Acquisitions and Other Transactions | 3 Months Ended |
Mar. 31, 2015 |
Business Combination, Description [Abstract] | |
Acquisitions and Other Transactions | Acquisitions and Other Transactions |
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The estimates of the fair value of the assets or rights acquired and liabilities assumed at the date of the applicable acquisition are subject to adjustment during the measurement period (up to one year from the particular acquisition date). The primary areas of the accounting for the acquisitions that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, including contingent consideration, and residual goodwill and any related tax impact. The fair value of these net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While the Company believes that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, it will evaluate any necessary information prior to finalization of the fair value. During the measurement period, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair value is reflected as if the adjustments had been completed on the acquisition date. The impact of all changes that do not qualify as measurement period adjustments are included in current period earnings. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the condensed consolidated financial statements could be subject to a possible impairment of the intangible assets or goodwill, or require acceleration of the amortization expense of intangible assets in subsequent periods. During the three months ended March 31, 2015, the Company made certain measurement period adjustments related to several acquisitions consummated in 2014 and therefore retrospectively adjusted the fair value of the assets acquired and liabilities assumed in the condensed consolidated balance sheet as of December 31, 2014. |
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Impact of current year acquisitions—The Company typically acquires communications sites from wireless carriers or other tower operators and subsequently integrates those sites into its existing portfolio of communications sites. The financial results of the Company’s acquisitions have been included in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2015 from the date of the respective acquisition. The date of acquisition, and by extension the point at which the Company begins to recognize the results of an acquisition, may be dependent upon, among other things, the receipt of contractual consents, the commencement and extent of leasing arrangements and the timing of the transfer of title or rights to the assets, which may be accomplished in phases. Sites acquired from communications service providers may never have been operated as a business and may have been utilized solely by the seller as a component of its network infrastructure. An acquisition, depending on its size and nature, may or may not involve the transfer of business operations or employees. |
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The estimated aggregate impact of the 2015 acquisitions and the Verizon Transaction on the Company’s revenues and gross margin for the three months ended March 31, 2015 was approximately $4.5 million and $2.1 million, respectively. The revenues and gross margin amounts also reflect incremental revenues from the addition of new tenants to such sites subsequent to the transaction date. Incremental amounts of segment selling, general, administrative and development expense have not been reflected, as the amounts attributable to transactions are not comparable. |
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For those acquisitions accounted for as business combinations, the Company recognizes acquisition and merger related costs in the period in which they are incurred and services are received. Acquisition and merger related costs may include finder’s fees, advisory, legal, accounting, valuation and other professional or consulting fees, fair value adjustments to contingent consideration and general administrative costs directly related to the transaction, and are included in Other operating expenses in the condensed consolidated statements of operations. During the three months ended March 31, 2015 and 2014, the Company recognized acquisition and merger related expenses of $3.0 million and $9.8 million, respectively. In addition, during the three months ended March 31, 2015 and 2014, the Company recorded $1.8 million and $2.5 million, respectively, of integration costs related to recently closed acquisitions. |
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Verizon Transaction |
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On March 27, 2015, the Company completed its acquisition of the exclusive right to lease, acquire or otherwise operate and manage 11,448 wireless communications sites from Verizon for approximately $5.053 billion in cash pursuant to the Master Agreement entered into on February 5, 2015 (the “Master Agreement”) and the related Master Prepaid Lease, Management Agreement, Sale Site Master Lease Agreement and MPL Site Master Lease Agreement. |
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The Company, through its wholly-owned subsidiary, leased or subleased from certain Verizon subsidiaries 11,285 communications sites, including the interest in the land, the tower and certain related improvements and tower related assets pursuant to the Master Prepaid Lease. Under the Master Prepaid Lease, the Company has the exclusive right to lease and operate the Verizon communications sites for a weighted average term of approximately 28 years and the Company will have the option to purchase the communications sites at the end of the respective lease or sublease terms at a fixed amount stated in the sublease for such tranche plus the fair market value of certain alterations made to the related towers. The Company accounted for the payment with respect to the leased sites as a capital lease and the respective lease and non-lease elements related to tower assets and intangible assets, as described below. The total consideration allocated to this element of the overall transaction was $4.964 billion, which included approximately $9.9 million of transaction costs. |
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In addition, the Company, through its wholly-owned subsidiary, acquired 163 additional communications sites. The Company accounted for these sites as a business combination and the purchase price of $99.0 million is reflected below in “2015 Acquisitions.” |
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Upon closing, the Company agreed to lease, sublease or otherwise make available collocation space at each of the communications sites to Verizon for an initial non-cancellable term of ten years, subject to automatic extension for eight additional five-year renewal terms. The initial collocation rent is $1,900 per month for each communications site, with annual rent increases of 2%. |
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The Company funded the Verizon Transaction with (i) proceeds from its concurrent registered public offerings of its common stock and Series B Preferred Stock (see note 11), (ii) borrowings under the Company’s revolving credit facilities and (iii) cash on hand. |
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The Company included the Verizon Transaction in the unaudited pro forma financial results included herein as if the capital lease began on January 1, 2014. Management relied on various estimates and assumptions due to the fact that Verizon did not operate the sites as a business and the sites were utilized primarily by Verizon as a component of its network infrastructure. |
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The following table summarizes the allocation of consideration transferred for the 11,285 communications sites under the Master Prepaid Lease (in thousands). Balances are reflected in the accompanying condensed consolidated balance sheets as of March 31, 2015 and represent the asset balances of the capital lease. |
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Current assets | | $ | 13,112 | | | | | | | | | | | | | |
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Non-current assets | | 208,492 | | | | | | | | | | | | | |
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Property and equipment | | 2,031,657 | | | | | | | | | | | | | |
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Intangible assets (1): | | | | | | | | | | | | | | |
Customer-related intangible assets | | 1,742,824 | | | | | | | | | | | | | |
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Network location intangible assets | | 1,179,409 | | | | | | | | | | | | | |
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Current liabilities | | (10,747 | ) | | | | | | | | | | | | |
Other non-current liabilities (2) | | (200,530 | ) | | | | | | | | | | | | |
Fair value of consideration transferred (3) | | $ | 4,964,217 | | | | | | | | | | | | | |
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-1 | Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years. | | | | | | | | | | | | | | | |
(2) Represents liabilities recorded for asset retirement obligations. |
(3) Includes approximately $9.9 million of transaction costs, which have been capitalized as part of the assets’ fair value, $4.7 million of which was paid during the three months ended March 31, 2015. |
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The acquisitions described below under “2015 Acquisitions” and “2014 Acquisitions” are accounted for as business combinations and are consistent with the Company’s strategy to expand in selected geographic areas. |
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2015 Acquisitions |
International Acquisitions—During the three months ended March 31, 2015, the Company acquired a total of six communications sites and related assets for an aggregate purchase price of $0.5 million, which was satisfied by the issuance of credits to be applied against trade accounts receivable. The purchase price is subject to post-closing adjustments. |
U.S. Acquisitions—During the three months ended March 31, 2015, the Company acquired a total of 190 communications sites and equipment, as well as three property interests, in the United States for an aggregate purchase price of $121.3 million (including $1.2 million for the estimated fair value of contingent consideration). Included in these sites are the 163 communications sites acquired as part of the Verizon Transaction, described further above. The purchase price is subject to post-closing adjustments. |
The following table summarizes the preliminary allocation of the purchase price for the fiscal year 2015 acquisitions based upon their estimated fair value at the date of acquisition (in thousands). Balances are reflected in the accompanying condensed consolidated balance sheet as of March 31, 2015. |
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| | International | | U.S. | | | | | | | | |
Current assets | | $ | — | | | $ | 164 | | | | | | | | | |
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Non-current assets | | — | | | 1,000 | | | | | | | | | |
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Property and equipment | | 504 | | | 29,730 | | | | | | | | | |
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Intangible assets (1): | | | | | | | | | | | | |
Customer-related intangible assets | | — | | | 48,190 | | | | | | | | | |
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Network location intangible assets | | — | | | 34,850 | | | | | | | | | |
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Current liabilities | | — | | | (238 | ) | | | | | | | | |
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Other non-current liabilities | | (13 | ) | | (1,946 | ) | | | | | | | | |
Net assets acquired | | 491 | | | 111,750 | | | | | | | | | |
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Goodwill (2) | | — | | | 9,548 | | | | | | | | | |
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Fair value of net assets acquired | | 491 | | | 121,298 | | | | | | | | | |
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Debt assumed | | — | | | — | | | | | | | | | |
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Purchase Price | | $ | 491 | | | $ | 121,298 | | | | | | | | | |
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-1 | Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years. | | | | | | | | | | | | | | | |
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-2 | Goodwill was allocated to the Company’s domestic rental and management segment and the Company expects goodwill recorded will be deductible for tax purposes. | | | | | | | | | | | | | | | |
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2014 Acquisitions |
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BR Towers Acquisition—On November 19, 2014, the Company completed the acquisition of 100% of the equity interests of BR Towers. At closing, BR Towers owned 2,504 towers and four property interests, as well as the exclusive use rights for 2,113 additional towers and 43 property interests in Brazil. The Company completed the acquisition for an estimated preliminary purchase price of approximately $568.9 million and paid approximately $61.1 million to acquire all outstanding preferred equity. In addition, the Company assumed approximately $261.1 million of BR Towers’ existing indebtedness and has repaid approximately $135.6 million of principal balance subsequent to closing, including the repayment of $13.5 million during the three months ended March 31, 2015. The purchase price is subject to post-closing adjustments. |
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Richland Acquisition—On April 3, 2014, the Company, through one of its wholly-owned subsidiaries, acquired entities holding a portfolio of 59 communications sites, which at the time of acquisition were leased primarily to radio and television broadcast tenants, and four property interests in the United States from Richland Properties LLC and other related entities (“Richland”) for an aggregate purchase price of $189.4 million, which was subsequently reduced to $188.9 million during the three months ended March 31, 2015. In addition, the Company assumed $196.5 million of Richland’s existing indebtedness. In June 2014, the Company repaid the outstanding indebtedness, paid prepayment consideration and wrote-off the unamortized premium associated with the fair value adjustment. |
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Other International Acquisitions—During the year ended December 31, 2014, the Company acquired 159 additional communications sites and related assets in Brazil, Ghana, Mexico and Uganda, for an aggregate purchase price of $28.3 million (including value added tax of $1.2 million). The Company also acquired 299 communications sites in Mexico for a purchase price of $40.3 million (including value added tax of $5.6 million), which reflected approximately $3.4 million of net liabilities assumed. Total purchase price was satisfied by the issuance of approximately $36.3 million of credits to be applied against trade accounts receivable and cash consideration of approximately $4.0 million. The allocation of the purchase price for these acquisitions was finalized during the year ended December 31, 2014. |
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Other U.S. Acquisitions—During the year ended December 31, 2014, the Company acquired 184 additional communications sites and equipment, as well as six property interests, in the United States for an aggregate purchase price of $180.8 million (including $6.3 million for the estimated fair value of contingent consideration). The purchase price is subject to post-closing adjustments. |
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The following table summarizes the updated allocation of the purchase price for the fiscal year 2014 acquisitions based upon their estimated fair value at the date of acquisition (in thousands). Balances are reflected in the accompanying condensed consolidated balance sheets herein. |
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| | BR Towers | | Richland (1) | | Other U.S. | | | | |
Current assets | | $ | 32,070 | | | $ | 8,583 | | | $ | 797 | | | | | |
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Non-current assets | | 9,135 | | | — | | | — | | | | | |
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Property and equipment | | 141,422 | | | 154,899 | | | 38,413 | | | | | |
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Intangible assets (2): | | | | | | | | | | |
Customer-related intangible assets | | 495,279 | | | 186,455 | | | 89,990 | | | | | |
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Network location intangible assets | | 136,233 | | | 3,409 | | | 39,470 | | | | | |
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Other intangible assets | | 37,664 | | | — | | | — | | | | | |
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Current liabilities | | (23,930 | ) | | (3,635 | ) | | (1,997 | ) | | | | |
Other non-current liabilities | | (101,508 | ) | | (2,922 | ) | | (1,675 | ) | | | | |
Net assets acquired | | 726,365 | | | 346,789 | | | 164,998 | | | | | |
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Goodwill (3) | | 164,717 | | | 44,128 | | | 15,824 | | | | | |
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Fair value of net assets acquired | | 891,082 | | | 390,917 | | | 180,822 | | | | | |
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Debt assumed (4) | | (261,136 | ) | | (201,999 | ) | | — | | | | | |
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Preferred stock outstanding | | (61,056 | ) | | — | | | — | | | | | |
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Purchase Price | | $ | 568,890 | | | $ | 188,918 | | | $ | 180,822 | | | | | |
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(1) The allocation of the purchase price was finalized during the three months ended March 31, 2015. |
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-2 | Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years. Other intangible assets are amortized on a straight-line basis over the life of the lease, which is a period of 11 years. | | | | | | | | | | | | | | | |
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-3 | Goodwill was allocated to the Company’s domestic and international rental and management segments, as applicable, and the Company expects goodwill recorded will be deductible for tax purposes except for goodwill associated with BR Towers, where goodwill is expected to be partially deductible. | | | | | | | | | | | | | | | |
(4) Assumed BR Towers debt approximated fair value at the date of acquisition and included $11.5 million of current indebtedness. Assumed Richland debt included $196.5 million of Richland’s indebtedness and a fair value adjustment of $5.5 million. The fair value adjustments were based primarily on reported market values using Level 2 inputs. |
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Unless otherwise noted, the following table summarizes the preliminary allocation of the purchase price paid and the amounts of assets acquired and liabilities assumed for the fiscal year 2014 acquisitions based upon their estimated fair value at the date of acquisition (in thousands). Balances are reflected in the consolidated balance sheets in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. |
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| | BR Towers | | Richland | | Other U.S. | | | | |
Current assets | | $ | 31,832 | | | $ | 8,583 | | | $ | 797 | | | | | |
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Non-current assets | | 9,135 | | | — | | | — | | | | | |
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Property and equipment | | 141,422 | | | 185,777 | | | 38,413 | | | | | |
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Intangible assets (1): | | | | | | | | | | |
Customer-related intangible assets | | 495,279 | | | 169,452 | | | 89,990 | | | | | |
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Network location intangible assets | | 136,233 | | | 1,700 | | | 39,470 | | | | | |
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Other intangible assets | | 37,664 | | | — | | | — | | | | | |
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Current liabilities | | (23,930 | ) | | (3,635 | ) | | (1,997 | ) | | | | |
Other non-current liabilities | | (101,508 | ) | | (2,922 | ) | | (1,675 | ) | | | | |
Net assets acquired | | 726,127 | | | 358,955 | | | 164,998 | | | | | |
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Goodwill (2) | | 164,955 | | | 32,423 | | | 15,824 | | | | | |
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Fair value of net assets acquired | | 891,082 | | | 391,378 | | | 180,822 | | | | | |
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Debt assumed (3) | | (261,136 | ) | | (201,999 | ) | | — | | | | | |
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Preferred stock outstanding | | (61,056 | ) | | — | | | — | | | | | |
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Purchase Price | | $ | 568,890 | | | $ | 189,379 | | | $ | 180,822 | | | | | |
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-1 | Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years. Other intangible assets are amortized on a straight-line basis over the life of the lease, which is a period of 11 years. | | | | | | | | | | | | | | | |
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-2 | Goodwill was allocated to the Company’s domestic and international rental and management segments, as applicable, and the Company expects goodwill recorded will be deductible for tax purposes except for goodwill associated with BR Towers where goodwill is expected to be partially deductible. | | | | | | | | | | | | | | | |
(3) BR Towers debt assumed approximated fair value at the date of acquisition and included $11.5 million of current indebtedness. Richland debt assumed included $196.5 million of Richland’s indebtedness and a fair value adjustment of $5.5 million. The fair value adjustments were based primarily on reported market values using Level 2 inputs. |
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Pro Forma Consolidated Results |
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The following table presents the unaudited pro forma financial results as if the 2015 acquisitions, as well as the Verizon Transaction described above, had occurred on January 1, 2014 and the 2014 acquisitions had occurred on January 1, 2013 (in thousands, except per share data). Management relied on various estimates and assumptions due to the fact that some of the transactions never operated as a business and were utilized solely by the seller as a component of their network infrastructure. As a result, historical operating results may not be available. The pro forma results do not include any anticipated cost synergies, costs or other integration impacts. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the transactions been completed on the dates indicated, nor are they indicative of the future operating results of the Company. |
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| | Three Months Ended March 31, | | | | | | | | |
| | 2015 | | 2014 | | | | | | | | |
Pro forma revenues | | $ | 1,170,772 | | | $ | 1,115,001 | | | | | | | | | |
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Pro forma net income attributable to American Tower Corporation common stockholders | | $ | 145,137 | | | $ | 147,760 | | | | | | | | | |
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Pro forma net income per common share amounts: | | | | | | | | | | | | |
Basic net income attributable to American Tower Corporation common stockholders | | $ | 0.34 | | | $ | 0.35 | | | | | | | | | |
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Diluted net income attributable to American Tower Corporation common stockholders | | $ | 0.34 | | | $ | 0.35 | | | | | | | | | |
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Other Signed Acquisitions |
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TIM Acquisition—On November 21, 2014, the Company entered into an agreement with TIM Celular S.A. (“TIM”), a wholly-owned subsidiary of TIM Participações S.A., a publicly traded subsidiary of Telecom Italia S.p.A., to acquire two portfolios of communications sites in Brazil, subject to customary closing conditions. The first portfolio includes approximately 5,240 communications sites and the second portfolio includes approximately 1,240 communications sites. The Company closed on an initial tranche of communications sites on April 29, 2015 (see note 16). |
Airtel Acquisition—On November 24, 2014, the Company and Airtel Networks Limited entered into a definitive agreement, through Bharti Airtel Limited’s subsidiary company, Bharti Airtel International (Netherlands) BV (“Airtel”), for the sale of over 4,800 of Airtel’s communications towers in Nigeria, subject to customary closing conditions and regulatory approval. At signing, the total purchase price was approximately $1.1 billion, subject to adjustments. |
Acquisition-Related Contingent Consideration |
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The Company may be required to pay additional consideration under certain agreements for the acquisition of communications sites if specific conditions are met or events occur. In Colombia and Ghana, the Company may be required to pay additional consideration upon the conversion of certain barter agreements with other wireless carriers to cash-paying lease agreements. In Costa Rica and the United States, the Company may be required to pay additional consideration if certain pre-designated tenant leases commence during a specified period of time. |
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A summary of the value of the Company’s contingent consideration is as follows (in thousands): |
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| | Maximum | | Estimated value at | | Additions (3) | | Settlements |
potential value (1) | March 31, 2015 (2) |
Colombia | | $ | 27,440 | | | $ | 18,328 | | | $ | — | | | $ | — | |
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Costa Rica | | 3,960 | | | 1,898 | | | — | | | — | |
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Ghana | | 470 | | | 470 | | | — | | | — | |
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United States | | 6,507 | | | 6,507 | | | 1,194 | | | (1,026 | ) |
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Total | | $ | 38,377 | | | $ | 27,203 | | | $ | 1,194 | | | $ | (1,026 | ) |
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(1) The maximum potential value is based on current exchange rates. The minimum value could be zero. |
(2) Estimate is determined using a probability weighted average of expected outcomes as of March 31, 2015. |
(3) Based on preliminary acquisition accounting upon closing of certain acquisitions during three months ended March 31, 2015. |
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For more information regarding contingent consideration, see note 7. |
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