

Total long-term liabilities

 

 

10,093,394 

 

 

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, 114,244

 

 

 

 

 

 

and 116,446 shares issued and outstanding at September 30, 2018

 

 

 

 

 

 

and December 31, 2017, respectively

 

 

1,142 

 

 

1,164 

Additional paid-in capital

 

 

2,233,793 

 

 

2,167,470 

Accumulated deficit

 

 

(4,851,501)

 

 

(4,388,288)

Accumulated other comprehensive loss, net

 

 

(528,517)

 

 

(379,460)

Total shareholders' deficit

 

 

(3,145,083)

 

 

(2,599,114)

Total liabilities and shareholders' deficit

 

$

7,213,823 

 

$

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

 

For the nine months



 

ended September 30,

 

ended September 30,



 

2018

 

2017

 

2018

 

2017

Revenues:

 

 

 

 

 

 

 

 

 

Site leasing

 

$

435,260 

 

$

408,538 

 

$

1,295,686 

 

$

1,209,089 

Site development

 

 

31,961 

 

 

25,407 

 

 

86,160 

 

 

75,513 

Total revenues

 

 

467,221 

 

 

433,945 

 

 

1,381,846 

 

 

1,284,602 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation, accretion,

 

 

 

 

 

 

 

 

 

 

 

 

and amortization shown below):

 

 

 

 

 

 

 

 

 

 

 

 

Cost of site leasing

 

 

92,294 

 

 

90,351 

 

 

278,800 

 

 

269,070 

Cost of site development

 

 

24,447 

 

 

21,117 

 

 

67,693 

 

 

62,713 

Selling, general, and administrative (1)

 

 

34,908 

 

 

32,559 

 

 

106,901 

 

 

100,177 

Acquisition related adjustments and expenses

 

 

2,995 

 

 

1,583 

 

 

9,171 

 

 

6,857 

Asset impairment and decommission costs

 

 

6,868 

 

 

9,417 

 

 

22,778 

 

 

25,908 

Depreciation, accretion, and amortization

 

 

167,703 

 

 

161,907 

 

 

502,659 

 

 

480,457 

Total operating expenses

 

 

329,215 

 

 

316,934 

 

 

988,002 

 

 

945,182 

Operating income

 

 

138,006 

 

 

117,011 

 

 

393,844 

 

 

339,420 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,006 

 

 

2,505 

 

 

4,972 

 

 

8,648 

Interest expense

 

 

(95,717)

 

 

(81,357)

 

 

(278,278)

 

 

(237,415)

Non-cash interest expense

 

 

(632)

 

 

(725)

 

 

(2,002)

 

 

(2,146)

Amortization of deferred financing fees

 

 

(4,980)

 

 

(4,957)

 

 

(15,265)

 

 

(16,603)

Loss from extinguishment of debt, net

 

 

 —

 

 

 —

 

 

(14,443)

 

 

(1,961)

Other (expense) income, net

 

 

(24,518)

 

 

20,062 

 

 

(110,175)

 

 

16,218 

Total other expense

 

 

(123,841)

 

 

(64,472)

 

 

(415,191)

 

 

(233,259)

Income (loss) before income taxes

 

 

14,165 

 

 

52,539 

 

 

(21,347)

 

 

106,161 

Benefit (provision) for income taxes

 

 

1,979 

 

 

(3,378)

 

 

11,645 

 

 

(10,167)

Net income (loss)

 

$

16,144 

 

$

49,161 

 

$

(9,702)

 

$

95,994 

Net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.14 

 

$

0.41 

 

$

(0.08)

 

$

0.80 

Diluted

 

$

0.14 

 

$

0.41 

 

$

(0.08)

 

$

0.79 

Weighted average number of common shares

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

114,597 

 

 

119,746 

 

 

115,378 

 

 

120,745 

Diluted

 

 

116,114 

 

 

121,026 

 

 

115,378 

 

 

121,727 



(1)

Includes non-cash compensation of $10,261 and $9,213 for the three months ended September 30, 2018 and 2017, respectively, and $31,188 and $28,069 for the nine months ended September 30, 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 (LOSS) INCOME

(unaudited) (in thousands)





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months

 

For the nine months



 

ended September 30,

 

ended September 30,



 

 

 

 

 

 

 

 

 

 

 

 



 

2018

 

2017

 

2018

 

2017

Net income (loss)

 

$

16,144 

 

$

49,161 

 

$

(9,702)

 

$

95,994 

Foreign currency translation adjustments

 

 

(27,598)

 

 

36,472 

 

 

(149,057)

 

 

27,734 

Comprehensive (loss) income

 

$

(11,454)

 

$

85,633 

 

$

(158,759)

 

$

123,728 



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 loss

 

 —

 

 

 —

 

 

 —

 

 

(9,702)

 

 

 —

 

 

(9,702)

Common stock issued in connection with

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock purchase/option plans

 

611 

 

 

 

 

33,523 

 

 

 —

 

 

 —

 

 

33,529 

Non-cash stock compensation

 

 —

 

 

 —

 

 

32,800 

 

 

 —

 

 

 —

 

 

32,800 

Repurchase and retirement of common stock

 

(2,813)

 

 

(28)

 

 

 —

 

 

(453,511)

 

 

 —

 

 

(453,539)

Foreign currency translation adjustments

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(149,057)

 

 

(149,057)

BALANCE, September 30, 2018

 

114,244 

 

$

1,142 

 

$

2,233,793 

 

$

(4,851,501)

 

$

(528,517)

 

$

(3,145,083)



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,



 

2018

 

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net (loss) income

 

$

(9,702)

 

$

95,994 

Adjustments to reconcile net (loss) income to net cash provided by operating

 

 

 

 

 

 

activities:

 

 

 

 

 

 

Depreciation, accretion, and amortization

 

 

502,659 

 

 

480,457 

Non-cash asset impairment and decommission costs

 

 

22,146 

 

 

22,316 

Non-cash compensation expense

 

 

32,140 

 

 

28,894 

Amortization of deferred financing fees

 

 

15,265 

 

 

16,603 

Loss (gain) on remeasurement of U.S. dollar denominated intercompany loans

 

 

113,138 

 

 

(11,649)

Loss from extinguishment of debt

 

 

14,087 

 

 

1,961 

Deferred income tax benefit

 

 

(27,925)

 

 

(1,220)

Other non-cash items reflected in the Statements of Operations

 

 

2,022 

 

 

237 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable and costs and estimated earnings in excess of

 

 

 

 

 

 

billings on uncompleted contracts, net

 

 

(4,655)

 

 

(11,950)

Prepaid expenses and other assets

 

 

(28,061)

 

 

(18,168)

Accounts payable and accrued expenses

 

 

(2,496)

 

 

4,846 

Accrued interest

 

 

(14,813)

 

 

(24,836)

Other liabilities

 

 

10,338 

 

 

7,987 

Net cash provided by operating activities

 

 

624,143 

 

 

591,472 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Acquisitions

 

 

(403,835)

 

 

(161,007)

Capital expenditures

 

 

(104,966)

 

 

(106,310)

Purchase of investments

 

 

(99,823)

 

 

(382)

Proceeds from sale of investments

 

 

95,890 

 

 

 —

Other investing activities

 

 

(7,583)

 

 

(23,216)

Net cash used in investing activities

 

 

(520,317)

 

 

(290,915)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Borrowings under Revolving Credit Facility

 

 

805,000 

 

 

415,000 

Repayments under Revolving Credit Facility

 

 

(725,000)

 

 

(375,000)

Repayment of Tower Securities

 

 

(755,000)

 

 

(610,000)

Proceeds from issuance of Tower Securities, net of fees

 

 

631,479 

 

 

749,811 

Proceeds from Term Loans, net of fees

 

 

2,377,264 

 

 

 —

Repayment of Term Loans

 

 

(1,941,000)

 

 

(15,000)

Repurchase and retirement of common stock

 

 

(453,539)

 

 

(523,370)

Other financing activities

 

 

29,607 

 

 

40,957 

Net cash used in financing activities

 

 

(31,189)

 

 

(317,602)

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

 

 

(13,608)

 

 

3,537 

NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

 

59,029 

 

 

(13,508)

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:

 

 

 

 

 

 

Beginning of period

 

 

104,295 

 

 

185,970 

End of period

 

$

163,324 

 

$

172,462 



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,



 

2018

 

2017



 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

293,372 

 

$

262,257 

Income taxes

 

$

16,525 

 

$

11,323 



 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

 

 

 

 

 

 

Assets acquired through capital leases

 

$

1,142 

 

$

254 

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, 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 the 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-line impact 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 that are billed at contractual rates. 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. 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 was 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 $89.3 million and $90.7 million as of September 30, 2018 and December 31, 2017, respectively, of which $23.2 million and $20.8 million related to the site development segment as of September 30, 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.

The Argentinean economy was deemed to be highly inflationary as of the second quarter of 2018 and, as a result, the Company adopted highly inflationary accounting as of July 1, 2018 for its subsidiary in Argentina. Under highly inflationary accounting, the functional currency of its subsidiary in Argentina became the U.S. Dollar. All monetary and non-monetary assets and liabilities were remeasured at the U.S. Dollar to Argentinean Peso exchange rate of 1 to 28.9 as of June 30, 2018. These amounts became the new basis for those assets and liabilities as of July 1, 2018. Non-monetary assets and liabilities, as well as the corresponding income statement activities such as depreciation, amortization and equity, will continue to be measured at the historical exchange rate. This change did not have a material impact on the Company’s financial statements as Argentina’s assets and revenue are each less than 1% of consolidated assets and revenue, respectively.

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 limited liability company 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. The Company recorded a $25.9 million loss and an $18.4 million gain on the remeasurement of intercompany loans for the three months ended September 30, 2018 and 2017, respectively, and a $113.1 million loss and an $11.6 million gain on the remeasurement of intercompany loans for the nine months ended September 30, 2018 and 2017, respectively, due to changes in foreign exchange rates. As of September 30, 2018, the aggregate amount outstanding under the two intercompany loan agreements with the Company’s Brazilian subsidiary was $536.9 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 in the process of testing key system functionality developed in order to account for the new standard. 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, a material impact on its consolidated statement of operations, or a notable impact on its liquidity. Additionally, the standard will have no impact on the Company’s debt-covenant compliance under its current agreements.

In July 2018, the FASB issued additional guidance on the accounting for leases. The guidance provides companies with another transition method that allows entities to recognize a cumulative-effect adjustment to the opening balance of retained earnings as of the date of adoption. Under this method, previously presented years’ financial positions and results would not be adjusted. The Company expects it will adopt this alternative transition method. The new guidance also provides lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component if (1) the non-lease components would otherwise be accounted for under the new revenue recognition standard, (2) both the timing and pattern of transfer are the same for the non-lease components and associated lease component, and (3) if accounted for separately, the lease component would be classified as an operating lease. The Company is assessing the use of this practical expedient in its accounting for leases.

8


 



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 acquisitions prior to January 1, 2017 (adoption of ASU 2017-01) was $1.9 million and $2.5 million as of September 30, 2018 and December 31, 2017, respectively. The maximum potential obligation related to the performance targets for these acquisitions was $2.4 million and $3.1 million as of September 30, 2018 and December 31, 2017, respectively. The maximum potential obligation related to the performance targets for acquisitions after January 1, 2017, which have not been recorded on the Company’s Consolidated Balance Sheet, were $14.2 million and $11.1 million as of September 30, 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.

Items Measured at Fair Value on a Nonrecurring Basis— The Company’s long-lived and intangible assets 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 and intangible assets 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

 

For the nine months



 

ended September 30,

 

ended September 30,



 

2018

 

2017

 

2018

 

2017



 

 

 

 

 

 

 

 

 

Asset impairment (1)

 

$

2,909 

 

$

4,128 

 

$

13,291 

 

$

10,162 

Write-off of carrying value of decommissioned towers

 

 

3,561 

 

 

4,496 

 

 

7,932 

 

 

12,143 

Other (including third party decommission costs)

 

 

398 

 

 

793 

 

 

1,555 

 

 

3,603 

Total asset impairment and decommission costs

 

$

6,868 

 

$

9,417 

 

$

22,778 

 

$

25,908 



(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 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 September 30, 2018, the carrying value and fair value of the held-to-maturity investments were $0.2 million. As of 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. For the three and nine months ended September 30, 2018, the Company purchased and sold $95.0 million of short-term investments.

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

9


 

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 (112.5 to 175.0 basis points). 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, 2018

 

December 31, 2017

 

Included on Balance Sheet



 

 

 

 

 

 

 

 



 

 

(in thousands)

 

 

Cash and cash equivalents

 

$

136,221 

 

$

68,783 

 

 

Securitization escrow accounts

 

 

24,504 

 

 

32,699 

 

Restricted cash - current asset

Payment and performance bonds

 

 

196 

 

 

225 

 

Restricted cash - current asset

Surety bonds and workers compensation

 

 

2,403 

 

 

2,588 

 

Other assets - noncurrent

Total cash, cash equivalents, and restricted cash

 

$

163,324 

 

$

104,295 

 

 



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 September 30, 2018 and December 31, 2017, the Company had $40.4 million and $39.5 million in surety, payment and performance bonds, respectively, for which 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, 2018 and December 31, 2017, the Company had also pledged $2.3 million and $2.5 million, respectively, as collateral related to its workers compensation policy.

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



 

September 30, 2018

 

December 31, 2017



 

 

 

 

 

 



 

 

(in thousands)

Prepaid ground rent

 

$

31,323 

 

$

32,505 

Loan receivables

 

 

10,877 

 

 

948 

Other

 

 

17,441 

 

 

16,263 

Total prepaid expenses and other current assets

 

$

59,641 

 

$

49,716 



10


 

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





 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

September 30, 2018

 

December 31, 2017



 

 

 

 

 

 



 

 

(in thousands)

Prepaid ground rent

 

$

252,506 

 

$

220,493 

Straight-line rent receivable

 

 

317,422 

 

 

313,650 

Loan receivables

 

 

45,300 

 

 

52,383 

Deferred lease costs, net

 

 

26,682 

 

 

27,703 

Deferred tax asset - long term

 

 

28,130 

 

 

1,670 

Other

 

 

40,451 

 

 

34,296 

Total other assets

 

$

710,491 

 

$

650,195 

















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,



 

2018

 

2017

 

2018

 

2017



 

 

 

 

 

 

 

 

 

 

 

 



 

(in thousands)

Acquisitions of towers and related intangible assets (1)(2)

 

$

110,464 

 

$

66,338 

 

$

372,054 

 

$

124,476 

Land buyouts and other assets (3)

 

 

8,008 

 

 

12,488 

 

 

31,781 

 

 

36,531 

Total cash acquisition capital expenditures

 

$

118,472 

 

$

78,826 

 

$

403,835 

 

$

161,007 



(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 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 $6.7 million and $2.4 million for ground lease extensions and term easements on land underlying the Company’s towers during the three months ended September 30, 2018 and 2017, respectively, and paid $16.4 million and $10.6 million for ground lease extensions and term easements on land underlying the Company’s towers during the nine months ended September 30, 2018 and 2017, respectively. The Company recorded these amounts in prepaid rent on its Consolidated Balance Sheets.

For 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. For asset acquisitions, 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 September 30, 2018, there were no purchase price allocations that were preliminary.

During the nine months ended September 30, 2018, the Company acquired 1,237 completed towers and related assets and liabilities consisting of $124.3 million of property and equipment, $262.6 million of intangible assets, and $14.9 million of working capital adjustments. All acquisitions in the quarter ended September 30, 2018 were accounted for as asset acquisitions.

11


 

Subsequent to September 30, 2018, the Company acquired 46 towers and related assets for $17.1 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 September 30, 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

 

$

4,349,404 

 

$

(1,846,918)

 

$

2,502,486 

 

$

4,355,171 

 

$

(1,673,270)

 

$

2,681,901 

Network location intangibles

 

 

1,660,923 

 

 

(775,454)

 

 

885,469 

 

 

1,617,441 

 

 

(701,211)

 

 

916,230 

Intangible assets, net

 

$

6,010,327 

 

$

(2,622,372)

 

$

3,387,955 

 

$

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 $100.1 million and $96.8 million for the three months ended September 30, 2018 and 2017, respectively, and $301.7 million and $286.8 million for the nine months ended September 30, 2018 and 2017, respectively.

7.PROPERTY AND EQUIPMENT, NET

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



 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

September 30, 2018

 

December 31, 2017



 

 

 

 

 

 



 

(in thousands)

Towers and related components

 

$

4,897,273 

 

$

4,772,807 

Construction-in-process

 

 

35,336 

 

 

34,689 

Furniture, equipment, and vehicles

 

 

54,880 

 

 

53,260 

Land, buildings, and improvements

 

 

656,818 

 

 

630,370 

Total property and equipment

 

 

5,644,307 

 

 

5,491,126 

Less: accumulated depreciation

 

 

(2,856,593)

 

 

(2,678,780)

Property and equipment, net

 

$

2,787,714 

 

$

2,812,346 



Construction-in-process represents costs incurred related to towers that are under development and will be used in the Company’s site leasing operations. Depreciation expense was $67.5 million and $65.0 million for the three months ended September 30, 2018 and 2017, respectively, and $200.6 million and $193.2 million for the nine months ended September 30, 2018 and 2017, respectively. At September 30, 2018 and December 31, 2017, non-cash capital expenditures that are included in accrued expenses were $10.5 million and $12.4 million, respectively.



12


 

8.COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

The Company’s costs and estimated earnings on uncompleted contracts are comprised of the following:



 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

September 30, 2018

 

December 31, 2017



 

 

 

 

 

 



 

(in thousands)

Costs incurred on uncompleted contracts

 

$

33,784 

 

$

31,404 

Estimated earnings

 

 

13,662 

 

 

10,541 

Billings to date

 

 

(30,193)

 

 

(24,771)



 

$

17,253 

 

$

17,174 



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



 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

September 30, 2018

 

December 31, 2017



 

 

 

 

 

 



 

(in thousands)

Costs and estimated earnings in excess of billings on uncompleted contracts

 

$

17,799 

 

$

17,437 

Billings in excess of costs and estimated earnings on

 

 

 

 

 

 

uncompleted contracts (included in Other current liabilities)

 

 

(546)

 

 

(263)



 

$

17,253 

 

$

17,174 

At September 30, 2018 and December 31, 2017,  eight customers comprised 95.1% 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.

9.ACCRUED EXPENSES

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





 

 

 

 

 

 



 

 

 

 

 

 



 

As of

 

As of



 

September 30, 2018

 

December 31, 2017



 

 

 

 

 

 



 

(in thousands)

Accrued earnouts on business combinations

 

$

1,875 

 

$

2,470 

Salaries and benefits

 

 

11,453 

 

 

13,506 

Real estate and property taxes

 

 

9,529 

 

 

7,125 

Non-cash capital expenditures

 

 

10,465 

 

 

12,408 

Other

 

 

34,807 

 

 

34,353 

Total accrued expenses

 

$

68,129 

 

$

69,862 



































































































13


 

10.DEBT

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



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

As of

 

As of



 

 

 

September 30, 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 

 

$

756,563 

 

$

740,714 

 

$

750,000 

 

$

770,625 

 

$

739,079 

2016 Senior Notes

 

Sep. 1, 2024

 

 

1,100,000 

 

 

1,083,500 

 

 

1,083,071 

 

 

1,100,000 

 

 

1,127,500 

 

 

1,081,262 

2017 Senior Notes

 

Oct. 1, 2022

 

 

750,000 

 

 

734,063 

 

 

742,676 

 

 

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 

 

 

560,108 

 

 

569,434 

 

 

575,000 

 

 

578,433 

 

 

568,609 

2013-1D Tower Securities

 

Apr. 10, 2018

 

 

 —

 

 

 —

 

 

 —

 

 

330,000 

 

 

330,145 

 

 

329,585 

2014-1C Tower Securities

 

Oct. 8, 2019

 

 

920,000 

 

 

909,080 

 

 

917,020 

 

 

920,000 

 

 

915,216 

 

 

914,929 

2014-2C Tower Securities

 

Oct. 8, 2024

 

 

620,000 

 

 

599,298 

 

 

614,099 

 

 

620,000 

 

 

620,942 

 

 

613,461 

2015-1C Tower Securities

 

Oct. 8, 2020

 

 

500,000 

 

 

489,080 

 

 

495,162 

 

 

500,000 

 

 

496,840 

 

 

493,474 

2016-1C Tower Securities