FORM 10-Q
Table of Contents

 

 

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, 2012.

 

¨ 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

(Registrant’s 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 18, 2012, there were 395,352,861 shares of common stock outstanding.

 

 

 


Table of Contents

AMERICAN TOWER CORPORATION

INDEX

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2012

 

          Page No.  

PART I. FINANCIAL INFORMATION

  

Item 1.

  

Unaudited Condensed Consolidated Financial Statements

  
  

Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011

     1   
  

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011

     2   
  

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011

     3   
  

Condensed Consolidated Statements of Cash Flows for the nine months ended September  30, 2012 and 2011

     4   
  

Condensed Consolidated Statements of Equity for the nine months ended September 30, 2012 and 2011

     5   
  

Notes to Condensed Consolidated Financial Statements

     6   

Item 2.

  

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

     38   

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

     63   

Item 4.

  

Controls and Procedures

     65   

PART II. OTHER INFORMATION

  

Item 1.

   Legal Proceedings      66   

Item 1A.

   Risk Factors      66   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      77   

Item 6.

   Exhibits      77   

Signatures

     78   

Exhibit Index

     EX-1   


Table of Contents
PART I. FINANCIAL INFORMATION

 

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS—Unaudited

(in thousands, except share data)

 

     September 30,
2012
    December 31,
2011
 

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 382,312     $ 330,191  

Restricted cash

     43,482       42,770  

Short-term investments and available-for-sale securities

     —          22,270  

Accounts receivable, net

     148,807       100,792  

Prepaid and other current assets

     270,541       254,750  

Deferred income taxes

     27,641       29,596  
  

 

 

   

 

 

 

Total current assets

     872,783       780,369  
  

 

 

   

 

 

 

PROPERTY AND EQUIPMENT, net

     5,242,781       4,901,012  

GOODWILL

     2,763,706       2,676,971  

OTHER INTANGIBLE ASSETS, net

     2,595,059       2,497,611  

DEFERRED INCOME TAXES

     233,472       207,044  

DEFERRED RENT ASSET

     731,343       609,529  

NOTES RECEIVABLE AND OTHER LONG-TERM ASSETS

     522,160       557,278  
  

 

 

   

 

 

 

TOTAL

   $ 12,961,304     $ 12,229,814  
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

CURRENT LIABILITIES:

    

Accounts payable

   $ 87,380     $ 216,448  

Accrued expenses

     334,034       304,208  

Distributions payable

     91,063       —     

Accrued interest

     74,343       65,729  

Current portion of long-term obligations

     130,209       101,816  

Unearned revenue

     133,896       92,708  
  

 

 

   

 

 

 

Total current liabilities

     850,925       780,909  
  

 

 

   

 

 

 

LONG-TERM OBLIGATIONS

     7,359,355       7,134,492  

ASSET RETIREMENT OBLIGATIONS

     397,362       344,180  

OTHER LONG-TERM LIABILITIES

     667,680       560,091  
  

 

 

   

 

 

 

Total liabilities

     9,275,322       8,819,672  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

EQUITY:

    

Preferred stock: $.01 par value; 20,000,000 shares authorized; no shares issued or outstanding

    

Common stock: $.01 par value; 1,000,000,000 shares authorized; 395,607,119 and 393,642,079 shares issued; and 395,354,428 and 393,642,079 shares outstanding, respectively

     3,956       3,936  

Additional paid-in capital

     4,971,181       4,903,800  

Distributions in excess of earnings

     (1,237,569     (1,477,899

Accumulated other comprehensive loss

     (164,081     (142,617

Treasury stock (252,691 and 0 shares at cost, respectively)

     (16,733     —     
  

 

 

   

 

 

 

Total American Tower Corporation equity

     3,556,754       3,287,220  

Non-controlling interest

     129,228       122,922  
  

 

 

   

 

 

 

Total equity

     3,685,982       3,410,142  
  

 

 

   

 

 

 

TOTAL

   $ 12,961,304     $ 12,229,814  
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

1


Table of Contents

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS—Unaudited

(in thousands, except per share data)

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  

REVENUES:

       

Rental and management

  $ 697,554     $ 614,808     $ 2,063,806     $ 1,745,302  

Network development services

    15,781       15,595       43,780       45,031  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

    713,335       630,403       2,107,586       1,790,333  
 

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

       

Costs of operations (exclusive of items shown separately below):

       

Rental and management (including stock-based compensation expense of $195, $853, $594 and $853, respectively)

    177,336       160,265       506,120       432,454  

Network development services (including stock-based compensation expense of $245, $910, $749 and $910, respectively)

    7,568       8,668       22,153       22,884  

Depreciation, amortization and accretion

    144,061       142,113       465,788       411,902  

Selling, general, administrative and development expense (including stock-based compensation expense of $12,618, $10,377, $38,311 and $34,422, respectively)

    81,459       76,476       237,891       214,929  

Other operating expenses

    7,359       14,576       35,150       35,770  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    417,783       402,098       1,267,102       1,117,939  
 

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

    295,552       228,305       840,484       672,394  
 

 

 

   

 

 

   

 

 

   

 

 

 

OTHER INCOME (EXPENSE):

       

Interest income, TV Azteca, net of interest expense of $372, $458, $1,114 and $1,186, respectively

    3,586       3,498       10,715       10,587  

Interest income

    1,717       1,822       6,253       6,837  

Interest expense

    (102,272     (77,796     (297,622     (226,735

Loss on retirement of long-term obligations

    —          —          (398     —     

Other income (expense) (including unrealized foreign currency gains (losses) of $46,191, $(145,144), $(12,847) and $(101,505), respectively)

    46,294       (150,876     (19,468     (115,710
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

    (50,675     (223,352     (300,520     (325,021
 

 

 

   

 

 

   

 

 

   

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INCOME ON EQUITY METHOD INVESTMENTS

    244,877       4,953       539,964       347,373  

Income tax provision

    (13,054     (24,681     (64,117     (161,981

Income on equity method investments

    2       2       25       14  
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS)

    231,825       (19,726     475,872       185,406  

Net loss attributable to non-controlling interest

    264       4,025       25,732       5,946  
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO AMERICAN TOWER CORPORATION

  $ 232,089     $ (15,701   $ 501,604     $ 191,352  
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) PER COMMON SHARE AMOUNTS:

       

Basic net income (loss) attributable to American Tower Corporation

  $ 0.59     $ (0.04   $ 1.27     $ 0.48  
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income (loss) attributable to American Tower Corporation

  $ 0.58     $ (0.04   $ 1.26     $ 0.48  
 

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

       

Basic

    395,244       395,183       394,626       396,507  
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    399,487       395,183       399,084       400,467  
 

 

 

   

 

 

   

 

 

   

 

 

 

DISTRIBUTIONS DECLARED PER SHARE

  $ 0.23     $ —        $ 0.66     $ —     
 

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

2


Table of Contents

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)—Unaudited

(in thousands)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Net income (loss)

   $ 231,825     $ (19,726   $ 475,872     $ 185,406  

Other comprehensive income (loss):

        

Net change in fair value of cash flow hedges, net of tax

     (955     —          (2,483     1,977  

Reclassification of unrealized losses on cash flow hedges to net income, net of tax

     199       29       397       195  

Net unrealized losses on available-for-sale securities, net of tax

     —          (6     —          (86

Reclassification of unrealized losses on available-for-sale securities to net income

     —          —          495       —     

Foreign currency translation adjustments

     38,782       (149,563     (36,357     (127,209
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     38,026       (149,540     (37,948     (125,123
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     269,851       (169,266     437,924       60,283  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to non-controlling interest

     1,460       4,025       42,216       5,946  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to American Tower Corporation

   $ 271,311     $ (165,241   $ 480,140     $ 66,229  
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Unaudited

(in thousands)

 

     Nine Months Ended September 30,  
               2012                          2011             

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 475,872     $ 185,406  

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

    

Stock-based compensation expense

     39,654       36,185  

Depreciation, amortization and accretion

     465,788       411,902  

Other non-cash items reflected in statements of operations

     79,655       287,286  

Increase in net deferred rent asset

     (92,296     (69,874

Increase in restricted cash

     (693     (825

Increase in assets

     (36,137     (58,891

Increase in liabilities

     184,704       58,809  
  

 

 

   

 

 

 

Cash provided by operating activities

     1,116,547       849,998  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Payments for purchase of property and equipment and construction activities

     (377,026     (397,088

Payments for acquisitions, net of cash acquired

     (822,714     (1,220,572

Proceeds from sale of short-term investments, available-for-sale securities and other long-term assets

     358,707       65,223  

Payments for short-term investments

     (330,341     (20,412

Deposits, restricted cash, investments and other

     (2,892     13,218  
  

 

 

   

 

 

 

Cash used for investing activities

     (1,174,266     (1,559,631
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from short-term borrowings, net

     20,099       101,128  

Borrowings under credit facilities

     1,325,000       280,014  

Proceeds from issuance of senior notes

     698,670       —     

Proceeds from term loan credit facility

     750,000       —     

Proceeds from other long-term borrowings

     99,132       80,814  

Repayments of notes payable, credit facilities and capital leases

     (2,655,367     (207,120

Contributions from non-controlling interest holders, net

     48,500       87,183  

Purchases of common stock

     (33,436     (391,098

Proceeds from stock options

     42,825       60,926  

Distributions

     (169,816     —     

Deferred financing costs and other financing activities

     (13,512     (7,582
  

 

 

   

 

 

 

Cash provided by financing activities

     112,095       4,265  

Net effect of changes in foreign currency exchange rates on cash and cash equivalents

     (2,255     (1,089
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     52,121       (706,457

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     330,191       883,963  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 382,312     $ 177,506  
  

 

 

   

 

 

 

NET CASH PAID FOR INCOME TAXES

   $ 28,465     $ 48,808  
  

 

 

   

 

 

 

CASH PAID FOR INTEREST

   $ 265,443     $ 195,877  
  

 

 

   

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

    

(DECREASE) INCREASE IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES FOR PURCHASES OF PROPERTY AND EQUIPMENT AND CONSTRUCTION ACTIVITIES

   $ (1,228   $ 4,495  
  

 

 

   

 

 

 

PURCHASES OF PROPERTY, PLANT AND EQUIPMENT UNDER CAPITAL LEASES

   $ 12,219     $ 5,060  
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY—Unaudited

(in thousands, except share data)

 

     Common Stock      Treasury Stock     Additional
Paid-in
Capital
     Accumulated
Other
Comprehensive
Income (Loss)
    Earnings
(Distributions)
in Excess of
Distributions
(Earnings)
    Non-controlling
Interest
    Total
Equity
 
     Issued
Shares
     Amount      Shares     Amount             

BALANCE, JANUARY 1, 2011

     486,056,952      $ 4,860        (87,379,718   $ (3,381,966   $ 8,577,093      $ 38,053     $ (1,736,596   $ 3,114     $ 3,504,558  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Stock-based compensation related activity

     2,333,452        23            86,828              86,851  

Issuance of common stock-Stock Purchase Plan

     43,485        1            1,886              1,887  

Treasury stock activity

           (7,586,960     (393,121              (393,121

Net change in fair value of cash flow hedges, net of tax

                  1,977           1,977  

Reclassification of unrealized losses on cash flow hedges to net income, net of tax

                  195           195  

Net unrealized losses on available-for-sale securities, net of tax

                  (86         (86

Foreign currency translation adjustment

                  (127,209         (127,209

Contributions from non-controlling interest

                      87,564       87,564  

Distributions to non-controlling interest

                      (381     (381

Net income (loss)

                    191,352       (5,946     185,406  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, SEPTEMBER 30, 2011

     488,433,889      $ 4,884        (94,966,678   $ (3,775,087   $ 8,665,807      $ (87,070   $ (1,545,244   $ 84,351     $ 3,347,641  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, JANUARY 1, 2012

     393,642,079      $ 3,936        —        $ —        $ 4,903,800      $ (142,617   $ (1,477,899   $ 122,922     $ 3,410,142  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Stock-based compensation related activity

     1,917,576        19            65,017              65,036  

Issuance of common stock—Stock Purchase Plan

     47,464        1            2,364              2,365  

Treasury stock activity

           (252,691     (16,733              (16,733

Net change in fair value of cash flow hedges

                  (1,862       (621     (2,483

Reclassification of unrealized losses on cash flow hedges to net income

                  397           397  

Reclassification of unrealized losses on available-for-sale securities to net income

                  495           495  

Foreign currency translation adjustment

                  (20,494       (15,863     (36,357

Contributions from non-controlling interest

                      48,963       48,963  

Distributions to non-controlling interest

                      (441     (441

Dividends/distributions declared

                    (261,274       (261,274

Net income (loss)

                    501,604       (25,732     475,872  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, SEPTEMBER 30, 2012

     395,607,119      $ 3,956        (252,691   $ (16,733   $ 4,971,181      $ (164,081   $ (1,237,569   $ 129,228     $ 3,685,982  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

1. Description of Business, Basis of Presentation and Accounting Policies

American Tower Corporation is, through its various subsidiaries (collectively, “ATC” or the “Company”), an independent owner, operator and developer of wireless and broadcast communications sites in the United States, Brazil, Chile, Colombia, Ghana, India, Mexico, Peru, South Africa and Uganda. The Company’s primary business is the leasing of antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless 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 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. The Company began operating as a real estate investment trust (“REIT”) for federal income tax purposes effective January 1, 2012.

ATC is a holding company that conducts its operations through its directly and indirectly owned subsidiaries and its joint ventures. ATC’s principal domestic operating subsidiaries are American Towers LLC and SpectraSite Communications, LLC (“SpectraSite”). ATC conducts its international operations through its subsidiary, American Tower International, Inc., which in turn conducts operations through its various international operating subsidiaries and joint ventures.

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 Company’s financial position and results of operations for such periods have been included. Results of interim periods may not be indicative of results for the full year. Subsequent events have been evaluated up to the date of issuance of these financial statements. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

REIT Conversion—In May 2011, the Company announced its intention to reorganize to qualify as a REIT for federal income tax purposes (the “REIT Conversion”). Effective December 31, 2011, the Company completed the merger with its predecessor (“American Tower”) that was approved by the Company’s stockholders in November 2011. At the time of the merger all outstanding shares of Class A common stock of American Tower were converted into a right to receive an equal number of shares of common stock of the surviving corporation. In addition, each share of Class A common stock of American Tower held in treasury at December 31, 2011 ceased to be outstanding, and a corresponding adjustment was recorded to additional paid-in capital and common stock.

The Company believes that since January 1, 2012, it has been organized and has operated in a manner that enables it to qualify, and intends to continue to operate in a manner that will allow it to continue to qualify as a REIT for federal income tax purposes.

The Company holds and operates certain of its assets through one or more taxable REIT subsidiaries (“TRSs”). A TRS is a subsidiary of a REIT that is subject to applicable corporate income tax. The Company’s use of TRSs enables it 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 non-REIT qualified businesses that the Company holds through TRSs include its network development services segment. In addition, the Company has included its international operations and DAS networks business within its TRSs. In the future, the Company may elect to have previously designated TRSs be treated as qualified REIT subsidiaries or other disregarded entities (“QRSs”), or reorganize and transfer certain assets or operations from its TRSs to other subsidiaries, including QRSs.

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

As a REIT, the Company generally will not be subject to federal income taxes on its income and gains that the Company distributes to its stockholders, including the income derived from leasing towers. However, even as a REIT, the Company will remain obligated to pay income taxes on earnings from all of its TRS assets. In addition, the Company’s international assets and operations continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.

Principles of Consolidation and Basis of Presentation—The 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 Company’s ability to exercise significant influence over operating and financial policies. All intercompany accounts and transactions have been eliminated.

Significant Accounting Policies and Use of Estimates—The 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 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.

Changes in Presentation—Changes have been made to the presentation of the Company’s condensed consolidated statements of cash flows for the nine months ended September 30, 2011 to be consistent with the current year presentation. Specifically, contributions from non-controlling interest holders, in a net amount of $87.2 million, were previously included in deferred financing costs and other financing activities, but are now stated separately within financing activities in the Company’s condensed consolidated statements of cash flows.

Recently Adopted Accounting Standards—In May 2011, the Financial Accounting Standards Board (“FASB”) amended its guidance related to fair value measurement and disclosure. This guidance clarifies existing measurement and disclosure requirements and results in greater consistency between GAAP and International Financial Reporting Standards. This guidance became effective prospectively for interim and annual periods beginning on or after December 15, 2011. The implementation of this guidance did not have a material impact on the Company’s condensed consolidated results of operations or financial position.

In September 2011, the FASB issued guidance on testing goodwill for impairment that became effective for the interim and annual periods beginning on or after December 15, 2011 (with early adoption permitted). Under the new guidance, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the entity determines that it is more likely than not that the carrying value of a reporting unit is less than its fair value, then performing the two-step impairment test is unnecessary. The implementation of this guidance did not have an impact on the Company’s condensed consolidated results of operations or financial position.

 

2. Short-Term Investments and Available-For-Sale Securities

As of September 30, 2012, there were no short-term investments with original maturities of three months or more or available-for-sale securities outstanding. As of December 31, 2011, short-term investments included investments with original maturities of three months or more of $22.3 million and available-for-sale securities of less than $0.1 million.

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

3. Prepaid and Other Current Assets

Prepaid and other current assets consist of the following (in thousands):

 

     As of
September 30, 2012
     As of
December 31, 2011 (1)
 

Prepaid assets

   $ 110,783      $ 59,312  

Prepaid operating ground leases

     61,698        54,756  

Other miscellaneous current assets

     61,452        59,405  

Value added tax and other consumption tax receivables

     36,608        81,277  
  

 

 

    

 

 

 

Balance

   $ 270,541      $ 254,750  
  

 

 

    

 

 

 

 

(1) December 31, 2011 balances have been revised to reflect purchase accounting measurement period adjustments.

 

4. Goodwill and Other Intangible Assets

The changes in the carrying value of goodwill for the Company’s business segments are as follows (in thousands):

 

    

 

Rental and Management

     Network
Development
Services
     Total  
     Domestic      International        

Balance as of January 1, 2012 (1)

   $ 2,244,612      $ 430,359      $ 2,000      $ 2,676,971  

Additions

     1,374        84,891        —           86,265  

Effect of foreign currency translation

     —           470        —           470  
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of September 30, 2012

   $ 2,245,986      $ 515,720      $ 2,000      $ 2,763,706  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Balances have been revised to reflect purchase accounting measurement period adjustments.

The Company’s other intangible assets subject to amortization consist of the following ($ in thousands):

 

          As of September 30, 2012     As of December 31, 2011 (1)  
    Estimated
Useful
Lives
    Gross
Carrying
Value
    Accumulated
Amortization
    Net Book
Value
    Gross
Carrying
Value
    Accumulated
Amortization
    Net Book
Value
 
    (years)        

Acquired network location (2)

    Up to 20      $ 1,641,639     $ (704,131   $ 937,508     $ 1,538,015     $ (654,137   $ 883,878  

Acquired customer-related intangibles

    15-20        2,530,338       (944,760     1,585,578       2,389,470       (843,432     1,546,038  

Acquired licenses and other intangibles

    3-20        26,065       (20,743     5,322       25,949       (20,045     5,904  

Economic Rights, TV Azteca

    70       29,261       (13,949     15,312       26,902       (12,643     14,259  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      4,227,303       (1,683,583     2,543,720       3,980,336       (1,530,257     2,450,079  

Deferred financing costs, net (3)

    N/A            51,339           47,532  
       

 

 

       

 

 

 

Other intangible assets, net

        $ 2,595,059         $ 2,497,611  
       

 

 

       

 

 

 

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

 

(1) December 31, 2011 balances have been revised to reflect purchase accounting measurement period adjustments.
(2) Acquired network location intangibles are amortized over periods of 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 amortization expense.

The acquired network location intangibles represent the value to the Company of the incremental revenue growth, which 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 acquired licenses and other intangibles consist primarily of non-competition agreements acquired from SpectraSite, Inc. and in other tower acquisitions.

The Company amortizes these intangibles on a straight-line basis over the estimated useful lives. As of September 30, 2012, the remaining weighted average amortization period of the Company’s intangible assets, excluding the TV Azteca Economic Rights detailed in note 5 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, was approximately 12 years. Amortization of intangible assets for the three and nine months ended September 30, 2012 was approximately $46.9 million and $154.3 million (excluding amortization of deferred financing costs, which is included in interest expense), respectively. Amortization of intangible assets for the three and nine months ended September 30, 2011 was approximately $43.3 million and $131.2 million (excluding amortization of deferred financing costs, which is included in interest expense), respectively. The Company expects to record amortization expense (excluding amortization of deferred financing costs) as follows over the next five years (in millions):

 

Fiscal Year

      

2012 (remaining year)

   $ 50.7  

2013

     197.0  

2014

     189.2  

2015

     176.2  

2016

     168.9  

2017

     167.3  

 

5. Financing Transactions

Revolving Credit Facility and Term Loan—On January 31, 2012, the Company repaid and terminated its $1.25 billion senior unsecured revolving credit facility and repaid $325.0 million of related term loan commitments, with proceeds from borrowings under a $1.0 billion unsecured revolving credit facility entered into on April 8, 2011 (the “2011 Credit Facility”) and a new $1.0 billion unsecured revolving credit facility entered into on January 31, 2012 (the “2012 Credit Facility”).

2011 Credit Facility—As of September 30, 2012, the Company did not have any amounts outstanding under the 2011 Credit Facility and had approximately $6.7 million of undrawn letters of credit. The Company continues to maintain the ability to draw down and repay amounts under the 2011 Credit Facility in the ordinary course. The 2011 Credit Facility has a term of five years and matures on April 8, 2016.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

2012 Credit Facility—On January 31, 2012, the Company entered into the 2012 Credit Facility, which has a term of five years and matures on January 31, 2017. Any outstanding principal and accrued but unpaid interest will be due and payable in full at maturity. The 2012 Credit Facility may be paid prior to maturity in whole or in part at the Company’s option without penalty or premium.

The Company has the option of choosing either a defined base rate or the London Interbank Offered Rate (“LIBOR”) as the applicable base rate for borrowings under the 2012 Credit Facility. The interest rate ranges between 1.075% to 2.400% above LIBOR for LIBOR based borrowings or between 0.075% to 1.400% above the defined base rate for base rate borrowings, in each case based upon the Company’s debt ratings. A quarterly commitment fee on the undrawn portion of the 2012 Credit Facility is required, ranging from 0.125% to 0.450% per annum, based upon the Company’s debt ratings. The current margin over LIBOR that the Company would incur on borrowings is 1.625%, and the current commitment fee on the undrawn portion of the 2012 Credit Facility is 0.225%.

The loan agreement contains certain reporting, information, financial and operating covenants and other restrictions (including limitations on additional debt, guaranties, sales of assets and liens) with which the Company must comply. Any failure to comply with the financial and operating covenants of the loan agreement would not only prevent the Company from being able to borrow additional funds, but 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.

As of September 30, 2012, the Company did not have any amounts outstanding under the 2012 Credit Facility and had approximately $2.7 million of undrawn letters of credit. The Company continues to maintain the ability to draw down and repay amounts under the 2012 Credit Facility in the ordinary course.

2012 Term Loan—On June 29, 2012, the Company entered into a $750.0 million unsecured term loan (“2012 Term Loan”). The Company received net proceeds of approximately $746.4 million, of which $632.0 million were used to repay certain existing indebtedness under the 2012 Credit Facility.

The 2012 Term Loan has a term of five years and matures on June 29, 2017. Any outstanding principal and accrued but unpaid interest will be due and payable in full at maturity. The 2012 Term Loan may be paid prior to maturity in whole or in part at the Company’s option without penalty or premium.

The Company has the option of choosing either a defined base rate or LIBOR as the applicable base rate. The interest rate ranges between 1.25% to 2.50% above LIBOR for LIBOR based borrowings or between 0.25% to 1.50% above the defined base rate for base rate borrowings, in each case based upon the Company’s debt ratings. As of September 30, 2012, the interest rate under the 2012 Term Loan is LIBOR plus 1.75%.

The loan agreement contains certain reporting, information, financial and operating covenants and other restrictions (including limitations on additional debt, guaranties, sales of assets and liens) with which the Company must comply. Any failure to comply with the financial and operating covenants of the loan agreement 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.

As of September 30, 2012, the Company had $750.0 million outstanding under the 2012 Term Loan.

Senior Notes Offering—On March 12, 2012, the Company completed a registered public offering of $700.0 million aggregate principal amount of its 4.70% senior notes due 2022 (the “4.70% Notes”). The net proceeds to the Company from the offering were approximately $693.0 million, after deducting commissions and expenses.

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

The Company used the net proceeds to repay a portion of the outstanding indebtedness incurred under its 2011 Credit Facility and 2012 Credit Facility, which had been used to fund recent acquisitions.

The 4.70% Notes mature on March 15, 2022, and interest is payable semi-annually in arrears on March 15 and September 15. The Company began making interest payments on September 15, 2012. The Company may redeem the 4.70% Notes at any time at a redemption price equal to 100% of the principal amount, plus a make-whole premium, together with accrued interest to the redemption date. Interest on the notes began to accrue on March 12, 2012 and is computed on the basis of a 360-day year comprised of twelve 30-day months.

If the Company undergoes a change of control and ratings decline, each as defined in supplemental indenture no. 5, dated March 12, 2012 (the “Supplemental Indenture”) to the base indenture dated May 13, 2010, as amended and supplemented on December 30, 2011, the Company will be required to offer to repurchase all of the 4.70% Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest up to but not including the repurchase date. The 4.70% Notes rank equally with all of the Company’s other senior unsecured debt and are structurally subordinated to all existing and future indebtedness and other obligations of its subsidiaries. The Supplemental Indenture contains certain covenants that restrict the Company’s 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 the Supplemental Indenture.

Colombian Short-Term Credit Facility—The 141.1 billion Colombian Peso (“COP”) denominated short-term credit facility was executed by one of the Company’s Colombian subsidiaries (“ATC Sitios”) on July 25, 2011, to refinance the credit facility entered into in connection with the purchase of the exclusive use rights for towers from Telefónica S.A.’s Colombian subsidiary, Colombia Telecomunicaciones S.A. E.S.P. As of September 30, 2012, 135.0 billion COP (approximately $75.0 million) was outstanding under this credit facility and the facility was scheduled to mature on October 25, 2012 with an interest rate of 7.95%. In October 2012, the maturity date was extended to November 25, 2012, and the facility continues to accrue interest at a rate of 7.95%.

On October 19, 2012, ATC Sitios entered into a loan agreement for a long-term credit facility, which it intends to use to refinance the Colombian short-term credit facility upon completion of certain closing conditions.

Colombian Bridge Loans—In connection with the acquisition of communications sites from Colombia Movil S.A. E.S.P. (“Colombia Movil”), another of the Company’s Colombian subsidiaries entered into five COP denominated bridge loans. As of September 30, 2012, the aggregate principal amount outstanding under these bridge loans was 94.0 billion COP (approximately $52.2 million). The bridge loans have terms ranging from 30 to 90 days, and are extended from time to time in the ordinary course. As of September 30, 2012, the interest rates of these loans ranged from 8.01% to 8.23%.

Colombian Loan—In connection with the establishment of the joint venture with Millicom International Cellular S.A. (“Millicom”) and the acquisition of communications sites in Colombia, ATC Colombia B.V., a 60% owned subsidiary of the Company, entered into a U.S. Dollar-denominated shareholder loan agreement (the “Colombian Loan”), as the borrower, with a wholly owned subsidiary of the Company (the “ATC Colombian Subsidiary”), and a wholly owned subsidiary of Millicom (the “Millicom Subsidiary”), as the lenders. The Colombian Loan accrues interest at 8.30% and matures on February 22, 2022. The portion of the Colombian Loan made by the ATC Colombian Subsidiary is eliminated in consolidation, and the portion of the Colombian Loan made by the Millicom Subsidiary is reported as outstanding debt of the Company. As of September 30, 2012, an aggregate of $16.3 million was payable to the Millicom Subsidiary.

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

South African Facility—The Company’s 1.2 billion South African Rand (“ZAR”) credit facility (the “South African Facility”) was executed in November 2011 to refinance the bridge loan entered into in connection with the acquisition of communications sites from Cell C (Pty) Limited (“Cell C”). On August 8, 2012 and September 14, 2012, the Company borrowed an additional 123.0 million ZAR (approximately $15.1 million) and 24.2 million ZAR (approximately $2.9 million), respectively. The South African Facility matures on March 31, 2020, and accrues interest based on a margin plus the Johannesburg Interbank Agreed Rate (“JIBAR”). As of September 30, 2012, 834.3 million ZAR (approximately $100.3 million) was outstanding under the South African Facility, and after giving effect to the interest rate swap agreements discussed in note 6, the facility accrues interest at a weighted average rate of 9.81%.

Ghana Loan—In connection with the establishment of the Company’s joint venture with MTN Group Limited (“MTN Group”) and the acquisitions of communications sites in Ghana, Ghana Tower Interco B.V., a 51% owned subsidiary of the Company, entered into a U.S. Dollar-denominated shareholder loan agreement (the “Ghana Loan”), as the borrower, with a wholly owned subsidiary of the Company (the “ATC Ghana Subsidiary”), and Mobile Telephone Networks (Netherlands) B.V., a wholly owned subsidiary of MTN Group (the “MTN Ghana Subsidiary”), as the lenders. The Ghana Loan accrues interest at 9.0% and matures on May 4, 2016. The portion of the Ghana Loan made by the ATC Ghana Subsidiary is eliminated in consolidation, and the portion of the Ghana Loan made by the MTN Ghana Subsidiary is reported as outstanding debt of the Company. As of September 30, 2012, an aggregate of $131.0 million was payable to the MTN Ghana Subsidiary.

Uganda Loan—In connection with the establishment of the Company’s joint venture with MTN Group and the acquisitions of communications sites in Uganda, Uganda Tower Interco B.V., a 51% owned subsidiary of the Company, entered into a U.S. Dollar-denominated shareholder loan agreement (the “Uganda Loan”), as the borrower, with a wholly owned subsidiary of the Company (the “ATC Uganda Subsidiary”), and a wholly owned subsidiary of MTN Group (the “MTN Uganda Subsidiary”), as the lenders. The Uganda Loan matures on June 29, 2019 and accrues interest at 5.30% above LIBOR, reset annually, which as of September 30, 2012 was 6.368%. The portion of the Uganda Loan made by the ATC Uganda Subsidiary is eliminated in consolidation, and the portion of the Uganda Loan made by the MTN Uganda Subsidiary is reported as outstanding debt of the Company. As of September 30, 2012, an aggregate of $61.0 million was payable to the MTN Uganda Subsidiary.

 

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 Company’s 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 portions of changes in the fair value of the derivative are recorded in accumulated other comprehensive income (loss) and are recognized in the results of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are 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.

The Company has entered into the following interest rate swap agreements to manage its exposure to variability in interest rates on debt in South Africa that accrue interest based on JIBAR: (i) on January 16, 2012, the Company entered into three interest rate swap agreements with an aggregate notional value of 350.0 million

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

ZAR (ii) on August 29, 2012, the Company entered into three additional interest rate swap agreements with an aggregate notional value of 61.5 million ZAR and (iii) on September 28, 2012, the Company entered into three additional interest rate swap agreements with an aggregate notional value of 12.1 million ZAR.

All of the Company’s interest rate swap agreements have been designated as cash flow hedges, have fixed interest rates ranging from 6.09% to 7.25% and expire on March 31, 2020. No interest rate swap agreements were outstanding at December 31, 2011. As of September 30, 2012, the carrying amounts of the Company’s derivative financial instruments, along with the estimated fair values of the related liabilities were as follows (in thousands):

 

     Balance Sheet Location    Notional Amount (1)      Carrying Amount and Fair Value (1)  

Liabilities:

        

Interest rate swap agreements

   Other long-term liabilities      ZAR 423,634         ZAR 20,407   

 

(1) The interest rate swap agreements are denominated in ZAR and have a notional amount and fair value of $51.0 million and $2.5 million, respectively, as of September 30, 2012.

There were no interest rate swap agreements held by the Company during the three months ended September 30, 2011. During the three months ended September 30, 2012, the interest rate swap agreements held by the Company had the following impact on other comprehensive income (“OCI”) included in the condensed consolidated balance sheets and in the condensed consolidated statements of operations (in thousands):

 

Three Months Ended September 30, 2012

Amount of Gain/(Loss)
Recognized in OCI on
Derivatives (Effective
Portion)

 

Location of Gain/(Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)

 

Amount of Gain/(Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)

 

Location of Gain/(Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)

 

Gain/(Loss) Recognized in
Income on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)

$(1,135)   Interest expense   $(181)   N/A   N/A

During the nine months ended September 30, 2011, the Company held twelve LIBOR-based interest rate swap agreements. As of September 30, 2011, none of those agreements were outstanding.

During the nine months ended September 30, 2012 and 2011, the interest rate swap agreements held by the Company had the following impact on OCI included in the consolidated balance sheets and in the condensed consolidated statements of operations (in thousands):

 

Nine Months Ended September 30, 2012

Amount of Gain/(Loss)
Recognized in OCI on
Derivatives (Effective
Portion)

 

Location of Gain/(Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)

 

Amount of Gain/(Loss)
Reclassified from
Accumulated OCI into
Income (Effective Portion)

 

Location of Gain/(Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)

 

Gain/(Loss) Recognized in
Income on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)

$(2,985)   Interest expense   $(502)   N/A   N/A

Nine Months Ended September 30, 2011

Amount of Gain/(Loss)
Recognized in OCI on
Derivatives (Effective
Portion)

 

Location of Gain/(Loss)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)

 

Amount of Gain/(Loss)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)

 

Location of Gain/(Loss)
Recognized in Income on
Derivative (Ineffective
Portion and Amount
Excluded from
Effectiveness Testing)

 

Gain/(Loss) Recognized
in Income on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)

$(228)   Interest expense   $(2,205)   N/A   N/A

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

7. Fair Value Measurements

The Company determines the fair values 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 Basis—The fair value of the Company’s financial assets and liabilities that are required to be measured on a recurring basis at fair value is as follows (in thousands):

 

     September 30, 2012  
     Fair Value Measurements Using      Assets/Liabilities
at Fair Value
 
     Level 1      Level 2      Level 3     

Liabilities:

           

Interest rate swap agreements (1)

      $ 2,454          $ 2,454   

Acquisition-related contingent consideration

         $ 27,209       $ 27,209   
     December 31, 2011  
     Fair Value Measurements Using      Assets/Liabilities
at Fair Value
 
     Level 1      Level 2      Level 3     

Assets:

           

Short-term investments and available-for-sale securities (2)

   $ 22,270             $ 22,270   

Liabilities:

           

Acquisition-related contingent consideration

         $ 25,617       $ 25,617   

 

(1) Consists of interest rate swap agreements based on JIBAR whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data.
(2) Consists of certain short-term investments that are highly liquid and actively traded in over-the-counter markets as well as available-for-sale securities traded in active markets.

Cash and cash equivalents include short-term investments, including money market funds, with original maturities of three months or less whose fair value approximated cost at September 30, 2012 and December 31, 2011.

The fair value of the Company’s interest rate swap agreements recorded as liabilities is included in other long-term liabilities in the accompanying condensed consolidated balance sheets. Fair valuations of the Company’s interest rate swap agreements reflect the value of the instrument including the values associated with

 

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counterparty risk and the Company’s own credit standing. The Company includes in the valuation of the derivative instrument the value of the net credit differential between the counterparties to the derivative contract. There were no interest rate swap agreements outstanding at December 31, 2011.

The Company may be required to pay additional consideration under certain agreements for the acquisitions of communications sites in South Africa, Ghana, Colombia and the United States if specific conditions are met or events occur, such as (i) the collocation of certain wireless carriers subsequent to acquiring the communications sites or (ii) the conversion of certain barter agreements with other wireless carriers to cash-paying master lease agreements.

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 operating expenses in the condensed consolidated statements of operations.

As of September 30, 2012, the Company estimates that the value of all potential acquisition-related contingent consideration required payments to be between zero and $44.7 million. During the three months ended September 30, 2012 and 2011, the fair value of the contingent consideration changed as follows (in thousands):

 

     2012     2011  

Balance as of July 1

   $ 29,897     $ 5,671  

Additions

     1,180       2,108  

Payments

     (3,951     (938

Change in fair value

     325       1,341  

Foreign currency translation adjustment

     (242     —     
  

 

 

   

 

 

 

Balance as of September 30

   $ 27,209     $ 8,182  
  

 

 

   

 

 

 

During the nine months ended September 30, 2012 and 2011, the fair value of the contingent consideration changed as follows (in thousands):

 

     2012     2011  

Balance as of January 1

   $ 25,617     $ 5,809  

Additions

     1,533       2,199  

Payments

     (4,397     (1,638

Change in fair value

     3,791       1,812  

Foreign currency translation adjustment

     665       —     
  

 

 

   

 

 

 

Balance as of September 30

   $ 27,209     $ 8,182  
  

 

 

   

 

 

 

Items Measured at Fair Value on a Nonrecurring Basis—During the nine months ended September 30, 2012, certain long-lived assets held and used with a carrying value of $299.9 million were written down to their net realizable value of $289.2 million as a result of an asset impairment charge of $10.7 million, which was

 

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recorded in other operating expenses in the accompanying condensed consolidated statements of operations. These adjustments were determined by comparing the estimated proceeds from sale of assets or the projected future discounted cash flows to be provided from the long-lived assets (calculated using Level 3 inputs) to the asset’s carrying value. There were no other items measured at fair value on a nonrecurring basis during the nine months ended September 30, 2012.

Fair Value of Financial Instruments—The carrying value of the Company’s financial instruments, with the exception of long-term obligations, including the current portion, reasonably approximate the related fair values as of September 30, 2012 and December 31, 2011. The Company’s 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 values were estimated using a discounted cash flow analysis using rates for debt with similar terms and maturities. As of September 30, 2012, the carrying value and fair value of long-term obligations, including the current portion, were $7.5 billion and $8.1 billion, respectively, of which $4.8 billion was measured using Level 1 inputs and $3.3 billion was measured using Level 2 inputs. As of December 31, 2011, the carrying value and fair value of long-term obligations, including the current portion, were $7.2 billion and $7.5 billion, respectively, of which $3.8 billion was measured using Level 1 inputs and $3.7 billion was measured using Level 2 inputs.

 

8. 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 Company’s estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined. As described in note 1, the Company began operating as a REIT for the taxable year commencing January 1, 2012. As a REIT, the Company will continue to be subject to income taxes on the income of its TRSs. 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. Additionally, the Company is able to offset income in both its TRSs and QRSs by utilizing its net operating losses.

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. At September 30, 2012 and December 31, 2011, the Company has provided a valuation allowance of approximately $56.2 million and $5.8 million, respectively, which primarily relates to foreign items. During the nine months ended September 30, 2012, the Company increased amounts recorded as valuation allowances by $50.4 million due to the uncertainty as to the timing and the Company’s ability to recover net deferred tax assets in certain foreign operations in the foreseeable future. The amount of deferred tax assets considered realizable, however, could be adjusted if objective evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

As of September 30, 2012 and December 31, 2011, the total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was approximately $33.3 million and $34.5 million, respectively. The decrease in the amount of unrecognized tax benefits during the nine months ended September 30, 2012 is primarily attributable to the expiration of the statute of limitations on certain existing tax positions, partially offset by the additions to the Company’s 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 12 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The impact of the amount of such changes to previously recorded uncertain tax positions could range from zero to $3.1 million.

 

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The Company recorded penalties and tax-related interest expense during the three and nine months ended September 30, 2012 of $1.3 million and $3.9 million, respectively, and during the three and nine months ended September 30, 2011 of $1.2 million and $3.5 million, respectively. In addition, due to the expiration of the statute of limitations in certain jurisdictions, the Company reduced its liability for uncertain tax positions by $3.4 million. As of September 30, 2012 and December 31, 2011, the total amount of accrued income tax-related interest and penalties included in other long-term liabilities in the condensed consolidated balance sheets was $32.3 million and $31.5 million, respectively.

 

9. Stock-Based Compensation

The Company recognized stock-based compensation expense during the three and nine months ended September 30, 2012 of $13.1 million and $39.7 million, respectively, and stock-based compensation expense during the three and nine months ended September 30, 2011 of $12.1 million and $36.2 million, respectively. Stock-based compensation expense for the nine months ended September 30, 2011 includes $3.0 million related to the modification of the vesting and exercise terms for certain employees’ equity awards. During the nine months ended September 30, 2012 and 2011, the Company capitalized $1.6 million and $2.4 million, respectively, of stock-based compensation expense as property and equipment.

Stock Options—The following table summarizes the Company’s option activity for the nine months ended September 30, 2012:

 

     Number of
Options
 

Outstanding as of January 1, 2012

     6,376,244  

Granted

     1,230,578  

Exercised

     (1,316,473

Forfeited

     (110,825

Expired

     (2,900
  

 

 

 

Outstanding as of September 30, 2012

     6,176,624  
  

 

 

 

The Company estimates the fair value of each option grant on the date of grant using the Black-Scholes pricing model. The following assumptions were used to determine the grant date fair value for options granted during the nine months ended September 30, 2012:

 

Range of risk-free interest rate

   0.67% - 1.03%

Weighted average risk-free interest rate

   0.92%

Expected life of option grants

   4.4 years

Range of expected volatility of underlying stock price

   37.02% - 37.86%

Weighted average expected volatility of underlying stock price

   37.85%

Expected annual dividends

   1.50%

The weighted average grant date fair value per share during the nine months ended September 30, 2012 was $17.45. As of September 30, 2012, total unrecognized compensation expense related to unvested stock options was $35.1 million and is expected to be recognized over a weighted average period of approximately three years.

 

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Restricted Stock Units—The following table summarizes the Company’s restricted stock unit activity during the nine months ended September 30, 2012:

 

     Number of
Units
 

Outstanding as of January 1, 2012

     2,197,460  

Granted

     827,282  

Vested

     (867,404

Forfeited

     (104,894
  

 

 

 

Outstanding as of September 30, 2012

     2,052,444  
  

 

 

 

As of September 30, 2012, total unrecognized compensation expense related to unvested restricted stock units was $79.6 million, and is expected to be recognized over a weighted average period of approximately two years. Distributions will accrue with each unvested restricted stock unit award granted subsequent to January 1, 2012.

Employee Stock Purchase Plan—The Company maintains an employee stock purchase plan (the “ESPP”) for all eligible employees as described in note 13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Under the ESPP, shares of the Company’s common stock may be purchased on the last day of each bi-annual offering period at 85% of the lower of the fair market value on the first or the 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, 2012, employee contributions were accumulated to purchase an estimated 71,136 shares under the ESPP and the fair value per share was $13.13.

Key assumptions used to apply the Black-Scholes pricing model for shares purchased through the ESPP during the nine months ended September 30, 2012 are as follows:

 

Approximate risk-free interest rate

   0.05%

Expected life of shares

   6 months

Expected volatility of underlying stock price

   33.86%

Expected annual dividends

   1.50%

 

10. Equity

Stock Repurchase Program—In 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 its common stock (“2011 Buyback”).

During the nine months ended September 30, 2012, the Company repurchased 252,691 shares of its common stock for an aggregate of $16.7 million, including commissions and fees, pursuant to the 2011 Buyback. As of September 30, 2012, the Company had repurchased a total of approximately 3.7 million shares of its common stock under the 2011 Buyback for an aggregate of $197.9 million, including commissions and fees.

Between October 1, 2012 and October 18, 2012, the Company repurchased an additional 16,689 shares of its common stock for an aggregate of $1.2 million, including commissions and fees, pursuant to the 2011 Buyback. As of October 18, 2012, the Company had repurchased a total of approximately 3.7 million shares of its common stock under the 2011 Buyback for an aggregate of $199.1 million, including commissions and fees.

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

 

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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.

In the near term, 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.

Distributions—On March 22, 2012, the Company declared a cash distribution of $0.21 per share and on April 25, 2012 paid a total of approximately $82.9 million to stockholders of record at the close of business on April 11, 2012. On June 20, 2012, the Company declared a cash distribution of $0.22 per share and on July 18, 2012 paid a total of approximately $86.9 million to stockholders of record at the close of business on July 2, 2012. On September 19, 2012, the Company declared a cash distribution of $0.23 per share and on October 15, 2012 paid a total of approximately $90.9 million to stockholders of record at the close of business on October 1, 2012.

The Company will accrue distributions on unvested restricted stock unit awards granted subsequent to January 1, 2012, which will be payable upon vesting. As of September 30, 2012, the Company had accrued $0.5 million of distributions payable 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 and be subject to adjustment by the Company’s Board of Directors.

 

11. Earnings (Loss) per Common Share

Basic net income (loss) per common share represents net income (loss) attributable to American Tower Corporation divided by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share represents net income (loss) attributable to American Tower Corporation divided by the weighted average number of common shares outstanding during the period and any dilutive common share equivalents, including shares issuable upon exercise of stock options and share based awards as determined under the treasury stock method. Dilutive common share equivalents also include the dilutive impact of the ALLTEL transaction (see note 12).

The following table sets forth basic and diluted income (loss) from continuing operations per common share computational data for the three and nine months ended September 30, 2012 and 2011 (in thousands, except per share data):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012      2011     2012      2011  

Net income (loss) attributable to American Tower Corporation

   $ 232,089      $ (15,701   $ 501,604      $ 191,352  
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic weighted average common shares outstanding

     395,244        395,183       394,626        396,507  

Dilutive securities

     4,243        —          4,458        3,960  
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted weighted average common shares outstanding

     399,487        395,183       399,084        400,467  
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic net income (loss) attributable to American Tower Corporation per common share

   $ 0.59      $ (0.04   $ 1.27      $ 0.48  
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted net income (loss) attributable to American Tower Corporation per common share

   $ 0.58      $ (0.04   $ 1.26      $ 0.48  
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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For the three and nine months ended September 30, 2012, the diluted weighted average number of common shares outstanding excluded shares issuable upon exercise of the Company’s stock options and share based awards of 1.2 million and 1.0 million, respectively, as the effect would be anti-dilutive. For the three months ended September 30, 2011, the Company assumed common stock equivalents to be anti-dilutive, as income from continuing operations attributable to American Tower Corporation was in a loss position. For the nine months ended September 30, 2011, the diluted weighted average number of common shares outstanding excluded shares issuable upon exercise of the Company’s stock options and share based awards of 0.9 million, as the effect would be anti-dilutive.

 

12. 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, other than the legal proceedings discussed below, there are no matters currently pending that would, in the event of an adverse outcome, materially impact the Company’s consolidated financial position, results of operations or liquidity.

SEC Subpoena—On June 2, 2011, the Company received a subpoena from the SEC requesting certain documents from 2007 through the date of the subpoena, including in particular documents related to the Company’s tax accounting and reporting. While the Company believes this investigation may in part relate to a former employee’s complaints, which the Company previously investigated with the assistance of outside counsel and a forensic accounting firm, finding no material issues, the Company cannot at this time predict the scope or the outcome of this investigation. The Company understands that its independent registered public accounting firm and one of its consultants also received subpoenas primarily related to the Company’s tax accounting and reporting during this period and its investigation into this complaint. The Company has cooperated and intends to continue to cooperate fully with the SEC with respect to its investigation.

Mexico Litigation—One of the Company’s subsidiaries, SpectraSite Communications, Inc. (“SCI”), a predecessor to SpectraSite, is involved in a lawsuit brought in Mexico against a former Mexican subsidiary of SCI (the subsidiary of SCI was sold in 2002, prior to the Company’s acquisition of SCI in 2005). The lawsuit concerns a terminated tower construction contract and related agreements with a wireless carrier in Mexico. The primary issue for the Company is whether SCI itself can be found liable to the Mexican carrier. The trial and lower appellate courts initially found that SCI had no such liability in part because Mexican courts do not have the necessary jurisdiction over SCI. In September 2010, following several decisions by Mexican appellate courts, including the Supreme Court of Mexico, and related appeals by both parties, an intermediate appellate court issued a new decision that would, if enforceable, reimpose liability on SCI if the primary defendant in the case is unable to satisfy the judgment. In its decision, the intermediate appellate court identified potential damages, in the form of potential statutory interest, of approximately $6.7 million as of that date. On October 14, 2010, the Company filed a new constitutional appeal to again dispute the decision, which was rejected on January 24, 2012. The case was returned to the trial court to determine whether any actual damages should be awarded to the Mexican carrier. The Mexican carrier sought damages of approximately $7.9 million in the trial court. On August 2, 2012, the trial court entered judgment against the primary defendant and SCI in the amount of approximately $6.5 million. Each of the parties appealed the trial court’s determination and on October 17, 2012, the appellate court entered judgment against the primary defendant in the amount of approximately $7.9 million with SCI responsible for any amount that cannot be recovered from the primary defendant. SCI is currently considering whether to file an additional appeal. Any judgment of the court in Mexico against SCI would need to be enforced in the United States and the Company is unable to determine whether the award of damages is enforceable in the United States.

 

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Commitments

AT&T Transaction—The Company has an agreement with SBC Communications Inc., a predecessor entity to AT&T Inc. (“AT&T”), for the lease or sublease of approximately 2,500 towers from AT&T between December 2000 and August 2004. All of the towers are part of the Company’s securitization transaction. 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. The aggregate purchase option price for the towers leased and subleased was approximately $532.5 million as of September 30, 2012, and will accrete at a rate of 10% per year to 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&T’s 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.

ALLTEL Transaction—In December 2000, the Company entered into an agreement with ALLTEL (which completed its merger with Verizon Wireless in January 2009) to acquire towers from ALLTEL through a 15-year sublease agreement. Pursuant to the agreement with ALLTEL, as amended, the Company acquired rights to a total of 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 was approximately $68.6 million as of September 30, 2012. At ALLTEL’s option, at the expiration of the sublease, the purchase price would be payable in cash or with 769 shares of the Company’s common stock per tower, which at September 30, 2012 would be valued at approximately $97.5 million.

Chile Remediation Plan—The Company records impairment losses on long-lived assets when events and circumstances indicate that long-lived assets might be impaired and the assets’ carrying value exceeds its undiscounted future cash flows. In June 2012, the Chilean government passed a law that imposes certain zoning restrictions on telecommunications towers located throughout Chile. The new law applies retroactively and may require the Company to modify or remove approximately 22 existing towers. The Company has developed a remediation plan, which requires approval of the Chilean government and cooperation of other impacted parties. As of September 30, 2012, the Company believes that the remediation plan, if approved by the Chilean government, will not have a material impact on the Company’s consolidated balance sheet, results of operations or cash flows.

 

13. Acquisitions and Other Transactions

All of the acquisitions described below are being accounted for as business combinations and are consistent with the Company’s strategy to expand in selected geographic areas.

The allocations of purchase price are based on estimates of the fair value of the net assets acquired at the date of the particular acquisition and are subject to adjustment during the particular measurement period (up to

 

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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. The fair values of these net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. During the measurement period, the Company will adjust assets and/or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and/or liabilities as of that date. The effect of measurement period adjustments to the allocation of the purchase price are as if the adjustments had been completed on the acquisition date. 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 result in a possible impairment of the intangible assets and/or goodwill, or require acceleration of the amortization expense of intangible assets. During the nine months ended September 30, 2012, 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 for the year ended December 31, 2011.

South Africa Acquisition—On November 4, 2010, the Company entered into a definitive agreement with Cell C to purchase up to approximately 1,400 existing communications sites, and up to 1,800 additional communications sites that either are under construction or will be constructed, for an aggregate purchase price of up to approximately $430.0 million. On March 8, 2011, July 25, 2011, and December 14, 2011 the Company completed the purchase of 959, 329 and 76 existing communications sites, respectively, through its local South African subsidiary for an aggregate purchase price of $214.5 million (including contingent consideration of $2.6 million and value added tax of $12.3 million), using cash on hand, local financing and funds contributed by South African investors who currently hold an approximate 25% non-controlling interest in the Company’s South African subsidiary.

Under the terms of the purchase agreement, legal title to certain of the communications sites acquired on December 14, 2011 will be transferred upon fulfillment of certain conditions by Cell C. Prior to the fulfillment of these conditions, the Company will operate and maintain control of these communications sites, and accordingly, reflect these sites in the allocation of purchase price and the consolidated operating results.

The agreement with Cell C requires the Company to make a one-time payment based on the annualized rent for each collocation installed for a specific wireless carrier on the acquired communications sites occurring within a four-year period after the initial closing date. Based on current estimates, the Company estimates the value of the remaining potential contingent consideration payments required to be made under the agreement to be between zero and $7.0 million. The fair value of the remaining contingent consideration, which had preliminarily been estimated at $2.6 million, is estimated to be $6.7 million using a probability-weighted average of the expected outcomes at September 30, 2012. The Company has previously made payments under this arrangement of $4.0 million. During the three and nine months ended September 30, 2012, the Company recorded changes in fair value of zero and $3.9 million, respectively, as other operating expenses in the condensed consolidated statement of operations.

 

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The allocation of the purchase price was finalized during the nine months ended September 30, 2012. The following table summarizes the allocation of the aggregate purchase consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Final Purchase Price
Allocation (1)
    Preliminary Purchase Price
Allocation (2)
 

Current assets

   $ 12,262     $ 12,262  

Property and equipment

     81,052       82,225  

Intangible assets (3)

     118,502       118,781  

Current liabilities

     (74     (74

Other long-term liabilities

     (31,418     (32,908
  

 

 

   

 

 

 

Fair value of net assets acquired

   $ 180,324     $ 180,286  
  

 

 

   

 

 

 

Goodwill (4)

     34,159       34,197  

 

(1) Reflected in the condensed consolidated balance sheets herein.
(2) Reflected in the consolidated balance sheets in the Form 10-K for the year ended December 31, 2011.
(3) Consists of customer-related intangibles of approximately $105.0 million and network location intangibles of approximately $13.5 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(4) The Company expects that the goodwill recorded will not be deductible for tax purposes. The goodwill was allocated to the Company’s international rental and management segment.

Pursuant to the agreement with Cell C entered into on November 4, 2010, the Company completed the purchase of an additional 197 and 39 communications sites on July 31, 2012 and August 31, 2012, respectively, for an aggregate purchase price of $35.0 million (including value added tax of $4.3 million). Under the terms of the agreement, legal title to certain of the communications sites acquired on July 31, 2012 and August 31, 2012 will be transferred upon fulfillment of certain conditions by Cell C. Prior to the fulfillment of these conditions, the Company will operate and maintain control of these communications sites, and accordingly, reflect these sites in the allocation of purchase price and the consolidated operating results.

The following table summarizes the preliminary allocation of the aggregate purchase price consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Preliminary Purchase Price
Allocation
 

Current assets

   $ 4,295  

Non-current assets

     340  

Property and equipment

     16,375  

Intangible assets (1)

     10,709  

Other long-term liabilities

     (2,552
  

 

 

 

Fair value of net assets acquired

   $ 29,167  
  

 

 

 

Goodwill (2)

     5,809  

 

(1) Consists of customer-related intangibles of approximately $8.5 million and network location intangibles of approximately $2.2 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(2) The Company expects that the goodwill recorded will not be deductible for tax purposes. The goodwill was allocated to the Company’s international rental and management segment.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

Brazil Acquisition—On March 1, 2011, the Company acquired 100% of the outstanding shares of a company that owned 627 communications sites in Brazil for $553.2 million, which was subsequently increased to $585.4 million as a result of acquiring 39 additional communications sites during the year ended December 31, 2011. During the nine months ended September 30, 2012, the purchase price was reduced to $585.3 million after certain post-closing purchase price adjustments.

The allocation of the purchase price was finalized during the nine months ended September 30, 2012. The following table summarizes the allocation of the aggregate purchase consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Final Purchase Price
Allocation (1)
    Preliminary Purchase Price
Allocation (2)
 

Current assets (3)

   $ 9,922     $ 9,922  

Non-current assets

     71,529       98,047  

Property and equipment

     83,539       86,062  

Intangible assets (4)

     368,000       288,000  

Current liabilities

     (5,536     (5,536

Other long-term liabilities (5)

     (38,519     (38,519
  

 

 

   

 

 

 

Fair value of net assets acquired

   $ 488,935     $ 437,976  
  

 

 

   

 

 

 

Goodwill (6)

     96,395       147,459  

 

(1) Reflected in the condensed consolidated balance sheets herein.
(2) Reflected in the consolidated balance sheets in the Form 10-K for the year ended December 31, 2011.
(3) Includes approximately $7.7 million of accounts receivable, which approximates the value due to the Company under certain contractual arrangements.
(4) Consists of customer-related intangibles of approximately $250.0 million and network location intangibles of approximately $118.0 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(5) Other long-term liabilities includes contingent amounts of approximately $30.0 million primarily related to uncertain tax positions related to the acquisition and non-current assets includes $24.0 million of the related indemnification asset.
(6) The Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s international rental and management segment.

Brazil—Vivo Acquisition—On March 30, 2012, the Company entered into a definitive agreement to purchase up to 1,500 towers from Vivo S.A. (“Vivo”). Pursuant to the agreement, on March 30, 2012, the Company purchased 800 communications sites for an aggregate purchase price of $151.7 million. On June 30, 2012, the Company purchased the remaining 700 communications sites for an aggregate purchase consideration of $126.3 million, subject to post-closing adjustments. In addition, the Company and Vivo amended the asset purchase agreement to allow for the acquisition of up to an additional 300 communications sites by the Company, subject to regulatory approval. On August 31, 2012, the Company purchased an additional 192 communications sites from Vivo for an aggregate purchase consideration of $32.7 million, subject to post-closing adjustments.

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

The following table summarizes the preliminary allocation of the aggregate purchase price consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Preliminary Purchase
Price Allocation
 

Non-current assets

   $ 23,760  

Property and equipment

     129,174  

Intangible assets (1)

     129,833  

Other long-term liabilities

     (18,195
  

 

 

 

Fair value of net assets acquired

   $ 264,572  
  

 

 

 

Goodwill (2)

     46,123  

 

(1) Consists of customer-related intangibles of approximately $68.7 million and network location intangibles of approximately $61.1 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(2) The Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s international rental and management segment.

Ghana Acquisition—On December 6, 2010, the Company entered into a definitive agreement with MTN Group to establish a joint venture in Ghana. The joint venture is controlled by a holding company of which the ATC Ghana Subsidiary holds a 51% interest and the MTN Ghana Subsidiary holds a 49% interest. The joint venture is managed and controlled by the Company and owns a tower operations company in Ghana.

Pursuant to the agreement, on May 6, 2011, August 11, 2011 and December 23, 2011, the joint venture acquired 400, 770 and 686 communications sites, respectively, from MTN Group’s operating subsidiary in Ghana for an aggregate purchase price of $515.6 million (including contingent consideration of $2.3 million and value added tax of $65.6 million). The aggregate purchase price was subsequently increased to $517.7 million (including contingent consideration of $2.3 million and value added tax of $65.6 million) after certain post-closing adjustments.

Under the terms of the purchase agreement, legal title to certain of the communications sites acquired on December 23, 2011 will be transferred upon fulfillment of certain conditions by MTN Group. Prior to the fulfillment of these conditions, the Company will operate and maintain control of these communications sites, and accordingly, reflect these sites in the allocation of purchase price and the consolidated operating results.

In December 2011, the Company signed an amendment to its agreement with MTN Group, which requires the Company to make additional payments upon the conversion of certain barter agreements with other wireless carriers to cash-paying master lease agreements. The Company currently estimates the value of potential contingent consideration payments required to be made under the amended agreement to be between zero and $4.0 million. The fair value of the contingent consideration payable is estimated to be $3.7 million using a probability weighted average of the expected outcomes at September 30, 2012. During the three and nine months ended September 30, 2012, the Company recorded a reduction in fair value of $0.1 million and an increase in fair value of $0.6 million, respectively, which are included in other operating expenses in the condensed consolidated statements of operations.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

The allocation of the purchase price was finalized during the nine months ended September 30, 2012. The following table summarizes the allocation of the aggregate purchase price consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Final Purchase Price
Allocation (1)
    Preliminary Purchase
Price Allocation (2)
 

Current assets

   $ 6,969     $ 69,147  

Non-current assets

     69,145       5,405  

Property and equipment

     319,641       304,478  

Intangible assets (3)

     112,025       82,217  

Other long-term liabilities

     (11,477     (13,356
  

 

 

   

 

 

 

Fair value of net assets acquired

   $ 496,303     $ 447,891  
  

 

 

   

 

 

 

Goodwill (4)

     21,375       67,755  

 

(1) Reflected in the condensed consolidated balance sheets herein.
(2) Reflected in the consolidated balance sheets in the Form 10-K for the year ended December 31, 2011.
(3) Consists of customer-related intangibles of approximately $58.0 million and network location intangibles of approximately $54.0 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(4) The Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s international rental and management segment.

Mexico Acquisition—On November 3, 2011, the Company entered into a definitive agreement to purchase up to approximately 730 communications sites from Telefónica’s Mexican subsidiary, Pegaso PCS, S.A. de C.V. (“Telefónica Mexico”). On December 15, 2011, the Company completed the purchase of 584 communications sites, for an aggregate purchase price of $121.9 million (including value added tax of $16.7 million). On December 7, 2011, the Company entered into a definitive agreement to purchase up to approximately 1,778 additional communications sites from Telefónica Mexico. On December 28, 2011, April 3, 2012, June 29, 2012 and July 10, 2012, the Company completed the purchase of 1,422, 55, 74 and 3 communications sites, respectively, for an aggregate purchase price of $323.3 million (including value added tax of $44.7 million).

The following table summarizes the allocation of the aggregate purchase consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Updated Purchase Price
Allocation (1)
    Preliminary Purchase
Price Allocation (2)
 

Current assets

   $ 61,402     $ 57,414  

Non-current assets

     16,350       26,845  

Property and equipment

     187,275       174,767  

Intangible assets (3)

     147,692       97,182  

Current liabilities

     (148     (148

Other long-term liabilities

     (9,449     (8,836
  

 

 

   

 

 

 

Fair value of net assets acquired

   $ 403,122     $ 347,224  
  

 

 

   

 

 

 

Goodwill (4)

     42,044       69,030  

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

 

(1) Reflected in the condensed consolidated balance sheets herein.
(2) Reflected in the consolidated balance sheets in the Form 10-K for the year ended December 31, 2011.
(3) Consists of customer-related intangibles of approximately $75.0 million and network location intangibles of approximately $72.7 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(4) The Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s international rental and management segment.

On September 12, 2012, the Company entered into a definitive agreement to purchase up to approximately 348 additional communications sites from Telefónica Mexico. On September 27, 2012, the Company completed the purchase of 279 communications sites, for an aggregate purchase price of $63.1 million (including value added tax of $8.7 million).

The following table summarizes the preliminary allocation of the aggregate purchase consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Preliminary Purchase
Price Allocation
 

Current assets

   $ 8,700  

Non-current assets

     2,316  

Property and equipment

     26,520  

Intangible assets (1)

     20,928  

Other long-term liabilities

     (1,339
  

 

 

 

Fair value of net assets acquired

   $ 57,125  
  

 

 

 

Goodwill (2)

     5,955  

 

(1) Consists of customer-related intangibles of approximately $10.6 million and network location intangibles of approximately $10.3 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(2) The Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s international rental and management segment.

Colombia—Telefónica Moviles Acquisition—During the year ended December 31, 2011, the Company acquired 125 communications sites from Telefónica Moviles Colombia S.A. (“Telefónica Colombia”) for an aggregate purchase price of $17.5 million.

The allocation of the purchase price was finalized during the nine months ended September 30, 2012. The following table summarizes the allocation of the aggregate purchase consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Final Purchase Price
Allocation (1)
    Preliminary Purchase
Price Allocation (2)
 

Non-current assets

   $ 110     $ 217  

Property and equipment

     13,526       12,456  

Intangible assets (3)

     4,008       4,675  

Other long-term liabilities

     (341     (341
  

 

 

   

 

 

 

Fair value of net assets acquired

   $ 17,303     $ 17,007  
  

 

 

   

 

 

 

Goodwill (4)

     227       523  

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

 

(1) Reflected in the condensed consolidated balance sheets herein.
(2) Reflected in the consolidated balance sheets in the Form 10-K for the year ended December 31, 2011.
(3) Consists of customer-related intangibles of approximately $1.5 million and network location intangibles of approximately $2.5 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(4) The Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s international rental and management segment.

During the three months ended September 30, 2012, the Company acquired an additional 31 communications sites from Telefónica Colombia for an aggregate purchase price of $4.7 million.

The following table summarizes the preliminary allocation of the aggregate purchase consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Preliminary Purchase
Price Allocation
 

Non-current assets

   $ 2  

Property and equipment

     3,590  

Intangible assets (1)

     1,062  

Other long-term liabilities

     (91
  

 

 

 

Fair value of net assets acquired

   $ 4,563  
  

 

 

 

Goodwill (2)

     89  

 

(1) Consists of customer-related intangibles of approximately $0.4 million and network location intangibles of approximately $0.7 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(2) The Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s international rental and management segment.

Colombia—Colombia Movil Acquisition—On July 17, 2011, the Company entered into a definitive agreement with Colombia Movil, whereby ATC Sitios Infraco, S.A.S., a Colombian subsidiary of the Company (“ATC Infraco”), would purchase up to 2,126 communications sites from Colombia Movil for an aggregate purchase price of approximately $182.0 million.

From December 21, 2011 through the nine months ended September 30, 2012, ATC Infraco completed the purchase of 1,484 communications sites for an aggregate purchase price of $132.3 million (including contingent consideration of $16.8 million), subject to post-closing adjustments. Through a Millicom subsidiary, Millicom exercised its option to acquire an indirect, substantial non-controlling interest in ATC Infraco.

Under the terms of the agreement, 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 the Company’s current estimates, the value of potential contingent consideration payments required to be made under the amended agreement is expected to be between zero and $31.6 million. The fair value of the contingent consideration is estimated to be $16.1 million using a probability weighted average of the expected outcomes at September 30, 2012. During the three and nine months ended September 30, 2012, the Company recorded an

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

increase in fair value of $0.4 million and a reduction in fair value of $1.8 million, respectively, which are included in other operating expenses in the condensed consolidated statements of operations.

The following table summarizes the allocation of the aggregate purchase consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Updated Purchase Price
Allocation (1)
    Preliminary Purchase
Price Allocation (2)
 

Non-current assets

   $ 1,125     $ 1,126  

Property and equipment

     100,346       95,052  

Intangible assets (3)

     28,835       26,132  

Current liabilities

     (708     (639

Other long-term liabilities

     (3,817     (3,416
  

 

 

   

 

 

 

Fair value of net assets acquired

   $ 125,781     $ 118,255  
  

 

 

   

 

 

 

Goodwill (4)

     6,469       1,067  

 

(1) Reflected in the condensed consolidated balance sheets herein.
(2) Reflected in the consolidated balance sheets in the Form 10-K for the year ended December 31, 2011.
(3) Consists of customer-related intangibles of approximately $9.5 million and network location intangibles of approximately $19.3 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(4) The Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s international rental and management segment.

Chile—Telefónica Moviles Acquisition—On December 30, 2011, the Company purchased 100% of the outstanding shares of a subsidiary of Telefónica Moviles Chile S.A. that owned 558 communications sites, for an aggregate purchase price of $94.9 million. The purchase price is subject to additional post-closing adjustments, following completion of the Company’s post-closing due diligence of the communications sites acquired.

The following table summarizes the allocation of the aggregate purchase price consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Updated Purchase Price
Allocation (1)
    Preliminary Purchase
Price Allocation (2)
 

Non-current assets

   $ 1,892     $ 2,772  

Property and equipment

     55,100       43,140  

Intangible assets (3)

     35,300       39,916  

Other long-term liabilities

     (4,505     (4,505
  

 

 

   

 

 

 

Fair value of net assets acquired

   $ 87,787     $ 81,323  
  

 

 

   

 

 

 

Goodwill (4)

     7,073       13,537  

 

(1) Reflected in the condensed consolidated balance sheets herein.
(2) Reflected in the consolidated balance sheets in the Form 10-K for the year ended December 31, 2011.
(3) Consists of customer-related intangibles of approximately $15.5 million and network location intangibles of approximately $19.8 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(4) The Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s international rental and management segment.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

Uganda Acquisition—On December 8, 2011, the Company entered into a definitive agreement with MTN Group to establish a joint venture in Uganda. The joint venture is controlled by a holding company of which the ATC Uganda Subsidiary holds a 51% interest and the MTN Uganda Subsidiary holds a 49% interest. The joint venture is managed and controlled by the Company and owns a tower operations company in Uganda.

Pursuant to the agreement, the joint venture agreed to purchase a total of up to 1,000 existing communications sites from MTN Group’s operating subsidiary in Uganda, subject to customary closing conditions. On June 29, 2012, the joint venture acquired 962 communications sites for an aggregate purchase price of $171.5 million, subject to post-closing adjustments. The aggregate purchase price was subsequently increased to $173.2 million, subject to future post-closing adjustments.

Under the terms of the purchase agreement, legal title to certain of these communications sites will be transferred upon fulfillment of certain conditions by MTN Group. Prior to the fulfillment of these conditions, the Company will operate and maintain control of these communications sites, and accordingly, reflect these sites in the allocation of purchase price and the consolidated operating results.

The following table summarizes the preliminary allocation of the aggregate purchase price consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Preliminary Purchase
Price Allocation
 

Non-current assets

   $ 2,258  

Property and equipment

     102,366  

Intangible assets (1)

     64,000  

Other long-term liabilities

     (7,528
  

 

 

 

Fair value of net assets acquired

   $ 161,096  
  

 

 

 

Goodwill (2)

     12,064  

 

(1) Consists of customer-related intangibles of approximately $43.0 million and network location intangibles of approximately $21.0 million. The customer-related intangibles and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(2) The Company expects that the goodwill will not be deductible for tax purposes. The goodwill was allocated to the Company’s international rental and management segment.

U.S. Acquisitions—During the nine months ended September 30, 2012, the Company acquired a total of 86 communications sites in the United States for an aggregate purchase price of $39.4 million.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

The following table summarizes the preliminary allocation of the aggregate purchase consideration paid for acquisitions that closed during the nine months ended September 30, 2012 and the amounts of assets acquired and liabilities assumed based on the estimated fair value at the date of acquisition (in thousands):

 

     Preliminary Purchase
Price Allocation
 

Non-current assets

   $ 153  

Property and equipment

     13,825  

Intangible assets (1)

     24,694  

Other long-term liabilities

     (686
  

 

 

 

Fair value of net assets acquired

   $ 37,986  
  

 

 

 

Goodwill (2)

     1,420  

 

(1) Consists of customer relationships of approximately $14.1 million and network location intangibles of approximately $10.6 million. The customer relationships and network location are being amortized on a straight-line basis over periods of up to 20 years.
(2) The Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s domestic rental and management segment.

The following table summarizes the allocation of the aggregate purchase consideration paid and the amounts of assets acquired and liabilities assumed based upon the estimated fair value at the acquisition date for acquisitions which closed during the year ended December 31, 2011 (in thousands):

 

     Updated Purchase Price
Allocation (1)
    Preliminary Purchase
Price Allocation (2)
 

Non-current assets

   $ 289     $ —     

Property and equipment

     21,088       23,270  

Intangible assets (3)

     61,107       61,626  

Other long-term liabilities

     (4,288     (4,118
  

 

 

   

 

 

 

Fair value of net assets acquired

   $ 78,196     $ 80,778  
  

 

 

   

 

 

 

Goodwill (4)

     4,604       2,022  

 

(1) Reflected in the condensed consolidated balance sheets herein.
(2) Reflected in the consolidated balance sheets in the Form 10-K for the year ended December 31, 2011.
(3) Consists of customer relationships of approximately $46.4 million and network location intangibles of approximately $14.7 million as of September 30, 2012. The customer relationships and network location intangibles are being amortized on a straight-line basis over periods of up to 20 years.
(4) The Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s domestic rental and management segment.

U.S. Property Interests—Unison Acquisition—On October 14, 2011, the Company acquired from Unison Holdings, LLC and Unison Site Management II, L.L.C. (collectively, “Unison”) various limited liability companies holding a portfolio of approximately 12 communications sites and 1,910 property interests, including property interests that the Company leases to communications service providers and other third-party tower operators under 1,810 communications sites for an aggregate purchase price of $312.0 million and assumed $196.0 million in existing indebtedness (the fair value of which was $209.3 million at the acquisition date). The acquisition includes property interests (easements, prepaid operating ground leases, term easements and managed sites) under the Company’s existing communications sites, as well as property interests under carrier tenant and other third-party communications sites, providing recurring cash flow and complementary leasing arrangements.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

The deferred rent liability associated with the underlying ground leases for existing communications sites of the Company was approximately $2.6 million on the date of acquisition. As a result of the Company’s acquisition of these property interests from Unison, the preexisting land leases were considered to be effectively settled. The terms of these land leases were determined to represent fair value at the acquisition date. As such, the Company did not record any gain or loss separately from the acquisition and the $2.6 million unamortized deferred rent liability was included as part of the acquisition-date fair value of consideration transferred.

The fair value of the consideration transferred consists of the following (in thousands):

 

Cash consideration

   $ 312,002  

Settlement of preexisting arrangement

     (2,584
  

 

 

 

Total consideration

   $ 309,418  
  

 

 

 

The following table summarizes the allocation of the aggregate purchase price consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Updated Purchase Price
Allocation (1)
    Preliminary Purchase
Price Allocation (2)
 

Current assets (3)(4)

   $ 15,985     $ 16,203  

Non-current assets (4)

     154,769       154,817  

Property and equipment (5)

     340,474       340,602  

Intangible assets

     4,200       3,297  

Current liabilities

     (7,093     (7,703

Long-term obligations

     (209,321     (209,321

Other long-term liabilities

     (773     (1,508
  

 

 

   

 

 

 

Fair value of net assets acquired

   $ 298,241     $ 296,387  
  

 

 

   

 

 

 

Goodwill (6)

     11,177       13,031  

 

(1) Reflected in the condensed consolidated balance sheets herein.
(2) Reflected in the consolidated balance sheets in the Form 10-K for the year ended December 31, 2011.
(3) Includes approximately $0.2 million of accounts receivable which approximates the value due to the Company under certain contractual arrangements.
(4) Includes prepaid operating leases, term easements and managed sites.
(5) Includes perpetual easements.
(6) With the exception of interests in land and perpetual easements, the Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s domestic rental and management segment.

U.S. Property Interests-Other—On October 21, 2011, the Company acquired property interests under approximately 240 communications sites in the United States for an aggregate purchase price of $72.6 million.

The property interests acquired are located underneath existing communications sites owned or subleased by the Company. The deferred rent liability associated with the underlying ground leases was approximately $4.3 million on the date of acquisition. As a result of the Company’s acquisition of these property interests, the preexisting land leases were considered to be effectively settled. The terms of these land leases were determined to represent fair value at the acquisition date. As such, the Company did not record any gain or loss separately from the acquisition and the $4.3 million unamortized deferred rent liability was included as part of the fair value of consideration transferred.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

The fair value of the consideration transferred consists of the following (in thousands):

 

Cash consideration

   $ 72,595  

Settlement of preexisting arrangement

     (4,256
  

 

 

 

Total consideration

   $ 68,339  
  

 

 

 

The property interests acquired included perpetual easements, prepaid operating ground leases and term easements for land located under the Company’s communications sites and sites owned by communications service providers and third-party tower operators.

The following table summarizes the allocation of the aggregate purchase price consideration paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands):

 

     Updated Purchase Price
Allocation (1)
     Preliminary Purchase
Price Allocation (2)
 

Current assets (3)

   $ 359      $ 363  

Non-current assets (3)

     13,357        13,394  

Property and equipment (4)

     47,898        47,898  

Intangible assets

     490        383  
  

 

 

    

 

 

 

Fair value of net assets acquired

   $ 62,104      $ 62,038  
  

 

 

    

 

 

 

Goodwill (5)

     6,235        6,301  

 

(1) Reflected in the condensed consolidated balance sheets herein.
(2) Reflected in the consolidated balance sheets in the Form 10-K for the year ended December 31, 2011.
(3) Includes prepaid operating leases, term easements and managed sites.
(4) Includes perpetual easements.
(5) With the exception of interests in land and perpetual easements, the Company will receive a deduction for income tax purposes for an amount equal to the goodwill recorded. The goodwill was allocated to the Company’s domestic rental and management segment.

 

14. Business Segments

The Company operates in three business segments: domestic rental and management, international rental and management and network development services. The domestic rental and management segment provides for the leasing of antenna space on multi-tenant communications sites primarily to wireless service providers and radio and television broadcast companies in the United States. The international rental and management segment provides for the leasing of antenna space on multi-tenant communications sites to wireless service providers and radio and television broadcast companies in Brazil, Chile, Colombia, Ghana, India, Mexico, Peru, South Africa and Uganda. Through its network development services segment, the Company offers tower-related services in the United States, including site acquisition, zoning and permitting services and structural analysis services, which primarily support the Company’s site leasing business and the addition of new tenants and equipment on its sites.

The accounting policies applied in compiling segment information below are similar to those described in note 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. 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

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

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 operating profit and segment gross margin also include interest income, TV Azteca, net. These measures of segment gross margin and segment operating profit are also before interest income, interest expense, loss on retirement of long-term obligations, other income (expense), net income (loss) attributable to non-controlling interest, income (loss) on equity method investments, income taxes and discontinued operations.

Summarized financial information concerning the Company’s reportable segments for the three and nine months ended September 30, 2012 and 2011 is shown in the tables below. The Other column 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 expense; interest income; interest expense; loss on retirement of long-term obligations; and other income (expense), as well as reconciles segment operating profit to income from continuing operations before income taxes and income on equity method investments, as these amounts are not utilized in assessing each segment’s performance.

 

     Rental and Management     Total Rental and
Management
    Network
Development
Services
    Other     Total  

Three months ended September 30, 2012

  Domestic     International          
    (in thousands)  

Segment revenues

  $ 480,351     $ 217,203     $ 697,554     $ 15,781       $ 713,335  

Segment operating expenses (1)

    92,072       85,069       177,141       7,323         184,464  

Interest income, TV Azteca, net

    —          3,586       3,586       —            3,586  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment gross margin

    388,279       135,720       523,999       8,458         532,457  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment selling, general, administrative and development expense (1)

    20,141       25,057       45,198       2,127         47,325  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment operating profit

  $ 368,138     $ 110,663     $ 478,801     $ 6,331       $ 485,132  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Stock-based compensation expense

          $ 13,058       13,058  

Other selling, general, administrative and development expense

            21,516       21,516  

Depreciation, amortization and accretion

            144,061       144,061  

Other expense (principally interest expense and other (expense) income)

            61,620       61,620  
           

 

 

 

Income from continuing operations before income taxes and income on equity method investments

            $ 244,877  
           

 

 

 

 

(1) Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $0.4 million and $12.6 million, respectively.

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

     Rental and Management     Total Rental and
Management
    Network
Development
Services
    Other     Total  

Three months ended September 30, 2011

  Domestic     International          
    (in thousands)  

Segment revenues

  $ 436,783     $ 178,025     $ 614,808     $ 15,595       $ 630,403  

Segment operating expenses (1)

    91,076       68,336       159,412       7,758         167,170  

Interest income, TV Azteca, net

    —          3,498       3,498       —            3,498  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment gross margin

    345,707       113,187       458,894       7,837         466,731  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment selling, general, administrative and development expense (1)

    20,516       21,641       42,157       1,918         44,075  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment operating profit

  $ 325,191     $ 91,546     $ 416,737     $ 5,919       $ 422,656  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Stock-based compensation expense

          $ 12,140       12,140  

Other selling, general, administrative and development expense

            22,024       22,024  

Depreciation, amortization and accretion

            142,113       142,113  

Other expense (principally interest expense and other (expense) income)

            241,426       241,426  
           

 

 

 

Income from continuing operations before income taxes and income on equity method investments

            $ 4,953  
           

 

 

 

 

(1) Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $1.8 million and $10.4 million, respectively.

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

     Rental and Management     Total Rental and
Management
    Network
Development
Services
    Other     Total  

Nine months ended September 30, 2012

  Domestic     International          
    (in thousands)  

Segment revenues

  $ 1,440,824     $ 622,982     $ 2,063,806     $ 43,780       $ 2,107,586  

Segment operating expenses (1)

    273,188       232,338       505,526       21,404         526,930  

Interest income, TV Azteca, net

    —          10,715       10,715       —            10,715  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment gross margin

    1,167,636       401,359       1,568,995       22,376         1,591,371  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment selling, general, administrative and development expense (1)

    60,638       68,433       129,071       4,410         133,481  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment operating profit

  $ 1,106,998     $ 332,926     $ 1,439,924     $ 17,966       $ 1,457,890  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Stock-based compensation expense

          $ 39,654       39,654  

Other selling, general, administrative and development expense

            66,099       66,099  

Depreciation, amortization and accretion

            465,788       465,788  

Other expense (principally interest expense and other (expense) income)

            346,385       346,385  
           

 

 

 

Income from continuing operations before income taxes and income on equity method investments

            $ 539,964  
           

 

 

 

 

(1) Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $1.3 million and $38.3 million, respectively.

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

     Rental and Management     Total Rental and
Management
    Network
Development
Services
    Other     Total  

Nine months ended September 30, 2011

  Domestic     International          
    (in thousands)  

Segment revenues

  $ 1,279,315     $ 465,987     $ 1,745,302     $ 45,031       $ 1,790,333  

Segment operating expenses (1)

    261,856       169,745       431,601       21,974         453,575  

Interest income, TV Azteca, net

    —          10,587       10,587       —            10,587  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment gross margin

    1,017,459       306,829       1,324,288       23,057         1,347,345  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment selling, general, administrative and development expense (1)

    56,528       60,619       117,147       5,130         122,277  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment operating profit

  $ 960,931     $ 246,210     $ 1,207,141     $ 17,927         1,225,068  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Stock-based compensation expense

          $ 36,185       36,185  

Other selling, general, administrative and development expense

            58,230       58,230  

Depreciation, amortization and accretion

            411,902       411,902  

Other expense (principally interest expense and other (expense) income)

            371,378       371,378  
           

 

 

 

Income from continuing operations before income taxes and income on equity method investments

            $ 347,373  
           

 

 

 

 

(1) Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $1.8 million and $34.4 million, respectively.

 

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ITEM 2. MANAGEMENT’S 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” or “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 management’s 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” beginning on page 54 of our Annual Report on Form 10-K for the year ended December 31, 2011, and in particular, the information set forth therein under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

We are a leading wireless and broadcast communications infrastructure company that owns, operates and develops communications sites. Our primary business is leasing antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. 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 under approximately 1,810 communications sites. We refer to this business as our rental and management operations, which accounted for approximately 98% of our total revenues for the nine months ended September 30, 2012 and includes our domestic rental and management segment and our international rental and management segment. We began operating as a real estate investment trust (“REIT”) for federal income tax purposes effective January 1, 2012.

Our communications site portfolio of 50,966 sites, as of September 30, 2012, includes wireless and broadcast communications towers and distributed antenna system (“DAS”) networks, which provide seamless coverage solutions in certain in-building and outdoor wireless applications. Our portfolio consists of towers that we own and towers that we operate pursuant to long-term lease arrangements, including, as of September 30, 2012, approximately 21,668 towers domestically and approximately 29,031 towers internationally. In addition, our portfolio includes approximately 267 DAS networks that we operate in malls, casinos and other in-building applications, and select outdoor environments.

 

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The following table details the number of communications sites we own or operate in the countries in which we operate as of September 30, 2012:

 

Country

   Number of
Owned  Sites
     Number of
Operated Sites (1)
 

United States

     15,508         6,421   

International:

     

Brazil

     4,159        155  

Chile

     1,180        —     

Colombia

     2,141        706  

Ghana

     1,908        —     

India

     10,116        —     

Mexico

     5,366        199  

Peru

     475        —     

South Africa

     1,601        —     

Uganda

     1,031        —     

 

(1) All of the 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, management uses segment gross margin and segment operating profit in its assessment of operating performance in each business segment. 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 14 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, loss on retirement of long-term obligations, other income (expense), net income (loss) attributable to non-controlling interest, income (loss) on equity method investments, income taxes and discontinued operations.

In the section that follows, we provide information regarding management’s expectations of long-term drivers of demand for our communications sites, as well as our current quarter-to-date and year-to-date 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.    Our rental and management segments operate over 50,000 communications sites. Due to our diversified communications site portfolio, our tenant lease rates vary considerably depending upon various factors, including but not limited to, tower location, amount 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 sources of revenue growth for our domestic and international rental and management segments are:

 

   

Recurring revenues from tenant leases generated from sites which 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 generated from leasing additional space on our legacy sites; and

 

   

New revenue generated from new 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 thereafter. Accordingly, nearly all of the revenue generated by our rental and management operations during the nine months ended September 30, 2012 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, 2012, we expect to generate approximately $19 billion of non-cancellable tenant lease revenue over future periods, absent the impact of straight-line lease accounting. In addition, most of our tenant leases have provisions that periodically increase the rent due under the lease, typically annually based on a fixed percentage (on average approximately 3.5% in the U.S.), inflation or a fixed percentage plus inflation. Revenue lost from either cancellations of leases at the end of their terms or rent negotiations historically have not had a material adverse effect on the revenues generated by our rental and management operations. During the nine months ended September 30, 2012, loss of revenue from tenant lease cancellations or renegotiations represented approximately 1.3% of the total revenue of our rental and management segments.

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 that demand by adding new tenants and new equipment for existing tenants on our legacy sites, which increases the utilization and profitability of our sites. In addition, we believe the majority of our site leasing activity will continue to come from wireless service providers as they seek to increase the coverage and capacity of their networks as well as roll out next generation 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 return on investment criteria.

According to industry data, we believe the following key trends will provide opportunities for organic growth in our domestic rental and management segment:

 

   

Wireless subscribers continue to upgrade their traditional handsets to smartphones while also acquiring incremental connected devices such as tablets and wireless data cards.

 

   

Wireless service providers continue to invest in their third generation (3G) networks by adding new cell sites as well as additional equipment to their existing cell sites.

 

   

Wireless service providers continue to pursue new avenues for growth, such as deploying fourth generation (4G) technology based wireless networks to provide higher speed data services and enable fixed broadband substitution.

According to industry data, we believe the following key trends will provide opportunities for organic growth in our international rental and management segment:

 

   

In India, nationwide voice networks continue to be deployed as wireless service providers are beginning their initial investments in wireless data networks.

 

   

In Ghana and Uganda, wireless service providers continue to build their voice and data networks to satisfy increasing demand for wireless service.

 

   

In South Africa, carriers are beginning to deploy wireless data networks across spectrum made available through recent spectrum auctions.

 

   

In Mexico and Brazil, nationwide voice networks have been initially deployed and certain incumbent wireless service providers continue to invest in their wireless data networks. Recent spectrum auctions in both markets have enabled other incumbent wireless service providers and new market entrants to begin their initial investments in wireless data networks.

 

   

In markets such as Chile, Colombia and Peru, recent or anticipated spectrum auctions are expected to drive investment in nationwide voice and wireless data networks.

 

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Direct Operating 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, property taxes, repairs and maintenance and power and fuel costs, some of which may be passed through to our tenants. 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 incur additional segment selling, general, administrative and development expenses as we increase our presence in geographic areas where we have recently launched operations or are focused on expanding our communications site footprint. 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.

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. Through our network development services segment, we offer tower-related services, 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.

REIT Conversion.    Effective January 1, 2012, we reorganized our operations to qualify as a REIT for federal income tax purposes (the “REIT Conversion”). The REIT tax rules require that we derive most of our income, other than income generated by a taxable REIT subsidiary (“TRS”), from investments in real estate, which for us will primarily consist of income from the leasing of our communications sites. Under the Internal Revenue Code of 1986, as amended ( the “Code”), maintaining REIT status generally requires that no more than 25% of the value of the REIT’s assets be represented by securities of one or more TRSs and other non-qualifying assets.

A REIT must annually distribute to its stockholders an amount equal to at least 90% of its REIT taxable income (determined before the deduction for dividends paid and excluding any net capital gain). On October 15, 2012, we made our third regular distribution of $0.23 per share of common stock, or a total of approximately $90.9 million, to stockholders of record at the close of business on October 1, 2012. The amount, timing and frequency of future distributions will be at the sole discretion of our Board of Directors and will be declared based upon various factors, a number of which may be beyond our control, including, our financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income and excise taxes that we otherwise would be required to pay, limitations on distributions in our existing and future debt instruments, our ability to utilize net operating losses (“NOLs”) to offset, in whole or in part, our distribution requirements, limitations on our ability to fund distributions using cash generated through our TRSs and other factors that our Board of Directors may deem relevant.

For more information on the requirements to qualify as a REIT, see Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2011 under the caption “Business—Overview,” and Item 1A of this Quarterly Report under the caption “Risk Factors.”

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”). We define Adjusted EBITDA as net income before: income (loss) on discontinued operations, net; income (loss) from equity method investments; income tax provision (benefit); other income (expense); loss on retirement of long-term obligations; interest expense; interest income; other operating expenses; depreciation, amortization and accretion; and stock-based compensation expense.

 

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Adjusted EBITDA is not intended to replace net income or any other performance measures determined in accordance with GAAP. Rather, Adjusted EBITDA is presented as we believe it is a useful indicator of our current operating performance. We believe that Adjusted EBITDA is useful to an investor in evaluating our operating performance because (1) it is the primary measure used by our management team for purposes of decision making and for evaluating the performance of our operating segments; (2) it is a component of the calculation used by our lenders to determine compliance with certain debt covenants; (3) it is widely used in the tower leasing business 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) it provides investors with a meaningful measure for evaluating our period to period operating performance by eliminating items which are not operational in nature; and (5) it provides investors with a measure for comparing our results of operations to those of different companies by excluding the impact of long-term strategic decisions which can differ significantly from company to company, such as decisions with respect to capital structure, capital investments and the tax jurisdictions in which companies operate.

Our measurement of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies. A reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, has been included below.

Results of Operations

Three Months Ended September 30, 2012 and 2011 (in thousands, except percentages)

Revenue

 

     Three Months Ended
September 30,
     Amount of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
     2012      2011        

Rental and management

           

Domestic

   $ 480,351       $ 436,783       $ 43,568         10

International

     217,203        178,025        39,178        22  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total rental and management

     697,554        614,808        82,746        13  

Network development services

     15,781        15,595        186        1  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 713,335       $ 630,403       $ 82,932         13

Total revenues for the three months ended September 30, 2012, increased 13% to $713.3 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 12,860 new sites that we have constructed or acquired since July 1, 2011.

Domestic rental and management segment revenue for the three months ended September 30, 2012 increased 10% to $480.4 million, which was comprised of:

 

   

Revenue growth from legacy sites of approximately 6%, which includes approximately 4% due to incremental revenue primarily generated from new tenant leases and amendments to existing tenant leases on our legacy sites and approximately 2% attributable to contractual rent escalations, net of tenant lease cancellations;

 

   

Revenue growth from new sites of approximately 3%, resulting from the construction or acquisition of approximately 480 new sites, as well as land interests under third-party sites, since July 1, 2011; and

 

   

An increase of over 1% from the impact of straight-line lease accounting.

 

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International rental and management segment revenue for the three months ended September 30, 2012 increased 22% to $217.2 million, which was comprised of:

 

   

Revenue growth from new sites of approximately 32%, resulting from the construction or acquisition of approximately 12,380 new sites since July 1, 2011;

 

   

Revenue growth from legacy sites of over 7%, which includes over 5% due to incremental revenue primarily generated from new tenant leases and amendments to existing tenant leases on our legacy sites and approximately 2% attributable to contractual rent escalations, net of tenant lease cancellations;

 

   

An increase of approximately 1% from the impact of straight-line lease accounting; and

 

   

A decline of approximately 18% attributable to the negative impact from foreign currency translation.

Network development services segment revenue for the three months ended September 30, 2012 increased 1% to $15.8 million. The increase was primarily attributable to an increase in structural engineering services provided to our tenants during the three months ended September 30, 2012.

Gross Margin

 

     Three Months Ended
September 30,
     Amount of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
     2012      2011        

Rental and management

           

Domestic

   $ 388,279       $ 345,707       $ 42,572         12

International

     135,720        113,187        22,533        20  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total rental and management

     523,999        458,894        65,105        14  

Network development services

     8,458        7,837        621        8

Domestic rental and management segment gross margin for the three months ended September 30, 2012 increased 12% to $388.3 million, which was comprised of:

 

   

Gross margin growth from legacy sites of over 9%, primarily associated with the increase in revenue, as described above, as well as a 1% decrease in expenses as a result of cost management initiatives; and

 

   

Gross margin growth from new sites of approximately 3%, resulting from the construction or acquisition of approximately 480 new sites, as well as land interests under third-party sites since July 1, 2011.

International rental and management segment gross margin for the three months ended September 30, 2012 increased 20% to $135.7 million, which was comprised of:

 

   

Gross margin growth from new sites of approximately 28%, resulting from the construction or acquisition of approximately 12,380 new sites since July 1, 2011;

 

   

Gross margin growth from legacy sites of approximately 10%, primarily associated with the increase in revenue, as described above; and

 

   

A decline of approximately 18% attributable to the negative impact from foreign currency translation.

Network development services segment gross margin for the three months ended September 30, 2012 increased 8% to $8.5 million. The increase was primarily attributable to an increase in structural engineering services provided to our tenants, as described above, as well as a reduction in direct labor and certain third-party costs.

 

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Selling, General, Administrative and Development Expense

 

     Three Months Ended
September 30,
     Amount of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2012      2011       

Rental and management

          

Domestic

   $ 20,141       $ 20,516       $ (375     (2 )% 

International

     25,057        21,641        3,416       16  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total rental and management

     45,198        42,157        3,041       7  

Network development services

     2,127        1,918        209       11  

Other

     34,134        32,401        1,733       5  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total selling, general, administrative and development expense

   $ 81,459       $ 76,476       $ 4,983        7

Total selling, general, administrative and development expense (“SG&A”) for the three months ended September 30, 2012 increased 7% to $81.5 million. The increase was primarily attributable to an increase in our international rental and management segment, as well as an increase in our Other SG&A.

Domestic rental and management segment SG&A for the three months ended September 30, 2012 decreased 2% to $20.1 million. The decrease was primarily attributable to a non-recurring charge recorded during the three months ended September 30, 2011 associated with employee related costs.

International rental and management segment SG&A for the three months ended September 30, 2012 increased 16% to $25.1 million. The increase was primarily attributable to our continued expansion initiatives in foreign operations.

Network development services segment SG&A for the three months ended September 30, 2012 increased 11% to $2.1 million. The increase was primarily attributable to higher personnel related costs.

Other SG&A for the three months ended September 30, 2012 increased 5% to $34.1 million. The increase was primarily due to a $2.2 million increase in SG&A related stock-based compensation expense, partially offset by a $0.5 million decrease in corporate expenses.

Operating Profit

 

     Three Months Ended
September 30,
     Amount of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
     2012      2011        

Rental and management

           

Domestic

   $ 368,138       $ 325,191       $ 42,947         13

International

     110,663        91,546        19,117        21  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total rental and management

     478,801        416,737        62,064        15  

Network development services

     6,331        5,919        412        7

Domestic rental and management segment operating profit for the three months ended September 30, 2012 increased 13% to $368.1 million. The growth was primarily attributable to the increase in our domestic rental and management segment gross margin (12%), as described above, and a decrease in our domestic rental and management segment SG&A (2%), as described above.

 

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International rental and management segment operating profit for the three months ended September 30, 2012 increased 21% to $110.7 million. The growth was primarily attributable to the increase in our international rental and management segment gross margin (20%), as described above, and was partially offset by an increase in our international rental and management segment SG&A (16%), as described above.

Network development services segment operating profit for the three months ended September 30, 2012 increased 7% to $6.3 million. The increase was primarily attributable to the increase in network development services segment gross margin (8%), as described above, and was partially offset by an increase in our network development services segment SG&A (11%), as described above.

Depreciation, Amortization and Accretion

 

     Three Months Ended
September 30,
     Amount of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
         2012              2011            

Depreciation, amortization and accretion

   $ 144,061       $ 142,113       $ 1,948         1

Depreciation, amortization and accretion for the three months ended September 30, 2012 increased 1% to $144.1 million. The increase was primarily attributable to the depreciation, amortization and accretion associated with the acquisition or construction of approximately 12,860 sites since July 1, 2011, which resulted in an increase in property and equipment.

Other Operating Expenses

 

     Three Months Ended
September 30,
     Amount of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
         2012              2011           

Other operating expenses

   $ 7,359       $ 14,576       $ (7,217     (50 )% 

Other operating expenses for the three months ended September 30, 2012 decreased 50% to $7.4 million. This decrease was primarily attributable to a decrease of approximately $4.5 million in acquisition related costs and non-recurring consulting and legal costs incurred in 2011 associated with our REIT Conversion as well as a decrease of approximately $2.7 million in losses recognized upon the disposal of assets.

Interest Expense

 

     Three Months Ended
September 30,
     Amount of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
         2012              2011            

Interest expense

   $ 102,272       $ 77,796       $ 24,476         31

Interest expense for the three months ended September 30, 2012 increased 31% to $102.3 million. The increase was attributable to an increase in our average debt outstanding of approximately $1.7 billion, primarily used to fund our recent acquisitions.

Other Income (Expense)

 

     Three Months Ended
September 30,
    Amount of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
         2012              2011           

Other income (expense)

   $ 46,294       $ (150,876   $ 197,170         131

 

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During the three months ended September 30, 2012, we recorded unrealized foreign currency gains resulting primarily from fluctuations in the foreign currency exchange rates associated with our intercompany notes and similar unaffiliated balances denominated in a currency other than the subsidiaries’ functional currencies of approximately $46.2 million and other income of approximately $0.1 million. During the three months ended September 30, 2011, we recorded unrealized foreign currency losses of approximately $145.1 million and miscellaneous expenses of approximately $6.0 million.

Income Tax Provision

 

     Three Months Ended
September 30,
    Amount of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2012     2011      

Income tax provision

   $ 13,054      $ 24,681      $ (11,627     (47 )% 

Effective tax rate

     5.3     498.3    

The income tax provision for the three months ended September 30, 2012 decreased 47% to $13.1 million. The effective tax rate (“ETR”) for the three months ended September 30, 2012 decreased to 5.3% from 498.3%. The decrease in ETR was primarily attributable to our REIT Conversion and recording of certain favorable adjustments during the three months ended September 30, 2012. The ETR for the three months ended September 30, 2011 reflected unrealized foreign currency losses, which had an impact of reducing income from continuing operations before income taxes and income from equity method investments by approximately $145.1 million.

As a REIT, while we will continue to be subject to income taxes on the income of our TRSs, under the provisions of the Code, we may deduct amounts distributed to stockholders against the income generated in our qualified REIT subsidiaries or other REIT disregarded entities (“QRSs”). Additionally, we are able to offset income in both our TRSs and QRSs by utilizing our NOLs. In addition, our international assets and operations continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.

The ETR on income from continuing operations for the three months ended September 30, 2012 differs from the federal statutory rate primarily due to our expected election to be taxed as a REIT commencing January 1, 2012 and to adjustments for foreign items. The ETR on income from continuing operations for the three months ended September 30, 2011 differs from the federal statutory rate due primarily to adjustments for foreign items, non-deductible stock-based compensation expense, tax reserves and state taxes. The adjustments for foreign items during the three months ended September 30, 2012 and 2011 primarily relate to the difference in the U.S. statutory tax rate of 35% and ETR in our international markets.

Net Income (Loss)/Adjusted EBITDA

 

     Three Months Ended
September 30,
    Amount of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2012     2011      

Net income (loss)

   $ 231,825      $ (19,726   $ 251,551        1,275

Income from equity method investments

     (2     (2     —          —     

Income tax provision

     13,054       24,681       (11,627     (47

Other (income) expense

     (46,294     150,876       197,170       131  

Interest expense

     102,272       77,796       24,476       31  

Interest income

     (1,717     (1,822     (105     (6

Other operating expenses

     7,359       14,576       (7,217     (50

Depreciation, amortization and accretion

     144,061       142,113       1,948       1  

Stock-based compensation expense

     13,058       12,140       918       8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 463,616      $ 400,632      $ 62,984        16

 

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Net income for the three months ended September 30, 2012 was $231.8 million as compared to a net loss of $19.7 million for the three months ended September 30, 2011. The increase was primarily attributable to an increase in our rental and management segments operating profit, as described above, as well as an increase in unrealized foreign currency gains.

Adjusted EBITDA for the three months ended September 30, 2012 increased 16% to $463.6 million. Adjusted EBITDA growth was primarily attributable to the increase in our rental and management segments gross margin, and was partially offset by an increase in SG&A.

Results of Operations

Nine Months Ended September 30, 2012 and 2011 (in thousands, except percentages)

Revenue

 

     Nine Months Ended
September 30,
     Amount of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2012      2011       

Rental and management

          

Domestic

   $ 1,440,824       $ 1,279,315       $ 161,509        13

International

     622,982        465,987        156,995       34  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total rental and management

     2,063,806        1,745,302        318,504       18  

Network development services

     43,780        45,031        (1,251     (3
  

 

 

    

 

 

    

 

 

   

 

 

 

Total revenues

   $ 2,107,586       $ 1,790,333       $ 317,253        18

Total revenues for the nine months ended September 30, 2012, increased 18% to $2,107.6 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 15,860 new sites that we have constructed or acquired since January 1, 2011.

Domestic rental and management segment revenue for the nine months ended September 30, 2012 increased 13% to $1,440.8 million, which was comprised of:

 

   

Revenue growth from legacy sites of approximately 8%, which includes approximately 2% attributable to contractual rent escalations, net of tenant lease cancellations and approximately 6% due to incremental revenue primarily generated from new tenant leases and amendments to existing tenant leases on our legacy sites, which includes the impact of approximately 1% due to a customer billing settlement during the first quarter of 2012;

 

   

Revenue growth from new sites of approximately 3%, resulting from the construction or acquisition of approximately 710 new sites, as well as land interests under third-party sites since January 1, 2011; and

 

   

An increase of over 2% from the impact of straight-line lease accounting.

International rental and management segment revenue for the nine months ended September 30, 2012 increased 34% to $623.0 million, which was comprised of:

 

   

Revenue growth from new sites of over 41%, resulting from the construction or acquisition of approximately 15,150 new sites since January 1, 2011;

 

   

Revenue growth from legacy sites of approximately 10%, which includes over 6% due to incremental revenue primarily generated from new tenant leases and amendments to existing tenant leases on our legacy sites, approximately 3% attributable to contractual rent escalations, net of tenant lease cancellations and approximately 1% for the reversal of revenue reserves;

 

   

An increase of approximately 1% from the impact of straight-line lease accounting; and

 

   

A decline of approximately 18% attributable to the negative impact from foreign currency translation.

 

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Network development services segment revenue for the nine months ended September 30, 2012 decreased 3% to $43.8 million. The decrease was primarily attributable to a favorable one-time item recognized during the nine months ended September 30, 2011, partially offset by an increase in structural engineering services provided to our tenants during the nine months ended September 30, 2012.

Gross Margin

 

     Nine Months Ended
September 30,
     Amount of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2012      2011       

Rental and management

          

Domestic

   $ 1,167,636       $ 1,017,459       $ 150,177        15

International

     401,359        306,829        94,530       31  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total rental and management

     1,568,995        1,324,288        244,707       18  

Network development services

     22,376        23,057        (681     (3

Domestic rental and management segment gross margin for the nine months ended September 30, 2012 increased 15% to $1,167.6 million, which was comprised of:

 

   

Gross margin growth from legacy sites of approximately 12%, primarily associated with the increase in revenue, as described above, and was partially offset by an increase in direct operating costs primarily from increased straight-line rent expense and higher than normal repairs and maintenance activity; and

 

   

Gross margin growth from new sites of over 3%, resulting from the construction or acquisition of approximately 710 new sites, as well as land interests under third-party sites since January 1, 2011.

International rental and management segment gross margin for the nine months ended September 30, 2012 increased 31% to $401.4 million, which was comprised of:

 

   

Gross margin growth from new sites of 37%, resulting from the construction or acquisition of approximately 15,150 new sites since January 1, 2011;

 

   

Gross margin growth from legacy sites of approximately 11%, primarily associated with the increase in revenue, as described above; and

 

   

A decline of approximately 17% attributable to the negative impact from foreign currency translation.

Network development services segment gross margin for the nine months ended September 30, 2012 decreased 3% to $22.4 million. The decrease was primarily attributable to the favorable one-time item recognized during the nine months ended September 30, 2011, partially offset by an increase in structural engineering services provided to our tenants, as described above.

Selling, General, Administrative and Development Expense

 

     Nine Months Ended
September 30,
     Amount of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2012      2011       

Rental and management

          

Domestic

   $ 60,638       $ 56,528       $ 4,110        7

International

     68,433        60,619        7,814       13  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total rental and management

     129,071        117,147        11,924       10  

Network development services

     4,410        5,130        (720     (14

Other

     104,410        92,652        11,758       13  
  

 

 

    

 

 

    

 

 

   

 

 

 

Total selling, general, administrative and development expense

   $ 237,891       $ 214,929       $ 22,962        11

 

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Table of Contents

Total SG&A for the nine months ended September 30, 2012 increased 11% to $237.9 million. The increase was attributable to an increase in our Other SG&A, as well as an increase in both of our rental and management segments.

Domestic rental and management segment SG&A for the nine months ended September 30, 2012 increased 7% to $60.6 million. The increase was primarily attributable to the impact of initiatives, which we launched in 2011, designed to drive growth and to support a growing portfolio, including increased staffing in field operations, sales and finance and other functions supporting the expansion of our business.

International rental and management segment SG&A for the nine months ended September 30, 2012 increased 13% to $68.4 million. The increase was primarily attributable to our new markets as well as continued international expansion initiatives in foreign operations, partially offset by the reversal of approximately $3.8 million of bad debt expense in Mexico for amounts previously reserved.

Network development services segment SG&A for the nine months ended September 30, 2012 decreased 14% to $4.4 million. The decrease was primarily attributable to the reversal of bad debt expense upon the receipt of a customer payment for amounts previously reserved, partially offset by higher personnel related costs.

Other SG&A for the nine months ended September 30, 2012 increased 13% to $104.4 million. The increase was primarily due to a $7.9 million increase in corporate expenses and a $3.9 million increase in SG&A related stock-based compensation expense. The increase in corporate expenses was primarily attributable to a $3.7 million non-recurring state tax expense and incremental employee costs of approximately $3.3 million associated with supporting a growing global organization.

Operating Profit

 

     Nine Months Ended
September 30,
     Amount of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
     2012      2011        

Rental and management

           

Domestic

   $ 1,106,998       $ 960,931       $ 146,067         15

International

     332,926        246,210        86,716        35  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total rental and management

     1,439,924        1,207,141        232,783        19  

Network development services

     17,966        17,927        39        —     

Domestic rental and management segment operating profit for the nine months ended September 30, 2012 increased 15% to $1,107.0 million. The growth was primarily attributable to the increase in our domestic rental and management segment gross margin (15%) as described above, and was partially offset by an increase in our domestic rental and management segment SG&A (7%), as described above.

International rental and management segment operating profit for the nine months ended September 30, 2012 increased 35% to $332.9 million. The growth was primarily attributable to the increase in our international rental and management segment gross margin (31%) as described above, and was partially offset by an increase in our international rental and management segment SG&A (13%), as described above.

Network development services segment operating profit for the nine months ended September 30, 2012 and 2011 remained constant at approximately $18.0 million.

 

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Table of Contents

Depreciation, Amortization and Accretion

 

     Nine Months Ended
September 30,
     Amount of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
     2012      2011        

Depreciation, amortization and accretion

   $ 465,788       $ 411,902       $ 53,886         13

Depreciation, amortization and accretion for the nine months ended September 30, 2012 increased 13% to $465.8 million. The increase was primarily attributable to the depreciation, amortization and accretion associated with the acquisition or construction of approximately 15,860 sites since January 1, 2011, which resulted in an increase in property and equipment.

Other Operating Expenses

 

     Nine Months Ended
September 30,
     Amount of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2012      2011       

Other operating expenses

   $ 35,150       $ 35,770       $ (620     (2 )% 

Other operating expenses for the nine months ended September 30, 2012 decreased 2% to $35.2 million. This decrease was primarily attributable to a decrease of approximately $13.3 million in acquisition related costs and non-recurring consulting and legal costs incurred in 2011 associated with our REIT Conversion. This decrease was partially offset by an increase of approximately $12.7 million in impairment charges and loss on disposal of assets, which included the impairment of one of our outdoor DAS networks upon the termination of a tenant lease during the nine months ended September 30, 2012.

Interest Expense

 

     Nine Months Ended
September 30,
     Amount of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
     2012      2011        

Interest expense

   $ 297,622       $ 226,735       $ 70,887         31

Interest expense for the nine months ended September 30, 2012 increased 31% to $297.6 million. The increase was primarily attributable to an increase in our average debt outstanding of approximately $1.7 billion, primarily used to fund our recent acquisitions, and an increase in our annualized weighted average cost of borrowing from 5.34% to 5.45%.

Other Expense

 

     Nine Months Ended
September 30,
    Amount of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2012     2011      

Other expense

   $ (19,468   $ (115,710   $ (96,242     (83 )% 

During the nine months ended September 30, 2012, we recorded unrealized foreign currency losses of approximately $12.9 million resulting primarily from fluctuations in the foreign currency exchange rates associated with our intercompany notes and similar unaffiliated balances denominated in a currency other than the subsidiaries’ functional currencies and other expenses of approximately $6.6 million. During the nine months ended September 30, 2011, we recorded unrealized foreign currency losses of approximately $101.5 million and miscellaneous expenses of $14.5 million.

 

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Income Tax Provision

 

     Nine Months Ended
September 30,
    Amount of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2012     2011      

Income tax provision

   $ 64,117      $ 161,981      $ (97,864     (60 )% 

Effective tax rate

     11.9     46.6    

The income tax provision for the nine months ended September 30, 2012 decreased 60% to $64.1 million. The ETR for the nine months ended September 30, 2012 decreased to 11.9% from 46.6%. This decrease was primarily attributable to our REIT Conversion, as well as a favorable item recorded during the nine months ended September 30, 2012, partially offset by an increase in valuation allowance on certain deferred tax assets. The deferred tax assets arose primarily as a result of purchase accounting and existing NOLs, which were generated partly from interest on intercompany debt.

As a REIT, we may deduct amounts distributed to stockholders against the income generated in our QRSs and we are able to offset income in both our TRSs and QRSs by utilizing our NOLs.

The ETR on income from continuing operations for the nine months ended September 30, 2012 differs from the federal statutory rate primarily due to our expected election to be taxed as a REIT commencing January 1, 2012 and to adjustments for foreign items. The ETR on income from continuing operations for the nine months ended September 30, 2011 differs from the federal statutory rate due primarily to adjustments for foreign items, non-deductible stock-based compensation expense, tax reserves and state taxes.

Net Income/Adjusted EBITDA

 

     Nine Months Ended
September 30,
    Amount of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2012     2011      

Net income

   $ 475,872      $ 185,406      $ 290,466        157

Income from equity method investments

     (25     (14     11       79  

Income tax provision

     64,117       161,981       (97,864     (60

Other expense

     19,468       115,710       (96,242     (83

Loss on retirement of long-term obligations

     398       —          398       N/A   

Interest expense

     297,622       226,735       70,887       31  

Interest income

     (6,253     (6,837     (584     (9

Other operating expenses

     35,150       35,770       (620     (2

Depreciation, amortization and accretion

     465,788       411,902       53,886       13  

Stock-based compensation expense

     39,654       36,185       3,469       10  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 1,391,791      $ 1,166,838      $ 224,953        19

Net income for the nine months ended September 30, 2012 increased 157% to $475.9 million. The increase was primarily attributable to an increase in our rental and management segments operating profit, as described above, as well as decreases in unrealized foreign currency losses and income tax provision.

Adjusted EBITDA for the nine months ended September 30, 2012 increased 19% to $1,391.8 million. Adjusted EBITDA growth was primarily attributable to the increase in our rental and management segments gross margin, and was partially offset by an increase in SG&A.

Liquidity and Capital Resources

The information in this section updates as of September 30, 2012 the “Liquidity and Capital Resources” section of our Annual Report on Form 10-K for the year ended December 31, 2011 and should be read in conjunction with that report.

 

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Table of Contents

Overview

As a holding company, our cash flows are derived primarily from the operations of, and distributions from, our operating subsidiaries or funds raised through borrowings under our credit facilities and debt offerings. As of September 30, 2012, we had approximately $2,372.9 million of total liquidity, comprised of approximately $382.3 million in cash and cash equivalents and the ability to borrow up to $1,990.6 million, net of any outstanding letters of credit, under our unsecured revolving credit facilities. Summary cash flow information for the nine months ended September 30, 2012 and 2011 is set forth below (in thousands).

 

     Nine Months Ended
September 30,
 
     2012     2011  

Net cash provided by (used for):

    

Operating activities

   $ 1,116,547     $ 849,998  

Investing activities

     (1,174,266     (1,559,631

Financing activities

     112,095       4,265  

Net effect of changes in exchange rates on cash and cash equivalents

     (2,255     (1,089
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 52,121     $ (706,457
  

 

 

   

 

 

 

We use our cash flows to fund our operations and investments in our business, including tower maintenance and improvements, communications site construction and installation, and tower and land acquisitions. Additionally, we use our cash flows to make distributions of our REIT taxable income in order to maintain our REIT qualification under the Code, as well as fund refinancings and repurchases of our outstanding indebtedness and our stock repurchase program.

As of September