UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) April 2, 2012
SBA Communications Corporation
(Exact Name of Registrant as Specified in its Charter)
Florida | 000-30110 | 65-0716501 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
5900 Broken Sound Parkway N.W. Boca Raton, FL |
33487 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants telephone number, including area code: (561) 995-7670
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.01 | Completion of Acquisition or Disposition of Assets. |
On April 2, 2012, SBA Communications Corporation (the Company) filed a Form 8-K in connection with the completion of the acquisition of the equity interests in certain entities and affiliates of Mobilitie, LLC (the Mobilitie acquisition).
This Form 8-K/A amends the Form 8-K the Company filed on April 2, 2012 to include (i) audited consolidated financial statements as of, and for the year ended, December 31, 2011 of Mobilitie Investments, LLC, (ii) audited consolidated financial statements as of, and for the year ended, December 31, 2011 of Mobilitie Investments II, LLC and Affiliate, and (iii) unaudited pro forma condensed combined financial information of the Company giving effect to the Mobilitie acquisition, required by Items 9.01(a) and 9.01(b) of Form 8-K.
Item 9.01 | Financial Statements and Exhibits. |
(a) | Financial statements of businesses acquired. |
1. | The audited consolidated financial statements as of, and for the year ended, December 31, 2011 of Mobilitie Investments, LLC. |
2. | The audited consolidated financial statements as of, and for the year ended, December 31, 2011 of Mobilitie Investments II, LLC and Affiliate. |
(b) | Pro forma financial information. |
1. | The unaudited pro forma condensed combined balance sheet of the Company as of December 31, 2011, giving effect to the Mobilitie acquisition. |
2. | The unaudited pro forma condensed combined statement of operations of the Company for the year ended December 31, 2011, giving effect to the Mobilitie acquisition. |
(d) | Exhibits |
Exhibit No. |
Description | |
23.1 | Consent of KPMG LLP, Independent Auditor. | |
99.1 | Audited consolidated financial statements as of, and for the year ended, December 31, 2011 of Mobilitie Investments, LLC. | |
99.2 | Audited consolidated financial statements as of, and for the year ended, December 31, 2011 of Mobilitie Investments II, LLC and Affiliate. | |
99.3 | Unaudited pro forma condensed combined financial statements. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SBA COMMUNICATIONS CORPORATION | ||
By: | /s/ Brendan T. Cavanagh | |
Brendan T. Cavanagh Senior Vice President and Chief Financial Officer |
Date: May 25, 2012
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements on Forms S-3 (Nos. 333-41306 and 333-179737), Form S-4 (No. 333-147473) and Forms S-8 (Nos. 333-166969, 333-155289, 333-69236, 333-46734 and 333-139006) of SBA Communications Corporation of our report dated May 4, 2012 with respect to the balance sheet of Mobilitie Investments, LLC (a Delaware limited liability company) as of December 31, 2011, and the related statements of income, members equity, and cash flows for the year then ended and of our report dated May 4, 2012 with respect to the consolidated balance sheet of Mobilitie Investments II, LLC and affiliate as of December 31, 2011, and the related consolidated statements operations, equity, and cash flows for the year then ended, which reports appear in the Form 8-K/A of SBA Communications Corporation filed on May 25, 2012.
/s/ KPMG LLP
Los Angeles, California
May 25, 2012
Exhibit 99.1
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Financial Statements
December 31, 2011
(With Independent Auditors Report Thereon)
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Table of Contents
Page | ||||
Independent Auditors Report |
1 | |||
Balance Sheet |
2 | |||
Statement of Income |
3 | |||
Statement of Members Equity |
4 | |||
Statement of Cash Flows |
5 | |||
Notes to Financial Statements |
6 |
Independent Auditors Report
The Members
Mobilitie Investments, LLC:
We have audited the accompanying balance sheet of Mobilitie Investments, LLC (a Delaware limited liability company) as of December 31, 2011, and the related statements of income, members equity, and cash flows for the year then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mobilitie Investments, LLC as of December 31, 2011, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Los Angeles, California
May 4, 2012
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Balance Sheet
December 31, 2011
Assets | ||||
Operating properties, net |
$ | 83,972,482 | ||
Cash and cash equivalents |
10,552,000 | |||
Trade and related-party receivables, net |
2,749,089 | |||
Deferred rent receivables |
5,660,267 | |||
Deferred financing and leasing costs, net |
1,663,980 | |||
Prepaid expenses and other assets |
1,790,034 | |||
|
|
|||
Total assets |
$ | 106,387,852 | ||
|
|
|||
Liabilities and Members Equity | ||||
Note payable |
$ | 45,493,709 | ||
Accounts payable and other liabilities |
4,443,236 | |||
Accrued interest payable |
109,011 | |||
Deferred rent payables |
2,099,456 | |||
|
|
|||
Total liabilities |
52,145,412 | |||
Members equity |
54,242,440 | |||
|
|
|||
Total liabilities and members equity |
$ | 106,387,852 | ||
|
|
See accompanying notes to financial statements.
2
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Statement of Income
Year ended December 31, 2011
Revenues: |
||||
Rental |
$ | 18,847,920 | ||
Tenant reimbursements |
7,059,961 | |||
|
|
|||
25,907,881 | ||||
|
|
|||
Expenses: |
||||
Rental and operating |
2,030,398 | |||
Ground rent expense |
5,001,356 | |||
Management fee |
3,830,508 | |||
Depreciation, amortization, and accretion |
9,136,244 | |||
|
|
|||
19,998,506 | ||||
|
|
|||
Operating income |
5,909,375 | |||
Other income (expense): |
||||
Interest income |
5,428 | |||
Interest expense |
(1,501,048 | ) | ||
|
|
|||
Net income |
$ | 4,413,755 | ||
|
|
See accompanying notes to financial statements.
3
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Statement of Members Equity
Year ended December 31, 2011
Members equity as of December 31, 2010 |
$ | 49,828,685 | ||
Net income |
4,413,755 | |||
|
|
|||
Members equity as of December 31, 2011 |
$ | 54,242,440 | ||
|
|
See accompanying notes to financial statements.
4
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Statement of Cash Flows
Year ended December 31, 2011
Cash flows from operating activities: |
||||
Net income |
$ | 4,413,755 | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||
Depreciation, amortization, and accretion |
9,136,244 | |||
Amortization of deferred financing costs |
414,183 | |||
Provision for bad debts |
79,187 | |||
Realized loss on financial derivatives |
303 | |||
Changes in operating assets and liabilities: |
||||
Trade and other receivables |
72,537 | |||
Deferred rent receivables |
355,287 | |||
Deferred leasing costs |
(157,536 | ) | ||
Prepaid expenses and other assets |
60,294 | |||
Accounts payable and accrued liabilities |
(2,363,185 | ) | ||
Accrued interest payable |
31,392 | |||
Deferred rent payables |
157,820 | |||
|
|
|||
Net cash provided by operating activities |
12,200,281 | |||
|
|
|||
Cash flows from investing activities: |
||||
Construction of operating properties |
(804,149 | ) | ||
Purchases of leasehold interests |
(379,084 | ) | ||
|
|
|||
Net cash used in investing activities |
(1,183,233 | ) | ||
|
|
|||
Cash flows from financing activities: |
||||
Principal payments on notes payable |
(5,686,713 | ) | ||
Payment of financing costs |
(697,728 | ) | ||
|
|
|||
Net cash used in financing activities |
(6,384,441 | ) | ||
|
|
|||
Net change in cash and cash equivalents |
4,632,607 | |||
Cash and cash equivalents at beginning of year |
5,919,393 | |||
|
|
|||
Cash and cash equivalents at end of year |
$ | 10,552,000 | ||
|
|
|||
Supplemental disclosure of cash flow information: Interest paid |
$ | 1,055,169 | ||
Supplemental disclosure of noncash investing and financing activities: Accrual for construction of operating properties |
$ | (244 | ) |
See accompanying notes to financial statements.
5
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Notes to Financial Statements
December 31, 2011
(1) | Nature of Business |
Mobilitie Investments, LLC (the Company), a Delaware limited liability company, was organized on April 1, 2005 to own, lease, and manage communications towers, fiber-based networks, and other communications sites to providers of communications and broadcast services, such as wireless telephony, paging, mobile radio, and wireless data transmission.
The Company has two members: (1) Mobilitie Partners, LLC (Partners) and (2) Mobilitie Holdings, LLC (Holdings), which is also the Managing Member. The ownership interests of Partners and Holdings are 3.67% and 96.33%, respectively, and each members liability is generally limited to its invested capital and the members are not obligated to make capital contributions in excess of their initial contributions. If there is a default or potential default under credit facilities or other indebtedness, then Holdings can elect to make additional contributions, and if Holdings makes such additional contributions, then Partners has the right to make additional contributions sufficient to maintain its ownership interest.
Distributions of the Company are generally allocated to the members based on ownership percentages until certain internal rates of return are met. Once the initial hurdle rate is achieved, distributions will be allocated to the members based on percentages included in the operating agreement. The allocation of income (loss) will generally follow distributions.
The Company will terminate on December 31, 2045 unless sooner terminated as provided for in the operating agreement.
(2) | Summary of Significant Accounting Policies |
The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The significant accounting policies are set forth below.
(a) | Revenue Recognition |
The Company leases space on communications sites it owns. Rental revenues are recognized on a monthly basis under lease agreements when earned. Fixed escalation clauses present in noncancelable lease agreements are recognized on a straight-line basis over the terms of the applicable leases. Amounts billed upfront for certain services provided in connection with the execution of lease agreements are initially deferred and recognized as revenue over the initial terms of the applicable leases. Amounts billed or received prior to being earned are deferred and reflected in accounts payable and other liabilities in the accompanying balance sheet until such time as the earnings process is complete.
Reimbursements from the Companys tenants for repairs and maintenance, real property taxes, and insurance are recognized as revenues in the period the applicable expenses are incurred. Reimbursements from the Companys anchor tenants for ground rent expenses are straight-line based on the fixed noncancelable terms of the related anchor tenant leases.
The Companys anchor (primary) tenant leases require a fixed percentage of the nonanchor tenant rental revenue to be paid to the anchor tenant on a monthly basis. The amounts are recognized on a straight-line basis over the lesser of the initial terms of the related nonanchor tenant leases or the initial terms of the related anchor tenant leases.
6 | Continued |
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Notes to Financial Statements
December 31, 2011
(b) | Rental and Operating Expenses |
The Company incurs various costs associated with the ownership and operation of the communication sites including repairs and maintenance, real property taxes, and insurance. The expenditures are recognized in the period the applicable expenses are incurred.
(c) | Ground Rent Expense |
The Company has leases underlying the Companys tower sites that have fixed rent escalations, which provide for periodic increases in the amount of ground rent payable by the Company over time. The Company calculates straight-line ground rent expense for these leases based on the fixed noncancelable term of the underlying ground lease plus all periods for which failure to renew the lease imposes an economic penalty to the Company such that renewal appears, at the inception of the lease, to be reasonably assured.
(d) | Cash and Cash Equivalents |
Cash equivalents consist of highly liquid investments with original maturities of three months or less. The Company has an arrangement with its banking institution such that excess cash is automatically swept for overnight investment. The account balances at the Companys financial institutions periodically exceed the Federal Deposit Insurance Corporations (FDIC) insurance coverage, and as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage.
(e) | Trade and Related-Party Receivables, Net |
Trade receivable balances result primarily from the timing of commencement of new leases and the Companys tenants accounts payable calendar. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable. In establishing the required allowance, the Company considers the customers financial condition, the amount of receivables in dispute, and the current receivables aging and payment patterns. The Company regularly reviews its allowance for doubtful accounts. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Related-party receivable balances entirely comprise net related-party receivables due to the Company from Mobilitie LLC (Manager) for rental payments received for communication sites owned by the Company.
7 | Continued |
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Notes to Financial Statements
December 31, 2011
(f) | Concentrations |
Substantially, all of the Companys revenues are from two national communication companies. Revenue and receivable concentrations for these tenants as of December 31, 2011 consist of the following:
Tenant 1: |
||||
Revenues |
61 | % | ||
Accounts receivable |
13 | |||
Tenant 2: |
||||
Revenues |
28 | |||
Accounts receivable |
79 |
(g) | Operating Properties |
Operating properties, consisting of tower sites, fiber-based networks, equipment, and leasehold interests, are recorded at cost including capitalized construction costs. The Company also capitalizes certain costs such as legal, engineering, and third-party site due diligence costs. In addition, the Company capitalizes costs of certain employees of the Manager whose activities are directly related to operating property development. Betterments, renewals, and extraordinary repairs, which increase the value or extend the life of the asset, are capitalized. Repair and maintenance costs are expensed as incurred. Tower assets and network assets (fiber-based) are depreciated using the straight-line method over the shorter of the estimated useful life of 15 years or the term of the underlying ground lease (including optional renewal periods). Equipment is recorded at cost and is depreciated using the straight-line method over 5 years. Leasehold interests, which include purchases of easements, are amortized using the straight-line method over the life of the agreement.
(h) | Asset Retirement Obligations |
The Company records obligations associated with the retirement of long-lived assets and the associated asset retirement costs in accordance with the accounting standard for asset retirement obligations. The significant assumptions used in estimating the Companys aggregate asset retirement obligation are: timing of tower removals; cost of tower removals; expected inflation rates; and credit-adjusted risk-free interest rate that approximates the Companys incremental borrowing rate. The fair value of the liability for asset retirement obligations is recognized in the period in which it is incurred and the fair value of the liability can reasonably be estimated. The associated asset retirement costs are capitalized as an additional carrying amount of the related long-lived asset and amortized over the useful life of the related long-lived asset.
(i) | Impairment of Long-Lived Assets |
Operating properties and other long-lived assets are reviewed for impairment in accordance with the accounting standard for impairment or disposal of long-lived assets. The Company evaluates the recoverability of these long-lived assets whenever adverse events or changes in business climate indicate that the carrying amount may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the sum of the estimated undiscounted expected future cash flows (excluding interest) to determine if impairment exists. If it is determined that impairment has occurred, the impairment loss is measured by comparing the fair value of the asset to its carrying value.
The Company evaluates the profitability of its sites as part of the ongoing operations of its business to identify any sites that may not be generating sufficient cash flow to cover the operating expenses of the site. Based on this review, there were no indicators of impairment in 2011, and no asset impairment was recorded during the year ended December 31, 2011.
8 | Continued |
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Notes to Financial Statements
December 31, 2011
(j) | Deferred Financing and Leasing Costs |
Costs incurred in obtaining and maintaining the note payable were capitalized and are amortized over the term of the loan agreement using the effective-interest method. Additionally, costs incurred in securing the lenders interest in each newly constructed tower site are capitalized and are amortized over the remaining term of the loan agreement also using the effective-interest method. The deferred leasing costs and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases.
(k) | Office Furniture and Equipment |
Office furniture and equipment are recorded at cost and are presented net of accumulated depreciation. Office furniture and equipment are depreciated using the straight-line method over five years.
(l) | Fair Value Measurements |
Fair value is defined as the price that would be required to sell an asset or would be paid to transfer a liability (the Exit Price) in an orderly transaction between market participants as of the measurement date. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy is established that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entitys own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest-level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company calculates the fair value of financial instruments and includes this additional information in the notes to the financial statements when the fair value is different from the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made.
9 | Continued |
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Notes to Financial Statements
December 31, 2011
(m) | Derivative Instruments |
The Company recognizes all derivatives in the financial statements and measures the derivatives at fair value. Interest rate swap and cap agreements may be purchased by the Company from third parties to manage the risk of interest rate changes on the Companys floating-rate debt. On the date a derivative contract is entered into, the Company designates the derivative as a trading instrument and the changes in the fair value of the derivative instrument are reported in current earnings in the accompanying statement of income. Payments received or paid as a result of these agreements are recorded as a reduction or increase of interest expense. The fair value of the instrument is included in prepaid expenses and other assets if the fair value is an asset or in accounts payable and other liabilities if the fair value is a liability.
(n) | Income Taxes |
Although the Company is not subject to federal income tax, the Company operates in certain state and local jurisdictions that assess franchise or excise taxes on the Company, rather than on its members. Those taxes are included in rental and operating expenses in the accompanying statement of income and are not material. The Company assesses significant tax positions for all open tax years and determines whether there are any material unrecognized liabilities from uncertain tax benefits. If a tax position is not considered more likely than not to be sustained solely on its technical merits, no benefits of the tax position are to be recognized (for financial statement purposes). As of December 31, 2011, the Company had no liabilities for uncertain tax positions. The Company classifies interest and penalties on tax liabilities from significant uncertain tax positions as operating expense, respectively, in our statement of income. For the year ended December 31, 2011, there is no such interest or penalties. The Companys federal income tax returns are open to examination for the 2006 through 2011 tax years.
(o) | Use of Estimates |
The preparation of the accompanying financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosure about contingent assets and liabilities, and reported amounts of revenues and expenses. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.
10 | Continued |
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Notes to Financial Statements
December 31, 2011
(3) | Operating Properties |
Operating properties as of December 31, 2011 consist of the following:
Estimated useful lives in years |
||||||
Operating properties: |
||||||
Tower sites |
15 | $ | 83,241,332 | |||
Network assets |
15 | 44,375,923 | ||||
Equipment |
5 | 464,087 | ||||
Leasehold interests |
up to 30 | 2,262,656 | ||||
|
|
|||||
Gross operating properties |
130,343,998 | |||||
Accumulated depreciation and amortization |
(46,371,516 | ) | ||||
|
|
|||||
Operating properties, net |
$ | 83,972,482 | ||||
|
|
In 2011, the Company constructed and placed in service one communication site. Operating properties depreciation and amortization expense for the year ended December 31, 2011 was $8,692,507.
(4) | Trade and Related-Party Receivables, Net |
Trade and related-party receivables as of December 31, 2011 consist of the following:
Trade receivables, net of allowance of $95,167 in 2011 |
$ | 2,594,138 | ||
Related-party receivable |
154,951 | |||
|
|
|||
Trade and related-party receivables |
$ | 2,749,089 | ||
|
|
(5) | Deferred Financing and Leasing Costs, Net |
Deferred financing and leasing costs, net consist of the following:
Deferred financing costs, net of accumulated amortization of $3,018,995 in 2011 |
$ | 722,012 | ||
Deferred leasing costs, net of accumulated amortization of $760,414 in 2011 |
941,968 | |||
|
|
|||
Deferred financing and leasing costs, net |
$ | 1,663,980 | ||
|
|
11 | Continued |
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Notes to Financial Statements
December 31, 2011
Amortization expense of deferred financing costs was $414,183 during 2011, and is included in interest expense in the accompanying statement of income. Amortization expense of deferred leasing costs was $212,277 for 2011 and is included in depreciation, amortization, and accretion expense in the accompanying statement of income.
(6) | Prepaid Expenses and Other Assets |
Prepaid expenses and other assets consist of the following:
Prepaid rent |
$ | 1,643,836 | ||
Office furniture and equipment, net of accumulated depreciation of $574,146 in 2011 |
2,340 | |||
Other assets |
143,858 | |||
|
|
|||
Prepaid expenses and other assets |
$ | 1,790,034 | ||
|
|
Prepaid rent includes rental payments for ground rent made in advance to third-party lessors. Certain of these payments were the result of a lease-buyout arrangement (LBA) and were made in advance for a term up to 30 years. The remaining payments are amortized to rent expense over the term of the LBA. The total amount recorded as rent expense for 2011 was $50,027 and is included in rental and operating expenses in the accompanying statement of income.
Depreciation expense for office furniture and equipment for the year ended December 31, 2011 was $91,459, and is included in depreciation, amortization, and accretion expense in the accompanying statement of income.
(7) | Accounts Payable and Other Liabilities |
Accounts payable and other liabilities consist of the following:
Accounts payable and accrued liabilities |
$ | 1,833,442 | ||
Prepaid tenant rents |
238,188 | |||
Asset retirement obligation |
2,371,606 | |||
|
|
|||
Accounts payable and other liabilities |
$ | 4,443,236 | ||
|
|
The asset retirement obligation accretes as a result of the passage of time and the related accretion expense was $139,998 for the year ended December 31, 2011 and is included in depreciation, amortization, and accretion expense in the accompanying statement of income.
12 | Continued |
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Notes to Financial Statements
December 31, 2011
(8) | Note Payable |
On May 17, 2006, the Company closed on an $80,000,000 delayed draw term loan and a $5,000,000 revolving loan. On June 24, 2011, the Company amended the loan. The following table summarizes the key changes in terms:
Terms pre-amendment |
Terms post-amendment | |||
Maturity date |
May 17, 2012 | May 17, 2014 | ||
Revolving line availability |
$5,000,000 | 5,000,000 | ||
Interest rate |
LIBOR + 1.5% | LIBOR + 2.5% | ||
Principal repayment required |
Quarterly | None | ||
Hedging required |
Yes | No |
The Company had fully drawn on the delayed draw term loan by the end of 2007 and begun to make principal payments in 2009. The Company made $5,686,713 in principal payments during 2011 resulting in debt outstanding equal to $45,493,709 prior to the amendment.
As of December 31, 2011, the Company had not drawn on the revolving loan. For the year ended December 31, 2011, the interest rate under the term loan was based on the one-month LIBOR plus the applicable margin noted in the table above. The one-month LIBOR at December 31, 2011 was 0.30%. The weighted average interest rate was 2.35% for 2011. Interest payments are made in arrears on the payment date pursuant to the loan agreement. The Company is also subject to certain restrictions and financial covenants, which require compliance with financial ratios including leverage, interest coverage, and fixed charge coverage ratios. The Company was in compliance with all financial covenants as of December 31, 2011. All obligations under the loan are secured by all of the Companys real and personal property. The fair value of the note payable is estimated using a discounted cash flow analysis with the borrowing rates available to the Company for debt instruments with similar terms. As of December 31, 2011, the fair value of the note payable approximated the carrying value of the payable of $45,493,709.
Prior to the amendment, the loan agreement required the Company to have an interest rate cap in order to manage the exposure to change in the LIBOR. The initial interest rate cap expired in November 2009, and the Company purchased an amortizing interest rate cap to replace the initial interest rate cap. The cap provided for a LIBOR ceiling of 2.5% with an initial notional amount of $36,934,735 and an ending notional amount of $11,663,600 in the last month before termination on November 1, 2011. The total amount included in the statement of income for the year ended December 31, 2011 as a result of the expiration was $303 and is included in interest expense in the accompanying statement of income.
13 | Continued |
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Notes to Financial Statements
December 31, 2011
(9) | Future Rental Revenues |
Tenant Leases
As lessors, the Company is due to receive cash rental payments from tenants of communications sites under noncancelable lease agreements in effect as of December 31, 2011, which expire at various times throughout 2017 as follows:
Year ending December 31: |
||||
2012 |
$ | 25,901,466 | ||
2013 |
22,382,609 | |||
2014 |
17,445,799 | |||
2015 |
13,721,591 | |||
2016 and thereafter |
3,603,832 | |||
|
|
|||
Total |
$ | 83,055,297 | ||
|
|
The Companys tenant leases provide for annual escalations and multiple renewal periods, at the tenants option. The tenant rental payments included in the table above do not assume exercise of tenant renewal options.
(10) | Commitments and Contingencies |
(a) | Operating Leases |
Future minimum rental payments under noncancelable ground leases include payments for certain renewal periods at the Companys option because failure to renew could result in a loss of the applicable tower site and related revenues from tenant leases, thereby making it reasonably assured that the Company will renew the lease. The Companys future minimum payments at December 31, 2011 are as follows:
Year ending December 31: |
||||
2012 |
$ | 5,866,890 | ||
2013 |
5,248,352 | |||
2014 |
4,816,846 | |||
2015 |
4,784,808 | |||
2016 and thereafter |
28,554,414 | |||
|
|
|||
Total |
$ | 49,271,310 | ||
|
|
(b) | Legal Matters |
As of December 31, 2011, the Company is not involved in any material litigation and is not aware of any pending litigation or unasserted claims that will have a material adverse effect on its business, financial condition, results of operations, or liquidity.
14 | Continued |
MOBILITIE INVESTMENTS, LLC
(A Delaware Limited Liability Company)
Notes to Financial Statements
December 31, 2011
(11) | Related-Party Transactions |
(a) | Management Agreement |
The Company has a management agreement with the Manager, dated April 1, 2005 and subsequently amended January 26, 2007. Under the terms of the management agreement, the Manager oversees the day-to-day operations, administers accounting and bookkeeping functions, serves as a consultant in connection with policy decisions to be made by the Managing Member, manages properties, and renders other services deemed appropriate by the Managing Member. The Manager has a membership interest in the Company through its interest in Partners. The Manager is entitled to reimbursement for all expenses incurred in rendering its services to the Company. Management fee expense for the year ended December 31, 2011 was $3,830,508.
(b) | Collateralization of Members Interest |
As of December 31, 2011, the members of Partners have a note payable to Mobilitie Investments II, LLC (M2) for $4,500,000 that is secured by their interest in the Company and their interests in M2.
(12) | Subsequent Events |
(a) | Sale of the Company |
On February 18, 2012, the Company entered into a Purchase and Sale Agreement (Purchase Agreement) with SBA Communications Corporation (SBA), Monarch Towers Acquisition, LLC, a wholly owned subsidiary of SBA (the Buyer), Mobilitie Investments II, LLC (M2), MPGJ-I, LLC (MPGJ I), MPMA-I, LLC (MPMA I), MPGJ-II, LLC (MPGJ II, and together with the Company, M2, MPGJ I and MPMA I, the Mobilitie Companies), Mobilitie Partners, LLC, Mobilitie Partners II, LLC, Mobilitie, LLC, Mobilitie Holdings, LLC, Mobilitie Holdings II, LLC, and Orlin Properties, LLC (the Sellers). Pursuant to the Purchase Agreement, the Buyer was to acquire the Mobilitie Companies from the Sellers. The acquisition was completed on April 2, 2012. All remaining loans outstanding were paid off in conjunction with this transaction.
(b) | Other |
The Company has evaluated subsequent events through May 4, 2012, which is the date these financial statements were issued. All subsequent events requiring recognition as of December 31, 2011 have been incorporated into the financial statements herein.
15 |
Exhibit 99.2
MOBILITIE INVESTMENT II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Consolidated Financial Statements
December 31, 2011
(With Independent Auditors Report Thereon)
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Table of Contents
Page | ||||
Independent Auditors Report |
1 | |||
Consolidated Balance Sheet |
2 | |||
Consolidated Statement of Operations |
3 | |||
Consolidated Statement of Equity |
4 | |||
Consolidated Statement of Cash Flows |
5 | |||
Notes to Consolidated Financial Statements |
6 |
Independent Auditors Report
The Members
Mobilitie Investments II, LLC:
We have audited the accompanying consolidated balance sheet of Mobilitie Investments II, LLC and affiliate as of December 31, 2011, and the related consolidated statements of operations, equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mobilitie Investments II, LLC and affiliate as of December 31, 2011, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Los Angeles, California
May 4, 2012
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Consolidated Balance Sheet
December 31, 2011
Assets | ||||
Operating properties, net |
$ | 389,566,318 | ||
Cash and cash equivalents |
5,547,479 | |||
Restricted cash |
608,990 | |||
Trade receivables, net |
10,546,170 | |||
Deferred rent receivables |
17,718,103 | |||
Deferred financing and leasing costs, net |
10,242,539 | |||
Prepaid expenses and other assets |
16,658,372 | |||
Investment in unconsolidated affiliate |
1,996,825 | |||
|
|
|||
Total assets |
$ | 452,884,796 | ||
|
|
|||
Liabilities and Equity | ||||
Note payable |
$ | 275,775,000 | ||
Accounts payable and other liabilities |
55,034,434 | |||
Accrued interest payable |
222,600 | |||
Deferred rent payables |
12,640,452 | |||
|
|
|||
Total liabilities |
343,672,486 | |||
|
|
|||
Mobilitie Investments II, LLC |
108,072,417 | |||
Noncontrolling interest |
1,139,893 | |||
|
|
|||
Total equity |
109,212,310 | |||
|
|
|||
Total liabilities and equity |
$ | 452,884,796 | ||
|
|
See accompanying notes to consolidated financial statements.
2
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Consolidated Statement of Operations
Year ended December 31, 2011
Revenues: |
||||
Rental |
$ | 49,124,451 | ||
Tenant reimbursements |
30,975,712 | |||
Management fee |
4,142,534 | |||
|
|
|||
84,242,697 | ||||
|
|
|||
Expenses: |
||||
Rental and operating |
6,676,083 | |||
Ground rent expense |
25,182,160 | |||
General and administrative |
16,806,550 | |||
Management fee |
4,142,534 | |||
Depreciation, amortization, and accretion |
27,648,906 | |||
|
|
|||
80,456,233 | ||||
|
|
|||
Operating income |
3,786,464 | |||
Other income (expense): |
||||
Affiliate interest |
230,850 | |||
Interest income |
10,299 | |||
Interest expense |
(12,862,472 | ) | ||
Loss on extinguishment of debt |
(4,993,850 | ) | ||
Equity in earnings of unconsolidated affiliate |
161,985 | |||
|
|
|||
Net loss |
(13,666,724 | ) | ||
Net loss attributable to noncontrolling interest |
411,496 | |||
|
|
|||
Net loss attributable to Mobilitie Investments II, LLC |
$ | (13,255,228 | ) | |
|
|
See accompanying notes to consolidated financial statements.
3
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Consolidated Statement of Equity
Year ended December 31, 2011
Mobilitie Investments II, LLC |
Noncontrolling interest |
Total equity | ||||||||||
Balance as of December 31, 2010 |
$ | 121,179,165 | 1,551,389 | 122,730,554 | ||||||||
Affiliate interest |
(230,850 | ) | | (230,850 | ) | |||||||
Financing transaction fees earned by the affiliate |
379,330 | | 379,330 | |||||||||
Net loss |
(13,255,228 | ) | (411,496 | ) | (13,666,724 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2011 |
$ | 108,072,417 | 1,139,893 | 109,212,310 | ||||||||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
4
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Consolidated Statement of Cash Flows
Year ended December 31, 2011
Cash flows from operating activities: |
||||
Net loss |
$ | (13,666,724 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||
Equity in earnings of unconsolidated affiliate |
(161,985 | ) | ||
Depreciation, amortization, and accretion |
27,648,906 | |||
Loss on extinguishment of debt |
4,993,850 | |||
Amortization of deferred financing costs |
1,610,261 | |||
Provision for bad debts |
144,848 | |||
Abandoned projects |
1,218,299 | |||
Unrealized gain on financial derivatives |
(66,360 | ) | ||
Affiliate interest |
(230,850 | ) | ||
Changes in operating assets and liabilities: |
||||
Cash affiliate |
(121,681 | ) | ||
Trade and other receivables |
(1,813,663 | ) | ||
Deferred rent receivables |
(5,201,585 | ) | ||
Deferred leasing costs |
(1,509,316 | ) | ||
Prepaids expenses and other assets |
(7,888,794 | ) | ||
Accounts payable and accrued liabilities |
8,883,655 | |||
Deferred rent payables |
3,507,852 | |||
|
|
|||
Net cash provided by operating activities |
17,346,713 | |||
|
|
|||
Cash flows from investing activities: |
||||
Construction of operating properties |
(73,210,737 | ) | ||
Purchases of leasehold interests |
(5,073,385 | ) | ||
Purchases of furniture, fixtures, and equipment |
(777,276 | ) | ||
Restricted cash |
(31,600 | ) | ||
|
|
|||
Net cash used in investing activities |
(79,092,998 | ) | ||
|
|
|||
Cash flows from financing activities: |
||||
Proceeds from note payable |
318,000,000 | |||
Principal payments of note payable |
(247,687,500 | ) | ||
Payment of financing costs |
(7,448,083 | ) | ||
|
|
|||
Net cash provided by financing activities |
62,864,417 | |||
|
|
|||
Net change in cash and cash equivalents |
1,118,132 | |||
Cash and cash equivalents at beginning of year |
4,429,347 | |||
|
|
|||
Cash and cash equivalents at end of year |
$ | 5,547,479 | ||
|
|
|||
Supplemental disclosure of cash flow information: |
||||
Interest paid, net of capitalized interest |
$ | 11,692,294 | ||
Supplemental disclosures of noncash investing and financing activities: |
||||
Accrual for construction of operating properties |
$ | (13,587,610 | ) | |
Conversion of prepaid leases to leasehold interests |
(224,605 | ) | ||
Recognition of asset retirement obligation |
(3,612,496 | ) | ||
Recognition of financing transaction fees earned by affiliate |
(379,330 | ) |
See accompanying notes to consolidated financial statements.
5
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
(1) | Nature of Business |
Mobilitie Investments II, LLC (the Company), a Delaware limited liability company, was organized on January 26, 2007 to construct, own, lease, and manage communications towers, fiber-based networks, and other communications sites to providers of communications and broadcast services, such as wireless telephony, paging, mobile radio, and wireless data transmission.
The Company has two members: (1) Mobilitie Partners II, LLC (Partners II) and (2) Mobilitie Holdings II, LLC (Holdings II), which is also the Managing Member. The ownership interests of Partners II and Holdings II are 4% and 96%, respectively, and each members liability is generally limited to its invested capital. The members are not obligated to make capital contributions in excess of their initial contributions and with respect to Holdings II, additional capital contributions (including initial capital contributions) are not to exceed $154,500,000. If there is a default or potential default under credit facilities or other indebtedness, then Holdings II can elect to make additional contributions, and if Holdings II makes such additional contributions, then Partners II has the right to make additional contributions sufficient to maintain its ownership interest.
Distributions of the Company are first allocated to Partners II until Partners II has received the lesser of $4,500,000 or 3% of the amount of aggregate contributions made by Holdings II up to $150,000,000, plus simple interest on such amount from the effective date equal to 5.13% per annum. Next, distributions are allocated to Holdings II until Holdings II has achieved an 8% internal rate of return on the lesser of $4,500,000 or 3% of the amount of aggregate contributions made by Holdings II. Thereafter, distributions will be allocated to the members based on their ownership percentages until certain internal rates of return are met. Once the internal rates of return are achieved, distributions will be allocated to the members based on percentages included in the operating agreement. The allocation of income (loss) will generally follow distributions.
The Company will terminate on December 31, 2045 unless sooner terminated as provided for in the operating agreement.
(2) | Summary of Significant Accounting Policies |
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The significant accounting policies are set forth below.
(a) | Principles of Consolidation |
The consolidated financial statements include the accounts of the Company, Mobilitie Networks II, LLC (MNII), Mobilitie Nicaragua y CompaniaLimitada (MNCL), MobilitieGuatemala y CompaniaLimitada (MGCL), and Mobilitie, LLC (the Manager).
The Company has a 100% interest in and consolidates MNII. MNII has a 4% interest in MNCL and 1% interest in MGCL. MNII was organized on February 8, 2008 to construct, own, lease, and manage fiber-based networks to providers of communications and broadcast services, such as wireless telephony, paging, mobile radio, and wireless data transmission.
6 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
The Company has a 95% interest in and consolidates MNCL. MNCL was organized on June 1, 2011 to construct, own, lease, and manage communications towers, fiber-based networks, and other communications sites to providers of communications and broadcast services, such as wireless telephony, paging, mobile radio, and wireless data transmission in the country of Nicaragua. Each members liability is generally limited to its invested capital.
The Company has a 99% interest in and consolidates MGCL. MGCL was organized on April 29, 2011 to construct, own, lease, and manage communications towers, fiber-based networks, and other communications sites to providers of communications and broadcast services, such as wireless telephony, paging, mobile radio, and wireless data transmission in the country of Nicaragua. Each members liability is generally limited to its invested capital.
The Manager has an 80% interest in and consolidates its subsidiary Mobilitie Partners, LLC (Partners), which is a member of Mobilitie Investments, LLC (M1). The Manager also has a 99% interest in and consolidates its subsidiary Mobilitie Panama Sociedad de Responsabilidad Limitada (MPSRL), which was formed on August 23, 2010. MPSRL was formed to conduct telecommunication infrastructure related development activities in the country of Panama and its activities during the current year were limited to executing various staffing agreements, office leases, and other administrative contracts with entities domiciled outside of the United States. The Company has no membership interests in the Manager, Partners, or M1. The Manager was determined to be a variable interest entity as a result of equity holders lacking the power to direct the activities that most significantly impact the financial performance of the entity and the characteristics of a controlling financial interest as they are not obligated to absorb any of the expected losses or receive any of the expected return of the entity due to the management agreement with M1 and the Company. The Manager had a management agreement with M1 dated April 5, 2005 that was subsequently amended January 26, 2007 to also include the Company. Under the terms of the management agreement, the Manager oversees day-to-day operations, administers accounting and bookkeeping functions, serves as a consultant in connection with policy decisions to be made by the Managing Member, manages properties, and renders other services deemed appropriate by the Managing Member. The management agreement with the Company and with M1 allows the Manager to pass through all of its expenses to the Company and M1 at cost, but does not allow the Manager to mark up or charge profit on any of the expenses incurred by the Manager in the course of performing its duties under the management agreement.
(b) | Revenue Recognition |
The Company leases space on communications sites it owns. Rental revenues are recognized on a monthly basis under lease agreements when earned. Fixed escalation clauses present in noncancelable lease agreements are recognized on a straight-line basis over the terms of the applicable leases. Amounts billed upfront for certain services provided in connection with the execution of lease agreements are initially deferred and recognized as revenue over the initial terms of the applicable leases. Amounts billed or received prior to being earned are deferred and reflected in accounts payable and other liabilities in the accompanying consolidated balance sheet until such time as the earnings process is complete.
7 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
Reimbursements from the Companys tenants for repairs and maintenance, real property taxes, and insurance are recognized as revenues in the period the applicable expenses are incurred. Reimbursements from the Companys anchor tenants for ground rent expenses are straight-line based on the fixed noncancelable terms of the related anchor tenant leases.
The Company, through the Manager, earns management fees for managing the day-to-day operations, property management, administration, and accounting and bookkeeping functions of M1, as well as any consulting services necessary in connection with policy decisions to be made by the Managing Member of M1.
(c) | Rental and Operating Expenses |
The Company incurs various costs associated with the ownership and operation of the communication sites including repairs and maintenance, real property taxes, and insurance. The expenditures are recognized in the period the applicable expenses are incurred.
Certain of the Companys anchor (primary) tenant leases require a fixed percentage of the nonanchor tenant rental revenue to be paid to the anchor tenant on a monthly basis. The amounts are recognized on a straight-line basis over the lesser of the initial terms of the related nonanchor tenant leases or the initial terms of the related anchor tenant leases.
(d) | Ground Rent Expense |
The Company has leases underlying the Companys communication sites that have fixed rent escalations, which provide for periodic increases in the amount of ground rent payable by the Company over time. The Company calculates straight-line ground rent expense for these leases based on the fixed noncancelable term of the underlying ground lease plus all periods, if any, for which failure to renew the lease imposes an economic penalty to the Company such that renewal appears, at the inception of the lease, to be reasonably assured.
(e) | General and Administrative Expense |
General and administrative expense consists of Manager overhead expenses incurred in the day-to-day management of the Company, business development expenses, and bad debt expenses.
(f) | Cash and Cash Equivalents |
Cash equivalents consist of highly liquid investments with original maturities of three months or less. The Company has an arrangement with its banking institution such that excess cash is automatically swept for investment into an overnight deposit account. The account balances at the Companys financial institutions periodically exceed the Federal Deposit Insurance Corporations (FDIC) insurance coverage, and as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage.
8 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
(g) | Restricted Cash |
Restricted cash includes cash on deposit required for construction of certain operating properties and cash of $187,886, as of December 31, 2011 held by the Manager.
(h) | Trade Receivables, Net |
Trade receivable balances result primarily from the timing of commencement of new leases and the tenants accounts payable calendar. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable. In establishing the required allowance, the Company considers customers financial condition, the amount of receivables in dispute, and the current receivables aging and payment patterns. The Company regularly reviews its allowance for doubtful accounts. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
(i) | Concentrations |
Substantially all of the Companys revenues are from two national communication companies. Revenue and receivable concentrations for these tenants as of December 31, 2011 consist of the following:
Tenant 1: |
||||
Revenues |
15 | % | ||
Accounts receivable |
10 | |||
Tenant 2: |
||||
Revenues |
68 | % | ||
Accounts receivable |
39 |
(j) | Office Furniture and Equipment |
Office furniture and equipment are recorded at cost and are presented net of accumulated depreciation in prepaid expenses and other assets. Office furniture and equipment are depreciated using the straight-line method over five years.
(k) | Deferred Financing and Leasing Costs |
Costs incurred in obtaining and maintaining the note payable were capitalized and are being amortized over the term of the loan agreement using the straight-line method, which is materially consistent with the effective-interest method. Additionally, costs incurred in securing the lenders interest in each newly constructed tower site under the terms of the note payable are capitalized and are being amortized over the term of the loan agreement using the straight-line method, which is materially consistent with the effective-interest method. Leasing costs and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases.
9 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
(l) | Investment in Unconsolidated Affiliate |
The investment in unconsolidated affiliate (the Investment) relates to the Managers interest in M1 through its ownership interest in Partners as discussed above and is accounted for using the equity method. The Investment is increased for capital contributions and Partners share of M1s net income and decreased by distributions received and Partners share of M1s net losses. The Investment is allocated to the noncontrolling interest as the Company has no interest in the Manager.
(m) | Operating Properties |
Operating properties, consisting of tower sites, fiber-based networks, equipment, and leasehold interests are recorded at cost including capitalized construction costs. Costs for self-constructed operating properties include direct materials, labor, indirect costs, and capitalized interest. In addition, the Company capitalizes costs of certain employees of the Manager whose activities are directly related to operating property development. Betterments, renewals, and extraordinary repairs, which increase the value or extend the life of the asset, are capitalized. Repair and maintenance costs are expensed as incurred. Tower assets and network assets (fiber-based) are generally depreciated using the straight-line method over the shorter of the estimated useful life or remaining term of the underlying ground lease, including all renewals that appear at the inception of the lease to be reasonably assured. Equipment is recorded at cost and is depreciated using the straight-line method over five years. Leasehold interests, which include purchases of easements, are amortized using the straight-line method over the remaining life of the agreement. Capitalized interest is depreciated over the life of the associated asset. Construction in progress includes the cost of certain operating properties under construction.
(n) | Asset Retirement Obligations |
The Company records obligations associated with the retirement of long-lived assets and the associated asset retirement costs in accordance with the accounting standard for asset retirement obligations. The significant assumptions used in estimating the Companys aggregate asset retirement obligation are: timing of tower removals; cost of tower removals; expected inflation rates; and credit-adjusted risk-free interest rates that approximate the Companys incremental borrowing rate. The fair value of the liability for asset retirement obligations is recognized in the period in which it is incurred and the fair value of the liability can reasonably be estimated. The liability is subsequently adjusted for accretion expense and changes in the amount or timing of the estimated cash flows. The associated asset retirement costs are capitalized as an additional carrying amount of the related long-lived asset and are depreciated over the useful life of the related long-lived asset.
(o) | Impairment of Long-Lived Assets |
Operating properties and other long-lived assets are reviewed for impairment in accordance with the accounting standard for impairment or disposal of long-lived assets. The Company evaluates the recoverability of these long-lived assets whenever adverse events or changes in business climate indicate that the carrying amount may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows to determine if impairment exists. If it is determined that impairment has occurred, the impairment loss is measured by comparing the fair value of the asset to its carrying value.
10 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
The Company evaluates the profitability of its communication sites as part of the ongoing operations of its business in order to identify any sites that may not be generating sufficient cash flow to cover the operating expenses of the site. Based on this review, there were no indicators of impairment in 2011, and no asset impairments were recorded for the year ended December 31, 2011.
(p) | Fair Value Measurements |
Fair value is defined as the price that would be required to sell an asset or would be paid to transfer a liability (the Exit Price) in an orderly transaction between market participants at the measurement date. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy is established that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entitys own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company calculates the fair value of financial instruments and includes this additional information in the notes to the consolidated financial statements when the fair value is different from the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made.
(q) | Derivative Instruments |
The Company recognizes all derivatives in the consolidated financial statements and measures the derivatives at fair value. Interest rate swap and cap agreements may be purchased by the Company from third parties to manage the risk of interest rate changes on the Companys floating-rate debt. On the date a derivative contract is entered into, the Company designates the derivative as a trading instrument and the changes in the fair value of the derivative instrument are reported as part of interest expense in the accompanying consolidated statement of operations. Payments received or paid as a result of these agreements are recorded as a reduction or increase of interest expense. The fair value of the instrument is included in prepaid expenses and other assets if the fair value is an asset or, in accounts payable and other liabilities if the fair value is a liability.
11 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
(r) | Income Taxes |
Although the Company is not subject to federal income tax, the Company operates in certain state and local jurisdictions that assess franchise or excise taxes on the Company, rather than on its members. Those taxes are included in rental and operating expenses in the accompanying consolidated statement of operations and are not material. The Company assesses significant tax positions for all open tax years and determines whether there are any material unrecognized liabilities from uncertain tax benefits. If a tax position is not considered more likely than not to be sustained solely on its technical merits, no benefits of the tax position are to be recognized (for consolidated financial statement purposes). As of December 31, 2011, the Company had no liabilities for uncertain tax positions. The Company classifies interest and penalties on tax liabilities from significant uncertain tax positions as operating expense in the Companys consolidated statement of operations. For the year ended December 31, 2011, there is no such interest or penalties. The Companys federal income tax returns are open to examination for the 2006 through 2011 tax years.
(s) | Foreign Currency Translation |
All assets and liabilities of foreign subsidiaries that do not utilize the United States dollar as its functional currency are translated at period-end rates of exchange, while revenues and expenses are translated at monthly weighted average rates of exchange for the year. Unrealized translation gains and losses are reported as foreign currency translation adjustments through other comprehensive income in equity if material. There were no foreign currency translation adjustments reported during the current year.
(t) | Use of Estimates |
The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosure about contingent assets and liabilities, and reported amounts of revenues and expenses. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
12 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
(3) | Operating Properties, Net |
Operating properties as of December 31, 2011 consist of the following:
Estimated useful lives in years |
||||||
Operating properties: |
||||||
Tower sites |
15 | $ | 360,630,034 | |||
Network assets |
15 | 69,586,022 | ||||
Site equipment |
5 | 869,600 | ||||
Leasehold interests |
16 to 30 | 14,990,652 | ||||
Construction in progress |
15,762,378 | |||||
|
|
|||||
Total operating properties |
461,838,686 | |||||
Accumulated depreciation and amortization |
(72,272,368 | ) | ||||
|
|
|||||
Operating properties, net |
$ | 389,566,318 | ||||
|
|
In 2011, the Company constructed and placed in service 239 communication sites. Total costs of construction placed in service (including amounts transferred from construction in progress) amounted to $82,868,690 in 2011. Interest capitalized on projects under construction amounted to $939,951 in 2011. Operating properties depreciation and amortization expense for the year ended December 31, 2011 was $26,384,146.
(4) | Deferred Financing and Leasing Costs, Net |
Deferred financing and leasing costs as of December 31, 2011 consist of the following:
Deferred financing costs, net of accumulated amortization of $838,745 |
$ | 6,651,818 | ||
Deferred leasing costs, net of accumulated amortization of $682,911 |
3,590,721 | |||
|
|
|||
Deferred financing and leasing costs, net |
$ | 10,242,539 | ||
|
|
Amortization expense of deferred financing costs was $1,610,260 during 2011 and is included in interest expense in the consolidated statement of operations. Amortization expense of deferred leasing costs was $223,089 for 2011, and is included in depreciation, amortization, and accretion expense in the consolidated statement of operations.
13 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
(5) | Prepaid Expenses and Other Assets |
Prepaid expenses and other assets as of December 31, 2011 consist of the following:
Prepaid rent |
$ | 10,749,047 | ||
Office furniture and equipment, net of accumulated depreciation of $2,377,447 |
1,796,094 | |||
Prepaid salaries and wages |
958,046 | |||
Deposits |
156,595 | |||
Other |
2,998,590 | |||
|
|
|||
Prepaid expenses and other assets |
$ | 16,658,372 | ||
|
|
Prepaid rent includes rental payments made in advance to certain third-party lessors. Certain of these payments were the result of lease-buyout arrangements (LBAs) and were made in advance for terms of up to 45 years. In 2011, the Company converted certain LBAs to an easement structure and reclassified $224,605 of the unamortized LBAs to leasehold interests in operating properties. The remaining payments are amortized to rent expense over the term of the LBAs. The total amount recorded as rent expense for the year ended December 31, 2011 was $128,264, and is included in ground rent expense in the consolidated statement of operations.
Depreciation expense for office furniture and equipment for the year ended December 31, 2011 was $584,516, and is included in depreciation, amortization, and accretion expense in the consolidated statement of operations.
(6) | Accounts Payable and Other Liabilities |
Accounts payable and other liabilities as of December 31, 2011 consist of the following:
Accounts payable |
$ | 4,831,686 | ||
Accrued liabilities |
8,633,723 | |||
Due to affiliates |
154,951 | |||
Prepaid tenant rent |
1,038,898 | |||
Deferred revenue |
16,570,549 | |||
Asset retirement obligation |
10,217,017 | |||
Construction costs payable |
13,587,610 | |||
|
|
|||
Accounts payable and other liabilities |
$ | 55,034,434 | ||
|
|
The asset retirement obligation accretes as a result of the passage of time and the related accretion expense was $457,155 for the year ended December 31, 2011, and is included in depreciation, amortization, and accretion expense in the accompanying consolidated statement of operations. Due to affiliates includes rental payments received by the Manager for communication sites owned by M1.
14 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
(7) | Note Payable |
On January 31, 2008, the Company obtained a $425,000,000 corporate credit facility (Credit Facility), comprised of a $375,000,000 delayed draw term loan and a $50,000,000 revolving loan. On June 16, 2011, the Company amended the loan. At the time of the amendment, the Company utilized the term Loan B facility to pay down the outstanding balance of $243,387,500 on the delayed draw term loan.
The following table summarized the key changes in terms:
Term loan B | Delayed draw term loan |
Revolving loan | ||||
Preamendment |
||||||
Maturity date |
N/A | January 31, 2014 | January 31, 2014 | |||
Interest rate |
N/A | LIBOR + 2.5% | LIBOR + 2.5% | |||
Commitment fee rate |
N/A | 1.00% | 1.00% | |||
Postamendment |
||||||
Maturity date |
June 16, 2017 | June 16, 2016 | June 16, 2016 | |||
Commitment available |
N/A | $145,000,000 | $25,000,000 | |||
Commitment termination date |
N/A | June 16, 2013 | June 16, 2016 | |||
Interest rate |
LIBOR + 4% | LIBOR + 3.75% | LIBOR + 3.75% | |||
Commitment fee rate |
N/A | 1.25% | 0.50% | |||
Libor floor |
1.50% | N/A | N/A | |||
Principal amortization commencement |
September 30, 2011 | September 30, 2013 | N/A | |||
Principal amortization rate |
$612,500 | 1.25%-3.75% | N/A | |||
Balances as of December 31, 2011 |
$243,775,000 | 19,500,000 | 12,500,000 | |||
Hedging Required |
Yes | Yes | No |
The Company concluded that the amendment constituted a substantial modification under existing accounting literature and should be accounted for as an extinguishment of debt. As a result, the Company recognized a loss on extinguishment of $4,993,850, which represents the difference between the fair value of the amended note, including consideration and fees, and the carrying value of the original note, including related unamortized discount.
15 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
Payments of principal under the delayed draw term loan are to be made quarterly based on the stipulated rate times the total principal outstanding beginning at 1.25% in September 2013 and increasing to 2.50% in September 2014 and 3.75% in September 2015. Payments of principal under the term loan B are to be made quarterly in the amount of $612,500 beginning in September 2011. Payments of principal based on the principal outstanding as of December 31, 2011 would be made according to the following schedule:
Year ending December 31: |
||||
2012 |
$ | 1,225,000 | ||
2013 |
2,937,500 | |||
2014 |
3,912,500 | |||
2015 |
4,887,500 | |||
2016 and thereafter |
262,812,500 | |||
|
|
|||
Total |
$ | 275,775,000 | ||
|
|
As of December 31, 2011, the Company had drawn $19,500,000, on the delayed draw term loan and $12,500,000 on the revolving loan. One-month LIBOR as of December 31, 2011 was equal to 0.30%. The weighted average interest rate was 4.82% for 2011. Interest payments are made in arrears on the payment date pursuant to the loan agreement. The Company is required to pay commitment fees on the aggregate portion of the unborrowed balance of the Credit Facility based on varying rates established in the agreement. The commitment fees for the year ended December 31, 2011 were $1,086,955 and are included in interest expense in the consolidated statement of operations. The Company is subject to certain restrictions and financial covenants, which require compliance with financial ratios including leverage, interest coverage, and fixed charge coverage ratios. All obligations under the loan are secured by all of the Companys real and personal property. The fair value of the note payable is estimated using a discounted cash flow analysis with the borrowing rates available to the Company for debt instruments with similar terms. As of December 31, 2011, the fair value of the note payable approximated the carrying value of the payable of $275,775,000.
On March 2, 2009, the Company purchased an accreting interest rate swap contract, which fixed LIBOR at 1.71% and matured on February 1, 2011. The swap had an initial notional value of $11,400,000 and accreted based on a projected draw schedule up to a notional amount of $87,500,000 in the last month before termination. On August 25, 2010, the Company purchased an interest rate cap. The cap matured on September 1, 2011 and provided for a LIBOR ceiling of 5.0% with a fixed notional amount of $125,000,000 and terminates on September 1, 2011. On December 9, 2011, the Company purchased a new accreting interest rate cap, which provided for a LIBOR ceiling of 5.0% and matures on December 9, 2013. The cap had an initial notional value of $131,943,750 and accretes based on a projected draw schedule up to a notional amount of $151,988,335 in the last month before termination. The cap had a notional value of $138,014,750 as of December 31, 2011.
16 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
The following is a summary of the consolidated balance sheet and consolidated statement of operations effect of the Companys derivative financial instruments as of and for the year ended December 31, 2011:
Derivatives not designated as hedging instruments |
Balance sheet location |
Fair value | ||||
Interest rate swap contracts |
Accounts payable and liabilities |
$ | (7,133 | ) | ||
Derivatives not designated as hedging instruments |
Location of gain recognized in the consolidated statement of operations |
Gain recognized in the consolidated statement of operations |
||||
Interest rate swap contracts |
Interest expense |
$ | 66,360 |
Although the Company has determined that a majority of the inputs used to value the swaps fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the swaps utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the counterparty. However, as of December 31, 2011, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative instruments and has determined that the credit valuation adjustment is not significant to the overall valuation of the swaps. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The Company has not utilized any other derivative instruments during 2011.
17 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
(8) | Future Rental Revenues |
Tenant Leases
As lessors, the Company is due to receive cash rental payments from tenants of communications sites under noncancelable lease agreements in effect as of December 31, 2011, which expire at various times throughout 2019 as follows:
Year ending December 31: |
||||
2012 |
$ | 76,076,684 | ||
2013 |
77,101,871 | |||
2014 |
72,905,028 | |||
2015 |
71,033,555 | |||
2016 and thereafter |
199,153,053 | |||
|
|
|||
Total |
$ | 496,270,191 | ||
|
|
The Companys tenant leases provide for annual escalations and multiple renewal periods, at the tenants option. The tenant rental payments included in the table above do not assume exercise of tenant renewal options.
(9) | Commitments and Contingencies |
(a) | Operating Leases |
Future minimum rental payments under noncancelable ground leases include payments for certain renewal periods at the Companys option because failure to renew could result in a loss of the applicable tower site and related revenues from tenant leases, thereby making it reasonably assured that the Company will renew the lease. The Companys future minimum payments as of December 31, 2011 are as follows:
Year ending December 31: |
||||
2012 |
$ | 19,095,581 | ||
2013 |
20,185,105 | |||
2014 |
21,530,101 | |||
2015 |
22,460,102 | |||
2016 and thereafter |
215,854,532 | |||
|
|
|||
Total |
$ | 299,125,421 | ||
|
|
18 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
The Manager is obligated under noncancelable operating leases for office space of its corporate headquarters and other regional office locations with terms that expire at various times throughout 2014. Occupancy expense under these office leases for the year ended December 31, 2011 was $975,716. The Managers future minimum cash lease payment commitments under these office leases at December 31, 2011 are as follows:
Year ending December 31: |
||||
2012 |
$ | 883,345 | ||
2013 |
724,656 | |||
2014 |
65,033 | |||
|
|
|||
$ | 1,673,034 | |||
|
|
(b) | Legal Matters |
As of December 31, 2011, the Company is not involved in any significant litigation and has no knowledge of any pending litigation or unasserted claims that will have a material adverse effect on its business, financial condition, results of operations, or liquidity.
(10) | Employee Retirement Plan |
Effective January 1, 2006, the Manager established a 401(k) plan that covers all its employees. Discretionary contributions, if awarded, vest over a five-year period based on a tiered schedule for years of service and hours worked. To participate in the plan, employees must be at least 21 years old. On January 1, 2009, the plan was amended and the Manager now contributes an amount equal to hundred percent (100%) of each employees contributions up to three percent (3%) of their compensation plus fifty percent (50%) of each employees contributions between three percent (3%) and five percent (5%) of their compensation.
All safe harbor contributions shall at all times be nonforfeitable and subject to IRC 401(k) distribution requirements. For the year ended December 31, 2011, employees earned $315,010, under these safe harbor provisions. As of December 31, 2011, the Manager had not made any additional discretionary profit sharing contributions or discretionary match contributions.
(11) | Related-Party Transactions |
(a) | Affiliate Note Receivable |
Upon formation of the Company on January 26, 2007, the Company distributed $4,500,000 to Gary Jabara and Mark Askelson in exchange for notes receivable bearing interest at an annual rate of 5.13%. The notes are secured by Mr. Jabaras interest in the Company and Mr. Jabara and Mr. Askelsons interests in M1. The notes are due to be repaid upon the earlier to occur of the initial public offering of the Company, the sale of substantially all of the assets of the Company or all of the membership interests of the Company, or the fifth anniversary from January 26, 2007. The notes and accrued interest are presented as an advance in the consolidated statement of equity. Accrued interest on the notes receivable totaled $1,138,438 as of December 31, 2011. The note receivable and accrued interests on the receivable were paid off on April 2, 2012.
19 | (Continued) |
MOBILITIE INVESTMENTS II, LLC
AND AFFILIATE
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
December 31, 2011
(b) | Affiliate Financing Transaction Fees |
On March 3, 2008, the Company amended the operating agreement to allow for a transaction fee to be paid to Partners II in an amount equal to 0.05% of the proceeds received from all debt financing raised by the Company. On March 6, 2008, in connection with this agreement, the Company advanced Partners II $2,025,000 for the transaction fee expected to be earned under the Credit Facility. The transaction fee advance will be earned as amounts are drawn and will be refundable to the Company to the extent draws under the Credit Facility cease to be available. For the year ended December 31, 2011, Partners II earned $379,330, of the transaction fee associated with the Companys draws under the Credit Facility, which was capitalized as a deferred financing cost. The remaining balance of the advance is presented as a reduction to equity in the consolidated statement of equity. The remaining balance of the unearned fees was refunded on April 2, 2012.
(c) | Management Fees |
The Manager incurred and was entitled to reimbursement of fees for managing M1, totaling $4,142,534 for the year ended December 31, 2011.
(12) | Subsequent Events |
(a) | Sale of the Company |
On February 18, 2012, the Company entered into a Purchase and Sale Agreement (Purchase Agreement) with SBA Communications Corporation (SBA), Monarch Towers Acquisition, LLC, a wholly owned subsidiary of SBA (the Buyer), Mobilitie Investments, LLC (M1), MPGJ-I, LLC (MPGJ I), MPMA-I, LLC (MPMA I), MPGJ-II, LLC (MPGJ II, and together with the Company, M1, MPGJ I and MPMA I, the Mobilitie Companies), Mobilitie Partners, LLC, Mobilitie Partners II, LLC, Mobilitie, LLC, Mobilitie Holdings, LLC, Mobilitie Holdings II, LLC, and Orlin Properties, LLC (the Sellers). Pursuant to the Purchase Agreement, the Buyer was to acquire the Mobilitie Companies from the Sellers. The acquisition was completed on April 2, 2012. The affiliate note receivable, affiliate financing transaction fees, and all remaining loans outstanding were paid off in conjunction with this transaction.
(b) | Subsequent Events |
The Company has evaluated subsequent events through May 4, 2012, which is the date these consolidated financial statements were issued. All subsequent events requiring recognition as of December 31, 2011 have been incorporated into the consolidated financial statements herein.
20 |
Exhibit 99.3
SBA COMMUNICATIONS CORPORATION AND MOBILITIE INVESTMENTS, LLC, MOBILITIE INVESTMENTS II, LLC UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined balance sheet as of December 31, 2011 combines the historical consolidated balance sheets of SBA Communications Corporation (SBA) and Mobilitie Investments, LLC (M1) and Mobilitie Investments II, LLC (M2), together (M1/M2) giving effect to the acquisition of M1/M2 by SBA, as if it had occurred on December 31, 2011. The unaudited pro forma condensed combined statement of operations for the fiscal year ended December 31, 2011 combine the historical consolidated statements of operations of SBA and M1/M2, giving effect to the acquisition as if it had occurred on January 1, 2011. The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statements of income, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements. In addition, the unaudited pro forma condensed combined financial information was based on and should be read in conjunction with the:
| separate historical financial statements of SBA as of and for the year ended December 31, 2011 and the related notes included in SBAs Annual Report on Form 10-K for the year ended December 31, 2011, which is incorporated by reference into this 8-K filing; |
| separate historical financial statements of M1 /M2 as of and for the year ended December 31, 2011 and the related notes are included within this 8-K filing; |
| excluded from the M1/M2 historical financial statements is the historical financial activity of the management company that is consolidated with the accounts of M2 and which is not part of the acquired entity, as of December 31, 2011 and for the year ended thereof. Such excluded activity is denoted by the caption, Excluded LLC within the pro forma financial statements; |
The unaudited pro forma condensed combined financial information has been presented for informational purposes only. The pro forma information is not necessarily indicative of what the combined companys financial position or results of operations actually would have been had the acquisition been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company. There were no material transactions between SBA and M1/M2 during the periods presented in the unaudited pro forma condensed combined financial statements that would need to be eliminated.
The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting under existing U.S. generally accepted accounting principles (GAAP standards), which are subject to change and interpretation. SBA has been treated as the acquirer in the acquisition for accounting purposes. The acquisition accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Accordingly, the pro forma adjustments included herein are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information, and may be revised as additional information becomes available and as additional analyses are performed. Differences between the preliminary estimates reflected in these unaudited pro forma condensed combined financial statements and the final acquisition accounting will likely occur, and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements and the combined companys future results of operations and financial position.
Also, the unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the acquisition, the costs to integrate the operations of SBA and M1/M2 or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of December 31, 2011
(In thousands)
SBA | M1 | M2 | Excluded LLC |
Excluded Assets |
M1/M2 Adjusted |
Acquisition Adjustments |
Other Adjustments |
Pro Forma Combined |
||||||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
47,316 | 10,552 | 5,547 | (188 | ) | | 15,911 | | (15,790 | )(c) | $ | 47,437 | ||||||||||||||||||||||||
Restricted cash |
22,266 | | 609 | (391 | ) | | 218 | | | 22,484 | ||||||||||||||||||||||||||
Short term investments |
5,773 | | | | | | | | 5,773 | |||||||||||||||||||||||||||
Accounts receivable, net of allowance |
22,100 | 2,749 | 10,546 | (2,260 | ) | | 11,035 | | | 33,135 | ||||||||||||||||||||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts |
17,655 | | | | | | | | 17,655 | |||||||||||||||||||||||||||
Prepaid and other current assets |
14,246 | 146 | 5,909 | (1,733 | ) | | 4,322 | | | 18,568 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total current assets |
129,356 | 13,447 | 22,611 | (4,572 | ) | | 31,486 | (15,790 | ) | 145,052 | ||||||||||||||||||||||||||
Property and equipment, net |
1,583,393 | 83,972 | 389,566 | | (8,858 | )(b1) | 464,680 | 109,320 | (b1)(c5) | | 2,157,393 | |||||||||||||||||||||||||
Intangible assets, net |
1,639,784 | | | | | | 543,773 | (c7) | | 2,183,557 | ||||||||||||||||||||||||||
Deferred financing fees, net |
42,064 | 1,664 | 10,243 | | | 11,907 | (11,907 | )(b1) | 5,500 | (c2) | 47,564 | |||||||||||||||||||||||||
Other assets |
211,802 | 7,305 | 30,464 | (1,997 | ) | | 35,772 | (23,378 | )(c13)(b1) | | 224,196 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total assets |
3,606,399 | 106,388 | 452,884 | (6,569 | ) | (8,858 | ) | 543,845 | 617,808 | (10,290 | ) | 4,757,762 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT) |
||||||||||||||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||||||||||||||
Accounts payable |
12,755 | 2,072 | 28,247 | (5,427 | ) | | 24,892 | | | $ | 37,647 | |||||||||||||||||||||||||
Accrued expenses |
23,746 | | | | | | | | 23,746 | |||||||||||||||||||||||||||
Current maturities of long-term debt |
5,000 | | 1,225 | | | 1,225 | (1,225 | )(c8) | 5,000 | |||||||||||||||||||||||||||
Deferred revenue |
49,779 | | | | | | | | 49,779 | |||||||||||||||||||||||||||
Accrued interest |
32,351 | 109 | 223 | | | 332 | | | 32,683 | |||||||||||||||||||||||||||
Other current liabilities |
3,250 | | | | 6,904 | (b1) | 6,904 | | | 10,154 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total current liabilities |
126,881 | 2,181 | 29,695 | (5,427 | ) | 6,904 | 33,353 | (1,225 | ) | | 159,009 | |||||||||||||||||||||||||
Long term liabilities: |
||||||||||||||||||||||||||||||||||||
Long term debt |
3,349,485 | 45,494 | 274,550 | | | 320,044 | 528,280 | (a1)(c8) | | 4,197,809 | ||||||||||||||||||||||||||
Other long-term liabilities |
129,282 | 4,471 | 39,427 | | | 43,898 | (26,037 | )(c13)(b1)(c5) | | 147,143 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total long term liabilities |
3,478,767 | 49,965 | 313,977 | | | 363,942 | 502,243 | | 4,344,952 | |||||||||||||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interest |
12,064 | | | | | | | | 12,064 | |||||||||||||||||||||||||||
Shareholders equity (deficit): |
||||||||||||||||||||||||||||||||||||
Preferred stock-par value $.01, 30,000 shares authorized, no shares issued or outstanding |
| | | | | | | | | |||||||||||||||||||||||||||
Common stock-Class A, par value $.01, 400,000 shares authorized 109,675 and 114,832 shares issued and outstanding at December 31, 2011 and 2010, respectively |
1,097 | | | | | | 53 | (c9) | | 1,150 | ||||||||||||||||||||||||||
Additional paid-in capital |
2,268,244 | 54,242 | 108,072 | (743 | ) | (15,762 | )(b1) | 145,809 | 117,478 | (c10) | | 2,531,531 | ||||||||||||||||||||||||
Accumulated deficit |
(2,281,139 | ) | | | | | (10,290 | )(c) | (2,291,429 | ) | ||||||||||||||||||||||||||
Noncontrolling interest |
| | 1,140 | (399 | ) | | 741 | (741 | )(c11) | | | |||||||||||||||||||||||||
Accumulated other comprehensive income |
485 | | | | | | | | 485 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total shareholders equity (deficit) |
(11,313 | ) | 54,242 | 109,212 | (1,142 | ) | (15,762 | ) | 146,550 | 116,790 | (10,290 | ) | 241,737 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total liabilities and shareholders' equity |
3,606,399 | 106,388 | 452,884 | (6,569 | ) | (8,858 | ) | 543,845 | 617,808 | (10,290 | ) | 4,757,762 | ||||||||||||||||||||||||
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|
|
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
for the year ended December 31, 2011
(In thousands, except per share data)
SBA | M1 | M2 | Excluded LLC |
M1/M2 Adjusted |
Pro Forma Adjustments |
Pro Forma Combined |
||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||||||
Site leasing |
$ | 616,294 | $ | 25,908 | $ | 80,100 | $ | | $ | 106,008 | | $ | 722,302 | |||||||||||||||
Site development |
81,876 | | | | | | 81,876 | |||||||||||||||||||||
Management fee |
| | 4,143 | (4,143 | ) | | | | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
698,170 | 25,908 | 84,243 | (4,143 | ) | 106,008 | | 804,178 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
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|
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|
|
|
|||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||
Cost of revenues (exclusive of depreciation, accretion and amortization shown below): |
||||||||||||||||||||||||||||
Cost of site leasing |
131,916 | 7,032 | 31,858 | | 38,890 | | 170,806 | |||||||||||||||||||||
Cost of site development |
71,005 | | | | | | 71,005 | |||||||||||||||||||||
Selling, general and administrative |
62,828 | 16,806 | (571 | ) | 16,235 | 3,831 | 82,894 | |||||||||||||||||||||
Management fee |
3,831 | 4,143 | (4,143 | ) | 3,831 | (3,831 | ) | | ||||||||||||||||||||
Acquisition related expenses |
7,144 | | | | | 10,290 | (c) | 17,434 | ||||||||||||||||||||
Asset impairment |
5,472 | | | | | | 5,472 | |||||||||||||||||||||
Depreciation, accretion and amortization |
309,146 | 9,136 | 27,649 | | 36,785 | 38,499 | (c4)(c5) | 384,430 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total operating expenses |
587,511 | 19,999 | 80,456 | (4,714 | ) | 95,741 | 48,789 | 732,041 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating income (loss) from continuing operations |
110,659 | 5,909 | 3,787 | 571 | 10,267 | (48,789 | ) | 72,137 | ||||||||||||||||||||
|
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|
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|
|
|
|
|
|
|||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||
Interest income |
136 | 5 | 10 | | 15 | | 151 | |||||||||||||||||||||
Interest expense |
(160,896 | ) | (1,501 | ) | (12,862 | ) | | (14,363 | ) | (9,008 | )(c1) | (184,267 | ) | |||||||||||||||
Non-cash interest expense |
(63,629 | ) | | | | | | (63,629 | ) | |||||||||||||||||||
Amortization of deferred financing fees |
(9,188 | ) | | | | | (5,500 | )(c2)(c3) | (14,688 | ) | ||||||||||||||||||
Loss from extinguishment of debt, net |
(1,696 | ) | | (4,994 | ) | | (4,994 | ) | 4,994 | (c1) | (1,696 | ) | ||||||||||||||||
Other (expense) income |
(165 | ) | | 393 | (162 | ) | 231 | | 66 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total other expense |
(235,438 | ) | (1,496 | ) | (17,453 | ) | (162 | ) | (19,111 | ) | (9,514 | ) | (264,063 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(Loss) income before provision for income taxes |
(124,779 | ) | 4,414 | (13,666 | ) | 409 | (8,843 | ) | (58,303 | ) | (191,926 | ) | ||||||||||||||||
Provision for income taxes |
(2,113 | ) | | | | | (120 | )(c6) | (2,233 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net (loss) income |
(126,892 | ) | 4,414 | (13,666 | ) | 409 | (8,843 | ) | (58,423 | ) | (194,159 | ) | ||||||||||||||||
Net loss (income) attributable to the noncontrolling interest |
436 | | 411 | 32 | 443 | (443 | ) | 436 | ||||||||||||||||||||
|
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|
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|
|||||||||||||||
Net loss attributable to SBA Communications Corporation |
$ | (126,456 | ) | $ | 4,414 | $ | (13,255 | ) | $ | 441 | $ | (8,400 | ) | $ | (58,866 | ) | $ | (193,723 | ) | |||||||||
|
|
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|
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|
|
|
|
|
|
|
|||||||||||||||
Net loss per common share attributable to SBA Communications Corporation: |
||||||||||||||||||||||||||||
Basic and diluted |
$ | (1.13 | ) | $ | (1.66 | ) | ||||||||||||||||||||||
Basic and diluted weighted average number of common shares |
111,595 | | | | | 5,250 | (a1) | 116,845 |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Description of Transaction
On April 2, 2012, SBA, through its wholly-owned subsidiary SBA Monarch Acquisition, LLC (SBA Monarch), completed the acquisition of the equity interests of specified entities that were affiliates of Mobilitie LLC (the Mobilitie Acquisition). As of April 2, 2012, these entities owned 2,275 towers with an additional 42 towers in development in the US and Central America and also owned indoor and outdoor distributed antenna system (DAS) assets in Chicago, Las Vegas, New York City and Auburn, Alabama. The total consideration paid by SBA in the Mobilitie Acquisition was (i) $850.0 million in cash and (ii) 5,250,000 newly issued shares of the SBAs Class A common stock.
Simultaneous with the closing of the Mobilitie Acquisition, SBA Monarch entered into a credit agreement among SBA Monarch, as borrower, the several lenders from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent, and J.P. Morgan Securities LLC and Barclays Bank PLC, as joint lead arrangers and bookrunners (the Bridge Loan Credit Agreement). Pursuant to the Bridge Loan Credit Agreement, SBA Monarch borrowed an aggregate principal amount of $400 million under a senior secured bridge loan (the bridge loan). The bridge loan will mature on April 1, 2013. Amounts borrowed under the Bridge Loan Credit Agreement are secured by a first lien on substantially all of the assets (other than leasehold, easement and fee interests in real property) of SBA Monarch and SBA Monarchs subsidiaries (the assets acquired in the Mobilitie Acquisition), and a pledge of Telecommunications interests in SBA Monarch. The bridge loan bears interest, at SBA Monarchs election, at either the Base Rate plus a margin that ranges from 2.00% to 2.50% or the Eurodollar Rate plus a margin that ranges from 3.00% to 3.50%, in each case based on SBA Monarchs ratio of Consolidated Total Debt to Consolidated Adjusted EBITDA (calculated in accordance with the Bridge Loan Credit Agreement). As of April 30, 2012, the bridge loan bears interest at the Eurodollar Rate plus 3.5% (currently 3.74%). The Bridge Loan Credit Agreement also contains customary affirmative and negative covenants.
The proceeds from the bridge loan and borrowings under the Revolving Credit Facility were used to fund the cash consideration paid in the Mobilitie acquisition and to pay related fees and expenses. Any principal of the bridge loan which has not been prepaid will be repaid on the maturity date. SBA Monarch has the ability to prepay any or all amounts under the bridge loan without premium or penalty.
2. Basis of Presentation
The unaudited pro forma condensed combined financial information was prepared under existing U.S. GAAP standards, which are subject to change and interpretation. The accompanying unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of SBA would have been had the M1/M2 purchase occurred on the date assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position. The unaudited pro forma condensed combined financial statements do not include the realization of cost savings from operating efficiencies or restructuring costs anticipated to result from the M1/M2 purchase. The unaudited pro forma condensed combined financial statements should be read in conjunction with the separate historical consolidated financial statements and accompanying notes of SBA that are incorporated by reference in this 8-K filing and of M1/M2 that are included within this 8-K filing. Certain reclassifications have been made to the historical presentation of M1/M2 to conform to the presentation used in the unaudited pro forma condensed consolidated balance sheet and relate primarily to deferred contract costs, deferred contract revenues and advanced billings to client. Certain reclassifications have been made to the historical presentation of M1/M2 to conform to the presentation used in the unaudited pro forma condensed combined statements of operations primarily related to revenues, selling, general and administrative expenses and reimbursable expenses.
The historical statements of operations for M1/M2 are presented for the year ended December 31, 2011.
As of the date of this 8-K filing, SBA has not performed the detailed valuation studies necessary to arrive at the required estimates of the fair value of the M1/M2s assets acquired and the M1/M2 liabilities assumed and the related allocations of purchase price, nor has it identified the adjustments necessary, if any, to conform M1/M2s accounting policies to SBAs accounting policies. However, as indicated in Note 5 to the unaudited pro forma condensed combined financial statements, SBA has made certain adjustments to the December 31, 2011 historical book values of the assets and liabilities of M1/M2 to reflect certain preliminary estimates of the fair values necessary to prepare the unaudited pro forma condensed combined financial statements. Any excess purchase price over the historical net assets of M1/M2, as adjusted to reflect estimated fair values, has been recorded as goodwill. Actual results may differ from these unaudited pro forma condensed combined financial statements once SBA has determined the final purchase price for M1/M2 and has completed the valuation studies necessary to finalize the required purchase price allocations and identified any necessary conforming accounting policies. The determination of the final purchase price allocations can be highly subjective and it is possible that other professionals applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternatives estimated amounts.
SBA is still in the process of completing this review for other intangibles such as favorable/unfavorable contracts and favorable/unfavorable real estate leases. The company anticipates that there will be unfavorable real estate leases and is in the process of working with a specialist to identify these leases and the related impact on the pro forma condensed combined financial statements. There can be no assurance that such finalization will not result in material changes.
The acquisition will be accounted for as an acquisition in accordance with the guidance related to business combinations. This guidance requires that all transaction and restructuring costs related to business combinations be expensed as incurred, and it requires that changes in deferred tax asset valuation allowances and liabilities for tax uncertainties subsequent to the acquisition date that do not meet certain re-measurement criteria be recorded in the income statement, among other changes. Under the acquisition method, the total estimated acquisition price (consideration transferred) as described in Note 4 to the unaudited pro forma condensed combined financial information was measured at the closing date of the acquisition using the market price at that time. The accounting guidance also requires that acquisition related transaction costs (i.e. advisory, legal, valuation, other professional fees) are not included as a component of the consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. Total acquisition related transaction costs expected to be incurred by SBA are estimated to be approximately $10.3 million and are reflected in these unaudited pro forma condensed combined financial statements as a reduction of cash and an increase to accumulated deficit.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
3. Accounting Policies
SBA will continue to review M1/M2s accounting policies. As a result of the ongoing review, SBA may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on the combined financial statements. At this time, SBA is not aware of any differences that would have a material impact on the combined financial statements. The unaudited pro forma condensed combined financial statements do not assume any differences in accounting policies.
4. Estimate of Consideration Expected to be Transferred
The following is a preliminary estimate of the consideration to be transferred to effect the transaction:
Common Shares (stated value $.01 share) |
Capital in Excess of Par Value |
Total | ||||||||||
Issuance of SBA Class A common stock to MI |
(c10) | |||||||||||
shareholders (5.25 million shares at $50.16) |
$ | 53 | $ | 263,288 | $ | 263,341 | ||||||
(a1) Issuance of debt to finance transaction: |
||||||||||||
Bridge Loan |
400,000 | |||||||||||
Revolving credit facility |
448,324 | |||||||||||
|
|
|||||||||||
Total consideration |
$ | 1,111,665 | ||||||||||
Plus: Contingent consideration |
6,904 | |||||||||||
|
|
|||||||||||
Total Consideration |
$ | 1,118,569 | ||||||||||
|
|
The purchase price is approximately $1.1 billion, consisting of $848.3 million of cash and the issuance of 5.25 million shares of SBA common stock. SBA is not offering any type of options to M1/M2 members. As a result of the transaction, $321.3 million in pre-existing M1/M2 long-term debt was paid off with the proceeds received by SBA. Therefore, no debt was assumed by SBA as a result of the transaction.
5. Estimate of Assets to be Acquired and Liabilities to be Assumed
A preliminary estimate of the assets to be acquired and the liabilities to be assumed by SBA in the acquisition, reconciled to the estimate of consideration expected to be transferred is provided below. The final valuation of net assets acquired is expected to be completed as soon as possible after the acquisition date.
(b1) Book value of net assets acquired at December 31, 2011 |
$ | 163,455 | ||
Adjusted for: |
||||
Exclusion of LLC |
(1,142 | ) | ||
Exclusion of Towers - CIP |
(15,762 | ) | ||
|
|
|||
Adjusted book value of net assets acquired |
$ | 146,551 | ||
Adjusted to: |
||||
Adjustment to fair value property and equipment |
109,320 | |||
Inclusion of Towers - CIP selected for purchase by SBA |
6,904 | |||
Adjustment to fair value of intangible assets related to customer relationships and network location (b2) |
543,773 | |||
ARO liability |
11,298 | |||
Deferred rent asset |
(23,378 | ) | ||
Deferred rent liability |
14,739 | |||
Deferred financing cost - long term |
(11,907 | ) | ||
|
|
|||
Estimate of consideration expected to be transferred |
$ | 797,300 | ||
Debt paid at closing |
321,269 | |||
|
|
|||
Total consideration |
$ | 1,118,569 | ||
|
|
At the date of acquisition, both SBA and M1/M2 agreed to exclude certain Towers - CIP assets from the group of purchased assets as such assets were not completed. Of the $15.8 million in Towers - CIP as of December 31, 2011, SBA selected $6.9 million of those towers to remain included within the purchased assets, cash consideration for which was not exchanged at acquisition and therefore represents a liability post-acquisition until the towers are completed and transferred to SBA. The $6.9 million in Towers - CIP assets is presented within property and equipment, net and other current liabilities in the unaudited pro forma condensed combined balance sheet. The remaining $8.9 million in CIP Towers was excluded from the purchased assets for this acquisition.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(b2) | The components of the estimated fair value of acquired identifiable intangible assets are as follows: |
(in millions) |
Estimated Fair Value |
Estimated Useful Lives (Years) |
||||||
Customer Relationship |
$ | 443,573 | 15 | |||||
Network Locations |
100,200 | 15 | ||||||
|
|
|||||||
Total |
$ | 543,773 | ||||||
|
|
As of the effective time of the merger, identifiable intangible assets are required to be measured at fair value and these acquired assets could include assets that are not intended to be used or sold or that are intended to be used in a manner other than their highest and best use. For purposes of these unaudited pro forma condensed combined financial statements, it is assumed that all assets will be used and that all assets will be used in a manner that represents the highest and best use of those assets, but it is not assumed that any market participant synergies will be achieved. The consideration of synergies has been excluded because they are not considered to be factually supportable, which is a required condition for these pro forma adjustments.
For purposes of the preliminary allocation, SBA has estimated a fair value for M1/M2s intangible asset related to customer relationships and network locations based on the net present value of the projected income stream of those intangible assets. The fair value adjustment is being amortized over an estimated useful life of 15 years.
(b3) | Adjustment to record the differences between the preliminary fair values and the historical carrying amounts of M1/M2s deferred revenues including the elimination of deferred revenue balances where no future performance obligation existed. The preliminary fair values represent amounts equivalent to the estimated costs plus an appropriate profit margin to fulfill the obligations assumed for deferred revenue. The estimated amounts presented for purposes of the unaudited pro forma condensed combined balance sheet are based upon the deferred revenue balances of M1/M2 as of December 31, 2011. |
6. Pro Forma Adjustments
This note should be read in conjunction with Note 1. Description of Transaction; Note 2. Basis of Presentation; Note 4. Estimate of Consideration Expected to be Transferred; and Note 5. Estimate of Assets to be Acquired and Liabilities to be Assumed. Adjustments included in the column under the heading Pro Forma Adjustments, Acquisition Adjustments, and Debt Issuance Adjustments represent the following:
(c) | To record the cash used in the acquisition excluding the cash portion of acquisition purchase price and to record estimated payments which are estimated to be $15.8 million and are assumed to be made on or before the acquisition including $5.5 million of fees associated with the bridge loan and $10.3 million for advisory, legal, regulatory and valuation costs associated with the transaction. These costs are expected to be incurred by SBA and are reflected in the unaudited pro forma condensed combined financial statements as a reduction to cash and retained earnings and SBA views these expenses as non recurring. |
(c1) | On April 2, 2012, SBA entered into a $400 million bridge term facility with certain lenders in connection with the financing of a portion of the purchase consideration expected to be transferred in the acquisition. The bridge term facility has a term of 364 days from the effective time of the merger and provides SBA with unsecured financing in a total principal amount up to $400 million. The bridge term facility is expected to be refinanced using proceeds obtained through permanent financing from issuances of SBA debt and/or tower asset sales. For purposes of the unaudited pro forma condensed combined balance sheet, SBA has assumed that it would borrow $400 million available under the bridge term facility to partially fund the acquisition. In the unaudited pro forma condensed combined balance sheet, the borrowings under the bridge term facility are presented as long-term debt under the assumption that SBA has the intent and ability to replace the bridge term facility with permanent, long-term debt financing. In addition, to fund the remaining cash promised for consideration, SBA drew down $448 million from its pre-existing revolving credit facility. |
SBA estimates additional interest expense of $9 million in 2011 associated with the incremental debt SBA will issue in connection with the acquisition after retiring M1/M2 existing debt. In addition, $5.0 million of the write off of deferred financing fees was incurred as a cost of retiring M1/M2 debt.
| Additional interest expense of approximately $15 million in 2011 based on a $400 million bridge loan facility that SBA will issue to partially fund the acquisition. The debt security accrues interest at LIBOR + 3.5% and has a one year maturity. For purposes of the pro forma condensed combined income statement we used LIBOR rate of .24125%. For the purposes of the pro forma condensed combined income statement, it has been assumed the company will draw down on its $500 million revolving credit facility and therefore will incur additional expense of approximately $8.4 million in 2011 with an interest rate of 2.13% and a June 30, 2016 maturity date. This interest expense total of $23.4 million will be offset by the elimination of M1/M2s interest expense of $14.4 million in 2011 due to the retirement of M1/M2s outstanding debt. |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The impact to deferred financing costs, interest expense and equity are summarized below.
(c2) | Net deferred financing fees associated with the $400 million bridge loan will increase by $5.5 million at December 31, 2011. However, to appropriately reflect the amortization of the newly incurred deferred financing fees, $5.5 million will be recorded to amortization expense for the period ended December 31, 2011. |
(c3) Amortization of bridge loan facility financing costs into interest expense |
$ | 5,500 | ||
Amortization of revolving credit facility financing costs into interest expense |
| |||
Prepayment penalty / make whole provision to retire the term notes |
| |||
|
|
|||
Equity effect of the loss on extinguishment of debt, financing fees, and transaction costs |
$ | 5,500 | ||
|
|
Total advisory, legal, regulatory and valuation costs expected to be incurred by SBA are estimated to be approximately $10.3 million, and are reflected in these unaudited pro forma condensed combined financial statements as a reduction to cash and retained earnings and SBA views these expenses as non recurring.
(c4) | The unaudited pro forma condensed combined statements of operations have been adjusted to reflect the adjustments to M1/M2s acquired assets. |
12 months ending Dec 31, 2011 |
||||
The elimination of M1/M2s historical asset depreciation and amortization, including amortization of deferred contract revenues and cost |
$ | (36,188 | ) | |
The increase in depreciation and amortization expense resulting from the fair value adjustments. |
75,206 | |||
|
|
|||
$ | 39,018 | |||
|
|
(c5) | The unaudited pro forma condensed combined statements of operations have been adjusted to reflect the adjustments to M1/M2s asset retirement obligation (ARO). The ARO asset and liability amounts, along with the corresponding income statement impact, have been adjusted for via an ARO conformity adjustment, conforming the former M1/M2 ARO balances to SBAs ARO accounting policy. |
12 months ending Dec 31, 2011 |
||||
The elimination of M1/M2s ARO liability accretion expense |
$ | (597 | ) | |
The increase in accretion expense resulting from the ARO conformity adjustment. |
78 | |||
|
|
|||
$ | (519 | ) | ||
|
|
|||
12 months ending Dec 31, 2011 |
||||
The elimination of M1/M2s ARO liability balance |
$ | (12,589 | ) | |
ARO liability balance resulting from ARO conformity adjustment |
1,290 | |||
|
|
|||
$ | (11,298 | ) | ||
|
|
In accordance with Section 2.4(b) of the purchase agreement, SBAs acquisition of M1/M2 has been designated as an asset purchase. Therefore, the appropriate tax treatment for this transaction has no impact on deferred taxes and will not result in a deferred tax asset or liability.
(c6) | To record estimated tax impact of the acquisition on the income statement related to the pro forma adjustments. SBA has assumed a 1.7% combined statutory federal and state tax rate when estimating the tax effects of the adjustments to the income statement. |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(c7) | To adjust intangible assets to an estimate of fair value, as follows: |
US$ in thousands |
||||
Eliminate M1/M2s historical intangible assets |
$ | | ||
Estimated fair value of intangible assets acquired |
543,773 | |||
|
|
|||
Total |
$ | 543,773 | ||
|
|
(c8) | Upon acquisition, the entire pre-existing M1/M2 debt balance was paid off using transaction proceeds, therefore no M1/M2 debt was actually assumed by SBA as a reuslt of the transaction. To adjust debt as follows: |
US$ in thousands |
||||
Eliminate M1/M2s historical current debt |
$ | (1,225 | ) | |
Eliminate M1/M2s historical long-term debt |
(320,044 | ) | ||
Retirement of accrued interest |
| |||
|
|
|||
Total |
$ | (321,269 | ) | |
|
|
(c9) | To record the stock portion of the transaction consideration, at par, and to eliminate M1/M2 common stock, at par, as follows: |
US$ in thousands |
||||
Eliminate M1/M2s common stock |
$ | | ||
Issuance of SBA common stock |
53 | |||
|
|
|||
Total |
$ | 53 | ||
|
|
(c10) | To record the stock portion of the transaction consideration, at fair value less par, and to eliminate M1/M2 additional paid in capital, as follows: |
US$ in thousands |
||||
Eliminate M1/M2s equity |
$ | (162,314 | ) | |
Exclusion of LLC |
743 | |||
Exclusion of Towers - CIP |
15,762 | |||
|
|
|||
Adjusted M1/M2 common stock to be eliminated |
$ | (145,809 | ) | |
Issuance of SBA common stock |
263,288 | |||
|
|
|||
Total |
$ | 117,478 | ||
|
|
(c11) | To eliminate the M1/M2 redeemable noncontrolling interest, as follows: |
US$ in thousands |
||||
Noncontrolling interest |
$ | 741 | ||
|
|
|||
Total |
$ | 741 | ||
|
|
(c12) | To eliminate M1/M2s retained earnings, and to record estimated non-recurring acquisition and prepayment-related costs of SBA, as follows: |
US$ in thousands |
||||
Estimated acquisition related expenses |
$ | (10,290 | ) | |
|
|
|||
Total |
$ | (10,290 | ) | |
|
|
(c13) | To eliminate all deferred rent assets and liabilities previously recorded by M1/M2 in accordance with ASC 840. Deferred rent accounts in accordance with ASC 840 will reset to zero as a result of SBAs acquisition of M1/M2 and recording of new deferred rent will be recorded prospectively by SBA in its consolidated financial statements. |
US$ in thousands |
||||
Deferred rent asset |
$ | (23,378 | ) | |
Deferred rent liability |
$ | 14,739 |
(c14) | To reclassify management fee of $3,831 recorded by M1/M2 to selling, general and administrative expenses (SG&A). The management fee is representative of the amount of SG&A costs that would have been incurred if M1 were operated independently |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
7. Forward-looking Statements
These Unaudited Pro Forma Condensed Combined Financial Statements may be deemed to be forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by the words believe, expect, anticipate, intend, estimate and similar expressions. Such statements may include, but are not limited to, statements about the benefits of the acquisition of M1/M2 by SBA, including future financial and operating results, the combined companys plans, objectives, expectations and intentions and other statements that are not historical facts. These forward-looking statements are based largely on managements expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. Neither SBA nor M1/M2 undertake any obligation to update publicly or revise any forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the possibility that the expected synergies from SBAs acquisition of M1/M2 will not be realized, or will not be realized within the expected time period, due to, among other things, the impact of industry regulation and pending legislation that could affect the respective industry; the risk that the businesses will not be integrated successfully; disruption from the acquisition making it more difficult to maintain business and operational relationships; SBAs and M1/M2s ability to accurately predict future market conditions; and the exposure to litigation and/or regulatory actions. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in SBAs 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the SEC) on February 27, 2011, included in the Risk Factors section of each of this filing, and SBAs other filings with the SEC available at the SECs Internet site (http://www.sec.gov).