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 filed this Form 10-Q on 10/31/2017
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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, 2017.
¨

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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
 
 
 
 
 
 
 
Emerging growth company
 
¨
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  ¨    No  x
As of October 24, 2017, there were 428,856,376 shares of common stock outstanding.
 
 
 





AMERICAN TOWER CORPORATION
TABLE OF CONTENTS
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017

 
 
 
Page Nos.
 
 
 
 
PART I. FINANCIAL INFORMATION
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
PART II. OTHER INFORMATION
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 6.
 
 





PART I.
FINANCIAL INFORMATION
ITEM 1.
UNAUDITED CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
 
September 30, 2017
 
December 31, 2016
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
799,467

 
$
787,161

Restricted cash
 
155,208

 
149,281

Short-term investments
 
1,032

 
4,026

Accounts receivable, net
 
508,626

 
308,369

Prepaid and other current assets
 
499,241

 
441,033

Total current assets
 
1,963,574

 
1,689,870

PROPERTY AND EQUIPMENT, net
 
10,795,057

 
10,517,258

GOODWILL
 
5,371,679

 
5,070,680

OTHER INTANGIBLE ASSETS, net
 
11,580,994

 
11,274,611

DEFERRED TAX ASSET
 
221,759

 
195,678

DEFERRED RENT ASSET
 
1,454,780

 
1,289,530

NOTES RECEIVABLE AND OTHER NON-CURRENT ASSETS
 
931,483

 
841,523

TOTAL
 
$
32,319,326

 
$
30,879,150

LIABILITIES
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
119,745

 
$
118,666

Accrued expenses
 
774,072

 
620,563

Distributions payable
 
286,911

 
250,550

Accrued interest
 
103,242

 
157,297

Current portion of long-term obligations
 
687,382

 
238,806

Unearned revenue
 
288,884

 
245,387

Total current liabilities
 
2,260,236

 
1,631,269

LONG-TERM OBLIGATIONS
 
18,581,381

 
18,294,659

ASSET RETIREMENT OBLIGATIONS
 
1,054,092

 
965,507

DEFERRED TAX LIABILITY
 
976,725

 
777,572

OTHER NON-CURRENT LIABILITIES
 
1,190,486

 
1,142,723

Total liabilities
 
24,062,920

 
22,811,730

COMMITMENTS AND CONTINGENCIES
 


 


REDEEMABLE NONCONTROLLING INTERESTS
 
1,146,773

 
1,091,220

EQUITY:
 
 
 
 
Preferred stock: $.01 par value; 20,000,000 shares authorized;
 
 
 
 
5.25%, Series A, 6,000,000 shares issued, 0 and 6,000,000 shares outstanding; aggregate liquidation value of $0 and $600,000, respectively
 

 
60

5.50%, Series B, 1,375,000 shares issued, 1,374,986 and 1,375,000 shares outstanding; aggregate liquidation value of $1,374,986 and $1,375,000, respectively
 
14

 
14

Common stock: $.01 par value; 1,000,000,000 shares authorized; 437,510,284 and 429,912,536 shares issued; and 429,243,720 and 427,102,510 shares outstanding, respectively
 
4,375

 
4,299

Additional paid-in capital
 
10,212,535

 
10,043,559

Distributions in excess of earnings
 
(975,158
)
 
(1,076,965
)
Accumulated other comprehensive loss
 
(1,839,029
)
 
(1,999,332
)
Treasury stock (8,266,564 and 2,810,026 shares at cost, respectively)
 
(884,610
)
 
(207,740
)
Total American Tower Corporation equity
 
6,518,127

 
6,763,895

Noncontrolling interests
 
591,506

 
212,305

Total equity
 
7,109,633

 
6,976,200

TOTAL
 
$
32,319,326

 
$
30,879,150

See accompanying notes to unaudited consolidated and condensed consolidated financial statements.

1



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
REVENUES:
 
 
 
 
 
 
 
 
Property
 
$
1,655,349

 
$
1,497,936

 
$
4,887,588

 
$
4,191,779

Services
 
25,417

 
16,909

 
71,850

 
54,340

Total operating revenues
 
1,680,766

 
1,514,845

 
4,959,438

 
4,246,119

 OPERATING EXPENSES:
 
 
 
 
 
 
 
 
Costs of operations (exclusive of items shown separately below):
 
 
 
 
 
 
 
 
Property (including stock-based compensation expense of $476, $426, $1,776 and $1,325, respectively)
 
511,151

 
485,525

 
1,504,552

 
1,280,386

Services (including stock-based compensation expense of $189, $172, $613 and $578, respectively)
 
8,608

 
5,712

 
25,098

 
22,007

Depreciation, amortization and accretion
 
432,354

 
397,999

 
1,249,849

 
1,137,398

Selling, general, administrative and development expense (including stock-based compensation expense of $23,798, $19,628, $84,034 and $68,309, respectively)
 
147,961

 
131,537

 
465,905

 
405,086

Other operating expenses
 
19,541

 
14,998

 
44,595

 
37,509

Total operating expenses
 
1,119,615

 
1,035,771

 
3,289,999

 
2,882,386

OPERATING INCOME
 
561,151

 
479,074

 
1,669,439

 
1,363,733

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
 
Interest income, TV Azteca, net of interest expense of $292, $279, $874 and $846, respectively
 
2,713

 
2,742

 
8,183

 
8,206

Interest income
 
8,313

 
6,376

 
26,551

 
16,378

Interest expense
 
(188,784
)
 
(190,160
)
 
(559,507
)
 
(531,076
)
(Loss) gain on retirement of long-term obligations
 
(14,183
)
 

 
(69,897
)
 
830

Other (expense) income (including unrealized foreign currency (losses) gains of ($5,344), ($8,321), $30,392 and ($3,544), respectively)
 
(1,114
)
 
(12,260
)
 
39,970

 
(25,894
)
Total other expense
 
(193,055
)
 
(193,302
)
 
(554,700
)
 
(531,556
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
368,096

 
285,772

 
1,114,739

 
832,177

Income tax provision
 
(33,412
)
 
(22,037
)
 
(84,155
)
 
(94,671
)
NET INCOME
 
334,684

 
263,735

 
1,030,584

 
737,506

Net (income) loss attributable to noncontrolling interests
 
(17,416
)
 
774

 
(30,185
)
 
(10,288
)
NET INCOME ATTRIBUTABLE TO AMERICAN TOWER CORPORATION STOCKHOLDERS
 
317,268

 
264,509

 
1,000,399

 
727,218

Dividends on preferred stock
 
(18,907
)
 
(26,781
)
 
(68,531
)
 
(80,344
)
NET INCOME ATTRIBUTABLE TO AMERICAN TOWER CORPORATION COMMON STOCKHOLDERS
 
$
298,361

 
$
237,728

 
$
931,868

 
$
646,874

NET INCOME PER COMMON SHARE AMOUNTS:
 
 
 
 
 
 
 
 
Basic net income attributable to American Tower Corporation common stockholders
 
$
0.70

 
$
0.56

 
$
2.18

 
$
1.52

Diluted net income attributable to American Tower Corporation common stockholders
 
$
0.69

 
$
0.55

 
$
2.16

 
$
1.51

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 
 
 
 
 
 
 
 
BASIC
 
429,281

 
425,517

 
427,960

 
424,831

DILUTED
 
432,831

 
429,925

 
431,319

 
429,019

DISTRIBUTIONS DECLARED PER COMMON SHARE
 
$
0.66

 
$
0.55

 
$
1.92

 
$
1.59

See accompanying notes to unaudited consolidated and condensed consolidated financial statements.

2



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income
 
$
334,684

 
$
263,735

 
$
1,030,584

 
$
737,506

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Changes in fair value of cash flow hedges, net of tax of $0
 
14

 
(432
)
 
(286
)
 
(367
)
Reclassification of unrealized losses (gains) on cash flow hedges to net income, net of tax of $0
 
19

 
(108
)
 
(99
)
 
(173
)
Foreign currency translation adjustments, net of tax expense (benefit) of $2,292, ($1,495), $4,714 and $5,388, respectively
 
12,581

 
(91,608
)
 
252,016

 
(43,282
)
Other comprehensive income (loss)
 
12,614

 
(92,148
)
 
251,631

 
(43,822
)
Comprehensive income
 
347,298

 
171,587

 
1,282,215

 
693,684

Comprehensive income attributable to noncontrolling interests
 
(20,256
)
 
(12,454
)
 
(121,513
)
 
(5,844
)
Comprehensive income attributable to American Tower Corporation stockholders
 
$
327,042

 
$
159,133

 
$
1,160,702

 
$
687,840


See accompanying notes to unaudited consolidated and condensed consolidated financial statements.



3


AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
1,030,584

 
$
737,506

Adjustments to reconcile net income to cash provided by operating activities
 
 
 
 
Depreciation, amortization and accretion
 
1,249,849

 
1,137,398

Stock-based compensation expense
 
86,423

 
70,212

Loss (gain) on early retirement of long-term obligations
 
69,897

 
(830
)
Other non-cash items reflected in statements of operations
 
(6,574
)
 
120,170

(Increase) decrease in restricted cash
 
(4,822
)
 
4,126

Increase in net deferred rent balances
 
(106,048
)
 
(51,762
)
Increase in assets
 
(265,641
)
 
(8,863
)
Increase (decrease) in liabilities
 
78,084

 
(29,526
)
Cash provided by operating activities
 
2,131,752

 
1,978,431

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Payments for purchase of property and equipment and construction activities
 
(554,967
)
 
(475,174
)
Payments for acquisitions, net of cash acquired
 
(956,943
)
 
(1,309,915
)
Payment for Verizon transaction
 

 
(4,748
)
Proceeds from sale of short-term investments and other non-current assets
 
10,144

 
4,459

Deposits, restricted cash, investments and other
 
(8,730
)
 
(824
)
Cash used for investing activities
 
(1,510,496
)
 
(1,786,202
)
CASH FLOW FROM FINANCING ACTIVITIES
 
 
 
 
Repayments of short-term borrowings, net
 

 
(7,337
)
Borrowings under credit facilities
 
3,667,020

 
1,600,283

Proceeds from issuance of senior notes, net
 
1,279,435

 
3,236,383

Repayments of notes payable, credit facilities, senior notes, term loan and capital leases
 
(4,295,715
)
 
(4,116,645
)
Contributions from (distributions to) noncontrolling interest holders, net
 
264,685

 
(700
)
Purchases of common stock
 
(669,690
)
 

Proceeds from stock options and ESPP
 
105,717

 
76,601

Distributions paid on common stock
 
(789,522
)
 
(651,966
)
Distributions paid on preferred stock
 
(72,468
)
 
(80,344
)
Payment for early retirement of long-term obligations
 
(75,274
)
 
(125
)
Deferred financing costs and other financing activities
 
(28,114
)
 
(29,423
)
Cash (used for) provided by financing activities
 
(613,926
)
 
26,727

Net effect of changes in foreign currency exchange rates on cash and cash equivalents
 
4,976

 
(9,284
)
NET INCREASE IN CASH AND CASH EQUIVALENTS
 
12,306

 
209,672

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
 
787,161

 
320,686

CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
799,467

 
$
530,358

CASH PAID FOR INCOME TAXES (NET OF REFUNDS OF $19,832 AND $16,219, RESPECTIVELY)
 
$
87,672

 
$
71,868

CASH PAID FOR INTEREST
 
$
584,310

 
$
516,382

NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
 
Increase (decrease) in accounts payable and accrued expenses for purchases of property and equipment and construction activities
 
$
21,019

 
$
(36,609
)
Purchases of property and equipment under capital leases
 
$
33,713

 
$
37,049

See accompanying notes to unaudited consolidated and condensed consolidated financial statements.

4



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share data)
 
 
Preferred Stock - Series A
 
Preferred Stock - Series B
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in
Capital
 
Accumulated Other
Comprehensive
Loss
 
Distributions
in Excess of
Earnings
 
Noncontrolling
Interest
 
Total
Equity
 
 
Issued Shares
 
Amount
 
Issued Shares
 
Amount
 
Issued
Shares
 
Amount
 
Shares
 
Amount
 
BALANCE, JANUARY 1, 2016
 
6,000,000

 
$
60

 
1,375,000

 
$
14

 
426,695,279

 
$
4,267

 
(2,810,026
)
 
$
(207,740
)
 
$
9,690,609

 
$
(1,836,996
)
 
$
(998,535
)
 
$
61,139

 
$
6,712,818

Stock-based compensation related activity
 

 

 

 

 
1,691,546

 
17

 

 

 
123,359

 

 

 

 
123,376

Issuance of common stock—stock purchase plan
 

 

 

 

 
44,733

 

 

 

 
3,847

 

 

 

 
3,847

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

 

 

 

 

 

 

 

 

 
(367
)
 

 

 
(367
)
Reclassification of unrealized gains on cash flow hedges to net income
 

 

 

 

 

 

 

 

 

 
(173
)
 

 

 
(173
)
Foreign currency translation adjustment, net of tax
 

 

 

 

 

 

 

 

 

 
(38,838
)
 

 
(2,306
)
 
(41,144
)
Contributions from noncontrolling interest holders
 

 

 

 

 

 

 

 

 

 

 

 
47

 
47

Distributions to noncontrolling interest holders
 

 

 

 

 

 

 

 

 

 

 

 
(747
)
 
(747
)
Common stock distributions declared
 

 

 

 

 

 

 

 

 

 

 
(679,002
)
 

 
(679,002
)
Preferred stock dividends declared
 

 

 

 

 

 

 

 

 

 

 
(80,344
)
 

 
(80,344
)
Net income
 

 

 

 

 

 

 

 

 

 

 
727,218

 
8,752

 
735,970

BALANCE, SEPTEMBER 30, 2016
 
6,000,000

 
$
60

 
1,375,000

 
$
14

 
428,431,558

 
$
4,284

 
(2,810,026
)
 
$
(207,740
)
 
$
9,817,815

 
$
(1,876,374
)
 
$
(1,030,663
)
 
$
66,885

 
$
6,774,281

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JANUARY 1, 2017
 
6,000,000

 
$
60

 
1,375,000

 
$
14

 
429,912,536

 
$
4,299

 
(2,810,026
)
 
$
(207,740
)
 
$
10,043,559

 
$
(1,999,332
)
 
$
(1,076,965
)
 
$
212,305

 
$
6,976,200

Stock-based compensation related activity
 

 

 

 

 
1,942,412

 
19

 

 

 
164,424

 

 

 

 
164,443

Issuance of common stock—stock purchase plan
 

 

 

 

 
53,062

 
1

 

 

 
4,554

 

 

 

 
4,555

Conversion of preferred stock
 
(6,000,000
)
 
(60
)
 
(14
)
 
0

 
5,602,274

 
56

 

 

 
(2
)
 

 

 

 
(6
)
Treasury stock activity
 

 

 

 

 

 

 
(5,456,538
)
 
(676,870
)
 

 

 

 

 
(676,870
)
Changes in fair value of cash flow hedges, net of tax
 

 

 

 

 

 

 

 

 

 
(286
)
 

 

 
(286
)
Reclassification of unrealized gains on cash flow hedges to net income
 

 

 

 

 

 

 

 

 

 
(99
)
 

 

 
(99
)
Foreign currency translation adjustment, net of tax
 

 

 

 

 

 

 

 

 

 
160,688

 

 
47,933

 
208,621

Contributions from noncontrolling interest holders
 

 

 

 

 

 

 

 

 

 

 

 
314,059

 
314,059

Distributions to noncontrolling interest holders
 

 

 

 

 

 

 

 

 

 

 

 
(818
)
 
(818
)
Common stock distributions declared
 

 

 

 

 

 

 

 

 

 

 
(826,124
)
 

 
(826,124
)
Preferred stock dividends declared
 

 

 

 

 

 

 


 


 


 


 
(72,468
)
 

 
(72,468
)
Net income
 

 

 

 

 

 

 

 

 

 

 
1,000,399

 
18,027

 
1,018,426

SEPTEMBER 30, 2017
 

 
$

 
1,374,986

 
$
14

 
437,510,284

 
$
4,375

 
(8,266,564
)
 
$
(884,610
)
 
$
10,212,535

 
$
(1,839,029
)
 
$
(975,158
)
 
$
591,506

 
$
7,109,633


See accompanying notes to unaudited consolidated and condensed consolidated financial statements.

5



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1.
DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
American Tower Corporation (together with its subsidiaries, “ATC” or the “Company”) is one of the largest global real estate investment trusts and a leading independent owner, operator and developer of multitenant communications real estate. The Company’s primary business is the leasing of space on communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. The Company refers to this business as its property operations. Additionally, the Company offers tower-related services in the United States, which the Company refers to as its services operations. These services include site acquisition, zoning and permitting and structural analysis, which primarily support the Company’s site leasing business, including the addition of new tenants and equipment on its sites.
The Company’s portfolio primarily consists of towers it owns and towers it operates pursuant to long-term lease arrangements, as well as distributed antenna system (“DAS”) networks, which provide seamless coverage solutions in certain in-building and certain outdoor wireless environments. In addition to the communications sites in its portfolio, the Company manages rooftop and tower sites for property owners under various contractual arrangements. The Company also holds other telecommunications infrastructure and property interests that it leases to communications service providers and third-party tower operators.

American Tower Corporation 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 primarily through its subsidiary, American Tower International, Inc., which in turn conducts operations through its various international holding and operating subsidiaries and joint ventures.

The Company operates as a real estate investment trust for U.S. federal income tax purposes (“REIT”). Accordingly, the Company generally is not subject to U.S. federal income taxes on income generated by its REIT operations, including the income derived from leasing space on its towers, as it receives a dividends paid deduction for distributions to stockholders that generally offsets its REIT income and gains. However, the Company remains obligated to pay U.S. federal income taxes on earnings from its domestic taxable REIT subsidiaries (“TRSs”). In addition, the Company’s international assets and operations, regardless of their designation for U.S. tax purposes, continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.

The use of TRSs enables the Company to continue to engage in certain businesses while complying with REIT qualification requirements. The Company may, from time to time, change the election of previously designated TRSs to be included as part of the REIT. As of September 30, 2017, the Company’s REIT-qualified businesses included its U.S. tower leasing business, most of its operations in Costa Rica, Germany and Mexico and a majority of its indoor DAS networks business and services segment.

The accompanying consolidated and condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The financial information included herein is unaudited. However, the Company believes that all adjustments, which are of a normal and recurring nature, considered necessary for a fair presentation of its financial position and results of operations for such periods have been included herein. The consolidated and 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, 2016 (the “2016 Form 10-K”). The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the entire year.

Principles of Consolidation and Basis of Presentation—The accompanying consolidated and 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. As of September 30, 2017, the Company holds (i) a 51% controlling interest, and MTN Group Limited holds a 49% noncontrolling interest, in each of two joint ventures, one in Ghana and

6



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


one in Uganda, (ii) a 51% controlling interest, and PGGM holds a 49% noncontrolling interest, in a joint venture (“ATC Europe”) in Europe, (iii) an approximate 75% controlling interest, and the South African investors hold an approximate 25% noncontrolling interest, in a subsidiary of the Company in South Africa and (iv) a 51% controlling interest in ATC Telecom Infrastructure Private Limited (“ATC TIPL”), formerly Viom Networks Limited (“Viom”), in India.

Significant Accounting Policies—The Company’s significant accounting policies are described in note 1 to the Company’s consolidated financial statements included in the 2016 Form 10-K. There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2017.
Accounting Standards Updates—In May 2014, the Financial Accounting Standards Board (the “FASB”) issued new guidance on revenue recognition, which requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance and will become effective for the Company on January 1, 2018. Early adoption is permitted for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. Leases are not included in the scope of this standard. The revenue to which the Company must apply this standard is generally limited to services revenue, certain power and fuel charges and other fees charged to tenants. As of September 30, 2017, this revenue was approximately 13% of total revenue. Although the Company is finalizing its analysis of the impact of this standard on its financial statements, it does not expect changes in the timing of revenue recognition to have a material effect on its financial statements. The Company intends to adopt this standard using a modified retrospective approach.

In January 2016, the FASB issued new guidance on the recognition and measurement of financial assets and financial liabilities. The guidance amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The Company does not expect the adoption of this guidance to have a material effect on its financial statements.

In February 2016, the FASB issued new guidance on the accounting for leases. The guidance amends the existing accounting standards for lease accounting, including the requirement that lessees recognize right of use assets and lease liabilities for leases with terms greater than twelve months in the statement of financial position. Under the new guidance, lessor accounting is largely unchanged. This guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. The standard is required to be applied using a modified retrospective approach for all leases existing at, or entered into after, the beginning of the earliest comparative period presented. The Company (i) has established a multidisciplinary team to assess and implement the new guidance, (ii) expects the guidance to have a material impact on its consolidated balance sheets due to the recording of right of use assets and lease liabilities for leases in which it is a lessee and which it currently treats as operating leases and (iii) continues to evaluate the impact of the new guidance.

In November 2016, the FASB issued new guidance on amounts described as restricted cash or restricted cash equivalents within the statement of cash flows. The guidance requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period balances on the statement of cash flows. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The standard is required to be applied using a retrospective transition method to each period presented. The Company does not expect the adoption of this guidance to have a material effect on its financial statements.

In January 2017, the FASB issued new guidance that clarifies the definition of a business that an entity uses to determine whether a transaction should be accounted for as an asset acquisition (or disposal) or a business combination. The Company early adopted this guidance during the first quarter of 2017. As a result, the Company expects that more transactions will be accounted for as asset acquisitions instead of business combinations.

In January 2017, the FASB issued new guidance on accounting for goodwill impairments. The guidance eliminates Step 2 from the goodwill impairment test and requires, among other things, recognition of an impairment loss when the carrying value of a reporting unit exceeds its fair value. The loss recognized is limited to the total amount of goodwill

7



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


allocated to that reporting unit. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this guidance to have a material effect on its financial statements.

In May 2017, the FASB issued new guidance on accounting for stock-based compensation. The guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. The Company early adopted this guidance during the second quarter of 2017. The adoption of this guidance did not have a material effect on the Company’s financial statements.

In August 2017, the FASB issued new guidance on hedge and derivative accounting. The guidance simplifies accounting rules around hedge accounting and the disclosures of hedging arrangements. Among other things, the guidance eliminates the need to separately measure and report hedge ineffectiveness and generally requires the entire change in fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material effect on its financial statements.
2.    PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets consisted of the following (in thousands):
 
As of
 
September 30, 2017
 
December 31, 2016
Prepaid operating ground leases
$
133,534

 
$
134,167

Prepaid income tax
123,239

 
127,142

Unbilled receivables
109,143

 
57,661

Prepaid assets
50,029

 
36,300

Value added tax and other consumption tax receivables
27,188

 
31,570

Other miscellaneous current assets
56,108

 
54,193

Prepaids and other current assets
$
499,241

 
$
441,033


3.    GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying value of goodwill for each of the Company’s business segments were as follows (in thousands):
 
 
Property
 
Services
 
Total
 
 
U.S.
 
Asia
 
EMEA
 
Latin America
 
Balance as of January 1, 2017
 
$
3,379,163

 
$
1,029,313

 
$
150,511

 
$
509,705

 
$
1,988

 
$
5,070,680

Additions and adjustments (1)
 

 
400

 
220,172

 
642

 

 
221,214

Effect of foreign currency translation
 

 
41,694

 
23,048

 
15,043

 

 
79,785

Balance as of September 30, 2017
 
$
3,379,163

 
$
1,071,407

 
$
393,731

 
$
525,390

 
$
1,988

 
$
5,371,679

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

8



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



The Company’s other intangible assets subject to amortization consisted of the following:
 
 
 
 
As of September 30, 2017
 
As of December 31, 2016
 
Estimated Useful
Lives
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net Book
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net Book
Value
 
(years)
 
(in thousands)
Acquired network location intangibles (1)
Up to 20

 
$
4,860,063

 
$
(1,468,966
)
 
$
3,391,097

 
$
4,622,316

 
$
(1,280,284
)
 
$
3,342,032

Acquired tenant-related intangibles
15-20

 
10,796,003

 
(2,641,297
)
 
8,154,706

 
10,130,466

 
(2,224,119
)
 
7,906,347

Acquired licenses and other intangibles
3-20

 
39,286

 
(7,355
)
 
31,931

 
28,140

 
(4,827
)
 
23,313

Economic Rights, TV Azteca
70

 
15,776

 
(12,516
)
 
3,260

 
13,893

 
(10,974
)
 
2,919

Total other intangible assets
 
 
$
15,711,128

 
$
(4,130,134
)
 
$
11,580,994

 
$
14,794,815

 
$
(3,520,204
)
 
$
11,274,611

_______________
(1)
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.
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 tenant-related intangibles typically represent the value to the Company of tenant contracts and relationships in place at the time of an acquisition or similar transaction, including assumptions regarding estimated renewals.
The Company amortizes its acquired network location intangibles and tenant-related intangibles on a straight-line basis over their estimated useful lives. As of September 30, 2017, the remaining weighted average amortization period of the Company’s intangible assets, excluding the TV Azteca Economic Rights detailed in note 5 to the Company’s consolidated financial statements included in the 2016 Form 10-K, was 15 years. Amortization of intangible assets for the three and nine months ended September 30, 2017 was $203.6 million and $579.0 million, respectively, and amortization of intangible assets for the three and nine months ended September 30, 2016 was $183.9 million and $521.0 million, respectively. Based on current exchange rates, the Company expects to record amortization expense as follows over the remaining current year and the five subsequent years (in millions):
 
Fiscal Year
 
Remainder of 2017
$
190.1

2018
764.5

2019
761.3

2020
742.9

2021
732.1

2022
727.6



9



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


4.    ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
 
As of
 
September 30, 2017
 
December 31, 2016
Accrued property and real estate taxes
$
149,563

 
$
138,361

Accrued pass-through costs
79,631

 
68,584

Payroll and related withholdings
68,552

 
76,141

Accrued rent
53,855

 
50,951

Amounts payable to tenants
47,376

 
32,326

Accrued income tax payable
45,887

 
11,551

Accrued construction costs
38,740

 
28,587

Accrued treasury stock purchases
7,180

 

Other accrued expenses
283,288

 
214,062

Total accrued expenses
$
774,072

 
$
620,563



10



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


5.    LONG-TERM OBLIGATIONS

Outstanding amounts under the Company’s long-term obligations, reflecting discounts, premiums, debt issuance costs and fair value adjustments due to interest rate swaps consisted of the following (in thousands):
 
As of
 
 
 
September 30, 2017
 
December 31, 2016
 
Maturity Date
2013 Credit Facility (1)
$
1,959,896

 
$
539,975

 
June 28, 2020
Term Loan (1)
995,143

 
993,936

 
January 31, 2022
2014 Credit Facility (1)
1,055,000

 
1,385,000

 
January 31, 2022
4.500% senior notes

 
998,676

 
N/A
3.40% senior notes
999,813

 
999,716

 
February 15, 2019
7.25% senior notes

 
297,032

 
N/A
2.800% senior notes
745,988

 
744,917

 
June 1, 2020
5.050% senior notes
697,853

 
697,352

 
September 1, 2020
3.300% senior notes
745,660

 
744,762

 
February 15, 2021
3.450% senior notes
644,761

 
643,848

 
September 15, 2021
5.900% senior notes
497,707

 
497,343

 
November 1, 2021
2.250% senior notes
576,984

 
572,764

 
January 15, 2022
4.70% senior notes
696,529

 
696,013

 
March 15, 2022
3.50% senior notes
990,470

 
989,269

 
January 31, 2023
5.00% senior notes
1,002,499

 
1,002,742

 
February 15, 2024
1.375% senior notes
579,406

 

 
April 4, 2025
4.000% senior notes
740,748

 
739,985

 
June 1, 2025
4.400% senior notes
495,538

 
495,212

 
February 15, 2026
3.375% senior notes
984,460

 
983,369

 
October 15, 2026
3.125% senior notes
396,980

 
396,713

 
January 15, 2027
3.55% senior notes
742,661

 

 
July 15, 2027
Total American Tower Corporation debt
15,548,096

 
14,418,624

 
 
 
 
 
 
 
 
Series 2013-1A securities (2)
499,524

 
498,642

 
March 15, 2018
Series 2013-2A securities (3)
1,291,451

 
1,290,267

 
March 15, 2023
Series 2015-1 notes (4)
347,743

 
347,108

 
June 15, 2020
Series 2015-2 notes (5)
519,932

 
519,437

 
June 16, 2025
2012 GTP notes

 
179,459

 
N/A
Unison notes

 
132,960

 
N/A
India indebtedness (6)
528,768

 
549,528

 
Various
India preference shares (7)
25,532

 
24,537

 
March 2, 2020
Shareholder loans (8)
102,804

 
151,045

 
Various
Other subsidiary debt (1) (9)
258,338

 
286,009

 
Various
Total American Tower subsidiary debt
3,574,092

 
3,978,992

 
 
Other debt, including capital lease obligations
146,575

 
135,849

 
 
Total
19,268,763

 
18,533,465

 
 
Less current portion of long-term obligations
(687,382
)
 
(238,806
)
 
 
Long-term obligations
$
18,581,381

 
$
18,294,659

 
 
_______________
(1)
Accrues interest at a variable rate.
(2)
Maturity date reflects the anticipated repayment date; final legal maturity is March 15, 2043.
(3)
Maturity date reflects the anticipated repayment date; final legal maturity is March 15, 2048.
(4)
Maturity date reflects the anticipated repayment date; final legal maturity is June 15, 2045.
(5)
Maturity date reflects the anticipated repayment date; final legal maturity is June 15, 2050.
(6)
Denominated in Indian Rupees (“INR”). Includes India working capital facility, remaining debt assumed by the Company in connection with the Viom Acquisition (as defined in note 9) and debt that has been entered into by ATC TIPL.

11



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(7)
Mandatorily redeemable preference shares (the “Preference Shares”) classified as debt. On March 2, 2017, ATC TIPL issued the Preference Shares and used the proceeds to redeem the preference shares previously issued by Viom (the “Viom Preference Shares”). The Preference Shares are to be redeemed on March 2, 2020 and have a dividend rate of 10.25% per annum.
(8)
Reflects balances owed to the Company’s joint venture partners in Ghana and Uganda. The Ghana loan is denominated in Ghanaian Cedi and the Uganda loan is denominated in Ugandan Shillings (“UGX”). Effective January 1, 2017, the Uganda loan, which had an outstanding balance of $80.0 million and accrued interest at a variable rate, was converted by the holder to a new shareholder note for 114.5 billion UGX ($31.8 million at the time of conversion), bearing interest at a fixed rate of 16.8% per annum. The remaining balance of the Uganda loan was converted into equity.
(9)
Includes the BR Towers debentures, which are denominated in Brazilian Reais (“BRL”) and amortize through October 15, 2023, the South African credit facility, which is denominated in South African Rand and amortizes through December 17, 2020, the Colombian credit facility, which is denominated in Colombian Pesos and amortizes through April 24, 2021 and the Brazil credit facility, which is denominated in BRL and matures on January 15, 2022.

Current portion of long-term obligations—The Company’s current portion of long-term obligations primarily includes (i) $499.5 million under the Secured Tower Revenue Securities, Series 2013-1A and (ii) 7.6 billion INR ($116.5 million) of India indebtedness.

Securitized Debt—Cash flows generated by the sites that secure the securitized debt of the Company are only available for payment of such debt and are not available to pay the Company’s other obligations or the claims of its creditors. However, subject to certain restrictions, the Company holds the right to receive the excess cash flows not needed to pay the securitized debt and other obligations arising out of the securitizations. The securitized debt is the obligation of the issuers thereof or borrowers thereunder, as applicable, and their subsidiaries, and not of the Company or its other subsidiaries.

Senior Notes
1.375% Senior Notes Offering—On April 6, 2017, the Company completed a registered public offering of 500.0 million Euros ($532.2 million at the date of issuance) aggregate principal amount of 1.375% senior unsecured notes due 2025 (the “1.375% Notes”). The net proceeds from this offering were approximately 489.8 million Euros (approximately $521.4 million at the date of issuance), after deducting commissions and estimated expenses. The Company used the net proceeds to repay existing indebtedness under its multicurrency senior unsecured revolving credit facility entered into in June 2013, as amended (the “2013 Credit Facility”), and for general corporate purposes.

The 1.375% Notes will mature on April 4, 2025 and bear interest at a rate of 1.375% per annum. Accrued and unpaid interest on the 1.375% Notes will be payable in Euros in arrears on April 4 of each year, beginning on April 4, 2018. Interest on the 1.375% Notes will be computed on the basis of the actual number of days in the period for which interest is being calculated and the actual number of days from and including the last date on which interest was paid on the 1.375% Notes and commenced accruing on April 6, 2017.

3.55% Senior Notes Offering—On June 30, 2017, the Company completed a registered public offering of $750.0 million aggregate principal amount of 3.55% senior unsecured notes due 2027 (the “3.55% Notes”). The net proceeds from this offering were approximately $741.8 million, after deducting commissions and estimated expenses. The Company used the net proceeds to repay existing indebtedness under the 2013 Credit Facility.

The 3.55% Notes will mature on July 15, 2027 and bear interest at a rate of 3.55% per annum. Accrued and unpaid interest on the 3.55% Notes will be payable in U.S. Dollars semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2018. Interest on the 3.55% Notes is computed on the basis of a 360-day year comprised of twelve 30-day months and commenced accruing on June 30, 2017.

The Company may redeem each series of senior notes at any time, in whole or in part, at a redemption price equal to 100% of the principal amount of the notes plus a make-whole premium, together with accrued interest to the redemption date. If the Company redeems the 1.375% Notes on or after January 4, 2025 or the 3.55% Notes on or after April 15, 2027, it will not be required to pay a make-whole premium. In addition, if the Company undergoes a change of control and corresponding ratings decline, each as defined in the applicable supplemental indenture, it may be required to repurchase all of the applicable notes at a purchase price equal to 101% of the principal amount of such notes, plus accrued and unpaid interest (including additional interest, if any), up to but not including the repurchase date. The 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.

12



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



The supplemental indentures contain 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 applicable supplemental indenture.

Bank Facilities
2013 Credit Facility—During the nine months ended September 30, 2017, the Company borrowed an aggregate of $3.4 billion and repaid an aggregate of $2.0 billion of revolving indebtedness under the 2013 Credit Facility. The Company used the borrowings to fund acquisitions, repay existing indebtedness and for general corporate purposes.

2014 Credit Facility—During the nine months ended September 30, 2017, the Company borrowed an aggregate of $200.0 million and repaid an aggregate of $530.0 million of revolving indebtedness under its senior unsecured revolving credit facility entered into in January 2012 and amended and restated in September 2014, as further amended (the “2014 Credit Facility”).

As of September 30, 2017, the key terms under the 2013 Credit Facility, the 2014 Credit Facility and the Company’s unsecured term loan entered into in October 2013, as amended (the “Term Loan”), were as follows:
 
Outstanding Principal Balance (in millions)
 
Undrawn letters of credit (in millions)
 
Maturity Date
 
Current margin over LIBOR (1)
 
Current commitment fee (2)
2013 Credit Facility
$
1,959.9

 
$
4.6

 
June 28, 2020
(3)
1.250
%
 
0.150
%
2014 Credit Facility
$
1,055.0

 
$
6.4

 
January 31, 2022
(3)
1.250
%
 
0.150
%
Term Loan
$
1,000.0

 
$

 
January 31, 2022
 
1.250
%
 
N/A

_______________
(1)    LIBOR means the London Interbank Offered Rate.
(2)    Fee on undrawn portion of each credit facility.
(3)    Subject to two optional renewal periods.

Repayment of 2012 GTP Notes and Unison Notes and Redemption of Senior Notes—On February 15, 2017, the Company repaid the $173.5 million remaining principal amount outstanding under the Secured Cellular Site Revenue Notes, Series 2012-2 Class A, Series 2012-2 Class B and Series 2012-2 Class C issued by GTP Cellular Sites, LLC, plus prepayment consideration and accrued and unpaid interest. The Company recorded a loss on retirement of long-term obligations of $1.8 million, which includes prepayment consideration of $7.2 million offset by the remaining portion of the unamortized premium.

On February 15, 2017, the Company repaid the $129.0 million principal amount outstanding under the Secured Cellular Site Revenue Notes, Series 2010-2, Class C and Series 2010-2, Class F issued by Unison Ground Lease Funding, LLC, plus prepayment consideration and accrued and unpaid interest. The Company recorded a loss on retirement of long-term obligations of $14.5 million, which includes prepayment consideration of $18.3 million offset by the remaining portion of the unamortized premium.

On February 10, 2017, the Company redeemed all of the outstanding 7.25% senior unsecured notes due 2019 (the “7.25% Notes”) at a price equal to 112.0854% of the principal amount, plus accrued and unpaid interest up to, but excluding, February 10, 2017, for an aggregate redemption price of $341.4 million, including $5.1 million in accrued and unpaid interest. The Company recorded a loss on retirement of long-term obligations of $39.2 million, which includes prepayment consideration of $36.3 million and the remaining portion of the unamortized discount and deferred financing costs. Upon completion of the redemption, none of the 7.25% Notes remained outstanding.

On July 31, 2017, the Company redeemed all of the outstanding 4.500% senior unsecured notes due 2018 (the “4.500% Notes”) at a price equal to 101.3510% of the principal amount, plus accrued and unpaid interest up to, but excluding, July 31, 2017, for an aggregate redemption price of $1.0 billion, including $2.0 million in accrued and unpaid interest. The Company recorded a loss on retirement of long-term obligations of $14.1 million which includes prepayment

13



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


consideration of $13.5 million and the remaining portion of the unamortized discount and deferred financing costs. Upon completion of the redemption, none of the 4.500% Notes remained outstanding.

The repayments and the redemptions described above were funded with borrowings under the 2013 Credit Facility and cash on hand.


6.    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 values of the Company’s financial assets and liabilities that are required to be measured on a recurring basis at fair value were as follows (in thousands):
 
 
 
September 30, 2017
 
December 31, 2016
 
 
Fair Value Measurements Using
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term investments (1)
 
$
1,032

 

 

 
$
4,026

 

 

Interest rate swap agreements
 

 

 

 

 
$
3

 

Embedded derivative in lease agreement
 

 

 
$
12,623

 

 

 
$
13,290

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 

 
$
22,409

 

 

 
$
24,682

 

Acquisition-related contingent consideration
 

 

 
$
16,045

 

 

 
$
15,444

_______________
(1)
Consists of highly liquid investments with original maturities in excess of three months.

During the nine months ended September 30, 2017, the Company has made no changes to the methods described in note 11 to its consolidated financial statements included in the 2016 Form 10-K that it used to measure the fair value of its interest rate swap agreements, the embedded derivative in one of its lease agreements and acquisition-related contingent consideration. The changes in fair value during the nine months ended September 30, 2017 and 2016 were not material to the consolidated financial statements. As of September 30, 2017, the Company estimated the value of all potential acquisition-related contingent consideration payments to be between zero and $47.6 million.
 
Items Measured at Fair Value on a Nonrecurring Basis
Assets Held and Used—The Company’s long-lived assets are recorded at amortized cost and, if impaired, are adjusted to fair value using Level 3 inputs. During the three and nine months ended September 30, 2017 and 2016, the Company did not record any material asset impairment charges. There were no other items measured at fair value on a nonrecurring basis during the nine months ended September 30, 2017 or 2016.


14



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


In October 2017, one of the Company’s tenants in Asia, Tata Teleservices Limited (“Tata Teleservices”), informed the Department of Telecommunications in India of its intent to exit the wireless telecommunications business and announced plans to transfer its business to another telecommunications provider. The Company will continue to monitor the status of these developments, as it is possible that the estimated future cash flows may differ from original estimates. Changes in estimated cash flows from Tata Teleservices could have an impact on previously recorded tangible and intangible assets, including amounts originally recorded as tenant-related intangibles, which have a current net book value of $445.0 million.

Fair Value of Financial Instruments—The Company’s financial instruments for which the carrying value reasonably approximates fair value at September 30, 2017 and December 31, 2016 include cash and cash equivalents, restricted cash, accounts receivable and accounts payable. 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 is estimated using either indicative price quotes or a discounted cash flow analysis using rates for debt with similar terms and maturities. As of September 30, 2017 and December 31, 2016, the carrying value of long-term obligations, including the current portion, was $19.3 billion and $18.5 billion, respectively. As of September 30, 2017, the fair value of long-term obligations, including the current portion, was $19.8 billion, of which $12.0 billion was measured using Level 1 inputs and $7.8 billion was measured using Level 2 inputs. As of December 31, 2016, the fair value of long-term obligations, including the current portion, was $18.8 billion, of which $11.8 billion was measured using Level 1 inputs and $7.0 billion was measured using Level 2 inputs.

7.    INCOME TAXES
The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate (“ETR”) 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 ETR is determined. Under the provisions of the Internal Revenue Code of 1986, as amended, the Company may deduct amounts distributed to stockholders against the income generated by its REIT operations. The Company continues to be subject to income taxes on the income of its TRSs and income taxes in foreign jurisdictions where it conducts operations. In addition, the Company is able to offset certain income by utilizing its net operating losses, subject to specified limitations.
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, 2017 and December 31, 2016, the total unrecognized tax benefits that would impact the ETR, if recognized, were approximately $107.4 million and $102.9 million, respectively. The amount of unrecognized tax benefits during the three and nine months ended September 30, 2017 includes additions to the Company’s existing tax positions of $1.9 million and $5.7 million, respectively, foreign currency fluctuations of $1.0 million and $3.7 million, respectively, and reductions due to the expiration of the statute of limitations in certain jurisdictions of $0.4 million during each of the three and nine months ended September 30, 2017. Unrecognized tax benefits are expected to change over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdiction during this time frame, as described in note 12 to the Company’s consolidated financial statements included in the 2016 Form 10-K. The impact of the amount of these changes to previously recorded uncertain tax positions could range from zero to $11.5 million.
The Company recorded the following penalties and income tax-related interest expense during the three and nine months ended September 30, 2017 and 2016 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Penalties and income tax-related interest expense
$
1,045

 
$
1,806

 
$
3,392

 
$
7,023

As of September 30, 2017 and December 31, 2016, the total amount of accrued income tax related interest and penalties included in the consolidated balance sheets was $28.9 million and $24.3 million, respectively.

15



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



During the nine months ended September 30, 2017, the Ghana Revenue Authority issued a clarification to its income tax law, which resulted in a benefit to income tax expense of $11.6 million.

8.    STOCK-BASED COMPENSATION
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, as amended (the “2007 Plan”), provides for the grant of non-qualified and incentive stock options, as well as restricted stock units, restricted stock and other stock-based awards. Exercise prices for 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, generally over four years for time-based restricted stock units (“RSUs”) and stock options and three years for performance-based restricted stock units (“PSUs”). Stock options generally expire ten years from the date of grant. As of September 30, 2017, the Company had the ability to grant stock-based awards with respect to an aggregate of 8.5 million shares of common stock under the 2007 Plan. In addition, the Company maintains an employee stock purchase plan (“ESPP”) pursuant to which eligible employees may purchase shares of the Company’s common stock on the last day of each bi-annual offering period at a 15% discount from the lower of the closing market value on the first or last day of such offering period. The offering periods run from June 1 through November 30 and from December 1 through May 31 of each year.
During the three and nine months ended September 30, 2017 and 2016, the Company recorded and capitalized the following stock-based compensation expense (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Stock-based compensation expense
$
24,463

 
$
20,226

 
$
86,423

 
$
70,212

Stock-based compensation expense capitalized as property and equipment
$
368

 
$
353

 
$
1,338

 
$
1,115

Stock Options—As of September 30, 2017, total unrecognized compensation expense related to unvested stock options was $15.2 million, which is expected to be recognized over a weighted average period of approximately two years.
The Company’s option activity for the nine months ended September 30, 2017 was as follows:
 
 
Number of Options
Outstanding as of January 1, 2017
 
7,269,376

Granted
 
6,534

Exercised
 
(1,501,905
)
Forfeited
 
(42,247
)
Expired
 

Outstanding as of September 30, 2017
 
5,731,758

 
Restricted Stock Units—As of September 30, 2017, total unrecognized compensation expense related to unvested RSUs granted under the 2007 Plan was $115.8 million and is expected to be recognized over a weighted average period of approximately two years.
Performance-Based Restricted Stock Units—During the nine months ended September 30, 2017 and 2016, the Company’s Compensation Committee granted an aggregate of 154,520 PSUs (the “2017 PSUs”) and 169,340 PSUs (the “2016 PSUs”), respectively, to its executive officers and established the performance metrics for these awards. Threshold, target and maximum parameters were established for the metrics for a three-year performance period with respect to the 2017 PSUs and the 2016 PSUs, and for each year in the three-year performance period with respect to PSUs granted to executive officers in 2015 (the “2015 PSUs”), and will be used to calculate the number of shares that will be issuable when each award vests, which may range from zero to 200% of the target amounts. At the end of each

16



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


three-year performance period, the number of shares that vest will depend on the degree of achievement against the pre-established performance goals. PSUs will be paid out in common stock at the end of each performance period, subject generally to the executive’s continued employment. In the event of the executive’s death, disability or qualifying retirement, PSUs will be paid out pro rata in accordance with the terms of the applicable award agreement. PSUs will accrue dividend equivalents prior to vesting, which will be paid out only in respect of shares that actually vest.
Restricted Stock Units and Performance-Based Restricted Stock Units—The Company’s RSU and PSU activity for the nine months ended September 30, 2017 was as follows: 
 
RSUs
 
PSUs
Outstanding as of January 1, 2017 (1)
1,663,743

 
242,757

Granted (2)
828,532

 
177,897

Vested
(652,797
)
 

Forfeited
(62,979
)
 

Outstanding as of September 30, 2017
1,776,499

 
420,654

_______________
(1)
PSUs consist of the shares issuable for the 2015 PSUs at the end of the three-year performance cycle based on achievement against the performance metric for the first and second year’s performance periods, or 73,417 shares, and the target number of shares issuable at the end of the three-year performance period for the 2016 PSUs, or 169,340 shares.
(2)
PSUs consist of the target number of shares issuable at the end of the three-year performance cycle attributable to the third year’s performance period for the 2015 PSUs, or 23,377 shares, and the target number of shares issuable at the end of the three-year performance cycle for the 2017 PSUs, or 154,520 shares.

During the three and nine months ended September 30, 2017, the Company recorded $6.5 million and $18.0 million, respectively, in stock-based compensation expense for equity awards in which the performance goals had been established and were probable of being achieved. The remaining unrecognized compensation expense related to these awards at September 30, 2017 was $27.9 million based on the Company’s current assessment of the probability of achieving the performance goals. The weighted average period over which the cost will be recognized is approximately two years.

9.    REDEEMABLE NONCONTROLLING INTERESTS

Redeemable Noncontrolling Interests—On April 21, 2016, the Company, through its wholly owned subsidiary, ATC Asia Pacific Pte. Ltd., acquired a 51% controlling ownership interest in Viom, a telecommunications infrastructure company that owns and operates wireless communications towers and indoor DAS networks in India (the “Viom Acquisition”).

In connection with the Viom Acquisition, the Company, through one of its subsidiaries, entered into a shareholders agreement (the “Shareholders Agreement”) with Viom and the following remaining Viom shareholders: Tata Sons Limited, Tata Teleservices, IDFC Private Equity Fund III, Macquarie SBI Infrastructure Investments Pte Limited and SBI Macquarie Infrastructure Trust (collectively, the “Remaining Shareholders”). The Shareholders Agreement provides for, among other things, put options held by certain of the Remaining Shareholders, which allow the Remaining Shareholders to sell outstanding shares of ATC TIPL, and call options held by the Company, which allow the Company to buy the noncontrolling shares of ATC TIPL. The put options, which are not under the Company’s control, cannot be separated from the noncontrolling interests. As a result, the combination of the noncontrolling interests and the redemption feature require classification as redeemable noncontrolling interests in the consolidated balance sheet, separate from equity.

Given the provisions governing the put rights, the redeemable noncontrolling interests are recorded outside of permanent equity at their redemption value. The noncontrolling interests become redeemable after the passage of time, and therefore, the Company records the carrying amount of the noncontrolling interests at the greater of (i) the initial carrying amount, increased or decreased for the noncontrolling interests’ share of net income or loss and foreign currency translation adjustments, and (ii) the redemption value. If required, the Company will adjust the redeemable noncontrolling interests to redemption value on each balance sheet date with changes in redemption value recognized as an adjustment to Distributions in excess of earnings.


17



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The put options may be exercised, requiring the Company to purchase the Remaining Shareholders’ equity interests, on specified dates beginning April 1, 2018 through March 31, 2021. The price of the put options will be based on the fair market value of the exercising Remaining Shareholder’s interest in the Company’s India operations at the time the option is exercised. Put options held by certain of the Remaining Shareholders are subject to a floor price of 216 INR per share.

The changes in Redeemable noncontrolling interests for the nine months ended September 30, 2017 were as follows (in thousands):
Balance as of January 1, 2017
 
$
1,091,220

Net income attributable to noncontrolling interests
 
12,158

Foreign currency translation adjustment attributable to noncontrolling interests
 
43,395

Balance as of September 30, 2017
 
$
1,146,773


10.    EQUITY

Series A Preferred Stock—In May 2014, the Company issued 6,000,000 shares of its 5.25% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share (the “Series A Preferred Stock”). During the nine months ended September 30, 2017, all outstanding shares of the Series A Preferred Stock converted at a rate of 0.9337 per share into an aggregate of 5,602,153 shares of the Company’s common stock pursuant to the provisions of the Certificate of Designations governing the Series A Preferred Stock. The Company paid cash in lieu of fractional shares of the Company’s common stock. These payments were recorded as a reduction to Additional paid-in capital.

On May 15, 2017, the Company paid the final dividend of $7.9 million to holders of record of the Series A Preferred Stock at the close of business on May 1, 2017.

Series B Preferred Stock—The Company has 13,749,860 depositary shares, each representing a 1/10th interest in a share of its 5.50% Mandatory Convertible Preferred Stock, Series B, par value $0.01 per share (the “Series B Preferred Stock”) outstanding, after giving effect to the early conversion of 140 depositary shares at the option of the holder at a conversion rate of 0.8687 per depositary share in May 2017. The Company paid cash in lieu of fractional shares of the Company’s common stock. This payment was recorded as a reduction to Additional paid-in capital. The Series B Preferred Stock was issued in March 2015.

Unless converted or redeemed earlier, each share of the Series B Preferred Stock will automatically convert on February 15, 2018, into between 8.6870 and 10.4244 shares of the Company’s common stock, depending on the applicable market value of the Company’s common stock and subject to anti-dilution adjustments. Subject to certain restrictions, at any time prior to February 15, 2018, holders of the Series B Preferred Stock may elect to convert all or a portion of their shares into common stock at the minimum conversion rate then in effect.

Dividends on shares of the Series B Preferred Stock are payable on a cumulative basis when, as and if declared by the Company’s Board of Directors at an annual rate of 5.50% on the liquidation preference of $1,000.00 per share (and, correspondingly, $100.00 per share with respect to the depositary shares) on February 15, May 15, August 15 and November 15 of each year, commencing on May 15, 2015 to, and including, February 15, 2018.

The Company may pay dividends in cash or, subject to certain limitations, in shares of common stock or any combination of cash and shares of common stock. The terms of the Series B Preferred Stock provide that, unless full cumulative dividends have been paid or set aside for payment on all outstanding Series B Preferred Stock for all prior dividend periods, no dividends may be declared or paid on common stock.

Sales of Equity Securities—The Company receives proceeds from the sale of its equity securities pursuant to the ESPP and upon exercise of stock options granted under its equity incentive plan. During the nine months ended September 30, 2017, the Company received an aggregate of $105.7 million in proceeds upon exercises of stock options and sales pursuant to the ESPP.


18



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Stock Repurchase Program—In March 2011, the Board of Directors approved a stock repurchase program, pursuant to which the Company is authorized to repurchase up to $1.5 billion of its common stock (the “2011 Buyback”).

During the nine months ended September 30, 2017, the Company resumed the 2011 Buyback and repurchased 5,456,538 shares of its common stock thereunder for an aggregate of $676.9 million (of which $7.2 million was accrued as of September 30, 2017), including commissions and fees. As of September 30, 2017, the Company had repurchased a total of 11,713,442 shares of its common stock under the 2011 Buyback for an aggregate of $1.1 billion, 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 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, 2017, the Company declared or paid the following cash distributions:
Declaration Date
 
Payment Date
 
Record Date
 
Distribution per share
 
Aggregate Payment Amount (in millions)
Common Stock
 
 
 
 
 
 
 
 
December 14, 2016
 
January 13, 2017
 
December 28, 2016
 
$
0.58

 
$
247.7

March 9, 2017
 
April 28, 2017
 
April 12, 2017
 
$
0.62

 
$
264.3

June 1, 2017
 
July 14, 2017
 
June 19, 2017
 
$
0.64

 
$
274.7

September 11, 2017
 
October 17, 2017
 
September 29, 2017
 
$
0.66

 
$
283.3

 
 
 
 
 
 
 
 
 
Series A Preferred Stock
 
 
 
 
 
 
 
 
January 13, 2017
 
February 15, 2017
 
February 1, 2017
 
$
1.3125

 
$
7.9

April 13, 2017
 
May 15, 2017
 
May 1, 2017
 
$
1.3125

 
$
7.9

 
 
 
 
 
 
 
 
 
Series B Preferred Stock
 
 
 
 
 
 
 
 
January 13, 2017
 
February 15, 2017
 
February 1, 2017
 
$
13.75

 
$
18.9

April 13, 2017
 
May 15, 2017
 
May 1, 2017
 
$
13.75

 
$
18.9

July 14, 2017
 
August 15, 2017
 
August 1, 2017
 
$
13.75

 
$
18.9

The Company accrues distributions on unvested restricted stock units, which are payable upon vesting. As of September 30, 2017, the amount accrued for distributions payable related to unvested restricted stock units was $8.0 million. During the nine months ended September 30, 2017, the Company paid $2.9 million of distributions upon the vesting of restricted stock units. To maintain its qualification for taxation as a REIT, the Company expects to continue paying distributions, the amount, timing and frequency of which will be determined, and subject to adjustment, by the Company’s Board of Directors.


19



AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


11.    EARNINGS PER COMMON SHARE

The following table sets forth basic and diluted net income per common share computational data (in thousands, except per share data):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net income attributable to American Tower Corporation stockholders
$
317,268

 
$
264,509

 
$
1,000,399

 
$
727,218

Dividends on preferred stock
(18,907
)
 
(26,781
)
 
(68,531
)
 
(80,344
)
Net income attributable to American Tower Corporation common stockholders
298,361

 
237,728

 
931,868

 
646,874

Basic weighted average common shares outstanding
429,281

 
425,517

 
427,960

 
424,831

Dilutive securities
3,550

 
4,408

 
3,359

 
4,188

Diluted weighted average common shares outstanding
432,831

 
429,925

 
431,319

 
429,019

Basic net income attributable to American Tower Corporation common stockholders per common share
$
0.70

 
$
0.56

 
$
2.18

 
$
1.52

Diluted net income attributable to American Tower Corporation common stockholders per common share
$
0.69

 
$
0.55

 
$
2.16

 
$
1.51


Shares Excluded From Dilutive Effect—The following shares were not included in the computation of diluted earnings per share because the effect would be anti-dilutive (in thousands, on a weighted average basis):

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Restricted stock units

 

 
3

 
2

Stock options