Report of Independent Registered Public Accounting Firm
To the Board of Directors and MembersMember of
CC Holdings GS V LLC
Opinion on the Financial Statements
We have audited the accompanying consolidatedbalance sheetssheet of CC Holdings GS V LLC and its subsidiaries(the (the “Company”) as of December 31, 2019 and 2018, and 2017,and the related consolidated statements of operations, cash flows andof changes in member’smember's equity and of cash flows for each of the three years in the period ended December 31, 2018,2019, including the related notes and financial statement scheduleslisted in the accompanying index appearing under Item 15(a)(2) for each of the three years in the period ended December 31, 2019 appearing after Item 16 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182019 and 2017,2018, and the results ofitsoperations and itscash flows for each of the three years in the period ended December 31, 20182019 in conformity with accounting principles generally accepted in the United States of America.
Restatement of Previously Issued Financial Statements
As discussed in Note 2 to the consolidated financial statements, the Company has restated its 2018 and 2017 financial statements to correct errors.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for leases on January 1, 2019.
Basis for Opinion
These consolidatedfinancial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidatedfinancial statements in accordance with the standards of the PCAOB.PCAOB and 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, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 25, 2019April 9, 2020
We have served as the Company's auditor since 2011.
CC HOLDINGS GS V LLC
CONSOLIDATED BALANCE SHEET
(In thousands of dollars)
| | | | | | | December 31, |
| December 31, | 2019 | | 2018 |
| 2018 | | 2017 | | | (As Restated) |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 18,707 |
| | $ | 30,771 |
| $ | 20,407 |
| | $ | 18,707 |
|
Receivables, net of allowance of $1,601 and $1,300, respectively | 4,327 |
| | 2,581 |
| |
Prepaid expenses | 23,155 |
| | 24,300 |
| |
Receivables, net of allowance of $1,631 and $1,601, respectively | | 3,620 |
| | 4,327 |
|
Prepaid expenses(a) | | 29,643 |
| | 23,155 |
|
Deferred site rental receivables | 26,460 |
| | 24,638 |
| 12,714 |
| | 26,460 |
|
Other current assets | 554 |
| | 467 |
| 564 |
| | 554 |
|
Total current assets | 73,203 |
| | 82,757 |
| 66,948 |
| | 73,203 |
|
Deferred site rental receivables | 343,740 |
| | 333,164 |
| 354,075 |
| | 343,740 |
|
Property and equipment, net | 1,017,767 |
| | 1,041,157 |
| 1,010,367 |
| | 1,010,451 |
|
Operating lease right-of-use assets(a) | | 1,150,476 |
| | — |
|
Goodwill | 1,338,730 |
| | 1,338,730 |
| 1,338,730 |
| | 1,338,730 |
|
Site rental contracts and tenant relationships, net | 789,974 |
| | 902,667 |
| 676,398 |
| | 789,974 |
|
Other intangible assets, net | 18,353 |
| | 19,859 |
| |
Long-term prepaid rent and other assets, net | 39,669 |
| | 38,154 |
| |
Other intangible assets, net(a) | | 2,558 |
| | 18,353 |
|
Long-term prepaid rent and other assets, net(a) | | 1,905 |
| | 39,669 |
|
Total assets | $ | 3,621,436 |
| | $ | 3,756,488 |
| $ | 4,601,457 |
| | $ | 3,614,120 |
|
| | | | | | |
LIABILITIES AND EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | $ | 1,933 |
| | $ | 1,801 |
| $ | 2,652 |
| | $ | 1,933 |
|
Accrued interest | 8,126 |
| | 8,126 |
| 8,126 |
| | 8,126 |
|
Deferred revenues | 12,533 |
| | 11,586 |
| 70,217 |
| | 59,766 |
|
Other accrued liabilities | 8,866 |
| | 8,828 |
| |
Other accrued liabilities(a) | | 6,146 |
| | 8,866 |
|
Current portion of operating lease liabilities - third parties(a) | | 37,164 |
| | — |
|
Current portion of operating lease liabilities - related parties(a) | | 20,417 |
| | — |
|
Total current liabilities | 31,458 |
| | 30,341 |
| 144,722 |
| | 78,691 |
|
Debt | 994,047 |
| | 992,663 |
| 995,431 |
| | 994,047 |
|
Deferred ground lease payable | 112,832 |
| | 107,673 |
| |
Above-market leases and other liabilities | 50,108 |
| | 49,340 |
| |
Operating lease liabilities - third parties(a) | | 845,960 |
| | — |
|
Operating lease liabilities - related parties(a) | | 314,920 |
| | — |
|
Deferred ground lease payable(a) | | — |
| | 112,832 |
|
Other long-term liabilities(a) | | 203,470 |
| | 209,352 |
|
Total liabilities | 1,188,445 |
| | 1,180,017 |
| 2,504,503 |
| | 1,394,922 |
|
Commitments and contingencies (note 9) |
| |
| |
Commitments and contingencies (note 10) | |
| |
|
Member's equity: | | | | | | |
Member's equity | 2,432,991 |
| | 2,576,471 |
| 2,096,954 |
| | 2,219,198 |
|
Accumulated earnings (deficit) | — |
| | — |
| — |
| | — |
|
Total member's equity | 2,432,991 |
| | 2,576,471 |
| 2,096,954 |
| | 2,219,198 |
|
Total liabilities and equity | $ | 3,621,436 |
| | $ | 3,756,488 |
| $ | 4,601,457 |
| | $ | 3,614,120 |
|
| |
(a) | See "Recently Adopted Accounting Pronouncements" in note 3 to the consolidated financial statements for a discussion of the recently adopted lease standard. |
See accompanying notes to consolidated financial statements.
CC HOLDINGS GS V LLC
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of dollars)
| | | Years Ended December 31, | Years Ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
| | | | | | | | (As Restated) |
Site rental revenues | $ | 659,490 |
| | $ | 616,897 |
| | $ | 611,639 |
| |
Site rental revenues: | | | | | | |
Revenues from tenant contracts | | 678,150 |
| | 659,490 |
| | 616,897 |
|
Amortization of tower installations and modifications(a) | | 52,341 |
| | 43,491 |
| | 38,435 |
|
Total site rental revenues | | 730,491 |
|
| 702,981 |
|
| 655,332 |
|
| | | | | | | | | | |
Operating expenses: | | | | | |
| | | | |
Site rental cost of operations—third parties(a) | 149,748 |
| | 149,764 |
| | 151,812 |
| |
Site rental cost of operations—related parties(a) | 40,981 |
| | 36,655 |
| | 33,901 |
| |
Site rental cost of operations—total(a) | 190,729 |
| | 186,419 |
| | 185,713 |
| |
Site rental costs of operations—third parties(b) | | 152,619 |
| | 149,748 |
| | 149,764 |
|
Site rental costs of operations—related parties(b) | | 43,281 |
| | 40,981 |
| | 36,655 |
|
Site rental costs of operations—total(b) | | 195,900 |
| | 190,729 |
| | 186,419 |
|
Management fee—related party | 48,520 |
| | 46,946 |
| | 45,433 |
| 49,837 |
| | 48,520 |
| | 46,946 |
|
Asset write-down charges | 593 |
| | 181 |
| | 4,851 |
| 1,050 |
| | 593 |
| | 181 |
|
Depreciation, amortization and accretion | 210,072 |
| | 210,607 |
| | 209,361 |
| 207,396 |
| | 207,528 |
| | 207,764 |
|
Total operating expenses | 449,914 |
| | 444,153 |
| | 445,358 |
| 454,183 |
| | 447,370 |
| | 441,310 |
|
Operating income (loss) | 209,576 |
| | 172,744 |
| | 166,281 |
| 276,308 |
| | 255,611 |
| | 214,022 |
|
Interest expense and amortization of deferred financing costs | (39,874 | ) | | (39,874 | ) | | (49,515 | ) | (39,874 | ) | | (39,874 | ) | | (39,874 | ) |
Gains (losses) on retirement of debt | — |
| | — |
| | (10,273 | ) | |
Other income (expense) | 196 |
| | 287 |
| | (242 | ) | 669 |
| | 196 |
| | 287 |
|
Income (loss) before income taxes | 169,898 |
| | 133,157 |
| | 106,251 |
| 237,103 |
| | 215,933 |
| | 174,435 |
|
Benefit (provision) for income taxes | (416 | ) | | 614 |
| | 668 |
| (426 | ) | | (416 | ) | | 614 |
|
Net income (loss) | $ | 169,482 |
| | $ | 133,771 |
| | $ | 106,919 |
| 236,677 |
| | 215,517 |
| | 175,049 |
|
| |
(a) | Represents the amortization of deferred revenues recorded in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers. The Company receives no cash from, and is not party to, such transactions |
| |
(b) | Exclusive of depreciation, amortization and accretion shown separately and certain indirect costs included in the management fee. |
See accompanying notes to consolidated financial statements.
CC HOLDINGS GS V LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
| | | Years Ended December 31, | Years Ended December 31, |
| 2018 | | 2017 | | 2016 | 2019 | | 2018 | | 2017 |
Cash flows from operating activities: | | | | | | |
| | | | (As Restated) |
Cash flows from operating activities(a): | | | | | | |
Net income (loss) | $ | 169,482 |
| | $ | 133,771 |
| | $ | 106,919 |
| $ | 236,677 |
| | $ | 215,517 |
| | $ | 175,049 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| | | | |
Depreciation, amortization and accretion | 210,072 |
| | 210,607 |
| | 209,361 |
| 207,396 |
| | 207,528 |
| | 207,764 |
|
Amortization of deferred financing costs | 1,384 |
| | 1,384 |
| | 2,427 |
| 1,384 |
| | 1,384 |
| | 1,384 |
|
Asset write-down charges | 593 |
| | 181 |
| | 4,851 |
| 1,050 |
| | 593 |
| | 181 |
|
(Gains) losses on retirement of debt | — |
| | — |
| | 10,273 |
| |
Changes in assets and liabilities: | | | | | |
| | | | |
Increase (decrease) in accrued interest | — |
| | — |
| | (529 | ) | |
Increase (decrease) in accounts payable | (81 | ) | | (1,110 | ) | | 257 |
| (3,102 | ) | | (81 | ) | | (1,110 | ) |
Increase (decrease) in deferred revenues, deferred ground lease payable and other liabilities | 4,346 |
| | 1,964 |
| | 3,678 |
| |
Increase (decrease) in other liabilities | | 18,780 |
| | 15,648 |
| | 779 |
|
Decrease (increase) in receivables | (1,745 | ) | | 946 |
| | 458 |
| 1,887 |
| | (1,745 | ) | | 946 |
|
Decrease (increase) in other current assets, deferred site rental receivable, long-term prepaid rent and other assets | (12,003 | ) | | 9,574 |
| | (4,643 | ) | |
Decrease (increase) in other assets | | (13,003 | ) | | (12,003 | ) | | 9,574 |
|
Net cash provided by (used for) operating activities | 372,048 |
| | 357,317 |
| | 333,052 |
| 451,069 |
| | 426,841 |
| | 394,567 |
|
Cash flows from investing activities: | | | | | | |
Cash flows from investing activities(a): | |
| | | | |
Capital expenditures | (71,150 | ) | | (49,551 | ) | | (53,409 | ) | (86,610 | ) | | (70,929 | ) | | (48,312 | ) |
Net cash provided by (used for) investing activities | (71,150 | ) | | (49,551 | ) | | (53,409 | ) | (86,610 | ) | | (70,929 | ) | | (48,312 | ) |
Cash flows from financing activities: | | | | | | |
Purchases and redemptions of debt | — |
| | — |
| | (508,472 | ) | |
Equity contribution related to debt repayment | — |
| | — |
| | 508,472 |
| |
Cash flows from financing activities(a): | |
| | | | |
Distributions to member | (312,962 | ) | | (296,545 | ) | | (280,494 | ) | (362,759 | ) | | (367,976 | ) | | (335,034 | ) |
Net cash provided by (used for) financing activities | (312,962 | ) | | (296,545 | ) | | (280,494 | ) | (362,759 | ) | | (367,976 | ) | | (335,034 | ) |
Net increase (decrease) in cash and cash equivalents | (12,064 | ) | | 11,221 |
| | (851 | ) | 1,700 |
| | (12,064 | ) | | 11,221 |
|
Cash and cash equivalents at beginning of year | 30,771 |
| | 19,550 |
| | 20,401 |
| 18,707 |
| | 30,771 |
| | 19,550 |
|
Cash and cash equivalents at end of year | $ | 18,707 |
| | $ | 30,771 |
| | $ | 19,550 |
| $ | 20,407 |
| | $ | 18,707 |
| | $ | 30,771 |
|
| |
(a) | The Company receives no cash from, and is not party to, the CCIC transactions described in note 2. Such transactions, however, are reflected on the cash flow statement for GAAP purposes as if an amount equal to the lease component for such transactions had been received by the Company, and as such, the amounts have been recorded as fixed assets (in the form of permanent improvements) and deferred revenues. |
See accompanying notes to consolidated financial statements.
CC HOLDINGS GS V LLC
CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S EQUITY
(In thousands of dollars)
|
| | | | | | | | | | | | |
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance, December 31, 2015 | | $ | 2,327,938 |
| | $ | 76,410 |
| | $ | 2,404,348 |
|
Equity contribution related to debt repayment (note 5) | | 508,472 |
| | — |
| | 508,472 |
|
Distributions to member (note 6) | | (97,165 | ) | | (183,329 | ) | | (280,494 | ) |
Net income (loss) | | — |
| | 106,919 |
| | 106,919 |
|
Balance, December 31, 2016 | | $ | 2,739,245 |
| | $ | — |
| | $ | 2,739,245 |
|
Distributions to member (note 6) | | (162,774 | ) | | (133,771 | ) | | (296,545 | ) |
Net income (loss) | | — |
| | 133,771 |
| | 133,771 |
|
Balance, December 31, 2017 | | $ | 2,576,471 |
| | $ | — |
| | $ | 2,576,471 |
|
Distributions to member (note 6) | | (143,480 | ) | | (169,482 | ) | | (312,962 | ) |
Net income (loss) | | — |
| | 169,482 |
| | 169,482 |
|
Balance, December 31, 2018 | | $ | 2,432,991 |
| | $ | — |
| | $ | 2,432,991 |
|
|
| | | | | | | | | | | |
| Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance, December 31, 2016 (as restated) | $ | 2,531,642 |
| | $ | — |
| | $ | 2,531,642 |
|
Distributions to member (note 7) (as restated)(a) | (159,985 | ) | | (175,049 | ) | | (335,034 | ) |
Net income (loss) (as restated) | — |
| | 175,049 |
| | 175,049 |
|
Balance, December 31, 2017 (as restated) | $ | 2,371,657 |
| | $ | — |
| | $ | 2,371,657 |
|
Distributions to member (note 7) (as restated)(a) | (152,459 | ) | | (215,517 | ) | | (367,976 | ) |
Net income (loss) (as restated) | — |
| | 215,517 |
| | 215,517 |
|
Balance, December 31, 2018 (as restated) | $ | 2,219,198 |
| | $ | — |
| | $ | 2,219,198 |
|
Other contribution from parent (note 7) | 3,838 |
| | — |
| | 3,838 |
|
Distributions to member (note 7)(a) | (126,082 | ) | | (236,677 | ) | | (362,759 | ) |
Net income (loss) | — |
| | 236,677 |
| | 236,677 |
|
Balance, December 31, 2019 | $ | 2,096,954 |
| | $ | — |
| | $ | 2,096,954 |
|
| |
(a) | The Company receives no cash from, and is not party to, the CCIC transactions described in note 2. |
See accompanying notes to consolidated financial statements.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands)
The accompanying consolidated financial statements reflectinclude the consolidated financial position, results of operations and cash flowsaccounts of CC Holdings GS V LLC ("CCL") and its consolidated wholly-ownedwholly owned subsidiaries (collectively, "Company"). The Company is a wholly-ownedwholly owned subsidiary of Global Signal Operating Partnership, L.P. ("GSOP"), which is an indirect subsidiary of Crown Castle International Corp., a Delaware corporation ("CCIC" or "Crown Castle"). CCL is a Delaware limited liability company ("LLC") that is a holding company and an issuer of the Company's debt. Intercompany accounts,All significant intercompany balances and transactions and profits have been eliminated.eliminated in consolidation. As used herein, the term "including," and any variation thereof means "including without limitations.limitation." The use of the word "or" herein is not exclusive.
The Company is organized specifically to own, lease and manage approximately 7,600 towers and other structures, such as rooftops, geographically dispersed throughout the U.S. (collectively, "towers"), and to a lesser extent, interests in land under third party and related party towers in various forms ("land interests") (collectively, "communications infrastructure" or "sites") that are geographically dispersed across the United States ("U.S"). The Company's core business is providing access, including space or capacity, to its sites via long-term contracts in various forms, including lease, license and sublease agreements (collectively, "contracts""tenant contracts"). The Company's existing customers on its communication infrastructuresites are referred to herein as "tenants." Management services related to the Company's sites are performed by Crown Castle USA Inc. ("CCUSA"), an affiliate of the Company, under the Management Agreement (as defined below)in note 6), as the Company has no employees.
Approximately 68% of the Company's sites are leased or subleased or operated and managed for an initial period of 32 years (through May 2037) under master leaseleases or other agreements with Sprint ("Sprint Sites"). CCIC, through its subsidiaries (including the Company), has the option to purchase in 2037 all (but not less than all) of the Sprint Sites from Sprint for approximately $2.3 billion. CCIC has no obligation to exercise the purchase option.
For U.S. federal income tax purposes, CCIC operates as a real estate investment trust ("REIT"), and as its indirect subsidiary, the Company's assets and operations are included in the CCIC REIT. See notes 23 and 8.9.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure forof contingent assets and liabilities atas of the date of the financial statements, as well asand the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| |
2. | Restatement of Previously Issued Consolidated Financial Statements |
In connection with the filing of its Form 10-K, CCIC corrected certain historical errors related to the timing of revenue recognition for its tower installation services. Specifically, CCIC determined that its historical practice of recognizing the full transaction price as service revenues upon completion of an installation was not acceptable under GAAP. Instead, a portion of the transaction price for CCIC's tower installation services, specifically the amounts associated with permanent improvements recorded as fixed assets, represents a lease component for GAAP purposes and should be recognized by CCIC as site rental revenues on a ratable basis over the associated estimated lease term.
CCIC, through its wholly owned subsidiary, offers certain installation and other construction-related services to tenants on the towers owned by CCIC's subsidiaries (including to tenants on the Company's towers). That business is separate from the operations of the Company, and the Company (1) is not party to such transactions and (2) does not receive any cash associated with such transactions. However, when CCIC is engaged by, and performs an installation or other activity for, a tenant that is locating or located on the Company's towers, and such transaction results in (1) enhancing a tower in connection with a new tenant installing equipment on the tower for the first time or as part of subsequent equipment augmentations or (2) modifying the structure of a tower to accommodate the additional tenant,the Company records any permanent improvement that is made on its tower site as a fixed asset. Historically, in connection with recording such permanent improvements as fixed assets on its financial statements, the Company would also record a corresponding amount as a capital contribution from CCIC.
The Company has determined that, despite the Company not receiving any cash, an amount equal to the lease component as a result of such installation and other construction-related services should be recorded on the consolidated financial statements as deferred revenue, and then amortized as revenues on a ratable basis over the length of the tenants’ associated estimated lease term.
Due to this determination, the Company has restated its financial statements for the years ended December 31, 2018 and 2017, including each of the unaudited condensed consolidated financial statements for the quarterly and year-to-date periods in the year ended December 31, 2018 and first three quarters for the year ended December 31, 2019.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
In addition to the determination discussed above, the Company has also determined that errors existed related to its accounting for obligations to perform asset retirement activities pursuant to its ground lease and easement agreements. Specifically, the Company should not have recorded asset retirement obligations for its Sprint Sites, as the associated estimated retirement would occur beyond the period for which the Company has a contract term to these sites. The correction of the errors related to the Company's accounting for obligations to perform asset retirement activities resulted in (1) decreases to "Property and equipment, net" and "Other long-term liabilities" of $4.6 million and $22.6 million, respectively, and a corresponding net increase to "Member's equity" of $18.0 million on the Company's consolidated balance sheet as of December 31, 2018, and (2) a decrease to "Depreciation, amortization, and accretion" on the Company's consolidated statement of operations of $2.4 million and $2.7 million for the years ended December 31, 2018 and 2017, respectively.
The restatement also affects periods prior to 2017, the cumulative effect of which is reflected as an adjustment to opening "Member's equity" as of January 1, 2017. The adjustments to correct the historical errors described above are referred to herein as the "Restatement Adjustments." In addition to the Restatement Adjustments, the Company has also made other adjustments to the financial statements referenced above to correct errors that were not material to its consolidated financial statements. Such immaterial adjustments are related to a revision in the presentation of certain tower installation activities from a gross basis to a net basis, including the associated removal of certain amounts historically categorized as capital expenditures. Collectively, the Company refers to the Restatement Adjustments and other adjustments as "Historical Adjustments."
The following tables summarize the effects of the Historical Adjustments on the Company’s restated consolidated balance sheet as of December 31, 2018 and its restated consolidated statement of operations, restated consolidated statement of cash flows and restated consolidated statement of changes in member's equity for the years ended December 31, 2018 and 2017. In addition to the restatement of the financial statements, certain historical information within the notes to the consolidated financial statements has been restated to reflect the correction of the Historical Adjustments.
The Restatement Adjustments in the tables below reflect the impact of (1) allocating an amount equal to the lease component as a result of such installation and other construction-related services on the consolidated financial statements as deferred revenue, and then amortizing those amounts as amortization of tower installations and modifications on a ratable basis over the length of the tenants’ associated estimated lease term and (2) correcting errors related to the Company's accounting for obligations to perform asset retirement activities.
Consolidated Balance Sheet
|
| | | | | | | | | | | | | | | |
| December 31, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
ASSETS | | | | | | | |
Property and equipment, net | $ | 1,017,767 |
| | $ | (4,584 | ) | | $ | (2,732 | ) | | $ | 1,010,451 |
|
Total assets | 3,621,436 |
| | (4,584 | ) | | (2,732 | ) | | 3,614,120 |
|
| | | | | | | |
LIABILITIES AND EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Deferred revenues(a) | 12,533 |
| | 47,233 |
| | — |
| | 59,766 |
|
Total current liabilities | 31,458 |
| | 47,233 |
| | — |
| | 78,691 |
|
Other long-term liabilities(a) | 50,108 |
| | 159,244 |
| | — |
| | 209,352 |
|
Total liabilities | 1,188,445 |
| | 206,477 |
| | — |
| | 1,394,922 |
|
Member's equity: | | | | | | | |
Member's equity | 2,432,991 |
| | (211,061 | ) | | (2,732 | ) | | 2,219,198 |
|
Total member's equity | 2,432,991 |
| | (211,061 | ) | | (2,732 | ) | | 2,219,198 |
|
Total liabilities and equity | $ | 3,621,436 |
| | $ | (4,584 | ) | | $ | (2,732 | ) | | $ | 3,614,120 |
|
| |
(a) | Reflects the recording of deferred revenues in connection with the CCIC transactions that result in permanent improvements to the Company's towers described above. The Company receives no cash from, and is not party to, such transactions. |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Consolidated Statement of Operations
|
| | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 659,490 |
| | $ | — |
| | $ | — |
| | $ | 659,490 |
|
Amortization of tower installations and modifications(a) | — |
| | 43,491 |
| | — |
| | 43,491 |
|
Total site rental revenues | 659,490 |
|
| 43,491 |
|
| — |
| | 702,981 |
|
Operating expenses: | | | | | | |
|
|
Depreciation, amortization and accretion | 210,072 |
| | (2,367 | ) | | $ | (177 | ) | | 207,528 |
|
Total operating expenses | 449,914 |
| | (2,367 | ) | | (177 | ) | | 447,370 |
|
Operating income (loss) | 209,576 |
|
| 45,858 |
|
| 177 |
|
| 255,611 |
|
Income (loss) before income taxes | 169,898 |
|
| 45,858 |
|
| 177 |
|
| 215,933 |
|
Net income (loss) | $ | 169,482 |
| | $ | 45,858 |
| | $ | 177 |
| | $ | 215,517 |
|
|
| | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 616,897 |
| | $ | — |
| | $ | — |
| | $ | 616,897 |
|
Amortization of tower installations and modifications(a) | — |
| | 38,435 |
| | — |
| | 38,435 |
|
Total site rental revenues | 616,897 |
| | 38,435 |
| | — |
| | 655,332 |
|
Operating expenses: | | | | | | | |
Depreciation, amortization and accretion | 210,607 |
| | (2,710 | ) | | (133 | ) | | 207,764 |
|
Total operating expenses | 444,153 |
| | (2,710 | ) | | (133 | ) | | 441,310 |
|
Operating income (loss) | 172,744 |
| | 41,145 |
| | 133 |
| | 214,022 |
|
Income (loss) before income taxes | 133,157 |
| | 41,145 |
| | 133 |
| | 174,435 |
|
Net income (loss) | $ | 133,771 |
| | $ | 41,145 |
| | $ | 133 |
| | $ | 175,049 |
|
| |
(a) | Represents the amortization of deferred revenues recorded in connection with the CCIC transactions that result in permanent improvements to the Company's towers described above. The Company receives no cash from, and is not party to, such transactions |
Consolidated Statement of Cash Flows
|
| | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Cash flows from operating activities(a): | | | | | | | |
Net income (loss) | $ | 169,482 |
| | $ | 45,858 |
| | $ | 177 |
| | $ | 215,517 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation, amortization and accretion | 210,072 |
| | (2,367 | ) | | (177 | ) | | 207,528 |
|
Increase (decrease) in other liabilities | 4,346 |
| | 11,302 |
| | — |
| | 15,648 |
|
Net cash provided by (used for) operating activities | 372,048 |
| | 54,793 |
| | — |
| | 426,841 |
|
Cash flows from investing activities(a): | | | | | | | |
Capital expenditures | (71,150 | ) | | — |
| | 221 |
| | (70,929 | ) |
Net cash provided by (used for) investing activities | (71,150 | ) | | — |
| | 221 |
| | (70,929 | ) |
Cash flows from financing activities(a): | | | | | | | |
Distributions to member | (312,962 | ) | | (54,793 | ) | | (221 | ) | | (367,976 | ) |
Net cash provided by (used for) financing activities | (312,962 | ) | | (54,793 | ) | | (221 | ) | | (367,976 | ) |
Net increase (decrease) in cash and cash equivalents | (12,064 | ) | | — |
| | — |
| | (12,064 | ) |
Cash and cash equivalents at beginning of year | 30,771 |
| | — |
| | — |
| | 30,771 |
|
Cash and cash equivalents at end of year | $ | 18,707 |
| | $ | — |
| | $ | — |
| | $ | 18,707 |
|
| |
(a) | The Company receives no cash from, and is not party to, the CCIC transactions described above. Such transactions, however, are reflected on the cash flow statement for GAAP purposes as if an amount equal to the lease component for such transactions had been received by the Company, and as such, the amounts have been recorded as fixed assets (in the form of permanent improvements) and deferred revenues. |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | | | | | |
| Year Ended December 31, 2017 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Cash flows from operating activities(a): | | | | | | | |
Net income (loss) | $ | 133,771 |
| | $ | 41,145 |
| | $ | 133 |
| | $ | 175,049 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation, amortization and accretion | 210,607 |
| | (2,710 | ) | | (133 | ) | | 207,764 |
|
Increase (decrease) in other liabilities | 1,964 |
| | (1,185 | ) | | — |
| | 779 |
|
Net cash provided by (used for) operating activities | 357,317 |
| | 37,250 |
| | — |
| | 394,567 |
|
Cash flows from investing activities(a): | | | | | | | |
Capital expenditures | (49,551 | ) | | — |
| | 1,239 |
| | (48,312 | ) |
Net cash provided by (used for) investing activities | (49,551 | ) | | — |
| | 1,239 |
| | (48,312 | ) |
Cash flows from financing activities(a): | | | | | | | |
Distributions to member | (296,545 | ) | | (37,250 | ) | | (1,239 | ) | | (335,034 | ) |
Net cash provided by (used for) financing activities | (296,545 | ) | | (37,250 | ) | | (1,239 | ) | | (335,034 | ) |
Net increase (decrease) in cash and cash equivalents | 11,221 |
| | — |
| | — |
| | 11,221 |
|
Cash and cash equivalents at beginning of year | 19,550 |
| | — |
| | — |
| | 19,550 |
|
Cash and cash equivalents at end of year | $ | 30,771 |
| | $ | — |
| | $ | — |
| | $ | 30,771 |
|
| |
(a) | The Company receives no cash from, and is not party to, the CCIC transactions described above. Such transactions, however, are reflected on the cash flow statement for GAAP purposes as if an amount equal to the lease component for such transactions had been received by the Company, and as such, the amounts have been recorded as fixed assets (in the form of permanent improvements) and deferred revenues. |
Consolidated Statement of Changes in Member's Equity
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Member's equity | $ | 2,739,245 |
| | $ | (206,021 | ) | | $ | (1,582 | ) | | $ | 2,531,642 |
|
Total member's equity | $ | 2,739,245 |
| | $ | (206,021 | ) | | $ | (1,582 | ) | | $ | 2,531,642 |
|
| | | | | | | |
| December 31, 2017 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Member's equity | $ | 2,576,471 |
| | $ | (202,126 | ) | | $ | (2,688 | ) | | $ | 2,371,657 |
|
Total member's equity | $ | 2,576,471 |
| | $ | (202,126 | ) | | $ | (2,688 | ) | | $ | 2,371,657 |
|
| | | | | | | |
| December 31, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Member's equity | $ | 2,432,991 |
| | $ | (211,061 | ) | | $ | (2,732 | ) | | $ | 2,219,198 |
|
Total member's equity | $ | 2,432,991 |
| | $ | (211,061 | ) | | $ | (2,732 | ) | | $ | 2,219,198 |
|
| |
3. | Summary of Significant Accounting Policies |
The following is a discussion of the Company's significant accounting policies in effect for the year ended December 31, 2019.
Receivables Allowance
An allowance for doubtful accounts is recorded as an offset to accounts receivable. The Company uses judgment in estimating this allowance and considers historical collections, current credit status or contractual provisions. Additions to the allowance for doubtful accounts are charged to “site"Site rental costcosts of operations,”" and deductions from the allowance are recorded when specific accounts receivable are written off as uncollectible.
Lease Accounting
General. The Company classifies its leases at inception as either operating leases or capital leases. A lease is classified as a capital lease if at least one of the following criteria are met, subject to certain exceptions noted below: (1) the lease transfers ownership of the leased assets to the lessee, (2) there is a bargain purchase option, (3) the lease term is equal to 75% or more of the economic life of the leased assets or (4) the present value of the minimum lease payments equals or exceeds 90% of the fair value of the leased assets.
Lessee. Leases for land are evaluated for capital lease treatment if at least one of the first two criteria mentioned in the immediately preceding paragraph is present relating to the leased assets. WhenEffective January 1, 2019, the Company adopted new guidance on the recognition, measurement, presentation and disclosure of leases (commonly referred to as lessee, classifies a"ASC 842" or the "new lease as a capital lease, it records an asset in an amount equal to the present value of the minimum lease payments under the lease at the beginning of the lease term. Applicable operating leases are recognized on a straight-line basis as discussed under "Costs of Operations" below.standard").
Lessor. If the Company is the lessor of leased property that is part of a larger whole (including a portion of space on a tower) and for which fair value is not objectively determinable, then such lease is accounted for as an operating lease. As applicable, operating leases are recognized on a straight-line basis as discussed under "Revenue Recognition."
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Effective January 1, 2019,The new lease standard requires lessees to recognize a right-of-use ("ROU") asset and a lease liability, initially measured at the present value of the lease payments for all leases with a term greater than 12 months. The accounting for lessors remained largely unchanged from previous guidance. See "Recently Adopted Accounting Pronouncements" for additional information regarding the adoption of the new lease standard.
General. The Company evaluates whether a contract meets the definition of a lease whenever a contract grants a party the right to control the use of an identified asset for a period of time in exchange for consideration. To the extent the identified asset is able to be shared among multiple parties, the Company adopted newhas determined that one party does not have control of the identified asset and the contract is not considered a lease.
Lessee. The Company's lessee arrangements primarily consist of ground leases for land under towers. Ground leases for land are specific to each site, generally contain an initial term of five to 10 years and are renewable (and cancelable after a notice period) at the Company's option. The Company also enters into term easements and ground leases in which it prepays the entire term.
The majority of the Company's lease accounting guidanceagreements have certain termination rights that provide for cancellation after a notice period and multiple renewal options exercisable at the Company's option. The Company includes renewal option periods in its calculation of the estimated lease term when it determines the options are reasonably certain to be exercised. When such renewal options are deemed to be reasonably certain, the estimated lease term determined under ASC 842 will be greater than the non-cancelable term of the contractual arrangement. Although certain renewal periods are included in the estimated lease term, the Company would have the ability to terminate or elect to not renew a particular lease if business conditions warrant such a decision.
The Company classifies its lessee arrangements at inception as either operating leases or finance leases. A lease is classified as a finance lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying asset, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if none of the five criteria described above for finance lease classification is met.
ROU assets associated with operating leases are included in "Operating lease right-of-use assets" on the recognition,Company's consolidated balance sheet. "Current portion of operating lease liabilities—third parties," "Current portion of operating lease liabilities—related parties," "Operating lease liabilities—third parties" and "Operating lease liabilities—related parties" on the Company's condensed consolidated balance sheet. ROU assets represent the Company's right to use an underlying asset for the estimated lease term and lease liabilities represent the Company's present value of its future lease payments.
In assessing its leases and determining its lease liability at lease commencement or upon modification, the Company was not able to readily determine the rate implicit for its lessee arrangements, and thus has used its incremental borrowing rate on a collateralized basis to determine the present value of the lease payments. The Company's ROU assets are measured as the balance of the lease liability plus any prepaid or accrued lease payments and any unamortized initial direct costs.
Operating lease expenses are recognized on a ratable basis, regardless of whether the payment terms require the Company to make payments annually, quarterly, monthly, or for the entire term in advance. Certain of the Company's ground lease agreements contain fixed escalation clauses (such as fixed dollar or fixed percentage increases) or inflation-based escalation clauses (such as those tied to the change in consumer price index ("CPI")). If the payment terms include fixed escalator provisions, the effect of such increases is recognized on a straight-line basis. The Company calculates the straight-line expense over the tenant contract's estimated lease term, including any renewal option periods that the Company deems reasonably certain to be exercised.
Lease agreements may also contain provisions for a contingent payment based on (1) the revenues derived from the sites located on the leased asset, (2) the change in CPI or (3) the usage of the leased asset. The Company's contingent payments are considered variable lease payments and are (1) not included in the initial measurement presentationof the ROU asset or lease liability due to the uncertainty of the payment amount and disclosure(2) recorded as expense in the period such contingencies are resolved.
ROU assets associated with finance leases are included in "Property and equipment, net" on the Company's consolidated balance sheet. If applicable, the Company measures the lease liability for finance leases using the effective interest method. The initial lease liability is increased to reflect interest on the liability and decreased to reflect payments made during the period. Interest on the lease liability is determined each period during the lease term as the amount that results in a constant periodic discount rate on the remaining balance of the liability. The Company measures ROU assets for finance leases on a ratable basis over the applicable lease term.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The Company reviews the carrying value of its ROU assets for impairment, similar to its other long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company could record impairments in the future if there are changes in (1) long-term market conditions, (2) expected future operating results or (3) the utility of the assets that negatively impact the fair value of its ROU assets.
Lessor. The Company's lessor arrangements primarily include tenant contracts for dedicated space on its shared sites. The Company classifies its leases at inception as operating, direct financing or sales-type leases. A lease is classified as a sales-type lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying assets, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Furthermore, when none of the above criteria is met, a lease is classified as a direct financing lease if both of the following criteria are met: (1) the present value of the of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds the fair value of the underlying asset and (2) it is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. A lease is classified as an operating lease if it does not qualify as a sales-type or direct financing lease. Currently, the Company classifies all of its lessor arrangements as operating leases.
Site rental revenues from the Company’s lessor arrangements are recognized on a straight-line, ratable basis over the fixed, non-cancelable term of the relevant tenant contract, regardless of whether the payments from the tenant are received in equal monthly amounts during the life of a tenant contract. Certain of the Company's tenant contracts contain fixed escalation clauses (such as fixed-dollar or fixed-percentage increases) or inflation-based escalation clauses (such as those tied to the change in CPI). If the payment terms call for fixed escalations, upfront payments, or rent-free periods, the rental revenue is recognized on a straight-line basis over the fixed, non-cancelable term of the agreement. When calculating straight-line site rental revenues, the Company considers all fixed elements of tenant contractual escalation provisions.
In addition to the Company's revenue from tenant contracts, amounts under CCIC tower installation services and modifications agreements that represent a lease component to the Company are recognized as amortization of tower installations and modifications on a ratable basis over the length of the associated estimated lease term. See also "Recent Accounting Pronouncements Not Yet Adopted" belownote 2 to the consolidated financial statements for further discussion.information regarding the impact of the Restatement Adjustments.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation. Property and equipment includes land owned in fee and perpetual easements for land, which have no definite life. When the Company purchases fee ownership or perpetual easements for the land previously subject to ground lease, the Company reduces the value recorded as land by the amount of any associated deferred ground lease payable or unamortized above-market leases. Depreciation is computed utilizing the straight-line method at rates based upon the estimated useful lives of the various classes of assets. Depreciation of communications infrastructuresites is generally computed with a useful life equal to the shorter of 20 years or the term of the underlying ground lease (including optional renewal periods). Additions renewals orand permanent improvements to the Company's sites are capitalized, while maintenance and repairs are expensed. The carrying value of property and equipment will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Abandonments and write-offs of property and equipment are recorded to "asset"Asset write-down charges" on the Company's consolidated statement of operations and were $1.1 million, $0.3 million $0.2 million and $4.9$0.2 million for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively.
Asset Retirement Obligations
Pursuant to its ground lease and easement agreements, the Company records obligations to perform asset retirement activities, including requirements to remove communications infrastructuresites or remediate the land upon which the Company's communications infrastructuresite resides. With respect to the Sprint Sites, the Company does not have retirement obligations to the extent such retirement would occur beyond the period for which it has a contract term. Asset retirement obligations are included in "above-market leases and other"Other long-term liabilities" on the Company's consolidated balance sheet. The liability accretes as a result of the passage of time and the related accretion expense is included in "depreciation,"Depreciation, amortization and accretion" expense on the Company's consolidated statement of operations. The associated asset retirement costs are capitalized as an additional carrying amount of the related long-lived asset and depreciated over the useful life of such asset.
Goodwill
Goodwill represents See note 2 to the excessconsolidated financial statements for further information regarding the impact of the purchase price for an acquired business over the allocated value of the related net assets. The Company tests goodwill for impairment on an annual basis, regardless of whether adverse events or changes in circumstances have occurred. The annual test begins with goodwill and all intangible assets being allocated to applicable reporting units. The Company then performs a qualitative assessment to determine whether it is "more likely than not" that the fair value of the reporting units is less than its carrying amount. If it is concluded that it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount, it is necessary to perform the two-step goodwill impairment test. The two-step goodwill impairment test begins with a comparison of the estimated fair value of the reporting unit and the carrying value of the reporting unit. The first step, commonly referred to as a “step-one impairment test,” is a screen for potential impairment while the second step measures the amount of any impairment if there is an indication from the first step that one exists. The Company's measurement of the fair value for goodwill is based on an estimate of discounted expected future cash flows of the reporting unit. The Company has one reporting unit for goodwill impairment testing. The Company performed its most recent annual goodwill impairment test as of October 1,2018, which resulted in no impairments.Restatement Adjustments.
Other Intangible Assets
Intangible assets are included in "site rental contracts and tenant relationship, net" and "other intangible assets, net" on the Company's consolidated balance sheet and predominately consist of the estimated fair value of the following items recorded in conjunction with acquisitions: (1) site rental contracts and tenant relationships or (2) below-market leases for land interests under the acquired towers classified as "other intangible assets, net." The site rental contracts and tenant relationships intangible assets are comprised of (1) the current term of the existing contracts, (2) the expected exercise of the renewal provisions contained within the existing contracts, which automatically occur under contractual provisions or (3) any associated relationships that are expected to generate value following the expiration of all renewal periods under existing contracts.
The useful lives of intangible assets are estimated based on the period over which the intangible asset is expected to benefit the Company, which is calculated on an individual tenant basis, considering, among other things, the contractual provisions with the tenant and gives consideration to the expected useful life of other assets to which the useful life may relate. Amortization expense for intangible assets is computed using the straight-line method over the estimated useful life of each of the intangible
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
assets. The useful life of the site rental contracts and tenant relationships intangible asset is limited by the maximum depreciable life of the tower (20 years), as a result of the interdependency of the tower and site rental contracts and tenant relationships. In contrast, the site rental contracts and tenant relationships are estimated to provide economic benefits for several decades because of the low rate of tenant cancellations and high rate of renewals experienced to date. Thus, while site rental contracts and tenant relationships are valued based upon the fair value, which includes assumptions regarding both (1) tenants' exercise of optional renewals contained in the acquired contracts and (2) renewals of the acquired contracts past the contractual term including exercisable options, the site rental contracts and tenant relationships are amortized over a period not to exceed 20 years as a result of the useful life being limited by the depreciable life of the sites.
The carrying value of other intangible assets with finite useful lives will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company has a dual grouping policy for purposes of determining the unit of account for testing impairment of the site rental contracts and tenant relationships intangible assets. First, the Company pools the site rental contracts and tenant relationships with the related tower assets into portfolio groups for purposes of determining the unit of account for impairment testing. Second and separately, the Company evaluates the site rental contracts and tenant relationships by significant tenant or by tenant grouping for individually insignificant tenants, as appropriate. If the sum of the estimated future cash flows (undiscounted) expected to result from the use or eventual disposition of an asset is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss is based on the fair value of the asset.
Above-market Leases
Above-market leases consist of the estimated fair value of above-market leases for land interests under the Company's towers. Above-market leases for land interests are amortized to costs of operations over their respective estimated remaining contract term at the acquisition date.
Deferred Financing Costs
Third-party costs incurred to obtain financing are deferred and are included as a direct deduction from the carrying amount of the related debt liability in "debt" on the Company's consolidated balance sheet.
Revenue Recognition
Site rental revenues from the Company's contracts are recognized on a straight-line, ratable basis over the fixed, non-cancelable term of the relevant contract, which generally ranges from five to 15 years, regardless of whether the payments from the tenant are received in equal monthly amounts during the life of the contract. The Company's contracts contain fixed escalation clauses (such as fixed dollar or fixed percentage increases) or inflation-based escalation clauses (such as those tied to the consumer price index ("CPI")). If the payment terms call for fixed escalations, upfront payments, or rent-free periods, the revenue is recognized on a straight-line basis over the fixed, non-cancelable term of the agreement. When calculating straight-line rental revenues, the Company considers all fixed elements of tenant contractual escalation provisions. The Company's assets related to straight-line site rental revenues are included in "deferred site rental receivables." Amounts billed or received prior to being earned are deferred and reflected in "deferred revenues" on the Company's consolidated balance sheet.
Costs of Operations
In excess of three-fourths of the Company's site rental cost of operations consists of ground lease expenses, and the remainder includes repairs and maintenance expenses, utilities, property taxes or insurance.
Generally, the ground lease agreements are specific to each site, are for an initial term of five years and are renewable for pre-determined periods. The Company also enters into term easements and ground leases in which it prepays the entire term in advance. Ground lease expense is recognized on a ratable basis, regardless of whether the contract payment terms require the Company to make payments annually, quarterly, monthly or for the entire term in advance. The Company's ground leases contain fixed escalation clauses (such as fixed dollar or fixed percentage increases) or inflation-based escalation clauses (such as those tied to the CPI). If the payment terms include fixed escalation provisions, the effect of such increases is recognized on a straight-line basis. The Company calculates the straight-line ground lease expense using a time period that equals or exceeds the remaining depreciable life of the communications infrastructure asset. Further, when a tenant has exercisable renewal options that would compel the Company to exercise existing ground lease renewal options, the Company has straight-lined the ground lease expense over a sufficient portion of such ground lease renewals to coincide with the final termination of the tenant's renewal options. The Company's policy is to record ground lease agreements with affiliates under the same or similar economic terms as the contract for the land that existed prior to the purchase of such land by the affiliate.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The Company's current liability related to straight-line ground lease expense is included in "other accrued liabilities" on the Company's consolidated balance sheet and was $2.3 million and $1.9 million as of December 31, 2018 and 2017, respectively. The Company's non-current liability related to straight-line ground lease expense is included in "deferred ground lease payable" on the Company's consolidated balance sheet. The Company's assets related to prepaid ground leases is included in "prepaid expenses" and "long-term prepaid rent and other assets, net" on the Company's consolidated balance sheet. The Company's current liability related to accrued property taxes is included in "other accrued liabilities" on the Company's consolidated balance sheet and was $5.5 million and $5.7 million as of December 31, 2018 and 2017, respectively.
Management Fee
The Company is charged a management fee by CCUSA, a wholly-owned indirect subsidiary of CCIC, relating to management services, which include those functions reasonably necessary to maintain, market, operate, manage and administer the sites. The management fee is equal to 7.5% of the Company's revenues, excluding the revenues related to the accounting for leases with fixed escalators as required by the applicable accounting standards. See note 6.
Income Taxes
CCIC operates as a REIT for U.S. federal income tax purposes. The Company is an indirect subsidiary of CCIC and for U.S. federal income taxes purposes the Company's assets and operations are part of the CCIC REIT. As a REIT, CCIC is generally entitled to a deduction for dividends that it pays and therefore is not subject to U.S. federal corporate income tax on its taxable income that is currently distributed to its stockholders. CCIC also may be subject to certain federal, state, local and foreign taxes on its income and assets, including (1) taxes on any undistributed income, (2) taxes related to the CCIC's taxable REIT subsidiaries, (3) franchise taxes, (4) property taxes and (5) transfer taxes. In addition, CCIC could in certain circumstances be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Internal Revenue Code of 1986, as amended to maintain qualification for taxation as a REIT.
Fair Values
The Company's assets and liabilities recorded at fair value are categorized based upon a fair value hierarchy that ranks the quality and reliability of the information used to determine fair value. The three levels of the fair value hierarchy are (1) Level 1 - quoted prices (unadjusted) in active and accessible markets, (2) Level 2 - observable prices that are based on inputs not quoted in active markets but corroborated by market data and (3) Level 3 - unobservable inputs and are not corroborated by market data. The Company evaluates fair value hierarchy level classifications quarterly, and transfers between levels are effective at the end of the quarterly period.
The fair value of cash and cash equivalents approximates the carrying value. The Company determines fair value of its debt securities based on indicative quotes (that is non-binding quotes) from brokers that require judgment to interpret market information including implied credit spreads for similar borrowings on recent trades or bid/ask prices or quotes from active markets if applicable. There were no changes since December 31, 2017 in the Company's valuation techniques used to measure fair values. See note 7.
Reporting Segments
The Company has one operating segment.
Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued new guidance which clarifies the definition of a business in order to assist companies in evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The Company adopted the guidance on January 1, 2018, and the adoption of this guidance did not have a material impact on its consolidated financial statements.
In May 2014, the FASB released updated guidance regarding the recognition of revenue from contracts with customers not otherwise addressed by specific guidance (commonly referred to as "ASC 606" or "the revenue recognition standard"). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contracts with the customer; (2) identify the performance obligations in the contract; (3) determine the contract price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This guidance
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
was effective for the Company on January 1, 2018. The Company's site rental revenues are within the scope of lease accounting and were not impacted by this guidance.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued new guidance on the recognition, measurement, presentation and disclosure of leases. The new guidance requires lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments for all leases with a term greater than 12 months. The accounting for lessors remains largely unchanged from existing guidance.
This guidance was effective for, and adopted by, the Company as of January 1, 2019, and is required to be adopted using a modified retrospective approach, which after certain additional updates in July 2018, allows the Company to apply the new guidance either (1) as of the beginning of the earliest period presented, or (2) as of the effective date (i.e., January 1, 2019), without adjusting the comparative periods.
The Company adopted the new guidance using a modified retrospective approach as of the effective date (i.e, January 1, 2019), without adjusting the comparative periods. The Company's adoption of the new guidance did not result in a cumulative-effect adjustment being recognized to the opening balance of retained earnings. The Company elected the package of practical expedients upon adoption and thus will not reassess the classification or lease term of leases existing prior to January 1, 2019.
When its first quarter 2019 results are reported, the Company expects that (1) its lessor and lessee arrangements will continue to be classified as operating leases under the new guidance; (2) this guidance will result in a lease liability ranging between $500 million to $1.5 billion (which primarily consist of ground leases under the Company's towers) and a corresponding right-of-use asset; and (3) there will not be a material impact to its consolidated statement of operations and consolidated statement of cash flows. CCIC is in the process of updating certain of its existing information technology systems to integrate the new lease guidance requirements.
The major classes of property and equipment are as follows:
|
| | | | | | | | | | |
| Estimated Useful Lives | | December 31, |
| | 2018 | | 2017 |
Land(a) | — |
| | $ | 72,665 |
| | $ | 73,214 |
|
Towers | 1-20 years |
| | 1,933,497 |
| | 1,872,975 |
|
Construction in progress | — |
| | 23,505 |
| | 14,514 |
|
Total gross property and equipment | | | 2,029,667 |
| | 1,960,703 |
|
Less accumulated depreciation | | | (1,011,900 | ) | | (919,546 | ) |
Total property and equipment, net | | | $ | 1,017,767 |
| | $ | 1,041,157 |
|
| |
(a)
| Includes land owned in fee and perpetual easements. |
Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $93.8 million, $94.3 million and $93.5 million, respectively. As discussed in notes 1 and 2, the Company has certain prepaid capital leases and associated leasehold improvements, which have related gross property and equipment and accumulated depreciation of $1.0 billion and $604.5 million, respectively, as of December 31, 2018.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
| |
4. | Intangible Assets and Above-market Leases |
The following is a summary of the Company's intangible assets.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2018 | | As of December 31, 2017 |
| Gross Carrying Value | | Accumulated Amortization | | Net Book Value | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
Site rental contracts and tenant relationships | $ | 2,102,864 |
| | $ | (1,312,890 | ) | | $ | 789,974 |
| | $ | 2,102,005 |
| | $ | (1,199,338 | ) | | $ | 902,667 |
|
Other intangible assets | 51,102 |
| | (32,749 | ) | | 18,353 |
| | 50,999 |
| | (31,140 | ) | | 19,859 |
|
Total | $ | 2,153,966 |
| | $ | (1,345,639 | ) | | $ | 808,327 |
| | $ | 2,153,004 |
| | $ | (1,230,478 | ) | | $ | 922,526 |
|
Amortization expense related to intangible assets is classified as follows on the Company's consolidated statement of operations:
|
| | | | | | | | | | | |
| For Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Depreciation, amortization and accretion | $ | 113,655 |
| | $ | 113,635 |
| | $ | 113,621 |
|
Site rental costs of operations | 1,514 |
| | 1,591 |
| | 1,677 |
|
Total amortization expense | $ | 115,169 |
| | $ | 115,226 |
| | $ | 115,298 |
|
The estimated annual amortization expense related to intangible assets (inclusive of those recorded as an increase to "site rental cost of operations") for the years ending December 31, 2019 to 2023 is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Estimated annual amortization | $ | 115,150 |
| | $ | 115,120 |
| | $ | 115,027 |
| | $ | 114,973 |
| | $ | 114,971 |
|
See note 2 for a further discussion of above-market leases for land interests under the Company's towers recorded in connection with acquisitions. For the years ended December 31, 2018, 2017 and 2016, the Company recorded $1.7 million, $1.7 million and $1.8 million, respectively, as a decrease to "site rental cost of operations." The following is a summary of the Company's above-market leases.
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| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2018 | | As of December 31, 2017 |
| Gross Carrying Value | | Accumulated Amortization | | Net Book Value | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
Above-market leases | $ | 41,185 |
| | $ | (24,720 | ) | | $ | 16,465 |
| | $ | 41,538 |
| | $ | (23,263 | ) | | $ | 18,275 |
|
The estimated annual amortization expense related to above-market leases for land interests under the Company's towers for the years ending December 31, 2019 to 2023 is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Estimated annual amortization | $ | 1,617 |
| | $ | 1,587 |
| | $ | 1,467 |
| | $ | 1,388 |
| | $ | 1,377 |
|
2012 Secured Notes
On December 24, 2012, CCL and Crown Castle GS III Corp. ("Co-Issuer" and, together with CCL, "Issuers") issued (1) $500.0 million aggregate principal amount of 2.381% senior secured notes due December 2017 ("2.381% Secured Notes") and (2) $1.0 billion aggregate principal amount of 3.849% senior secured notes due April 2023 ("3.849% Secured Notes" and together with the 2.381% Secured Notes, "2012 Secured Notes"). The 2012 Secured Notes were issued pursuant to an indenture dated as of December 24, 2012 ("Indenture"), by and among the Issuers, the Guarantors (as defined below) and The Bank of New York
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Mellon Trust Company, N.A., as trustee ("Trustee"). The Issuers and the Guarantors are indirect wholly-owned subsidiaries of CCIC. The Company used the net proceeds from the issuance of the 2012 Secured Notes to (1) repurchase and redeem a portion of the previously outstanding 7.75% senior secured notes due 2017 ("7.75% Secured Notes") and (2) distribute cash to CCIC to fund the repurchase and redemption of a portion of CCIC's senior notes.
The outstanding balance of the 2012 Secured Notes as of December 31, 2018 and December 31, 2017 was $994.0 million and $993.0 million, respectively. See below for discussion related to the repayment of the previously outstanding 2.381% Secured Notes. The stated interest rate of the 2012 Secured Notes as of December 31, 2018 was 3.849% per annum.
The 3.849% Secured Notes are payable semi-annually in cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2013. CCL, at its option, may redeem the 3.849% Secured Notes in whole or in part at any time by paying 100% of the principal amount of such 3.849% Secured Notes, together with accrued and unpaid interest, if any, plus a "make-whole" premium (as defined in the Indenture).
The 3.849% Secured Notes are guaranteed by the direct and indirect wholly-owned subsidiaries of CCL, other than the Co-Issuer (collectively, "Guarantors"). The 3.849% Secured Notes will be paid solely from the cash flows generated from operation of the towers held directly or indirectly by CCL and the Guarantors.
Concurrently with the issuance of the 2012 Secured Notes, CCL and certain of its subsidiaries entered into a pledge and security agreement with the Trustee. Pursuant to the terms of such pledge and security agreement, the 3.849% Secured Notes are secured on a first-priority basis by a pledge of the equity interests of the Guarantors.
The Indenture limits, among other things, the ability of CCL and its subsidiaries to incur indebtedness, incur liens, enter into certain mergers or certain change of control transactions and enter into related party transactions, in each case subject to a number of exceptions and qualifications set forth in the Indenture.
Management Agreement. On December 24, 2012, CCL and the Guarantors entered into a management agreement ("Management Agreement") with CCUSA, an indirect wholly-owned subsidiary of CCIC ("Manager"). The Management Agreement replaced the previous management agreement that existed among the parties. Pursuant to the Management Agreement, the Manager will continue to perform, on behalf of CCL and the Guarantors, those functions reasonably necessary to maintain, market, operate, manage and administer their respective sites. The Management Agreement requires that the Company maintain cash sufficient to operate the business, including sufficient cash to pay expenses for the following month (including any interest payment due during the next month pursuant to the Indenture).
Debt Restrictions. The Indenture does not contain financial maintenance covenants but it does contain restrictive negative covenants, subject to certain exceptions, related to the Company's ability to incur indebtedness, incur liens, enter into certain mergers or change of control transactions, sell or issue equity interests and enter into related party transactions. With respect to the restriction regarding the issuance of debt, the Company may not issue debt other than (1) certain permitted refinancings of the 3.849% Secured Notes, (2) unsecured trade payables in the ordinary course of business and financing of equipment, land or other property up to an aggregate of $100.0 million or (3) unsecured debt or additional notes under the Indenture provided that the Debt to Adjusted Consolidated Cash Flow Ratio (as defined in the Indenture) at the time of incurrence, and after giving effect to such incurrence, would have been no greater than 3.5 to 1. As of December 31, 2018, the Company's Debt to Adjusted Consolidated Cash Flow Ratio is 2.3 to 1, and, as a result, the Company is not restricted in its ability to incur additional indebtedness. Further, the Company is not restricted in its ability to distribute cash to affiliates or issue dividends to its member.
Contractual Maturities
The following are the scheduled contractual maturities of total debt outstanding at December 31, 2018.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, | | | | |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total Cash Obligations | | Unamortized Deferred Financing Costs | | Total Debt Outstanding |
Scheduled contractual maturities | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,000,000 |
| | $ | — |
| | $ | 1,000,000 |
| | $ | (5,953 | ) | | $ | 994,047 |
|
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Previously Outstanding Debt
In September 2016, CCIC issued $700 million aggregate principal amount of 2.250% senior unsecured notes ("September 2016 Senior Notes"). CCIC used a portion of the net proceeds from the September 2016 Senior Notes offering to repay in full the previously outstanding 2.381% Secured Notes. The Company recorded an equity contribution related to the repayment of the previously outstanding 2.381% Secured Notes for the year ended December 31, 2016.As a result of the repayment of the previously outstanding 2.381% Secured Notes, the Company recorded a loss on retirement of debt of $10.3 million for the year ended December 31, 2016, which was inclusive of $1.8 million related to the write off of deferred financing costs.
Interest Expense and Amortization of Deferred Financing Costs
The components of "interest expense and amortization of deferred financing costs" are as follows:
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| | | | | | | | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Interest expense on debt obligations | $ | 38,490 |
| | $ | 38,490 |
| | $ | 47,088 |
|
Amortization of deferred financing costs | 1,384 |
| | 1,384 |
| | 2,427 |
|
Total | $ | 39,874 |
| | $ | 39,874 |
| | $ | 49,515 |
|
| |
6. | Related Party Transactions |
As discussed in note 5, the Company and the Guarantors entered into a Management Agreement with CCUSA, which replaced a previous management agreement among the same parties. Pursuant to the Management Agreement, CCUSA has agreed to employ, supervise and pay at all times a sufficient number of capable employees as may be necessary to perform services in accordance with the operation standards defined in the Management Agreement. CCUSA currently acts as the Manager of the majority of the sites held by subsidiaries of CCIC. The management fee is equal to 7.5% of the Company's "Operating Revenues," as defined in the Management Agreement, which is based on the Company’s reported revenues adjusted to exclude certain items including revenues related to the accounting for leases with fixed escalators. The fee is compensation for those functions reasonably necessary to maintain, market, operate, manage and administer the sites, other than the operating expenses, which includes but is not limited to real estate and personal property taxes, ground lease and easement payments, and insurance premiums. In addition, in connection with its role as Manager, CCUSA may make certain modifications to the Company's towers. The management fee charged by CCUSA for the years ended December 31, 2018, 2017 and 2016 totaled $48.5 million, $46.9 million and $45.4 million, respectively.
In addition, CCUSA may perform installation services on the Company's towers for which the Company is not a party to any agreement and for which no operating results are reflected herein.
As part of the CCIC strategy to obtain long-term control of the land under its towers, affiliates of the Company have acquired rights to land interests under the Company's towers. These affiliates then lease the land to the Company. Under such circumstances, the Company's obligation typically continues with the same or similar economic terms as the contract for the land that existed prior to the purchase of such land by the affiliate. As of December 31, 2018, approximately 30% of the Company's towers were located on land which was controlled by an affiliate. Rent expense to affiliates totaled $41.0 million, $36.7 million and $33.9 million for the years ended December 31, 2018, 2017 and 2016, respectively. Also, the Company receives site rental revenue from affiliates for land owned by the Company on which affiliates have towers and pays ground rent expense to affiliates for land owned by affiliates on which the Company has towers. For the years ended December 31, 2018, 2017 and 2016, rent revenue from affiliates totaled $1.0 million, $1.0 million and $1.0 million, respectively.
For the years ended December 31, 2018 and 2017, the Company recorded an equity distribution of $313.0 million and $296.5 million, respectively, reflecting distributions to its member. For the year ended December 31 2016, the Company recorded a net equity contribution of $228.0 million, which was inclusive of (1) an equity contribution from CCIC of $508.5 million related to the repayment of the previously outstanding 2.381% Secured Notes (see note 5) and (2) an equity distribution of $280.5 million, reflecting distributions to its member. Cash on-hand above the amount that is required by the Management Agreement has been, and is expected to continue to be, distributed to the Company's parent company. As of December 31, 2018 and 2017, the Company had no material related party assets or liabilities on its consolidated balance sheet.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The fair value of cash and cash equivalents approximates the carrying value. The Company determines the fair value of its debt securities based on indicative, non-binding quotes from brokers. Quotes from brokers require judgment and are based on the brokers' interpretation of market information, including implied credit spreads for similar borrowings on recent trades or bid/ask prices or quotes from active markets if applicable. The estimated fair values of the Company's financial instruments, along with the carrying amounts of the related assets and liabilities, are as follows:
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| | | | | | | | | | | | | | | | | |
| Level in Fair Value Hierarchy | | December 31, 2018 | | December 31, 2017 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | | | | | | | | |
Cash and cash equivalents | 1 | | $ | 18,707 |
| | $ | 18,707 |
| | $ | 30,771 |
| | $ | 30,771 |
|
Liabilities: | | | | | | | | | |
Debt | 2 | | 994,047 |
| | 990,600 |
| | 992,663 |
| | 1,032,530 |
|
For the year ended December 31, 2018, the Company had a provision for income taxes of $0.4 million, which consisted of state taxes. For the years ended December 31, 2017 and 2016, the Company had benefits for income taxes of $0.6 million and $0.7 million, respectively, which consisted of the reduction of unrecognized tax benefits as a result of the lapse of the statute of limitations partially offset by state taxes. The Company's effective tax rate for the years ended December 31, 2018, 2017 and 2016differed from the federal statutory rate predominately due to CCIC's REIT status, including the dividends paid deduction (see notes 1 and 2) and the aforementioned impacts described above.
As of December 31, 2018, there were no unrecognized tax benefits that would impact the effective tax rate, if recognized.
From time to time, the Company is subject to examinations by various tax authorities in jurisdictions in which the Company has business operations. The Company regularly assesses the likelihood of additional assessments in each of the tax jurisdictions resulting from these examinations. At this time, CCIC is not subject to an Internal Revenue Service examination.
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9. | Commitments and Contingencies |
The Company is involved in various claims, lawsuits or proceedings arising in the ordinary course of business. While there are uncertainties inherent in the ultimate outcome of such matters, and it is impossible to presently determine the ultimate costs or losses that may be incurred, if any, management believes the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's consolidated financial position or results of operations. See note 10 for a discussion of the operating lease commitments.In addition, see note 1 for a discussion of the CCIC's option to purchase approximately 68% of the Company's towers at the end of their respective contract terms. CCIC has no obligation to exercise the purchase option.
Asset Retirement Obligations
Pursuant to its ground lease and easement agreements, the Company has the obligation to perform certain asset retirement activities, including requirements upon contract or easement termination to remove communications infrastructure or remediate the land upon which communications infrastructure resides. Accretion expense related to liabilities for retirement obligations amounted to $2.6 million, $2.6 million and $2.3 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018 and 2017, liabilities for retirement obligations amounted to $33.4 million and $30.9 million, respectively, representing the net present value of the estimated expected future cash outlay. As of December 31, 2018, the estimated undiscounted future cash outlay for asset retirement obligations was approximately $133.0 million. See note 2.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Tenant Leases
The following table is a summary of the rental cash payments owed to the Company, as a lessor, by tenants pursuant to contractual agreements in effect as of December 31, 2018. Generally, the Company's leases with its tenants provide for (1) annual escalations, (2) multiple renewal periods at the tenant's option and (3) only limited termination rights at the applicable tenant's option through the current term. As of December 31, 2018, the weighted-average remaining term (calculated by weighting the remaining term for each lease by the related site rental revenue) of tenant leases is approximately six years, exclusive of renewals at the tenant's option. The tenants' rental payments included in the table below are through the current terms with a maximum current term of 20 years and do not assume exercise of tenant renewal options.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Tenant leases | $ | 642,156 |
| | $ | 639,136 |
| | $ | 633,544 |
| | $ | 607,653 |
| | $ | 430,162 |
| | $ | 1,343,859 |
| | $ | 4,296,510 |
|
Operating Leases
The following table is a summary of rental cash payments owed by the Company, as lessee, to landlords pursuant to contractual agreements in effect as of December 31, 2018. The Company is obligated under non-cancelable operating leases for land interests under approximately 90% of its towers. The majority of these lease agreements have (1) certain termination rights that provide for cancellation after a notice period, (2) multiple renewal options at the Company's option and (3) annual escalations. Lease agreements may also contain provisions for a contingent payment based on revenues or the gross margin derived from the tower located on the leased land interest. More than 80% and more than 50% of the Company's sites are under the Company's control for greater than ten and 20 years, respectively, including renewals at the Company's option. The operating lease payments included in the table below include payments for certain renewal periods at the Company's option that are reasonably assured to be exercised and an estimate of contingent payments based on revenues and gross margins derived from existing tenant leases. See also note 6.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Operating leases | $ | 142,671 |
| | $ | 144,069 |
| | $ | 144,390 |
| | $ | 142,144 |
| | $ | 140,193 |
| | $ | 1,697,442 |
| | $ | 2,410,909 |
|
Rental expense from operating leases was $152.1 million, $148.6 million and $144.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. The rental expense was inclusive of contingent payments based on revenues or gross margin derived from the tower located on the leased land of $30.7 million, $29.6 million and $29.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Effective January 1, 2019, the Company adopted new lease accounting guidance on the recognition, measurement, presentation and disclosure of leases. See note 2 for further discussion.
| |
11.
| Concentration of Credit Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents and trade receivables. The Company mitigates its risk with respect to cash and cash equivalents by maintaining such deposits at high credit quality financial institutions and monitoring the credit ratings of those institutions. See note 2.
The Company derives the largest portion of its revenues from tenants in the wireless industry. The Company also has a concentration in its volume of business with Sprint, AT&T, T-Mobile and Verizon Wireless that accounts for a significant portion of the Company's revenues, receivables and deferred site rental receivables. The Company mitigates its concentrations of credit risk with respect to trade receivables by actively monitoring the creditworthiness of its tenants, the use of tenant contracts with contractually determinable payment terms and proactive management of past due balances.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Major Tenants
The following table summarizes the percentage of the Company's revenues for those tenants accounting for more than 10% of the Company's revenues.
|
| | | | | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Sprint | 36 | % | | 37 | % | | 38 | % |
AT&T | 20 | % | | 19 | % | | 20 | % |
T-Mobile | 19 | % | | 19 | % | | 18 | % |
Verizon Wireless | 14 | % | | 13 | % | | 13 | % |
Total | 89 | % | | 88 | % | | 89 | % |
| |
12. | Supplemental Cash Flow Information |
The following table is a summary of the supplemental cash flow information during the years ended December 31, 2018, 2017 and 2016.
|
| | | | | | | | | | | |
| For Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Supplemental disclosure of cash flow information: | | | | | |
Interest paid | $ | 38,490 |
| | $ | 38,490 |
| | $ | 47,617 |
|
| |
13. | Guarantor Subsidiaries |
CCL has no independent assets or operations. The 3.849% Secured Notes are guaranteed by all subsidiaries of CCL, each of which is a wholly-owned subsidiary of CCL, other than Crown Castle GS III Corp., which is a co-issuer of the 2012 Secured Notes and a wholly-owned finance subsidiary. Such guarantees are full and unconditional and joint and several. Subject to the provisions of the Indenture, a guarantor may be released and relieved of its obligations under its guarantee under certain circumstances including: (1) in the event of any sale or other disposition of all or substantially all of the assets of any guarantor, by way of merger, consolidation or otherwise to a person that is not (either before or after giving effect to such transaction) CCL or a subsidiary of CCL, (2) in the event of any sale or other disposition of all of the capital stock of any guarantor, to a person that is not (either before or after giving effect to such transaction) CCL or a subsidiary of CCL, (3) upon CCL's exercise of legal defeasance in accordance with the relevant provisions of the Indenture or (4) upon the discharge of the Indenture in accordance with its terms.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
In connection with the preparation of this Annual Report on Form 10-K, as of December 31, 2018, the Company's management conducted an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon their evaluation, the CEO and CFO concluded that the Company's disclosure controls and procedures, as of December 31, 2018, were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
(b) Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Company. Under the supervision and with the participation of the Company's CEO and CFO, management assessed the effectiveness of the Company's internal control over financial reporting based on the framework described in "Internal Control – Integrated Framework (2013)," issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company's assets that could have a material effect on the financial statements.
Management has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2018. Based on the Company's assessment, management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2018 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in the annual report.
(c) Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
(d) Limitations on the Effectiveness of Controls
Because of its inherent limitations, the Company's internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Item 9B. Other Information
None.
PART III
Item 14. Principal Accounting Fees and Services
As an indirect wholly-owned subsidiary of CCIC, our principal accounting fees and services are subject to Crown Castle's Audit Committee pre-approval procedures described in its Proxy Statement. This Proxy Statement can be located at CCIC's website (www.crowncastle.com), under Investors, Proxy Statement. Other than these procedures, the information contained at that website is not incorporated by reference in this filing. During 2018, all services provided by the external auditor were pre-approved by CCIC's Audit Committee in accordance with such policies.
Fees for professional services provided by our auditors include the following:
|
| | | | | | | |
| 2018 | | 2017 |
Audit fees(a) | $ | 258,000 |
| | $ | 249,000 |
|
Audit-related fees | — |
| | — |
|
Tax fees | — |
| | — |
|
All other fees | — |
| | — |
|
Total | $ | 258,000 |
| | $ | 249,000 |
|
| |
(a) | Audit fees principally includes audit and review of financial statements and subsidiary audits, and consents. |
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements:
The list of financial statements filed as part of this report is submitted as a separate section, the index to which is located on page 18.
(a)(2) Financial Statement Schedules:
Schedule II—Valuation and Qualifying Accounts.
Schedule III—Schedule of Real Estate and Accumulated Depreciation.
All other schedules are omitted because they are not applicable or because the required information is contained in the financial statements or notes thereto included in this Annual Report on Form 10-K.
Financial statements of certain of CC Holdings GS V LLC's wholly-owned subsidiaries are included pursuant to Rule 3-16 of Regulation S-X in financial statement schedules in a separate section of this Form 10-K (beginning on page S-1 following Part IV).
(a)(3) Exhibits:
Exhibit Index
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | | Form | | File Number | | Date of Filing | | Exhibit Number |
3.1 | | | | S-4 | | 333-187970 | | April 17, 2013 | | 3.1 |
3.2 | |
| | S-4 | | 333-187970 | | April 17, 2013 | | 3.2 |
4.1 | | | | 8-K | | 001-16441 | | December 28, 2012 | | 4.1 |
4.2 | | | | S-4 | | 333-187970 | | April 17, 2013 | | 4.2 |
10.1 | | | | 8-K | | 001-32168 | | February 17, 2005 | | 10.1 |
10.2 | |
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.1 |
10.3 | | Master Lease and Sublease, dated as of May 26, 2005, by and among STC Two LLC, as lessor, SprintCom, Inc., as Sprint Collocator, Global Signal Acquisitions II LLC, as lessee, and Global Signal Inc.
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.2 |
10.4 | | Master Lease and Sublease, dated as of May 26, 2005, by and among STC Three LLC, as lessor, American PCS Communications, LLC, as Sprint Collocator, Global Signal Acquisitions II LLC, as lessee, and Global Signal Inc.
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.3 |
10.5 | | Master Lease and Sublease, dated as of May 26, 2005, by and among STC Four LLC, as lessor, PhillieCo, L.P., as Sprint Collocator, Global Signal Acquisitions II LLC, as lessee, and Global Signal Inc.
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.4 |
10.6 | |
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.5 |
10.7 | |
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.6 |
10.8 | | Management Agreement, dated as of December 24, 2012, by and among Crown Castle USA Inc., as Manager, and CC Holdings GS V LLC, Global Signal Acquisitions LLC, Global Signal Acquisitions II LLC, Pinnacle Towers LLC and the direct and indirect subsidiaries of Pinnacle Towers LLC, collectively, as Owners
| | S-4 | | 333-187970 | | April 17, 2013 | | 10.8 |
10.9 | | Registration Rights Agreement, dated as of December 24, 2012, by and among CC Holdings GS V LLC, Crown Castle GS III Corp., each of the guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, as representatives of the initial purchasers | | 8-K | | 001-16441
| | December 28, 2012 | | 10.2 |
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit
Number
| | Exhibit Description | | Form | | File Number | | Date of Filing | | Exhibit Number |
24* | | Power of Attorney (included on signature page of this annual report) | | — | | — | | — | | — |
31.1* | | | | — | | — | | — | | — |
31.2* | | | | — | | — | | — | | — |
32.1** | | | | — | | — | | — | | — |
101.INS | | XBRL Instance Document | | — | | — | | — | | — |
101.SCH | | XBRL Taxonomy Extension Schema Document | | — | | — | | — | | — |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase | | — | | — | | — | | — |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | — | | — | | — | | — |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | — | | — | | — | | — |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | — | | — | | — | | — |
* Filed herewith.
** Furnished herewith.
Item 16. Form 10-K Summary
N/A
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on this 25th day of February, 2019.
|
| |
CC HOLDINGS GS V LLC
|
| |
By: | /s/ DANIEL K. SCHLANGER
|
| Daniel K. Schlanger |
| Senior Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
| |
By: | /s/ ROBERT S. COLLINS
|
| Robert S. Collins |
| Vice President and Controller |
| (Principal Accounting Officer) |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jay A. Brown and Kenneth J. Simon and each of them, as his true and lawful attorneys-in-fact and agents with full power of substitution and re-substitution for him and in his name, place and stead, in any and all capacities, to sign any and all documents relating to the Annual Report on Form 10-K, including any and all amendments and supplements thereto, for the year ended December 31, 2018 and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below on this 25th day of February, 2019.
|
| | |
Name | | Title |
| |
/s/ JAY A. BROWN
| | President, Chief Executive Officer and Director |
Jay A. Brown | | (Principal Executive Officer) |
| | |
/s/ DANIEL K. SCHLANGER
| | Senior Vice President, Chief Financial Officer and Director |
Daniel K. Schlanger | | (Principal Financial Officer) |
| | |
/s/ KENNETH J. SIMON
| | Senior Vice President, General Counsel and Director |
Kenneth J. Simon | | |
| | |
/s/ ROBERT S. COLLINS
| | Vice President and Controller |
Robert S. Collins | | (Principal Accounting Officer) |
CC HOLDINGS GS V LLC
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016
(In thousands of dollars)
|
| | | | | | | | | | | | | | | | | | | |
| | | Additions | | Deletions | | |
| Balance at Beginning of Year | | Charged to Operations | | Credited to Operations | | Written Off | | Balance at End of Year |
Allowance for Doubtful Accounts Receivable: | | | | | | | | | |
2018 | $ | 1,300 |
| | $ | 768 |
| | $ | — |
| | $ | (467 | ) | | $ | 1,601 |
|
2017 | $ | 1,810 |
| | $ | 662 |
| | $ | — |
| | $ | (1,172 | ) | | $ | 1,300 |
|
2016 | $ | 882 |
| | $ | 1,697 |
| | $ | — |
| | $ | (769 | ) | | $ | 1,810 |
|
CC HOLDINGS GS V LLC
SCHEDULE III—SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
YEARS ENDED DECEMBER 31, 2018 and 2017
(In thousands of dollars)
|
| | | | | | | | | | | | | | | | |
Description | Encumbrances | | Initial Cost to Company | Cost Capitalized Subsequent to Acquisition | Gross Amount Carried at Close of Current Period | | Accumulated Depreciation at Close of Current Period | Date of Construction | Date Acquired | Life on Which Depreciation in Latest Income Statement is Computed |
7,555 sites(1) | $ | 994,047 |
| (2) | (3) | (3) | $ | 2,029,667 |
| | $ | (1,011,900 | ) | Various | Various | Up to 20 years |
| |
(1) | No single site exceeds 5% of the aggregate gross amounts at which the assets were carried at the close of the period set forth in the table above. |
| |
(2) | As of December 31, 2018, all of the Company's debt is secured by a pledge of the equity interests in each applicable Guarantor. |
| |
(3) | The Company has omitted this information, as it would be impracticable to compile such information on a site-by-site basis. |
|
| | | | | | |
| 2018 | 2017 |
Gross amount at beginning | $ | 1,960,703 |
| $ | 1,917,553 |
|
Additions during period: | | |
Acquisitions through foreclosure | — |
| — |
|
Other acquisitions | — |
| — |
|
Communications infrastructure construction and improvements | 63,590 |
| 40,051 |
|
Purchase of land interests | — |
| — |
|
Sustaining capital expenditures | 7,560 |
| 9,500 |
|
Other | — |
| — |
|
Total additions | 71,150 |
| 49,551 |
|
Deductions during period: | | |
Cost of real estate sold or disposed | (2,186 | ) | (6,401 | ) |
Other | — |
| — |
|
Total deductions: | (2,186 | ) | (6,401 | ) |
Balance at end | $ | 2,029,667 |
| $ | 1,960,703 |
|
|
| | | | | | |
| 2018 | 2017 |
Gross amount of accumulated depreciation at beginning | $ | (919,546 | ) | $ | (828,670 | ) |
Additions during period: | | |
Depreciation | (93,790 | ) | (94,348 | ) |
Total additions | (93,790 | ) | (94,348 | ) |
Deductions during period: | | |
Amount for assets sold or disposed | 1,436 |
| 3,472 |
|
Other | — |
| — |
|
Total deductions | 1,436 |
| 3,472 |
|
Balance at end | $ | (1,011,900 | ) | $ | (919,546 | ) |
Other Financial Statements of CC Holdings GS V LLC's Subsidiaries: Global Signal
Acquisitions LLC, Global Signal Acquisitions II LLC and Pinnacle Towers LLC
The following financial statements for CC Holdings GS V LLC's wholly-owned subsidiaries, Global Signal Acquisitions LLC, Global Signal Acquisitions II LLC and Pinnacle Towers LLC, are included pursuant to Regulation S-X, Rule 3-16, "Financial Statements of Affiliates Whose Securities Collateralize an Issue Registered or Being Registered."
Global Signal Acquisitions LLC
Global Signal Acquisitions LLC Financial Statements
Years Ended December 31, 2018, 2017 and 2016
|
| |
| Page |
Report of Independent Registered Public Accounting Firm | |
Balance Sheet as of December 31, 2018 and 2017 | |
Statement of Operations for each of the three years in the period ended December 31, 2018
| |
Statement of Cash Flows for each of the three years in the period ended December 31, 2018
| |
Statement of Changes in Member's Equity for each of the three years in the period ended December 31, 2018
| |
Notes to Financial Statements | |
Global Signal Acquisitions II LLC
Global Signal Acquisitions II LLC Financial Statements
Years Ended December 31, 2018, 2017 and 2016
|
| |
| Page |
Report of Independent Registered Public Accounting Firm | |
Balance Sheet as of December 31, 2018 and 2017 | |
Statement of Operations for each of the three years in the period ended December 31, 2018
| |
Statement of Cash Flows for each of the three years in the period ended December 31, 2018
| |
Statement of Changes in Member's Equity for each of the three years in the period ended December 31, 2018
| |
Notes to Financial Statements | |
Pinnacle Towers LLC
Pinnacle Towers LLC Consolidated Financial Statements
Years Ended December 31, 2018, 2017 and 2016
|
| |
| Page |
Report of Independent Registered Public Accounting Firm | |
Consolidated Balance Sheet as of December 31, 2018 and 2017
| |
Consolidated Statement of Operations for each of the three years in the period ended December 31, 2018
| |
Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 2018
| |
Consolidated Statement of Changes in Member's Equity for each of the three years in the period ended December 31, 2018
| |
Notes to Consolidated Financial Statements | |
GLOBAL SIGNAL ACQUISITIONS LLC
Financial Statements
Years Ended December 31, 2018, 2017 and 2016
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Members of
CC Holdings GS V LLC
Opinion on the Financial Statements
We have audited the accompanyingbalance sheetsof Global Signal Acquisitions LLC(the “Company”) as of December 31, 2018 and 2017,and the related statements of operations, cash flows and changes in member’s equity for each of the three years in the period ended December 31, 2018,including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results ofitsoperations and itscash flows for each of the three years in the period ended December 31, 2018 conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of thefinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in thefinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 25, 2019
We have served as the Company's auditor since 2011.
GLOBAL SIGNAL ACQUISITIONS LLC
BALANCE SHEET
(In thousands of dollars)
|
| | | | | | | |
| December 31, |
| 2018 | | 2017 |
ASSETS | | | |
Current assets: | | | |
Receivables, net of allowance of $131 and $82, respectively | $ | 201 |
| | $ | 27 |
|
Prepaid expenses | 341 |
| | 364 |
|
Deferred site rental receivables | 1,501 |
| | 1,477 |
|
Other current assets | 27 |
| | 27 |
|
Total current assets | 2,070 |
| | 1,895 |
|
Deferred site rental receivables | 18,576 |
| | 18,118 |
|
Property and equipment, net | 61,165 |
| | 62,595 |
|
Goodwill | 68,841 |
| | 68,841 |
|
Site rental contracts and tenant relationships, net | 42,065 |
| | 47,637 |
|
Other intangible assets, net | 2,970 |
| | 2,973 |
|
Long-term prepaid rent and other assets, net | 1,511 |
| | 1,535 |
|
Total assets | $ | 197,198 |
| | $ | 203,594 |
|
| | | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 73 |
| | $ | 56 |
|
Deferred revenues | 850 |
| | 557 |
|
Other accrued liabilities | 424 |
| | 330 |
|
Total current liabilities | 1,347 |
| | 943 |
|
Deferred ground lease payable | 3,086 |
| | 3,135 |
|
Above-market leases and other liabilities | 2,841 |
| | 2,822 |
|
Total liabilities | 7,274 |
| | 6,900 |
|
Commitments and contingencies (note 8) | | | |
Member's equity: | | | |
Member's equity | 189,924 |
| | 196,694 |
|
Accumulated earnings (deficit) | — |
| | — |
|
Total member's equity | 189,924 |
| | 196,694 |
|
Total liabilities and equity | $ | 197,198 |
| | $ | 203,594 |
|
See accompanying notes to financial statements.
GLOBAL SIGNAL ACQUISITIONS LLC
STATEMENT OF OPERATIONS
(In thousands of dollars)
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
| | | | | |
Site rental revenues—third parties | $ | 31,092 |
| | $ | 29,143 |
| | $ | 28,497 |
|
Site rental revenues—related parties | 2,426 |
| | 2,358 |
| | 2,322 |
|
Site rental revenues—total | 33,518 |
| | 31,501 |
| | 30,819 |
|
| | | | | |
Operating expenses: | | | | | |
Site rental cost of operations—third parties(a) | 5,322 |
| | 5,127 |
| | 5,454 |
|
Site rental cost of operations—related parties(a) | 1,101 |
| | 990 |
| | 901 |
|
Site rental cost of operations—total(a) | 6,423 |
| | 6,117 |
| | 6,355 |
|
Management fee—related party | 2,478 |
| | 2,394 |
| | 2,258 |
|
Asset write-down charges | 12 |
| | — |
| | 110 |
|
Depreciation, amortization and accretion | 10,481 |
| | 10,435 |
| | 10,277 |
|
Total operating expenses | 19,394 |
| | 18,946 |
| | 19,000 |
|
Operating income (loss) | 14,124 |
| | 12,555 |
| | 11,819 |
|
Other income (expense) | 6 |
| | 16 |
| | (5 | ) |
Income (loss) before income taxes | 14,130 |
| | 12,571 |
| | 11,814 |
|
Benefit (provision) for income taxes | (5 | ) | | 37 |
| | 44 |
|
Net income (loss) | $ | 14,125 |
| | $ | 12,608 |
| | $ | 11,858 |
|
| |
(a)
| Exclusive of depreciation, amortization and accretion shown separately and certain indirect costs included in the management fee.
|
See accompanying notes to financial statements.
GLOBAL SIGNAL ACQUISITIONS LLC
STATEMENT OF CASH FLOWS
(In thousands of dollars)
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Cash flows from operating activities: | | | | | |
Net income (loss) | $ | 14,125 |
| | $ | 12,608 |
| | $ | 11,858 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 10,481 |
| | 10,435 |
| | 10,277 |
|
Asset write-down charges | 12 |
| | — |
| | 110 |
|
Changes in assets and liabilities: | | | | | |
Increase (decrease) in accounts payable | 17 |
| | (73 | ) | | 139 |
|
Increase (decrease) in deferred revenues, deferred ground lease payable and other liabilities | 189 |
| | (219 | ) | | (82 | ) |
Decrease (increase) in receivables | (174 | ) | | 227 |
| | (25 | ) |
Decrease (increase) in other current assets, deferred site rental receivable, long-term prepaid rent and other assets | (539 | ) | | 412 |
| | (677 | ) |
Net cash provided by (used for) operating activities | 24,111 |
| | 23,390 |
| | 21,600 |
|
Cash flows from investing activities: | | | | | |
Capital expenditures | (3,216 | ) | | (2,122 | ) | | (2,506 | ) |
Net cash provided by (used for) investing activities | (3,216 | ) | | (2,122 | ) | | (2,506 | ) |
Cash flows from financing activities: | | | | | |
Distributions to member | (20,895 | ) | | (21,268 | ) | | (19,094 | ) |
Net cash provided by (used for) financing activities | (20,895 | ) | | (21,268 | ) | | (19,094 | ) |
Net increase (decrease) in cash and cash equivalents | — |
| | — |
| | — |
|
Cash and cash equivalents at beginning of year | — |
| | — |
| | — |
|
Cash and cash equivalents at end of year | $ | — |
| | $ | — |
| | $ | — |
|
See accompanying notes to financial statements.
GLOBAL SIGNAL ACQUISITIONS LLC
STATEMENT OF CHANGES IN MEMBER'S EQUITY
(In thousands of dollars)
|
| | | | | | | | | | | | |
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance, December 31, 2015 | | $ | 204,889 |
| | $ | 7,701 |
| | $ | 212,590 |
|
Distributions to member (note 6) | | — |
| | (19,094 | ) | | (19,094 | ) |
Net income (loss) | | — |
| | 11,858 |
| | 11,858 |
|
Balance, December 31, 2016 | | $ | 204,889 |
| | $ | 465 |
| | $ | 205,354 |
|
Distributions to member (note 6) | | (8,195 | ) | | (13,073 | ) | | (21,268 | ) |
Net income (loss) | | — |
| | 12,608 |
| | 12,608 |
|
Balance, December 31, 2017 | | $ | 196,694 |
| | $ | — |
| | $ | 196,694 |
|
Distributions to member (note 6) | | (6,770 | ) | | (14,125 | ) | | (20,895 | ) |
Net income (loss) | | — |
| | 14,125 |
| | 14,125 |
|
Balance, December 31, 2018 | | $ | 189,924 |
| | $ | — |
| | $ | 189,924 |
|
See accompanying notes to financial statements.
GLOBAL SIGNAL ACQUISITIONS LLC
NOTES TO FINANCIAL STATEMENTS
(Tabular dollars in thousands)
The accompanying financial statements reflect the financial position, results of operations and cash flows of Global Signal Acquisitions LLC ("Company"). The Company is a wholly-owned subsidiary of CC Holdings GS V LLC ("CCL"), which is an indirect, wholly-owned subsidiary of Crown Castle International Corp., a Delaware corporation ("CCIC" or "Crown Castle"). As used herein, the term "including," and any variation thereof means "including without limitations." The use of the word "or" herein is not exclusive.
The Company is organized specifically to own, lease and manage towers and other structures (collectively, "towers") and to a lesser extent, interests in land under third party and related party towers in various forms ("land interests") (collectively, "communications infrastructure" or "sites") that are geographically dispersed across the United States ("U.S."). The Company's core business is providing access, including space or capacity, to its sites via long-term contracts in various forms, including lease, license and sublease agreements (collectively, "contracts"). The Company's existing customers on its communication infrastructure are referred to herein as "tenants." Management services related to communications towers and other communication sites are performed by Crown Castle USA Inc. ("CCUSA"), an affiliate of the Company, under a management agreement, as the Company has no employees.
For U.S. federal income tax purposes, CCIC operates as a real estate investment trust ("REIT"), and as its indirect subsidiary, the Company's assets and operations are included in the CCIC REIT. See notes 2 and 7.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure for contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| |
2.
| Summary of Significant Accounting Policies |
Receivables Allowance
An allowance for doubtful accounts is recorded as an offset to accounts receivable. The Company uses judgment in estimating this allowance and considers historical collections, current credit status or contractual provisions. Additions to the allowance for doubtful accounts are charged to "site rental cost of operations" and deductions from the allowance are recorded when specific accounts receivable are written off as uncollectible.
Lease Accounting
General. The Company classifies its leases at inception as either operating leases or capital leases. A lease is classified as a capital lease if at least one of the following criteria are met, subject to certain exceptions noted below: (1) the lease transfers ownership of the leased assets to the lessee, (2) there is a bargain purchase option, (3) the lease term is equal to 75% or more of the economic life of the leased assets or (4) the present value of the minimum lease payments equals or exceeds 90% of the fair value of the leased assets.
Lessee. Leases for land are evaluated for capital lease treatment if at least one of the first two criteria mentioned in the immediately preceding paragraph is present relating to the leased assets. When the Company, as lessee, classifies a lease as a capital lease, it records an asset in an amount equal to the present value of the minimum lease payments under the lease at the beginning of the lease term. Applicable operating leases are recognized on a straight-line basis as discussed under "Costs of Operations" below.
Lessor. If the Company is the lessor of leased property that is part of a larger whole (including a portion of space on a tower) and for which fair value is not objectively determinable, then such lease is accounted for as an operating lease. As applicable, operating leases are recognized on a straight-line basis as discussed under "Revenue Recognition."
Effective January 1, 2019, the Company adopted new lease accounting guidance on the recognition, measurement, presentation and disclosure of leases. See also "Recent Accounting Pronouncements Not Yet Adopted" below for further discussion.
GLOBAL SIGNAL ACQUISITIONS LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation. Property and equipment includes land owned in fee and perpetual easements for land, which have no definite life. When the Company purchases fee ownership or perpetual easements for the land previously subject to ground lease, the Company reduces the value recorded as land by the amount of any associated deferred ground lease payable or unamortized above-market leases. Depreciation is computed utilizing the straight-line method at rates based upon the estimated useful lives of the various classes of assets. Depreciation of communications infrastructure is generally computed with a useful life equal to the shorter of 20 years or the term of the underlying ground lease (including optional renewal periods). Additions, renewals or improvements are capitalized, while maintenance and repairs are expensed. The carrying value of property and equipment will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Abandonments and write-offs of property and equipment are recorded to "asset write-down charges" on the Company's statement of operations.
Asset Retirement Obligations
Pursuant to its ground lease and easement agreements, the Company records obligations to perform asset retirement activities, including requirements to remove communications infrastructure or remediate the land upon which the Company's communications infrastructure resides. Asset retirement obligations are included in "above-market leases and other liabilities" on the Company's balance sheet. The liability accretes as a result of the passage of time and the related accretion expense is included in "depreciation, amortization and accretion" expense on the Company's statement of operations. The associated asset retirement costs are capitalized as an additional carrying amount of the related long-lived asset and depreciated over the useful life of such asset.
Goodwill
Goodwill represents the excess of the purchase price for an acquired business over the allocated value of the related net assets. The Company tests goodwill for impairment on an annual basis, regardless of whether adverse events or changes in circumstances have occurred. The annual test begins with goodwill and all intangible assets being allocated to applicable reporting units. The Company then performs a qualitative assessment to determine whether it is "more likely than not" that the fair value of the reporting units is less than its carrying amount. If it is concluded that it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount, it is necessary to perform the two-step goodwill impairment test. The two-step goodwill impairment test begins with a comparison of the estimated fair value of the reporting unit and the carrying value of the reporting unit. The first step, commonly referred to as a "step-one impairment test," is a screen for potential impairment while the second step measures the amount of any impairment if there is an indication from the first step that one exists. The Company's measurement of the fair value for goodwill is based on an estimate of discounted expected future cash flows of the reporting unit. The Company has one reporting unit for goodwill impairment testing. The Company performed its most recent annual goodwill impairment test as of October 1, 2018,2019, which resulted in no impairments.
Other Intangible Assets
Intangible assets are included in "site"Site rental contracts and tenant relationships, net" and "other"Other intangible assets, net" on the Company's consolidated balance sheet and predominately consist of the estimated fair value of site rental contracts and tenant relationships recorded in conjunction with acquisitions. The site rental contracts and tenant relationships intangible assets are comprised of (1) the current term of the existing contracts,leases, (2) the expected exercisehigh rate of the renewal provisions contained within the existing contracts, which automatically occur under contractual provisions ortenant retention, and (3) any associated relationships that are expected to generate value following the expiration of all renewal periods under existing contracts.leases.
The useful lives of intangible assets are estimated based on the period over which the intangible asset is expected to benefit the Company which is calculated on an individual tenant basis, considering, among other things, the contractual provisions with the tenant and gives consideration to the expected useful life of other assets to which the useful life may relate. Amortization expense for intangible assets is computed using the straight-line method over the estimated useful life of each of the intangible assets. The useful life of the site rental contracts and tenant relationships intangible asset is limited by the maximum depreciable life of the tower (20 years), as a result of the interdependency of the tower and site rental contracts and tenant relationships.leases. In contrast, the site rental contracts and tenant relationships are estimated to provide economic benefits for several decades because of the low rate of tenant cancellations and high rate of renewalstenant retention experienced to date. Thus, while site rental contractsleases and tenant relationships are valued based upon the fair value, which includes assumptions regarding both (1) tenants' exercise of optional renewals contained in the acquired contractsleases and (2) renewals of the acquired contractsleases past the contractual term including
GLOBAL SIGNAL ACQUISITIONS LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
exercisable options, the site rental contracts and tenant relationships are amortized over a period not to exceed 20 years as a result of the useful life being limited by the depreciable life of the sites.years.
The carrying value of other intangible assets with finite useful lives will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company has a dual grouping policy for purposes of determining the unit of account for testing impairment of the site rental contracts and tenant relationships intangible assets. First, the Company pools the site rental contracts and tenant relationships with the related tower assets into portfolio groups for purposes of determining the unit of account for impairment testing. Second and separately, the Company evaluates the site rental contracts and tenant relationships by significant tenant or by tenant grouping for individually insignificant tenants, as appropriate. If the sum of the estimated future cash flows (undiscounted) expected to result from the use or eventual disposition of an asset is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss is based on the fair value of the asset.
Above-market Leases
Above-market leases consistSee "Recently Adopted Accounting Pronouncements" for additional information regarding the adoption of the estimated fair valuenew lease standard.
Deferred Financing Costs
Third-party costs incurred to obtain financing are deferred and are included as a direct deduction from the carrying amount of above-market leases for land interests underthe related debt liability in "Debt" on the Company's towers. Above-market leases for land interests are amortized to costs of operations over their respective estimated remaining contract term at the acquisition date.consolidated balance sheet.
Revenue Recognition
Site rental revenues from the Company's tenant contracts are recognized on a straight-line, ratable basis over the fixed, non-cancelable term of the relevant tenant contract, which generally ranges from five to 15 years, regardless of whether the payments from the tenant are received in equal monthly amounts during the life of the tenant contract. The Company's contracts contain (1) fixed escalation clauses (such as fixed dollar or fixed percentage increases) or inflation-based escalation clauses (such as those tied to the consumer price index ("CPI")).CPI), (2) multiple renewal periods exercisable at the tenant's option and (3) only limited termination rights at the
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
applicable tenant's option through the current term. If the payment terms call for fixed escalations, upfront payments, or rent-free periods, the revenue is recognized on a straight-line basis over the fixed, non-cancelable term of the agreement. When calculating straight-line rental revenues, the Company considers all fixed elements of tenant contractual escalation provisions.provisions, even if such escalation provisions contain a variable element in addition to a minimum. The Company's assets related to straight-line site rental revenues are included in "deferred"Deferred site rental receivables." Amounts billed or received prior to being earned are deferred and reflected in "deferred"Deferred revenues" on the Company's consolidated balance sheet.
In addition to the Company's revenue from tenant contracts, amounts under CCIC tower installation services and modifications agreements that represent a lease component to the Company are recognized as "Amortization of tower installations and modifications" on the Company's consolidated statement of operations on a ratable basis over the length of the associated estimated lease term. The Company and its subsidiaries are not parties to such transactions. See note 2 to the consolidated financial statements for further information regarding the impact of the Restatement Adjustments.
Costs of Operations
In excess of four-fifthsMore than three-fourths of the Company's site rental costcosts of operations consistsexpenses consist of ground lease expenses, and the remainder includes repairs and maintenance expenses, utilities, property taxes orand insurance.
The Company's current liability related to accrued property taxes is included in "Other accrued liabilities" on the Company's consolidated balance sheet and was $4.7 million and $5.5 million as of December 31, 2019 and 2018, respectively. Generally, the Company's ground lease agreementsleases for land are specific to each site and are for an initial term of five years and are renewable for pre-determined periods. The Company also enters into term easementseasement and ground leases in which it prepays the entire term in advance.
Ground lease expense isexpenses are recognized on a ratable basis, regardless of whether the contract payment terms require the Company to make payments annually, quarterly, monthly, or for the entire term in advance. TheCertain of the Company's ground leaseslease agreements contain fixed escalation clauses (such as fixed dollar or fixed percentage increases) or inflation-based escalation clauses (such as those tied to the change in CPI). If the payment terms include fixed escalationescalator provisions, the effect of such increases is recognized on a straight-line basis. The Company calculates the straight-line ground lease expense using a time period that equals or exceeds the remaining depreciable life of the communications infrastructure asset. Further, when a tenant has exercisable renewal options that would compel the Company to exercise existing ground lease renewal options, the Company has straight-lined the ground lease expense over a sufficient portion of such ground lease renewals to coincide with the final termination of the tenant's renewal options. The Company's policy is to record ground lease agreements with affiliates under the same or similar economic terms as the contract for the land that existed prior to the purchase of such land by the affiliate.
The Company's current liability related to straight-line ground lease expense is included in "other accrued liabilities""Operating lease right-of-use assets" on the Company's balance sheet and was $0.2 million and $0.1 million as of December 31, 2018 and 2017, respectively. The Company's non-current liability related to straight-line ground lease expense is included in "deferred ground lease payable" on the Company'sconsolidated balance sheet. The Company's assets related to prepaid ground leasesagreements is included in "prepaid"Prepaid expenses" and "long-term prepaid rent and other assets, net""Operating lease right-of-use assets" on the Company's consolidated balance sheet. The Company's current liability related to accrued property taxes is included in "other accrued liabilities" onSee also "Lease Accounting-Lessee" and "Recently Adopted Accounting Pronouncements" for additional information regarding the Company's balance sheet and was $0.3 million and $0.2 million asadoption of December 31, 2018 and 2017, respectively.
GLOBAL SIGNAL ACQUISITIONS LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
the new lease standard.
Management Fee
The Company is charged a management fee by CCUSA, a wholly-owned,wholly owned indirect subsidiary of CCIC, relating to management services, which include those functions reasonably necessary to maintain, market, operate, manage and administer the sites. The management fee is equal to 7.5% of the Company's revenues, excluding (1) the revenues from tenant contracts that are related to the accounting for leases with fixed escalators as(as required by the applicable accounting standards.standard), and (2) amortization of tower installations and modifications. See note 6.7.
Income Taxes
CCIC operates as a REIT for U.S. federal income tax purposes. The Company is an indirect subsidiary of CCIC and for U.S. federal income taxes purposes the Company's assets and operations are part of the CCIC REIT. As a REIT, CCIC is generally entitled to a deduction for dividends that it pays and therefore is not subject to U.S. federal corporate income tax on its net taxable income that is currently distributed to its stockholders. CCIC also may be subject to certain federal, state, local and foreign taxes on its income and assets, including (1) taxes on any undistributed income, (2) taxes related to the CCIC's taxable REIT subsidiaries, (3) franchise taxes, (4) property taxes and (5) transfer taxes. In addition, CCIC could in certain circumstances be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Internal Revenue Code of 1986, as amended to maintain qualification for taxation as a REIT.
Reporting Segments
The Company has one operating segment.
Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued new guidance which clarifies the definition of a business in order to assist companies in evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The Company adopted the guidance on January 1, 2018, and the adoption of this guidance did not have a material impact on its financial statements.
In May 2014, the FASB released updated guidance regarding the recognition of revenue from contracts with customers not otherwise addressed by specific guidance (commonly referred to as "ASC 606" or "the revenue recognition standard"). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contracts with the customer; (2) identify the performance obligations in the contract; (3) determine the contract price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This guidance was effective for the Company on January 1, 2018. The Company's site rental revenues are within the scope of lease accounting and were not impacted by this guidance.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued new guidance on the recognition, measurement, presentation and disclosure of leases. The new guidance requires lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments for all leases with a term greater than 12 months. The accounting for lessors remains largely unchanged from existing guidance.
This guidance was effective for, and adopted by, the Company as of January 1, 2019, and is required to be adopted using a modified retrospective approach, which after certain additional updates in July 2018, allows the Company to apply the new guidance either (1) as of the beginning of the earliest period presented, or (2) as of the effective date (i.e., January 1, 2019), without adjusting the comparative periods.
The Company adopted the new guidance using a modified retrospective approach as of the effective date (i.e, January 1, 2019), without adjusting the comparative periods. The Company's adoption of the new guidance did not result in a cumulative-effect adjustment being recognized to the opening balance of retained earnings. The Company elected the package of practical expedients upon adoption and thus will not reassess the classification or lease term of leases existing prior to January 1, 2019.
The Company expects that (1) its lessor and lessee arrangements will continue to be classified as operating leases under the new guidance; (2) this guidance will result in a lease liability (which primarily consist of ground leases under the Company's towers) and a corresponding right-of-use asset; and (3) there will not be a material impact to its statement of operations and statement of cash flows. CCIC is in the process of updating certain of its existing information technology systems to integrate the new lease guidance requirements.
GLOBAL SIGNAL ACQUISITIONS LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The major classes of property and equipment are as follows:
|
| | | | | | | | | | |
| Estimated Useful Lives | | December 31, |
| | 2018 | | 2017 |
Land(a) | — |
| | $ | 15,401 |
| | $ | 15,401 |
|
Towers | 1-20 years |
| | 92,012 |
| | 89,712 |
|
Construction in progress | — |
| | 1,037 |
| | 352 |
|
Total gross property and equipment | | | 108,450 |
| | 105,465 |
|
Less accumulated depreciation | | | (47,285 | ) | | (42,870 | ) |
Total property and equipment, net | | | $ | 61,165 |
| | $ | 62,595 |
|
| |
(a)
| Includes land owned in fee and perpetual easements. |
Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $4.6 million, $4.6 million and $4.5 million, respectively.
| |
4.
| Intangible Assets and Above-market Leases |
The following is a summary of the Company's intangible assets.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2018 | | As of December 31, 2017 |
| Gross Carrying Value | | Accumulated Amortization | | Net Book Value | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
Site rental contracts and tenant relationships | $ | 108,020 |
| | $ | (65,955 | ) | | $ | 42,065 |
| | $ | 108,020 |
| | $ | (60,383 | ) | | $ | 47,637 |
|
Other intangible assets | 4,514 |
| | (1,544 | ) | | 2,970 |
| | 4,350 |
| | (1,377 | ) | | 2,973 |
|
Total | $ | 112,534 |
| | $ | (67,499 | ) | | $ | 45,035 |
| | $ | 112,370 |
| | $ | (61,760 | ) | | $ | 50,610 |
|
Amortization expense related to intangible assets is classified as follows on the Company's statement of operations:
|
| | | | | | | | | | | |
| For Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Depreciation, amortization and accretion | $ | 5,675 |
| | $ | 5,674 |
| | $ | 5,674 |
|
Site rental costs of operations | 12 |
| | 22 |
| | 22 |
|
Total amortization expense | $ | 5,687 |
| | $ | 5,696 |
| | $ | 5,696 |
|
The estimated annual amortization expense related to intangible assets (inclusive of those recorded as an increase to "site rental cost of operations") for the years ending December 31, 2019 to 2023 is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Estimated annual amortization | $ | 5,691 |
| | $ | 5,691 |
| | $ | 5,691 |
| | $ | 5,691 |
| | $ | 5,691 |
|
See note 2 for a further discussion of above-market leases for land interests under the Company's towers recorded in connection with acquisitions. For each of the years ended December 31, 2018, 2017 and 2016, the Company recorded $0.1 million as a decrease to "site rental cost of operations." The following is a summary of the Company's above-market leases.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2018 | | As of December 31, 2017 |
| Gross Carrying Value | | Accumulated Amortization | | Net Book Value | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
Above-market leases | $ | 2,303 |
| | $ | (1,412 | ) | | $ | 891 |
| | $ | 2,303 |
| | $ | (1,305 | ) | | $ | 998 |
|
GLOBAL SIGNAL ACQUISITIONS LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The estimated annual amortization expense related to above-market leases for land interests under the Company's towers for the years ending December 31, 2019 to 2023 is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Estimated annual amortization | $ | 106 |
| | $ | 103 |
| | $ | 84 |
| | $ | 73 |
| | $ | 73 |
|
In December 2012, CCL and Crown Castle GS III Corp. (a subsidiary of CCL) issued $1.5 billion aggregate principal amount of senior secured notes ("2012 Secured Notes"), which are guaranteed by certain subsidiaries of CCL, including the Company. In addition, the 2012 Secured Notes are secured on a first-priority basis by certain subsidiaries of CCL, including a pledge of the equity interests of the Company. In September 2016, CCIC issued $700 million aggregate principal amount of 2.250% senior unsecured notes. CCIC used a portion of the net proceeds to repay $500 million of the 2012 Secured Notes.
The 2012 Secured Notes do not contain financial maintenance covenants but they do contain restrictive covenants, subject to certain exceptions, related to the Company's ability to incur indebtedness, incur liens, enter into certain mergers or change of control transactions, sell or issue equity interests, and enter into related party transactions. With respect to the restriction regarding the issuance of debt, CCL and its subsidiaries including the Company may not issue debt other than (1) certain permitted refinancings of the 2012 Secured Notes, (2) unsecured trade payables in the ordinary course of business and financing of equipment, land or other property up to an aggregate of $100.0 million or (3) unsecured debt or additional notes under the 2012 Secured Notes indenture provided that the Debt to Adjusted Consolidated Cash Flow Ratio (as defined in the indenture governing the 2012 Secured Notes) at the time of incurrence, and after giving effect to such incurrence, would have been no greater than 3.5 to 1. As of December 31, 2018, CCL's Debt to Adjusted Consolidated Cash Flow Ratio was 2.3 to 1, and, as a result, the Company is not restricted in its ability to incur additional indebtedness. Further, the Company is not restricted in its ability to distribute cash to affiliates or issue dividends to its member.
| |
6.
| Related Party Transactions |
In December 2012, CCL, the Company, and other subsidiaries of CCL entered into a management agreement ("Management Agreement") with CCUSA, which replaced a previous management agreement among the same parties. The Company is charged a management fee by CCUSA under the Management Agreement whereby CCUSA has agreed to employ, supervise and pay at all times a sufficient number of capable employees as may be necessary to perform services in accordance with the operation standards defined in the Management Agreement. CCUSA currently acts as the manager of the majority of the sites held by subsidiaries of CCIC. The management fee is equal to 7.5% of the Company's "Operating Revenues," as defined in the Management Agreement, which are based on the Company’s reported revenues adjusted to exclude certain items including revenues related to the accounting for leases with fixed escalators. The fee is compensation for those functions reasonably necessary to maintain, market, operate, manage and administer the sites, other than the operating expenses, which includes but is not limited to real estate and personal property taxes, ground lease and easement payments, and insurance premiums. In addition, in connection with its role as manager, CCUSA may make certain modifications to the Company's sites. The management fee charged from CCUSA for the years ended December 31, 2018, 2017 and 2016 totaled $2.5 million, $2.4 million and $2.3 million, respectively.
In addition, CCUSA may perform installation services on the Company's towers for which the Company is not a party to any such agreement and for which no operating results are reflected herein.
As part of CCIC's strategy to obtain long-term control of the land under its towers, affiliates of the Company have acquired rights to land interests under the Company's towers. These affiliates then lease the land to the Company. Under such circumstances, the Company's obligation typically continues with the same or similar economic terms as the contract for the land that existed prior to the purchase of such land by the affiliate. As of December 31, 2018, approximately 20% of the Company's towers were located on land which was controlled by an affiliate. Rent expense to affiliates totaled $1.1 million, $1.0 million and $0.9 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Company receives site rental revenue from affiliates for land owned by the Company on which affiliates have towers and pays ground rent expense to affiliates for land owned by affiliates on which the Company has towers. For the years ended December 31, 2018, 2017 and 2016, rent revenue from affiliates totaled $2.4 million, $2.4 million and $2.3 million, respectively. As of December 31, 2018, approximately 25% of the Company's sites consist of land interests under towers owned by affiliates.
GLOBAL SIGNAL ACQUISITIONS LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The Company recorded equity distributions of $20.9 million, $21.3 million and $19.1 million for the years ended December 31, 2018, 2017 and 2016, respectively, reflecting distributions to its member. Cash on-hand above the amount that is required by the Management Agreement has been, and is expected to continue to be, distributed to the Company's parent company, CCL. As of December 31, 2018 and 2017, the Company had no material related party assets or liabilities on its consolidated balance sheet.
For the year ended December 31, 2018, the provision for income taxes relates to state taxes. For the years ended December 31, 2017 and 2016, the Company had benefits for income taxes, which consisted of the reduction of unrecognized tax benefits as a result of the lapse of the statute of limitations partially offset by state taxes. The Company's effective tax rate for the years ended December 31, 2018, 2017 and 2016 differed from the federal statutory rate predominately due to CCIC's REIT status, including the dividends paid deduction (see notes 1 and 2), and the aforementioned impacts described above.
As of December 31, 2018, there were no unrecognized tax benefits that would impact the effective tax rate, if recognized.
From time to time, the Company is subject to examinations by various tax authorities in jurisdictions in which the Company has business operations. The Company regularly assesses the likelihood of additional assessments in each of the tax jurisdictions resulting from these examinations. At this time, CCIC is not subject to an Internal Revenue Service examination.
| |
8.
| Commitments and Contingencies |
The Company is involved in various claims, lawsuits or proceedings arising in the ordinary course of business. While there are uncertainties inherent in the ultimate outcome of such matters, and it is impossible to presently determine the ultimate costs or losses that may be incurred, if any, management believes the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's financial position or results of operations. See note 9 for a discussion of the operating lease commitments.
Asset Retirement Obligations
Pursuant to its ground lease and easement agreements, the Company has the obligation to perform certain asset retirement activities, including requirements upon contract or easement termination to remove communications infrastructure or remediate the land upon which communications infrastructure resides. Accretion expense related to liabilities for retirement obligations amounted to $0.2 million, $0.2 million and $0.1 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018 and 2017, liabilities for retirement obligations amounted to $1.9 million and $1.8 million, respectively, representing the net present value of the estimated expected future cash outlay. As of December 31, 2018, the estimated undiscounted future cash outlay for asset retirement obligations was approximately $18 million. See note 2.
GLOBAL SIGNAL ACQUISITIONS LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Tenant Leases
The following table is a summary of the rental cash payments owed to the Company, as a lessor, by tenants pursuant to contractual agreements in effect as of December 31, 2018. Generally, the Company's leases with its tenants provide for (1) annual escalations, (2) multiple renewal periods at the tenant's option and (3) only limited termination rights at the applicable tenant's option through the current term. As of December 31, 2018, the weighted-average remaining term (calculated by weighting the remaining term for each lease by the related site rental revenue) of tenant leases is approximately six years, exclusive of renewals at the tenant's option. The tenants' rental payments included in the table below are through the current terms with a maximum current term of 20 years and do not assume exercise of tenant renewal options.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Tenant leases | $ | 33,543 |
| | $ | 34,153 |
| | $ | 34,335 |
| | $ | 32,436 |
| | $ | 22,627 |
| | $ | 80,236 |
| | $ | 237,330 |
|
Operating Leases
The following table is a summary of rental cash payments owed by the Company, as lessee, to landlords pursuant to contractual agreements in effect as of December 31, 2018. The Company is obligated under non-cancelable operating leases for land interests under approximately 85% of its towers. The majority of these operating lease agreements have (1) certain termination rights that provide for cancellation after a notice period, (2) multiple renewal options at the Company's option and (3) annual escalations. Lease agreements may also contain provisions for a contingent payment based on revenues or the gross margin derived from the tower located on the leased land interest. More than 95% and more than 75% the Company's sites are under the Company's control for greater than 10 and 20 years, respectively, including renewals at the Company's option. The operating lease payments included in the table below include payments for certain renewal periods at the Company's option that are reasonably assured to be exercised and an estimate of contingent payments based on revenues and gross margins derived from existing tenant leases. See also note 6.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Operating leases | $ | 5,250 |
| | $ | 5,280 |
| | $ | 5,184 |
| | $ | 5,092 |
| | $ | 5,043 |
| | $ | 71,037 |
| | $ | 96,886 |
|
Rental expense from operating leases was $5.2 million, $5.0 million and $4.9 million for the years ended December 31, 2018, 2017 and 2016, respectively. The rental expense was inclusive of contingent payments based on revenues or gross margin derived from the tower located on the leased land of $1.2 million, $1.2 million and $1.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Effective January 1, 2019, the Company adopted new lease accounting guidance on the recognition, measurement, presentation and disclosure of leases. See note 2 for further discussion.
| |
10.
| Concentration of Credit Risk |
The financial instrument that potentially subjects the Company to concentrations of credit risk is primarily trade receivables.
The Company derives the largest portion of its revenues from tenants in the wireless industry. The Company also has a concentration in its volume of business with T-Mobile, AT&T, Sprint and Verizon Wireless that accounts for a significant portion of the Company's revenues, receivables and deferred site rental receivables. The Company mitigates its concentrations of credit risk with respect to trade receivables by actively monitoring the creditworthiness of its tenants, the use of tenant contracts with contractually determinable payment terms and proactive management of past due balances.
GLOBAL SIGNAL ACQUISITIONS LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Major Tenants
The following table summarizes the percentage of the Company's revenues for those tenants accounting for more than 10% of the Company's revenues.
|
| | | | | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
T-Mobile | 31 | % | | 31 | % | | 30 | % |
AT&T | 25 | % | | 23 | % | | 24 | % |
Sprint | 15 | % | | 16 | % | | 16 | % |
Verizon Wireless | 14 | % | | 13 | % | | 13 | % |
Total | 85 | % | | 83 | % | | 83 | % |
GLOBAL SIGNAL ACQUISITIONS II LLC
Financial Statements
Years Ended December 31, 2018, 2017 and 2016
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Members of
CC Holdings GS V LLC
Opinion on the Financial Statements
We have audited the accompanyingbalance sheetsof Global Signal Acquisitions II LLC(the “Company”) as of December 31, 2018 and 2017,and the related statements of operations, cash flows and changes in member’s equity for each of the three years in the period ended December 31, 2018,including the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results ofitsoperations and itscash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
Thesefinancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of thesefinancial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of thefinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in thefinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 25, 2019
We have served as the Company's auditor since 2011.
GLOBAL SIGNAL ACQUISITIONS II LLC
BALANCE SHEET
(In thousands of dollars)
|
| | | | | | | |
| December 31, |
| 2018 | | 2017 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 18,707 |
| | $ | 30,771 |
|
Receivables, net of allowance of $508 and $289, respectively | 692 |
| | 938 |
|
Prepaid expenses | 20,341 |
| | 21,710 |
|
Deferred site rental receivables | 18,561 |
| | 16,951 |
|
Other current assets | 194 |
| | 121 |
|
Total current assets | 58,495 |
| | 70,491 |
|
Deferred site rental receivables | 245,968 |
| | 238,401 |
|
Property and equipment, net | 621,652 |
| | 635,135 |
|
Goodwill | 642,545 |
| | 642,545 |
|
Site rental contracts and tenant relationships, net | 362,010 |
| | 419,374 |
|
Other intangible assets, net | 13,255 |
| | 14,512 |
|
Long-term prepaid rent and other assets, net | 31,470 |
| | 30,049 |
|
Total assets | $ | 1,975,395 |
| | $ | 2,050,507 |
|
| | | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 1,293 |
| | $ | 1,073 |
|
Deferred revenues | 7,086 |
| | 6,451 |
|
Other accrued liabilities | 5,362 |
| | 5,662 |
|
Total current liabilities | 13,741 |
| | 13,186 |
|
Deferred ground lease payable | 101,781 |
| | 96,828 |
|
Above-market leases and other liabilities | 36,455 |
| | 35,948 |
|
Total liabilities | 151,977 |
| | 145,962 |
|
Commitments and contingencies (note 8) | | | |
Member's equity: | | | |
Member's equity | 1,823,418 |
| | 1,904,545 |
|
Accumulated earnings (deficit) | — |
| | — |
|
Total member's equity | 1,823,418 |
| | 1,904,545 |
|
Total liabilities and equity | $ | 1,975,395 |
| | $ | 2,050,507 |
|
See accompanying notes to financial statements.
GLOBAL SIGNAL ACQUISITIONS II LLC
STATEMENT OF OPERATIONS
(In thousands of dollars)
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
| | | | | |
Site rental revenues | $ | 442,888 |
| | $ | 411,669 |
| | $ | 409,102 |
|
| | | | | |
Operating expenses: | | | | | |
Site rental cost of operations—third parties(a) | 109,489 |
| | 109,956 |
| | 109,227 |
|
Site rental cost of operations—related parties(a) | 37,351 |
| | 33,498 |
| | 31,080 |
|
Site rental cost of operations—total(a) | 146,840 |
| | 143,454 |
| | 140,307 |
|
Management fee—related party | 32,522 |
| | 31,438 |
| | 30,459 |
|
Asset write-down charges | 38 |
| | — |
| | 2,072 |
|
Depreciation, amortization and accretion | 121,656 |
| | 122,513 |
| | 122,444 |
|
Total operating expenses | 301,056 |
| | 297,405 |
| | 295,282 |
|
Operating income (loss) | 141,832 |
| | 114,264 |
| | 113,820 |
|
Other income (expense) | (82 | ) | | 429 |
| | (137 | ) |
Income (loss) before income taxes | 141,750 |
| | 114,693 |
| | 113,683 |
|
Benefit (provision) for income taxes | (336 | ) | | 457 |
| | 405 |
|
Net income (loss) | $ | 141,414 |
| | $ | 115,150 |
| | $ | 114,088 |
|
| |
(a)
| Exclusive of depreciation, amortization and accretion shown separately and certain indirect costs included in the management fee.
|
See accompanying notes to financial statements.
GLOBAL SIGNAL ACQUISITIONS II LLC
STATEMENT OF CASH FLOWS
(In thousands of dollars)
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Cash flows from operating activities: | | | | | |
Net income (loss) | $ | 141,414 |
| | $ | 115,150 |
| | $ | 114,088 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 121,656 |
| | 122,513 |
| | 122,444 |
|
Asset write-down charges | 38 |
| | — |
| | 2,072 |
|
Changes in assets and liabilities: | | | | | |
Increase (decrease) in accounts payable | 3 |
| | (362 | ) | | 330 |
|
Increase (decrease) in deferred revenues, deferred ground lease payable and other liabilities | 3,970 |
| | 2,740 |
| | 4,322 |
|
Decrease (increase) in receivables | 246 |
| | (285 | ) | | (612 | ) |
Decrease (increase) in other current assets, deferred site rental receivable, long-term prepaid rent and other assets | (7,658 | ) | | 6,219 |
| | (2,735 | ) |
Net cash provided by (used for) operating activities | 259,669 |
| | 245,975 |
| | 239,909 |
|
Cash flows from investing activities: | | | | | |
Capital expenditures | (49,192 | ) | | (31,975 | ) | | (29,364 | ) |
Net cash provided by (used for) investing activities | (49,192 | ) | | (31,975 | ) | | (29,364 | ) |
Cash flows from financing activities: | | | | | |
Distributions to member | (222,541 | ) | | (202,779 | ) | | (211,396 | ) |
Net cash provided by (used for) financing activities | (222,541 | ) | | (202,779 | ) | | (211,396 | ) |
Net increase (decrease) in cash and cash equivalents | (12,064 | ) | | 11,221 |
| | (851 | ) |
Cash and cash equivalents at beginning of year | 30,771 |
| | 19,550 |
| | 20,401 |
|
Cash and cash equivalents at end of year | $ | 18,707 |
| | $ | 30,771 |
| | $ | 19,550 |
|
See accompanying notes to financial statements.
GLOBAL SIGNAL ACQUISITIONS II LLC
STATEMENT OF CHANGES IN MEMBER'S EQUITY
(In thousands of dollars)
|
| | | | | | | | | | | | |
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance, December 31, 2015 | | $ | 2,083,747 |
| | $ | 5,735 |
| | $ | 2,089,482 |
|
Distributions to member (note 6) | | (91,573 | ) | | (119,823 | ) | | (211,396 | ) |
Net income (loss) | | — |
| | 114,088 |
| | 114,088 |
|
Balance, December 31, 2016 | | $ | 1,992,174 |
| | $ | — |
| | $ | 1,992,174 |
|
Distributions to member (note 6) | | (87,629 | ) | | (115,150 | ) | | (202,779 | ) |
Net income (loss) | | — |
| | 115,150 |
| | 115,150 |
|
Balance, December 31, 2017 | | $ | 1,904,545 |
| | $ | — |
| | $ | 1,904,545 |
|
Distributions to member (note 6) | | (81,127 | ) | | (141,414 | ) | | (222,541 | ) |
Net income (loss) | | — |
| | 141,414 |
| | 141,414 |
|
Balance, December 31, 2018 | | $ | 1,823,418 |
| | $ | — |
| | $ | 1,823,418 |
|
See accompanying notes to financial statements.
GLOBAL SIGNAL ACQUISITIONS II LLC
NOTES TO FINANCIAL STATEMENTS
(Tabular dollars in thousands)
The accompanying financial statements reflect the financial position, results of operations and cash flows of Global Signal Acquisitions II LLC ("Company"). The Company is a wholly-owned subsidiary of CC Holdings GS V LLC ("CCL"), which is an indirect, wholly-owned subsidiary of Crown Castle International Corp., a Delaware corporation ("CCIC" or "Crown Castle"). As used herein, the term "including," and any variation thereof means "including without limitations." The use of the word "or" herein is not exclusive.
The Company is organized specifically to own, lease and manage towers and other structures (collectively, "towers") and to a lesser extent, interests in land under third party and related party towers in various forms ("land interests") (collectively, "communications infrastructure" or "sites") that are geographically dispersed across the United States ("U.S."). The Company's core business is providing access, including space or capacity, to its sites via long-term contracts in various forms, including lease, license and sublease agreements (collectively, "contracts"). The Company's existing customers on its communication infrastructure are referred to herein as "tenants."
Virtually all of the Company's sites are leased or subleased or operated or managed for an initial period under master lease and sublease agreements, including the master lease and sublease agreements, and other agreements with Sprint ("Sprint Sites"). In 2037, CCIC, through its subsidiaries (including the Company), has the option to purchase all (but not less than all) of the leased and subleased Sprint towers from Sprint for approximately $2.3 billion. CCIC has no obligation to exercise the purchase option. Management services related to communications towers and other communication sites are performed by Crown Castle USA Inc. ("CCUSA"), an affiliate of the Company, under a management agreement, as the Company has no employees.
For U.S. federal income tax purposes, CCIC operates as a real estate investment trust ("REIT"), and as its indirect subsidiary, the Company's assets and operations are included in the CCIC REIT. See notes 2 and 7.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure for contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| |
2.
| Summary of Significant Accounting Policies |
Receivables Allowance
An allowance for doubtful accounts is recorded as an offset to accounts receivable. The Company uses judgment in estimating this allowance and considers historical collections, current credit status or contractual provisions. Additions to the allowance for doubtful accounts are charged to "site rental cost of operations" and deductions from the allowance are recorded when specific accounts receivable are written off as uncollectible.
Lease Accounting
General. The Company classifies its leases at inception as either operating leases or capital leases. A lease is classified as a capital lease if at least one of the following criteria are met, subject to certain exceptions noted below: (1) the lease transfers ownership of the leased assets to the lessee, (2) there is a bargain purchase option, (3) the lease term is equal to 75% or more of the economic life of the leased assets or (4) the present value of the minimum lease payments equals or exceeds 90% of the fair value of the leased assets.
Lessee. Leases for land are evaluated for capital lease treatment if at least one of the first two criteria mentioned in the immediately preceding paragraph is present relating to the leased assets. When the Company, as lessee, classifies a lease as a capital lease, it records an asset in an amount equal to the present value of the minimum lease payments under the lease at the beginning of the lease term. Applicable operating leases are recognized on a straight-line basis as discussed under "Costs of Operations" below.
Lessor. If the Company is the lessor of leased property that is part of a larger whole (including with respect to a portion of space on a tower) and for which fair value is not objectively determinable, then such lease is accounted for as an operating lease. As applicable, operating leases are recognized on a straight-line basis as discussed under "Revenue Recognition."
GLOBAL SIGNAL ACQUISITIONS II LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Effective January 1, 2019, the Company adopted new lease accounting guidance on the recognition, measurement, presentation and disclosure of leases. See also "Recent Accounting Pronouncements Not Yet Adopted" below for further discussion.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation. Property and equipment includes land owned in fee and perpetual easements for land, which have no definite life. When the Company purchases fee ownership or perpetual easements for the land previously subject to ground lease, the Company reduces the value recorded as land by the amount of any associated deferred ground lease payable or unamortized above-market leases. Depreciation is computed utilizing the straight-line method at rates based upon the estimated useful lives of the various classes of assets. Depreciation of communications infrastructure is generally computed with a useful life equal to the shorter of 20 years or the term of the underlying ground lease (including optional renewal periods). Additions, renewals or improvements are capitalized, while maintenance and repairs are expensed. The carrying value of property and equipment will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Abandonments and write-offs of property and equipment are recorded to "asset write-down charges" on the Company's statement of operations and were $0, $0 and $1.9 million for the years ended December 31, 2018, 2017 and 2016 respectively.
Asset Retirement Obligations
Pursuant to its ground lease and easement agreements, the Company records obligations to perform asset retirement activities, including requirements to remove communications infrastructure or remediate the land upon which the Company's communications infrastructure resides. With respect to Sprint Sites, the Company does not have retirement obligations to the extent such retirement would occur beyond the period for which it has a contract term. Asset retirement obligations are included in "above-market leases and other liabilities" on the Company's balance sheet. The liability accretes as a result of the passage of time and the related accretion expense is included in "depreciation, amortization and accretion" expense on the Company's statement of operations. The associated asset retirement costs are capitalized as an additional carrying amount of the related long-lived asset and depreciated over the useful life of such asset.
Goodwill
Goodwill represents the excess of the purchase price for an acquired business over the allocated value of the related net assets. The Company tests goodwill for impairment on an annual basis, regardless of whether adverse events or changes in circumstances have occurred. The annual test begins with goodwill and all intangible assets being allocated to applicable reporting units. The Company then performs a qualitative assessment to determine whether it is "more likely than not" that the fair value of the reporting units is less than its carrying amount. If it is concluded that it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount, it is necessary to perform the two-step goodwill impairment test. The two-step goodwill impairment test begins with a comparison of the estimated fair value of the reporting unit and the carrying value of the reporting unit. The first step, commonly referred to as a "step-one impairment test," is a screen for potential impairment while the second step measures the amount of any impairment if there is an indication from the first step that one exists. The Company's measurement of the fair value for goodwill is based on an estimate of discounted expected future cash flows of the reporting unit. The Company has one reporting unit for goodwill impairment testing. The Company performed its most recent annual goodwill impairment test as of October 1, 2018, which resulted in no impairments.
Other Intangible Assets
Intangible assets are included in "site rental contracts and tenant relationships, net" and "other intangible assets, net" on the Company's balance sheet and predominately consist of the estimated fair value of the following items recorded in conjunction with acquisitions: (1) site rental contracts and tenant relationships or (2) below-market leases for land interests under the acquired towers classified as "other intangible assets, net." The site rental contracts and tenant relationships intangible assets are comprised of (1) the current term of the existing contracts, (2) the expected exercise of the renewal provisions contained within the existing contracts, which automatically occur under contractual provisions or (3) any associated relationships that are expected to generate value following the expiration of all renewal periods under existing contracts.
The useful lives of intangible assets are estimated based on the period over which the intangible asset is expected to benefit the Company, which is calculated on an individual tenant basis, considering, among other things, the contractual provisions with the tenant and gives consideration to the expected useful life of other assets to which the useful life may relate. Amortization expense for intangible assets is computed using the straight-line method over the estimated useful life of each of the intangible assets. The useful life of the site rental contracts and tenant relationships intangible asset is limited by the maximum depreciable
GLOBAL SIGNAL ACQUISITIONS II LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
life of the tower (20 years), as a result of the interdependency of the tower and site rental contracts and tenant relationships. In contrast, the site rental contracts and tenant relationships are estimated to provide economic benefits for several decades because of the low rate of tenant cancellations and high rate of renewals experienced to date. Thus, while site rental contracts and tenant relationships are valued based upon the fair value, which includes assumptions regarding both (1) tenants' exercise of optional renewals contained in the acquired contracts and (2) renewals of the acquired contracts past the contractual term including exercisable options, the site rental contracts and tenant relationships are amortized over a period not to exceed 20 years as a result of the useful life being limited by the depreciable life of the sites.
The carrying value of other intangible assets with finite useful lives will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company has a dual grouping policy for purposes of determining the unit of account for testing impairment of the site rental contracts and tenant relationships intangible assets. First, the Company pools the site rental contracts and tenant relationships with the related tower assets into portfolio groups for purposes of determining the unit of account for impairment testing. Second and separately, the Company evaluates the site rental contracts and tenant relationships by significant tenant or by tenant grouping for individually insignificant tenants, as appropriate. If the sum of the estimated future cash flows (undiscounted) expected to result from the use or eventual disposition of an asset is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss is based on the fair value of the asset.
Above-market Leases
Above-market leases consist of the estimated fair value of above-market leases for land interests under the Company's towers. Above-market leases for land interests are amortized to costs of operations over their respective estimated remaining contract term at the acquisition date.
Revenue Recognition
Site rental revenues from the Company's contracts are recognized on a straight-line, ratable basis over the fixed, non-cancelable term of the relevant contract, which generally ranges from five to 15 years, regardless of whether the payments from the tenant are received in equal monthly amounts during the life of the contract. The Company's contracts contain fixed escalation clauses (such as fixed dollar or fixed percentage increases) or inflation-based escalation clauses (such as those tied to the consumer price index ("CPI")). If the payment terms call for fixed escalations, upfront payments, or rent-free periods, the revenue is recognized on a straight-line basis over the fixed, non-cancelable term of the agreement. When calculating straight-line rental revenues, the Company considers all fixed elements of tenant contractual escalation provisions. The Company's assets related to straight-line site rental revenues are included in "deferred site rental receivables." Amounts billed or received prior to being earned are deferred and reflected in "deferred revenues" on the Company's balance sheet.
Costs of Operations
In excess of four-fifths of the Company's site rental cost of operations consists of ground lease expenses, and the remainder includes repairs and maintenance expenses, utilities, property taxes or insurance.
Generally, the ground lease agreements are specific to each site, are for an initial term of five years and are renewable for pre-determined periods. The Company also enters into term easements and ground leases in which it prepays the entire term in advance. Ground lease expense is recognized on a ratable basis, regardless of whether the contract payment terms require the Company to make payments annually, quarterly, monthly or for the entire term in advance. The Company's ground leases contain fixed escalation clauses (such as fixed dollar or fixed percentage increases) or inflation-based escalation clauses (such as those tied to the CPI). If the payment terms include fixed escalation provisions, the effect of such increases is recognized on a straight-line basis. The Company calculates the straight-line ground lease expense using a time period that equals or exceeds the remaining depreciable life of the communications infrastructure asset. Further, when a tenant has exercisable renewal options that would compel the Company to exercise existing ground lease renewal options, the Company has straight-lined the ground lease expense over a sufficient portion of such ground lease renewals to coincide with the final termination of the tenant's renewal options. The Company's policy is to record ground lease agreements with affiliates under the same or similar economic terms as the contract for the land that existed prior to the purchase of such land by the affiliate.
The Company's current liability related to straight-line ground lease expense is included in "other accrued liabilities" on the Company's balance sheet and was $1.9 million and $1.6 million as of December 31, 2018 and 2017, respectively. The Company's non-current liability related to straight-line ground lease expense is included in "deferred ground lease payable" on the Company's balance sheet. The Company's assets related to prepaid ground leases is included in "prepaid expenses" and "long-term prepaid rent and other assets, net" on the Company's balance sheet. The Company's current liability related to accrued property taxes is
GLOBAL SIGNAL ACQUISITIONS II LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
included in "other accrued liabilities" on the Company's balance sheet and was $3.3 million and $3.9 million as of December 31, 2018 and 2017, respectively.
Management Fee
The Company is charged a management fee by CCUSA, a wholly-owned, indirect subsidiary of CCIC, relating to management services, which include those functions reasonably necessary to maintain, market, operate, manage and administer the sites. The management fee is equal to 7.5% of the Company's revenues excluding the revenues related to the accounting for leases with fixed escalators as required by the applicable accounting standards. See note 6.
Income Taxes
CCIC operates as a REIT for U.S. federal income tax purposes. The Company is an indirect subsidiary of CCIC and for U.S. federal income taxes purposes the Company's assets and operations are part of the CCIC REIT. As a REIT, CCIC is generally entitled to a deduction for dividends that it pays and therefore is not subject to U.S. federal corporate income tax on its taxable income that is currently distributed to its stockholders. CCIC also may be subject to certain federal, state, local and foreign taxes on its income and assets, including (1) taxes on any undistributed income, (2) taxes related to the CCIC's taxable REIT subsidiaries, (3) franchise taxes, (4) property taxes and (5) transfer taxes. In addition, CCIC could in certain circumstances be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Internal Revenue Code of 1986, as amended to maintain qualification for taxation as a REIT.
Fair Values
The Company's assets and liabilities recorded at fair value are categorized based upon a fair value hierarchy that ranks the quality and reliability of the information used to determine fair value. The three levels of the fair value hierarchy are (1) Level 1 - quoted prices (unadjusted) in active and accessible markets, (2) Level 2 - observable prices that are based on inputs not quoted in active markets but corroborated by market data and (3) Level 3 - unobservable inputs and are not corroborated by market data.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The Company evaluates fair value hierarchy level classifications quarterly, and transfers between levels are effective at the end of the quarterly period.
The fair value of cash and cash equivalents approximates the carrying value. The Company determines the fair value of its debt securities based on indicative non-binding quotes from brokers. Quotes from brokers require judgment and are based on the brokers' interpretation of market information, including implied credit spreads for similar borrowings on recent trades or bid/ask prices or quotes from active markets if available. There were no changes since December 31, 20172018 in the Company's valuation techniques used to measure fair values. See note 8 for a further discussion of fair values.
Reporting Segments
The Company has one operating segment.
Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued new guidance which clarifies the definition of a business in order to assist companies in evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The Company adopted the guidance on January 1, 2018, and the adoption of this guidance did not have a material impact on its financial statements.
In May 2014, the FASB released updated guidance regarding the recognition of revenue from contracts with customers not otherwise addressed by specific guidance (commonly referred to as "ASC 606" or "the revenue recognition standard"). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contracts with the customer; (2) identify the performance obligations in the contract; (3) determine the contract price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This guidance was effective for the Company on January 1, 2018. The Company's site rental revenues are within the scope of lease accounting and were not impacted by this guidance.
RecentLease Accounting Pronouncements Not Yet Adopted— Summary
In February 2016, the FASB issued new guidance on the recognition, measurement, presentation and disclosure of leases. The new guidance requires lessees to recognize a right-of-useROU asset and a lease liability, initially measured at the present value of the lease payments for all leases with a term greater than 12 months. The accounting for lessors remains largely unchanged from existing guidance.
GLOBAL SIGNAL ACQUISITIONS II LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
This guidance was effective for, andThe Company adopted by, the Company as of January 1, 2019, and is required to be adoptednew lease standard using a modified retrospective approach which after certain additional updates in July 2018, allows the Company to apply the new guidance either (1) as of the beginning of the earliest period presented, or (2) as of the effective date (i.e., January 1, 2019), without adjusting the comparative periods.
The Company adopted the new guidance using a modified retrospective approach as of the effective date (i.e, January 1, 2019), without adjusting the comparative periods. The Company's adoption of the new guidancelease standard did not result in a cumulative-effect adjustment being recognized to the opening balance of retained earnings. The new lease standard provides a package of practical expedients, whereby companies can elect not to reassess (if applicable), (1) whether existing contracts contain leases under the new definition of a lease, (2) lease classification for expired or existing leases and (3) whether previously capitalized initial direct costs would qualify for capitalization under ASC 842. The Company elected the package of practical expedients upon adoption and thus will not reassess the classification or lease term of leases existing prior to January 1, 2019.adoption.
The Company expects that (1) its lessor and lessee arrangements will continuenew lease standard requires lessees to be classified as operating leases under the new guidance; (2) this guidance will result inrecognize a lease liability, (which primarily consistinitially measured at the present value of groundthe lease payments for all leases, under the Company's towers) and a corresponding right-of-use asset;ROU asset. The accounting for lessors remained largely unchanged from previous guidance.
Due to the recognition of the lease liability and (3) there will not bea corresponding ROU asset, the new lease standard had a material impact on the Company's consolidated balance sheet. Additionally, certain amounts related to its lessee arrangements that were previously reported separately have been de-recognized and reclassified into "Operating lease right-of-use assets" on the Company's consolidated balance sheet. These amounts include (1) the Company's liability related to straight-line expense, formerly referred to as "Deferred ground lease payable" and previously included in "Other accrued liabilities" and "Other long-term liabilities," (2) prepaid rent expense previously included in "Prepaid expenses" and "Long-term prepaid rent and other assets, net," (3) below-market leases previously included in "Other intangible assets, net," and (4) above-market leases previously included in "Other long-term liabilities."
Notwithstanding the material impact to the Company's consolidated balance sheet, the Company's adoption of the new lease standard did not have a material impact on the Company's consolidated statement of operations andor statement of cash flows. CCIC isAdditionally, the adoption of this guidance had no impact on the Company's operating practices, cash flows, contractual arrangements, or debt agreements (including compliance with any applicable covenants). Additionally, relevant Indenture debt calculations (such as the Debt to Adjusted Consolidated Cash Flow Ratio) are calculated in accordance with GAAP that was in effect as of December 2012, and, as such, exclude the processimpact of updating certainthe Company's lease liability recorded as a result of its existing information technology systems to integrate the new lease guidance requirements.standard adoption on January 1, 2019. See also note 6 to the consolidated financial statements.
See "Lease Accounting" for further discussion of the Company's updated accounting policies for leases.
Recent Accounting Pronouncements Not Yet Adopted
No new accounting pronouncements issued but not yet adopted are expected to have a material impact on the Company's consolidated financial statements.
| |
3. 4. | Property and Equipment |
The major classes of property and equipment are summarized in the table below. The information below also gives effect to the Historical Adjustments as follows:discussed in note 2.
| | | | | | | | | | Estimated Useful Lives | | December 31, |
| Estimated Useful Lives | | December 31, | | 2019 | | 2018 |
| | 2018 | | 2017 | | | | | (As Restated) |
Land(a) | — |
| | $ | 1,622 |
| | $ | 1,618 |
| — |
| | $ | 76,610 |
| | $ | 72,665 |
|
Towers | 1-20 years |
| | 1,292,771 |
| | 1,251,224 |
| 1-20 years |
| | 1,992,394 |
| | 1,918,766 |
|
Construction in progress | — |
| | 14,552 |
| | 7,966 |
| — |
| | 36,718 |
| | 23,505 |
|
Total gross property and equipment | | | 1,308,945 |
| | 1,260,808 |
| | | 2,105,722 |
| | 2,014,936 |
|
Less accumulated depreciation | | | (687,293 | ) | | (625,673 | ) | | | (1,095,355 | ) | | (1,004,485 | ) |
Total property and equipment, net | | | $ | 621,652 |
| | $ | 635,135 |
| | | $ | 1,010,367 |
| | $ | 1,010,451 |
|
| |
(a) | Includes land owned inthrough fee interests and perpetual easements. |
Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $93.0 million, $93.0 million and 2016 was $62.4$93.2 million,, $63.3 million and $63.4 million, respectively. As discussed in notes 1 and 2, the Company has certain prepaid capital leases with Sprint, which have related gross property and equipment and accumulated depreciation of $1.0 billion and $604.5 million, respectively, as of December 31, 2018.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
| |
4. 5. | Intangible Assets and Above-market Leases |
The following is a summary of the Company's intangible assets.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2019 | | As of December 31, 2018 |
| Gross Carrying Value | | Accumulated Amortization | | Net Book Value | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
Site rental contracts and tenant relationships | $ | 2,102,864 |
| | $ | (1,426,466 | ) | | $ | 676,398 |
| | $ | 2,102,864 |
| | $ | (1,312,890 | ) | | $ | 789,974 |
|
Other intangible assets | 12,336 |
| | (9,778 | ) | | 2,558 |
| | 51,102 |
| | (32,749 | ) | | 18,353 |
|
Total | $ | 2,115,200 |
| | $ | (1,436,244 | ) | | $ | 678,956 |
| | $ | 2,153,966 |
| | $ | (1,345,639 | ) | | $ | 808,327 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2018 | | As of December 31, 2017 |
| Gross Carrying Value | | Accumulated Amortization | | Net Book Value | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
Site rental contracts and tenant relationships | $ | 1,008,243 |
| | $ | (646,233 | ) | | $ | 362,010 |
| | $ | 1,008,243 |
| | $ | (588,869 | ) | | $ | 419,374 |
|
Other intangible assets | 31,788 |
| | (18,533 | ) | | 13,255 |
| | 31,788 |
| | (17,276 | ) | | 14,512 |
|
Total | $ | 1,040,031 |
| | $ | (664,766 | ) | | $ | 375,265 |
| | $ | 1,040,031 |
| | $ | (606,145 | ) | | $ | 433,886 |
|
GLOBAL SIGNAL ACQUISITIONS II LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollarsSee "Recently Adopted Accounting Pronouncements" in thousands)
note 3 for a discussion of the recently adopted lease standard, including with respect to below-market leases previously classified as intangible assets.
Amortization expense related to intangible assets is classified as follows on the Company's consolidated statement of operations:
|
| | | | | | | | | | | |
| For Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Depreciation, amortization and accretion | $ | 113,682 |
| | $ | 113,655 |
| | $ | 113,635 |
|
Site rental costs of operations | — |
| | 1,514 |
| | 1,591 |
|
Total amortization expense | $ | 113,682 |
| | $ | 115,169 |
| | $ | 115,226 |
|
|
| | | | | | | | | | | |
| For Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Depreciation, amortization and accretion | $ | 57,364 |
| | $ | 57,364 |
| | $ | 57,364 |
|
Site rental costs of operations | 1,257 |
| | 1,308 |
| | 1,375 |
|
Total amortization expense | $ | 58,621 |
| | $ | 58,672 |
| | $ | 58,739 |
|
Amortization expense of intangible assets classified as "Site rental costs of operations" on the Company's consolidated statement of operations for the years ended December 31, 2018 and 2017 represented amortization of below-market leases. Effective January 1, 2019, these below-market leases were de-recognized and reclassified from "Other intangible assets, net" to the "Operating lease right-of-use assets" on the Company's consolidated balance sheet.For both of the years ended December 31, 2018 and 2017, the Company recorded $1.7 million as a decrease to "Site rental costs of operations" for the amortization of above-market leases for land interests under the Company's towers. Effective January 1, 2019, these above-market leases were de-recognized and reclassified from "Other long-term liabilities" into the "Operating lease right-of-use assets" on the Company's consolidated balance sheet.
See "Recently Adopted Accounting Pronouncements" in note 3 for a discussion of the recently adopted lease standard.
The estimated annual amortization expense related to intangible assets (inclusive of those recorded as an increase to "site rental cost of operations") for the years ending December 31, 20192020 to 20232024 is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 |
Estimated annual amortization | $ | 113,682 |
| | $ | 113,682 |
| | $ | 113,682 |
| | $ | 113,682 |
| | $ | 77,526 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Estimated annual amortization | $ | 58,601 |
| | $ | 58,597 |
| | $ | 58,521 |
| | $ | 58,478 |
| | $ | 58,478 |
|
See note 2 for a further discussion of above-market leases for land interests under the Company's towers recorded in connection with acquisitions. For the years ended December 31, 2018, 2017 and 2016, the Company recorded $1.2 million, $1.3 million and $1.4 million, respectively, as a decrease to "site rental cost of operations." The following is a summary of the Company's above-market leases.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2018 | | As of December 31, 2017 |
| Gross Carrying Value | | Accumulated Amortization | | Net Book Value | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
Above-market leases | $ | 30,826 |
| | $ | (18,663 | ) | | $ | 12,163 |
| | $ | 31,180 |
| | $ | (17,631 | ) | | $ | 13,549 |
|
The estimated annual amortization expense related to above-market leases for land interests under the Company's towers for the years ending December 31, 2019 to 2023 is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Estimated annual amortization | $ | 1,206 |
| | $ | 1,186 |
| | $ | 1,093 |
| | $ | 1,027 |
| | $ | 1,025 |
|
In2012 Secured Notes
On December 24, 2012, CCL and Crown Castle GS III Corp. (a subsidiary("Co-Issuer" and, together with CCL, "Issuers") issued (1) $500.0 million aggregate principal amount of CCL) issued $1.52.381% senior secured notes due December 2017 ("2.381% Secured Notes") and (2) $1.0 billion aggregate principal amount of 3.849% senior secured notes due April 2023 ("3.849% Secured Notes" and together with the 2.381% Secured Notes, "2012 Secured Notes"). The 2012 Secured Notes"Notes were issued pursuant to an indenture dated as of December 24, 2012 ("Indenture"), whichby and among the Issuers, the Guarantors (as defined below) and The Bank of New York Mellon Trust Company, N.A., as trustee ("Trustee"). The Issuers and the Guarantors are indirect wholly owned subsidiaries of CCIC. The Company used the net proceeds from the issuance of the 2012 Secured Notes to (1) repurchase and redeem a portion of the then outstanding 7.75% senior secured notes due 2017 ("7.75% Secured Notes") and (2) distribute cash to CCIC to fund the repurchase and redemption of a portion of CCIC's senior notes.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The outstanding balance of the 2012 Secured Notes as of December 31, 2019 and December 31, 2018 was $995.4 million and $994.0 million, respectively. The stated interest rate of the 2012 Secured Notes as of December 31, 2019 was 3.849% per annum.
The 3.849% Secured Notes are payable semi-annually in cash in arrears on April 15 and October 15 of each year, beginning on April 15, 2013. CCL, at its option, may redeem the 3.849% Secured Notes in whole or in part at any time by paying 100% of the principal amount of such 3.849% Secured Notes, together with accrued and unpaid interest, if any, plus a "make-whole" premium (as defined in the Indenture).
The 3.849% Secured Notes are guaranteed by certainthe direct and indirect wholly owned subsidiaries of CCL, includingother than the Company. In addition,Co-Issuer (collectively, "Guarantors"). The 3.849% Secured Notes will be paid solely from the cash flows generated from operation of the towers held directly or indirectly by CCL and the Guarantors.
Concurrently with the issuance of the 2012 Secured Notes, CCL and certain of its subsidiaries entered into a pledge and security agreement with the Trustee. Pursuant to the terms of such pledge and security agreement, the 3.849% Secured Notes are secured on a first-priority basis by a pledge of the equity interests of certain subsidiariesthe Guarantors.
The Indenture limits, among other things, the ability of CCL and its subsidiaries to incur indebtedness, incur liens, enter into certain mergers or certain change of control transactions and enter into related party transactions, in each case subject to a number of exceptions and qualifications set forth in the Indenture.
Management Agreement. On December 24, 2012, CCL and the Guarantors entered into a management agreement ("Management Agreement") with CCUSA, an indirect wholly owned subsidiary of CCIC ("Manager"). The Management Agreement replaced the previous management agreement that existed among the parties. Pursuant to the Management Agreement, the Manager will continue to perform, on behalf of CCL and the Guarantors, those functions reasonably necessary to maintain, market, operate, manage and administer their respective sites. The Management Agreement requires that the Company maintain cash sufficient to operate the business, including a pledge ofsufficient cash to pay expenses for the equity interests offollowing month (including any interest payment due during the Company. In September 2016, CCIC issued $700 million aggregate principal amount of 2.250% senior unsecured notes. CCIC used a portion ofnext month pursuant to the net proceeds to repay $500 million of the 2012 Secured Notes.Indenture).
Debt Restrictions. The 2012 Secured Notes doIndenture does not contain financial maintenance covenants but they doit does contain restrictive negative covenants, subject to certain exceptions, related to the Company's ability to incur indebtedness, incur liens, enter into certain mergers or change of control transactions, sell or issue equity interests and enter into related party transactions. With respect to the restriction regarding the issuance of debt, CCL and its subsidiaries including the Company may not issue debt other than (1) certain permitted refinancings of the 20123.849% Secured Notes, (2) unsecured trade payables in the ordinary course of business and financing of equipment, land or other property up to an aggregate of $100.0 million andor (3) unsecured debt or additional notes under the 2012 Secured Notes indentureIndenture provided that the Debt to Adjusted Consolidated Cash Flow Ratio (as defined in the indenture governing the 2012 Secured Notes)Indenture) at the time of incurrence, and after giving effect to such incurrence, would have been no greater than 3.5 to 1. As of December 31, 2018, CCL's2019, the Company's Debt to Adjusted Consolidated Cash Flow Ratio was is 2.3 to 1, and, as a result, the Company is not restricted in itscurrently has the ability to incur additional indebtedness. For purposes of restrictions related to the Company's Secured Notes Indenture, relevant debt calculations (such as the Debt to Adjusted Consolidated Cash Flow Ratio) are calculated in accordance with GAAP that was in effect as of December 2012, and, as such, exclude the impact of the Company's lease liability recorded as a result of its new lease standard adoption on January 1, 2019. Further, the Company is not restricted in its ability to distribute cash to affiliates or issue dividends to its member.
Contractual Maturities
The following are the scheduled contractual maturities of the total debt of the Company outstanding at December 31, 2019.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, | | | | |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total Cash Obligations | | Unamortized Deferred Financing Costs | | Total Debt Outstanding |
Scheduled contractual maturities | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,000,000 |
| | $ | — |
| | $ | — |
| | $ | 1,000,000 |
| | $ | (4,569 | ) | | $ | 995,431 |
|
GLOBAL SIGNAL ACQUISITIONS II
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Interest Expense and Amortization of Deferred Financing Costs
The components of "Interest expense and amortization of deferred financing costs" are as follows:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Interest expense on debt obligations | $ | 38,490 |
| | $ | 38,490 |
| | $ | 38,490 |
|
Amortization of deferred financing costs | 1,384 |
| | 1,384 |
| | 1,384 |
|
Total | $ | 39,874 |
| | $ | 39,874 |
| | $ | 39,874 |
|
| |
6. 7. | Related Party Transactions |
In December 2012, CCL,As discussed in note 6, the Company and other subsidiaries of CCLthe Guarantors entered into a management agreement (“Management Agreement”)Agreement with CCUSA, which replaced a previous management agreement among the same parties. The Company is charged a management fee by CCUSA underPursuant to the Management Agreement, whereby CCUSA has agreed to employ, supervise and pay at all times a sufficient number of capable employees as may be necessary to perform services in accordance with the operation standards defined in the Management Agreement. CCUSA currently acts as the manager of the majorityManager of the sites held by subsidiaries of CCIC. The management fee is equal to 7.5% of the Company's "Operating Revenue,Revenues," as defined in the Management Agreement, which areis based on the Company'sCompany’s reported revenues adjusted to exclude certain items including revenues related to the accounting for leases with fixed escalators. The fee is compensation for those functions reasonably necessary to maintain, market, operate, manage and administer the sites, other than the operating expenses which(which includes but is not limited to real estate and personal property taxes, ground lease and easement payments, and insurance premiums. In addition, in connection with its role as manager, CCUSA may make certain modifications to the Company's sites.premiums). The management fee charged fromby CCUSA for the years ended December 31, 2019, 2018 and 2017 totaled $49.8 million, $48.5 million and 2016 totaled $32.5$46.9 million,, $31.4 million and $30.5 million, respectively.
In addition, CCUSA may perform installation services onand make certain modifications to the Company's towers for which the Company is not a party to any such agreement and receives no cash payment. For these tower installation services and modifications, however, deferred revenue for a portion of the transaction price which norepresents a lease component under GAAP is included within "Deferred revenues," on the Company's consolidated balance sheet and is recognized as "Amortization of tower installations and modifications" on the Company's consolidated statement of operations over the associated estimated lease term. The portions of the transaction price which do not represent a lease component are not reflected in the Company's operating results are reflected herein.results. See note 2 for further discussion on towers service agreements.
As part of CCIC's strategy to obtain long-term control of the land under its towers, affiliates of the Company have acquired rights to land interests under the Company's towers. These affiliates then lease the land to the Company. Under such circumstances, the Company's obligation typically continues with the same or similar economic terms as the contract for the land that existed prior to the purchase of such land by the affiliate. As of December 31, 2018,2019, approximately 35% of the Company's towers were located on land which was controlled by an affiliate. The Company pays ground rent expense to affiliates for land owned by affiliates on which the Company has towers. Rent expense to affiliates totaled $37.4 million, $33.5 million and $31.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.
The Company recorded an equity distribution of $222.5 million, $202.8 million and $211.4 million for the years ended December 31, 2018, 2017 and 2016, respectively, reflecting distributions to its member. Cash on-hand above the amount that is required by the Management Agreement has been, and is expected to continue to be, distributed to the Company's parent company, CCL. As of December 31, 2018 and 2017, the Company had no material related party assets or liabilities on its consolidated balance sheet.
For the year ended December 31, 2018, the Company had a provision for income taxes of $0.3 million, which relates to state taxes. For the years ended December 31, 2017 and 2016 the Company had benefits for income taxes of $0.5 million and $0.4 million, respectively, which consisted of the reduction of unrecognized tax benefits as a result of the lapse of the statute of limitations partially offset by state taxes. The Company's effective tax rate for the years ended December 31, 2018, 2017 and 2016 differed from the federal statutory rate predominately due to CCIC's REIT status, including the dividends paid deduction (see notes 1 and 2), and the aforementioned impacts described above.
As of December 31, 2018, there were no unrecognized tax benefits that would impact the effective tax rate, if recognized.
From time to time, the Company is subject to examinations by various tax authorities in jurisdictions in which the Company has business operations. The Company regularly assesses the likelihood of additional assessments in each of the tax jurisdictions resulting from these examinations. At this time, CCIC is not subject to an Internal Revenue Service examination.
| |
8.
| Commitments and Contingencies |
The Company is involved in various claims, lawsuits or proceedings arising in the ordinary course of business. While there are uncertainties inherent in the ultimate outcome of such matters, and it is impossible to presently determine the ultimate costs or losses that may be incurred, if any, management believes the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's financial position or results of operations. See note 9 for a discussion of the operating lease commitments.In addition, see note 1 for a discussion of CCIC's option to purchase nearly all of the Company's towers at the end of their respective contract terms. CCIC has no obligation to exercise the purchase option.
GLOBAL SIGNAL ACQUISITIONS II LLC
NOTES TO FINANCIAL STATEMENTS
(Tabular dollars in thousands)
Asset Retirement Obligations
Pursuant to its ground lease and easement agreements, the Company has the obligation to perform certain asset retirement activities, including requirements upon contract or easement termination to remove communications infrastructure or remediate the land upon which communications infrastructure resides. Accretion expense related to liabilities for retirement obligations amounted to $1.9 million, $1.9 million and $1.7 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018 and 2017, liabilities for retirement obligations amounted to $24.3 million and $22.4 million, respectively, representing the net present value of the estimated expected future cash outlay. As of December 31, 2018, the estimated undiscounted future cash outlay for asset retirement obligations was approximately $50 million. See note 2.
Tenant Leases
The following table is a summary of the rental cash payments owed to the Company, as a lessor, by tenants pursuant to contractual agreements in effect as of December 31, 2018. Generally, the Company's leases with its tenants provide for (1) annual escalations, (2) multiple renewal periods at the tenant's option and (3) only limited termination rights at the applicable tenant's option through the current term. As of December 31, 2018, the weighted-average remaining term (calculated by weighting the remaining term for each lease by the related site rental revenue) of tenant leases is approximately six years, exclusive of renewals at the tenant's option. The tenants' rental payments included in the table below are through the current terms with a maximum current term of 20 years and do not assume exercise of tenant renewal options.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Tenant leases | $ | 437,514 |
| | $ | 442,324 |
| | $ | 442,762 |
| | $ | 428,989 |
| | $ | 295,448 |
| | $ | 970,760 |
| | $ | 3,017,797 |
|
Operating Leases
The following table is a summary of rental cash payments owed by the Company, as lessee, to landlords pursuant to contractual agreements in effect as of December 31, 2018. The Company is obligated under non-cancelable operating leases for land interests under nearly all of its towers. The majority of these operating lease agreements have (1) certain termination rights that provide for cancellation after a notice period, (2) multiple renewal options at the Company's option and (3) annual escalations. Lease agreements may also contain provisions for a contingent payment based on revenues or the gross margin derived from the tower located on the leased land interest. More than 80% and more than 50% of the Company's sites are under the Company's control for greater than 10 and 20 years, respectively, including renewals at the Company's option. The operating lease payments included in the table below include payments for certain renewal periods at the Company's option that are reasonably assured to be exercised and an estimate of contingent payments based on revenues and gross margins derived from existing tenant leases. See also note 6.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Operating leases | $ | 115,277 |
| | $ | 116,971 |
| | $ | 117,823 |
| | $ | 115,852 |
| | $ | 113,946 |
| | $ | 1,355,524 |
| | $ | 1,935,393 |
|
Rental expense from operating leases was $123.0 million, $120.0 million and $116.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. The rental expense was inclusive of contingent payments based on revenues or gross margin derived from the tower located on the leased land of $19.7 million, $18.9 million and $18.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Effective January 1, 2019, the Company adopted new lease accounting guidance on the recognition, measurement, presentation and disclosure of leases. See note 2 for further discussion.
| |
10.
| Concentration of Credit Risk |
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents and trade receivables. The Company mitigates its risk with respect to cash and cash equivalents by maintaining such deposits at high credit quality financial institutions and monitoring the credit ratings of those institutions. See note 2.
GLOBAL SIGNAL ACQUISITIONS II LLC
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The Company derives the largest portion of its revenues from tenants in the wireless industry. The Company also has a concentration in its volume of business with Sprint, AT&T, T-Mobile and Verizon Wireless that accounts for a significant portion of the Company's revenues, receivables and deferred site rental receivables. The Company mitigates its concentrations of credit risk with respect to trade receivables by actively monitoring the creditworthiness of its tenants, the use of tenant contracts with contractually determinable payment terms and proactive management of past due balances. See note 1 for a discussion of the Sprint Sites.
Major Tenants
The following table summarizes the percentage of the Company's revenues for those tenants accounting for more than 10% of the Company's revenues.
|
| | | | | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Sprint | 46 | % | | 47 | % | | 48 | % |
AT&T | 19 | % | | 19 | % | | 20 | % |
T-Mobile | 19 | % | | 19 | % | | 18 | % |
Verizon Wireless | 14 | % | | 13 | % | | 12 | % |
Total | 98 | % | | 98 | % | | 98 | % |
PINNACLE TOWERS LLC
Consolidated Financial Statements
Years Ended December 31, 2018, 2017 and 2016
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Members of
CC Holdings GS V LLC
Opinion on the Financial Statements
We have audited the accompanying consolidatedbalance sheetsof Pinnacle Towers LLCand its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, cash flows and changes in member’s equity for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results ofitsoperations and itscash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidatedfinancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidatedfinancial statements in accordance with the standards of the PCAOB. 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, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
February 25, 2019
We have served as the Company's auditor since 2011.
PINNACLE TOWERS LLC
CONSOLIDATED BALANCE SHEET
(In thousands of dollars)
|
| | | | | | | |
| December 31, |
| 2018 | | 2017 |
ASSETS | | | |
Current assets: | | | |
Receivables, net of allowance of $962 and $929, respectively | $ | 3,444 |
| | $ | 1,617 |
|
Prepaid expenses | 2,474 |
| | 2,225 |
|
Deferred site rental receivables | 6,398 |
| | 6,210 |
|
Other current assets | 322 |
| | 318 |
|
Total current assets | 12,638 |
| | 10,370 |
|
Deferred site rental receivables | 79,195 |
| | 76,645 |
|
Property and equipment, net | 334,951 |
| | 343,426 |
|
Goodwill | 627,345 |
| | 627,345 |
|
Site rental contracts and tenant relationships, net | 385,899 |
| | 435,656 |
|
Other intangible assets, net | 2,128 |
| | 2,374 |
|
Long-term prepaid rent and other assets, net | 6,687 |
| | 6,569 |
|
Total assets | $ | 1,448,843 |
| | $ | 1,502,385 |
|
| | | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 567 |
| | $ | 658 |
|
Deferred revenues | 4,597 |
| | 4,578 |
|
Other accrued liabilities | 2,981 |
| | 2,651 |
|
Total current liabilities | 8,145 |
| | 7,887 |
|
Deferred ground lease payable | 7,965 |
| | 7,710 |
|
Above-market leases and other liabilities | 10,812 |
| | 10,570 |
|
Total liabilities | 26,922 |
| | 26,167 |
|
Commitments and contingencies (note 8) | | | |
Member's equity: | | | |
Member's equity | 1,421,921 |
| | 1,476,218 |
|
Accumulated earnings (deficit) | — |
| | — |
|
Total member's equity | 1,421,921 |
| | 1,476,218 |
|
Total liabilities and equity | $ | 1,448,843 |
| | $ | 1,502,385 |
|
See accompanying notes to consolidated financial statements.
PINNACLE TOWERS LLC
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of dollars)
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
| | | | | |
Site rental revenues | $ | 185,346 |
| | $ | 175,942 |
| | $ | 173,896 |
|
| | | | | |
Operating expenses: | | | | | |
Site rental cost of operations—third parties(a) | 34,927 |
| | 34,681 |
| | 37,129 |
|
Site rental cost of operations—related parties(a) | 4,800 |
| | 4,381 |
| | 4,100 |
|
Site rental cost of operations—total(a) | 39,727 |
| | 39,062 |
| | 41,229 |
|
Management fee—related party | 13,690 |
| | 13,280 |
| | 12,880 |
|
Asset write-down charges | 543 |
| | 473 |
| | 2,669 |
|
Depreciation, amortization and accretion | 77,936 |
| | 77,659 |
| | 76,640 |
|
Total operating expenses | 131,896 |
| | 130,474 |
| | 133,418 |
|
Operating income (loss) | 53,450 |
| | 45,468 |
| | 40,478 |
|
Other income (expense) | 272 |
| | 134 |
| | (93 | ) |
Income (loss) before income taxes | 53,722 |
| | 45,602 |
| | 40,385 |
|
Benefit (provision) for income taxes | (75 | ) | | 120 |
| | 219 |
|
Net income (loss) | $ | 53,647 |
| | $ | 45,722 |
| | $ | 40,604 |
|
| |
(a)
| Exclusive of depreciation, amortization and accretion shown separately and certain indirect costs included in the management fee.
|
See accompanying notes to consolidated financial statements.
PINNACLE TOWERS LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands of dollars)
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Cash flows from operating activities: | | | | | |
Net income (loss) | $ | 53,647 |
| | $ | 45,722 |
| | $ | 40,604 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 77,936 |
| | 77,659 |
| | 76,640 |
|
Asset write-down charges | 543 |
| | 473 |
| | 2,669 |
|
Changes in assets and liabilities: | | | | | |
Increase (decrease) in accounts payable | (85 | ) | | (692 | ) | | (205 | ) |
Increase (decrease) in deferred revenues, deferred ground lease payable and other liabilities | 272 |
| | (222 | ) | | (389 | ) |
Decrease (increase) in receivables | (1,827 | ) | | 1,002 |
| | 1,082 |
|
Decrease (increase) in other current assets, deferred site rental receivable, long-term prepaid rent and other assets | (3,803 | ) | | 2,451 |
| | (1,667 | ) |
Net cash provided by (used for) operating activities | 126,683 |
| | 126,393 |
| | 118,734 |
|
Cash flows from investing activities: | | | | | |
Capital expenditures | (18,739 | ) | | (15,455 | ) | | (21,209 | ) |
Net cash provided by (used for) investing activities | (18,739 | ) | | (15,455 | ) | | (21,209 | ) |
Cash flows from financing activities: | | | | | |
Distributions to member | (107,944 | ) | | (110,938 | ) | | (97,525 | ) |
Net cash provided by (used for) financing activities | (107,944 | ) | | (110,938 | ) | | (97,525 | ) |
Net increase (decrease) in cash and cash equivalents | — |
| | — |
| | — |
|
Cash and cash equivalents at beginning of year | — |
| | — |
| | — |
|
Cash and cash equivalents at end of year | $ | — |
| | $ | — |
| | $ | — |
|
See accompanying notes to consolidated financial statements.
PINNACLE TOWERS LLC
CONSOLIDATED STATEMENT OF CHANGES IN MEMBER'S EQUITY
(In thousands of dollars)
|
| | | | | | | | | | | | |
| | Member's Equity | | Accumulated Earnings (Deficit) | | Total |
Balance, December 31, 2015 | | $ | 1,540,422 |
| | $ | 57,933 |
| | $ | 1,598,355 |
|
Distributions to member (note 6) | | — |
| | (97,525 | ) | | (97,525 | ) |
Net income (loss) | | — |
| | 40,604 |
| | 40,604 |
|
Balance, December 31, 2016 | | $ | 1,540,422 |
| | $ | 1,012 |
| | $ | 1,541,434 |
|
Distributions to member (note 6) | | (64,204 | ) | | (46,734 | ) | | (110,938 | ) |
Net income (loss) | | — |
| | 45,722 |
| | 45,722 |
|
Balance, December 31, 2017 | | $ | 1,476,218 |
| | $ | — |
| | $ | 1,476,218 |
|
Distributions to member (note 6) | | (54,297 | ) | | (53,647 | ) | | (107,944 | ) |
Net income (loss) | | — |
| | 53,647 |
| | 53,647 |
|
Balance, December 31, 2018 | | $ | 1,421,921 |
| | $ | — |
| | $ | 1,421,921 |
|
See accompanying notes to consolidated financial statements.
PINNACLE TOWERS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in thousands)
The accompanying consolidated financial statements reflect the consolidated financial position, results of operations and cash flows of Pinnacle Towers LLC and its consolidated wholly-owned subsidiaries (collectively, "Company"). The Company is a wholly-owned subsidiary of CC Holdings GS V LLC ("CCL"), which is an indirect, wholly-owned subsidiary of Crown Castle International Corp., a Delaware corporation ("CCIC" or "Crown Castle"). All significant inter-company accounts, transactions and profits have been eliminated. As used herein, the term "including," and any variation thereof means "including without limitations." The use of the word "or" herein is not exclusive.
The Company is organized specifically to own, lease and manage towers and other structures (collectively, "towers") and to a lesser extent, interests in land under third party and related party towers in various forms ("land interests") (collectively, "communications infrastructure" or "sites") that are geographically dispersed across the United States ("U.S."). The Company's core business is providing access, including space or capacity, to its sites via long-term contracts in various forms, including lease, license and sublease agreements (collectively, "contracts"). The Company's existing customers on its communication infrastructure are referred to herein as "tenants." Management services related to communications towers and other communication sites are performed by Crown Castle USA Inc. ("CCUSA"), an affiliate of the Company, under a management agreement, as the Company has no employees.
For U.S. federal income tax purposes, CCIC operates as a real estate investment trust ("REIT"), and as its indirect subsidiary, the Company's assets and operations are included in the CCIC REIT. See notes 2 and 7.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure for contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| |
2.
| Summary of Significant Accounting Policies |
Receivables Allowance
An allowance for doubtful accounts is recorded as an offset to accounts receivable. The Company uses judgment in estimating this allowance and considers historical collections, current credit status or contractual provisions. Additions to the allowance for doubtful accounts are charged to "site rental cost of operations" and deductions from the allowance are recorded when specific accounts receivable are written off as uncollectible.
Lease Accounting
General. The Company classifies its leases at inception as either operating leases or capital leases. A lease is classified as a capital lease if at least one of the following criteria are met, subject to certain exceptions noted below: (1) the lease transfers ownership of the leased assets to the lessee, (2) there is a bargain purchase option, (3) the lease term is equal to 75% or more of the economic life of the leased assets or (4) the present value of the minimum lease payments equals or exceeds 90% of the fair value of the leased assets.
Lessee. Leases for land are evaluated for capital lease treatment if at least one of the first two criteria mentioned in the immediately preceding paragraph is present relating to the leased assets. When the Company, as lessee, classifies a lease as a capital lease, it records an asset in an amount equal to the present value of the minimum lease payments under the lease at the beginning of the lease term. Applicable operating leases are recognized on a straight-line basis as discussed under "Costs of Operations" below.
Lessor. If the Company is the lessor of leased property that is part of a larger whole (including with respect to a portion of space on a tower) and for which fair value is not objectively determinable, then such lease is accounted for as an operating lease. As applicable, operating leases are recognized on a straight-line basis as discussed under "Revenue Recognition."
Effective January 1, 2019, the Company adopted new lease accounting guidance on the recognition, measurement, presentation and disclosure of leases. See also "Recent Accounting Pronouncements Not Yet Adopted" below for further discussion.
PINNACLE TOWERS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation. Property and equipment includes land owned in fee and perpetual easements for land, which have no definite life. When the Company purchases fee ownership or perpetual easements for the land previously subject to ground lease, the Company reduces the value recorded as land by the amount of any associated deferred ground lease payable or unamortized above-market leases. Depreciation is computed utilizing the straight-line method at rates based upon the estimated useful lives of the various classes of assets. Depreciation of communications infrastructure is generally computed with a useful life equal to the shorter of 20 years or the term of the underlying ground lease (including optional renewal periods). Additions, renewals or improvements are capitalized, while maintenance and repairs are expensed. The carrying value of property and equipment will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Abandonments and write-offs of property and equipment are recorded to "asset write-down charges" on the Company's consolidated statement of operations and were $0.4 million, $0.4 million and $2.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Asset Retirement Obligations
Pursuant to its ground lease and easement agreements, the Company records obligations to perform asset retirement activities, including requirements to remove communications infrastructure or remediate the land upon which the Company's communications infrastructure resides. Asset retirement obligations are included in "above-market leases and other liabilities" on the Company's consolidated balance sheet. The liability accretes as a result of the passage of time and the related accretion expense is included in "depreciation, amortization and accretion" expense on the Company's consolidated statement of operations. The associated asset retirement costs are capitalized as an additional carrying amount of the related long-lived asset and depreciated over the useful life of such asset.
Goodwill
Goodwill represents the excess of the purchase price for an acquired business over the allocated value of the related net assets. The Company tests goodwill for impairment on an annual basis, regardless of whether adverse events or changes in circumstances have occurred. The annual test begins with goodwill and all intangible assets being allocated to applicable reporting units. The Company then performs a qualitative assessment to determine whether it is "more likely than not" that the fair value of the reporting units is less than its carrying amount. If it is concluded that it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount, it is necessary to perform the two-step goodwill impairment test. The two-step goodwill impairment test begins with a comparison of the estimated fair value of the reporting unit and the carrying value of the reporting unit. The first step, commonly referred to as a "step-one impairment test," is a screen for potential impairment while the second step measures the amount of any impairment if there is an indication from the first step that one exists. The Company's measurement of the fair value for goodwill is based on an estimate of discounted expected future cash flows of the reporting unit. The Company has one reporting unit for goodwill impairment testing. The Company performed its most recent annual goodwill impairment test as of October 1, 2018, which resulted in no impairments.
Other Intangible Assets
Intangible assets are included in "site rental contracts and tenant relationships, net" and "other intangible assets, net" on the Company's consolidated balance sheet and predominately consist of the estimated fair value of the following items recorded in conjunction with acquisitions: (1) site rental contracts and tenant relationships or (2) below-market leases for land interests under the acquired towers classified as "other intangible assets, net." The site rental contracts and tenant relationships intangible assets are comprised of (1) the current term of the existing contracts, (2) the expected exercise of the renewal provisions contained within the existing contracts, which automatically occur under contractual provisions or (3) any associated relationships that are expected to generate value following the expiration of all renewal periods under existing contracts.
The useful lives of intangible assets are estimated based on the period over which the intangible asset is expected to benefit the Company, which is calculated on an individual tenant basis, considering, among other things, the contractual provisions with the tenant and gives consideration to the expected useful life of other assets to which the useful life may relate. Amortization expense for intangible assets is computed using the straight-line method over the estimated useful life of each of the intangible assets. The useful life of the site rental contracts and tenant relationships intangible asset is limited by the maximum depreciable life of the tower (20 years), as a result of the interdependency of the tower and site rental contracts and tenant relationships. In contrast, the site rental contracts and tenant relationships are estimated to provide economic benefits for several decades because of the low rate of tenant cancellations and high rate of renewals experienced to date. Thus, while site rental contracts and tenant
PINNACLE TOWERS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
relationships are valued based upon the fair value, which includes assumptions regarding both (1) tenants' exercise of optional renewals contained in the acquired contracts and (2) renewals of the acquired contracts past the contractual term including exercisable options, the site rental contracts and tenant relationships are amortized over a period not to exceed 20 years as a result of the useful life being limited by the depreciable life of the sites.
The carrying value of other intangible assets with finite useful lives will be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company has a dual grouping policy for purposes of determining the unit of account for testing impairment of the site rental contracts and tenant relationships intangible assets. First, the Company pools the site rental contracts and tenant relationships with the related tower assets into portfolio groups for purposes of determining the unit of account for impairment testing. Second and separately, the Company evaluates the site rental contracts and tenant relationships by significant tenant or by tenant grouping for individually insignificant tenants, as appropriate. If the sum of the estimated future cash flows (undiscounted) expected to result from the use or eventual disposition of an asset is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss is based on the fair value of the asset.
Above-market Leases
Above-market leases consist of the estimated fair value of above-market leases for land interests under the Company's towers. Above-market leases for land interests are amortized to costs of operations over their respective estimated remaining contract term at the acquisition date.
Revenue Recognition
Site rental revenues from the Company's contracts are recognized on a straight-line, ratable basis over the fixed, non-cancelable term of the relevant contract, which generally ranges from five to 15 years, regardless of whether the payments from the tenant are received in equal monthly amounts during the life of the contract. The Company's contracts contain fixed escalation clauses (such as fixed dollar or fixed percentage increases) or inflation-based escalation clauses (such as those tied to the consumer price index ("CPI")). If the payment terms call for fixed escalations, upfront payments, or rent-free periods, the revenue is recognized on a straight-line basis over the fixed, non-cancelable term of the agreement. When calculating straight-line rental revenues, the Company considers all fixed elements of tenant contractual escalation provisions.The Company's assets related to straight-line site rental revenues are included in "deferred site rental receivables." Amounts billed or received prior to being earned are deferred and reflected in "deferred revenues" on the Company's consolidated balance sheet.
Costs of Operations
Approximately two-thirds of the Company's site rental cost of operations consists of ground lease expenses, and the remainder includes repairs and maintenance expenses, utilities, property taxes or insurance.
Generally, the ground lease agreements are specific to each site, are for an initial term of five years and are renewable for pre-determined periods. The Company also enters into term easements and ground leases in which it prepays the entire term in advance. Ground lease expense is recognized on a ratable basis, regardless of whether the contract payment terms require the Company to make payments annually, quarterly, monthly or for the entire term in advance. The Company's ground leases contain fixed escalation clauses (such as fixed dollar or fixed percentage increases) or inflation-based escalation clauses (such as those tied to the CPI). If the payment terms include fixed escalation provisions, the effect of such increases is recognized on a straight-line basis. The Company calculates the straight-line ground lease expense using a time period that equals or exceeds the remaining depreciable life of the communications infrastructure asset. Further, when a tenant has exercisable renewal options that would compel the Company to exercise existing ground lease renewal options, the Company has straight-lined the ground lease expense over a sufficient portion of such ground lease renewals to coincide with the final termination of the tenant's renewal options. The Company's policy is to record ground lease agreements with affiliates under the same or similar economic terms as the contract for the land that existed prior to the purchase of such land by the affiliate.
The Company's non-current liability related to straight-line ground lease expense is included in "deferred ground lease payable" on the Company's consolidated balance sheet. The Company's assets related to prepaid ground leases is included in "prepaid expenses" and "long-term prepaid rent and other assets, net" on the Company's consolidated balance sheet. The Company's current liability related to accrued property taxes is included in "other accrued liabilities" on the Company's consolidated balance sheet and was $1.9 million and $1.6 million as of December 31, 2018 and 2017, respectively.
PINNACLE TOWERS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Management Fee
The Company is charged a management fee by CCUSA, a wholly-owned, indirect subsidiary of CCIC, relating to management services, which include those functions reasonably necessary to maintain, market, operate, manage and administer the sites. The management fee is equal to 7.5% of the Company's revenues excluding the revenues related to the accounting for leases with fixed escalators as required by the applicable accounting standards. See note 6.
Income Taxes
CCIC operates as a REIT for U.S. federal income tax purposes. The Company is an indirect subsidiary of CCIC and for U.S. federal income taxes purposes the Company's assets and operations are part of the CCIC REIT. As a REIT, CCIC is generally entitled to a deduction for dividends that it pays and therefore is not subject to U.S. federal corporate income tax on its taxable income that is currently distributed to its stockholders. CCIC also may be subject to certain federal, state, local and foreign taxes on its income and assets, including (1) taxes on any undistributed income, (2) taxes related to the CCIC's taxable REIT subsidiaries, (3) franchise taxes, (4) property taxes and (5) transfer taxes. In addition, CCIC could in certain circumstances be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Internal Revenue Code of 1986, as amended to maintain qualification for taxation as a REIT.
Reporting Segments
The Company has one operating segment.
Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued new guidance which clarifies the definition of a business in order to assist companies in evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The Company adopted the guidance on January 1, 2018, and the adoption of this guidance did not have a material impact on its consolidated financial statements.
In May 2014, the FASB released updated guidance regarding the recognition of revenue from contracts with customers not otherwise addressed by specific guidance (commonly referred to as "ASC 606" or "the revenue recognition standard"). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contracts with the customer; (2) identify the performance obligations in the contract; (3) determine the contract price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This guidance was effective for the Company on January 1, 2018. The Company's site rental revenues are within the scope of lease accounting and were not impacted by this guidance.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued new guidance on the recognition, measurement, presentation and disclosure of leases. The new guidance requires lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments for all leases with a term greater than 12 months. The accounting for lessors remains largely unchanged from existing guidance.
This guidance was effective for, and adopted by, the Company as of January 1, 2019, and is required to be adopted using a modified retrospective approach, which after certain additional updates in July 2018, allows the Company to apply the new guidance either (1) as of the beginning of the earliest period presented, or (2) as of the effective date (i.e., January 1, 2019), without adjusting the comparative periods.
The Company adopted the new guidance using a modified retrospective approach as of the effective date (i.e, January 1, 2019), without adjusting the comparative periods. The Company's adoption of the new guidance did not result in a cumulative-effect adjustment being recognized to the opening balance of retained earnings. The Company elected the package of practical expedients upon adoption and thus will not reassess the classification or lease term of leases existing prior to January 1, 2019.
The Company expects that (1) its lessor and lessee arrangements will continue to be classified as operating leases under the new guidance; (2) this guidance will result in a lease liability (which primarily consist of ground leases under the Company's towers) and a corresponding right-of-use asset; and (3) there will not be a material impact to its consolidated
PINNACLE TOWERS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
statement of operations and consolidated statement of cash flows. CCIC is in the process of updating certain of its existing information technology systems to integrate the new lease guidance requirements.
The major classes of property and equipment are as follows:
|
| | | | | | | | | | |
| Estimated Useful Lives | | December 31, |
| | 2018 | | 2017 |
Land(a) | — |
| | $ | 55,642 |
| | $ | 56,195 |
|
Towers | 1-20 years |
| | 548,713 |
| | 532,039 |
|
Construction in progress | — |
| | 7,917 |
| | 6,196 |
|
Total gross property and equipment | | | 612,272 |
| | 594,430 |
|
Less accumulated depreciation | | | (277,321 | ) | | (251,004 | ) |
Total property and equipment, net | | | $ | 334,951 |
| | $ | 343,426 |
|
| |
(a)
| Includes land owned in fee and perpetual easements. |
Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $26.7 million, $26.5 million and $25.6 million, respectively.
| |
4.
| Intangible Assets and Above-market Leases |
The following is a summary of the Company's intangible assets.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2018 | | As of December 31, 2017 |
| Gross Carrying Value | | Accumulated Amortization | | Net Book Value | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
Site rental contracts and tenant relationships | $ | 986,601 |
| | $ | (600,702 | ) | | $ | 385,899 |
| | $ | 985,741 |
| | $ | (550,085 | ) | | $ | 435,656 |
|
Other intangible assets | 6,400 |
| | (4,272 | ) | | 2,128 |
| | 6,463 |
| | (4,089 | ) | | 2,374 |
|
Total | $ | 993,001 |
| | $ | (604,974 | ) | | $ | 388,027 |
| | $ | 992,204 |
| | $ | (554,174 | ) | | $ | 438,030 |
|
Amortization expense related to intangible assets is classified as follows on the Company's consolidated statement of operations:
|
| | | | | | | | | | | |
| For Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
Depreciation, amortization and accretion | $ | 50,616 |
| | $ | 50,597 |
| | $ | 50,583 |
|
Site rental costs of operations | 245 |
| | 260 |
| | 279 |
|
Total amortization expense | $ | 50,861 |
| | $ | 50,857 |
| | $ | 50,862 |
|
The estimated annual amortization expense related to intangible assets (inclusive of those recorded as an increase to "site rental cost of operations") for the years ending December 31, 2019 to 2023 is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Estimated annual amortization | $ | 50,859 |
| | $ | 50,833 |
| | $ | 50,816 |
| | $ | 50,804 |
| | $ | 50,803 |
|
PINNACLE TOWERS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
See note 2 for a further discussion of above-market leases for land interests under the Company's towers recorded in connection with acquisitions. For each of the years ended December 31, 2018, 2017 and 2016, the Company recorded $0.3 million as a decrease to "site rental cost of operations." The following is a summary of the Company's above-market leases.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | December 31, 2017 |
| Gross Carrying Value | | Accumulated Amortization | | Net Book Value | | Gross Carrying Value | | Accumulated Amortization | | Net Book Value |
Above-market leases | $ | 8,056 |
| | $ | (4,646 | ) | | $ | 3,410 |
| | $ | 8,056 |
| | $ | (4,327 | ) | | $ | 3,729 |
|
The estimated annual amortization expense related to above-market leases for land interests under the Company's towers for the years ending December 31, 2019 to 2023 is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Estimated annual amortization | $ | 304 |
| | $ | 295 |
| | $ | 290 |
| | $ | 288 |
| | $ | 279 |
|
In December 2012, CCL and Crown Castle GS III Corp. (a subsidiary of CCL) issued $1.5 billion aggregate principal amount of senior secured notes ("2012 Secured Notes"), which are guaranteed by certain subsidiaries of CCL, including the Company. In addition, the 2012 Secured Notes are secured on a first priority basis by certain subsidiaries of CCL, including a pledge of the equity interests of the Company. In September 2016, CCIC issued $700 million aggregate principal amount of 2.250% senior unsecured notes. CCIC used a portion of the net proceeds to repay $500 million of the 2012 Secured Notes.
The 2012 Secured Notes do not contain financial maintenance covenants but they do contain restrictive covenants, subject to certain exceptions, related to the Company's ability to incur indebtedness, incur liens, enter into certain mergers or change of control transactions, sell or issue equity interests and enter into related party transactions. With respect to the restriction regarding the issuance of debt, CCL and its subsidiaries including the Company may not issue debt other than (1) certain permitted refinancings of the 2012 Secured Notes, (2) unsecured trade payables in the ordinary course of business and financing of equipment, land or other property up to an aggregate of $100.0 million and (3) unsecured debt or additional notes under the 2012 Secured Notes indenture provided that the Debt to Adjusted Consolidated Cash Flow Ratio (as defined in the indenture governing the 2012 Secured Notes) at the time of incurrence, and after giving effect to such incurrence, would have been no greater than 3.5 to 1. As of December 31, 2018, CCL's Debt to Adjusted Consolidated Cash Flow Ratio was 2.3 to 1, and, as a result, the Company is not restricted in its ability to incur additional indebtedness. Further, the Company is not restricted in its ability to distribute cash to affiliates or issue dividends to its member.
| |
6.
| Related Party Transactions |
In December 2012, CCL, the Company, and other subsidiaries of CCL entered into a management agreement ("Management Agreement") with CCUSA, which replaced a previous management agreement among the same parties. The Company is charged a management fee by CCUSA under the Management Agreement whereby CCUSA has agreed to employ, supervise and pay at all times a sufficient number of capable employees as may be necessary to perform services in accordance with the operation standards defined in the Management Agreement. CCUSA currently acts as the manager of the majority of the sites held by subsidiaries of CCIC. The management fee is equal to 7.5% of the Company's "Operating Revenue," as defined in the Management Agreement, which are based on the Company’s reported revenues adjusted to exclude certain items including revenues related to the accounting for leases with fixed escalators. The fee is compensation for those functions reasonably necessary to maintain, market, operate, manage and administer the sites, other than the operating expenses, which includes but is not limited to real estate and personal property taxes, ground lease and easement payments, and insurance premiums. In addition, in connection with its role as manager, CCUSA may make certain modifications to the Company's sites. The management fee charged from CCUSA for the years ended December 31, 2018, 2017 and 2016 totaled $13.7 million, $13.3 million and $12.9 million, respectively.
In addition, CCUSA may perform installation services on the Company's towers for which the Company is not a party to any such agreement and for which no operating results are reflected herein.
PINNACLE TOWERS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
As part of CCIC's strategy to obtain long-term control of the land under its towers, affiliates of the Company have acquired rights to land interests under the Company's towers. These affiliates then lease the land to the Company. Under such circumstances, the Company's obligation typically continues with the same or similar economic terms as the contract for the land that existed prior to the purchase of such land by the affiliate. As of December 31, 2018, approximately 15%30% of the Company's towers were located on land which was controlled by an affiliate. Rent expense to affiliates totaled $4.8$43.3 million,, $4.4 $41.0 million and $4.1$36.7 million for the years ended December 31, 2019, 2018 and 2017, and 2016, respectively. TheAlso, the Company receives site rental revenue from affiliates for land owned by the Company on which affiliates have towers and pays ground rent expense to affiliates for land owned by affiliates on which the Company has towers. Rent revenue from affiliates totaled $1.0 million for each of the years ended December 31, 2019, 2018 and 2017.
For the years ended December 31, 2019, 2018 and 2017, and 2016, rent revenue from affiliates totaled $0.9 million, $0.8 million and $0.8 million, respectively.
Thethe Company recorded an equity distributionsdistribution of $107.9$362.8 million, $110.9$368.0 million and $97.5$335.0 million, for the years ended December 31, 2018, 2017 and 2016, respectively, reflecting distributions to its member. Cash on-hand above the amount that is required by the Management Agreement has been, and is expected to continue to be, distributed to the Company's parent company, CCL. See note 7 for a discussion of the equity contribution related to income taxes. company. As of December 31, 2019 and 2018, other than the amounts of its ROU assets and 2017,operating lease liabilities related to land leased from affiliates of the Company reflected in "Operating lease right-of-use assets," "Current portion of operating lease liabilities-related parties" and "Operating lease liabilities-related parties," the Company had no material related party assets or liabilities on its consolidated balance sheet.
The following table shows the estimated fair values of the Company's financial instruments, along with the carrying amounts of the related assets (liabilities). See also note 3.
|
| | | | | | | | | | | | | | | | | |
| Level in Fair Value Hierarchy | | December 31, 2019 | | December 31, 2018 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Assets: | | | | | | | | | |
Cash and cash equivalents | 1 | | $ | 20,407 |
| | $ | 20,407 |
| | $ | 18,707 |
| | $ | 18,707 |
|
Liabilities: | | | | | | | | | |
Debt | 2 | | 995,431 |
| | 1,046,200 |
| | 994,047 |
| | 990,600 |
|
For each the yearyears ended December 31, 2019 and 2018, the Company had a provision for income taxes of $0.1$0.4 million, which relates toconsisted of state taxes.taxes in both years. For the yearsyear ended December 31, 2017, and 2016, the Company had benefitsa benefit for income taxes of $0.1$0.6 million, and $0.2 million, respectively, which consisted of the reduction of unrecognized tax benefits as a result of the lapse of the statute of limitations.limitations partially offset by state taxes. The Company's effective tax rate for the years ended December 31, 2019, 2018 2017 and 20162017 differed from the federal statutory rate predominately due to CCIC's REIT status, including the dividends paid deduction (see notes 1 and 2),3) and the aforementioned impacts described above.
As of December 31, 2018,2019, there were no unrecognized tax benefits that would impact the effective tax rate, if recognized.
From time to time, the Company is subject to examinations by various tax authorities in jurisdictions in which the Companyit has business operations. At this time, CCIC is not subject to an Internal Revenue Service examination.
The Company regularly assesses the likelihood of additional assessments in each of the tax jurisdictions resulting from these examinations. At this time,in which it has business operations. CCIC is not subject to an Internal Revenue Service examination.
has no uncertain tax positions as of December 31, 2019.
| |
8. 10. | Commitments and Contingencies |
The Company is involved in various claims, lawsuits or proceedings arising in the ordinary course of business. While there are uncertainties inherent in the ultimate outcome of such matters, and it is impossible to presently determine the ultimate costs or losses that may be incurred, if any, management believes the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's consolidated financial position or results of operations. See note 911 for a discussion of the operating lease commitments.In addition, see note 1 for a discussion of the CCIC's option to purchase approximately 68% of the Company's towers at the end of their respective lease terms. CCIC has no obligation to exercise the purchase option.
Asset Retirement Obligations
Pursuant to its ground lease and easement agreements, the Company has the obligation to perform certain asset retirement activities, including requirements upon contract or easement termination to remove communications infrastructuresites or remediate the land upon which its communications infrastructuresite resides. Accretion expense related to liabilities for retirement obligations amounted to $0.6$0.5 million, $0.6$0.8 million, and $0.5$0.7 million for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively. As of December 31, 20182019 and 2017,2018, liabilities for retirement obligations amounted to $7.2$11.4 million and $6.7$10.9 million, respectively, representing the net present value of the estimated expected future cash outlay. As of December 31, 2018,2019, the estimated undiscounted future cash outlay for asset retirement obligations was approximately $65$82.6 million. See note 2.
3.
Lessor Tenant Leases
The following table is a summary of the rental cash payments owed to the Company, as a lessor, by tenants pursuant to contractual agreements in effect as of December 31, 2018.2019. Generally, the Company's leases with its tenants provide for (1) annual escalations, (2) multiple renewal periods at the tenant's option and (3) only limited termination rights at the applicable tenant's
PINNACLE TOWERS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
option through the current term. As of December 31, 2018,2019, the weighted-average remaining term (calculated by weighting the remaining term for each lease by the related site rental revenue) of tenant leases is approximately fivesix years, exclusive of renewals
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
at the tenant's option. The tenants' rental payments included in the table below are through the current terms with a maximum current term of 20 years and do not assume exercise of tenant renewal options.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Tenant leases(a) | $ | 674,904 |
| | $ | 674,505 |
| | $ | 661,822 |
| | $ | 525,154 |
| | $ | 472,165 |
| | $ | 1,412,873 |
| | $ | 4,421,423 |
|
| |
(a) | Inclusive of leases with related parties. See note 7. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Tenant leases | $ | 173,358 |
| | $ | 164,918 |
| | $ | 158,707 |
| | $ | 148,486 |
| | $ | 114,345 |
| | $ | 310,935 |
| | $ | 1,070,749 |
|
Lessee Operating Leases
The components of the Company's operating lease expense are as follows:
|
| | | |
| Year Ended |
| December 31, 2019 |
Lease cost(a): | |
Operating lease expense(b) | $ | 119,775 |
|
Variable lease expense(c) | 37,054 |
|
Total lease expense | $ | 156,829 |
|
| |
(a) | Inclusive of leases with related parties. See note 7. |
| |
(b) | Represents the Company's operating lease expense related to its ROU assets for the twelve months ended December 31, 2019. |
| |
(c) | Represents the Company's expense related to contingent payments for operating leases (such as payments based on revenues derived from the sites located on the leased asset) for the twelve months ended December 31, 2019. Such contingencies are recognized as expense in the period they are resolved. |
Lessee Finance Leases
The Company's finance leases are related to the towers subject to prepaid master lease agreements with Sprint and are recorded as "Property and equipment, net" on the consolidated balance sheet. See note 1 for further discussion of the Company's prepaid master lease agreements and note 3 for further information regarding the Company's adoption method of the new lease standard. Finance leases and associated leasehold improvements related to gross property and equipment and accumulated depreciation were $978.1 million and $645.6 million, respectively, as of December 31, 2019. For the twelve months ended December 31, 2019, the Company recorded $41.1 million to "Depreciation, amortization and accretion" related to finance leases.
Other Lessee Information
As of December 31, 2019, the Company's weighted-average remaining lease term and weighted-average discount rate for operating leases were 16 years and 4.3%, respectively.
The following table is a summary of rental cash payments owed by the Company, as lessee, to landlords pursuant to contractual agreements in effectCompany's maturities of operating lease liabilities as of December 31, 2018. 2019:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, | | | | | | | | |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total undiscounted lease payments | | Less: Imputed interest | | Total operating lease liabilities |
Operating leases(a)(b) | $ | 107,579 |
| | $ | 107,746 |
| | $ | 107,486 |
| | $ | 106,990 |
| | $ | 106,000 |
| | $ | 1,185,872 |
| | $ | 1,721,673 |
| | $ | (503,212 | ) | | $ | 1,218,461 |
|
| |
(a) | Excludes the Company's contingent payments for operating leases (such as payments based on revenues derived from the sites located on the leased asset) as such arrangements are excluded from the Company's operating lease liability. Such contingencies are recognized as expense in the period they are resolved. |
| |
(b) | Inclusive of leases with related parties. See note 7. |
Comparative Information from 2018 Form 10-K
The Company is obligated under non-cancelable operating leases for land interests under approximately 65% of its towers. The majority of these operating lease agreements have (1) certain termination rights that provide for cancellation afteradopted ASC 842 using a notice period, (2) multiple renewal options at the Company's option and (3) annual escalations. Lease agreements may also contain provisions for a contingent payment based on revenues or the gross margin derived from the tower located on the leased land interest. More than 85% and more than 65%modified retrospective approach as of the Company's sites are undereffective date, without adjusting the Company's control for greater thancomparative periods, and therefore, as required by ASC 842, has included the following comparative information from note 10 and 20 years, respectively, including renewals atto the Company's option.consolidated financial statements in its 2018 Form 10-K.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The operating lease payments included in the table below include payments for certain renewal periods exercisable at the Company's option that are deemed reasonably assured to be exercised and an estimate of contingent payments based on revenues and gross margins derived from existing tenant leases. See also note 6.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Operating leases | $ | 24,418 |
| | $ | 24,094 |
| | $ | 23,659 |
| | $ | 23,476 |
| | $ | 23,478 |
| | $ | 289,082 |
| | $ | 408,207 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ending December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Operating leases(a) | $ | 142,671 |
| | $ | 144,069 |
| | $ | 144,390 |
| | $ | 142,144 |
| | $ | 140,193 |
| | $ | 1,697,442 |
| | $ | 2,410,909 |
|
Rental expense from operating leases was $26.2 million, $25.8 million and $25.8 million for the years ended December 31, 2018, 2017 and 2016, respectively. The rental expense was inclusive of contingent payments based on revenues or gross margin derived from the tower located on the leased land of $9.7 million, $9.5 million and $9.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Effective January 1, 2019, the Company adopted new lease accounting guidance on the recognition, measurement, presentation and disclosure of leases. See note 2 for further discussion.
| |
(a) | Inclusive of leases with related parties. See note 7. |
| |
10.12.
| Concentration of Credit Risk |
The financial instrumentFinancial instruments that potentially subjectssubject the Company to concentrations of credit risk isare primarily cash and cash equivalents and trade receivables. The Company mitigates its risk with respect to cash and cash equivalents by maintaining such deposits at high credit quality financial institutions and monitoring the credit ratings of those institutions. See note 3.
The Company derives the largest portion of its revenues from tenants in the wireless industry. The Company also has a concentration in its volume of business with Sprint, AT&T, Sprint, T-Mobile and Verizon Wireless that accounts for a significant portion of the Company's revenues, receivables and deferred site rental receivables. The Company mitigates its concentrations of credit risk with respect to trade receivables by actively monitoring the creditworthiness of its tenants, the use of tenant contractsleases with contractually determinable payment terms andor proactive management of past due balances.
Major Tenants
The following table summarizes the percentage of the Company'sconsolidated revenues for those tenants accounting for more than 10% of the Company'sconsolidated revenues. The table below gives effect to the Historical Adjustments, as discussed in note 2.
|
| | | | | | | | |
| Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
| | | (As Restated) |
Sprint | 33 | % | | 35 | % | | 36 | % |
AT&T | 22 | % | | 20 | % | | 20 | % |
T-Mobile | 20 | % | | 19 | % | | 19 | % |
Verizon Wireless | 15 | % | | 15 | % | | 14 | % |
Total | 90 | % | | 89 | % | | 89 | % |
| |
13. | Supplemental Cash Flow Information |
The following table is a summary of the supplemental cash flow information during the years ended December 31, 2019, 2018 and 2017.
|
| | | | | | | | | | | |
| For Years Ended December 31, |
| 2019 | | 2018 | | 2017 |
Supplemental disclosure of cash flow information: | | | | | |
Cash payments related to operating lease liabilities(a)(b)(c) | $ | 105,933 |
| | $ | — |
| | $ | — |
|
Interest paid | $ | 38,490 |
| | $ | 38,490 |
| | $ | 38,490 |
|
Supplemental disclosure of non-cash operating, investing and financing activities: | | | | | |
New ROU assets obtained in exchange for operating lease liabilities(b)(c) | $ | 101,884 |
| | $ | — |
| | $ | — |
|
| |
(a) | Excludes the Company's contingent payments pursuant to operating leases, which are recorded as expense in the period such contingencies are resolved. |
| |
(b) | See "Recently Adopted Accounting Pronouncements" in note 3 for a discussion of the recently adopted lease standard. |
| |
(c) | Inclusive of leases with related parties. See note 7. |
| |
14. | Quarterly Financial Information (Unaudited) |
Quarterly financial information for the years ended December 31, 2019 and 2018 is summarized in the table below. The tables below give effect to the Historical Adjustments, where applicable, as discussed in note 2.
|
| | | | | | | | |
| Years Ended December 31, |
| 2018 | | 2017 | | 2016 |
AT&T | 21 | % | | 19 | % | | 20 | % |
Sprint | 16 | % | | 17 | % | | 17 | % |
T-Mobile | 17 | % | | 17 | % | | 16 | % |
Verizon Wireless | 14 | % | | 13 | % | | 13 | % |
Total | 68 | % | | 66 | % | | 66 | % |
|
| | | | | | | | | | | | | | | |
| Three Months Ended(a) |
| December 31 | | September 30 | | June 30 | | March 31 |
| | | (As Restated) |
2019: | | | | | | | |
Total site rental revenues | $ | 184,864 |
| | $ | 185,181 |
| | $ | 180,953 |
| | $ | 179,493 |
|
Operating income (loss) | 69,803 |
| | 71,403 |
| | 67,394 |
| | 67,708 |
|
Benefit (provision) for income taxes | (119 | ) | | (102 | ) | | (107 | ) | | (98 | ) |
Net income (loss) | $ | 59,940 |
| | $ | 61,492 |
| | $ | 57,607 |
| | $ | 57,638 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended(a) |
| December 31 | | September 30 | | June 30 | | March 31 |
| (As Restated) |
2018: | | | | | | | |
Total site rental revenues | $ | 179,306 |
| | $ | 175,954 |
| | $ | 174,660 |
| | $ | 173,061 |
|
Operating income (loss) | 67,275 |
| | 64,284 |
| | 62,491 |
| | 61,561 |
|
Benefit (provision) for income taxes | (137 | ) | | (93 | ) | | (93 | ) | | (93 | ) |
Net income (loss) | $ | 57,303 |
| | $ | 54,312 |
| | $ | 52,470 |
| | $ | 51,432 |
|
| |
(a) | The sum of quarterly information may not agree to year-to-date information due to rounding. |
Restatement of Previously Issued Quarterly Unaudited Financial Information
The following tables represent the Company’s restatement of previously issued unaudited quarterly financial information for each of the applicable interim periods during the nine months ended September 30, 2019 and twelve months ended December 31, 2018. The amounts previously issued were derived from the Company’s respective Quarterly Reports on Form 10-Q, and, for the fourth quarter of 2018, from its 2018 Annual Report on Form 10-K. As discussed in note 2, the following tables reflect the impact of the Historical Adjustments, where applicable, on each interim period below. The sum of the quarterly information may not agree to year-to-date information due to rounding.
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
Condensed Consolidated Balance Sheet
|
| | | | | | | | | | | |
| September 30, 2019 | | June 30, 2019 | | March 31, 2019 |
| (As Restated) |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 18,486 |
| | $ | 17,679 |
| | $ | 17,710 |
|
Receivables, net of allowance | 2,348 |
| | 1,730 |
| | 2,811 |
|
Prepaid expenses(a) | 14,883 |
| | 18,186 |
| | 11,569 |
|
Deferred site rental receivables and other current assets | 28,413 |
| | 29,793 |
| | 28,917 |
|
Total current assets | 64,130 |
| | 67,388 |
| | 61,007 |
|
Deferred site rental receivables | 352,984 |
| | 348,047 |
| | 345,000 |
|
Property and equipment, net | 1,008,702 |
| | 1,008,991 |
| | 1,005,579 |
|
Operating lease right-of-use assets(a) | 1,135,264 |
| | 1,104,505 |
| | 1,094,798 |
|
Goodwill | 1,338,730 |
| | 1,338,730 |
| | 1,338,730 |
|
Other intangible assets, net(a) | 707,376 |
| | 735,797 |
| | 764,217 |
|
Long-term prepaid rent and other assets, net(a) | 1,878 |
| | 1,930 |
| | 2,177 |
|
Total assets | $ | 4,609,064 |
| | $ | 4,605,388 |
| | $ | 4,611,508 |
|
LIABILITIES AND EQUITY | | | | | |
Current liabilities: | | | | | |
Accounts payable | $ | 2,164 |
| | $ | 6,404 |
| | $ | 1,601 |
|
Accrued interest | 17,748 |
| | 8,126 |
| | 17,748 |
|
Deferred revenues(b) | 66,933 |
| | 63,973 |
| | 61,770 |
|
Other accrued liabilities(a) | 7,484 |
| | 7,722 |
| | 10,409 |
|
Current portion of operating lease liabilities - third parties(a) | 38,176 |
| | 35,512 |
| | 37,662 |
|
Current portion of operating lease liabilities - related parties(a) | 16,397 |
| | 16,137 |
| | 18,072 |
|
Total current liabilities | 148,902 |
| | 137,874 |
| | 147,262 |
|
Debt | 995,085 |
| | 994,739 |
| | 994,393 |
|
Operating lease liabilities - third parties(a) | 827,253 |
| | 804,386 |
| | 795,388 |
|
Operating lease liabilities - related parties(a) | 319,472 |
| | 314,291 |
| | 309,975 |
|
Other long-term liabilities(a)(b) | 200,648 |
| | 197,241 |
| | 193,126 |
|
Total liabilities | 2,491,360 |
| | 2,448,531 |
| | 2,440,144 |
|
Commitments and contingencies (see note 10) | | | | | |
Member's equity: | | | | | |
Member's equity | 2,117,704 |
| | 2,156,857 |
| | 2,171,364 |
|
Accumulated earnings (deficit) | — |
| | — |
| | — |
|
Total member's equity | 2,117,704 |
| | 2,156,857 |
| | 2,171,364 |
|
Total liabilities and equity | $ | 4,609,064 |
| | $ | 4,605,388 |
| | $ | 4,611,508 |
|
| |
(a) | See "Recently Adopted Accounting Pronouncements" in note 3 for a discussion of the recently adopted lease standard. |
| |
(b) | Reflects the recording of deferred revenues in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers . The Company receives no cash from, and is not party to, such transactions. |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | |
| September 30, 2018 | | June 30, 2018 | | March 31, 2018 |
| (As Restated) |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 24,236 |
| | $ | 21,655 |
| | $ | 28,488 |
|
Receivables, net of allowance | 2,740 |
| | 2,350 |
| | 2,744 |
|
Prepaid expenses(a) | 28,615 |
| | 27,444 |
| | 19,305 |
|
Deferred site rental receivables and other current assets | 25,739 |
| | 39,928 |
| | 29,478 |
|
Total current assets | 81,330 |
| | 91,377 |
| | 80,015 |
|
Deferred site rental receivables | 341,633 |
| | 325,070 |
| | 331,907 |
|
Property and equipment, net | 1,014,028 |
| | 1,017,638 |
| | 1,024,460 |
|
Goodwill | 1,338,730 |
| | 1,338,730 |
| | 1,338,730 |
|
Other intangible assets, net(a) | 836,156 |
| | 864,946 |
| | 893,735 |
|
Long-term prepaid rent and other assets, net(a) | 39,252 |
| | 38,999 |
| | 38,789 |
|
Total assets | $ | 3,651,129 |
| | $ | 3,676,760 |
| | $ | 3,707,636 |
|
LIABILITIES AND EQUITY | | | | | |
Current liabilities: | | | | | |
Accounts payable | $ | 2,325 |
| | $ | 2,443 |
| | $ | 1,738 |
|
Accrued interest | 17,748 |
| | 8,126 |
| | 17,748 |
|
Deferred revenues(b) | 57,765 |
| | 54,945 |
| | 52,855 |
|
Other accrued liabilities(a) | 8,835 |
| | 9,584 |
| | 12,589 |
|
Total current liabilities | 86,673 |
| | 75,098 |
| | 84,930 |
|
Debt | 993,701 |
| | 993,355 |
| | 993,009 |
|
Deferred ground lease payable(a) | 111,856 |
| | 110,349 |
| | 109,040 |
|
Other long-term liabilities(a)(b) | 207,270 |
| | 205,835 |
| | 206,141 |
|
Total liabilities | 1,399,500 |
| | 1,384,637 |
| | 1,393,120 |
|
Commitments and contingencies (see note 10) | | | | | |
Member's equity: | | | | | |
Member's equity | 2,251,629 |
| | 2,292,123 |
| | 2,314,516 |
|
Accumulated earnings (deficit) | — |
| | — |
| | — |
|
Total member's equity | 2,251,629 |
| | 2,292,123 |
| | 2,314,516 |
|
Total liabilities and equity | $ | 3,651,129 |
| | $ | 3,676,760 |
| | $ | 3,707,636 |
|
| |
(a) | See "Recently Adopted Accounting Pronouncements" in note 3 for a discussion of the recently adopted lease standard. |
| |
(b) | Reflects the recording of deferred revenues in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers . The Company receives no cash from, and is not party to, such transactions. |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The following tables illustrate the Historical Adjustments, where applicable, on the Company’s condensed consolidated balance sheet for each period presented. Only line items impacted by the Historical Adjustments are presented, and as such, components will not sum to totals.
|
| | | | | | | | | | | | | | | |
| September 30, 2019 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
ASSETS | | | | | | | |
Property and equipment, net | $ | 1,015,632 |
| | $ | (4,140 | ) | | $ | (2,790 | ) | | $ | 1,008,702 |
|
Total assets | 4,615,994 |
| | (4,140 | ) | | (2,790 | ) | | 4,609,064 |
|
LIABILITIES AND EQUITY | | | | | | |
|
|
Current liabilities: | | | | | | |
|
|
Deferred revenues(a) | 13,390 |
| | 53,543 |
| | — |
| | 66,933 |
|
Total current liabilities | 95,359 |
| | 53,543 |
| | — |
| | 148,902 |
|
Other long-term liabilities(a) | 35,618 |
| | 165,030 |
| | — |
| | 200,648 |
|
Total liabilities | 2,272,787 |
| | 218,573 |
| | — |
| | 2,491,360 |
|
Member's equity: | | | | | | |
|
|
Member's equity | 2,343,207 |
| | (222,713 | ) | | (2,790 | ) | | 2,117,704 |
|
Total member's equity | 2,343,207 |
| | (222,713 | ) | | (2,790 | ) | | 2,117,704 |
|
Total liabilities and equity | $ | 4,615,994 |
| | $ | (4,140 | ) | | $ | (2,790 | ) | | $ | 4,609,064 |
|
|
| | | | | | | | | | | | | | | |
| June 30, 2019 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
ASSETS | | | | | | | |
Property and equipment, net | $ | 1,016,024 |
| | $ | (4,288 | ) | | $ | (2,745 | ) | | $ | 1,008,991 |
|
Total assets | 4,612,421 |
| | (4,288 | ) | | (2,745 | ) | | 4,605,388 |
|
LIABILITIES AND EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Deferred revenues(a) | 12,347 |
| | 51,626 |
| | — |
| | 63,973 |
|
Total current liabilities | 86,248 |
| | 51,626 |
| | — |
| | 137,874 |
|
Other long-term liabilities(a) | 35,001 |
| | 162,240 |
| | — |
| | 197,241 |
|
Total liabilities | 2,234,665 |
| | 213,866 |
| | — |
| | 2,448,531 |
|
Member's equity: | | | | | | | |
Member's equity | 2,377,756 |
| | (218,154 | ) | | (2,745 | ) | | 2,156,857 |
|
Total member's equity | 2,377,756 |
| | (218,154 | ) | | (2,745 | ) | | 2,156,857 |
|
Total liabilities and equity | $ | 4,612,421 |
| | $ | (4,288 | ) | | $ | (2,745 | ) | | $ | 4,605,388 |
|
| |
(a) | Reflects the recording of deferred revenues in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers . The Company receives no cash from, and is not party to, such transactions. |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | | | | | |
| March 31, 2019 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
ASSETS | | | | | | | |
Property and equipment, net | $ | 1,012,769 |
| | $ | (4,436 | ) | | $ | (2,754 | ) | | $ | 1,005,579 |
|
Total assets | 4,618,698 |
| | (4,436 | ) | | (2,754 | ) | | 4,611,508 |
|
LIABILITIES AND EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Deferred revenues(a) | 12,436 |
| | 49,334 |
| | — |
| | 61,770 |
|
Total current liabilities | 97,928 |
| | 49,334 |
| | — |
| | 147,262 |
|
Other long-term liabilities(a) | 34,342 |
| | 158,784 |
| | — |
| | 193,126 |
|
Total liabilities | 2,232,026 |
| | 208,118 |
| | — |
| | 2,440,144 |
|
Member's equity: | | | | | | | |
Member's equity | 2,386,672 |
| | (212,554 | ) | | (2,754 | ) | | 2,171,364 |
|
Total member's equity | 2,386,672 |
| | (212,554 | ) | | (2,754 | ) | | 2,171,364 |
|
Total liabilities and equity | $ | 4,618,698 |
| | $ | (4,436 | ) | | $ | (2,754 | ) | | $ | 4,611,508 |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
ASSETS | | | | | | | |
Property and equipment, net | $ | 1,021,517 |
| | $ | (4,740 | ) | | $ | (2,749 | ) | | $ | 1,014,028 |
|
Total assets | 3,658,618 |
| | (4,740 | ) | | (2,749 | ) | | 3,651,129 |
|
LIABILITIES AND EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Deferred revenues(a) | 11,709 |
| | 46,056 |
| | — |
| | 57,765 |
|
Total current liabilities | 40,617 |
| | 46,056 |
| | — |
| | 86,673 |
|
Above-market leases and other long-term liabilities(a) | 49,936 |
| | 157,334 |
| | — |
| | 207,270 |
|
Total liabilities | 1,196,110 |
| | 203,390 |
| | — |
| | 1,399,500 |
|
Member's equity: | | | | | | | |
Member's equity | 2,462,508 |
| | (208,130 | ) | | (2,749 | ) | | 2,251,629 |
|
Total member's equity | 2,462,508 |
| | (208,130 | ) | | (2,749 | ) | | 2,251,629 |
|
Total liabilities and equity | $ | 3,658,618 |
| | $ | (4,740 | ) | | $ | (2,749 | ) | | $ | 3,651,129 |
|
|
| | | | | | | | | | | | | | | |
| June 30, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
ASSETS | | | | | | | |
Property and equipment, net | $ | 1,025,250 |
| | $ | (4,897 | ) | | $ | (2,715 | ) | | $ | 1,017,638 |
|
Total assets | 3,684,372 |
| | (4,897 | ) | | (2,715 | ) | | 3,676,760 |
|
LIABILITIES AND EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Deferred revenues(a) | 12,043 |
| | 42,902 |
| | — |
| | 54,945 |
|
Total current liabilities | 32,196 |
| | 42,902 |
| | — |
| | 75,098 |
|
Above-market leases and other long-term liabilities(a) | 49,688 |
| | 156,147 |
| | — |
| | 205,835 |
|
Total liabilities | 1,185,588 |
| | 199,049 |
| | — |
| | 1,384,637 |
|
Member's equity: | | | | | | | |
Member's equity | 2,498,784 |
| | (203,946 | ) | | (2,715 | ) | | 2,292,123 |
|
Total member's equity | 2,498,784 |
| | (203,946 | ) | | (2,715 | ) | | 2,292,123 |
|
Total liabilities and equity | $ | 3,684,372 |
| | $ | (4,897 | ) | | $ | (2,715 | ) | | $ | 3,676,760 |
|
| |
(a) | Reflects the recording of deferred revenues in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers . The Company receives no cash from, and is not party to, such transactions. |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | | | | | |
| March 31, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
ASSETS | | | | | | | |
Property and equipment, net | $ | 1,032,214 |
| | $ | (5,054 | ) | | $ | (2,700 | ) | | $ | 1,024,460 |
|
Total assets | 3,715,390 |
| | (5,054 | ) | | (2,700 | ) | | 3,707,636 |
|
LIABILITIES AND EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Deferred revenues(a) | 11,929 |
| | 40,926 |
| | — |
| | 52,855 |
|
Total current liabilities | 44,004 |
| | 40,926 |
| | — |
| | 84,930 |
|
Above-market leases and other long-term liabilities(a) | 49,456 |
| | 156,685 |
| | — |
| | 206,141 |
|
Total liabilities | 1,195,509 |
| | 197,611 |
| | — |
| | 1,393,120 |
|
Member's equity: | | | | | | | |
Member's equity | 2,519,881 |
| | (202,665 | ) | | (2,700 | ) | | 2,314,516 |
|
Total member's equity | 2,519,881 |
| | (202,665 | ) | | (2,700 | ) | | 2,314,516 |
|
Total liabilities and equity | $ | 3,715,390 |
| | $ | (5,054 | ) | | $ | (2,700 | ) | | $ | 3,707,636 |
|
| |
(a) | Reflects the recording of deferred revenues in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers . The Company receives no cash from, and is not party to, such transactions. |
Condensed Consolidated Statement of Operations
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2019 | | June 30, 2019 | | March 31, 2019 |
| Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
| (As Restated) |
Site rental revenues: | | | | | | | | | |
Revenues from tenant contracts | $ | 171,745 |
| | $ | 507,256 |
| | $ | 168,189 |
| | $ | 335,511 |
| | $ | 167,322 |
|
Amortization of tower installations and modifications(a) | 13,436 |
| | 38,371 |
| | 12,764 |
| | 24,935 |
| | 12,171 |
|
Total site rental revenues | 185,181 |
|
| 545,627 |
|
| 180,953 |
|
| 360,446 |
|
| 179,493 |
|
Operating expenses: | | | | | | | | | |
Site rental costs of operations—third parties(b) | 38,406 |
| | 114,212 |
| | 38,524 |
| | 75,806 |
| | 37,282 |
|
Site rental costs of operations—related parties(b) | 10,880 |
| | 32,210 |
| | 10,721 |
| | 21,330 |
| | 10,609 |
|
Site rental costs of operations—total(b) | 49,286 |
| | 146,422 |
| | 49,245 |
| | 97,136 |
| | 47,891 |
|
Management fee—related party | 12,611 |
| | 37,238 |
| | 12,503 |
| | 24,627 |
| | 12,124 |
|
Asset write-down charges | — |
| | 375 |
| | 185 |
| | 375 |
| | 190 |
|
Depreciation, amortization and accretion | 51,881 |
| | 155,087 |
| | 51,626 |
| | 103,206 |
| | 51,580 |
|
Total operating expenses | 113,778 |
| | 339,122 |
| | 113,559 |
| | 225,344 |
| | 111,785 |
|
Operating income (loss) | 71,403 |
| | 206,505 |
| | 67,394 |
| | 135,102 |
| | 67,708 |
|
Interest expense and amortization of deferred financing costs | (9,969 | ) | | (29,906 | ) | | (9,968 | ) | | (19,937 | ) | | (9,969 | ) |
Other income (expense) | 160 |
| | 445 |
| | 288 |
| | 285 |
| | (3 | ) |
Income (loss) before income taxes | 61,594 |
| | 177,044 |
| | 57,714 |
| | 115,450 |
| | 57,736 |
|
Benefit (provision) for income taxes | (102 | ) | | (307 | ) | | (107 | ) | | (205 | ) | | (98 | ) |
Net income (loss) | $ | 61,492 |
| | $ | 176,737 |
| | $ | 57,607 |
| | $ | 115,245 |
| | $ | 57,638 |
|
| |
(a) | Represents the amortization of deferred revenues recorded in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers. The Company receives no cash from, and is not party to, such transactions |
| |
(b) | Exclusive of depreciation, amortization and accretion shown separately and certain indirect costs included in the management fee. |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | September 30, 2018 | | June 30, 2018 | | March 31, 2018 |
| Three Months Ended | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
| (As Restated) |
Site rental revenues: | | | | | | | | | | | |
Revenues from tenant contracts | $ | 167,332 |
| | $ | 165,108 |
| | $ | 492,158 |
| | $ | 164,056 |
| | $ | 327,050 |
| | $ | 162,994 |
|
Amortization of tower installations and modifications(a) | 11,974 |
| | 10,846 |
| | 31,517 |
| | 10,604 |
| | 20,671 |
| | 10,067 |
|
Total site rental revenues | 179,306 |
|
| 175,954 |
|
| 523,675 |
|
| 174,660 |
|
| 347,721 |
|
| 173,061 |
|
Operating expenses: | | | | | | | | | | | |
Site rental costs of operations—third parties(b) | 36,270 |
| | 37,616 |
| | 112,469 |
| | 38,355 |
| | 75,862 |
| | 37,507 |
|
Site rental costs of operations—related parties(b) | 11,512 |
| | 10,163 |
| | 30,478 |
| | 9,700 |
| | 19,306 |
| | 9,606 |
|
Site rental costs of operations—total(b) | 47,782 |
| | 47,779 |
| | 142,947 |
| | 48,055 |
| | 95,168 |
| | 47,113 |
|
Management fee—related party | 12,293 |
| | 12,207 |
| | 36,227 |
| | 12,031 |
| | 24,020 |
| | 11,989 |
|
Asset write-down charges | 249 |
| | — |
| | 344 |
| | — |
| | 344 |
| | 344 |
|
Depreciation, amortization and accretion | 51,707 |
| | 51,684 |
| | 155,821 |
| | 52,083 |
| | 104,137 |
| | 52,054 |
|
Total operating expenses | 112,031 |
| | 111,670 |
| | 335,339 |
| | 112,169 |
| | 223,669 |
| | 111,500 |
|
Operating income (loss) | 67,275 |
| | 64,284 |
| | 188,336 |
| | 62,491 |
| | 124,052 |
| | 61,561 |
|
Interest expense and amortization of deferred financing costs | (9,968 | ) | | (9,969 | ) | | (29,906 | ) | | (9,968 | ) | | (19,937 | ) | | (9,969 | ) |
Other income (expense) | 133 |
| | 90 |
| | 63 |
| | 40 |
| | (27 | ) | | (67 | ) |
Income (loss) before income taxes | 57,440 |
| | 54,405 |
| | 158,493 |
| | 52,563 |
| | 104,088 |
| | 51,525 |
|
Benefit (provision) for income taxes | (137 | ) | | (93 | ) | | (279 | ) | | (93 | ) | | (186 | ) | | (93 | ) |
Net income (loss) | $ | 57,303 |
| | $ | 54,312 |
| | $ | 158,214 |
| | $ | 52,470 |
| | $ | 103,902 |
| | $ | 51,432 |
|
| |
(a) | Represents the amortization of deferred revenues recorded in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers. The Company receives no cash from, and is not party to, such transactions |
| |
(b) | Exclusive of depreciation, amortization and accretion shown separately and certain indirect costs included in the management fee. |
The following tables illustrate the Historical Adjustments, where applicable, on the Company’s condensed consolidated statement of operations for each period presented. Only line items impacted by the Historical Adjustments are presented, and as such, components will not sum to totals.
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 507,256 |
| | $ | — |
| | $ | — |
| | $ | 507,256 |
|
Amortization of tower installations and modifications(a) | — |
| | 38,371 |
| | — |
| | 38,371 |
|
Total site rental revenues | 507,256 |
|
| 38,371 |
|
| — |
| | 545,627 |
|
Operating expenses: | | | | | | |
|
|
Depreciation, amortization and accretion | 157,436 |
| | (2,208 | ) | | (141 | ) | | 155,087 |
|
Total operating expenses | 341,471 |
| | (2,208 | ) | | (141 | ) | | 339,122 |
|
Operating income (loss) | 165,785 |
|
| 40,579 |
|
| 141 |
| | 206,505 |
|
Income (loss) before income taxes | 136,324 |
| | 40,579 |
| | 141 |
| | 177,044 |
|
Net income (loss) | $ | 136,017 |
| | $ | 40,579 |
| | $ | 141 |
| | $ | 176,737 |
|
| |
(a) | Represents the amortization of deferred revenues recorded in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers. The Company receives no cash from, and is not party to, such transactions |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 171,745 |
| | $ | — |
| | $ | — |
| | $ | 171,745 |
|
Amortization of tower installations and modifications(a) | — |
| | 13,436 |
| | — |
| | 13,436 |
|
Total site rental revenues | 171,745 |
|
| 13,436 |
|
| — |
| | 185,181 |
|
Operating expenses: | | | | | | | |
Depreciation, amortization and accretion | 52,665 |
| | (736 | ) | | (48 | ) | | 51,881 |
|
Total operating expenses | 114,562 |
| | (736 | ) | | (48 | ) | | 113,778 |
|
Operating income (loss) | 57,183 |
|
| 14,172 |
|
| 48 |
| | 71,403 |
|
Income (loss) before income taxes | 47,374 |
| | 14,172 |
| | 48 |
| | 61,594 |
|
Net income (loss) | $ | 47,272 |
| | $ | 14,172 |
| | $ | 48 |
| | $ | 61,492 |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 335,511 |
| | $ | — |
| | $ | — |
| | $ | 335,511 |
|
Amortization of tower installations and modifications(a) | — |
| | 24,935 |
| | — |
| | 24,935 |
|
Total site rental revenues | 335,511 |
|
| 24,935 |
|
| — |
| | 360,446 |
|
Operating expenses: | | | | | | | |
Depreciation, amortization and accretion | 104,771 |
| | (1,472 | ) | | (93 | ) | | 103,206 |
|
Total operating expenses | 226,909 |
| | (1,472 | ) | | (93 | ) | | 225,344 |
|
Operating income (loss) | 108,602 |
|
| 26,407 |
|
| 93 |
| | 135,102 |
|
Income (loss) before income taxes | 88,950 |
| | 26,407 |
| | 93 |
| | 115,450 |
|
Net income (loss) | $ | 88,745 |
| | $ | 26,407 |
| | $ | 93 |
| | $ | 115,245 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 168,189 |
| | $ | — |
| | $ | — |
| | $ | 168,189 |
|
Amortization of tower installations and modifications(a) | — |
| | 12,764 |
| | — |
| | 12,764 |
|
Total site rental revenues | 168,189 |
|
| 12,764 |
|
| — |
| | 180,953 |
|
Operating expenses: | | | | | | | |
Depreciation, amortization and accretion | 52,409 |
| | (736 | ) | | (47 | ) | | 51,626 |
|
Total operating expenses | 114,342 |
| | (736 | ) | | (47 | ) | | 113,559 |
|
Operating income (loss) | 53,847 |
|
| 13,500 |
|
| 47 |
| | 67,394 |
|
Income (loss) before income taxes | 44,167 |
| | 13,500 |
| | 47 |
| | 57,714 |
|
Net income (loss) | $ | 44,060 |
| | $ | 13,500 |
| | $ | 47 |
| | $ | 57,607 |
|
| |
(a) | Represents the amortization of deferred revenues recorded in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers. The Company receives no cash from, and is not party to, such transactions |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 167,322 |
| | $ | — |
| | $ | — |
| | $ | 167,322 |
|
Amortization of tower installations and modifications(a) | — |
| | 12,171 |
| | — |
| | 12,171 |
|
Total site rental revenues | 167,322 |
|
| 12,171 |
|
| — |
| | 179,493 |
|
Operating expenses: | | | | | | | |
Depreciation, amortization and accretion | 52,362 |
| | (736 | ) | | (46 | ) | | 51,580 |
|
Total operating expenses | 112,567 |
| | (736 | ) | | (46 | ) | | 111,785 |
|
Operating income (loss) | 54,755 |
|
| 12,907 |
|
| 46 |
| | 67,708 |
|
Income (loss) before income taxes | 44,783 |
| | 12,907 |
| | 46 |
| | 57,736 |
|
Net income (loss) | $ | 44,685 |
| | $ | 12,907 |
| | $ | 46 |
| | $ | 57,638 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 167,332 |
| | $ | — |
| | $ | — |
| | $ | 167,332 |
|
Amortization of tower installations and modifications(a) | — |
| | 11,974 |
| | — |
| | 11,974 |
|
Total site rental revenues | 167,332 |
|
| 11,974 |
|
| — |
| | 179,306 |
|
Operating expenses: | | | | | | | |
Depreciation, amortization and accretion | 52,307 |
| | (555 | ) | | (45 | ) | | 51,707 |
|
Total operating expenses | 112,631 |
| | (555 | ) | | (45 | ) | | 112,031 |
|
Operating income (loss) | 54,701 |
|
| 12,529 |
|
| 45 |
| | 67,275 |
|
Income (loss) before income taxes | 44,866 |
| | 12,529 |
| | 45 |
| | 57,440 |
|
Net income (loss) | $ | 44,729 |
| | $ | 12,529 |
| | $ | 45 |
| | $ | 57,303 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 492,158 |
| | $ | — |
| | $ | — |
| | $ | 492,158 |
|
Amortization of tower installations and modifications(a) | — |
| | 31,517 |
| | — |
| | 31,517 |
|
Total site rental revenues | 492,158 |
|
| 31,517 |
|
| — |
| | 523,675 |
|
Operating expenses: | | | | | | | |
Depreciation, amortization and accretion | 157,765 |
| | (1,812 | ) | | (132 | ) | | 155,821 |
|
Total operating expenses | 337,283 |
| | (1,812 | ) | | (132 | ) | | 335,339 |
|
Operating income (loss) | 154,875 |
|
| 33,329 |
|
| 132 |
| | 188,336 |
|
Income (loss) before income taxes | 125,032 |
| | 33,329 |
| | 132 |
| | 158,493 |
|
Net income (loss) | $ | 124,753 |
| | $ | 33,329 |
| | $ | 132 |
| | $ | 158,214 |
|
| |
(a) | Represents the amortization of deferred revenues recorded in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers. The Company receives no cash from, and is not party to, such transactions |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 165,108 |
| | $ | — |
| | $ | — |
| | $ | 165,108 |
|
Amortization of tower installations and modifications(a) | — |
| | 10,846 |
| | — |
| | 10,846 |
|
Total site rental revenues | 165,108 |
|
| 10,846 |
|
| — |
| | 175,954 |
|
Operating expenses: | | | | | | | |
Depreciation, amortization and accretion | 52,333 |
| | (604 | ) | | (45 | ) | | 51,684 |
|
Total operating expenses | 112,319 |
| | (604 | ) | | (45 | ) | | 111,670 |
|
Operating income (loss) | 52,789 |
|
| 11,450 |
|
| 45 |
| | 64,284 |
|
Income (loss) before income taxes | 42,910 |
| | 11,450 |
| | 45 |
| | 54,405 |
|
Net income (loss) | $ | 42,817 |
| | $ | 11,450 |
| | $ | 45 |
| | $ | 54,312 |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 327,050 |
| | $ | — |
| | $ | — |
| | $ | 327,050 |
|
Amortization of tower installations and modifications(a) | — |
| | 20,671 |
| | — |
| | 20,671 |
|
Total site rental revenues | 327,050 |
|
| 20,671 |
|
| — |
| | 347,721 |
|
Operating expenses: | | | | | | | |
Depreciation, amortization and accretion | 105,432 |
| | (1,208 | ) | | (87 | ) | | 104,137 |
|
Total operating expenses | 224,964 |
| | (1,208 | ) | | (87 | ) | | 223,669 |
|
Operating income (loss) | 102,086 |
|
| 21,879 |
|
| 87 |
| | 124,052 |
|
Income (loss) before income taxes | 82,122 |
| | 21,879 |
| | 87 |
| | 104,088 |
|
Net income (loss) | $ | 81,936 |
| | $ | 21,879 |
| | $ | 87 |
| | $ | 103,902 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 164,056 |
| | $ | — |
| | $ | — |
| | $ | 164,056 |
|
Amortization of tower installations and modifications(a) | — |
| | 10,604 |
| | — |
| | 10,604 |
|
Total site rental revenues | 164,056 |
|
| 10,604 |
|
| — |
| | 174,660 |
|
Operating expenses: | | | | | | | |
Depreciation, amortization and accretion | 52,731 |
| | (604 | ) | | (44 | ) | | 52,083 |
|
Total operating expenses | 112,817 |
| | (604 | ) | | (44 | ) | | 112,169 |
|
Operating income (loss) | 51,239 |
|
| 11,208 |
|
| 44 |
| | 62,491 |
|
Income (loss) before income taxes | 41,311 |
| | 11,208 |
| | 44 |
| | 52,563 |
|
Net income (loss) | $ | 41,218 |
| | $ | 11,208 |
| | $ | 44 |
| | $ | 52,470 |
|
| |
(a) | Represents the amortization of deferred revenues recorded in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers. The Company receives no cash from, and is not party to, such transactions |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Site rental revenues: | | | | | | | |
Revenues from tenant contracts | $ | 162,994 |
| | $ | — |
| | $ | — |
| | $ | 162,994 |
|
Amortization of tower installations and modifications(a) | — |
| | 10,067 |
| | — |
| | 10,067 |
|
Total site rental revenues | 162,994 |
|
| 10,067 |
|
| — |
| | 173,061 |
|
Operating expenses: | | | | | | | |
Depreciation, amortization and accretion | 52,701 |
| | (604 | ) | | (43 | ) | | 52,054 |
|
Total operating expenses | 112,147 |
| | (604 | ) | | (43 | ) | | 111,500 |
|
Operating income (loss) | 50,847 |
|
| 10,671 |
|
| 43 |
| | 61,561 |
|
Income (loss) before income taxes | 40,811 |
| | 10,671 |
| | 43 |
| | 51,525 |
|
Net income (loss) | $ | 40,718 |
| | $ | 10,671 |
| | $ | 43 |
| | $ | 51,432 |
|
| |
(a) | Represents the amortization of deferred revenues recorded in connection with the CCIC transactions described in note 2 that result in permanent improvements to the Company's towers. The Company receives no cash from, and is not party to, such transactions |
Condensed Consolidated Statement of Cash Flows
|
| | | | | | | | | | | |
| September 30, 2019 | | June 30, 2019 | | March 31, 2019 |
| Nine Months Ended | | Six Months Ended | | Three Months Ended |
| (As Restated) |
Cash flows from operating activities(a): | | | | | |
Net income (loss) | $ | 176,737 |
| | $ | 115,245 |
| | $ | 57,638 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 155,087 |
| | 103,206 |
| | 51,580 |
|
Amortization of deferred financing costs | 1,038 |
| | 692 |
| | 346 |
|
Asset write-down charges | 375 |
| | 375 |
| | 190 |
|
Changes in assets and liabilities: | | | | | |
Increase (decrease) in accrued interest | 9,622 |
| | — |
| | 9,622 |
|
Increase (decrease) in accounts payable | (3,844 | ) | | 605 |
| | (32 | ) |
Increase (decrease) in other liabilities | 15,477 |
| | 9,473 |
| | 5,968 |
|
Decrease (increase) in receivables | 1,978 |
| | 2,597 |
| | 1,516 |
|
Decrease (increase) in other asset | (14,256 | ) | | (14,277 | ) | | (3,675 | ) |
Net cash provided by (used for) operating activities | 342,214 |
| | 217,916 |
| | 123,153 |
|
Cash flows from investing activities(a): | | | | | |
Capital expenditures | (64,204 | ) | | (41,358 | ) | | (18,678 | ) |
Net cash provided by (used for) investing activities | (64,204 | ) | | (41,358 | ) | | (18,678 | ) |
Cash flows from financing activities(a): | | | | | |
Distributions to member | (278,231 | ) | | (177,586 | ) | | (105,472 | ) |
Net cash provided by (used for) financing activities | (278,231 | ) | | (177,586 | ) | | (105,472 | ) |
Net increase (decrease) in cash and cash equivalents | (221 | ) | | (1,028 | ) | | (997 | ) |
Cash and cash equivalents at beginning of year | 18,707 |
| | 18,707 |
| | 18,707 |
|
Cash and cash equivalents at end of year | $ | 18,486 |
| | $ | 17,679 |
| | $ | 17,710 |
|
| |
(a) | The Company receives no cash from, and is not party to, the CCIC transactions described in note 2. Such transactions, however, are reflected on the cash flow statement for GAAP purposes as if an amount equal to the lease component for such transactions had been received by the Company, and as such, the amounts have been recorded as fixed assets (in the form of permanent improvements) and deferred revenues. |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | |
| September 30, 2018 | | June 30, 2018 | | March 31, 2018 |
| Nine Months Ended | | Six Months Ended | | Three Months Ended |
| (As Restated) |
Cash flows from operating activities(a) : | | | | | |
Net income (loss) | $ | 158,214 |
| | $ | 103,902 |
| | $ | 51,432 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
Depreciation, amortization and accretion | 155,821 |
| | 104,137 |
| | 52,054 |
|
Amortization of deferred financing costs | 1,038 |
| | 692 |
| | 346 |
|
Asset write-down charges | 344 |
| | 344 |
| | 344 |
|
Changes in assets and liabilities: | | | | | |
Increase (decrease) in accrued interest | 9,622 |
| | — |
| | 9,622 |
|
Increase (decrease) in accounts payable | 500 |
| | 449 |
| | (171 | ) |
Increase (decrease) in other liabilities | 10,826 |
| | 6,020 |
| | 6,107 |
|
Decrease (increase) in receivables | (158 | ) | | 231 |
| | (163 | ) |
Decrease (increase) in other assets | (12,505 | ) | | (9,155 | ) | | 1,485 |
|
Net cash provided by (used for) operating activities | 323,702 |
| | 206,620 |
| | 121,056 |
|
Cash flows from investing activities(a) : | | | | | |
Capital expenditures | (51,995 | ) | | (32,300 | ) | | (14,766 | ) |
Net cash provided by (used for) investing activities | (51,995 | ) | | (32,300 | ) | | (14,766 | ) |
Cash flows from financing activities(a): | | | | | |
Distributions to member | (278,242 | ) | | (183,436 | ) | | (108,573 | ) |
Net cash provided by (used for) financing activities | (278,242 | ) | | (183,436 | ) | | (108,573 | ) |
Net increase (decrease) in cash and cash equivalents | (6,535 | ) | | (9,116 | ) | | (2,283 | ) |
Cash and cash equivalents at beginning of year | 30,771 |
| | 30,771 |
| | 30,771 |
|
Cash and cash equivalents at end of year | $ | 24,236 |
| | $ | 21,655 |
| | $ | 28,488 |
|
| |
(a) | The Company receives no cash from, and is not party to, the CCIC transactions described in note 2. Such transactions, however, are reflected on the cash flow statement for GAAP purposes as if an amount equal to the lease component for such transactions had been received by the Company, and as such, the amounts have been recorded as fixed assets (in the form of permanent improvements) and deferred revenues. |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
The following tables illustrate the Historical Adjustments, where applicable, on the Company’s condensed consolidated statement of cash flows for each period. Only line items impacted by the Historical Adjustments are presented, and as such, components will not sum to totals.
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Cash flows from operating activities(a): | | | | | | | |
Net income (loss) | $ | 136,017 |
| | $ | 40,579 |
| | $ | 141 |
| | $ | 176,737 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation, amortization and accretion | 157,436 |
| | (2,208 | ) | | (141 | ) | | 155,087 |
|
Changes in assets and liabilities: | | | | | | |
|
|
Increase (decrease) in other liabilities | 1,617 |
| | 13,860 |
| | — |
| | 15,477 |
|
Net cash provided by (used for) operating activities | 289,983 |
| | 52,231 |
| | — |
| | 342,214 |
|
Cash flows from investing activities(a): | | | | | | |
|
|
Capital expenditures | (64,403 | ) | | — |
| | 199 |
| | (64,204 | ) |
Net cash provided by (used for) investing activities | (64,403 | ) | | — |
| | 199 |
| | (64,204 | ) |
Cash flows from financing activities(a): | | | | | | |
|
|
Distributions to member | (225,801 | ) | | (52,231 | ) | | (199 | ) | | (278,231 | ) |
Net cash provided by (used for) financing activities | (225,801 | ) | | (52,231 | ) | | (199 | ) | | (278,231 | ) |
Net increase (decrease) in cash and cash equivalents | (221 | ) | | — |
| | — |
| | (221 | ) |
Cash and cash equivalents at beginning of year | 18,707 |
| | — |
| | — |
| | 18,707 |
|
Cash and cash equivalents at end of year | $ | 18,486 |
| | $ | — |
| | $ | — |
| | $ | 18,486 |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Cash flows from operating activities(a): | | | | | | | |
Net income (loss) | $ | 88,745 |
| | $ | 26,407 |
| | $ | 93 |
| | $ | 115,245 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation, amortization and accretion | 104,771 |
| | (1,472 | ) | | (93 | ) | | 103,206 |
|
Changes in assets and liabilities: | | | | | | |
|
|
Increase (decrease) in other liabilities | 908 |
| | 8,565 |
| | — |
| | 9,473 |
|
Net cash provided by (used for) operating activities | 184,416 |
| | 33,500 |
| | — |
| | 217,916 |
|
Cash flows from investing activities(a): | | | | | | |
|
|
Capital expenditures | (41,464 | ) | | — |
| | 106 |
| | (41,358 | ) |
Net cash provided by (used for) investing activities | (41,464 | ) | | — |
| | 106 |
| | (41,358 | ) |
Cash flows from financing activities(a): | | | | | | |
|
|
Distributions to member | (143,980 | ) | | (33,500 | ) | | (106 | ) | | (177,586 | ) |
Net cash provided by (used for) financing activities | (143,980 | ) | | (33,500 | ) | | (106 | ) | | (177,586 | ) |
Net increase (decrease) in cash and cash equivalents | (1,028 | ) | | — |
| | — |
| | (1,028 | ) |
Cash and cash equivalents at beginning of year | 18,707 |
| | — |
| | — |
| | 18,707 |
|
Cash and cash equivalents at end of year | $ | 17,679 |
| | $ | — |
| | $ | — |
| | $ | 17,679 |
|
| |
(a) | The Company receives no cash from, and is not party to, the CCIC transactions described in note 2. Such transactions, however, are reflected on the cash flow statement for GAAP purposes as if an amount equal to the lease component for such transactions had been received by the Company, and as such, the amounts have been recorded as fixed assets (in the form of permanent improvements) and deferred revenues. |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Cash flows from operating activities(a): | | | | | | | |
Net income (loss) | $ | 44,685 |
| | $ | 12,907 |
| | $ | 46 |
| | $ | 57,638 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation, amortization and accretion | 52,362 |
| | (736 | ) | | (46 | ) | | 51,580 |
|
Changes in assets and liabilities: | | | | | | |
|
|
Increase (decrease) in other liabilities | 3,738 |
| | 2,230 |
| | — |
| | 5,968 |
|
Net cash provided by (used for) operating activities | 108,752 |
| | 14,401 |
| | — |
| | 123,153 |
|
Cash flows from investing activities(a): | | | | | | |
|
|
Capital expenditures | (18,745 | ) | | — |
| | 67 |
| | (18,678 | ) |
Net cash provided by (used for) investing activities | (18,745 | ) | | — |
| | 67 |
| | (18,678 | ) |
Cash flows from financing activities(a): | | | | | | |
|
|
Distributions to member | (91,004 | ) | | (14,401 | ) | | (67 | ) | | (105,472 | ) |
Net cash provided by (used for) financing activities | (91,004 | ) | | (14,401 | ) | | (67 | ) | | (105,472 | ) |
Net increase (decrease) in cash and cash equivalents | (997 | ) | | — |
| | — |
| | (997 | ) |
Cash and cash equivalents at beginning of year | 18,707 |
| | — |
| | — |
| | 18,707 |
|
Cash and cash equivalents at end of year | $ | 17,710 |
| | $ | — |
| | $ | — |
| | $ | 17,710 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Cash flows from operating activities(a): | | | | | | | |
Net income (loss) | $ | 124,753 |
| | $ | 33,329 |
| | $ | 132 |
| | $ | 158,214 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation, amortization and accretion | 157,765 |
| | (1,812 | ) | | (132 | ) | | 155,821 |
|
Changes in assets and liabilities: | | | | | | |
|
|
Increase (decrease) in other liabilities | 3,009 |
| | 7,817 |
| | — |
| | 10,826 |
|
Net cash provided by (used for) operating activities | 284,368 |
| | 39,334 |
| | — |
| | 323,702 |
|
Cash flows from investing activities(a): | | | | | | |
|
|
Capital expenditures | (52,187 | ) | | — |
| | 192 |
| | (51,995 | ) |
Net cash provided by (used for) investing activities | (52,187 | ) | | — |
| | 192 |
| | (51,995 | ) |
Cash flows from financing activities(a): | | | | | | |
|
|
Distributions to member | (238,716 | ) | | (39,334 | ) | | (192 | ) | | (278,242 | ) |
Net cash provided by (used for) financing activities | (238,716 | ) | | (39,334 | ) | | (192 | ) | | (278,242 | ) |
Net increase (decrease) in cash and cash equivalents | (6,535 | ) | | — |
| | — |
| | (6,535 | ) |
Cash and cash equivalents at beginning of year | 30,771 |
| | — |
| | — |
| | 30,771 |
|
Cash and cash equivalents at end of year | $ | 24,236 |
| | $ | — |
| | $ | — |
| | $ | 24,236 |
|
| |
(a) | The Company receives no cash from, and is not party to, the CCIC transactions described in note 2. Such transactions, however, are reflected on the cash flow statement for GAAP purposes as if an amount equal to the lease component for such transactions had been received by the Company, and as such, the amounts have been recorded as fixed assets (in the form of permanent improvements) and deferred revenues. |
CC HOLDINGS GS V LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Tabular dollars in thousands)
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Cash flows from operating activities(a): | | | | | | | |
Net income (loss) | $ | 81,936 |
| | $ | 21,879 |
| | $ | 87 |
| | $ | 103,902 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation, amortization and accretion | 105,432 |
| | (1,208 | ) | | (87 | ) | | 104,137 |
|
Changes in assets and liabilities: | | | | | | |
|
|
Increase (decrease) in other liabilities | 2,992 |
| | 3,028 |
| | — |
| | 6,020 |
|
Net cash provided by (used for) operating activities | 182,921 |
| | 23,699 |
| | — |
| | 206,620 |
|
Cash flows from investing activities(a): | | | | | | |
|
|
Capital expenditures | (32,414 | ) | | — |
| | 114 |
| | (32,300 | ) |
Net cash provided by (used for) investing activities | (32,414 | ) | | — |
| | 114 |
| | (32,300 | ) |
Cash flows from financing activities(a): | | | | | | |
|
|
Distributions to member | (159,623 | ) | | (23,699 | ) | | (114 | ) | | (183,436 | ) |
Net cash provided by (used for) financing activities | (159,623 | ) | | (23,699 | ) | | (114 | ) | | (183,436 | ) |
Net increase (decrease) in cash and cash equivalents | (9,116 | ) | | — |
| | — |
| | (9,116 | ) |
Cash and cash equivalents at beginning of year | 30,771 |
| | — |
| | — |
| | 30,771 |
|
Cash and cash equivalents at end of year | $ | 21,655 |
| | $ | — |
| | $ | — |
| | $ | 21,655 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2018 |
| As Reported | | Restatement Adjustments | | Other Adjustments | | As Restated |
Cash flows from operating activities(a): | | | | | | | |
Net income (loss) | $ | 40,718 |
| | $ | 10,671 |
| | $ | 43 |
| | $ | 51,432 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation, amortization and accretion | 52,701 |
| | (604 | ) | | (43 | ) | | 52,054 |
|
Changes in assets and liabilities: | | | | | | | |
Increase (decrease) in other liabilities | 4,964 |
| | 1,143 |
| | — |
| | 6,107 |
|
Net cash provided by (used for) operating activities | 109,846 |
| | 11,210 |
| | — |
| | 121,056 |
|
Cash flows from investing activities(a): | | | | | | | |
Capital expenditures | (14,821 | ) | | — |
| | 55 |
| | (14,766 | ) |
Net cash provided by (used for) investing activities | (14,821 | ) | | — |
| | 55 |
| | (14,766 | ) |
Cash flows from financing activities(a): | | | | | | | |
Distributions to member | (97,308 | ) | | (11,210 | ) | | (55 | ) | | (108,573 | ) |
Net cash provided by (used for) financing activities | (97,308 | ) | | (11,210 | ) | | (55 | ) | | (108,573 | ) |
Net increase (decrease) in cash and cash equivalents | (2,283 | ) | | — |
| | — |
| | (2,283 | ) |
Cash and cash equivalents at beginning of year | 30,771 |
| | — |
| | — |
| | 30,771 |
|
Cash and cash equivalents at end of year | $ | 28,488 |
| | $ | — |
| | $ | — |
| | $ | 28,488 |
|
| |
(a) | The Company receives no cash from, and is not party to, the CCIC transactions described in note 2. Such transactions, however, are reflected on the cash flow statement for GAAP purposes as if an amount equal to the lease component for such transactions had been received by the Company, and as such, the amounts have been recorded as fixed assets (in the form of permanent improvements) and deferred revenues. |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
In connection with the preparation of this Form 10-K, as of December 31, 2019, the Company's management conducted an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")). Based upon their evaluation, the CEO and CFO concluded that as of December 31, 2019, due to the existence of the material weakness in the Company's internal control over financial reporting described below, the Company's disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
(b) Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Company. Under the supervision and with the participation of the Company's CEO and CFO, management assessed the effectiveness of the Company's internal control over financial reporting based on the framework described in "Internal Control – Integrated Framework (2013)," issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company's assets that could have a material effect on the financial statements.
Management has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2019. Based on the Company's assessment, management has concluded that the Company's internal control over financial reporting was not effective as of December 31, 2019 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles due to the material weakness described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
Management has concluded that a material weakness existed in the Company’s internal control over financial reporting as of December 31, 2019, as it did not effectively design and maintain controls related to the accounting for tower installation services and modifications. Specifically, the Company did not have controls in place to identify lease components and account for the related deferred revenue within the Company’s agreements for tower installation services and modifications. In addition, the Company did not design and maintain effective controls to verify the accuracy of capital expenditures made for permanent improvements associated with tower installation services.
These control deficiencies resulted in the restatement of the Company's consolidated financial statements for the years ended December 31, 2018 and 2017 and each of the interim and annual periods in the year ended December 31, 2018 and first three quarters for the year ended December 31, 2019, and immaterial adjustments to property and equipment and operating expenses in the fourth quarter ended December 31, 2019. Additionally, these control deficiencies could result in misstatements of the annual or interim consolidated financial statements that would result in a material misstatement that would not be prevented or detected.
This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in Form 10-K.
(c) Remediation of Material Weakness
S-45Management has created a plan of remediation to strengthen its internal control over financial reporting. The remediation efforts include (1) revising its accounting policies to appropriately identify and account for lease components and the related calculation of deferred revenue, and (2) making improvements to existing processes and controls related to the determination of the accuracy of capital expenditures made for permanent improvements associated with tower installation services. Management is implementing training with respect to the new processes and evaluating the need for additional resources.
Management believes that the measures described above will remediate the identified material weakness and strengthen the Company’s internal control over financial reporting. Management has begun to take these actions to remediate the material weakness and may take additional measures to strengthen its internal control environment.
(d) Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
(e) Limitations on the Effectiveness of Controls
Because of its inherent limitations, the Company's internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Item 9B. Other Information
None.
PART III
Item 14. Principal Accounting Fees and Services
As an indirect wholly owned subsidiary of CCIC, our principal accounting fees and services are subject to CCIC's Audit Committee pre-approval procedures described in its proxy statement. This proxy statement is posted on CCIC's website at http://investor.crowncastle.com). Other than these procedures, the information contained on that website is not incorporated by reference in this Form 10-K. During 2019, all services provided by the external auditor were pre-approved by CCIC's Audit Committee in accordance with such policies.
Fees for professional services provided by our auditors include the following:
|
| | | | | | | |
| 2019 | | 2018 |
Audit fees(a) | $ | 298,000 |
| | $ | 258,000 |
|
Audit-related fees | — |
| | — |
|
Tax fees | — |
| | — |
|
All other fees | — |
| | — |
|
Total | $ | 298,000 |
| | $ | 258,000 |
|
| |
(a) | Audit fees principally includes audit and review of financial statements and subsidiary audits, and consents. |
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements:
The list of financial statements filed as part of this report is submitted as a separate section, the index to which is located on page 18.
(a)(2) Financial Statement Schedules:
Schedule II—Valuation and Qualifying Accounts.
Schedule III—Schedule of Real Estate and Accumulated Depreciation.
All other schedules are omitted because they are not applicable or because the required information is contained in the financial statements or notes thereto included in this Form 10-K.
(a)(3) Exhibits:
Exhibit Index
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | | Form | | File Number | | Date of Filing | | Exhibit Number |
3.1 | | | | S-4 | | 333-187970 | | April 17, 2013 | | 3.1 |
3.2 | |
| | S-4 | | 333-187970 | | April 17, 2013 | | 3.2 |
4.1 | | | | 8-K | | 001-16441 | | December 28, 2012 | | 4.1 |
4.2 | | | | S-4 | | 333-187970 | | April 17, 2013 | | 4.2 |
10.1 | | | | 8-K | | 001-32168 | | February 17, 2005 | | 10.1 |
10.2 | |
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.1 |
10.3 | | Master Lease and Sublease, dated as of May 26, 2005, by and among STC Two LLC, as lessor, SprintCom, Inc., as Sprint Collocator, Global Signal Acquisitions II LLC, as lessee, and Global Signal Inc.
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.2 |
10.4 | | Master Lease and Sublease, dated as of May 26, 2005, by and among STC Three LLC, as lessor, American PCS Communications, LLC, as Sprint Collocator, Global Signal Acquisitions II LLC, as lessee, and Global Signal Inc.
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.3 |
10.5 | | Master Lease and Sublease, dated as of May 26, 2005, by and among STC Four LLC, as lessor, PhillieCo, L.P., as Sprint Collocator, Global Signal Acquisitions II LLC, as lessee, and Global Signal Inc.
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.4 |
|
| | | | | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | | Form | | File Number | | Date of Filing | | Exhibit Number |
10.6 | |
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.5 |
10.7 | |
| | 8-K | | 001-32168
| | May 27, 2005 | | 10.6 |
10.8 | | Management Agreement, dated as of December 24, 2012, by and among Crown Castle USA Inc., as Manager, and CC Holdings GS V LLC, Global Signal Acquisitions LLC, Global Signal Acquisitions II LLC, Pinnacle Towers LLC and the direct and indirect subsidiaries of Pinnacle Towers LLC, collectively, as Owners
| | S-4 | | 333-187970 | | April 17, 2013 | | 10.8 |
10.9 | | Registration Rights Agreement, dated as of December 24, 2012, by and among CC Holdings GS V LLC, Crown Castle GS III Corp., each of the guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, as representatives of the initial purchasers | | 8-K | | 001-16441
| | December 28, 2012 | | 10.2 |
22* | | | | — | | — | | — | | — |
24* | | Power of Attorney (included on signature page of this annual report) | | — | | — | | — | | — |
31.1* | | | | — | | — | | — | | — |
31.2* | | | | — | | — | | — | | — |
32.1** | | | | — | | — | | — | | — |
101* | | The following financial statements from CC Holdings GS V LLC's Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL: (i) Consolidated Balance Sheet, (ii) Consolidated Statement of Operations, (iii) Consolidated Statement of Cash Flows, (iv) Consolidated Statement of Equity, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags | | — | | — | | — | | — |
104* | | The cover page from CC Holdings GS V LLC's Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL | | — | | — | | — | | — |
* Filed herewith.
** Furnished herewith.
Item 16. Form 10-K Summary
N/A
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on this 9th day of April, 2020.
|
| |
CC HOLDINGS GS V LLC |
| |
By: | /s/ DANIEL K. SCHLANGER
|
| Daniel K. Schlanger |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
| |
By: | /s/ ROBERT S. COLLINS |
| Robert S. Collins |
| Vice President and Controller |
| (Principal Accounting Officer) |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jay A. Brown and Kenneth J. Simon and each of them, as his true and lawful attorneys-in-fact and agents with full power of substitution and re-substitution for him and in his name, place and stead, in any and all capacities, to sign any and all documents relating to the Annual Report on Form 10-K, including any and all amendments and supplements thereto, for the year ended December 31, 2019 and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below on this 9th day of April, 2020.
|
| | |
Name | | Title |
| |
/s/ JAY A. BROWN | | President, Chief Executive Officer and Director |
Jay A. Brown | | (Principal Executive Officer) |
| | |
/s/ DANIEL K. SCHLANGER | | Executive Vice President, Chief Financial Officer and Director |
Daniel K. Schlanger | | (Principal Financial Officer) |
| | |
/s/ KENNETH J. SIMON | | Executive Vice President, General Counsel and Director |
Kenneth J. Simon | | |
| | |
/s/ ROBERT S. COLLINS | | Vice President and Controller |
Robert S. Collins | | (Principal Accounting Officer) |
CC HOLDINGS GS V LLC
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
(In thousands of dollars)
|
| | | | | | | | | | | | | | | | | | | |
| | | Additions | | Deductions | | |
| Balance at Beginning of Year | | Charged to Operations | | Credited to Operations | | Written Off | | Balance at End of Year |
Allowance for Doubtful Accounts Receivable: | | | | | | | | | |
2019 | $ | 1,601 |
| | $ | 323 |
| | $ | — |
| | $ | (293 | ) | | $ | 1,631 |
|
2018 | $ | 1,300 |
| | $ | 768 |
| | $ | — |
| | $ | (467 | ) | | $ | 1,601 |
|
2017 | $ | 1,810 |
| | $ | 662 |
| | $ | — |
| | $ | (1,172 | ) | | $ | 1,300 |
|
CC HOLDINGS GS V LLC
SCHEDULE III—SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
YEARS ENDED DECEMBER 31, 2019 and 2018
(In thousands of dollars)
|
| | | | | | | | | | | | | | | | |
Description | Encumbrances | | Initial Cost to Company | Cost Capitalized Subsequent to Acquisition | Gross Amount Carried at Close of Current Period | | Accumulated Depreciation at Close of Current Period | Date of Construction | Date Acquired | Life on Which Depreciation in Latest Income Statement is Computed |
7,555 sites(1) | $ | 995,431 |
| (2) | (3) | (3) | $ | 2,105,722 |
| | $ | (1,095,355 | ) | Various | Various | Up to 20 years |
| |
(1) | No single site exceeds 5% of the aggregate gross amounts at which the assets were carried at the close of the period set forth in the table above. |
| |
(2) | As of December 31, 2019, all of the Company's debt is secured by a pledge of the equity interests in each applicable Guarantor. |
| |
(3) | The Company has omitted this information, as it would be impracticable to compile such information on a site-by-site basis. |
|
| | | | | | | |
| 2019 | | 2018 |
| | | (As Restated)(a) |
Gross amount at beginning | $ | 2,014,936 |
| | $ | 1,946,218 |
|
Additions during period: | | | |
Acquisitions through foreclosure | — |
| | — |
|
Other acquisitions | — |
| | — |
|
Site construction and improvements | 79,039 |
| | 63,369 |
|
Purchase of land interests | — |
| | — |
|
Sustaining capital expenditures | 7,571 |
| | 7,560 |
|
Other | 7,666 |
| | — |
|
Total additions | 94,276 |
| | 70,929 |
|
Deductions during period: | | | |
Cost of real estate sold or disposed | (3,490 | ) | | (2,211 | ) |
Other | — |
| | — |
|
Total deductions: | (3,490 | ) | | (2,211 | ) |
Balance at end | $ | 2,105,722 |
| | $ | 2,014,936 |
|
|
| | | | | | | |
| 2019 | | 2018 |
| | | (As Restated)(a) |
Gross amount of accumulated depreciation at beginning | $ | (1,004,485 | ) | | $ | (912,960 | ) |
Additions during period: | | | |
Depreciation | (93,049 | ) | | (92,986 | ) |
Total additions | (93,049 | ) | | (92,986 | ) |
Deductions during period: | | | |
Amount for assets sold or disposed | 2,179 |
| | 1,461 |
|
Other | — |
| | — |
|
Total deductions | 2,179 |
| | 1,461 |
|
Balance at end | $ | (1,095,355 | ) | | $ | (1,004,485 | ) |
| |
(a) | See note 2 to the Company's consolidated financial statements for further information regarding the restatement. |