UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One):
x |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the quarterly period ended September 30, 2014.
¨ |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
Commission File Number: 001-14195
AMERICAN TOWER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 65-0723837 | |
(State or other jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of principal executive offices)
Telephone Number (617) 375-7500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer |
x |
Accelerated filer |
¨ | |||
Non-accelerated filer |
¨ |
Smaller reporting company |
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x
As of October 22, 2014, there were 396,462,896 shares of common stock outstanding.
INDEX
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2014
Page No. | ||||||
PART I. FINANCIAL INFORMATION | ||||||
Item 1. | 1 | |||||
Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 |
1 | |||||
2 | ||||||
3 | ||||||
4 | ||||||
Condensed Consolidated Statements of Equity for the nine months ended September 30, 2014 and 2013 |
5 | |||||
6 | ||||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
38 | ||||
Item 3. | 67 | |||||
Item 4. | 69 | |||||
PART II. OTHER INFORMATION | ||||||
Item 1. | 70 | |||||
Item 1A. | 70 | |||||
Item 6. | 80 | |||||
Signatures | 81 | |||||
Exhibit Index | Ex-1 |
PART I. | FINANCIAL INFORMATION |
ITEM 1. | UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, 2014 | December 31, 2013 | |||||||
ASSETS |
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CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 295,613 | $ | 293,576 | ||||
Restricted cash |
135,237 | 152,916 | ||||||
Short-term investments |
29,007 | 18,612 | ||||||
Accounts receivable, net |
198,119 | 151,165 | ||||||
Prepaid and other current assets |
316,164 | 348,266 | ||||||
Deferred income taxes |
22,797 | 22,401 | ||||||
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Total current assets |
996,937 | 986,936 | ||||||
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PROPERTY AND EQUIPMENT, net |
7,552,110 | 7,178,701 | ||||||
GOODWILL |
3,866,550 | 3,849,888 | ||||||
OTHER INTANGIBLE ASSETS, net |
6,389,227 | 6,568,102 | ||||||
DEFERRED INCOME TAXES |
252,993 | 264,277 | ||||||
DEFERRED RENT ASSET |
1,009,958 | 918,847 | ||||||
NOTES RECEIVABLE AND OTHER NON-CURRENT ASSETS |
528,840 | 509,173 | ||||||
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TOTAL |
$ | 20,596,615 | $ | 20,275,924 | ||||
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LIABILITIES AND EQUITY |
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CURRENT LIABILITIES: |
||||||||
Accounts payable |
$ | 111,001 | $ | 172,938 | ||||
Accrued expenses |
436,711 | 421,188 | ||||||
Distributions payable |
147,685 | 575 | ||||||
Accrued interest |
91,444 | 105,751 | ||||||
Current portion of long-term obligations |
960,461 | 70,132 | ||||||
Unearned revenue |
190,616 | 162,079 | ||||||
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Total current liabilities |
1,937,918 | 932,663 | ||||||
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LONG-TERM OBLIGATIONS |
12,973,835 | 14,408,146 | ||||||
ASSET RETIREMENT OBLIGATIONS |
566,325 | 541,807 | ||||||
OTHER NON-CURRENT LIABILITIES |
933,223 | 803,268 | ||||||
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Total liabilities |
16,411,301 | 16,685,884 | ||||||
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COMMITMENTS AND CONTINGENCIES |
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EQUITY: |
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Preferred stock: $.01 par value; 20,000,000 shares authorized; 5.25% Mandatory Convertible Preferred Stock, Series A, 6,000,000 and no shares issued and outstanding, respectively |
60 | | ||||||
Common stock: $.01 par value; 1,000,000,000 shares authorized; 399,207,516 and 397,674,350 shares issued; and 396,397,490 and 394,864,324 shares outstanding, respectively |
3,992 | 3,976 | ||||||
Additional paid-in capital |
5,757,233 | 5,130,616 | ||||||
Distributions in excess of earnings |
(854,579 | ) | (1,081,467 | ) | ||||
Accumulated other comprehensive loss |
(504,339 | ) | (311,220 | ) | ||||
Treasury stock (2,810,026 shares at cost) |
(207,740 | ) | (207,740 | ) | ||||
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Total American Tower Corporation equity |
4,194,627 | 3,534,165 | ||||||
Noncontrolling interest |
(9,313 | ) | 55,875 | |||||
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Total equity |
4,185,314 | 3,590,040 | ||||||
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TOTAL |
$ | 20,596,615 | $ | 20,275,924 | ||||
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See accompanying notes to unaudited condensed consolidated financial statements.
1
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
REVENUES: |
||||||||||||||||
Rental and management |
$ | 1,011,119 | $ | 796,575 | $ | 2,977,000 | $ | 2,363,207 | ||||||||
Network development services |
27,069 | 11,305 | 76,734 | 56,231 | ||||||||||||
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Total operating revenues |
1,038,188 | 807,880 | 3,053,734 | 2,419,438 | ||||||||||||
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OPERATING EXPENSES: |
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Costs of operations (exclusive of items shown separately below): |
||||||||||||||||
Rental and management (including stock-based compensation expense of $344, $248, $1,059 and $751, respectively) |
272,355 | 195,953 | 786,374 | 585,465 | ||||||||||||
Network development services (including stock-based compensation expense of $101, $99, $343 and $440, respectively) |
11,847 | 4,876 | 30,872 | 22,839 | ||||||||||||
Depreciation, amortization and accretion |
249,066 | 184,922 | 740,256 | 555,334 | ||||||||||||
Selling, general, administrative and development expense (including stock-based compensation expense of $17,824, $14,711, $60,306 and $51,964, respectively) |
108,909 | 97,781 | 317,437 | 298,737 | ||||||||||||
Other operating expenses |
11,204 | 15,469 | 37,852 | 35,686 | ||||||||||||
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Total operating expenses |
653,381 | 499,001 | 1,912,791 | 1,498,061 | ||||||||||||
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OPERATING INCOME |
384,807 | 308,879 | 1,140,943 | 921,377 | ||||||||||||
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OTHER INCOME (EXPENSE): |
||||||||||||||||
Interest income, TV Azteca, net of interest expense of $371, $371, $1,112 and $1,113, respectively |
2,661 | 3,544 | 7,918 | 10,673 | ||||||||||||
Interest income |
3,850 | 2,342 | 8,149 | 5,468 | ||||||||||||
Interest expense |
(143,212 | ) | (106,335 | ) | (432,753 | ) | (318,916 | ) | ||||||||
Gain (loss) on retirement of long-term obligations |
2,969 | | 1,447 | (37,967 | ) | |||||||||||
Other expense (including unrealized foreign currency losses of $36,998, $30,907, $62,556 and $151,673, respectively) |
(34,019 | ) | (29,622 | ) | (54,225 | ) | (148,991 | ) | ||||||||
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Total other expense |
(167,751 | ) | (130,071 | ) | (469,464 | ) | (489,733 | ) | ||||||||
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INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |
217,056 | 178,808 | 671,479 | 431,644 | ||||||||||||
Income tax provision |
(10,426 | ) | (15,586 | ) | (49,877 | ) | (23,361 | ) | ||||||||
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NET INCOME |
206,630 | 163,222 | 621,602 | 408,283 | ||||||||||||
Net loss attributable to noncontrolling interest |
963 | 16,901 | 22,921 | 43,068 | ||||||||||||
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NET INCOME ATTRIBUTABLE TO AMERICAN TOWER CORPORATION STOCKHOLDERS |
207,593 | 180,123 | 644,523 | 451,351 | ||||||||||||
Dividends declared on preferred stock |
(7,700 | ) | | (12,075 | ) | | ||||||||||
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NET INCOME ATTRIBUTABLE TO AMERICAN TOWER CORPORATION COMMON STOCKHOLDERS |
$ | 199,893 | $ | 180,123 | $ | 632,448 | $ | 451,351 | ||||||||
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NET INCOME PER COMMON SHARE AMOUNTS: |
||||||||||||||||
Basic net income attributable to American Tower Corporation common stockholders |
$ | 0.50 | $ | 0.46 | $ | 1.60 | $ | 1.14 | ||||||||
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Diluted net income attributable to American Tower Corporation common stockholders |
$ | 0.50 | $ | 0.45 | $ | 1.58 | $ | 1.13 | ||||||||
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |
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Basic |
396,243 | 394,759 | 395,758 | 395,138 | ||||||||||||
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Diluted |
400,397 | 398,348 | 399,806 | 399,275 | ||||||||||||
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DISTRIBUTIONS DECLARED PER COMMON SHARE |
$ | 0.36 | $ | 0.28 | $ | 1.02 | $ | 0.81 | ||||||||
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See accompanying notes to unaudited condensed consolidated financial statements.
2
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income |
$ | 206,630 | $ | 163,222 | $ | 621,602 | $ | 408,283 | ||||||||
Other comprehensive (loss) income: |
||||||||||||||||
Changes in fair value of cash flow hedges, net of taxes of $(7), $(70), $(31) and $386, respectively |
(519 | ) | (1,334 | ) | (856 | ) | 1,415 | |||||||||
Reclassification of unrealized losses on cash flow hedges to net income, net of taxes of $36, $58, $132 and $176, respectively |
542 | 683 | 2,085 | 1,877 | ||||||||||||
Foreign currency translation adjustments, net of taxes of $7,969, ($2,329), $8,333 and $4,254, respectively |
(254,239 | ) | (24,660 | ) | (234,851 | ) | (120,602 | ) | ||||||||
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Other comprehensive loss |
(254,216 | ) | (25,311 | ) | (233,622 | ) | (117,310 | ) | ||||||||
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Comprehensive (loss) income |
(47,586 | ) | 137,911 | 387,980 | 290,973 | |||||||||||
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Comprehensive loss attributable to noncontrolling interest |
1,760 | 18,453 | 63,424 | 45,710 | ||||||||||||
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Comprehensive (loss) income attributable to American Tower Corporation stockholders |
$ | (45,826 | ) | $ | 156,364 | $ | 451,404 | $ | 336,683 | |||||||
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See accompanying notes to unaudited condensed consolidated financial statements.
3
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended September 30, |
||||||||
2014 | 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 621,602 | $ | 408,283 | ||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
Stock-based compensation expense |
61,708 | 53,155 | ||||||
Depreciation, amortization and accretion |
740,256 | 555,334 | ||||||
(Gain) loss on early retirement of securitized debt |
(1,447 | ) | 35,288 | |||||
Other non-cash items reflected in statements of operations |
73,825 | 164,406 | ||||||
Increase in net deferred rent asset |
(65,460 | ) | (83,694 | ) | ||||
Decrease (increase) in restricted cash |
23,560 | (62,703 | ) | |||||
Increase in assets |
(42,931 | ) | (59,267 | ) | ||||
Increase in liabilities |
158,493 | 133,641 | ||||||
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Cash provided by operating activities |
1,569,606 | 1,144,443 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Payments for purchase of property and equipment and construction activities |
(723,353 | ) | (448,249 | ) | ||||
Payments for acquisitions, net of cash |
(324,936 | ) | (365,658 | ) | ||||
Proceeds from sale of assets, net of cash |
15,464 | | ||||||
Proceeds from sale of short-term investments and other non-current assets |
453,396 | 27,889 | ||||||
Payments for short-term investments |
(460,686 | ) | (50,224 | ) | ||||
Deposits, restricted cash, investments and other |
(63,295 | ) | (122,396 | ) | ||||
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Cash used for investing activities |
(1,103,410 | ) | (958,638 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from short-term borrowings, net |
| 7,544 | ||||||
Borrowings under credit facilities |
785,000 | 3,507,000 | ||||||
Proceeds from issuance of senior notes, net |
1,415,844 | 2,221,792 | ||||||
Proceeds from other long-term borrowings |
3,033 | 27,971 | ||||||
Proceeds from issuance of Securities in securitization transaction, net |
| 1,778,496 | ||||||
Repayments of notes payable, credit facilities and capital leases |
(2,928,434 | ) | (3,705,454 | ) | ||||
Contributions from noncontrolling interest holders, net |
5,446 | 17,584 | ||||||
Purchases of common stock |
| (145,012 | ) | |||||
Proceeds from stock options and stock purchase plan |
47,938 | 32,973 | ||||||
Proceeds from the issuance of preferred stock, net |
583,105 | | ||||||
Payment for early retirement of securitized debt |
(6,767 | ) | (29,234 | ) | ||||
Deferred financing costs and other financing activities |
(32,129 | ) | (9,190 | ) | ||||
Purchase of noncontrolling interest |
(64,822 | ) | | |||||
Distributions paid on common stock |
(261,913 | ) | (209,711 | ) | ||||
Distributions paid on preferred stock |
(8,138 | ) | | |||||
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Cash (used for) provided by financing activities |
(461,837 | ) | 3,494,759 | |||||
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Net effect of changes in foreign currency exchange rates on cash and cash equivalents |
(2,322 | ) | (8,829 | ) | ||||
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NET INCREASE IN CASH AND CASH EQUIVALENTS |
2,037 | 3,671,735 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
293,576 | 368,618 | ||||||
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 295,613 | $ | 4,040,353 | ||||
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CASH PAID FOR INCOME TAXES (NET OF REFUNDS OF $6,642 AND $17,336, RESPECTIVELY) |
$ | 52,379 | $ | 23,172 | ||||
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CASH PAID FOR INTEREST |
$ | 438,404 | $ | 283,145 | ||||
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NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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INCREASE IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES FOR PURCHASES OF PROPERTY AND EQUIPMENT AND CONSTRUCTION ACTIVITIES |
$ | 16,070 | $ | 17,208 | ||||
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PURCHASES OF PROPERTY AND EQUIPMENT UNDER CAPITAL LEASES |
$ | 24,002 | $ | 16,199 | ||||
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SETTLEMENT OF ACCOUNTS RECEIVABLE RELATED TO ACQUISITIONS |
$ | 31,849 | $ | | ||||
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CONVERSION OF THIRD-PARTY DEBT TO EQUITY |
$ | 7,750 | $ | | ||||
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See accompanying notes to unaudited condensed consolidated financial statements.
4
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share data)
Preferred Stock | Common Stock | Treasury Stock | Additional Paid-in Capital |
Other Comprehensive Loss |
Distributions in Excess of Earnings |
Non-controlling Interest |
Total Equity |
|||||||||||||||||||||||||||||||||||||
Issued Shares |
Amount | Issued Shares |
Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||
BALANCE, JANUARY 1, 2013 |
| $ | | 395,963,218 | $ | 3,959 | (872,005 | ) | $ | (62,728 | ) | $ | 5,012,124 | $ | (183,347 | ) | $ | (1,196,907 | ) | $ | 111,080 | $ | 3,684,181 | |||||||||||||||||||||
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Stock-based compensation related activity |
| | 1,343,555 | 14 | | | 82,874 | | | | 82,888 | |||||||||||||||||||||||||||||||||
Issuance of common stock- stock purchase plan |
| | 38,249 | | | | 2,327 | | | | 2,327 | |||||||||||||||||||||||||||||||||
Treasury stock activity |
| | | | (1,938,021 | ) | (145,012 | ) | | | | | (145,012 | ) | ||||||||||||||||||||||||||||||
Changes in fair value of cash flow hedges, net of tax |
| | | | | | | 1,167 | | 248 | 1,415 | |||||||||||||||||||||||||||||||||
Reclassification of unrealized losses on cash flow hedges to net income, net of tax |
| | | | | | | 1,764 | | 113 | 1,877 | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net of tax |
| | | | | | | (117,599 | ) | | (3,003 | ) | (120,602 | ) | ||||||||||||||||||||||||||||||
Contributions from noncontrolling interest |
| | | | | | | | | 18,020 | 18,020 | |||||||||||||||||||||||||||||||||
Distributions to noncontrolling interest |
| | | | | | | | | (436 | ) | (436 | ) | |||||||||||||||||||||||||||||||
Common stock dividends/distributions declared |
| | | | | | | | (321,024 | ) | | (321,024 | ) | |||||||||||||||||||||||||||||||
Net income (loss) |
| | | | | | | | 451,351 | (43,068 | ) | 408,283 | ||||||||||||||||||||||||||||||||
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BALANCE, SEPTEMBER 30, 2013 |
| $ | | 397,345,022 | $ | 3,973 | (2,810,026 | ) | $ | (207,740 | ) | $ | 5,097,325 | $ | (298,015 | ) | $ | (1,066,580 | ) | $ | 82,954 | $ | 3,611,917 | |||||||||||||||||||||
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BALANCE, JANUARY 1, 2014 |
| $ | | 397,674,350 | $ | 3,976 | (2,810,026 | ) | $ | (207,740 | ) | $ | 5,130,616 | $ | (311,220 | ) | $ | (1,081,467 | ) | $ | 55,875 | $ | 3,590,040 | |||||||||||||||||||||
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Stock-based compensation related activity |
| | 1,489,577 | 15 | | | 90,982 | | | | 90,997 | |||||||||||||||||||||||||||||||||
Issuance of common stock- stock purchase plan |
| | 43,589 | 1 | | | 2,898 | | | | 2,899 | |||||||||||||||||||||||||||||||||
Issuance of preferred stock |
6,000,000 | 60 | | | | | 582,599 | | | | 582,659 | |||||||||||||||||||||||||||||||||
Changes in fair value of cash flow hedges, net of tax |
| | | | | | | (969 | ) | | 113 | (856 | ) | |||||||||||||||||||||||||||||||
Reclassification of unrealized losses on cash flow hedges to net income, net of tax |
| | | | | | | 1,941 | | 144 | 2,085 | |||||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net of tax |
| | | | | | | (194,091 | ) | | (40,760 | ) | (234,851 | ) | ||||||||||||||||||||||||||||||
Contributions from noncontrolling interest |
| | | | | | | | | 13,626 | 13,626 | |||||||||||||||||||||||||||||||||
Distributions to noncontrolling interest |
| | | | | | | | | (430 | ) | (430 | ) | |||||||||||||||||||||||||||||||
Purchase of noncontrolling interest |
| | (49,862 | ) | (14,960 | ) | (64,822 | ) | ||||||||||||||||||||||||||||||||||||
Common stock dividends/distributions declared |
| | | | | | | | (405,560 | ) | | (405,560 | ) | |||||||||||||||||||||||||||||||
Preferred stock dividends declared |
| | | | | | | | (12,075 | ) | | (12,075 | ) | |||||||||||||||||||||||||||||||
Net income (loss) |
| | | | | | | | 644,523 | (22,921 | ) | 621,602 | ||||||||||||||||||||||||||||||||
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BALANCE, SEPTEMBER 30, 2014 |
6,000,000 | $ | 60 | 399,207,516 | $ | 3,992 | (2,810,026 | ) | $ | (207,740 | ) | $ | 5,757,233 | $ | (504,339 | ) | $ | (854,579 | ) | $ | (9,313 | ) | $ | 4,185,314 | ||||||||||||||||||||
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See accompanying notes to unaudited condensed consolidated financial statements.
5
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business, Basis of Presentation and Accounting Policies
American Tower Corporation is, through its various subsidiaries (collectively, ATC or the Company), a global, independent owner, operator and developer of wireless and broadcast communications real estate. The Companys primary business is the leasing of antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies and municipalities and tenants in a number of other industries. The Company also manages rooftop and tower sites for property owners, operates in-building and outdoor distributed antenna system (DAS) networks, holds property interests under third-party communications sites and provides network development services that primarily support its rental and management operations and the addition of new tenants and equipment on its sites. Since January 1, 2012, the Company has been organized and has qualified as a real estate investment trust (REIT) for U.S. federal income tax purposes.
ATC is a holding company that conducts its operations through its directly and indirectly owned subsidiaries and its joint ventures. ATCs principal domestic operating subsidiaries are American Towers LLC and SpectraSite Communications, LLC. ATC conducts its international operations primarily through its subsidiary, American Tower International, Inc., which in turn conducts operations through its various international holding and operating subsidiaries and joint ventures.
The Company holds and operates certain of its assets through one or more taxable REIT subsidiaries (TRSs). The use of TRSs enables the Company to continue to engage in certain businesses while complying with REIT qualification requirements and also allows the Company to retain income generated by these businesses for reinvestment without the requirement of distributing those earnings. The businesses that the Company holds through its TRSs primarily include certain of its international operations and a portion of its managed network business.
As a REIT, the Company generally is not subject to federal income taxes on its income and gains that the Company distributes to its stockholders, including the income derived from leasing space on its towers. However, even as a REIT, the Company remains obligated to pay income taxes on earnings from its TRS operations. In addition, the Companys international assets and operations, including those designated as direct or indirect qualified REIT subsidiaries or other disregarded entities of a REIT (collectively, QRSs), continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.
The Company may, from time to time, change the election of previously designated TRSs that hold certain of its operations to be treated as QRSs, and may reorganize and transfer certain assets or operations from its TRSs to other subsidiaries, including QRSs. For all periods subsequent to the conversion from a TRS to a QRS, the Company includes the income from the QRS as part of its REIT taxable income for the purpose of computing the Companys REIT distribution requirements. During the nine months ended September 30, 2014, the Company restructured certain of its German subsidiaries and certain of its domestic TRSs, which included a portion of its network development services segment and indoor DAS networks business, to be treated as QRSs. As a result, as of September 30, 2014, the Companys QRSs include its domestic tower leasing business, most of its operations in Costa Rica, Germany and Mexico and a portion of its network development services segment and indoor DAS networks business.
The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The financial information included herein is unaudited; however, the Company believes that all adjustments (consisting primarily of normal recurring adjustments) considered necessary for a fair presentation of the Companys financial position and results of operations for such periods have been included. These condensed consolidated financial statements and related notes should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2013.
6
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation and Basis of PresentationThe accompanying condensed consolidated financial statements include the accounts of the Company and those entities in which it has a controlling interest. Investments in entities that the Company does not control are accounted for using the equity or cost method, depending upon the Companys ability to exercise significant influence over operating and financial policies. All intercompany accounts and transactions have been eliminated.
Significant Accounting Policies and Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates, and such differences could be material to the accompanying condensed consolidated financial statements. The significant estimates in the accompanying condensed consolidated financial statements include impairment of long-lived assets (including goodwill), asset retirement obligations, revenue recognition, rent expense, stock-based compensation, income taxes and accounting for business combinations. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued as additional evidence for certain estimates or to identify matters that require additional disclosure.
Functional CurrencyThe functional currency of each of the Companys foreign operating subsidiaries is the respective local currency, except for Costa Rica, where the functional currency is the U.S. Dollar. All foreign currency assets and liabilities held by the subsidiaries are translated into U.S. Dollars at the exchange rate in effect at the end of the applicable fiscal reporting period and all foreign currency revenues and expenses are translated at the average monthly exchange rates. Translation adjustments are reflected in equity as a component of Accumulated other comprehensive income (loss) (AOCI) in the condensed consolidated balance sheets.
Transactional gains and losses on foreign currency transactions are reflected in Other expense in the condensed consolidated statements of operations. However, the effect from fluctuations in foreign currency exchange rates on intercompany notes whose payment is not planned or anticipated in the foreseeable future is reflected in AOCI in the condensed consolidated balance sheets. During the three months ended September 30, 2014, the Company recorded unrealized foreign currency losses of $207.1 million, of which $170.1 million was recorded in AOCI and $37.0 million was recorded in Other expense. During the nine months ended September 30, 2014, the Company recorded unrealized foreign currency losses of $275.8 million, of which $213.2 million was recorded in AOCI and $62.6 million was recorded in Other expense.
Accounting Standards UpdatesIn April 2014, the Financial Accounting Standards Board (the FASB) issued additional guidance on reporting discontinued operations. Under this guidance, only disposals representing a strategic shift in operations would be presented as discontinued operations. This guidance requires expanded disclosure that provides information about the assets, liabilities, income and expenses of discontinued operations. Additionally, the guidance requires additional disclosure for a disposal of a significant part of an entity that does not qualify for discontinued operations reporting. This guidance will be effective for reporting periods beginning on or after December 15, 2014 with early adoption permitted for disposals or classifications of assets as held-for-sale that have not been reported in financial statements previously issued or available for issuance. The Company adopted this guidance during the nine months ended September 30, 2014 and the adoption did not have a material effect on the Companys financial statements.
In May 2014, the FASB issued new revenue recognition guidance, which requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in GAAP. The amendment will become effective on January 1, 2017, and early application is not
7
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
permitted. The standard permits the use of either the retrospective or cumulative effect transition method. Leases are not included in the scope of this standard. The Company is evaluating the impact this standard will have on its financial statements.
2. Prepaid and Other Current Assets
Prepaid and other current assets consists of the following as of (in thousands):
September 30, 2014 | December 31, 2013 (1) | |||||||
Prepaid operating ground leases |
$ | 78,215 | $ | 96,881 | ||||
Prepaid income tax |
56,371 | 52,612 | ||||||
Acquisition deposit in escrow |
53,040 | | ||||||
Prepaid assets |
32,730 | 34,243 | ||||||
Unbilled receivables |
27,870 | 25,412 | ||||||
Value added tax and other consumption tax receivables |
19,718 | 77,016 | ||||||
Other miscellaneous current assets |
48,220 | 62,102 | ||||||
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Balance |
$ | 316,164 | $ | 348,266 | ||||
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(1) | December 31, 2013 balances have been revised to reflect purchase accounting measurement period adjustments. |
3. Goodwill and Other Intangible Assets
The changes in the carrying value of goodwill for the Companys business segments are as follows (in thousands):
Rental and Management | Network Development Services |
Total | ||||||||||||||
Domestic | International | |||||||||||||||
Balance as of January 1, 2014 (1) |
$ | 3,293,899 | $ | 553,989 | $ | 2,000 | $ | 3,849,888 | ||||||||
Additions |
36,453 | 3,984 | | 40,437 | ||||||||||||
Effect of foreign currency translation |
| (20,122 | ) | | (20,122 | ) | ||||||||||
Other (2) |
| (3,641 | ) | (12 | ) | (3,653 | ) | |||||||||
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Balance as of September 30, 2014 |
$ | 3,330,352 | $ | 534,210 | $ | 1,988 | $ | 3,866,550 | ||||||||
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(1) | Balances have been revised to reflect purchase accounting measurement period adjustments. |
(2) | Other represents the goodwill associated with the Companys operations in Panama and the Companys third-party structural analysis business. Both businesses were sold during the three months ended September 30, 2014 (see note 7). |
8
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Companys other intangible assets subject to amortization consist of the following as of (in thousands):
September 30, 2014 | December 31, 2013 (1) | |||||||||||||||||||||||||
Estimated Useful Lives |
Gross Carrying Value |
Accumulated Amortization |
Net Book Value |
Gross Carrying Value |
Accumulated Amortization |
Net Book Value |
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(years) | ||||||||||||||||||||||||||
Acquired network location intangibles (2) |
Up to 20 | $ | 2,389,124 | $ | (880,732 | ) | $ | 1,508,392 | $ | 2,416,110 | $ | (791,359 | ) | $ | 1,624,751 | |||||||||||
Acquired customer-related intangibles |
15-20 | 6,147,123 | (1,362,712 | ) | 4,784,411 | 6,017,875 | (1,170,239 | ) | 4,847,636 | |||||||||||||||||
Acquired licenses and other intangibles |
3-20 | 6,747 | (2,972 | ) | 3,775 | 6,583 | (2,297 | ) | 4,286 | |||||||||||||||||
Economic Rights, TV Azteca |
70 | 27,879 | (14,094 | ) | 13,785 | 28,783 | (14,229 | ) | 14,554 | |||||||||||||||||
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Total |
$ | 8,570,873 | $ | (2,260,510 | ) | $ | 6,310,363 | $ | 8,469,351 | $ | (1,978,124 | ) | $ | 6,491,227 | ||||||||||||
Deferred financing costs, net (3) |
N/A | 78,864 | 76,875 | |||||||||||||||||||||||
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Other intangible assets, net |
$ | 6,389,227 | $ | 6,568,102 | ||||||||||||||||||||||
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(1) | Balances have been revised to reflect purchase accounting measurement period adjustments. |
(2) | Acquired network location intangibles are amortized over the shorter of the term of the corresponding ground lease taking into consideration lease renewal options and residual value or up to 20 years, as the Company considers these intangibles to be directly related to the tower assets. |
(3) | Deferred financing costs are amortized over the term of the respective debt instruments to which they relate using the effective interest method. This amortization is included in Interest expense rather than in Depreciation, amortization and accretion expense. |
The acquired network location intangibles represent the value to the Company of the incremental revenue growth that could potentially be obtained from leasing the excess capacity on acquired communications sites. The acquired customer-related intangibles typically represent the value to the Company of customer contracts and relationships in place at the time of an acquisition, including assumptions regarding estimated renewals.
The Company amortizes its acquired network location intangibles and customer-related intangibles on a straight-line basis over their estimated useful lives. As of September 30, 2014, the remaining weighted average amortization period of the Companys intangible assets, excluding deferred financing costs and the TV Azteca Economic Rights detailed in note 5 to the Companys consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013, is approximately 15 years. Amortization of intangible assets for the three and nine months ended September 30, 2014 was approximately $103.3 million and $307.5 million, respectively, and amortization of intangible assets for the three and nine months ended September 30, 2013 was approximately $57.7 million and $177.9 million, respectively. Amortization expense excludes amortization of deferred financing costs, which is included in Interest expense on the condensed consolidated statements of operations. Based on current exchange rates, the Company expects to record amortization expense (excluding amortization of deferred financing costs) as follows over the remaining current year and the next five subsequent years (in millions):
Fiscal Year | ||||
2014 (remaining year) |
$ | 102.4 | ||
2015 |
402.1 | |||
2016 |
399.4 | |||
2017 |
397.0 | |||
2018 |
394.9 | |||
2019 |
392.9 |
9
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Accrued Expenses
Accrued expenses consists of the following as of (in thousands):
September 30, 2014 | December 31, 2013 (1) | |||||||
Accrued construction costs |
$ | 66,518 | $ | 52,446 | ||||
Accrued property and real estate taxes |
64,619 | 54,529 | ||||||
Payroll and related withholdings |
46,516 | 50,843 | ||||||
Accrued rent |
35,316 | 28,456 | ||||||
Other accrued expenses |
223,742 | 234,914 | ||||||
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Balance |
$ | 436,711 | $ | 421,188 | ||||
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(1) | December 31, 2013 balances have been revised to reflect purchase accounting measurement period adjustments. |
5. Long-Term Obligations
Current portion of long-term obligations
4.625% Senior NotesThe Companys 4.625% senior unsecured notes mature on April 1, 2015. As a result, the aggregate principal amount of $600.0 million, net of unamortized discount of $0.1 million, is reflected in Current portion of long-term obligations in the condensed consolidated balance sheets.
Mexican LoanIn connection with the acquisition of towers in Mexico from NII Holdings, Inc. (NII) during the fourth quarter of 2013, one of the Companys Mexican subsidiaries entered into a 5.2 billion Mexican Peso (MXN) denominated unsecured bridge loan (the Mexican Loan) and subsequently borrowed approximately 4.9 billion MXN (approximately $374.7 million at the date of borrowing). The Mexican subsidiarys ability to further draw under the Mexican Loan expired in February 2014. During the nine months ended September 30, 2014, the Mexican subsidiary repaid 1.1 billion MXN (approximately $80.4 million on the date of repayment) of the outstanding indebtedness using cash on hand. The Mexican Loan matures on May 1, 2015. As of September 30, 2014, the Company had 3.9 billion MXN (approximately $287.8 million) outstanding under the Mexican Loan, which is reflected in Current portion of long-term obligations in the condensed consolidated balance sheets.
Colombian Bridge LoansIn connection with the acquisition of communications sites in Colombia, one of the Companys Colombian subsidiaries entered into six Colombian Peso (COP) denominated bridge loans for an aggregate principal amount of 108.0 billion COP (approximately $53.2 million). As of September 30, 2014, the interest rate was 7.84% and the maturity date of the loans was October 4, 2014. In October 2014, the Company repaid the bridge loans using proceeds from a new Colombian credit facility (see note 16) and cash on hand.
The remaining current portion of long-term obligations includes payments due within 12 months under (i) certain Global Tower Partners (GTP) notes, (ii) the South African facility, (iii) the Colombian long-term credit facility and (iv) capital leases.
Long-term obligations
Costa Rica LoanIn connection with its acquisition of MIP Tower Holdings LLC (MIPT), parent company of GTP, the Company assumed $32.6 million of secured debt in Costa Rica (the Costa Rica Loan), which it repaid in full in February 2014.
10
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GTP NotesIn connection with its acquisition of MIPT, the Company assumed approximately $1.49 billion principal amount of indebtedness under six series, consisting of eleven separate classes, of Secured Tower Revenue Notes issued by certain subsidiaries of GTP in several securitization transactions. In August 2014, the Company repaid in full the aggregate principal amount outstanding of $250.0 million under the Series 2010-1 Class C Notes and the Series 2010-1 Class F Notes (together, the Series 2010-1 Notes) and wrote-off the unamortized premium associated with the fair value adjustment. As a result, the Company recorded a gain on retirement of long-term obligations in the accompanying condensed consolidated statements of operations of $3.0 million.
Colombian LoanIn connection with the establishment of the Companys joint venture with Millicom International Cellular SA (Millicom) and the acquisition of certain communications sites in Colombia, ATC Colombia B.V., a majority owned subsidiary of the Company, entered into a U.S. Dollar-denominated shareholder loan agreement (the Colombian Loan), as the borrower, with the Companys wholly owned subsidiary (the ATC Colombian Subsidiary), and a wholly owned subsidiary of Millicom (the Millicom Subsidiary), as the lenders. The portion of the Colombian Loan made by the ATC Colombian Subsidiary was eliminated in consolidation, and the portion of the Colombian Loan made by the Millicom Subsidiary was reported as outstanding debt. During the nine months ended September 30, 2014, the joint venture borrowed an additional $3.0 million under the Colombian Loan, which was subsequently converted from debt to equity. In July 2014, the Company purchased Millicoms interest in the joint venture and the Colombian Loan using proceeds from borrowings under the Companys $2.0 billion multi-currency senior unsecured revolving credit facility. As a result, all amounts outstanding under the Colombian Loan are eliminated in consolidation as of September 30, 2014.
Richland NotesIn connection with its acquisition of entities holding a portfolio of communications sites from Richland Properties LLC and other related entities (Richland), the Company assumed approximately $196.5 million of secured debt (the Richland Notes) and recorded a fair value premium of $5.5 million upon acquisition. In June 2014, the Company repaid the outstanding indebtedness, paid prepayment consideration and wrote-off the unamortized premium associated with the fair value adjustment. As a result, the Company recorded a loss on retirement of long-term obligations in the accompanying condensed consolidated statements of operations of $1.3 million.
Short-Term Credit FacilityOn September 20, 2013, the Company entered into a $1.0 billion senior unsecured revolving credit facility (the Short-Term Credit Facility), which matured on September 19, 2014. The Short-Term Credit Facility was undrawn at the time of maturity.
2014 Credit FacilityDuring the nine months ended September 30, 2014, the Company repaid $88.0 million of outstanding indebtedness under its $1.0 billion senior unsecured revolving credit facility (the 2012 Credit Facility) using net proceeds from a registered public offering of $250.0 million aggregate principal amount of reopened 3.40% senior unsecured notes due 2019 and $500.0 million aggregate principal amount of reopened 5.00% senior unsecured notes due 2024.
On September 19, 2014, the Company entered into an amendment and restatement of the 2012 Credit Facility (the 2014 Credit Facility), which, among other things, (i) increased the commitments thereunder to $1.5 billion, including a $50.0 million sublimit for swingline loans and a $200.0 million sublimit for letters of credit, (ii) extended the maturity date to January 31, 2020, including up to two optional renewal periods, (iii) amended the limitation on indebtedness of, and guaranteed by, the Companys subsidiaries to the greater of (x) $800.0 million and (y) 50% of Adjusted EBITDA (as defined in the 2014 Credit Facility) on a consolidated basis as of the last day of the most recently completed fiscal quarter, (iv) permitted indebtedness owed by certain
11
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
of the Companys subsidiaries to its joint venture partners and (v) added an expansion feature, which allows the Company to request up to an aggregate of $500.0 million in additional commitments upon satisfaction of certain conditions.
Amounts borrowed under the 2014 Credit Facility will bear interest, at the Companys option, at a margin above the London Interbank Offered Rate (LIBOR) or the Base Rate. For LIBOR based borrowings, interest rates will range from 1.125% to 2.000% above LIBOR. For Base Rate borrowings, interest rates will range from 0.125% to 1.000% above the Base Rate. In each case, the applicable margin is based upon the Companys debt ratings. In addition, the 2014 Credit Facility requires a quarterly commitment fee on the undrawn portion of the commitments ranging from 0.125% to 0.400% per annum, based upon the Companys debt ratings. The current margin over LIBOR that the Company would incur (should it choose LIBOR Advances) on borrowings is 1.250%, and the current commitment fee on the undrawn portion of the commitments is 0.150%. The 2014 Credit Facility does not require amortization of principal and may be paid prior to maturity in whole or in part at the Companys option without penalty or premium.
As of September 30, 2014, the Company has no amounts outstanding under the 2014 Credit Facility and $7.5 million of undrawn letters of credit. In October 2014, the Company borrowed $304.0 million under the 2014 Credit Facility, which it used to fund acquisitions and repay other existing indebtedness. The Company maintains the ability to draw down and repay amounts under the 2014 Credit Facility in the ordinary course.
2013 Credit FacilityDuring the nine months ended September 30, 2014, the Company repaid an aggregate of $2.2 billion of revolving indebtedness under its $2.0 billion multi-currency senior unsecured revolving credit facility (as amended, the 2013 Credit Facility) using (i) proceeds from a registered public offering of $250.0 million aggregate principal amount of reopened 3.40% senior unsecured notes due 2019 and $500.0 million aggregate principal amount of reopened 5.00% senior unsecured notes due 2024, (ii) proceeds from the issuance of mandatory convertible preferred stock in May 2014, (iii) proceeds from a registered public offering of $650.0 million aggregate principal amount of 3.450% senior unsecured notes due 2021 and (iv) cash on hand. During the nine months ended September 30, 2014, the Company borrowed an additional $785.0 million under the 2013 Credit Facility, which it primarily used to (i) fund acquisitions, including the acquisition from Richland, (ii) repay the Richland Notes, (iii) repay the Series 2010-1 Notes and (iv) purchase Millicoms interest in the Colombian joint venture and the Colombian Loan.
The 2013 Credit Facility matures on June 28, 2018 and includes two optional one-year renewal periods. The 2013 Credit Facility includes an expansion option allowing the Company to request additional commitments of up to $750.0 million, including in the form of a term loan. The 2013 Credit Facility does not require amortization of principal and may be paid prior to maturity in whole or in part at the Companys option without penalty or premium. The current margin over LIBOR that the Company incurs on borrowings is 1.250%, and the current commitment fee on the undrawn portion of the 2013 Credit Facility is 0.150%.
On September 19, 2014, the Company entered into an amendment agreement with respect to the 2013 Credit Facility, which (i) amended the limitation on indebtedness of, and guaranteed by, the Companys subsidiaries to the greater of (x) $800.0 million and (y) 50% of Adjusted EBITDA (as defined in the 2013 Credit Facility) on a consolidated basis as of the last day of the most recently completed fiscal quarter and (ii) permitted indebtedness owed by certain of the Companys subsidiaries to its joint venture partners.
As of September 30, 2014, the Company has $410.0 million outstanding under the 2013 Credit Facility and approximately $3.2 million of undrawn letters of credit. In October 2014, the Company repaid a net amount of $139.0 million under the 2013 Credit Facility with borrowings under the 2014 Credit Facility and cash on hand. The Company maintains the ability to draw down and repay amounts under the 2013 Credit Facility in the ordinary course.
12
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2013 Term LoanOn October 29, 2013, the Company entered into a $1.5 billion unsecured term loan (as amended, the 2013 Term Loan), which includes an expansion option allowing the Company to request additional commitments of up to $500.0 million. The 2013 Term Loan matures on January 3, 2019, and the current interest rate is LIBOR plus 1.250%.
On September 19, 2014, the Company entered into an amendment agreement with respect to the 2013 Term Loan, which (i) amended the limitation on indebtedness of, and guaranteed by, the Companys subsidiaries to the greater of (x) $800.0 million and (y) 50% of Adjusted EBITDA (as defined in the 2013 Term Loan) on a consolidated basis as of the last day of the most recently completed fiscal quarter and (ii) permitted indebtedness owed by certain of the Companys subsidiaries to its joint venture partners.
3.40% Senior Notes and 5.00% Senior Notes OfferingOn January 10, 2014, the Company completed a registered public offering through a reopening of its (i) 3.40% senior unsecured notes due 2019 (the 3.40% Notes), in an aggregate principal amount of $250.0 million and (ii) 5.00% senior unsecured notes due 2024 (the 5.00% Notes), in an aggregate principal amount of $500.0 million. The net proceeds from the offering were approximately $763.8 million, after deducting commissions and estimated expenses. As a result, the aggregate outstanding principal amount of each of the 3.40% Notes and the 5.00% Notes is $1.0 billion. The Company used a portion of the proceeds, together with cash on hand, to repay $88.0 million of outstanding indebtedness under the 2012 Credit Facility and $710.0 million of outstanding indebtedness under the 2013 Credit Facility.
The reopened 3.40% Notes issued on January 10, 2014 have identical terms as, are fungible with and are part of a single series of senior debt securities with the 3.40% Notes issued on August 19, 2013. The reopened 5.00% Notes issued on January 10, 2014 have identical terms as, are fungible with and are part of a single series of senior debt securities with the 5.00% Notes issued on August 19, 2013. The 3.40% Notes mature on February 15, 2019 and bear interest at a rate of 3.40% per annum. The 5.00% Notes mature on February 15, 2024 and bear interest at a rate of 5.00% per annum. Accrued and unpaid interest on the 3.40% Notes and the 5.00% Notes is payable in U.S. Dollars semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2014. Interest on the 3.40% Notes and the 5.00% Notes accrues from August 19, 2013 and is computed on the basis of a 360-day year comprised of twelve 30-day months.
3.450% Senior Notes OfferingOn August 7, 2014, the Company completed a registered public offering of its 3.450% senior unsecured notes due 2021 (the 3.450% Notes), in an aggregate principal amount of $650.0 million. The net proceeds from the offering were approximately $641.1 million, after deducting commissions and estimated expenses. The Company used the proceeds to repay existing indebtedness under the 2013 Credit Facility.
The 3.450% Notes mature on September 15, 2021 and bear interest at a rate of 3.450% per annum. Accrued and unpaid interest on the 3.450% Notes is payable in U.S. Dollars semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2015. Interest on the 3.450% Notes accrues from August 7, 2014 and is computed on the basis of a 360-day year comprised of twelve 30-day months.
The Company may redeem the 3.40% Notes, the 5.00% Notes or the 3.450% Notes at any time at a redemption price equal to 100% of the principal amount of such notes, plus a make-whole premium, together with accrued interest to the redemption date. If the Company undergoes a change of control and ratings decline, each as defined in the applicable supplemental indenture governing such notes, the Company may be required to repurchase all of the 3.40% Notes, the 5.00% Notes or the 3.450% Notes at a purchase price equal to 101% of the principal amount of such notes, plus accrued and unpaid interest (including additional interest, if any), up to but not including the repurchase date. The 3.40% Notes, the 5.00% Notes and the 3.450% Notes rank equally with all of the Companys other senior unsecured debt and are structurally subordinated to all existing and future indebtedness and other obligations of its subsidiaries.
13
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Each of the applicable supplemental indentures for the 3.40% Notes, the 5.00% Notes and the 3.450% Notes contain certain covenants that restrict the Companys ability to merge, consolidate or sell assets and its (together with its subsidiaries) ability to incur liens. These covenants are subject to a number of exceptions, including that the Company and its subsidiaries may incur certain liens on assets, mortgages or other liens securing indebtedness, if the aggregate amount of such liens does not exceed 3.5x Adjusted EBITDA, as defined in each of the supplemental indentures.
6. Derivative Financial Instruments
The Company is exposed to certain risks related to its ongoing business operations. The primary risk managed through the use of derivative instruments is interest rate risk. From time to time, the Company enters into interest rate protection agreements to manage exposure to variability in cash flows relating to forecasted interest payments. Under these agreements, the Company is exposed to credit risk to the extent that a counterparty fails to meet the terms of a contract. The Companys credit risk exposure is limited to the current value of the contract at the time the counterparty fails to perform.
If a derivative is designated as a cash flow hedge, the effective portion of changes in the fair value of the derivative is recorded in AOCI and is recognized in the results of operations when the hedged item affects earnings. The ineffective portion of changes in the fair value of cash flow hedges is recognized immediately in the results of operations. For derivative instruments not designated as hedging instruments, changes in fair value are recognized in the results of operations in the period in which the change occurs.
Certain of the Companys foreign subsidiaries have entered into interest rate swap agreements to manage exposure to variability in interest rates on debt in Colombia and South Africa and these interest rate swap agreements have been designated as cash flow hedges.
South Africa
One of the Companys South African subsidiaries has fifteen interest rate swap agreements outstanding, which mature on the earlier of termination of the underlying debt or March 31, 2020. The interest rate swap agreements provide that the Company pay a fixed interest rate ranging from 6.09% to 7.83% and receive variable interest at the three-month Johannesburg Interbank Agreed Rate (JIBAR) over the term of the interest rate swap agreements. The notional value is reduced in accordance with the repayment schedule under the related credit agreement.
Colombia
One of the Companys Colombian subsidiaries has an interest rate swap agreement outstanding, which matures on the earlier of termination of the underlying debt or November 30, 2020. The interest rate swap agreement provides that the Company pay a fixed interest rate of 5.78% and receive variable interest at the three-month Inter-bank Rate (IBR) over the term of the interest rate swap agreement. The notional value is reduced in accordance with the repayment schedule under the related credit agreement. In connection with the refinancing of its Colombian long-term credit facility in October 2014 (see note 16), the Company terminated its existing interest rate swap agreement and entered into a new interest rate swap agreement in Colombia.
Costa Rica
One of the Companys Costa Rican subsidiaries had three interest rate swaps agreements, which were terminated upon repayment of the Costa Rica Loan in February 2014.
14
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The notional amount and fair value of the interest rate swap agreements are as follows (in thousands):
September 30, 2014 | December 31, 2013 | |||||||||||||||
Local | USD | Local | USD | |||||||||||||
South Africa (ZAR) |
||||||||||||||||
Notional |
449,046 | 39,790 | 469,354 | 44,732 | ||||||||||||
Fair Value |
4,879 | 432 | 939 | 90 | ||||||||||||
Colombia (COP) |
||||||||||||||||
Notional |
100,490,625 | 49,540 | 101,250,000 | 52,547 | ||||||||||||
Fair Value |
(2,118,420 | ) | (1,044 | ) | (3,000,236 | ) | (1,557 | ) | ||||||||
Costa Rica (USD) |
||||||||||||||||
Notional |
| | N/A | 42,000 | ||||||||||||
Fair Value |
| | N/A | (628 | ) |
As of September 30, 2014 and December 31, 2013, the South African interest rate swap agreements were in asset positions and were included in Notes receivable and other non-current assets on the condensed consolidated balance sheets and the Colombian interest rate swap agreement was in a liability position and was included in Other non-current liabilities on the condensed consolidated balance sheets.
During the three months ended September 30, 2014 and 2013, the interest rate swap agreements had the following impact on the Companys condensed consolidated financial statements (in thousands):
Three months ended September 30, |
Gain(Loss) Recognized in Other Comprehensive Loss - Effective Portion |
Gain(Loss) Reclassified from AOCI into Income - Effective Portion |
Location of Gain(Loss) Reclassified from AOCI into Income- Effective Portion |
Gain(Loss) Recognized in Income - Ineffective Portion |
Location of Gain(Loss) Recognized in Income - Ineffective Portion |
|||||||||||||||
2014 |
$ | (526 | ) | $ | (578 | ) | Interest Expense | N/A | N/A | |||||||||||
2013 |
$ | (1,404 | ) | $ | (741 | ) | Interest Expense | N/A | N/A |
During the nine months ended September 30, 2014 and 2013, the interest rate swap agreements had the following impact on the Companys condensed consolidated financial statements (in thousands):
Nine months ended September 30, |
Gain(Loss) Recognized in Other Comprehensive Loss - Effective Portion |
Gain(Loss) Reclassified from AOCI into Income - Effective Portion |
Location of Gain(Loss) Reclassified from AOCI into Income- Effective Portion |
Gain(Loss) Recognized in Income - Ineffective Portion |
Location of Gain(Loss) Recognized in Income - Ineffective Portion |
|||||||||||||||
2014 |
$ | (887 | ) | $ | (2,217 | ) | Interest Expense | N/A | N/A | |||||||||||
2013 |
$ | 1,801 | $ | (2,053 | ) | Interest Expense | N/A | N/A |
As of September 30, 2014, approximately $0.6 million related to derivatives designated as cash flow hedges and recorded in AOCI is expected to be reclassified into earnings in the next twelve months.
For additional information on the Companys interest rate swap agreements, see notes 7 and 8.
15
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Fair Value Measurements
The Company determines the fair value of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Below are the three levels of inputs that may be used to measure fair value:
Level 1 | Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Items Measured at Fair Value on a Recurring BasisThe fair value of the Companys financial assets and liabilities that are required to be measured on a recurring basis at fair value is as follows (in thousands):
September 30, 2014 | ||||||||||||||
Fair Value Measurements Using |
Assets/Liabilities at Fair Value |
|||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: |
||||||||||||||
Short-term investments (1) |
$ | 29,007 | $ | 29,007 | ||||||||||
Interest rate swap agreements |
$ | 432 | $ | 432 | ||||||||||
Liabilities: |
||||||||||||||
Acquisition-related contingent consideration |
$ | 27,424 | $ | 27,424 | ||||||||||
Interest rate swap agreements |
$ | 1,044 | $ | 1,044 |
December 31, 2013 | ||||||||||||||
Fair Value
Measurements Using |
Assets/Liabilities at Fair Value |
|||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: |
||||||||||||||
Short-term investments (1) |
$ | 18,612 | $ | 18,612 | ||||||||||
Interest rate swap agreements |
$ | 90 | $ | 90 | ||||||||||
Liabilities: |
||||||||||||||
Acquisition-related contingent consideration |
$ | 31,890 | $ | 31,890 | ||||||||||
Interest rate swap agreements |
$ | 2,185 | $ | 2,185 |
(1) | Consists of highly liquid investments with original maturities in excess of three months. |
Interest Rate Swap Agreements
The fair value of the Companys interest rate swap agreements is determined using pricing models with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Fair valuations of the interest rate swap agreements reflect the value of the instrument including the values associated with counterparty risk, the Companys own credit standing and the value of the net credit differential between the counterparties to the derivative contract.
16
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Acquisition-Related Contingent Consideration
The Company may be required to pay additional consideration under certain agreements for the acquisition of communications sites if specific conditions are met or events occur. In Colombia and Ghana, the Company may be required to pay additional consideration upon the conversion of certain barter agreements with other wireless carriers to cash-paying lease agreements. In addition, in Costa Rica and the United States, the Company may be required to pay additional consideration if certain pre-designated tenant leases commence during a specified period of time.
Acquisition-related contingent consideration is initially measured and recorded at fair value as an element of consideration paid in connection with an acquisition with subsequent adjustments recognized in Other operating expenses in the condensed consolidated statements of operations. The Company determines the fair value of acquisition-related contingent consideration, and any subsequent changes in fair value, using a discounted probability-weighted approach. This approach takes into consideration Level 3 unobservable inputs including probability assessments of expected future cash flows over the period in which the obligation is expected to be settled and applies a discount factor that captures the uncertainties associated with the obligation. Changes in these unobservable inputs could significantly impact the fair value of the liabilities recorded in the accompanying condensed consolidated balance sheets and adjustments recorded in the condensed consolidated statements of operations.
As of September 30, 2014, the Company estimates that the value of all potential acquisition-related contingent consideration required payments to be between zero and $39.0 million. During the three months ended September 30, 2014 and 2013, the fair value of the contingent consideration changed as follows (in thousands):
2014 | 2013 | |||||||
Balance as of July 1 |
$ | 31,025 | $ | 21,218 | ||||
Additions |
106 | 3,599 | ||||||
Payments |
(209 | ) | (3,729 | ) | ||||
Change in fair value |
(974 | ) | 1,303 | |||||
Foreign currency translation adjustment |
(1,794 | ) | 18 | |||||
Other (1) |
(730 | ) | | |||||
|
|
|
|
|||||
Balance as of September 30 |
$ | 27,424 | $ | 22,409 | ||||
|
|
|
|
During the nine months ended September 30, 2014 and 2013, the fair value of the contingent consideration changed as follows (in thousands):
2014 | 2013 | |||||||
Balance as of January 1 |
$ | 31,890 | $ | 23,711 | ||||
Additions |
512 | 4,087 | ||||||
Payments |
(1,498 | ) | (7,952 | ) | ||||
Change in fair value |
(1,344 | ) | 4,610 | |||||
Foreign currency translation adjustment |
(1,406 | ) | (2,047 | ) | ||||
Other (1) |
(730 | ) | | |||||
|
|
|
|
|||||
Balance as of September 30 |
$ | 27,424 | $ | 22,409 | ||||
|
|
|
|
(1) | In connection with the sale of operations in Panama, the buyer assumed the Companys potential obligations related to additional purchase price consideration. |
17
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Items Measured at Fair Value on a Nonrecurring Basis
Assets Held and UsedThe Companys long-lived assets are measured at fair value on a nonrecurring basis using Level 3 inputs. During the three and nine months ended September 30, 2014, the Company did not record any asset impairment charges and during the three and nine months ended September 30, 2013, the Company recorded asset impairment charges of $1.9 million and $2.0 million, respectively, which are recorded in Other operating expenses in the accompanying condensed consolidated statements of operations.
During the three months ended September 30, 2014, NII, a U.S. corporation, filed for Chapter 11 bankruptcy protection on behalf of itself and certain of its subsidiaries. NII is the ultimate parent company of certain operating subsidiaries in Brazil, Chile and Mexico that collectively represent approximately 6% of the Companys consolidated revenues for the nine months ended September 30, 2014. None of these subsidiaries were included in NIIs Chapter 11 filing. The Companys assessment did not identify any indicators of impairment as of September 30, 2014.
Sale of AssetsDuring the nine months ended September 30, 2014, the Company completed the sale of its operations in Panama and its third-party structural analysis business for an aggregate sale price of $17.9 million, plus a working capital adjustment. At the time of sale, the carrying value of these assets primarily included $8.1 million of property and equipment, $7.8 million of intangible assets and $3.6 million of goodwill. The Company recorded a net impairment charge of $2.2 million in Other operating expenses in the accompanying condensed consolidated statements of operations.
There were no other items measured at fair value on a nonrecurring basis during the nine months ended September 30, 2014.
Fair Value of Financial InstrumentsThe Companys financial instruments for which the carrying value reasonably approximates fair value at September 30, 2014 and December 31, 2013 include cash and cash equivalents, restricted cash, accounts receivable and accounts payable. The Companys estimates of fair value of its long-term obligations, including the current portion, are based primarily upon reported market values. For long-term debt not actively traded, fair value is estimated using either indicative price quotes or a discounted cash flow analysis using rates for debt with similar terms and maturities. As of September 30, 2014, the carrying value and fair value of long-term obligations, including the current portion, are $13.9 billion and $14.3 billion, respectively, of which $9.6 billion is measured using Level 1 inputs and $4.7 billion is measured using Level 2 inputs. As of December 31, 2013, the carrying value and fair value of long-term obligations, including the current portion, were $14.5 billion and $14.7 billion, respectively, of which $8.6 billion was measured using Level 1 inputs and $6.1 billion was measured using Level 2 inputs.
18
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Accumulated Other Comprehensive Loss
The changes in Accumulated other comprehensive loss for the three months ended September 30, 2014 and 2013 are as follows (in thousands):
Unrealized Losses on Cash Flow Hedges |
Deferred Loss on the Settlement of the Treasury Rate Lock |
Foreign Currency Items |
Total | |||||||||||||
Balance as of July 1, 2014 |
$ | (1,301 | ) | $ | (2,630 | ) | $ | (246,989 | ) | $ | (250,920 | ) | ||||
Other comprehensive loss before reclassifications, net of tax |
(514 | ) | | (253,424 | ) | (253,938 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax (1) |
319 | 200 | | 519 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current-period other comprehensive (loss) income |
(195 | ) | 200 | (253,424 | ) | (253,419 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of September 30, 2014 |
$ | (1,496 | ) | $ | (2,430 | ) | $ | (500,413 | ) | $ | (504,339 | ) | ||||
|
|
|
|
|
|
|
|
(1) | Losses on cash flow hedges and loss on the settlement of the treasury rate lock have been reclassified into Interest expense in the accompanying condensed consolidated statements of operations. The tax effect of less than $0.1 million is included in income tax expense for the three months ended September 30, 2014. |
Unrealized Losses on Cash Flow Hedges |
Deferred Loss on the Settlement of the Treasury Rate Lock |
Foreign Currency Items |
Total | |||||||||||||
Balance as of July 1, 2013 |
$ | (1,182 | ) | $ | (3,427 | ) | $ | (269,647 | ) | $ | (274,256 | ) | ||||
Other comprehensive loss before reclassifications, net of tax |
(1,289 | ) | | (23,114 | ) | (24,403 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax (1) |
445 | 199 | | 644 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current-period other comprehensive (loss) income |
(844 | ) | 199 | (23,114 | ) | (23,759 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of September 30, 2013 |
$ | (2,026 | ) | $ | (3,228 | ) | $ | (292,761 | ) | $ | (298,015 | ) | ||||
|
|
|
|
|
|
|
|
(1) | Losses on cash flow hedges and loss on the settlement of the treasury rate lock have been reclassified into Interest expense in the accompanying condensed consolidated statements of operations. The tax effect of less than $0.1 million is included in income tax expense for the three months ended September 30, 2013. |
19
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The changes in Accumulated other comprehensive loss for the nine months ended September 30, 2014 and 2013 are as follows (in thousands):
Unrealized Losses on Cash Flow Hedges |
Deferred Loss on the Settlement of the Treasury Rate Lock |
Foreign Currency Items |
Total | |||||||||||||
Balance as of January 1, 2014 |
$ | (1,869 | ) | $ | (3,029 | ) | $ | (306,322 | ) | $ | (311,220 | ) | ||||
Other comprehensive loss before reclassifications, net of tax |
(969 | ) | | (194,091 | ) | (195,060 | ) | |||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax (1) |
1,342 | 599 | | 1,941 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current-period other comprehensive income (loss) |
373 | 599 | (194,091 | ) | (193,119 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of September 30, 2014 |
$ | (1,496 | ) | $ | (2,430 | ) | $ | (500,413 | ) | $ | (504,339 | ) | ||||
|
|
|
|
|
|
|
|
(1) | Losses on cash flow hedges and loss on the settlement of the treasury rate lock have been reclassified into Interest expense in the accompanying condensed consolidated statements of operations. The tax effect of $0.1 million is included in income tax expense for the nine months ended September 30, 2014. |
Unrealized Losses on Cash Flow Hedges |
Deferred Loss on the Settlement of the Treasury Rate Lock |
Foreign Currency Items |
Total | |||||||||||||
Balance as of January 1, 2013 |
$ | (4,358 | ) | $ | (3,827 | ) | $ | (175,162 | ) | $ | (183,347 | ) | ||||
Other comprehensive income (loss) before reclassifications, net of tax |
1,167 | | (117,599 | ) | (116,432 | ) | ||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax (1) |
1,165 | 599 | | 1,764 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net current-period other comprehensive income (loss) |
2,332 | 599 | (117,599 | ) | (114,668 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of September 30, 2013 |
$ | (2,026 | ) | $ | (3,228 | ) | $ | (292,761 | ) | $ | (298,015 | ) | ||||
|
|
|
|
|
|
|
|
(1) | Losses on cash flow hedges and loss on the settlement of the treasury rate lock have been reclassified into Interest expense in the accompanying condensed consolidated statements of operations. The tax effect of $0.1 million is included in income tax expense for the nine months ended September 30, 2013. |
9. Income Taxes
The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year. Cumulative adjustments to the Companys estimate are recorded in the interim period in which a change in the estimated annual effective tax rate is determined. The Company reorganized to qualify as a REIT for the taxable year commencing January 1, 2012. As a REIT, the Company continues to be subject to income taxes on the income of its TRSs, and taxation in foreign jurisdictions where it conducts international operations. Under the provisions of the Internal Revenue Code of 1986, as amended, the Company may deduct amounts distributed to stockholders against the income generated in its QRSs. The Company is able to offset income in both its TRSs and QRSs by utilizing their respective net operating losses. In addition, MIPT has been organized and has qualified as a REIT. For so long as MIPT continues to elect separate REIT status, it is independently subject to, and must comply with, the same REIT requirements that the Company must satisfy in order to qualify as a REIT, together with all other rules applicable to REITs.
20
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company provides valuation allowances if, based on the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets.
As of September 30, 2014 and December 31, 2013, the total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was approximately $39.1 million and $31.1 million, respectively. The increase in the amount of unrecognized tax benefits during the three and nine months ended September 30, 2014 is primarily attributable to the additions to the Companys existing tax positions and fluctuations in foreign currency exchange rates. The Company expects the unrecognized tax benefits to change over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdiction during this timeframe, as described in note 14 to the Companys consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013. The impact of the amount of such changes to previously recorded uncertain tax positions could range from zero to $19.4 million.
The Company recorded penalties and income tax-related interest expense during the three and nine months ended September 30, 2014 of $1.8 million and $4.8 million, respectively, and during the three and nine months ended September 30, 2013 of $0.9 million and $3.5 million, respectively. As of September 30, 2014 and December 31, 2013, the total amount of accrued penalties and income tax-related interest included in Other non-current liabilities in the condensed consolidated balance sheets was $34.0 million and $30.9 million, respectively.
10. Stock-Based Compensation
The Company recognized stock-based compensation expense during the three and nine months ended September 30, 2014 of $18.3 million and $61.7 million, respectively, and stock-based compensation expense during the three and nine months ended September 30, 2013 of $15.1 million and $53.2 million, respectively. Stock-based compensation expense for the nine months ended September 30, 2013 included $1.1 million related to the modification of the vesting and exercise terms for certain employees equity awards. The Company capitalized $0.4 million of stock-based compensation expense as property and equipment during each of the three months ended September 30, 2014 and 2013, and $1.2 million of stock-based compensation expense as property and equipment during each of the nine months ended September 30, 2014 and 2013.
Summary of Stock-Based Compensation PlansThe Company maintains equity incentive plans that provide for the grant of stock-based awards to its directors, officers and employees. The 2007 Equity Incentive Plan (the 2007 Plan) provides for the grant of non-qualified and incentive stock options, as well as restricted stock units, restricted stock and other stock-based awards. Exercise prices in the case of non-qualified and incentive stock options are not less than the fair value of the underlying common stock on the date of grant. Equity awards typically vest ratably over various periods, generally four years, and stock options generally expire ten years from the date of grant. As of September 30, 2014, the Company has the ability to grant stock-based awards with respect to an aggregate of 14.3 million shares of common stock under the 2007 Plan.
The Companys Compensation Committee adopted a death, disability and retirement benefits program in connection with equity awards granted on or after January 1, 2013, which provides for accelerated vesting and extended exercise periods of stock options and restricted stock units upon an employees death or permanent disability, or upon an employees qualified retirement, provided certain eligibility criteria are met. Due to the accelerated recognition of stock-based compensation expense related to awards granted to retirement eligible employees, the Company recognized an incremental $1.7 million and $11.4 million of stock-based compensation expense during the three and nine months ended September 30, 2014, respectively, and an incremental $0.2 million and $7.5 million of stock-based compensation expense during the three and nine months ended September 30, 2013, respectively.
21
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Stock OptionsThe Companys option activity for the nine months ended September 30, 2014 is as follows:
Number of Options |
||||
Outstanding as of January 1, 2014 |
6,106,171 | |||
Granted |
1,858,633 | |||
Exercised |
(1,013,650 | ) | ||
Forfeited |
(159,503 | ) | ||
Expired |
(33,188 | ) | ||
|
|
|||
Outstanding as of September 30, 2014 |
6,758,463 | |||
|
|
The fair value of each option granted during the nine months ended September 30, 2014 is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions noted in the table below:
Range of risk-free interest rate |
1.46%-1.74% | |
Weighted average risk-free interest rate |
1.64% | |
Expected life of option grants |
4.5 years | |
Range of expected volatility of underlying stock price |
22.45%-23.35% | |
Weighted average expected volatility of underlying stock price |
23.09% | |
Expected annual dividend yield |
1.50% |
The weighted average grant date fair value per share during the nine months ended September 30, 2014 was $14.84. As of September 30, 2014, total unrecognized compensation expense related to unvested stock options is $38.2 million and is expected to be recognized over a weighted average period of approximately two years.
Restricted Stock UnitsThe Companys restricted stock unit activity for the nine months ended September 30, 2014 is as follows:
Number of Units |
||||
Outstanding as of January 1, 2014 |
1,840,137 | |||
Granted |
786,584 | |||
Vested |
(702,723 | ) | ||
Forfeited |
(150,241 | ) | ||
|
|
|||
Outstanding as of September 30, 2014 |
1,773,757 | |||
|
|
As of September 30, 2014, total unrecognized compensation expense related to unvested restricted stock units granted under the 2007 Plan is $87.5 million and is expected to be recognized over a weighted average period of approximately two years.
Employee Stock Purchase PlanThe Company maintains an employee stock purchase plan (ESPP) for all eligible employees as described in note 15 to the Companys consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013. Under the ESPP, shares of the Companys common stock may be purchased on the last day of each bi-annual offering period at a 15% discount of the lower of the closing market value on the first or last day of such offering period. The offering periods run from June 1 through November 30 and from December 1 through May 31 of each year. During the nine months ended September 30, 2014, employee contributions were accumulated to purchase an estimated 65,000 shares under the ESPP.
22
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Key assumptions used to apply the Black-Scholes pricing model for shares purchased through the ESPP during the nine months ended September 30, 2014, which resulted in a fair value per share of $14.35, are as follows:
Approximate risk-free interest rate |
0.11% | |
Expected life of shares |
6 months | |
Expected volatility of underlying stock price over the option period |
16.59% | |
Expected annual dividend yield |
1.50% |
11. Equity
Mandatory Convertible Preferred Stock OfferingOn May 12, 2014, the Company completed a registered public offering of 6,000,000 shares of its 5.25% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share (the Mandatory Convertible Preferred Stock). The net proceeds of the offering were $582.9 million after deducting commissions and estimated expenses. The Company used the net proceeds from this offering to fund acquisitions, including the acquisition from Richland, initially funded by indebtedness incurred under the 2013 Credit Facility.
Unless converted earlier, each share of the Mandatory Convertible Preferred Stock will automatically convert on May 15, 2017, into between 0.9174 and 1.1468 shares of common stock, depending on the applicable market value of the common stock and subject to anti-dilution adjustments. Subject to certain restrictions, at any time prior to May 15, 2017, holders of the Mandatory Convertible Preferred Stock may elect to convert all or a portion of their shares into common stock at the minimum conversion rate then in effect.
Dividends on shares of Mandatory Convertible Preferred Stock are payable on a cumulative basis when, as and if declared by the Companys Board of Directors (or an authorized committee thereof) at an annual rate of 5.25% on the liquidation preference of $100.00 per share, on February 15, May 15, August 15 and November 15 of each year, commencing on August 15, 2014 to, and including, May 15, 2017. The Company may pay dividends in cash or, subject to certain limitations, in shares of common stock or any combination of cash and shares of common stock. The terms of the Mandatory Convertible Preferred Stock provide that, unless full cumulative dividends have been paid or set aside for payment on all outstanding Mandatory Convertible Preferred Stock for all prior dividend periods, no dividends may be declared or paid on common stock.
Stock Repurchase ProgramIn March 2011, the Board of Directors approved a stock repurchase program, pursuant to which the Company is authorized to purchase up to $1.5 billion of common stock (the 2011 Buyback). On September 6, 2013, the Company temporarily suspended repurchases in connection with its acquisition of MIPT.
Under the 2011 Buyback, the Company is authorized to purchase shares from time to time through open market purchases or privately negotiated transactions at prevailing prices in accordance with securities laws and other legal requirements, and subject to market conditions and other factors. To facilitate repurchases, the Company makes purchases pursuant to trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, which allows the Company to repurchase shares during periods when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.
The Company continues to manage the pacing of the remaining $1.1 billion under the 2011 Buyback in response to general market conditions and other relevant factors, including its financial policies. The Company expects to fund any further repurchases of its common stock through a combination of cash on hand, cash generated by operations and borrowings under its credit facilities. Purchases under the 2011 Buyback are subject to the Company having available cash to fund repurchases.
23
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Sales of Equity SecuritiesThe Company receives proceeds from sales of its equity securities pursuant to its ESPP and upon exercise of stock options granted under its equity incentive plans. During the nine months ended September 30, 2014, the Company received an aggregate of $47.9 million in proceeds upon exercises of stock options and from its ESPP.
DistributionsDuring the nine months ended September 30, 2014, the Company declared the following cash distributions:
Declaration Date | Payment Date | Record Date | Distribution per share |
Aggregate Payment Amount (in millions) |
||||||||||||||||
Common stock |
March 6, 2014 | April 25, 2014 | April 10, 2014 | $ | 0.32 | $ | 126.6 | |||||||||||||
Common stock |
May 21, 2014 | July 16, 2014 | June 17, 2014 | $ | 0.34 | $ | 134.6 | |||||||||||||
Common stock |
September 10, 2014 | October 7, 2014 | September 23, 2014 | $ | 0.36 | $ | 142.7 | |||||||||||||
Preferred stock |
May 21, 2014 | August 15, 2014 | August 1, 2014 | $ | 1.3563 | $ | 8.1 | |||||||||||||
Preferred stock |
September 10, 2014 | November 17, 2014 | November 1, 2014 | $ | 1.3125 | $ | 7.9 |
The Company accrues distributions on unvested restricted stock unit awards granted subsequent to January 1, 2012, which are payable upon vesting. As of September 30, 2014, the amount accrued for distributions payable related to unvested restricted stock units is $2.9 million. During the nine months ended September 30, 2014, the Company paid $0.7 million of distributions upon the vesting of restricted stock units.
To maintain its REIT status, the Company expects to continue paying regular distributions, the amount, timing and frequency of which will be determined at the sole discretion of the Companys Board of Directors.
12. Earnings Per Share
Basic net income per common share represents net income attributable to American Tower Corporation common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted net income per common share represents net income attributable to American Tower Corporation common stockholders divided by the weighted average number of common shares outstanding during the period and any dilutive common share equivalents, including shares issuable (i) upon the vesting of restricted stock awards, (ii) upon exercise of stock options and (iii) upon conversion of the Mandatory Convertible Preferred Stock (see note 11). Dilutive common share equivalents also include the dilutive impact of the Verizon transaction (see note 13).
24
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company uses the treasury stock method to calculate the effect of its outstanding restricted stock awards and stock options and uses the if-converted method to calculate the effect of its outstanding Mandatory Convertible Preferred Stock. The following table sets forth basic and diluted net income per common share computational data for the three and nine months ended September 30, 2014 and 2013 (in thousands, except per share data):
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income attributable to American Tower Corporation stockholders |
$ | 207,593 | $ | 180,123 | $ | 644,523 | $ | 451,351 | ||||||||
Dividends declared on preferred stock |
(7,700 | ) | | (12,075 | ) | | ||||||||||
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|
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|
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Net income attributable to American Tower Corporation common stockholders |
199,893 | 180,123 | 632,448 | 451,351 | ||||||||||||
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Basic weighted average common shares outstanding |
396,243 | 394,759 | 395,758 | 395,138 | ||||||||||||
Dilutive securities |
4,154 | 3,589 | 4,048 | 4,137 | ||||||||||||
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Diluted weighted average common shares outstanding |
400,397 | 398,348 | 399,806 | 399,275 | ||||||||||||
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Basic net income attributable to American Tower Corporation common stockholders per common share |
$ | 0.50 | $ | 0.46 | $ | 1.60 | $ | 1.14 | ||||||||
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Diluted net income attributable to American Tower Corporation common stockholders per common share |
$ | 0.50 | $ | 0.45 | $ | 1.58 | $ | 1.13 | ||||||||
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Shares Excluded From Dilutive Effect
The following shares were not included in the computation of diluted earnings per share because the effect would be anti-dilutive (in thousands, on a weighted average basis):
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Restricted stock awards |
| 14 | | | ||||||||||||
Stock options |
1 | 2,517 | 2,255 | 1,096 | ||||||||||||
Preferred stock (1) |
6,688 | | 3,473 | |
(1) | Issued on May 12, 2014. |
13. Commitments and Contingencies
Litigation
The Company periodically becomes involved in various claims, lawsuits and proceedings that are incidental to its business. In the opinion of Company management, after consultation with counsel, there are no matters currently pending that would, in the event of an adverse outcome, materially impact the Companys consolidated financial position, results of operations or liquidity.
25
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TriStar LitigationThe Company was involved in several lawsuits against TriStar Investors LLP and its affiliates (TriStar) in various states regarding single tower sites where TriStar had taken land interests under the Companys owned or managed sites and the Company believes TriStar induced the landowner to breach obligations to the Company. In addition, on February 16, 2012, TriStar brought a federal action against the Company in the United States District Court for the Northern District of Texas (the District Court), in which TriStar principally alleged that the Company made misrepresentations to landowners when competing with TriStar for land under the Companys owned or managed sites. On January 22, 2013, the Company filed an amended answer and counterclaim against TriStar and certain of its employees, denying Tristars claims and asserting that TriStar engaged in a pattern of unlawful activity, including: (i) entering into agreements not to compete for land under certain towers; and (ii) making widespread misrepresentations to landowners regarding both TriStar and the Company. Both parties sought injunctive relief that would prohibit the other party from making certain statements when interacting with landowners, as well as significant damages. On April 3, 2014, the District Court ruled on the parties cross-motions for summary judgment, permitting both parties claims of misrepresentation to proceed to trial, as well as related state law actions, and dismissing certain of the parties other claims. Pursuant to a Settlement Agreement dated July 9, 2014, all pending state and federal actions between the Company and TriStar were dismissed with prejudice and without payment of damages.
Commitments
AT&T TransactionThe Company has an agreement with SBC Communications Inc., a predecessor entity to AT&T Inc. (AT&T), that currently provides for the lease or sublease of approximately 2,430 towers from AT&T with the lease commencing between December 2000 and August 2004. Substantially all of the towers are part of the Companys securitization transaction completed in March 2013. The average term of the lease or sublease for all sites at the inception of the agreement was approximately 27 years, assuming renewals or extensions of the underlying ground leases for the sites. The Company has the option to purchase the sites subject to the applicable lease or sublease upon its expiration. Each tower is assigned to an annual tranche, ranging from 2013 to 2032, which represents the outside expiration date for the sublease rights to that tower. The purchase price for each site is a fixed amount stated in the sublease for that site plus the fair market value of certain alterations made to the related tower by AT&T. As of September 30, 2014, the Company has purchased four of the subleased towers upon expiration of the applicable agreement. The aggregate purchase option price for the remaining towers leased and subleased is approximately $638.6 million, and will accrete at a rate of 10% per annum through the applicable expiration of the lease or sublease of a site. For all such sites purchased by the Company prior to June 30, 2020, AT&T will continue to lease the reserved space at the then-current monthly fee which shall escalate in accordance with the standard master lease agreement for the remainder of AT&Ts tenancy. Thereafter, AT&T shall have the right to renew such lease for up to four successive five-year terms. For all such sites purchased by the Company subsequent to June 30, 2020, AT&T has the right to continue to lease the reserved space for successive one-year terms at a rent equal to the lesser of the agreed upon market rate and the then-current monthly fee, which is subject to an annual increase based on changes in the Consumer Price Index.
Verizon TransactionIn December 2000, the Company entered into an agreement with ALLTEL, a predecessor entity to Verizon Wireless (Verizon), to acquire towers through a 15-year sublease agreement. Pursuant to the agreement, as amended, with Verizon, the Company acquired rights to approximately 1,800 towers in tranches between April 2001 and March 2002. The Company has the option to purchase each tower at the expiration of the applicable sublease, which will occur in tranches between April 2016 and March 2017 based on the original closing date for such tranche of towers. The purchase price per tower as of the original closing date was $27,500 and will accrete at a rate of 3% per annum through the expiration of the applicable sublease. The aggregate purchase option price for the subleased towers is approximately $72.8 million as of September 30, 2014. At Verizons option, at the expiration of the sublease, the purchase price would be payable in cash or with 769 shares of the Companys common stock per tower, which would be valued at approximately $127.8 million in the aggregate based on the closing price at September 30, 2014.
26
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other ContingenciesThe Company is subject to income tax and other taxes in the geographic areas where it operates, and periodically receives notifications of audits, assessments or other actions by taxing authorities. The Company evaluates the circumstances of each notification based on the information available, and records a liability for any potential outcome that is probable or more likely than not unfavorable, if the liability is also reasonably estimable. On January 21, 2014, the Company received an income tax assessment in the amount of 22.6 billion Indian Rupees (approximately $369.0 million on the date of assessment), asserting tax liabilities arising out of a transfer pricing review of transactions by Essar Telecom Infrastructure Private Limited (ETIPL), and more specifically involving the issuance of share capital and the determination by the tax authority that an income tax obligation arose as a result of such issuance. The assessment was made with respect to transactions that took place in the tax year commencing in 2008, prior to the Companys acquisition of ETIPL. Under the Companys definitive acquisition agreement of ETIPL, the seller is obligated to indemnify and defend the Company with respect to any tax-related liability that may arise from activities prior to March 31, 2010. The Company believes that there is no basis upon which the tax assessment can be enforced under existing tax law and accordingly has not recorded an obligation in the consolidated financial statements. The assessment is being challenged with the appellate authorities.
14. Acquisitions
All of the acquisitions described below are accounted for as business combinations and are consistent with the Companys strategy to expand in selected geographic areas.
The estimates of the fair value of the assets acquired and liabilities assumed at the date of the applicable acquisition are subject to adjustment during the measurement period (up to one year from the particular acquisition 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 residual goodwill and any related tax impact. The fair value of these net assets acquired are based on managements estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, it will evaluate any necessary information prior to finalization of the fair value. During the measurement period, the Company will adjust assets 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 the revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair value is reflected as if the adjustments had been completed on the acquisition date. The impact of all changes that do not qualify as measurement period adjustments are included in current period earnings. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the condensed consolidated financial statements could be subject to a possible impairment of the intangible assets or goodwill, or require acceleration of the amortization expense of intangible assets in subsequent periods. During the nine months ended September 30, 2014, the Company made certain purchase accounting measurement period adjustments related to several acquisitions and therefore retrospectively adjusted the fair value of the assets acquired and liabilities assumed in the condensed consolidated balance sheet as of December 31, 2013.
Impact of current year acquisitionsThe Company typically acquires communications sites from wireless carriers or other tower operators and subsequently integrates those sites into its existing portfolio of communications sites. The financial results of the Companys acquisitions have been included in the Companys condensed consolidated statements of operations for the three and nine months ended September 30, 2014 from the date of the respective acquisition. The date of acquisition, and by extension the point at which the Company begins to recognize the results of an acquisition, may be dependent upon, among other things, the receipt of contractual consents, the commencement and extent of leasing arrangements and the timing of the transfer of title
27
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
or rights to the assets, which may be accomplished in phases. Sites acquired from communications service providers may never have been operated as a business and may have been utilized solely by the seller as a component of its network infrastructure. An acquisition, depending on its size and nature, may or may not involve the transfer of business operations or employees.
The estimated aggregate impact of the 2014 acquisitions on the Companys revenues and gross margin for the three months ended September 30, 2014 is approximately $12.6 million and $9.5 million, respectively, and the estimated aggregate impact for the nine months ended September 30, 2014 is approximately $22.8 million and $17.1 million, respectively. The revenues and gross margin amounts also reflect incremental revenues from the addition of new tenants to the acquired sites subsequent to the date of acquisition. Incremental amounts of segment selling, general, administrative and development expense have not been reflected as the amounts attributable to acquisitions are not comparable.
The Company recognizes acquisition and merger related costs in the period in which they are incurred and services are received. Acquisition and merger related costs may include finders fees, advisory, legal, accounting, valuation and other professional or consulting fees, fair value adjustments to contingent consideration and general administrative costs, and are included in Other operating expenses in the condensed consolidated statements of operations. During the three and nine months ended September 30, 2014, the Company recognized acquisition and merger related expenses of $4.1 million and $18.7 million, respectively. During the three and nine months ended September 30, 2013, the Company recognized acquisition and merger related expenses of $8.9 million and $25.8 million, respectively. In addition, during the three and nine months ended September 30, 2014, the Company recorded $5.2 million and $10.9 million, respectively, of integration costs related to recently closed acquisitions.
2014 Acquisitions
Richland AcquisitionOn April 3, 2014, the Company, through one of its wholly-owned subsidiaries, acquired entities holding a portfolio of 59 communications sites, which at the time of acquisition were leased primarily to radio and television broadcast tenants, and four property interests in the United States from Richland for an aggregate purchase price of $385.9 million. The purchase price was satisfied with approximately $182.9 million in cash, approximately $6.5 million payable to the seller upon satisfaction of certain closing conditions and the assumption of $196.5 million of existing indebtedness. In June 2014, the Company repaid the outstanding indebtedness, paid prepayment consideration and wrote-off the unamortized premium associated with the fair value adjustment.
International AcquisitionsDuring the nine months ended September 30, 2014, the Company acquired a total of 151 communications sites and related assets in Brazil, Ghana, Mexico and Uganda, for total consideration of $27.9 million (including value added tax of $1.0 million). The Company also acquired 299 communications sites in Mexico for an aggregate purchase price of $43.7 million (including value added tax of $5.6 million). The Company assumed net liabilities of approximately $3.4 million, resulting in total consideration of approximately $40.3 million, which was satisfied by the issuance of approximately $36.3 million of credits to be applied against trade accounts receivable and cash consideration of approximately $4.0 million. Each purchase price is subject to post-closing adjustments.
Other U.S. AcquisitionsDuring the nine months ended September 30, 2014, the Company acquired a total of 44 communications sites and equipment, as well as four property interests, in the United States for total consideration of $49.1 million (including $0.4 million of contingent consideration). The aggregate purchase price is subject to post-closing adjustments.
28
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the preliminary allocation of the aggregate consideration paid and the amounts of assets acquired and liabilities assumed for the fiscal year 2014 acquisitions based upon their estimated fair value at the date of acquisition (in thousands). Balances are reflected in the accompanying condensed consolidated balance sheets as of September 30, 2014.
Richland | International | Other U.S. | ||||||||||
Current assets |
$ | 8,583 | $ | 6,883 | $ | 82 | ||||||
Non-current assets |
| 1,512 | | |||||||||
Property and equipment |
176,648 | 31,374 | 9,696 | |||||||||
Intangible assets (1): |
||||||||||||
Customer-related intangible assets |
179,752 | 20,627 | 29,232 | |||||||||
Network location intangible assets |
2,100 | 10,871 | 5,501 | |||||||||
Current liabilities |
(3,635 | ) | (863 | ) | (784 | ) | ||||||
Long-term obligations (2) |
(201,999 | ) | | | ||||||||
Other non-current liabilities |
(2,922 | ) | (6,206 | ) | (222 | ) | ||||||
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|
|
|
|
|
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Fair value of net assets acquired |
$ | 158,527 | $ | 64,198 | $ | 43,505 | ||||||
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|
|
|
|
|
|||||||
Goodwill (3) |
30,852 | 3,984 | 5,601 |
(1) | Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years. |
(2) | Long-term obligations included $196.5 million of Richlands indebtedness and a fair value adjustment of $5.5 million. The fair value adjustment was based primarily on reported market values using Level 2 inputs. |
(3) | Goodwill was allocated to the Companys domestic and international rental and management segments, as applicable, and the Company expects goodwill recorded will be deductible for tax purposes. |
2013 Acquisitions
MIPT Acquisition
On October 1, 2013, the Company, through its wholly owned subsidiary American Tower Investments LLC, acquired 100% of the outstanding common membership interests of MIPT, a private REIT and the parent company of GTP, an owner and operator, through its various operating subsidiaries, of approximately 4,860 communications sites in the United States and approximately 510 communications sites in Costa Rica and Panama. GTP also manages rooftops and holds property interests that it leases to communications service providers and third-party tower operators. The Company sold its operations in Panama in September 2014 (see note 7).
The purchase price of $4.9 billion was satisfied with approximately $3.3 billion in cash, including an aggregate of approximately $2.8 billion from borrowings under the Companys credit facilities, and the assumption of approximately $1.5 billion of MIPTs existing indebtedness.
The consideration consisted of the following (in thousands):
Cash consideration (1) |
$ | 3,330,462 | ||
Assumption of existing indebtedness at historical cost |
1,527,621 | |||
|
|
|||
Estimated total purchase price |
$ | 4,858,083 | ||
|
|
(1) | Cash consideration includes $14.5 million of an additional purchase price adjustment which was paid to the sellers during the nine months ended September 30, 2014 and is reflected in Accrued expenses on the consolidated balance sheet included in the Companys Annual Report on Form 10-K for the year ended December 31, 2013. |
29
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The allocation of the purchase price was finalized as of September 30, 2014. The following table summarizes the allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed for the MIPT acquisition based upon the estimated fair value at the date of acquisition (in thousands).
Final Purchase Price Allocation (1) |
Preliminary Purchase Price Allocation (2) |
|||||||
Cash and cash equivalents |
$ | 35,967 | $ | 35,967 | ||||
Restricted cash |
30,883 | 30,883 | ||||||
Accounts receivable, net |
10,102 | 10,021 | ||||||
Prepaid and other current assets |
40,865 | 22,875 | ||||||
Property and equipment |
910,713 | 996,901 | ||||||
Intangible assets (3): |
||||||||
Customer-related intangible assets |
2,456,582 | 2,629,188 | ||||||
Network location intangible assets |
528,900 | 467,300 | ||||||
Notes receivable and other non-current assets |
68,388 | 4,220 | ||||||
Accounts payable |
(9,969 | ) | (9,249 | ) | ||||
Accrued expenses |
(42,867 | ) | (37,004 | ) | ||||
Accrued interest |
(3,253 | ) | (3,253 | ) | ||||
Current portion of long-term obligations |
(2,820 | ) | (2,820 | ) | ||||
Unearned revenue |
(35,905 | ) | (35,753 | ) | ||||
Long-term obligations (4) |
(1,573,366 | ) | (1,573,366 | ) | ||||
Asset retirement obligations |
(57,965 | ) | (43,089 | ) | ||||
Other non-current liabilities |
(17,837 | ) | (37,326 | ) | ||||
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|
|||||
Fair value of net assets acquired |
$ | 2,338,418 | $ | 2,455,495 | ||||
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|
|||||
Goodwill (5) |
992,044 | 874,967 |
(1) | Balances are reflected in the accompanying condensed consolidated balance sheets as of September 30, 2014. |
(2) | Balances are reflected in the consolidated balance sheets in the Companys Annual Report on Form 10-K for the year ended December 31, 2013. |
(3) | Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years. |
(4) | Long-term obligations included $1.5 billion of MIPTs existing indebtedness and a fair value adjustment of $53.0 million. The fair value adjustment was based primarily on reported market values using Level 2 inputs. |
(5) | Goodwill was allocated to the Companys domestic and international rental and management segments, as applicable, and the Company expects goodwill recorded will not be deductible for tax purposes. |
Other 2013 Acquisitions
Axtel Mexico AcquisitionOn January 31, 2013, the Company acquired 883 communications sites from Axtel, S.A.B. de C.V. for an aggregate purchase price of $248.5 million.
NII AcquisitionOn August 8, 2013, the Company entered into an agreement with NII to acquire up to 1,666 communications sites in Mexico and 2,790 communications sites in Brazil in two separate transactions.
On November 8, 2013, the Company acquired 1,473 communications sites in Mexico from NII for an initial aggregate purchase price of approximately $436.0 million (including value added tax of approximately $60.3 million) and net assets of approximately $0.9 million for total cash consideration of approximately $436.9 million. The purchase price was subsequently reduced to approximately $427.0 million (including value added tax of approximately $59.0 million) during the nine months ended September 30, 2014 as a result of post-closing adjustments. The purchase price is subject to further post-closing adjustments. The Companys right to purchase additional sites in Mexico expired on May 30, 2014.
30
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On December 6, 2013, the Company acquired 1,931 communications sites in Brazil from NII for an initial aggregate purchase price of approximately $349.0 million. The purchase price was subsequently reduced to approximately $340.6 million during the nine months ended September 30, 2014 as a result of post-closing adjustments. In addition, in June 2014, the Company purchased an additional 103 communications sites for an aggregate purchase price of approximately $18.6 million, which are reflected above in 2014 Acquisitions. The purchase price is subject to post-closing adjustments and the purchase of the remaining sites is subject to diligence and customary closing conditions. The Companys right to purchase additional sites in Brazil expires on December 31, 2014.
Z-Sites AcquisitionOn November 29, 2013, the Company acquired 238 communications sites from Z-Sites Locação de Imóveis Ltda for an aggregate purchase price of approximately $122.8 million. The purchase price was subsequently increased to approximately $123.9 million during the nine months ended September 30, 2014 and is subject to post-closing adjustments.
Other International AcquisitionsDuring the year ended December 31, 2013, the Company acquired a total of 714 additional communications sites in Brazil, Chile, Colombia, Ghana, Mexico and South Africa, for an aggregate purchase price of $89.8 million (including contingent consideration of $4.1 million and value added tax of $4.9 million).
Other U.S. AcquisitionsDuring the year ended December 31, 2013, the Company acquired a total of 55 additional communications sites and 23 property interests in the United States for an aggregate purchase price of $65.6 million, subject to post-closing adjustments. The purchase price included cash paid of approximately $65.2 million and net liabilities assumed of approximately $0.4 million.
The following table summarizes the updated allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed for the fiscal year 2013 acquisitions based upon their estimated fair value at the date of acquisition (in thousands). Balances are reflected in the accompanying condensed consolidated balance sheets herein.
Axtel Mexico (1) |
NII Mexico (2) |
NII Brazil | Z-Sites | Other International |
Other U.S. | |||||||||||||||||||
Current assets |
$ | | $ | 59,938 | $ | | $ | | $ | 4,863 | $ | 1,220 | ||||||||||||
Non-current assets |
2,626 | 10,738 | 7,184 | 6,436 | 1,991 | 44 | ||||||||||||||||||
Property and equipment |
86,100 | 143,680 | 110,398 | 26,881 | 44,844 | 23,537 | ||||||||||||||||||
Intangible assets (3): |
||||||||||||||||||||||||
Customer-related intangible assets |
119,392 | 132,897 | 142,151 | 62,286 | 20,590 | 29,325 | ||||||||||||||||||
Network location intangible assets |
43,031 | 66,069 | 80,069 | 17,350 | 20,727 | 7,935 | ||||||||||||||||||
Current liabilities |
| | | | | (454 | ) | |||||||||||||||||
Other non-current liabilities |
(9,377 | ) | (10,478 | ) | (13,188 | ) | (1,502 | ) | (8,168 | ) | (848 | ) | ||||||||||||
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Fair value of net assets acquired |
$ | 241,772 | $ | 402,844 | $ | 326,614 | $ | 111,451 | $ | 84,847 | $ | 60,759 | ||||||||||||
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Goodwill (4) |
6,751 | 25,056 | 13,946 | 12,493 | 4,970 | 4,403 |
(1) | The allocation of the purchase price was finalized during the year ended December 31, 2013. |
(2) | Current assets includes approximately $59.0 million of value added tax. |
(3) | Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years. |
(4) | Goodwill was allocated to the Companys domestic and international rental and management segments, as applicable, and the Company expects goodwill recorded will be deductible for tax purposes. |
31
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the preliminary allocation, unless otherwise noted, of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed for the fiscal year 2013 acquisitions. The allocation is based upon the estimated fair value at the date of acquisition (in thousands). Balances are reflected in the consolidated balance sheets in the Companys Annual Report on Form 10-K for the year ended December 31, 2013.
Axtel Mexico (1) |
NII Mexico (2) |
NII Brazil | Z-Sites | Other International |
Other U.S. | |||||||||||||||||||
Current assets |
$ | | $ | 61,183 | $ | | $ | | $ | 4,863 | $ | 1,220 | ||||||||||||
Non-current assets |
2,626 | 11,969 | 4,484 | 6,157 | 1,991 | 44 | ||||||||||||||||||
Property and equipment |
86,100 | 147,364 | 105,784 | 24,832 | 44,844 | 23,803 | ||||||||||||||||||
Intangible assets (3): |
||||||||||||||||||||||||
Customer-related intangible assets |
119,392 | 135,175 | 149,333 | 64,213 | 20,590 | 29,325 | ||||||||||||||||||
Network location intangible assets |
43,031 | 63,791 | 93,867 | 17,123 | 20,727 | 7,607 | ||||||||||||||||||
Current liabilities |
| | | | | (454 | ) | |||||||||||||||||
Other non-current liabilities |
(9,377 | ) | (10,478 | ) | (13,188 | ) | (1,502 | ) | (8,168 | ) | (786 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Fair value of net assets acquired |
$ | 241,772 | $ | 409,004 | $ | 340,280 | $ | 110,823 | $ | 84,847 | $ | 60,759 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Goodwill (4) |
6,751 | 27,928 | 8,704 | 11,953 | 4,970 | 4,403 |
(1) | The allocation of the purchase price was finalized during the year ended December 31, 2013. |
(2) | Current assets includes approximately $60.3 million of value added tax. |
(3) | Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years. |
(4) | Goodwill was allocated to the Companys domestic and international rental and management segments, as applicable, and the Company expects goodwill recorded will be deductible for tax purposes. |
Pro Forma Consolidated Results
The following table presents the unaudited pro forma financial results as if the 2013 acquisitions had occurred on January 1, 2012 and the 2014 acquisitions had occurred on January 1, 2013 (in thousands, except per share data). Management relied on various estimates and assumptions due to the fact that some of the acquisitions never operated as a business and were utilized solely by the seller as a component of their network infrastructure. As a result, historical operating results for these acquisitions are not available. The pro forma results do not include any anticipated cost synergies, costs or other effects of the planned integration of the acquisitions. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the dates indicated, nor are they indicative of the future operating results of the Company.
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Pro forma revenues |
$ | 1,038,188 | $ | 938,082 | $ | 3,069,254 | $ | 2,817,239 | ||||||||
Pro forma net income attributable to American Tower Corporation common stockholders |
$ | 199,893 | $ | 147,156 | $ | 634,166 | $ | 359,819 | ||||||||
Pro forma net income per common share amounts: |
||||||||||||||||
Basic net income attributable to American Tower Corporation common stockholders |
$ | 0.50 | $ | 0.37 | $ | 1.60 | $ | 0.91 | ||||||||
Diluted net income attributable to American Tower Corporation common stockholders |
$ | 0.50 | $ | 0.37 | $ | 1.59 | $ | 0.90 |
32
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other Signed Acquisitions
BR Towers AcquisitionOn June 13, 2014, the Company entered into an agreement with GPCP V, a private equity fund managed by GP Investments, Ltd., FIP Multisetorial Plus, a private equity fund managed by Bradesco BBI, and other shareholders, to acquire 100% of the equity interests of BR Towers S.A., a Brazilian telecommunications real estate company that is expected to own approximately 2,530 towers and the exclusive use rights for approximately 2,110 additional towers in Brazil at closing. At signing, the estimated purchase price was 2.18 billion Brazilian Reais (BRL) (approximately $889.9 million based on exchange rates at September 30, 2014), subject to customary adjustments and regulatory approval. The Company deposited 130.0 million BRL (approximately $53.0 million based on exchange rates at September 30, 2014) in escrow for this transaction, which is reflected in Prepaid and other current assets in the condensed consolidated balance sheets as of September 30, 2014.
U.S. AcquisitionIn July 2014, the Company entered into an agreement to acquire up to 154 communications sites in the United States for approximately $132.5 million, subject to customary adjustments. In October 2014, the Company acquired 120 of those communications sites for approximately $110.1 million, subject to post-closing adjustments.
Acquisition-Related Contingent Consideration
The Company may be required to pay additional consideration under certain agreements for the acquisition of communications sites if specific conditions are met or events occur.
ColombiaUnder the terms of the agreement with Colombia Movil S.A. E.S.P., the Company is required to make additional payments upon the conversion of certain barter agreements with other wireless carriers to cash paying lease agreements. Based on current estimates, the Company expects the value of potential contingent consideration payments required to be made under the agreement to be between zero and $34.8 million and estimates it to be $23.3 million using a probability weighted average of the expected outcomes as of September 30, 2014. During the three and nine months ended September 30, 2014, the Company recorded an increase in fair value of $0.4 million and $1.4 million, respectively, in Other operating expenses in the accompanying condensed consolidated statements of operations.
GhanaUnder the terms of its agreement, as amended, with MTN Group Limited, the Company is required to make additional payments upon the conversion of certain barter agreements with other wireless carriers to cash paying lease agreements. Based on current estimates, the Company expects the value of potential contingent consideration payments required to be made under the amended agreement to be between zero and $0.5 million and estimates it to be $0.5 million using a probability weighted average of the expected outcomes as of September 30, 2014.
MIPTIn connection with the acquisition of MIPT, the Company assumed additional contingent consideration liability related to previously closed acquisitions in Costa Rica, Panama and the United States. The Company is required to make additional payments to the sellers if certain pre-designated tenant leases commence during a limited specified period of time after the applicable acquisition was completed, generally one year or less. The Company initially recorded $9.3 million of contingent consideration liability as part of the preliminary purchase price allocation upon closing of the acquisition. Based on current estimates, the Company expects the value of potential contingent consideration payments required to be made under these agreements to be between zero and $3.4 million. During the three and nine months ended September 30, 2014, the Company (i) recorded a decrease in fair value of $1.4 million and $2.8 million, respectively, in Other operating expenses in the accompanying condensed consolidated statements of operations, (ii) made payments under these agreements of $0.1 million and $1.4 million, respectively, (iii) reduced its contingent consideration liability by $0.7 million as a
33
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
portion of the Companys obligations was assumed by the buyer in conjunction with the sale of operations in Panama and (iv) recorded additional liability of $0.1 million. As a result, the Company estimates the value of potential contingent consideration payments required under these agreements to be $3.4 million using a probability weighted average of the expected outcomes as of September 30, 2014.
Other U.S.In connection with other acquisitions in the United States, the Company is required to make additional payments if certain pre-designated tenant leases commence during a specified period of time. During the nine months ended September 30, 2014, the Company recorded $0.4 million of contingent consideration liability as part of the preliminary purchase price allocation upon closing of certain acquisitions. During the three and nine months ended September 30, 2014, the Company made payments under these agreements of $0.1 million. Based on current estimates, the Company expects the value of potential contingent consideration payments required to be made under these agreements to be between zero and $0.3 million and estimates it to be $0.3 million using a probability weighted average of the expected outcomes as of September 30, 2014.
For more information regarding contingent consideration, see note 7.
15. Business Segments
The Company operates in three business segments, (i) domestic rental and management, (ii) international rental and management and (iii) network development services. The Companys primary business is the leasing of antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies and municipalities and tenants in a number of other industries. This business is referred to as the Companys rental and management operations and is comprised of domestic and international segments, which, as of September 30, 2014, consist of the following:
| Domestic: rental and management operations in the United States; and |
| International: rental and management operations in Brazil, Chile, Colombia, Costa Rica, Germany, Ghana, India, Mexico, Peru, South Africa and Uganda. |
The Company has applied the aggregation criteria to operations within the international rental and management operating segments on a basis consistent with managements review of information and performance evaluation.
The Companys network development services segment offers tower-related services in the United States, including site acquisition, zoning and permitting services and structural analysis services, which primarily support its site leasing business and the addition of new tenants and equipment on its sites. The network development services segment is a strategic business unit that offers different services from the rental and management operating segments and requires different resources, skill sets and marketing strategies.
The accounting policies applied in compiling segment information below are similar to those described in note 1 to the Companys consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013. Among other factors, in evaluating financial performance in each business segment, management uses segment gross margin and segment operating profit. The Company defines segment gross margin as segment revenue less segment operating expenses excluding stock-based compensation expense recorded in costs of operations; Depreciation, amortization and accretion; Selling, general, administrative and development expense; and Other operating expenses. The Company defines segment operating profit as segment gross margin less Selling, general, administrative and development expense attributable to the segment, excluding stock-based compensation expense and corporate expenses. For reporting purposes, the international rental and management segment gross margin and segment operating profit also include Interest income, TV Azteca, net. These measures of segment gross margin and segment operating profit are also before Interest
34
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
income, Interest expense, Gain (loss) on retirement of long-term obligations, Other income (expense), Net income (loss) attributable to noncontrolling interest, Income (loss) on equity method investments and Income tax benefit (provision). The categories of expenses indicated above, such as depreciation, have been excluded from segment operating performance as they are not considered in the review of information or the evaluation of results by management. There are no significant revenues resulting from transactions between the Companys operating segments. All intercompany transactions are eliminated to reconcile segment results and assets to the condensed consolidated statements of operations and condensed consolidated balance sheets.
Summarized financial information concerning the Companys reportable segments for the three and nine months ended September 30, 2014 and 2013 is shown in the following tables. The Other column (i) represents amounts excluded from specific segments, such as business development operations, stock-based compensation expense and corporate expenses included in Selling, general, administrative and development expense; Other operating expenses; Interest income; Interest expense; Gain (loss) on retirement of long-term obligations; and Other income (expense), and (ii) reconciles segment operating profit to Income from continuing operations before income taxes, as these amounts are not utilized in assessing each segments performance.
Rental and Management | Total Rental and Management |
Network Development Services |
Other | Total | ||||||||||||||||||||
Three months ended September 30, 2014 | Domestic | International | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Segment revenues |
$ | 663,570 | $ | 347,549 | $ | 1,011,119 | $ | 27,069 | $ | 1,038,188 | ||||||||||||||
Segment operating expenses (1) |
133,951 | 138,060 | 272,011 | 11,746 | 283,757 | |||||||||||||||||||
Interest income, TV Azteca, net |
| 2,661 | 2,661 | | 2,661 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Segment gross margin |
529,619 | 212,150 | 741,769 | 15,323 | 757,092 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Segment selling, general, administrative and development expense (1) |
30,955 | 33,441 | 64,396 | 3,020 | 67,416 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Segment operating profit |
$ | 498,664 | $ | 178,709 | $ | 677,373 | $ | 12,303 | $ | 689,676 | ||||||||||||||
|
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|
|
|
|
|
|
|
|
|||||||||||||||
Stock-based compensation expense |
$ | 18,269 | 18,269 | |||||||||||||||||||||
Other selling, general, administrative and development expense |
23,669 | 23,669 | ||||||||||||||||||||||
Depreciation, amortization and accretion |
249,066 | 249,066 | ||||||||||||||||||||||
Other expense (principally interest expense and other expenses) |
181,616 | 181,616 | ||||||||||||||||||||||
|
|
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Income from continuing operations before income taxes |
$ | 217,056 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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Total assets |
$ | 14,202,456 | $ | 6,190,104 | $ | 20,392,560 | $ | 40,903 | $ | 163,152 | $ | 20,596,615 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $0.4 million and $17.8 million, respectively. |
35
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Rental and Management | Total Rental and Management |
Network Development Services |
Other | Total | ||||||||||||||||||||
Three months ended September 30, 2013 | Domestic | International | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Segment revenues |
$ | 529,941 | $ | 266,634 | $ | 796,575 | $ | 11,305 | $ | 807,880 | ||||||||||||||
Segment operating expenses (1) |
95,232 | 100,473 | 195,705 | 4,777 | 200,482 | |||||||||||||||||||
Interest income, TV Azteca, net |
| 3,544 | 3,544 | | 3,544 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Segment gross margin |
434,709 | 169,705 | 604,414 | 6,528 | 610,942 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Segment selling, general, administrative and development expense (1) |
24,523 | 31,728 | 56,251 | 1,880 | 58,131 | |||||||||||||||||||
|
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|
|
|
|
|
|
|
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Segment operating profit |
$ | 410,186 | $ | 137,977 | $ | 548,163 | $ | 4,648 | $ | 552,811 | ||||||||||||||
|
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|
|
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|
|
|
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Stock-based compensation expense |
$ | 15,058 | 15,058 | |||||||||||||||||||||
Other selling, general, administrative and development expense |
24,939 | 24,939 | ||||||||||||||||||||||
Depreciation, amortization and accretion |
184,922 | 184,922 | ||||||||||||||||||||||
Other expense (principally interest expense and other (expense) income) |
149,084 | 149,084 | ||||||||||||||||||||||
|
|
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Income from continuing operations before income taxes |
$ | 178,808 | ||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
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Total assets |
$ | 12,037,318 | $ | 5,427,416 | $ | 17,464,734 | $ | 49,973 | $ | 666,613 | $ | 18,181,320 | ||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
(1) | Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $0.3 million and $14.7 million, respectively. |
Rental and Management | Total Rental
and Management |
Network Development Services |
Other | Total | ||||||||||||||||||||
Nine months ended September 30, 2014 | Domestic | International | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Segment revenues |
$ | 1,959,092 | $ | 1,017,908 | $ | 2,977,000 | $ | 76,734 | $ | 3,053,734 | ||||||||||||||
Segment operating expenses (1) |
381,800 | 403,515 | 785,315 | 30,529 | 815,844 | |||||||||||||||||||
Interest income, TV Azteca, net |
| 7,918 | 7,918 | | 7,918 | |||||||||||||||||||
|
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|
|
|
|
|
|
|
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Segment gross margin |
1,577,292 | 622,311 | 2,199,603 | 46,205 | 2,245,808 | |||||||||||||||||||
|
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|
|
|
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|
|
|
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Segment selling, general, administrative and development expense (1) |
86,677 | 97,129 | 183,806 | 7,876 | 191,682 | |||||||||||||||||||
|
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|
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|
|
|
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Segment operating profit |
$ | 1,490,615 | $ | 525,182 | $ | 2,015,797 | $ | 38,329 | $ | 2,054,126 | ||||||||||||||
|
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|
|
|
|
|
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Stock-based compensation expense |
$ | 61,708 | 61,708 | |||||||||||||||||||||
Other selling, general, administrative and development expense |
65,449 | 65,449 | ||||||||||||||||||||||
Depreciation, amortization and accretion |
740,256 | 740,256 | ||||||||||||||||||||||
Other expense (principally interest expense and other expenses) |
515,234 | 515,234 | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Income from continuing operations before income taxes |
$ | 671,479 | ||||||||||||||||||||||
|
|
(1) | Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $1.4 million and $60.3 million, respectively. |
36
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Rental and Management | Total Rental
and Management |
Network Development Services |
Other | Total | ||||||||||||||||||||
Nine months ended September 30, 2013 | Domestic | International | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Segment revenues |
$ | 1,566,660 | $ | 796,547 | $ | 2,363,207 | $ | 56,231 | $ | 2,419,438 | ||||||||||||||
Segment operating expenses (1) |
282,273 | 302,441 | 584,714 | 22,399 | 607,113 | |||||||||||||||||||
Interest income, TV Azteca, net |
| 10,673 | 10,673 | | 10,673 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
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Segment gross margin |
1,284,387 | 504,779 | 1,789,166 | 33,832 | 1,822,998 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
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Segment selling, general, administrative and development expense (1) |
71,664 | 93,753 | 165,417 | 7,105 | 172,522 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
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Segment operating profit |
$ | 1,212,723 | $ | 411,026 | $ | 1,623,749 | $ | 26,727 | $ | 1,650,476 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Stock-based compensation expense |
$ | 53,155 | 53,155 | |||||||||||||||||||||
Other selling, general, administrative and development expense |
74,251 | 74,251 | ||||||||||||||||||||||
Depreciation, amortization and accretion |
555,334 | 555,334 | ||||||||||||||||||||||
Other expense (principally interest expense and other (expense) income) |
536,092 | 536,092 | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Income from continuing operations before income taxes |
$ | 431,644 | ||||||||||||||||||||||
|
|
(1) | Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $1.2 million and $52.0 million, respectively. |
16. Subsequent Events
Colombian Credit FacilityOn October 14, 2014, one of the Companys Colombian subsidiaries (ATC Sitios) entered into a loan agreement for a new 200.0 billion COP (approximately $96.8 million at the date of borrowing) denominated long-term credit facility (the Colombian Credit Facility), which it used, together with cash on hand, to repay the previously existing COP denominated long-term credit facility entered into in October 2012, as well as to repay the Colombian bridge loans on October 24, 2014.
Any outstanding principal and accrued but unpaid interest will be due and payable in full at maturity. The Colombian Credit Facility matures on April 24, 2021 and may be prepaid in whole or in part, subject to certain limitations and prepayment consideration, at any time.
Principal and interest are payable quarterly in arrears with principal due in accordance with the repayment schedule included in the loan agreement. Interest accrues at a per annum rate equal to 4.00% above the three-month IBR in effect at the beginning of each Interest Period (as defined in the loan agreement), which results in an interest rate of 8.38% as of October 24, 2014. The loan agreement also requires that ATC Sitios manage exposure to variability in interest rates on certain of the amounts outstanding under the Colombian Credit Facility. Accordingly, ATC Sitios entered into an interest rate swap agreement with an aggregate notional value of 100.0 billion COP (approximately $48.4 million) with certain of the lenders under the Colombian Credit Facility on October 27, 2014. As of October 27, 2014, the interest rate, after giving effect to the interest rate swap agreements, is 9.06%.
The Colombian Credit Facility is secured by, among other things, liens on towers owned by ATC Sitios. The loan agreement contains certain reporting, information, financial ratios and operating covenants. Failure to comply with certain of the financial and operating covenants would constitute a default, which could result in, among other things, the amounts outstanding, including all accrued interest and unpaid fees, becoming immediately due and payable.
37
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Quarterly Report on Form 10-Q contains forward-looking statements relating to our goals, beliefs, plans or current expectations and other statements that are not of historical facts. For example, when we use words such as project, believe, anticipate, expect, forecast, estimate, intend, should, would, could, may or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements. Certain important factors may cause actual results to differ materially from those indicated by our forward-looking statements, including those set forth under the caption Risk Factors in Part II, Item 1A. of this Quarterly Report on Form 10-Q. Forward-looking statements represent managements current expectations and are inherently uncertain. We do not undertake any obligation to update forward-looking statements made by us.
The discussion and analysis of our financial condition and results of operations that follow are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ significantly from these estimates under different assumptions or conditions. This discussion should be read in conjunction with our condensed consolidated financial statements herein and the accompanying notes thereto, information set forth under the caption Critical Accounting Policies and Estimates of our Annual Report on Form 10-K for the year ended December 31, 2013, and in particular, the information set forth therein under Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a leading independent owner, operator and developer of wireless and broadcast communications real estate. Our primary business is the leasing of antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies and municipalities and tenants in a number of other industries. We refer to this business as our rental and management operations, which accounted for approximately 97% of our total revenues for the nine months ended September 30, 2014. Through our network development services, we offer tower-related services domestically, including site acquisition, zoning and permitting services and structural analysis services, which primarily support our site leasing business and the addition of new tenants and equipment on our sites, including in connection with provider network upgrades. We began operating as a real estate investment trust (REIT) for federal income tax purposes effective January 1, 2012.
Our communications real estate portfolio of 69,912 sites, as of September 30, 2014, includes wireless and broadcast communications towers and distributed antenna system (DAS) networks, which provide seamless coverage solutions in certain in-building and outdoor wireless environments. Our portfolio primarily consists of towers that we own and towers that we operate pursuant to long-term lease arrangements, including, as of September 30, 2014, 28,394 towers domestically and 41,125 towers internationally. Our portfolio also includes 393 DAS networks. In addition to the communications sites in our portfolio, we manage rooftop and tower sites for property owners under various contractual arrangements. We also hold property interests that we lease to communications service providers and third-party tower operators.
In October 2013, we acquired MIP Tower Holdings LLC (MIPT), a private REIT and parent company to Global Tower Partners (GTP), an owner and operator of approximately 5,370 communications sites, through its various operating subsidiaries, in the United States, Costa Rica and Panama. GTP also manages rooftops and holds property interests that it leases to communications service providers and third-party tower operators. As a result of our acquisition of MIPT, we own an interest in a subsidiary REIT, and are currently evaluating the continued election of MIPTs private REIT status. In September 2014, we completed the sale of the operations in Panama.
38
The following table details the number of communications sites, excluding managed sites, we own or operate as of September 30, 2014:
Country |
Number of Owned Sites |
Number of Operated Sites (1) |
||||||
United States |
21,488 | 7,211 | ||||||
International: |
||||||||
Brazil |
6,826 | 155 | ||||||
Chile |
1,160 | | ||||||
Colombia |
2,850 | 706 | ||||||
Costa Rica |
460 | | ||||||
Germany |
2,031 | | ||||||
Ghana |
2,033 | | ||||||
India |
12,553 | | ||||||
Mexico |
8,532 | 199 | ||||||
Peru |
528 | | ||||||
South Africa |
1,917 | | ||||||
Uganda |
1,263 | |
(1) | All of the communications sites we operate are held pursuant to long-term capital leases, including those subject to purchase options. |
Our continuing operations are reported in three segments: domestic rental and management, international rental and management and network development services. Among other factors, in evaluating operating performance in each business segment, management uses segment gross margin and segment operating profit. We define segment gross margin as segment revenue less segment operating expenses, excluding stock-based compensation expense recorded in costs of operations; Depreciation, amortization and accretion; Selling, general, administrative and development expense; and Other operating expense. We define segment operating profit as segment gross margin less Selling, general, administrative and development expense attributable to the segment, excluding stock-based compensation expense and corporate expenses. Segment gross margin and segment operating profit for the international rental and management segment also include Interest income, TV Azteca, net (see note 15 to our condensed consolidated financial statements included herein). These measures of segment gross margin and segment operating profit are also before Interest income, Interest expense, Gain (loss) on retirement of long-term obligations, Other income (expense), Net income (loss) attributable to noncontrolling interest, Income (loss) on equity method investments and Income tax benefit (provision).
In the section that follows, we provide information regarding managements expectations of long-term drivers of demand for our communications sites, as well as our current results of operations, financial position and sources and uses of liquidity. In addition, we highlight key trends, which management believes provide valuable insight into our operating and financial resource allocation decisions.
Revenue Growth. Due to our diversified communications site portfolio, our tenant lease rates vary considerably depending upon numerous factors, including but not limited to, tower location, amount and type of tenant equipment on the tower, ground space required by the tenant and remaining tower capacity. We measure the remaining tower capacity by assessing several factors, including tower height, tower type, environmental conditions, existing equipment on the tower and zoning and permitting regulations in effect in the jurisdiction where the tower is located. In many instances, tower capacity can be increased through tower augmentation.
The primary factors affecting the revenue growth of our domestic and international rental and management segments are:
| Recurring revenues from tenant leases attributable to sites that existed in our portfolio as of the beginning of the prior year period (legacy sites); |
| Contractual rent escalations on existing tenant leases, net of cancellations; |
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| New revenue attributable to leasing additional space on our legacy sites; and |
| New revenue attributable to sites acquired or constructed since the beginning of the prior year period (new sites). |
The majority of our tenant leases with wireless carriers are typically for an initial non-cancellable term of five to ten years, with multiple five-year renewal terms. Accordingly, nearly all of the revenue generated by our rental and management operations during the nine months ended September 30, 2014 is recurring revenue that we should continue to receive in future periods. Based upon foreign currency exchange rates and the tenant leases in place as of September 30, 2014, we expect to generate approximately $23 billion of non-cancellable tenant lease revenue over future periods, absent the impact of straight-line lease accounting. Most of our tenant leases have provisions that periodically increase the rent due under the lease, typically annually based on a fixed escalation (approximately 3% in the United States) or an inflationary index in our international markets, or a combination of both.
Revenue lost from either cancellations of leases at the end of their terms or rent negotiations historically has not had a material adverse effect on the revenues generated by our rental and management operations. During the nine months ended September 30, 2014, loss of revenue from tenant lease cancellations or renegotiations represented approximately 1.5% of our rental and management operations revenues.
Demand Drivers. We continue to believe that our site leasing revenue is likely to increase due to the growing use of wireless communications services and our ability to meet the corresponding incremental demand for our wireless real estate. By adding new tenants and new equipment for existing tenants on our sites, we are able to increase these sites utilization and profitability. We believe the majority of our site leasing activity will continue to come from wireless service providers. Our legacy site portfolio and our established tenant base provide us with new business opportunities, which have historically resulted in consistent and predictable organic revenue growth as wireless carriers seek to increase the coverage and capacity of their existing networks, while also deploying next generation wireless technologies. In addition, we intend to continue to supplement the organic growth on our legacy sites by selectively developing or acquiring new sites in our existing and new markets where we can achieve our risk adjusted return on investment objectives. In a majority of our international markets, revenue also includes the reimbursement of direct costs such as ground rent or power and fuel costs.
Based on industry research and projections, we expect the following key industry trends will result in incremental revenue opportunities for us:
| The deployment of advanced wireless technology across existing wireless networks will provide higher speed data services and enable fixed broadband substitution. As a result, we expect our tenants to continue deploying additional equipment across their existing networks. |
| Wireless service providers compete based on the quality of their existing wireless networks, which is driven by capacity and coverage. To maintain or improve their network performance as overall network usage increases, our tenants continue deploying additional equipment across their existing sites while also adding new cell sites. We anticipate increasing network densification over the next several years, as existing network infrastructure is anticipated to be insufficient to account for rapidly increasing levels of wireless data usage. |
| Wireless service providers are also investing in reinforcing their networks through incremental backhaul and the utilization of on-site generators, which typically results in additional equipment or space leased at the tower site, and incremental revenue. |
| Wireless service providers continue to acquire additional spectrum, and as a result are expected to add additional sites and equipment to their network as they seek to optimize their network configuration. |
As part of our international expansion initiatives, we have targeted markets in three stages of network development in order to diversify our international exposure and position us to benefit from a number of different wireless technology deployments over the long term. In addition, we have focused on building relationships with
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large multinational carriers such as MTN Group Limited, Telefónica S.A. and Vodafone Group PLC. We believe that consistent carrier investments in their networks across our international markets position us to generate meaningful organic revenue growth going forward.
In emerging markets, such as Ghana, India and Uganda, wireless networks tend to be significantly less advanced than those in the United States, and initial voice networks continue to be deployed in underdeveloped areas. In more developed urban locations within these markets, early-stage data network deployments are underway. Carriers are focused on completing voice network build-outs while also investing in initial data networks as wireless data usage and smartphone penetration within their customer bases begin to accelerate.
In markets with rapidly evolving network technology, such as South Africa and most of the countries in Latin America where we do business, initial voice networks, for the most part, have already been built out, and carriers are focused on third generation (3G) network build outs, with select investments in fourth generation (4G) technology. Recent spectrum auctions in these rapidly evolving markets have allowed incumbent carriers to accelerate their data network deployments and have also enabled new entrants to begin initial investments in data networks. Smartphone penetration and wireless data usage in these markets are growing rapidly, which mandates that carriers continue to invest in their networks in order to maintain and augment their quality of service.
Finally, in markets with more mature network technology, such as Germany, carriers are focused on deploying 4G data networks to account for rapidly increasing wireless data usage. With a more mature customer base, higher smartphone penetration and significantly higher per capita data usage, carrier investment in networks is focused on 4G coverage and capacity.
We believe that the network technology migration we have seen in the United States, which has led to significantly denser networks and meaningful new business commencements for us over a number of years, will ultimately be replicated in our less advanced international markets. As a result, we expect to be able to leverage our extensive international portfolio of over 41,000 communications sites and the relationships we have built with our carrier customers to drive sustainable, long-term growth.
Rental and Management Operations Expenses. Direct operating expenses incurred by our domestic and international rental and management segments include direct site level expenses and consist primarily of ground rent and power and fuel costs, some of which may be passed through to our tenants, as well as property taxes, repairs and maintenance. These segment direct operating expenses exclude all segment and corporate selling, general, administrative and development expenses, which are aggregated into one line item entitled Selling, general, administrative and development expense in our condensed consolidated statements of operations. In general, our domestic and international rental and management segments selling, general, administrative and development expenses do not significantly increase as a result of adding incremental tenants to our legacy sites and typically increase only modestly year-over-year. As a result, leasing additional space to new tenants on our legacy sites provides significant incremental cash flow. We may, however, incur additional segment selling, general, administrative and development expenses as we increase our presence in geographic areas where we have launched operations or are focused on expanding our portfolio. Our profit margin growth is therefore positively impacted by the addition of new tenants to our legacy sites and can be temporarily diluted by our development activities.
Network Development Services Segment Revenue Growth. As we continue to focus on growing our rental and management operations, we anticipate that our network development services revenue will continue to represent a small percentage of our total revenues.
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Non-GAAP Financial Measures
Included in our analysis of our results of operations are discussions regarding earnings before interest, taxes, depreciation, amortization and accretion, as adjusted (Adjusted EBITDA), Funds From Operations, as defined by the National Association of Real Estate Investment Trusts (NAREIT FFO) and Adjusted Funds From Operations (AFFO).
We define Adjusted EBITDA as Net income before Income (loss) on discontinued operations, net; Income (loss) on equity method investments; Income tax benefit (provision); Other income (expense); Gain (loss) on retirement of long-term obligations; Interest expense; Interest income; Other operating income (expense); Depreciation, amortization and accretion; and stock-based compensation expense.
NAREIT FFO is defined as net income before gains or losses from the sale or disposal of real estate, real estate related impairment charges, real estate related depreciation, amortization and accretion and dividends declared on preferred stock, and including adjustments for (i) unconsolidated affiliates and (ii) noncontrolling interest.
We define AFFO as NAREIT FFO before (i) straight-line revenue and expense; (ii) stock-based compensation expense; (iii) the non-cash portion of our tax provision; (iv) non-real estate related depreciation, amortization and accretion; (v) amortization of deferred financing costs, capitalized interest, debt discounts and premiums and long-term deferred interest charges; (vi) other income (expense); (vii) gain (loss) on retirement of long-term obligations; (viii) other operating income (expense); and adjustments for (ix) unconsolidated affiliates and (x) noncontrolling interest, less cash payments related to capital improvements and cash payments related to corporate capital expenditures.
Adjusted EBITDA, NAREIT FFO and AFFO are not intended to replace net income or any other performance measures determined in accordance with GAAP. Neither NAREIT FFO nor AFFO represent cash flows from operating activities in accordance with GAAP and, therefore, these measures should not be considered indicative of cash flows from operating activities as a measure of liquidity or of funds available to fund our cash needs, including our ability to make cash distributions. Rather, Adjusted EBITDA, NAREIT FFO and AFFO are presented as we believe each is a useful indicator of our current operating performance. We believe that these metrics are useful to an investor in evaluating our operating performance because (1) each is a key measure used by our management team for purposes of decision making and for evaluating the performance of our operating segments; (2) Adjusted EBITDA is a component of the calculation used by our lenders to determine compliance with certain debt covenants; (3) Adjusted EBITDA is widely used in the tower industry to measure operating performance as depreciation, amortization and accretion may vary significantly among companies depending upon accounting methods and useful lives, particularly where acquisitions and non-operating factors are involved; (4) each provides investors with a meaningful measure for evaluating our period-to-period operating performance by eliminating items that are not operational in nature; and (5) each provides investors with a measure for comparing our results of operations to those of other companies.
Our measurement of Adjusted EBITDA, NAREIT FFO and AFFO may not, however, be fully comparable to similarly titled measures used by other companies. Reconciliations of Adjusted EBITDA, NAREIT FFO and AFFO to net income, the most directly comparable GAAP measure, have been included below.
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Results of Operations
Three Months Ended September 30, 2014 and 2013 (in thousands, except percentages)
Revenue
Three Months Ended September 30, |
Amount
of Increase (Decrease) |
Percent Increase (Decrease) |
||||||||||||||
2014 | 2013 | |||||||||||||||
Rental and management |
||||||||||||||||
Domestic |
$ | 663,570 | $ | 529,941 | $ | 133,629 | 25 | % | ||||||||
International |
347,549 | 266,634 | 80,915 | 30 | ||||||||||||
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|
|
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Total rental and management |
1,011,119 | 796,575 | 214,544 | 27 | ||||||||||||
Network development services |
27,069 | 11,305 | 15,764 | 139 | ||||||||||||
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|
|
|
|
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Total revenues |
$ | 1,038,188 | $ | 807,880 | $ | 230,308 | 29 | % |
Total revenues for the three months ended September 30, 2014 increased 29% to $1,038.2 million. The increase was primarily attributable to an increase in both of our rental and management segments, including organic revenue growth attributable to our legacy sites, and revenue growth attributable to the approximately 13,825 new sites that we have constructed or acquired since July 1, 2013. Approximately $86.9 million of the increase was attributable to revenues generated by MIPT.
Domestic rental and management segment revenue for the three months ended September 30, 2014 increased 25% to $663.6 million. This growth was comprised of:
| Revenue growth of approximately 15% attributable to the addition of approximately 4,860 domestic sites, as well as managed sites, rooftops and land interests under third-party sites in connection with our acquisition of MIPT; |
| Revenue growth from legacy sites of approximately 8%, which includes approximately 7% primarily generated by new tenant leases and amendments to existing tenant leases and approximately 1% attributable to contractual rent escalations, net of tenant lease cancellations; |
| Revenue growth of approximately 3% from approximately 885 new sites, as well as land interests under third-party sites, constructed or acquired since July 1, 2013 (excluding MIPT); and |
| A decrease of approximately 1% from the impact of straight-line lease accounting. |
International rental and management segment revenue for the three months ended September 30, 2014 increased 30% to $347.5 million. This growth was comprised of:
| Revenue growth of approximately 19% from approximately 8,080 new sites constructed or acquired since July 1, 2013 (including approximately 460 sites in Costa Rica in connection with our acquisition of MIPT); |
| Revenue growth from legacy sites of approximately 17%, which includes approximately 14% primarily generated by new tenant leases and amendments to existing tenant leases and approximately 3% attributable to contractual rent escalations, net of tenant lease cancellations; |
| Revenue growth of approximately 1% from the impact of straight-line lease accounting; and |
| A decrease of approximately 7% attributable to the negative impact from foreign currency translation, which includes, among others, the negative impact of approximately 5% related to fluctuations in Ghanaian Cedi (GHS) and approximately 1% related to fluctuations in each of South African Rand (ZAR) and Mexican Pesos (MXN). |
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Network development services segment revenue for the three months ended September 30, 2014 increased 139% to $27.1 million. The increase was primarily due to an increase in site acquisition, zoning and permitting services associated with certain tenants next generation technology network upgrade projects, including an increase in volume as a result of the additional sites acquired as part of the acquisition of MIPT.
Gross Margin
Three Months Ended September 30, |
Amount
of Increase (Decrease) |
Percent Increase (Decrease) |
||||||||||||||
2014 | 2013 | |||||||||||||||
Rental and management |
||||||||||||||||
Domestic |
$ | 529,619 | $ | 434,709 | $ | 94,910 | 22 | % | ||||||||
International |
212,150 | 169,705 | 42,445 | 25 | ||||||||||||
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|
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Total rental and management |
741,769 | 604,414 | 137,355 | 23 | ||||||||||||
Network development services |
15,323 | 6,528 | 8,795 | 135 | % |
Domestic rental and management segment gross margin for the three months ended September 30, 2014 increased 22% to $529.6 million. This growth was comprised of:
| Gross margin growth of approximately 14% attributable to the addition of approximately 4,860 domestic sites, as well as managed sites, rooftops and land interests under third-party sites, in connection with our acquisition of MIPT; |
| Gross margin growth from legacy sites of approximately 8%, primarily associated with the increase in revenue, as described above; |
| Gross margin growth from new sites (excluding MIPT) of approximately 3%, primarily associated with the increase in revenue, as described above; and |
| A decrease of approximately 3% from the impact of straight-line lease accounting. |
International rental and management segment gross margin for the three months ended September 30, 2014 increased 25% to $212.2 million. This growth was comprised of:
| Gross margin growth from new sites (including MIPT) of approximately 14%, primarily associated with the increase in revenue, as described above; |
| Gross margin growth from legacy sites of approximately 16%, primarily associated with the increase in revenue, as described above; |
| Gross margin growth of approximately 1% from the impact of straight-line lease accounting; and |
| A decrease of approximately 6% attributable to the negative impact from foreign currency translation, which includes, among others, the negative impact of approximately 5% related to fluctuations in GHS and approximately 1% related to fluctuations in each of ZAR and MXN. |
Network development services segment gross margin for the three months ended September 30, 2014 increased 135% to $15.3 million, primarily due to the increase in revenue as described above.
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Selling, General, Administrative and Development Expense
Three Months Ended September 30, |
Amount
of Increase (Decrease) |
Percent Increase (Decrease) |
||||||||||||||
2014 | 2013 | |||||||||||||||
Rental and management |
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Domestic |
$ | 30,955 | $ | 24,523 | $ | 6,432 | 26 | % | ||||||||
International |
33,441 | 31,728 | 1,713 | 5 | ||||||||||||
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Total rental and management |
64,396 | 56,251 | 8,145 | 14 | ||||||||||||
Network development services |
3,020 | 1,880 | 1,140 | 61 | ||||||||||||
Other |
41,493 | 39,650 | 1,843 | 5 | ||||||||||||
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Total selling, general, administrative and development expense |
$ | 108,909 | $ | 97,781 | $ | 11,128 | 11 | % |
Total selling, general, administrative and development expense (SG&A) for the three months ended September 30, 2014 increased 11% to $108.9 million.
Domestic rental and management segment SG&A for the three months ended September 30, 2014 increased 26% to $31.0 million. The increase was primarily driven by increased personnel costs to support our business, including additional costs associated with the acquisition of MIPT.
International rental and management segment SG&A for the three months ended September 30, 2014 increased 5% to $33.4 million. The increase was primarily due to the impact of increased personnel costs to support our business, partially offset by the favorable impact of foreign currency fluctuations, as well as the reversal of bad debt expense for amounts previously reserved.
Network development services segment SG&A for the three months ended September 30, 2014 increased 61% to $3.0 million. The increase was primarily due to higher personnel costs related to additional site acquisition, zoning and permitting services associated with certain tenants next generation technology network upgrade projects, including an increase in volume as a result of the additional sites acquired as part of the acquisition of MIPT.
Other SG&A for the three months ended September 30, 2014 increased 5% to $41.5 million, primarily due to an increase of $3.1 million related to stock-based compensation expense, partially offset by a $1.3 million decrease in corporate SG&A. The decrease in corporate SG&A was primarily related to a reduction in legal expenses of $2.3 million, partially offset by an increase in other personnel costs to support our business.
Operating Profit
Three Months Ended September 30, |
Amount
of Increase (Decrease) |
Percent Increase (Decrease) |
||||||||||||||
2014 | 2013 | |||||||||||||||
Rental and management |
||||||||||||||||
Domestic |
$ | 498,664 | $ | 410,186 | $ | 88,478 | 22 | % | ||||||||
International |
178,709 | 137,977 | 40,732 | 30 | ||||||||||||
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Total rental and management |
677,373 | 548,163 | 129,210 | 24 | ||||||||||||
Network development services |
12,303 | 4,648 | 7,655 | 165 | % |
Domestic rental and management segment operating profit for the three months ended September 30, 2014 increased 22% to $498.7 million. The growth was primarily attributable to the increase in our domestic rental and management segment gross margin (22%) and was partially offset by an increase in our domestic rental and management segment SG&A (26%).
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International rental and management segment operating profit for the three months ended September 30, 2014 increased 30% to $178.7 million. The growth was primarily attributable to the increase in our international rental and management segment gross margin (25%) and was partially offset by an increase in our international rental and management segment SG&A (5%).
Network development services segment operating profit for the three months ended September 30, 2014 increased 165% to $12.3 million. The increase was primarily attributable to the increase in network development services segment gross margin (135%) and was partially offset by an increase