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, 2013.

 

¨

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, 2013, there were 394,639,947 shares of common stock outstanding.

 

 

 


Table of Contents

AMERICAN TOWER CORPORATION

INDEX

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2013

 

         Page No.  
PART I. FINANCIAL INFORMATION   
Item 1.  

Unaudited Condensed Consolidated Financial Statements

     1   
 

Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012

     1   
 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012

     2   
 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2013 and 2012

     3   
 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012

     4   
 

Condensed Consolidated Statements of Equity for the nine months ended September 30, 2013 and 2012

     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

     71   
Item 4.  

Controls and Procedures

     73   
PART II. OTHER INFORMATION   
Item 1.  

Legal Proceedings

     74   
Item 1A.  

Risk Factors

     74   
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     85   
Item 6.  

Exhibits

     85   
Signatures      86   
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, 2013     December 31, 2012  

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 4,040,353      $ 368,618   

Restricted cash

     132,019        69,316   

Short-term investments

     27,381        6,018   

Accounts receivable, net

     152,560        143,772   

Prepaid and other current assets

     365,792        222,999   

Deferred income taxes

     23,931        25,754   
  

 

 

   

 

 

 

Total current assets

     4,742,036        836,477   
  

 

 

   

 

 

 

PROPERTY AND EQUIPMENT, net

     5,878,826        5,766,150   

GOODWILL

     2,815,271        2,842,717   

OTHER INTANGIBLE ASSETS, net

     3,195,106        3,205,496   

DEFERRED INCOME TAXES

     219,373        209,589   

DEFERRED RENT ASSET

     878,124        776,201   

NOTES RECEIVABLE AND OTHER NON-CURRENT ASSETS

     452,584        452,788   
  

 

 

   

 

 

 

TOTAL

   $ 18,181,320      $ 14,089,418   
  

 

 

   

 

 

 

LIABILITIES AND EQUITY

    

CURRENT LIABILITIES:

    

Accounts payable

   $ 90,845      $ 89,578   

Accrued expenses

     331,311        286,962   

Distributions payable

     110,937        189   

Accrued interest

     84,528        71,271   

Current portion of long-term obligations

     67,276        60,031   

Unearned revenue

     138,422        124,147   
  

 

 

   

 

 

 

Total current liabilities

     823,319        632,178   
  

 

 

   

 

 

 

LONG-TERM OBLIGATIONS

     12,578,532        8,693,345   

ASSET RETIREMENT OBLIGATIONS

     461,586        435,613   

OTHER NON-CURRENT LIABILITIES

     705,966        644,101   
  

 

 

   

 

 

 

Total liabilities

     14,569,403        10,405,237   
  

 

 

   

 

 

 

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; 397,345,022 and 395,963,218 shares issued; and 394,534,996 and 395,091,213 shares outstanding, respectively

     3,973        3,959   

Additional paid-in capital

     5,097,325        5,012,124   

Distributions in excess of earnings

     (1,066,580     (1,196,907

Accumulated other comprehensive loss

     (298,015     (183,347

Treasury stock (2,810,026 and 872,005 shares at cost, respectively)

     (207,740     (62,728
  

 

 

   

 

 

 

Total American Tower Corporation equity

     3,528,963        3,573,101   

Noncontrolling interest

     82,954        111,080   
  

 

 

   

 

 

 

Total equity

     3,611,917        3,684,181   
  

 

 

   

 

 

 

TOTAL

   $ 18,181,320      $ 14,089,418   
  

 

 

   

 

 

 

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,
 
     2013     2012     2013     2012  

REVENUES:

        

Rental and management

   $ 796,575      $ 697,554      $ 2,363,207      $ 2,063,806   

Network development services

     11,305        15,781        56,231        43,780   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     807,880        713,335        2,419,438        2,107,586   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

        

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

        

Rental and management (including stock-based compensation expense of $248, $195, $751 and $594, respectively)

     195,953        177,336        585,465        506,120   

Network development services (including stock-based compensation expense of $99, $245, $440 and $749, respectively)

     4,876        7,568        22,839        22,153   

Depreciation, amortization and accretion

     184,922        144,061        555,334        465,788   

Selling, general, administrative and development expense (including stock-based compensation expense of $14,711, $12,618, $51,964 and $38,311, respectively)

     97,781        81,459        298,737        237,891   

Other operating expenses

     15,469        7,359        35,686        35,150   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     499,001        417,783        1,498,061        1,267,102   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     308,879        295,552        921,377        840,484   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER INCOME (EXPENSE):

        

Interest income, TV Azteca, net of interest expense of $371, $372, $1,113 and $1,114, respectively

     3,544        3,586        10,673        10,715   

Interest income

     2,342        1,717        5,468        6,253   

Interest expense

     (106,335     (102,272     (318,916     (297,622

Loss on retirement of long-term obligations

     —          —          (37,967     (398

Other (expense) income (including unrealized foreign currency (losses) gains of $(30,907), $46,191, $(151,673), and $(12,847), respectively)

     (29,622     46,294        (148,991     (19,468
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (130,071     (50,675     (489,733     (300,520
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     178,808        244,877        431,644        539,964   

Income tax provision

     (15,586     (13,054     (23,361     (64,117

Income on equity method investments

     —          2        —          25   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

     163,222        231,825        408,283        475,872   

Net loss attributable to noncontrolling interest

     16,901        264        43,068        25,732   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME ATTRIBUTABLE TO AMERICAN TOWER CORPORATION

   $ 180,123      $ 232,089      $ 451,351      $ 501,604   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME PER COMMON SHARE AMOUNTS:

        

Basic net income attributable to American Tower Corporation

   $ 0.46      $ 0.59      $ 1.14      $ 1.27   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income attributable to American Tower Corporation

   $ 0.45      $ 0.58      $ 1.13      $ 1.26   
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

        

Basic

     394,759        395,244        395,138        394,626   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     398,348        399,487        399,275        399,084   
  

 

 

   

 

 

   

 

 

   

 

 

 

DISTRIBUTIONS DECLARED PER SHARE

   $ 0.28      $ 0.23      $ 0.81      $ 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—Unaudited

(in thousands)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2013     2012     2013     2012  

Net income

   $ 163,222      $ 231,825      $ 408,283      $ 475,872   

Other comprehensive (loss) income:

        

Changes in fair value of cash flow hedges, net of taxes of $(70), $0, $386 and $0, respectively

     (1,334     (955     1,415        (2,483

Reclassification of unrealized losses on cash flow hedges to net income, net of taxes of $58, $0, $176 and $0, respectively

     683        199        1,877        397   

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

     —          —          —          495   

Foreign currency translation adjustments, net of taxes of $(2,329), $1,667, $4,254 and $7,764, respectively

     (24,660     38,782        (120,602     (36,357
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income

     (25,311     38,026        (117,310     (37,948
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     137,911        269,851        290,973        437,924   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to noncontrolling interest

     18,453        1,460        45,710        42,216   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to American Tower Corporation

   $ 156,364      $ 271,311      $ 336,683      $ 480,140   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Unaudited

(in thousands)

 

     Nine months ended
September 30,
 
     2013     2012  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 408,283      $ 475,872   

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

    

Stock-based compensation expense

     53,155        39,654   

Depreciation, amortization and accretion

     555,334        465,788   

Loss on early retirement of securitized debt

     35,288        —     

Other non-cash items reflected in statements of operations

     164,406        79,655   

Increase in net deferred rent asset

     (83,694     (92,296

Increase in restricted cash

     (62,703     (693

Increase in assets

     (59,267     (36,137

Increase in liabilities

     133,641        184,704   
  

 

 

   

 

 

 

Cash provided by operating activities

     1,144,443        1,116,547   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Payments for purchase of property and equipment and construction activities

     (448,249     (377,026

Payments for acquisitions, net of cash acquired

     (365,658     (822,714

Proceeds from sale of short-term investments and other non-current assets

     27,889        358,707   

Payments for short-term investments

     (50,224     (330,341

Deposits, restricted cash, investments and other

     (122,396     (2,892
  

 

 

   

 

 

 

Cash used for investing activities

     (958,638     (1,174,266
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from short-term borrowings, net

     7,544        20,099   

Borrowings under credit facilities

     3,507,000        1,325,000   

Proceeds from issuance of senior notes, net

     2,221,792        698,670   

Proceeds from issuance of Securities in securitization transaction, net

     1,778,496        —     

Proceeds from term loan credit facility

     —          750,000   

Proceeds from other long-term borrowings

     27,971        99,132   

Repayments of notes payable, credit facilities and capital leases

     (3,705,454     (2,655,367

Contributions from noncontrolling interest holders, net

     17,584        48,500   

Purchases of common stock

     (145,012     (16,733

Proceeds from stock options

     32,973        42,825   

Distributions

     (209,711     (169,816

Payment for early retirement of securitized debt

     (29,234     —     

Deferred financing costs and other financing activities

     (9,190     (30,215
  

 

 

   

 

 

 

Cash provided by financing activities

     3,494,759        112,095   
  

 

 

   

 

 

 

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

     (8,829     (2,255
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     3,671,735        52,121   

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     368,618        330,191   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 4,040,353      $ 382,312   
  

 

 

   

 

 

 

CASH PAID FOR INCOME TAXES (NET OF REFUNDS OF $17,336 AND $20,453, RESPECTIVELY)

   $ 23,172      $ 28,465   
  

 

 

   

 

 

 

CASH PAID FOR INTEREST

   $ 283,145      $ 265,443   
  

 

 

   

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

    

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

   $ 17,208      $ (1,228
  

 

 

   

 

 

 

PURCHASES OF PROPERTY AND EQUIPMENT UNDER CAPITAL LEASES

   $ 16,199      $ 12,219   
  

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

4


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
    Other
Comprehensive
Loss
    Distributions
in Excess of
Earnings
    Non-controlling
Interest
    Total
Equity
 
    Issued
Shares
    Amount     Shares     Amount            

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

Changes in fair value of cash flow hedges, net of tax

    —          —          —          —          —          (1,862     —          (621     (2,483

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

    —          —          —          —          —          397        —          —          397   

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

    —          —          —          —          —          495        —          —          495   

Foreign currency translation adjustment, net of tax

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

Contributions from noncontrolling interest

    —          —          —          —          —          —          —          48,963        48,963   

Distributions to noncontrolling 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   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, JANUARY 1, 2013

    395,963,218      $ 3,959        (872,005   $ (62,728   $ 5,012,124      $ (183,347   $ (1,196,907   $ 111,080      $ 3,684,181   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Stock-based compensation related activity

    1,343,555        14        —          —          82,874        —          —          —          82,888   

Issuance of common stock- Stock Purchase Plan

    38,249        —          —          —          2,327        —          —          —          2,327   

Treasury stock activity

    —          —          (1,938,021     (145,012       —          —          —          (145,012

Changes in fair value of cash flow hedges, net of tax

    —          —          —          —          —          1,167        —          248        1,415   

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

    —          —          —          —          —          1,764        —          113        1,877   

Foreign currency translation adjustment, net of tax

    —          —          —          —          —          (117,599     —          (3,003     (120,602

Contributions from noncontrolling interest

    —          —          —          —          —          —          —          18,020        18,020   

Distributions to noncontrolling interest

    —          —          —          —          —          —          —          (436     (436

Dividends/distributions declared

    —          —          —          —          —          —          (321,024     —          (321,024

Net income (loss)

    —          —          —          —          —          —          451,351        (43,068     408,283   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, SEPTEMBER 30, 2013

    397,345,022      $ 3,973        (2,810,026   $ (207,740   $ 5,097,325      $ (298,015   $ (1,066,580   $ 82,954      $ 3,611,917   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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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 real estate in the United States, Brazil, Chile, Colombia, Germany, Ghana, India, Mexico, Peru, South Africa and Uganda. In connection with its acquisition of MIP Tower Holdings LLC (“MIPT”) on October 1, 2013, the Company expanded its operations into two new markets, Costa Rica and Panama. 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 and data providers, government agencies and municipalities and tenants in a number of other industries. The Company also manages rooftop and tower sites for property owners, operates in-building and outdoor distributed antenna system (“DAS”) networks, holds property interests under third-party communications sites and provides network development services that primarily support its rental and management operations and the addition of new tenants and equipment on its sites. Effective January 1, 2012, the Company reorganized to qualify as a real estate investment trust for federal income tax purposes (“REIT”).

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. 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. 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, 2012.

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 filed an election to be taxed as a REIT effective as of January 1, 2012 on its U.S. federal income tax return for the 2012 taxable year.

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 most of its international operations and DAS networks business within its TRSs. The Company changed the election for substantially all of its Mexican operations, all of which was previously designated as a TRS, to be treated as a qualified REIT subsidiary as of March 1, 2013. Although the election did not have a material effect on the Company’s deferred tax position, the Company recognized a one-time dividend from its Mexican operations, the income from which the Company may either offset with its net operating losses or distribute to its stockholders as part of its regular distributions. For all periods subsequent to March 1, 2013, the Company will be required to include the income from its Mexican operations as part of its REIT taxable income for the purpose of computing the Company’s REIT distribution requirements.

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

The Company may, from time to time, change the election of other previously designated TRSs that hold certain of its other international operations to be treated as qualified REIT subsidiaries or other disregarded entities (collectively, “QRSs”), and may reorganize and transfer certain assets or operations from its TRSs to other subsidiaries, including QRSs.

As a REIT, the Company generally is not subject to federal income taxes on its income and gains that the Company distributes to its stockholders, including the income derived from leasing towers. However, even as a REIT, the Company remains obligated to pay income taxes on earnings from 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 significant estimates in the accompanying condensed consolidated financial statements include impairment of long-lived assets (including goodwill), asset retirement obligations, revenue recognition, rent expense, stock-based compensation, income taxes and accounting for business combinations. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued as additional evidence for certain estimates or to identify matters that require additional disclosure.

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, 2012 to be consistent with the current year presentation. Specifically, amounts surrendered for the satisfaction of employee tax obligations in connection with the vesting of restricted stock units of $16.7 million that were previously included in Purchases of common stock are now included in Deferred financing costs and other financing activities in the Company’s condensed consolidated statements of cash flows.

Recently Adopted Accounting Standards—In February 2013, the Financial Accounting Standards Board (“FASB”) issued additional guidance on comprehensive income which adds new disclosure requirements for items reclassified out of accumulated other comprehensive income (“AOCI”) by component. This guidance enhances the transparency of changes in other comprehensive income (“OCI”) and items transferred out of AOCI in the financial statements and it does not amend any existing requirements for reporting net income or OCI in the financial statements. Since the guidance relates only to presentation and disclosure of information, the adoption did not have a material effect on the Company’s condensed consolidated financial condition or results of operations.

In February 2013, the FASB issued guidance that clarifies the scope of transactions subject to disclosures about offsetting assets and liabilities. The guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This guidance is effective for annual and interim reporting periods beginning on or after January 1, 2013 on a retrospective basis. Since the guidance relates only to presentation and disclosure of information, the adoption did not have a material effect on the Company’s condensed consolidated financial condition or results of operations.

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

In July 2013, the FASB issued guidance that permits the Fed Funds Effective Swap Rate (Overnight Index Swap Rate) to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to U.S. Treasury rates and the London Interbank Offered Rate (“LIBOR”). The guidance also removed the restriction on using different benchmark rates for similar hedges. These amendments are effective prospectively for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013. The adoption of this guidance did not have a material effect on the Company’s financial statements.

In July 2013, the FASB issued guidance that requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions. The amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The adoption of this guidance did not have a material effect on the Company’s financial statements.

2.    Prepaid and Other Current Assets

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

 

     September 30, 2013      December 31, 2012 (1)  

Acquisition deposit in escrow

   $ 120,000       $ —     

Prepaid income tax

     65,903         57,665   

Prepaid operating ground leases

     61,393         56,916   

Unbilled receivables

     27,922         32,588   

Prepaid assets

     34,260         19,037   

Value added tax and other consumption tax receivables

     16,771         22,443   

Other miscellaneous current assets

     39,543         34,350   
  

 

 

    

 

 

 

Balance

   $ 365,792       $ 222,999   
  

 

 

    

 

 

 

 

(1) December 31, 2012 balances have been revised to reflect purchase accounting measurement period adjustments.

3.    Accrued Expenses

Accrued expenses consist of the following as of (in thousands):

 

     September 30, 2013      December 31, 2012  

Accrued property and real estate taxes

   $ 46,972       $ 36,814   

Payroll and related withholdings

     38,359         37,586   

Accrued construction costs

     38,201         20,711   

Accrued rent

     23,485         24,394   

Other accrued expenses

     184,294         167,457   
  

 

 

    

 

 

 

Balance

   $ 331,311       $ 286,962   
  

 

 

    

 

 

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

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
        
     Domestic      International        Total  

Balance as of January 1, 2013 (1)

   $ 2,320,645       $ 520,072      $ 2,000       $ 2,842,717   

Additions

     4,698         14,933        —           19,631   

Effect of foreign currency translation

     —           (47,077     —           (47,077
  

 

 

    

 

 

   

 

 

    

 

 

 

Balance as of September 30, 2013

   $ 2,325,343       $ 487,928      $ 2,000       $ 2,815,271   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(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 as of (in thousands):

 

        September 30, 2013     December 31, 2012 (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   $ 1,731,664      $ (767,973   $ 963,691      $ 1,702,895      $ (721,135   $ 981,760   

Acquired customer-related intangibles

  15-20     3,228,515        (1,093,481     2,135,034        3,133,166        (979,264     2,153,902   

Acquired licenses and other intangibles

  3-20     6,524        (2,087     4,437        26,079        (20,835     5,244   

Economic Rights, TV Azteca

  70     28,609        (14,037     14,572        28,954        (13,902     15,052   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

      4,995,312        (1,877,578     3,117,734        4,891,094        (1,735,136     3,155,958   

Deferred financing costs, net (3)

  N/A         77,372            49,538   
       

 

 

       

 

 

 

Other intangible assets, net

        $ 3,195,106          $ 3,205,496   
       

 

 

       

 

 

 

 

(1) December 31, 2012 balances have been revised to reflect purchase accounting measurement period adjustments.
(2) Acquired network location intangibles are amortized over the shorter of the term of the corresponding ground lease taking into consideration lease renewal options and residual value or up to 20 years, as the Company considers these intangibles to be directly related to the tower assets.
(3) Deferred financing costs are amortized over the term of the respective debt instruments to which they relate using the effective interest method. This amortization is included in interest expense rather than in amortization expense.

The acquired network location intangibles represent the value to the Company of the incremental revenue growth that could potentially be obtained from leasing the excess capacity on acquired communications sites. The acquired customer-related intangibles typically represent the value to the Company of customer contracts and relationships in place at the time of an acquisition, including assumptions regarding estimated renewals. During the nine months ended September 30, 2013, the Company retired $19.6 million of intangible assets related to non-competition agreements that had expired and were fully amortized.

The Company amortizes these intangibles on a straight-line basis over their estimated useful lives. As of September 30, 2013, the remaining weighted average amortization period of the Company’s intangible assets, excluding deferred financing costs and 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, 2012, was approximately 13 years. Amortization of intangible assets for the three and nine months ended September 30, 2013 was approximately $57.7 million and $177.9 million (excluding amortization of

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

deferred financing costs, which is included in interest expense), respectively. 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. The Company expects to record amortization expense (excluding amortization of deferred financing costs) as follows over the next five years (in millions):

 

Fiscal Year       

2013 (remaining year)

   $ 61.5   

2014

     232.9   

2015

     214.5   

2016

     202.2   

2017

     195.7   

2018

     189.3   

5.    Financing Transactions

Commercial Mortgage Pass-Through Certificates, Series 2007-1—During the year ended December 31, 2007, the Company completed a securitization transaction involving assets related to 5,295 broadcast and wireless communications towers owned by two special purpose subsidiaries of the Company through a private offering of $1.75 billion of Commercial Mortgage Pass-Through Certificates, Series 2007-1 (the “Certificates”). On March 15, 2013, the Company repaid all indebtedness outstanding under the Certificates ($1.75 billion in principal amount), plus prepayment consideration and accrued interest thereon and other costs and expenses related thereto, with proceeds from the offering of $1.8 billion of Secured Tower Revenue Securities, Series 2013-1A and Series 2013-2A, as described in more detail below (collectively, the “Securities”). The Company recorded a loss on retirement of long-term obligations in the accompanying condensed consolidated statements of operations of $35.3 million, consisting of prepayment consideration of $29.2 million and the expense of deferred financing costs of $6.1 million.

Secured Tower Revenue Securities, Series 2013-1A and Series 2013-2A—On March 15, 2013, the Company completed a securitization transaction (the “Securitization”) involving assets related to 5,195 wireless and broadcast communications towers (the “Secured Towers”) owned by two special purpose subsidiaries of the Company, through a private offering of $1.8 billion of the Securities. The net proceeds of the transaction were $1.78 billion. The Securities were issued by American Tower Trust I (the “Trust”), a trust established by American Tower Depositor Sub, LLC (the “Depositor”), an indirect wholly owned special purpose subsidiary of the Company. The assets of the Trust consist of a nonrecourse loan (the “Loan”) to American Tower Asset Sub, LLC and American Tower Asset Sub II, LLC (the “Borrowers”), pursuant to a First Amended and Restated Loan and Security Agreement dated as of March 15, 2013 (the “Loan Agreement”). The Borrowers are special purpose entities formed solely for the purpose of holding the Secured Towers subject to a securitization.

The Securities were issued in two separate series of the same class pursuant to a First Amended and Restated Trust and Servicing Agreement (the “Trust Agreement”), with terms identical to the Loan. The Series 2013-1A Securities have an expected life of five years with a final repayment date in March 2043 and an interest rate of 1.551%. The Series 2013-2A Securities have an expected life of ten years with a final repayment date in March 2048 and an interest rate of 3.070%. The effective weighted average life and interest rate of the Securities is 8.6 years and 2.648%, respectively.

Amounts due under the Loan will be paid by the Borrowers solely from the cash flows generated by the Secured Towers. These funds in turn will be used by or on behalf of the Trust to service the payment of interest on the Securities and for any other payments required by the Loan Agreement or Trust Agreement. The

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

Borrowers are required to make monthly payments of interest on the Loan. Subject to certain limited exceptions described below, no payments of principal will be required to be made prior to March 15, 2018, which is the anticipated repayment date for the component of the Loan associated with the Series 2013-1A Securities. On a monthly basis, after payment of all required amounts under the Loan Agreement and Trust Agreement, the excess cash flows generated from the operation of the Secured Towers are released to the Borrowers, and can then be distributed to, and used by, the Company. However, if the debt service coverage ratio (the “DSCR”), generally defined as the net cash flow divided by the amount of interest, servicing fees and trustee fees that the Borrowers will be required to pay over the succeeding 12 months on the principal amount of the Loan, as of the last day of any calendar quarter prior to the applicable anticipated repayment date, is 1.30x or less (the “Cash Trap DSCR”) for such quarter, and the DSCR continues to be equal to or below the Cash Trap DSCR for two consecutive calendar quarters, then all cash flow in excess of amounts required to make debt service payments, to fund required reserves, to pay management fees and budgeted operating expenses and to make other payments required under the loan documents, referred to as excess cash flow, will be deposited into a reserve account instead of being released to the Borrowers. The funds in the reserve account will not be released to the Borrowers unless the DSCR exceeds the Cash Trap DSCR for two consecutive calendar quarters. An “amortization period” commences if (i) as of the end of any calendar quarter the DSCR equals or falls below 1.15x (the “Minimum DSCR”) for such calendar quarter and such amortization period will continue to exist until the DSCR exceeds the Minimum DSCR for two consecutive calendar quarters or (ii) on the anticipated repayment date the component of the Loan corresponding to the applicable subclass of the Securities has not been repaid in full, provided that such amortization period shall apply with respect to such component that has not been repaid in full. During an amortization period all excess cash is applied to payment of the principal on the Loan.

The Borrowers may prepay the Loan in whole or in part at any time provided it is accompanied by applicable prepayment consideration. If the prepayment occurs within 12 months of the anticipated repayment date for the Series 2013-1A Securities or 18 months of the anticipated repayment date for the 2013-2A Securities, no prepayment consideration is due. The entire unpaid principal balance of the component of the Loan related to the Series 2013-1A Securities will be due in March 2043. The entire unpaid principal balance of the component of the Loan related to the Series 2013-2A Securities will be due in March 2048. The Loan may be defeased in whole at any time prior to the anticipated repayment date for any component of the Loan then outstanding.

The Loan is secured by (1) mortgages, deeds of trust and deeds to secure debt on substantially all of the Secured Towers, (2) a pledge of the Borrowers’ operating cash flows from the Secured Towers, (3) a security interest in substantially all of the Borrowers’ personal property and fixtures and (4) the Borrowers’ rights under the tenant leases and the Management Agreement entered into in connection with the Securitization. American Tower Holding Sub, LLC, whose only material assets are its equity interests in each of the Borrowers, and American Tower Guarantor Sub, LLC, whose only material asset is its equity interest in American Tower Holding Sub, LLC, each have guaranteed repayment of the Loan and pledged their equity interests in their respective subsidiary or subsidiaries as security for such payment obligations. American Tower Guarantor Sub, LLC, American Tower Holding Sub, LLC, the Depositor and the Borrowers each were formed as special purpose entities solely for purposes of entering a securitization transaction, and the assets and credit of these entities are not available to satisfy the debts and other obligations of the Company or any other person, except as set forth in the Loan Agreement.

The Loan Agreement includes operating covenants and other restrictions customary for loans subject to rated securitizations. Among other things, the Borrowers are prohibited from incurring other indebtedness for borrowed money or further encumbering their assets subject to customary carveouts for ordinary course trade payables and permitted encumbrances (as defined in the Loan Agreement). The organizational documents of the Borrowers contain provisions consistent with rating agency securitization criteria for special purpose entities, including the requirement that the Borrowers maintain at least two independent directors. The Loan Agreement

 

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also contains certain covenants that require the Borrowers to provide the trustee with regular financial reports and operating budgets, promptly notify the trustee of events of default and material breaches under the Loan Agreement and other agreements related to the Secured Towers, and allow the trustee reasonable access to the Secured Towers, including the right to conduct site investigations.

A failure to comply with the covenants in the Loan Agreement could prevent the Borrowers from taking certain actions with respect to the Secured Towers, and could prevent the Borrowers from distributing any excess cash from the operation of the Secured Towers to the Company. If the Borrowers were to default on the Loan, Midland Loan Services, a Division of PNC Bank, National Association, in its capacity as servicer on behalf of the trustee, could seek to foreclose upon or otherwise convert the ownership of the Secured Towers, in which case the Company could lose the Secured Towers and the revenue associated with the Secured Towers.

Under the Loan Agreement, the Borrowers are required to maintain reserve accounts, including for ground rents, real estate and personal property taxes and insurance premiums, and to reserve a portion of advance rents from tenants on the Secured Towers. Based on the terms of the Loan Agreement, all rental cash receipts received for each month are reserved for the succeeding month and held in an account controlled by the trustee and then released. The $120.9 million held in the reserve accounts as of September 30, 2013 is classified as Restricted cash on the Company’s accompanying condensed consolidated balance sheet.

3.50% Senior Notes Offering—On January 8, 2013, the Company completed a registered public offering of $1.0 billion aggregate principal amount of 3.50% senior unsecured notes due 2023 (the “3.50% Notes”), which were issued at a price equal to 99.185% of their face value. The net proceeds to the Company from the offering were approximately $983.4 million, after deducting commissions and expenses. The Company used $265.0 million of the net proceeds to repay the outstanding indebtedness under its $1.0 billion senior unsecured revolving credit facility entered into in April 2011 (the “2011 Credit Facility”) and $718.4 million to repay a portion of the outstanding indebtedness incurred under its $1.0 billion senior unsecured revolving credit facility entered into in January 2012 (the “2012 Credit Facility”).

The 3.50% Notes mature on January 31, 2023, and interest is payable semi-annually in arrears on January 31 and July 31 of each year, commencing on July 31, 2013. The Company may redeem the 3.50% 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 January 8, 2013 and is computed on the basis of a 360-day year comprised of 12 30-day months.

If the Company undergoes a change of control and ratings decline, each as defined in the supplemental indenture, the Company will be required to offer to repurchase all of the 3.50% Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest (including additional interest, if any) up to but not including the repurchase date. The 3.50% 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.

3.40% Senior Notes and 5.00% Senior Notes Offering—On August 19, 2013, the Company completed a registered public offering of $750 million aggregate principal amount of 3.40% senior unsecured notes due 2019 (the “3.40% Notes”) and $500 million aggregate principal amount of 5.00% senior unsecured notes due 2024 (the “5.00% Notes”). The net proceeds to the Company from the offering were approximately $1,238.7 million, after

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

deducting commissions and estimated expenses. The Company used a portion of the proceeds to repay outstanding indebtedness under its $2.0 billion senior unsecured revolving credit facility (the “2013 Credit Facility”).

The 3.40% Notes will mature on February 15, 2019 and bear interest at a rate of 3.40% per annum. The 5.00% Notes will mature on February 15, 2024 and bear interest at a rate of 5.00% per annum. Accrued and unpaid interest on the 3.40% Notes and the 5.00% Notes will be payable in U.S. Dollars semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2014. Interest on the 3.40% Notes and the 5.00% Notes will accrue from August 19, 2013 and will be computed on the basis of a 360-day year comprised of 12 30-day months.

The Company may redeem the 3.40% Notes or the 5.00% 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. If the Company undergoes a change of control and ratings decline, each as defined in the supplemental indenture, the Company may be required to repurchase all of the 3.40% Notes and the 5.00% Notes at a purchase price equal to 101% of the principal amount of the 3.40% Notes and the 5.00% Notes, plus accrued and unpaid interest (including additional interest, if any), up to but not including the repurchase date. The 3.40% Notes and the 5.00% 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.

2011 Credit Facility—On June 28, 2013, the Company terminated the 2011 Credit Facility upon entering into the 2013 Credit Facility. During the nine months ended September 30, 2013, the Company recorded a loss on retirement of long-term obligations in the accompanying condensed consolidated statements of operations of $2.7 million, related to the acceleration of the remaining deferred financing costs associated with the 2011 Credit Facility.

The 2011 Credit Facility had a term of five years and a maturity date of April 8, 2016. The 2011 Credit Facility was terminated prior to maturity at the Company’s option without penalty or premium. The 2011 Credit Facility was undrawn at the time of termination.

2012 Credit Facility—As of September 30, 2013, the Company had $963.0 million outstanding under the 2012 Credit Facility, which was used to fund its acquisition of MIPT on October 1, 2013 (see note 14). The Company also had approximately $7.8 million of undrawn letters of credit. On October 29, 2013, the Company repaid $800 million under the 2012 Credit Facility with net proceeds from the $1.5 billion unsecured term loan entered into on October 29, 2013 (the “2013 Term Loan”) (see note 16) and cash on hand.

The Company continues to maintain the ability to draw down and repay amounts under the 2012 Credit Facility in the ordinary course.

The 2012 Credit Facility has a term of five years and matures on January 31, 2017. The 2012 Credit Facility does not require amortization of principal and may be paid prior to maturity in whole or in part at the Company’s option without penalty or premium. The current margin over LIBOR that the Company incurs on borrowings is 1.625%, which results in an interest rate of 1.81% as of September 30, 2013. The current commitment fee on the undrawn portion of the 2012 Credit Facility is 0.225%.

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

On September 20, 2013, the Company entered into an amendment agreement with respect to the 2012 Credit Facility, which (i) amended the definition of “Total Debt” to be net of unrestricted domestic cash and cash equivalents and (ii) increased the permitted ratio of Total Debt to Adjusted EBITDA (as defined therein) from 6.00 to 1.00 to 6.50 to 1.00 from September 30, 2013 to September 30, 2014.

2013 Credit Facility—On June 28, 2013, the Company entered into the 2013 Credit Facility, which allowed the Company to borrow up to $1.5 billion, and includes a $1.0 billion sublimit for multicurrency borrowings, a $200.0 million sublimit for letters of credit, a $50.0 million sublimit for swingline loans and an expansion option allowing the Company to request additional commitments of up to $500.0 million, which the Company exercised on September 20, 2013. As a result, the Company may borrow up to $2.0 billion under the 2013 Credit Facility.

The 2013 Credit Facility has a term of five years, matures on June 28, 2018 and includes two one-year renewal periods at the Company’s option. Any outstanding principal and accrued but unpaid interest will be due and payable in full at maturity. The 2013 Credit Facility does not require amortization of principal and 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 for borrowings under the 2013 Credit Facility. The interest rate ranges between 1.125% to 2.000% above LIBOR for LIBOR-based borrowings, or between 0.125% to 1.000% 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 2013 Credit Facility is required, ranging from 0.125% to 0.400% per annum, based upon the Company’s debt ratings. The current margin over LIBOR that the Company incurs on borrowings is 1.250%, which results in an interest rate of 1.43% as of September 30, 2013. The current commitment fee on the undrawn portion of the new credit facility is 0.150%.

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.

On September 20, 2013, the Company entered into an amendment agreement with respect to the 2013 Credit Facility, which (i) amended the definition of “Total Debt” to be net of unrestricted domestic cash and cash equivalents, (ii) increased the permitted ratio of Total Debt to Adjusted EBITDA (as defined therein) from 6.00 to 1.00 to 6.50 to 1.00 from September 30, 2013 to September 30, 2014 and (iii) added an additional expansion feature permitting the Company to request an increase of the commitments under the 2013 Credit Facility from time to time up to an aggregate additional $750.0 million, including in the form of a term loan, from any of the lenders or other eligible lenders that elect to make such increases available, upon the satisfaction of certain conditions.

As of September 30, 2013, the Company had $1,853.0 million outstanding under the 2013 Credit Facility, which was used to fund its acquisition of MIPT on October 1, 2013 (see note 14). The Company also had approximately $2.3 million of undrawn letters of credit. The Company continues to maintain the ability to draw down and repay amounts under the 2013 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 2012 Term Loan has a term of five years and matures on June 29, 2017. The interest

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

rate under the 2012 Term Loan is LIBOR plus 1.750%, or 1.93% as of September 30, 2013. On October 29, 2013, the Company repaid the 2012 Term Loan with net proceeds from the 2013 Term Loan (see note 16).

On September 20, 2013, the Company entered into an amendment agreement with respect to the 2012 Term Loan, which (i) amended the definition of “Total Debt” to be net of unrestricted domestic cash and cash equivalents and (ii) increased the permitted ratio of Total Debt to Adjusted EBITDA (as defined therein) from 6.00 to 1.00 to 6.50 to 1.00 from September 30, 2013 to September 30, 2014.

Short-Term Credit Facility—On September 20, 2013, the Company entered into a $1.0 billion senior unsecured revolving credit facility (the “Short-Term Credit Facility”).

The Short-Term Credit Facility does not require amortization of payments and may be repaid prior to maturity in whole or in part at the Company’s option without penalty or premium. The unutilized portion of the commitments under the Short-Term Credit Facility may be irrevocably reduced or terminated by the Company in whole or in part without penalty. The Short-Term Credit Facility matures on September 19, 2014.

Amounts borrowed under the Short-Term Credit Facility will bear interest, at the Company’s option, at a margin above LIBOR or the defined base rate. For LIBOR based borrowings, interest rates will range from 1.125% to 2.000% above LIBOR. For base rate borrowings, interest rates will range from 0.125% to 1.000% above the defined base rate. In each case, the applicable margin is based upon the Company’s debt ratings. In addition, the loan agreement provides for a quarterly commitment fee on the undrawn portion of the Short-Term Credit Facility ranging from 0.125% to 0.400% per annum, based upon the Company’s debt ratings. The current margin over LIBOR that the Company would incur (should it choose LIBOR) on borrowings is 1.250% and the current commitment fee on the undrawn portion is 0.150%.

The loan agreement contains certain reporting, information, financial and operating covenants and other restrictions (including with respect to its real estate investment trust status, indebtedness, guaranties, mergers and asset sales, liens, dividends, corporate existence and financial reporting obligations) with which the Company must comply. Any failure to comply with the financial and operating covenants 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, 2013, the Company had no amounts outstanding under the Short-Term Credit Facility. The Company maintains the ability to draw down and repay amounts under the Short-Term Credit Facility in the ordinary course.

Colombian Bridge Loans—In connection with the acquisition of communications sites from Colombia Movil S.A. E.S.P. (“Colombia Movil”) pursuant to an agreement dated July 17, 2011, one of the Company’s Colombian subsidiaries entered into five Colombian Peso (“COP”) denominated bridge loans for an aggregate principal amount outstanding of 94.0 billion COP (approximately $49.1 million) and an interest rate of 7.99%. On August 6, 2013, one of the Company’s Colombian subsidiaries entered into an additional 14.0 billion COP bridge loan (approximately $7.3 million) with an interest rate of 7.95%. As of September 30, 2013, the aggregate principal amount outstanding under the bridge loans was 108.0 billion COP (approximately $56.4 million) which mature on December 22, 2013.

Indian Working Capital Facility—On April 29, 2013, one of the Company’s Indian subsidiaries (“ATC India”) entered into a working capital facility agreement (the “Indian Working Capital Facility”), which allows ATC India to borrow an amount not to exceed the Indian Rupee equivalent of $10.0 million. Any advances made

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

pursuant to the Indian Working Capital Facility will be payable on the earlier of demand or six months following the borrowing date and the interest rate will be determined at the time of advance by the bank. As of September 30, 2013, ATC India had not drawn on the facility.

South African Facility—The Company’s South African Facility was executed in November 2011 and generally matures on March 31, 2020. Principal and interest are payable quarterly in arrears with principal due in accordance with the repayment schedule. On September 30, 2013, the Company’s ability to draw on the South African Facility expired. During the nine months ended September 30, 2013, the Company borrowed an additional 116.3 million South African Rand (“ZAR”) (approximately $11.6 million) to increase total borrowings under the South African Facility to 950.6 million ZAR (approximately $94.8 million) as of September 30, 2013.

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, through certain of its foreign subsidiaries, has entered into interest rate swap agreements to manage its exposure to variability in interest rates on debt in South Africa and Colombia. As of December 31, 2012, the Company had nine interest rate swap agreements outstanding in South Africa and one interest rate swap agreement outstanding in Colombia. During the three months ended September 30, 2013, the Company entered into three additional interest rate swaps agreements in South Africa with an aggregate notional value of 24.6 million ZAR (approximately $2.5 million). As a result, as of September 30, 2013, the Company had 12 interest rate swap agreements outstanding in South Africa with an aggregate notional value of 442.7 million ZAR (approximately $44.1 million), which notional value is reduced in accordance with the repayment schedule under the South African Facility, and one interest rate swap agreement outstanding in Colombia with a notional value of 101.3 billion COP (approximately $52.9 million).

The Company’s South African interest rate swap agreements accrue interest based on Johannesburg Interbank Agreed Rate (“JIBAR”), have been designated as cash flow hedges, have fixed interest rates ranging from 6.09% to 7.83% and expire on March 31, 2020. The Company’s Colombian interest rate swap agreement accrues interest based on the Inter-bank Rate (“IBR”), has been designated as a cash flow hedge, has a fixed interest rate of 5.78% and expires on November 30, 2020.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

As of September 30, 2013 and December 31, 2012, the notional amount and fair value of the Company’s interest rate swap agreements (expressed in their respective currency units), which are recorded in Other non-current liabilities, are as follows (in thousands):

 

     September 30, 2013 (1)      December 31, 2012 (2)  

ZAR

     

Notional

     442,655         423,634   

Carrying Amount/Fair Value

     909         20,441   

COP

     

Notional

     101,250,000         101,250,000   

Carrying Amount/Fair Value

     2,869,430         5,356,377   

 

(1) The interest rate swap agreements are denominated in ZAR and COP and have an aggregate notional amount and fair value of $97.0 million and $1.6 million, respectively, as of September 30, 2013.
(2) The interest rate swap agreements are denominated in ZAR and COP and have an aggregate notional amount and fair value of $107.3 million and $5.4 million, respectively, as of December 31, 2012.

During the three months ended September 30, 2013 and 2012, the interest rate swap agreements held by the Company had the following impact on OCI included in the condensed consolidated balance sheets and in the condensed consolidated statements of operations (in thousands):

 

Three Months Ended September 30, 2013

 

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)
 

$(1,404)

     Interest expense       $ (741     N/A         N/A   

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, 2013 and 2012, the interest rate swap agreements held by the Company had the following impact on OCI included in the condensed consolidated balance sheets and in the condensed consolidated statements of operations (in thousands):

 

Nine Months Ended September 30, 2013

 

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)
 

$1,801

     Interest expense         $(2,053)        N/A         N/A   

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   

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

As of September 30, 2013, approximately $1.4 million related to derivatives designated as cash flow hedges is expected to be reclassified from Accumulated other comprehensive loss into earnings in the next twelve months.

7.    Fair Value Measurements

The Company determines the fair value of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Below are the three levels of inputs that may be used to measure fair value:

 

Level 1 Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Items Measured at Fair Value on a Recurring 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, 2013  
      Fair Value Measurements
Using
     Assets/Liabilities
at Fair Value
 
     Level 1    Level 2      Level 3     

Assets:

        

Short-term investments (1)

      $ 27,381          $ 27,381   

Liabilities:

        

Acquisition-related contingent consideration

         $ 22,409       $ 22,409   

Interest rate swap agreements (2)

      $ 1,589          $ 1,589   

 

     December 31, 2012  
      Fair Value Measurements
Using
     Assets/Liabilities
at Fair Value
 
     Level 1      Level 2      Level 3     

Assets:

        

Short-term investments (1)

   $ 6,018          $ 6,018   

Liabilities:

        

Acquisition-related contingent consideration

      $ 23,711       $ 23,711   

Interest rate swap agreements (2)

      $ 5,442          $ 5,442   

 

(1) Consists of highly liquid investments with original maturities in excess of three months.
(2) Consists of interest rate swap agreements based on JIBAR and IBR 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.

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, 2013 and December 31, 2012.

The fair value of the Company’s interest rate swap agreements recorded as net liabilities is included in Other non-current liabilities in the accompanying condensed consolidated balance sheets. Fair valuations of the

 

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Company’s interest rate swap agreements reflect the value of the instrument including the values associated with 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.

The Company may be required to pay additional consideration under certain agreements for the acquisition of communications sites in Colombia and Ghana if certain barter agreements with other wireless carriers are converted to cash-paying master lease agreements (see note 14).

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, 2013, the Company estimates that the value of all potential acquisition-related contingent consideration required payments to be between zero and $37.8 million. During the three months ended September 30, 2013 and 2012, the fair value of the contingent consideration changed as follows (in thousands):

 

     2013     2012  

Balance as of July 1

   $ 21,218      $ 29,897   

Additions

     3,599        1,180   

Payments

     (3,729     (3,951

Change in fair value

     1,303        325   

Foreign currency translation adjustment

     18        (242
  

 

 

   

 

 

 

Balance as of September 30

   $ 22,409      $ 27,209   
  

 

 

   

 

 

 

During the nine months ended September 30, 2013 and 2012, the fair value of the contingent consideration changed as follows (in thousands):

 

     2013     2012  

Balance as of January 1

   $ 23,711      $ 25,617   

Additions

     4,087        1,533   

Payments

     (7,952     (4,397

Change in fair value

     4,610        3,791   

Foreign currency translation adjustment

     (2,047     665   
  

 

 

   

 

 

 

Balance as of September 30

   $ 22,409      $ 27,209   
  

 

 

   

 

 

 

Items Measured at Fair Value on a Nonrecurring Basis—During the nine months ended September 30, 2013, certain long-lived assets held and used were written down to their net realizable value of $4.0 billion, resulting in an asset impairment charge of $2.0 million, which was recorded in Other operating expenses in the accompanying condensed consolidated statements of operations. 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

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

net realizable value of $289.2 million, resulting in an asset impairment charge of $10.7 million, which was 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 when indications of impairment exist. There were no other items measured at fair value on a nonrecurring basis during the nine months ended September 30, 2013.

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 value as of September 30, 2013 and December 31, 2012. 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 value was estimated using a discounted cash flow analysis using rates for debt with similar terms and maturities. As of September 30, 2013, the carrying value and fair value of long-term obligations, including the current portion, were $12.6 billion and $12.7 billion, respectively, of which $8.4 billion was measured using Level 1 inputs and $4.3 billion was measured using Level 2 inputs. As of December 31, 2012, the carrying value and fair value of long-term obligations, including the current portion, were $8.8 billion and $9.4 billion, respectively, of which $4.9 billion was measured using Level 1 inputs and $4.5 billion was measured using Level 2 inputs.

8.    Accumulated Other Comprehensive Loss

The changes in Accumulated other comprehensive loss for the three months ended September 30, 2013 are as follows (in thousands):

 

     Unrealized Losses on
Cash Flow Hedges (1)
    Deferred Loss on the
Settlement of the
Treasury Rate Lock
    Foreign
Currency
Items
    Total  

Balance as of July 1, 2013

   $ (1,182   $ (3,427   $ (269,647   $ (274,256

Other comprehensive loss before reclassifications, net of tax

     (1,289     —          (23,114     (24,403

Amounts reclassified from accumulated other comprehensive loss, net of tax

     445        199        —          644   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     (844     199        (23,114     (23,759
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2013

   $ (2,026   $ (3,228   $ (292,761   $ (298,015
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Losses on cash flow hedges have been reclassified into interest expense in the accompanying condensed consolidated statements of operations. The tax effect of less than $0.1 million is included in income tax expense for the three months ended September 30, 2013.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

The changes in Accumulated other comprehensive loss for the nine months ended September 30, 2013 are as follows (in thousands):

 

     Unrealized Losses on
Cash Flow Hedges (1)
    Deferred Loss on the
Settlement of the
Treasury Rate Lock
    Foreign Currency
Items
    Total  

Balance as of January 1, 2013

   $ (4,358   $ (3,827   $ (175,162   $ (183,347

Other comprehensive loss before reclassifications, net of tax

     1,167        —          (117,599     (116,432

Amounts reclassified from accumulated other comprehensive loss, net of tax

     1,165        599        —          1,764   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     2,332        599        (117,599     (114,668
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2013

   $ (2,026   $ (3,228   $ (292,761   $ (298,015
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Losses on cash flow hedges have been reclassified into interest expense in the accompanying condensed consolidated statements of operations. The tax effect of $0.1 million is included in income tax expense for the nine months ended September 30, 2013.

9.    Income Taxes

The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year. Cumulative adjustments to the Company’s estimate are recorded in the interim period in which a change in the estimated annual effective tax rate is determined. As described in note 1, the Company reorganized to qualify 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, and taxation in foreign jurisdictions where it conducts international operations. Under the provisions of the Internal Revenue Code of 1986, as amended, (the “Code”) 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 their respective 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.

As of September 30, 2013 and December 31, 2012, the total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was approximately $31.2 million and $30.6 million, respectively. The increase in the amount of unrecognized tax benefits during the three and nine months ended September 30, 2013 is primarily attributable to the additions to the Company’s existing tax positions partially offset by fluctuations in foreign currency exchange rates and the closure of certain tax years. 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 13 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2012. The impact of the amount of such changes to previously recorded uncertain tax positions could range from zero to $1.3 million.

The Company recorded penalties and income tax-related interest expense during the three and nine months ended September 30, 2013 of $0.9 million and $3.5 million, respectively, and during the three and nine months ended September 30, 2012 of $1.3 million and $3.9 million, respectively. In addition, due to the expiration of the

 

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statute of limitations in certain jurisdictions, the Company reduced its liability for penalties and income tax-related interest expense related to uncertain tax positions during the three and nine months ended September 30, 2013 by $0.8 million and $1.4 million, respectively. As of September 30, 2013 and December 31, 2012, the total amount of accrued penalties and income tax-related interest included in Other non-current liabilities in the condensed consolidated balance sheets was $29.8 million and $28.7 million, respectively.

In September 2013, the Internal Revenue Service released final Tangible Property Regulations (the “Final Regulations”). The Final Regulations provide guidance on applying Section 263(a) of the Code to amounts paid to acquire, produce or improve tangible property, as well as rules for materials and supplies (Code Section 162). These regulations contain certain changes from the temporary and proposed tangible property regulations that were issued on December 27, 2011. The Final Regulations are generally effective for taxable years beginning on or after January 1, 2014. In addition, taxpayers are permitted to early adopt the Final Regulations for taxable years beginning on or after January 1, 2012. The Company does not expect the Final Regulations to have a material effect on its results of operations. The Company is currently evaluating the impact on its financial condition.

10.    Stock-Based Compensation

The Company recognized stock-based compensation expense during the three and nine months ended September 30, 2013 of $15.1 million and $53.2 million, respectively, and stock-based compensation expense during the three and nine months ended September 30, 2012 of $13.1 million and $39.7 million, respectively. Stock-based compensation expense for the nine months ended September 30, 2013 included $1.1 million related to the modification of the vesting and exercise terms for certain employees’ equity awards. The Company capitalized $0.4 million and $1.2 million of stock-based compensation expense as property and equipment during the three and nine months ended September 30, 2013, respectively, and capitalized $0.5 million and $1.6 million of stock-based compensation expense as property and equipment during the three and nine months ended September 30, 2012, respectively.

Summary of Stock-Based Compensation Plans—The Company maintains equity incentive plans that provide for the grant of stock-based awards to its directors, officers and employees. The 2007 Equity Incentive Plan (“2007 Plan”) provides for the grant of non-qualified and incentive stock options, as well as restricted stock units, restricted stock and other stock-based awards. Exercise prices in the case of non-qualified and incentive stock options are not less than the fair value of the underlying common stock on the date of grant. Equity awards typically vest ratably over various periods, generally four years, and stock options generally expire ten years from the date of grant. As of September 30, 2013, the Company had the ability to grant stock-based awards with respect to an aggregate of 16.6 million shares of common stock under the 2007 Plan.

Effective January 1, 2013, the Company’s Compensation Committee adopted a death, disability and retirement benefits program in connection with equity awards that provides for accelerated vesting and extended exercise periods of stock options and restricted stock units granted on or after January 1, 2013 upon an employee’s death or permanent disability, or upon an employee’s qualified retirement, provided certain eligibility criteria are met. Accordingly, for grants made after January 1, 2013, the Company recognizes compensation expense for all stock-based compensation over the shorter of (i) the four-year vesting period or (ii) the period from the date of grant to the date the employee becomes eligible for such retirement benefits, which may occur upon grant. Due to the accelerated recognition of stock-based compensation expense related to awards granted to retirement eligible employees, the Company recognized an additional $7.5 million of stock-based compensation expense during the nine months ended September 30, 2013.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

Stock Options—The Company’s option activity for the nine months ended September 30, 2013 is as follows:

 

     Number of
Options
 

Outstanding as of January 1, 2013

     5,829,945   

Granted

     1,420,206   

Exercised

     (799,233

Forfeited

     (53,245

Expired

     —     
  

 

 

 

Outstanding as of September 30, 2013

     6,397,673   
  

 

 

 

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, 2013:

 

Range of risk-free interest rate

   0.75% - 1.03%

Weighted average risk-free interest rate

   0.90%

Expected life of option grants

   4.4 years

Range of expected volatility of underlying stock price

   26.60% - 36.09%

Weighted average expected volatility of underlying stock price

   33.56%

Expected annual dividend yield

   1.50%

The weighted average grant date fair value per share during the nine months ended September 30, 2013 was $19.15. As of September 30, 2013, total unrecognized compensation expense related to unvested stock options was $39.3 million and is expected to be recognized over a weighted average period of approximately two years.

Restricted Stock Units—The Company’s restricted stock unit activity during the nine months ended September 30, 2013 is as follows:

 

     Number of
Units
 

Outstanding as of January 1, 2013

     1,968,553   

Granted

     803,561   

Vested

     (806,868

Forfeited

     (106,658
  

 

 

 

Outstanding as of September 30, 2013

     1,858,588   
  

 

 

 

As of September 30, 2013, total unrecognized compensation expense related to unvested restricted stock units granted under the 2007 Plan was $86.7 million and is expected to be recognized over a weighted average period of approximately two years. Distributions accrue with each unvested restricted stock unit award granted subsequent to January 1, 2012, which are payable upon vesting.

Employee Stock Purchase Plan—The Company maintains an employee stock purchase plan (the “ESPP”) for all eligible employees as described in note 14 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2012. 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

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

June 1 through November 30 and from December 1 through May 31 of each year. During the nine months ended September 30, 2013, employee contributions were accumulated to purchase an estimated 57,000 shares under the ESPP.

Key assumptions used to apply the Black-Scholes pricing model for shares purchased through the ESPP during the nine months ended September 30, 2013, which resulted in a fair value per share of $13.41, are as follows:

 

Approximate risk-free interest rate

   0.07% - 0.13%

Expected life of shares

   6 months

Expected volatility of underlying stock price over the option period

   12.21% - 13.57%

Expected annual dividend yield

   1.50%

11.    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, 2013, the Company repurchased 1,938,021 shares of its common stock for an aggregate of $145.0 million, including commissions and fees, pursuant to the 2011 Buyback. On September 6, 2013, the Company temporarily suspended repurchases following the signing of its agreement to acquire MIPT.

As of September 30, 2013, the Company had repurchased a total of approximately 6.3 million shares of its common stock under the 2011 Buyback for an aggregate of $389.0 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 other legal requirements, and subject to market conditions and other factors. To facilitate repurchases, the Company makes purchases pursuant to trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, which allows the Company to repurchase shares during periods when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.

The Company continues to manage the pacing of the remaining $1.1 billion under the 2011 Buyback in response to general market conditions and other relevant factors. 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—During the nine months ended September 30, 2013, the Company declared the following regular cash distributions to its stockholders:

 

Declaration Date

   Payment Date    Record Date    Distribution per share    Aggregate Payment
Amount
(in millions)

March 12, 2013

   April 25, 2013    April 10, 2013    $0.26    $102.8

May 22, 2013

   July 16, 2013    June 17, 2013    $0.27    $106.7

September 12, 2013

   October 7, 2013    September 23, 2013    $0.28    $110.5

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

The Company accrues distributions on unvested restricted stock unit awards granted subsequent to January 1, 2012, which are payable upon vesting. As of September 30, 2013, the Company had accrued $1.6 million of distributions payable related to unvested restricted stock units. During the nine months ended September 30, 2013, the Company paid $0.2 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.

12.    Earnings Per Common Share

Basic income from continuing operations per common share represents income from continuing operations attributable to American Tower Corporation divided by the weighted average number of common shares outstanding during the period. Diluted income from continuing operations per common share represents income from continuing operations 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 unvested restricted stock and shares issuable upon exercise of stock options as determined under the treasury stock method. Dilutive common share equivalents also include the dilutive impact of the Verizon transaction (see note 13).

The following table sets forth basic and diluted income from continuing operations per common share computational data for the three and nine months ended September 30, 2013 and 2012 (in thousands, except per share data):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013      2012      2013      2012  

Income from continuing operations attributable to American Tower Corporation

   $ 180,123       $ 232,089       $ 451,351       $ 501,604   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted average common shares outstanding

     394,759         395,244         395,138         394,626   

Dilutive securities

     3,589         4,243         4,137         4,458   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted average common shares outstanding

     398,348         399,487         399,275         399,084   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic income from continuing operations attributable to American Tower Corporation per common share

   $ 0.46       $ 0.59       $ 1.14       $ 1.27   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted income from continuing operations attributable to American Tower Corporation per common share

   $ 0.45       $ 0.58       $ 1.13       $ 1.26   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the three and nine months ended September 30, 2013, the diluted weighted average number of common shares outstanding excluded shares issuable upon exercise of the Company’s stock options and stock-based awards of 2.5 million and 1.1 million, respectively, as the effect would be anti-dilutive. 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 stock-based awards of 1.2 million and 1.0 million, respectively, as the effect would be anti-dilutive.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

13.    Commitments and Contingencies

Litigation

The Company periodically becomes involved in various claims, lawsuits and proceedings that are incidental to its business. In the opinion of Company management, after consultation with counsel, 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.

TriStar Litigation—The Company is involved in several lawsuits against TriStar Investors LLP and its affiliates (“TriStar”) in various states regarding single tower sites where TriStar has taken land interests under the Company’s owned or managed sites and the Company believes TriStar has induced the landowner to breach obligations to the Company. In addition, on February 16, 2012, TriStar brought a federal action against the Company in the United States District Court for the Northern District of Texas, in which TriStar principally alleges that the Company made misrepresentations to landowners when competing with TriStar for land under the Company’s owned or managed sites. On January 22, 2013, the Company filed an amended answer and counterclaim against TriStar and certain of its employees, denying Tristar’s claims and asserting that TriStar has engaged in a pattern of unlawful activity, including: (i) entering into agreements not to compete for land under certain towers; and (ii) making widespread misrepresentations to landowners regarding both TriStar and the Company. TriStar and the Company are seeking injunctive relief that would prohibit the other party from making certain statements when interacting with landowners, as well as damages.

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 2,450 towers from AT&T commencing between December 2000 and August 2004. Substantially all of the towers are part of the Securitization. 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 $585.3 million as of September 30, 2013, 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.

Verizon Transaction—In December 2000, the Company entered into an agreement with ALLTEL, a predecessor entity to Verizon Wireless (“Verizon”), to acquire towers through a 15-year sublease agreement. Pursuant to the agreement, as amended, with Verizon, the Company acquired rights to 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 $70.7 million as of September 30, 2013. At Verizon’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, 2013 would be valued at approximately $101.2 million.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

Other Contingencies—The Company is subject to income tax and other taxes in the geographic areas where it operates, and periodically receives notifications of audits, assessments or other actions by taxing authorities. The Company evaluates the circumstances of each notification based on the information available, and records a liability for any potential outcome that is probable or more likely than not unfavorable, if the liability is also reasonably estimable. During the nine months ended September 30, 2013, the Company received notices from the Indian tax authorities of their intent to challenge the transfer pricing related to taxes arising out of transactions of Essar Telecom Infrastructure Private Limited (“ETIPL”) in 2008, prior to the Company’s acquisition of ETIPL in August 2010. Pursuant to the Company’s definitive acquisition agreement, the seller is obligated to indemnify and defend the Company with respect to any tax-related liability that may arise from activities prior to March 31, 2010. Since no formal assessment has been issued and the Company believes ETIPL’s tax position will be sustained, the Company has not accounted for any potential impact of this notification.

14.    Acquisitions

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 estimates of the fair value of the assets acquired and liabilities assumed at the date of the applicable acquisition are subject to adjustment during the measurement period (up to one year from the particular acquisition date). The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, including contingent consideration, and residual goodwill and any related tax impact. The fair 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 revised estimated values of those assets and/or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values is reflected as if the adjustments had been completed on the acquisition date. The impact of all changes that do not qualify as measurement period adjustments are included in current period earnings. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the condensed consolidated financial statements could be subject to a possible impairment of the intangible assets and/or goodwill, or require acceleration of the amortization expense of intangible assets in subsequent periods. During the nine months ended September 30, 2013, the Company made certain purchase accounting measurement period adjustments related to several acquisitions and therefore retrospectively adjusted the fair value of the assets acquired and liabilities assumed in the condensed consolidated balance sheet as of December 31, 2012.

Impact of current year acquisitions—The Company typically acquires communications sites from wireless carriers or other tower operators and subsequently integrates those sites into its existing portfolio of communications sites. The financial results of the Company’s acquisitions have been included in the Company’s condensed consolidated statements of operations for the nine months ended September 30, 2013 from the date of respective acquisition. The date of acquisition, and by extension the point at which the Company begins to recognize the results of an acquisition may be dependent upon, among other things, the receipt of contractual consents, the commencement and extent of leasing arrangements and the timing of the transfer of title or rights to the assets, which may be accomplished in phases. For sites acquired from communication service providers, these sites may never have been operated as a business and were utilized solely by the seller as a component of their network infrastructure. An acquisition, depending on its size and nature, may or may not involve the transfer of business operations or employees.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

The Company expenses acquisition and merger related costs in the period in which they are incurred and services are received. Acquisition and merger related costs may include finder’s fees, advisory, legal, accounting, valuation and other professional or consulting fees and general administrative costs, and are included in Other operating expenses. During the three and nine months ended September 30, 2013, the Company recognized acquisition and merger related expenses of $8.9 million and $25.8 million, respectively. During the three and nine months ended September 30, 2012, the Company recognized acquisition and merger related expenses of $5.2 million and $14.8 million, respectively.

2013 Acquisitions

Mexico Axtel Acquisition—On January 23, 2013, the Company entered into a definitive agreement to purchase communications sites from Axtel, S.A.B. de C.V. (“Axtel”). Pursuant to the definitive agreement, on January 31, 2013, the Company acquired 883 communications sites from Axtel for an aggregate purchase price of $248.5 million, subject to post-closing adjustments and value added tax.

Other International Acquisitions—During the nine months ended September 30, 2013, the Company acquired a total of 644 additional communications sites and equipment in the Company’s international markets, including Brazil, Colombia, Ghana, Mexico, and South Africa, for an aggregate purchase price of $80.5 million (including contingent consideration of $4.1 million and value added tax of $3.7 million), subject to post-closing adjustments.

Other U.S. Acquisitions—During the nine months ended September 30, 2013, the Company acquired a total of 41 additional communications sites and equipment, as well as 19 property interests, in the United States for an aggregate purchase price of $52.7 million, including cash paid of approximately $52.3 million and net liabilities assumed of approximately $0.4 million, subject to post-closing adjustments.

The following table summarizes the preliminary allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed for the fiscal year 2013 acquisitions based upon their estimated fair value at the date of acquisition (in thousands). Balances are reflected in the accompanying condensed consolidated balance sheets as of September 30, 2013.

 

     Mexico
Axtel
    Other International     Other U.S.  

Current assets

   $ —        $ 3,688      $ 1,433   

Non-current assets

     4,032        1,835        44   

Property and equipment

     86,100        39,693        17,493   

Intangible assets (1):

      

Customer-related intangible assets

     115,700        18,401        24,296   

Network location intangible assets

     41,700        19,984        5,605   

Current liabilities

     —          —          (440

Other non-current liabilities

     (9,377     (7,653     (786
  

 

 

   

 

 

   

 

 

 

Fair value of net assets acquired

   $ 238,155      $ 75,948      $ 47,645   
  

 

 

   

 

 

   

 

 

 

Goodwill (2)

     10,368        4,565        4,698   

 

(1) Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years.
(2) Goodwill was allocated to the Company’s domestic and international rental and management segments, as applicable, and the Company expects goodwill recorded will be deductible for tax purposes, except for South Africa where goodwill is expected to be partially deductible.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

2012 Acquisitions

Brazil-Vivo Acquisition—On March 30, 2012, the Company entered into a definitive agreement to purchase up to 1,500 communications sites 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 price 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 price of $32.7 million, subject to post-closing adjustments.

Diamond Acquisition (United States)—On December 28, 2012, the Company acquired Diamond Communications Trust and its subsidiary New Towers LLC, which held a portfolio of 316 communications sites and 24 property interests under third-party communications sites, for an aggregate purchase price of $322.5 million, including cash paid of $320.1 million and net liabilities assumed of $2.4 million.

Germany Acquisition—On November 14, 2012, the Company entered into a definitive agreement to purchase communications sites from E-Plus Mobilfunk GmbH & Co. KG (“E-Plus”). On December 4, 2012, the Company completed the purchase of 2,031 communications sites from E-Plus, for an aggregate purchase price of $525.7 million.

Skyway Acquisition (United States)—On December 20, 2012, the Company acquired an entity holding a portfolio of 318 communications sites from Skyway Towers Holdings, LLC (“Skyway”) for an aggregate purchase price of $169.6 million, including cash paid of approximately $169.5 million and net liabilities assumed of approximately $0.1 million. The aggregate purchase price was subsequently decreased to $166.3 million, including cash paid of approximately $166.2 million and net liabilities assumed of approximately $0.1 million, primarily due to the return of 11 communications sites to Skyway pursuant to the terms of the purchase agreement.

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

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. As a result of post-closing adjustments, the aggregate purchase price was adjusted from $171.5 million to $173.2 million during the year ended December 31, 2012, and further adjusted to $169.2 million during the nine months ended September 30, 2013.

On August 15, 2013, the Company returned seven communications sites to MTN Group pursuant to the terms of the agreement.

Other International Acquisitions—During the year ended December 31, 2012, the Company acquired a total of 705 additional communications sites and equipment in the Company’s international markets, including Mexico and South Africa, for an aggregate purchase price of $162.7 million (including value added tax of $21.9 million), subject to post-closing adjustments.

 

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Other United States Acquisitions—During the year ended December 31, 2012, the Company acquired a total of 128 additional communications sites and equipment in the United States for an aggregate purchase price of $146.2 million, subject to post-closing adjustments. The purchase price was subsequently reduced to $146.1 million during nine months ended September 30, 2013.

The following table summarizes the updated allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands). Balances are reflected in the accompanying condensed consolidated balance sheets as of September 30, 2013.

 

    Brazil Vivo (1)     Diamond
(U.S.)
    Germany     Skyway (U.S.)     Uganda (1)     Other
International
    Other U.S.  

Current assets

  $ —        $ 842      $ 14,043      $ 740      $ —        $ 21,911      $ —     

Non-current assets

    22,418        —          —          —          2,258        2,309        153   

Property and equipment

    138,959        72,447        203,494        58,913        102,366        66,073        61,091   

Intangible assets (2):

             

Customer-related intangible assets

    83,012        184,200        288,330        64,400        30,500        52,911        61,266   

Network location intangible assets

    40,983        32,000        21,997        20,500        26,000        15,935        16,133   

Current liabilities

    —          (3,216     (2,988     (454     —          —          —     

Other non-current liabilities

    (18,195     (3,423     (23,243     (3,222     (7,528     (6,294     (1,310
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair value of net assets acquired

  $ 267,177      $ 282,850      $ 501,633      $ 140,877      $ 153,596      $ 152,845      $ 137,333   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill (3)

    43,518        37,276        24,020        25,308        15,644        9,844        8,724   

 

(1) The allocation of the purchase price was finalized during the nine months ended September 30, 2013.
(2) Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years.
(3) Goodwill was allocated to the Company’s domestic and international rental and management segments, as applicable, and the Company expects goodwill recorded will be deductible for tax purposes, except for Uganda where goodwill is not expected to be deductible and South Africa where goodwill is expected to be partially deductible.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

The following table summarizes the preliminary allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed based upon their estimated fair value at the date of acquisition (in thousands). Balances are reflected in the consolidated balance sheets in the Annual Report on Form 10-K for the year ended December 31, 2012.

 

    Brazil Vivo     Diamond
(U.S.)
    Germany     Skyway (U.S.)     Uganda     Other
International
    Other U.S.  

Current assets

  $ —        $ 842      $ 14,483      $ 740      $ —        $ 21,911      $ —     

Non-current assets

    24,460        —          —          —          2,258        4,196        153   

Property and equipment

    138,959        69,045        233,073        60,671        102,366        61,080        61,995   

Intangible assets (1):

             

Customer-related intangible assets

    80,010        171,300        218,146        63,000        36,500        49,227        61,966   

Network location intangible assets

    37,980        28,400        20,819        20,700        27,000        16,442        16,233   

Current liabilities

    —          (3,216     (2,990     (454     —          —          —     

Other non-current liabilities

    (18,195     (3,423     (23,243     (3,333     (7,528     (5,893     (1,310
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fair value of net assets acquired

  $ 263,214      $ 262,948      $ 460,288      $ 141,324      $ 160,596      $ 146,963      $ 139,037   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill (2)

    47,481        57,178        65,365        28,224        12,564        15,726        7,124   

 

(1) Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years.
(2) Goodwill was allocated to the Company’s domestic and international rental and management segments, as applicable, and the Company expects goodwill recorded will be deductible for tax purposes, except for Uganda where goodwill is not expected to be deductible and South Africa where goodwill is expected to be partially deductible.

Contingent Consideration

The Company may be required to pay additional consideration under certain agreements related to acquisitions in Colombia and Ghana if certain barter agreements with other wireless carriers are converted to cash-paying master lease agreements.

Colombia—Under the terms of the agreement with Colombia Movil, the Company is required to make additional payments upon the conversion of certain barter agreements with other wireless carriers to cash paying lease agreements. Based on current estimates, the Company expected the value of potential contingent consideration payments required to be made under the amended agreement to be between zero and $36.9 million and estimated it to be $21.5 million using a probability weighted average of the expected outcomes at September 30, 2013. During the three and nine months ended September 30, 2013, the Company recorded additional contingent consideration of $3.6 million and $4.1 million, respectively, related to acquisitions during the period. In addition, during the three and nine months ended September 30, 2013, the Company recorded an increase in fair value of $0.5 million and $1.5 million, respectively, in Other operating expenses in the accompanying condensed consolidated statements of operations.

South Africa—Under the terms of the agreement with Cell C (Pty) Limited (“Cell C”) dated November 4, 2010, pursuant to which the Company agreed to purchase up to 1,400 existing communications sites and additional communications sites in South Africa, the Company was required to make periodic payments for each collocation of a specific wireless carrier installed on the acquired communications sites occurring within a four-year period after the initial closing date. During the three months ended September 30, 2013, the Company

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

amended its agreement with Cell C whereby the Company made a one-time payment of $2.5 million, which satisfied its remaining contingent consideration obligations. During the three months ended September 30, 2013, no further adjustments to the fair value of the contingent consideration were required. During the nine months ended September 30, 2013, the Company recorded a net increase in fair value of $3.4 million in Other operating expenses in the accompanying condensed consolidated statements of operations.

Other—Certain agreements in Brazil, Ghana and the United States include provisions that provide for contingent consideration.

During the three and nine months ended September 30, 2013, the Company recorded an increase in fair value of $0.8 million and a net decrease in fair value of $0.3 million, respectively, related to the contingent consideration liability for the acquisitions of communications sites in Brazil, Ghana and the United States. The change in fair value was recorded in Other operating expenses in the accompanying condensed consolidated statements of operations.

During the three months ended September 30, 2013, the Company paid an additional $1.0 million and satisfied the remaining obligation associated with the acquisition in Brazil. In addition, during the nine months ended September 30, 2013, the Company reduced the obligation associated with the acquisition in the United States to zero. The Company recorded an increase in the fair value of the contingent consideration liability as a result of the conversion of certain barter agreements in Ghana to cash-paying master lease agreements. Based on current estimates, the Company expects the value of potential contingent consideration payments required to be made under the agreement to be between zero and $0.9 million and estimated it to be $0.9 million using a probability weighted average of the expected outcomes at September 30, 2013.

For more information regarding contingent consideration, see note 7 to the accompanying condensed consolidated financial statements.

Other Signed Acquisitions

NII Holdings Acquisition—On August 8, 2013, the Company entered into an agreement with NII Holdings, Inc. to acquire up to 2,790 communications sites in Brazil and 1,666 communications sites in Mexico in two separate transactions, for approximately 945 million Brazilian Reais (“BRL”) (approximately $423.8 million) and 5,025 million Mexican Pesos (approximately $382.3 million), respectively. The Company paid $120.0 million into escrow for this transaction which is reflected in Prepaid and other current assets in the condensed consolidated balance sheets as of September 30, 2013.

Brazil-Z Sites Acquisition—On September 26, 2013, the Company entered into an agreement with Z-Sites Locação de Imóveis Ltda. to acquire up to 236 communications sites in Brazil for an aggregate purchase price of up to approximately 283 million BRL (approximately $127.1 million).

Subsequently Closed Acquisition

MIPT Acquisition—On October 1, 2013, the Company, through its wholly-owned subsidiary American Tower Investments LLC, acquired 100% of the outstanding common membership interests of MIPT, a private REIT, which is the parent company of Global Tower Partners, and related companies, for a total purchase price of approximately $4.8 billion, subject to customary post-closing purchase price adjustments.

The purchase price was satisfied with approximately $3.3 billion in cash, including an aggregate of approximately $2.8 billion from borrowings under the 2012 Credit Facility and the 2013 Credit Facility, and the assumption of approximately $1.5 billion of MIPT’s existing indebtedness. MIPT’s existing indebtedness

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

included $1.49 billion of securitized indebtedness under eleven separate classes of Secured Tower Revenue Notes and $32.6 million of secured debt in Costa Rica.

The following table reflects the preliminary allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed for MIPT based upon the estimated fair value at the date of acquisition. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of property and equipment, intangible assets and goodwill. The valuations consist of a discounted cash flow analysis or other appropriate valuation techniques to determine the fair value of the assets acquired and liabilities assumed.

 

     MIPT  

Current assets

   $ 104,044   

Non-current assets

     627   

Property, equipment and easements

     1,290,143   

Intangible assets (1):

  

Customer-related intangible assets

     2,536,700   

Network location intangible assets

     338,600   

Current liabilities

     (88,497

Long-term obligations (2)

     (1,573,366

Other non-current liabilities

     (49,158
  

 

 

 

Fair value of net assets acquired

   $ 2,559,093   
  

 

 

 

Goodwill (3)

     756,833   

 

(1) Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years.
(2) Long-term obligations included $1.5 billion of MIPT’s existing indebtedness and a fair value adjustment of $53.0 million.
(3) Goodwill will be allocated to the Company’s domestic and international rental and management segments, as applicable. The Company expects goodwill recorded to its domestic rental and management segment will be deductible for tax purposes and goodwill recorded to its international segment will not be deductible for tax purposes.

MIPT Acquisition—Pro Forma Consolidated Results

The following pro forma information presents the financial results as if the acquisition of MIPT had occurred on January 1, 2012. The pro forma results do not include any anticipated cost synergies, costs or other effects of the planned integration of MIPT. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor are they indicative of the future operating results of the combined company.

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2013      2012      2013      2012  

Operating revenues

   $ 888,432       $ 788,623       $ 2,659,294       $ 2,326,753   

Net income attributable to American Tower Corporation

   $ 142,357       $ 195,647       $ 343,992       $ 392,156   

Net income per common share amounts:

           

Basic net income attributable to American Tower Corporation

   $ 0.36       $ 0.50       $ 0.87       $ 0.99   

Diluted net income attributable to American Tower Corporation

   $ 0.36       $ 0.49       $ 0.86       $ 0.98   

 

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AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

 

15.    Business Segments

The Company operates in three business segments: domestic rental and management, international rental and management and network development services. The Company’s primary business is leasing antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies and municipalities and tenants in a number of other industries. This business is referred to as the Company’s rental and management operations and is comprised of domestic and international segments, which consist of the following as of September 30, 2013:

 

   

Domestic: rental and management operations in the United States; and

 

   

International: rental and management operations in Brazil, Chile, Colombia, Germany, Ghana, India, Mexico, Peru, South Africa and Uganda.

The Company has applied the aggregation criteria to operations within the international rental and management operating segments on a basis consistent with management’s review of information and performance evaluation.

The Company’s network development services segment offers tower-related services in the United States, including site acquisition, zoning and permitting services and structural analysis services, which primarily support its site leasing business and the addition of new tenants and equipment on its sites. The network development services segment is a strategic business unit that offers different services from the rental and management operating segments and requires different resources, skill sets and marketing strategies.

The accounting policies applied in compiling segment information below are similar to those described in note 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Among other factors, in evaluating financial performance in each business segment, management uses segment gross margin and segment operating profit. The Company defines segment gross margin as segment revenue less segment operating expenses excluding stock-based compensation expense recorded in costs of operations; depreciation, amortization and accretion; selling, general, administrative and development expense; and other operating expenses. The Company defines segment operating profit as segment gross margin less selling, general, administrative and development expense attributable to the segment, excluding stock-based compensation expense and corporate expenses. For reporting purposes, the international rental and management segment gross margin and segment operating profit also include Interest income, TV Azteca, net. These measures of segment gross margin and segment operating profit are also before Interest income, Interest expense, Loss on retirement of long-term obligations, Other income (expense), Net income (loss) attributable to noncontrolling interest, Income (loss) on equity method investments and Income tax provision (benefit). The categories of expenses indicated above, such as depreciation, have been excluded from segment operating performance as they are not considered in the review of information or the evaluation of results by management. There are no significant revenues resulting from transactions between the Company’s operating segments. All intercompany transactions are eliminated to reconcile segment results and assets to the condensed consolidated statements of operations and condensed consolidated balance sheets.

Summarized financial information concerning the Company’s reportable segments for the three and nine months ended September 30, 2013 and 2012 is shown in the following tables. 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.

 

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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, 2013   Domestic     International          
    (in thousands)  

Segment revenues

  $ 529,941      $ 266,634      $ 796,575      $ 11,305        $ 807,880   

Segment operating expenses (1)

    95,232        100,473        195,705        4,777          200,482   

Interest income, TV Azteca, net

    —          3,544        3,544        —            3,544   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment gross margin

    434,709        169,705        604,414        6,528          610,942   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

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

    24,523        31,728        56,251        1,880          58,131   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment operating profit

  $ 410,186      $ 137,977      $ 548,163      $ 4,648        $ 552,811   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Stock-based compensation expense

          $ 15,058        15,058   

Other selling, general, administrative and development expense

            24,939        24,939   

Depreciation, amortization and accretion

            184,922        184,922   

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

            149,084        149,084   
           

 

 

 

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

            $ 178,808   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 12,037,318      $ 5,427,416      $ 17,464,734      $ 49,973      $ 666,613      $ 18,181,320   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $0.3 million and $14.7 million, respectively.

 

    Rental and Management     Total Rental  and
Management
    Network
Development
Services
    Other     Total  
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  
Nine months ended September 30, 2013   Domestic     International          
    (in thousands)  

Segment revenues

  $ 1,566,660      $ 796,547      $ 2,363,207      $ 56,231        $ 2,419,438   

Segment operating expenses (1)

    282,273        302,441        584,714        22,399          607,113   

Interest income, TV Azteca, net

    —          10,673        10,673        —            10,673   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment gross margin

    1,284,387        504,779        1,789,166        33,832          1,822,998   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

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

    71,664        93,753        165,417        7,105          172,522   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Segment operating profit

  $ 1,212,723      $ 411,026      $ 1,623,749      $ 26,727        $ 1,650,476   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Stock-based compensation expense

          $ 53,155        53,155   

Other selling, general, administrative and development expense

            74,251        74,251   

Depreciation, amortization and accretion

            555,334        555,334   

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

            536,092        536,092   
           

 

 

 

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

            $ 431,644   
           

 

 

 

 

(1) Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $1.2 million and $52.0 million, respectively.

 

    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

 

16.    Subsequent Events

2013 Term Loan—On October 29, 2013, the Company entered into the 2013 Term Loan of $1.5 billion. The Company used the net proceeds from the 2013 Term Loan and cash on hand to repay the 2012 Term Loan and $800 million of outstanding indebtedness under the 2012 Credit Facility.

The 2013 Term Loan matures on January 3, 2019. Any outstanding principal and accrued but unpaid interest will be due and payable in full at maturity. The 2013 Term Loan may be paid prior to maturity in whole or in part at our 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 1.125% to 2.250% above LIBOR for LIBOR based borrowings or between 0.125% to 1.250% above the defined base rate for base rate borrowings, in each case based upon our debt ratings. The current margin over LIBOR that the Company would incur (should it choose LIBOR) on borrowings is 1.25%.

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.

 

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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,” “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” of our Annual Report on Form 10-K for the year ended December 31, 2012, and in particular, the information set forth therein under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our results of operations do not reflect the impact of our acquisition of MIP Tower Holdings LLC (“MIPT”), which closed on October 1, 2013. For more information regarding our acquisition of MIPT, see note 14 to our condensed consolidated financial statements included herein.

Overview

We are a leading independent owner, operator and developer of wireless and broadcast communications real estate. Our primary business is leasing antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies and municipalities and tenants in a number of other industries. We refer to this business as our rental and management operations, which accounted for approximately 98% of our total revenues for the nine months ended September 30, 2013. We also offer tower-related services domestically, including site acquisition, zoning and permitting services and structural analysis services, which primarily support our site leasing business and the addition of new tenants and equipment on our sites. Effective January 1, 2012, we reorganized to qualify as a real estate investment trust for federal income tax purposes (“REIT” and the reorganization, the “REIT Conversion”).

Our communications real estate portfolio of 57,389 sites, as of September 30, 2013, includes wireless and broadcast communications towers and distributed antenna system (“DAS”) networks, which provide seamless coverage solutions in certain in-building and outdoor wireless environments. Our portfolio primarily consists of towers that we own and towers that we operate pursuant to long-term lease arrangements, including, as of September 30, 2013, 22,754 towers domestically and 34,314 towers internationally. Our portfolio also includes 321 DAS networks. In addition to the communications sites in our portfolio, we manage rooftop and tower sites for property owners under various contractual arrangements. We also hold property interests that we lease to communications service providers and third-party tower operators.

 

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The following table details the number of communications sites we own or operate as of September 30, 2013:

 

Country

   Number of
Owned  Sites
     Number of
Operated Sites  (1)
 

United States

     16,615         6,414   

International:

     

Brazil

     4,369         155   

Chile

     1,153         —     

Colombia

     2,723         706   

Germany

     2,031         —     

Ghana

     1,959         —     

India

     10,965         —     

Mexico

     6,625         199   

Peru

     499         —     

South Africa

     1,828         —     

Uganda

     1,148         —     

 

(1) All of the communications sites we operate are held pursuant to long-term capital leases, including those subject to purchase options.

In addition, on October 1, 2013, through our acquisition of MIPT, we acquired over 5,000 communications sites in the United States, approximately 500 communications sites in Costa Rica and approximately 50 communications sites in Panama.

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 15 to our condensed consolidated financial statements included herein). These measures of segment gross margin and segment operating profit are also before interest income, interest expense, loss on retirement of long-term obligations, other income (expense), net income (loss) attributable to noncontrolling interest, income (loss) on equity method investments and income taxes.

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 results of operations, financial position and sources and uses of liquidity. In addition, we highlight key trends, which management believes provide valuable insight into our operating and financial resource allocation decisions.

Revenue Growth. Due to our diversified communications site portfolio, our tenant lease rates vary considerably depending upon numerous factors, including but not limited to, tower location, amount and type of tenant equipment on the tower, ground space required by the tenant and remaining tower capacity. We measure the remaining tower capacity by assessing several factors, including tower height, tower type, environmental conditions, existing equipment on the tower and zoning and permitting regulations in effect in the jurisdiction where the tower is located. In many instances, tower capacity can be increased through tower augmentation.

The primary 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 sites acquired or constructed since the beginning of the prior year period (“new sites”).

For instance, we expect the new communications sites we acquired from MIPT on October 1, 2013 to generate predictable revenue growth in future periods. For the nine months ended September 30, 2013, total revenues for MIPT were $239.9 million. For more information regarding our acquisition of MIPT, see note 14 to our condensed consolidated financial statements included herein.

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, 2013 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, 2013, we expect to generate approximately $21 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 inflation with a fixed minimum or maximum escalation for the year. 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, 2013, loss of revenue from tenant lease cancellations or renegotiations represented approximately 1.5% 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 and data 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. Our legacy site portfolio and our established tenant base provide us with new business opportunities, which have historically resulted in consistent and predictable organic revenue growth as wireless carriers seek to increase the coverage and capacity of their networks as well as roll out next generation wireless technologies. In addition, we intend to continue to supplement the organic growth on our legacy sites by selectively developing or acquiring new sites in our existing and new markets where we can achieve our risk adjusted return on investment criteria.

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

 

   

The deployment of advanced wireless technology across existing wireless networks will provide our tenants the ability to deliver higher speed data services and enable fixed broadband substitution. As a result, our tenants continue to deploy additional equipment across their existing networks.

 

   

Wireless service providers compete based on the overall capacity and coverage of their existing wireless networks. To maintain or improve their network performance as overall network usage increases, our tenants continue to deploy additional equipment across their existing sites and also add new cell sites.

 

   

Wireless service providers are investing in reinforcing their networks through incremental backhaul and the utilization of on-site generators, which results in additional space and/or equipment leased at the tower site.

 

   

Wireless service providers continue to acquire additional spectrum, and as a result, are expected to add additional equipment to their network as they seek to optimize their network configuration.

 

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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 utilizing spectrum acquired through recent auctions.

 

   

In Mexico and Brazil, nationwide voice networks have been 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 initial investments in wireless data networks.

 

   

In Costa Rica, nationwide voice networks are currently being deployed by three carriers, after the dissolution of a government monopoly of the wireless industry in 2011. After the initial network build-outs are complete, additional carrier network investments are expected to support more advanced wireless services.

 

   

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.

 

   

In Panama, nationwide networks have been deployed and the major carriers in the market are currently focused on augmenting their networks to support wireless data applications.

 

   

In Germany, our most mature international wireless market, demand is currently being driven by a government-mandated rural LTE network build-out, as well as other tenant initiatives to deploy next generation wireless services.

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, security 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 portfolio. Our profit margin growth is therefore positively impacted by the addition of new tenants to our legacy sites and can be temporarily diluted by our development activities.

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 to qualify as a REIT. 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 primarily consists 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.

 

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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 distributed earnings and excluding any net capital gain). During the nine months ended September 30, 2013, we declared an aggregate of approximately $320.0 million in regular cash distributions to our stockholders. 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, 2012 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”), Funds From Operations, as defined by the National Association of Real Estate Investment Trusts (“NAREIT FFO”) and Adjusted Funds From Operations (“AFFO”).

We define Adjusted EBITDA as Net income before income (loss) on discontinued operations, net; Income (loss) from equity method investments; Income tax provision (benefit); Other income (expense); Loss on retirement of long-term obligations; Interest expense; Interest income; Other operating income (expense); Depreciation, amortization and accretion; and stock-based compensation expense.

NAREIT FFO is defined as net income before gains or losses from the sale or disposal of real estate, real estate related impairment charges and real estate related depreciation, amortization and accretion, and including adjustments for (i) unconsolidated affiliates and (ii) noncontrolling interest.

We define AFFO as NAREIT FFO before (i) straight-line revenue and expense; (ii) stock-based compensation expense; (iii) the non-cash portion of our tax provision; (iv) non-real estate related depreciation, amortization and accretion; (v) amortization of deferred financing costs, capitalized interest, debt discounts and premiums and long-term deferred interest charges; (vi) other income (expense); (vii) loss on retirement of long-term obligations; (viii) other operating income (expense); and adjustments for (ix) unconsolidated affiliates and (x) noncontrolling interest, less cash payments related to capital improvements and cash payments related to corporate capital expenditures.

Adjusted EBITDA, NAREIT FFO and AFFO are not intended to replace net income or any other performance measures determined in accordance with GAAP. Neither NAREIT FFO nor AFFO represent cash flows from operating activities in accordance with GAAP and therefore these measures should not be considered indicative of cash flows from operating activities as a measure of liquidity or of funds available to fund our cash needs, including our ability to make cash distributions. Rather, Adjusted EBITDA, NAREIT FFO and AFFO are presented as we believe each is a useful indicator of our current operating performance. We believe that these metrics are useful to an investor in evaluating our operating performance because (1) each is a key measure used by our management team for purposes of decision making and for evaluating the performance of our operating segments; (2) Adjusted EBITDA is a component of the calculation used by our lenders to determine compliance with certain debt covenants; (3) Adjusted EBITDA is widely used in the tower industry to measure operating performance as depreciation, amortization and accretion may vary significantly among companies depending upon accounting methods and useful lives, particularly where acquisitions and non-operating factors are involved; (4) each provides investors with a meaningful measure for evaluating our period to period operating performance by eliminating items which are not operational in nature; and (5) each provides investors with a measure for comparing our results of operations to those of different companies.

 

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Our measurement of Adjusted EBITDA, NAREIT FFO and AFFO may not be comparable to similarly titled measures used by other companies. Reconciliations of Adjusted EBITDA, NAREIT FFO and AFFO to net income, the most directly comparable GAAP measure, have been included below.

Results of Operations

Three Months Ended September 30, 2013 and 2012 (in thousands, except percentages)

Revenue

 

     Three Months Ended
September 30,
     Amount  of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2013      2012       

Rental and management

          

Domestic

   $ 529,941       $ 480,351       $ 49,590        10

International

     266,634         217,203         49,431        23   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total rental and management

     796,575         697,554         99,021        14   

Network development services

     11,305         15,781         (4,476     (28
  

 

 

    

 

 

    

 

 

   

 

 

 

Total revenues

   $ 807,880       $ 713,335       $ 94,545        13

Total revenues for the three months ended September 30, 2013 increased 13% to $807.9 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 7,850 new sites that we have constructed or acquired since July 1, 2012.

Domestic rental and management segment revenue for the three months ended September 30, 2013 increased 10% to $529.9 million, which was comprised of:

 

   

Revenue growth from legacy sites of approximately 8%, which includes approximately 6% 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 1,050 new sites, as well as land interests under third-party sites since July 1, 2012; and

 

   

A decrease of approximately 1% from the impact of straight-line lease accounting.

International rental and management segment revenue for the three months ended September 30, 2013 increased 23% to $266.6 million, which was comprised of:

 

   

Revenue growth from new sites of approximately 17%, resulting from the construction or acquisition of approximately 6,800 new sites since July 1, 2012;

 

   

Revenue growth from legacy sites of approximately 14%, which includes approximately 12% 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 less than 1% from the impact of straight-line lease accounting; and

 

   

A decrease of approximately 9% attributable to the negative impact from foreign currency translation, which includes, among others, the negative impact of approximately 3% related to fluctuations in Brazilian Real (“BRL”), approximately 2% related to fluctuations in South African Rand (“ZAR”) and approximately 2% related to fluctuations in Indian Rupee (“INR”).

Network development services segment revenue for the three months ended September 30, 2013 decreased 28% to $11.3 million. During the prior period, our network development services segment revenue was

 

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positively impacted by the additional site acquisition, zoning and permitting services and structural engineering services associated with certain tenants’ next generation technology network upgrade projects.

Gross Margin

 

     Three Months Ended
September 30,
     Amount  of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2013      2012       

Rental and management

          

Domestic

   $ 434,709       $ 388,279       $ 46,430        12

International

     169,705         135,720         33,985        25   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total rental and management

     604,414         523,999         80,415        15   

Network development services

     6,528         8,458         (1,930     (23 )% 

Domestic rental and management segment gross margin for the three months ended September 30, 2013 increased 12% to $434.7 million, which was comprised of:

 

   

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

 

   

Gross margin growth from new sites of approximately 2%, resulting from the construction or acquisition of approximately 1,050 new sites, as well as land interests under third-party sites since July 1, 2012.

International rental and management segment gross margin for the three months ended September 30, 2013 increased 25% to $169.7 million, which was comprised of:

 

   

Gross margin growth from new sites of approximately 19%, resulting from the construction or acquisition of approximately 6,800 new sites since July 1, 2012;

 

   

Gross margin growth from legacy sites of approximately 14%, primarily associated with the increase in revenue, as described above; and

 

   

A decrease of approximately 8% attributable to the negative impact from foreign currency translation, which includes, among others, the negative impact of approximately 3% related to fluctuations in BRL, approximately 2% related to fluctuations in ZAR and approximately 2% related to fluctuations in INR.

Network development services segment gross margin for the three months ended September 30, 2013 decreased 23% to $6.5 million, primarily attributable to the decrease in network development services revenue as described above.

Selling, General, Administrative and Development Expense

 

     Three Months Ended
September 30,
     Amount  of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2013      2012       

Rental and management

          

Domestic

   $ 24,523       $ 20,141       $ 4,382        22

International

     31,728         25,057         6,671        27   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total rental and management

     56,251         45,198         11,053        24   

Network development services

     1,880         2,127         (247     (12

Other

     39,650         34,134         5,516        16   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total selling, general, administrative and development expense

   $ 97,781       $ 81,459       $ 16,322        20

 

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Total selling, general, administrative and development expense (“SG&A”) for the three months ended September 30, 2013 increased 20% to $97.8 million. The increase was primarily attributable to an increase in our international rental and management segment and other SG&A.

Domestic rental and management segment SG&A for the three months ended September 30, 2013 increased 22% to $24.5 million. The increase was primarily driven by increasing personnel costs and professional fees to support our business.

International rental and management segment SG&A for the three months ended September 30, 2013 increased 27% to $31.7 million. The increase was primarily due to our continued expansion in foreign markets, including operations in Germany.

Network development services segment SG&A for the three months ended September 30, 2013 decreased 12% to $1.9 million. During the three months ended September 30, 2012, we incurred higher personnel related costs related to the additional site acquisition, zoning, permitting and structural engineering services associated with certain tenants’ next generation technology network upgrade projects.

Other SG&A for the three months ended September 30, 2013 increased 16% to $39.7 million. The increase was primarily due to a $2.1 million increase in SG&A related stock-based compensation expense and a $3.7 million increase in corporate expenses associated with supporting a growing global business, and legal expenses.

Operating Profit

 

     Three Months Ended
September 30,
     Amount  of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2013      2012       

Rental and management

          

Domestic

   $ 410,186       $ 368,138       $ 42,048        11

International

     137,977         110,663         27,314        25   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total rental and management

     548,163         478,801         69,362        14   

Network development services

     4,648         6,331         (1,683     (27 )% 

Domestic rental and management segment operating profit for the three months ended September 30, 2013 increased 11% to $410.2 million. The growth was primarily attributable to the increase in our domestic rental and management segment gross margin (12%), as described above, and was partially offset by an increase in our domestic rental and management segment SG&A (22%), as described above.

International rental and management segment operating profit for the three months ended September 30, 2013 increased 25% to $138.0 million. The growth was primarily attributable to the increase in our international rental and management segment gross margin (25%), as described above, and was partially offset by an increase in our international rental and management segment SG&A (27%), as described above.

Network development services segment operating profit for the three months ended September 30, 2013 decreased 27% to $4.6 million. The decrease was primarily attributable to the decrease in network development services segment gross margin (23%), as described above, and was partially offset by a decrease in our network development services segment SG&A (12%), as described above.

Depreciation, Amortization and Accretion

 

     Three Months Ended
September 30,
     Amount  of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
     2013      2012        

Depreciation, amortization and accretion

   $ 184,922       $ 144,061       $ 40,861         28

 

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Depreciation, amortization and accretion for the three months ended September 30, 2013 increased 28% to $184.9 million. The increase was primarily attributable to the depreciation, amortization and accretion associated with the acquisition or construction of approximately 7,850 sites since July 1, 2012, which resulted in an increase in property and equipment and intangible assets subject to amortization.

Other Operating Expenses

 

     Three Months Ended
September 30,
     Amount  of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
         2013              2012            

Other operating expenses

   $ 15,469       $ 7,359       $ 8,110         110

Other operating expenses for the three months ended September 30, 2013 increased 110% to $15.5 million. The increase was primarily attributable to an increase of $4.3 million in losses from the sale or disposal of assets and impairment charges and an increase of $3.7 million in acquisition related costs.

Interest Expense

 

     Three Months Ended
September 30,
     Amount  of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
     2013      2012        

Interest expense

   $ 106,335         102,272       $ 4,063         4

Interest expense for the three months ended September 30, 2013 increased 4% to $106.3 million. The increase was primarily attributable to an increase in our average debt outstanding of approximately $2.0 billion, which includes the impact of our senior notes offering completed in August 2013. This increase was partially offset by a decrease in our annualized weighted average cost of borrowing from 5.35% to 4.55%. The weighted average interest rate was 3.78% at September 30, 2013.

Other Expense (Income)

 

     Three Months Ended
September 30,
    Amount  of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
     2013      2012       

Other expense (income)

   $ 29,622       $ (46,294   $ 75,916         164

During the three months ended September 30, 2013, other expense increased 164% to $29.6 million. During the three months ended September 30, 2013 and 2012, we recorded unrealized foreign currency losses of $30.9 million and unrealized foreign currency gains of $46.2 million, respectively, 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.

Income Tax Provision

 

     Three Months Ended
September 30,
    Amount  of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
         2013             2012           

Income tax provision

   $ 15,586        13,054      $ 2,532         19

Effective tax rate

     8.7     5.3     

The income tax provision for the three months ended September 30, 2013 and 2012 was $15.6 million and $13.1 million, respectively. The effective tax rate (“ETR”) for the three months ended September 30, 2013 increased to 8.7% from 5.3%. The lower ETR during the three months ended September 30, 2012 was primarily a result of recording certain favorable adjustments during the three months ended September 30, 2012.

 

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The ETR on income from continuing operations for the three months ended September 30, 2013 and 2012 differs from the federal statutory rate primarily due to our qualification for taxation as a REIT effective as of January 1, 2012 and adjustments for foreign items.

Net Income/Adjusted EBITDA

 

     Three Months Ended
September 30,
    Amount  of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2013     2012      

Net income

   $ 163,222      $ 231,825      $ (68,603     (30 )% 

Income from equity method investments

     —          (2     (2     (100

Income tax provision

     15,586        13,054        2,532        19   

Other expense (income)

     29,622        (46,294     75,916        164   

Interest expense

     106,335        102,272        4,063        4   

Interest income

     (2,342     (1,717     625        36   

Other operating expenses

     15,469        7,359        8,110        110   

Depreciation, amortization and accretion

     184,922        144,061        40,861        28   

Stock-based compensation expense

     15,058        13,058        2,000        15   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 527,872      $ 463,616      $ 64,256        14

Net income for the three months ended September 30, 2013 decreased 30% to $163.2 million. The decrease was primarily attributable to an increase in depreciation, amortization and accretion expense and other expenses, which were primarily due to unrealized foreign currency losses. The decrease was partially offset by the increase in our rental and management segments’ operating profit, as described above.

Adjusted EBITDA for the three months ended September 30, 2013 increased 14% to $527.9 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.

Net Income/NAREIT FFO/AFFO

 

     Three Months Ended
September 30,
    Amount  of
Increase
(Decrease)
    Percent
Increase
(Decrease)
 
     2013     2012      

Net income

   $ 163,222      $ 231,825      $ (68,603     (30 )% 

Real estate related depreciation, amortization and accretion

     160,976        122,944        38,032        31   

Losses from sale or disposal of real estate and real estate related impairment charges

     6,160        1,901        4,259        224   

Adjustments for unconsolidated affiliates and noncontrolling interest

     10,516        (6,338     16,854        266   
  

 

 

   

 

 

   

 

 

   

 

 

 

NAREIT FFO

   $ 340,874      $ 350,332      $ (9,458     (3 )% 

Straight-line revenue

     (37,286     (40,986     (3,700     (9

Straight-line expense

     6,293        8,118        (1,825     (22

Stock-based compensation expense

     15,058        13,058        2,000        15   

Non-cash portion of tax provision (benefit)

     9,567        (2,635     12,202        463   

Non-real estate related depreciation, amortization and accretion

     23,946        21,117        2,829        13   

Amortization of deferred financing costs, capitalized interest, debt discounts and premiums and long-term deferred interest charges

     7,127        2,254        4,873        216   

Other expense (income) (1)

     29,622        (46,294     75,916        164   

Other operating expenses (2)

     9,309        5,458        3,851        71   

Capital improvement capital expenditures

     (18,724     (16,189     2,535        16   

Corporate capital expenditures

     (7,930     (5,268     2,662        51   

Adjustments for unconsolidated affiliates and noncontrolling interest

     (10,516     6,338        16,854        266   
  

 

 

   

 

 

   

 

 

   

 

 

 

AFFO

   $ 367,340      $ 295,303      $ 72,037        24

 

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(1) Primarily includes unrealized loss on foreign currency exchange rate fluctuations.
(2) Primarily includes transaction related costs.

NAREIT FFO for the three months ended September 30, 2013 was $340.9 million as compared to NAREIT FFO of $350.3 million for the three months ended September 30, 2012. AFFO for the three months ended September 30, 2013 increased 24% to $367.3 million as compared to $295.3 million for the three months ended September 30, 2012. AFFO growth was primarily attributable to the increase in our operating profit, partially offset by an increase in cash paid for capital improvement and corporate capital expenditures.

Results of Operations

Nine Months Ended September 30, 2013 and 2012 (in thousands, except percentages)

Revenue

 

     Nine Months Ended
September 30,
     Amount of
Increase
(Decrease)
     Percent
Increase
(Decrease)
 
     2013      2012        

Rental and management

  

Domestic

   $ 1,566,660       $ 1,440,824       $ 125,836         9

International

     796,547         622,982         173,565         28   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total rental and management

     2,363,207         2,063,806         299,401         15   

Network development services

     56,231         43,780         12,451         28   
  

 

 

    

 

 

    

 

 

&nbs