Edgar Filing: AMERICAN TOWER CORP /MA/

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One):

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended June 30, 2014.

¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Commission File Number: 001-14195

AMERICAN TOWER CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

65-0723837

(State or other jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

116 Huntington Avenue

Boston, Massachusetts 02116

(Address of principal executive offices)

Telephone Number (617) 375-7500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x

As of July 21, 2014, there were 396,144,247 shares of common stock outstanding.

AMERICAN TOWER CORPORATION

INDEX

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2014


		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Consolidated Financial Statements		1
	Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013		1
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013		2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013		3
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013		4
	Condensed Consolidated Statements of Equity for the six months ended June 30, 2014 and 2013		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		63
Item 4.	Controls and Procedures		65
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		66
Item 1A.	Risk Factors		66
Item 6.	Exhibits		76
Signatures			77
Exhibit Index			EX-1

PART I.

FINANCIAL INFORMATION

ITEM 1.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS—Unaudited

(in thousands, except share data)


	June 30, 2014			December 31, 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	282,959		$	293,576
Restricted cash		158,992			152,916
Short-term investments		15,298			18,612
Accounts receivable, net		174,612			151,084
Prepaid and other current assets		342,798			340,885
Deferred income taxes		23,786			22,401

Total current assets		998,445			979,474

PROPERTY AND EQUIPMENT, net		7,589,815			7,189,465
GOODWILL		3,854,931			3,808,426
OTHER INTANGIBLE ASSETS, net		6,637,882			6,580,305
DEFERRED INCOME TAXES		268,349			264,294
DEFERRED RENT ASSET		983,140			918,847
NOTES RECEIVABLE AND OTHER NON-CURRENT ASSETS		515,175			504,466

TOTAL	$	20,847,737		$	20,245,277

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	132,734		$	172,426
Accrued expenses		422,614			415,075
Distributions payable		139,837			575
Accrued interest		117,632			105,751
Current portion of long-term obligations		1,225,992			70,132
Unearned revenue		204,437			162,079

Total current liabilities		2,243,246			926,038

LONG-TERM OBLIGATIONS		12,749,471			14,408,146
ASSET RETIREMENT OBLIGATIONS		556,881			526,930
OTHER NON-CURRENT LIABILITIES		889,975			794,123

Total liabilities		16,439,573			16,655,237

COMMITMENTS AND CONTINGENCIES
EQUITY:
Preferred stock: $.01 par value; 20,000,000 shares authorized; 5.25% Mandatory Convertible Preferred Stock, Series A, 6,000,000 and no shares issued and outstanding, respectively		60			—
Common stock: $.01 par value; 1,000,000,000 shares authorized; 398,811,474 and 397,674,350 shares issued; and 396,001,448 and 394,864,324 shares outstanding, respectively		3,988			3,976
Additional paid-in capital		5,772,269			5,130,616
Distributions in excess of earnings		(911,163	)		(1,081,467	)
Accumulated other comprehensive loss		(250,920	)		(311,220	)
Treasury stock (2,810,026 shares at cost)		(207,740	)		(207,740	)

Total American Tower Corporation equity		4,406,494			3,534,165
Noncontrolling interest		1,670			55,875

Total equity		4,408,164			3,590,040

TOTAL	$	20,847,737		$	20,245,277

See accompanying notes to unaudited condensed consolidated financial statements.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS—Unaudited

(in thousands, except per share data)


	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
REVENUES:
Rental and management	$	1,005,761		$	789,199		$	1,965,881		$	1,566,632
Network development services		25,696			19,631			49,665			44,926

Total operating revenues		1,031,457			808,830			2,015,546			1,611,558

OPERATING EXPENSES:
Costs of operations (exclusive of items shown separately below):
Rental and management (including stock-based compensation expense of $343, $257, $715 and $503, respectively)		263,184			198,217			514,019			389,512
Network development services (including stock-based compensation expense of $110, $149, $242 and $341, respectively)		9,091			7,492			19,025			17,963
Depreciation, amortization and accretion		245,427			184,608			491,190			370,412
Selling, general, administrative and development expense (including stock-based compensation expense of $18,382, $16,649, $42,482 and $37,253, respectively)		98,499			99,803			208,528			200,956
Other operating expenses		12,757			5,898			26,648			20,217

Total operating expenses		628,958			496,018			1,259,410			999,060

OPERATING INCOME		402,499			312,812			756,136			612,498

OTHER INCOME (EXPENSE):
Interest income, TV Azteca, net of interest expense of $370, $371, $741 and $742 respectively		2,662			3,586			5,257			7,129
Interest income		2,281			1,412			4,299			3,126
Interest expense		(146,234	)		(100,815	)		(289,541	)		(212,581	)
Loss on retirement of long-term obligations		(1,284	)		(2,669	)		(1,522	)		(37,967	)
Other expense (including unrealized foreign currency losses of $23,553, $142,909, $25,558 and $120,766, respectively)		(16,463	)		(141,660	)		(20,206	)		(119,369	)

Total other expense		(159,038	)		(240,146	)		(301,713	)		(359,662	)

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		243,461			72,666			454,423			252,836
Income tax (provision) benefit		(21,802	)		11,447			(39,451	)		(7,775	)

NET INCOME		221,659			84,113			414,972			245,061
Net loss attributable to noncontrolling interest		12,772			15,708			21,958			26,167

NET INCOME ATTRIBUTABLE TO AMERICAN TOWER CORPORATION STOCKHOLDERS		234,431			99,821			436,930			271,228
Dividends declared on preferred stock		(4,375	)		—			(4,375	)		—

NET INCOME ATTRIBUTABLE TO AMERICAN TOWER CORPORATION COMMON STOCKHOLDERS	$	230,056		$	99,821		$	432,555		$	271,228

NET INCOME PER COMMON SHARE AMOUNTS:
Basic net income attributable to American Tower Corporation common stockholders	$	0.58		$	0.25		$	1.09		$	0.69

Diluted net income attributable to American Tower Corporation common stockholders	$	0.58		$	0.25		$	1.08		$	0.68

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		395,872			395,420			395,511			395,330

Diluted		399,588			399,458			399,452			399,659

DISTRIBUTIONS DECLARED PER COMMON SHARE	$	0.34		$	0.27		$	0.66		$	0.53

See accompanying notes to unaudited condensed consolidated financial statements.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)—Unaudited

(in thousands)


	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
Net income	$	221,659		$	84,113		$	414,972		$	245,061
Other comprehensive income (loss):
Changes in fair value of cash flow hedges, net of tax expense of ($141), $345, ($24) and $456, respectively		367			3,793			(337	)		2,749
Reclassification of unrealized losses on cash flow hedges to net income, net of taxes of $41, $59, $96 and $118, respectively		629			645			1,543			1,194
Foreign currency translation adjustments, net of taxes of ($692), ($7,149), $364 and $6,583, respectively		(3,104	)		(123,369	)		19,388			(95,942	)

Other comprehensive (loss) income		(2,108	)		(118,931	)		20,594			(91,999	)

Comprehensive income (loss)		219,551			(34,818	)		435,566			153,062

Comprehensive loss attributable to noncontrolling interest		36,370			18,426			61,664			27,257

Comprehensive income (loss) attributable to American Tower Corporation stockholders	$	255,921		$	(16,392	)	$	497,230		$	180,319

See accompanying notes to unaudited condensed consolidated financial statements.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Unaudited

(in thousands)


	Six months ended June 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	414,972		$	245,061
Adjustments to reconcile net income to cash provided by operating activities:
Stock-based compensation expense		43,439			38,097
Depreciation, amortization and accretion		491,190			370,412
Loss on early retirement of securitized debt		1,269			35,288
Other non-cash items reflected in statements of operations		48,636			127,946
Increase in net deferred rent asset		(46,293	)		(53,017	)
Increase in restricted cash		(194	)		(27,961	)
Increase in assets		(28,473	)		(10,229	)
Increase in liabilities		147,836			58,924

Cash provided by operating activities		1,072,382			784,521

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment and construction activities		(466,247	)		(280,605	)
Payments for acquisitions, net of cash acquired		(315,527	)		(311,170	)
Proceeds from sale of short-term investments and other non-current assets		338,787			27,978
Payments for short-term investments		(332,684	)		(36,881	)
Deposits, restricted cash, investments and other		(61,134	)		(1,096	)

Cash used for investing activities		(836,805	)		(601,774	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities		360,000			249,000
Proceeds from issuance of senior notes, net		769,640			983,354
Proceeds from other long-term borrowings		3,033			16,000
Proceeds from issuance of Securities in securitization transaction, net		—			1,778,496
Repayments of notes payable, credit facilities and capital leases		(1,838,728	)		(2,938,699	)
(Distributions to) contributions from noncontrolling interest holders, net		(291	)		17,721
Purchases of common stock		—			(74,625	)
Proceeds from stock options and stock purchase plan		30,738			19,752
Proceeds from the issuance of preferred stock, net		583,326			—
Payment for early retirement of securitized debt		(6,767	)		(29,234	)
Deferred financing costs and other financing activities		(22,914	)		(13,641	)
Distributions paid on common stock		(127,269	)		(102,984	)

Cash used for financing activities		(249,232	)		(94,860	)

Net effect of changes in foreign currency exchange rates on cash and cash equivalents		3,038			(8,058	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(10,617	)		79,829
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		293,576			368,618

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	282,959		$	448,447

CASH PAID FOR INCOME TAXES (NET OF REFUNDS OF $6,187 AND $13,477, RESPECTIVELY)	$	35,776		$	17,153

CASH PAID FOR INTEREST	$	270,257		$	181,315

NON-CASH INVESTING AND FINANCING ACTIVITIES:
INCREASE IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES FOR PURCHASES OF PROPERTY AND EQUIPMENT AND CONSTRUCTION ACTIVITIES	$	14,959		$	17,142

PURCHASES OF PROPERTY AND EQUIPMENT UNDER CAPITAL LEASES	$	14,585		$	9,422

SETTLEMENT OF ACCOUNTS RECEIVABLE RELATED TO ACQUISITIONS	$	31,279		$	—

CONVERSION OF THIRD-PARTY DEBT TO EQUITY	$	7,750		$	—

See accompanying notes to unaudited condensed consolidated financial statements.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY—Unaudited

(in thousands, except share data)


	Preferred Stock				Common Stock				Treasury Stock						Additional Paid-in Capital		Other Comprehensive Loss			Distributions in Excess of Earnings			Non-controlling Interest			Total Equity
	Issued Shares		Amount		Issued Shares		Amount		Shares			Amount			Additional Paid-in Capital		Other Comprehensive Loss			Distributions in Excess of Earnings			Non-controlling Interest			Total Equity
BALANCE, JANUARY 1, 2013		—	$	—		395,963,218	$	3,959		(872,005	)	$	(62,728	)	$	5,012,124	$	(183,347	)	$	(1,196,907	)	$	111,080		$	3,684,181

Stock-based compensation related activity		—		—		952,304		10		—			—			47,363		—			—			—			47,373
Issuance of common stock- stock purchase plan		—		—		38,249		—		—			—			2,327		—			—			—			2,327
Treasury stock activity		—		—		—		—		(951,884	)		(74,625	)		—		—			—			—			(74,625	)
Changes in fair value of cash flow hedges, net of tax		—		—		—		—		—			—			—		2,456			—			293			2,749
Reclassification of unrealized losses on cash flow hedges to net income, net of tax		—		—		—		—		—			—			—		1,120			—			74			1,194
Foreign currency translation adjustment, net of tax		—		—		—		—		—			—			—		(94,485	)		—			(1,457	)		(95,942	)
Contributions from noncontrolling interest		—		—		—		—		—			—			—		—			—			18,020			18,020
Distributions to noncontrolling interest		—		—		—		—		—			—			—		—			—			(299	)		(299	)
Common stock dividends/distributions declared		—		—		—		—		—			—			—		—			(210,172	)		—			(210,172	)
Net income (loss)		—		—		—		—		—			—			—		—			271,228			(26,167	)		245,061

BALANCE, JUNE 30, 2013		—	$	—		396,953,771	$	3,969		(1,823,889	)	$	(137,353	)	$	5,061,814	$	(274,256	)	$	(1,135,851	)	$	101,544		$	3,619,867

BALANCE, JANUARY 1, 2014		—	$	—		397,674,350	$	3,976		(2,810,026	)	$	(207,740	)	$	5,130,616	$	(311,220	)	$	(1,081,467	)	$	55,875		$	3,590,040

Stock-based compensation related activity		—		—		1,093,535		11		—			—			55,935		—			—			—			55,946
Issuance of common stock- stock purchase plan		—		—		43,589		1		—			—			2,898		—			—			—			2,899
Issuance of preferred stock		6,000,000		60		—		—		—			—			582,820		—			—			—			582,880
Changes in fair value of cash flow hedges, net of tax		—		—		—		—		—			—			—		(455	)		—			118			(337	)
Reclassification of unrealized losses on cash flow hedges to net income, net of tax		—		—		—		—		—			—			—		1,422			—			121			1,543
Foreign currency translation adjustment, net of tax		—		—		—		—		—			—			—		59,333			—			(39,945	)		19,388
Contributions from noncontrolling interest		—		—		—		—		—			—			—		—			—			7,750			7,750
Distributions to noncontrolling interest		—		—		—		—		—			—			—		—			—			(291	)		(291	)
Common stock dividends/distributions declared		—		—		—		—		—			—			—		—			(262,251	)		—			(262,251	)
Preferred stock dividends declared		—		—		—		—		—			—			—		—			(4,375	)		—			(4,375	)
Net income (loss)		—		—		—		—		—			—			—		—			436,930			(21,958	)		414,972

BALANCE, JUNE 30, 2014		6,000,000	$	60		398,811,474	$	3,988		(2,810,026	)	$	(207,740	)	$	5,772,269	$	(250,920	)	$	(911,163	)	$	1,670		$	4,408,164

See accompanying notes to unaudited condensed consolidated financial statements.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

1. Description of Business, Basis of Presentation and Accounting Policies

American Tower Corporation is, through its various subsidiaries (collectively, “ATC” or the “Company”), an independent owner, operator and developer of wireless and broadcast communications real estate in the United States, Brazil, Chile, Colombia, Costa Rica, Germany, Ghana, India, Mexico, Panama, Peru, South Africa and Uganda. The Company’s primary business is the leasing of antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies and municipalities and tenants in a number of other industries. The Company also manages rooftop and tower sites for property owners, operates in-building and outdoor distributed antenna system (“DAS”) networks, holds property interests under third-party communications sites and provides network development services that primarily support its rental and management operations and the addition of new tenants and equipment on its sites. Since January 1, 2012, the Company has been organized and has qualified as a real estate investment trust (“REIT”) for U.S. federal income tax purposes.

ATC is a holding company that conducts its operations through its directly and indirectly owned subsidiaries and its joint ventures. ATC’s principal domestic operating subsidiaries are American Towers LLC and SpectraSite Communications, LLC. ATC conducts its international operations primarily through its subsidiary, American Tower International, Inc., which in turn conducts operations through its various international holding and operating subsidiaries and joint ventures.

The Company holds and operates certain of its assets through one or more taxable REIT subsidiaries (“TRSs”). The use of TRSs enables the Company to continue to engage in certain businesses while complying with REIT qualification requirements and also allows the Company to retain income generated by these businesses for reinvestment without the requirement of distributing those earnings. The businesses that the Company holds through its TRSs primarily include certain of its international operations and a portion of its managed network business.

As a REIT, the Company generally is not subject to federal income taxes on its income and gains that the Company distributes to its stockholders, including the income derived from leasing space on its towers. However, even as a REIT, the Company remains obligated to pay income taxes on earnings from its TRS operations. In addition, the Company’s international assets and operations, including those designated as direct or indirect qualified REIT subsidiaries or other disregarded entities of a REIT (collectively, “QRSs”), continue to be subject to taxation in the foreign jurisdictions where those assets are held or those operations are conducted.

The Company may, from time to time, change the election of previously designated TRSs that hold certain of its operations to be treated as QRSs, and may reorganize and transfer certain assets or operations from its TRSs to other subsidiaries, including QRSs. For all periods subsequent to the conversion from a TRS to a QRS, the Company includes the income from the QRSs as part of its REIT taxable income for the purpose of computing the Company’s REIT distribution requirements. During the six months ended June 30, 2014, the Company restructured certain of its German subsidiaries and certain of its domestic TRSs, which included a portion of its network development services segment and indoor DAS networks business, to be treated as QRSs. As of June 30, 2014, in addition to these businesses, the Company’s QRSs include its domestic tower leasing business and most of its operations in Costa Rica, Mexico and Panama.

The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The financial information included herein is unaudited; however, the Company believes that all adjustments (consisting primarily of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position and results of operations for such periods have been included. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

Principles of Consolidation and Basis of Presentation—The accompanying condensed consolidated financial statements include the accounts of the Company and those entities in which it has a controlling interest. Investments in entities that the Company does not control are accounted for using the equity or cost method, depending upon the Company’s ability to exercise significant influence over operating and financial policies. All intercompany accounts and transactions have been eliminated.

Significant Accounting Policies and Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates, and such differences could be material to the accompanying condensed consolidated financial statements. The significant estimates in the accompanying condensed consolidated financial statements include impairment of long-lived assets (including goodwill), asset retirement obligations, revenue recognition, rent expense, stock-based compensation, income taxes and accounting for business combinations. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued as additional evidence for certain estimates or to identify matters that require additional disclosure.

Functional Currency—The functional currency of the Company’s foreign operating subsidiaries is the respective local currency, except for Costa Rica and Panama, where the functional currency is the U.S. Dollar. All foreign currency assets and liabilities held by the subsidiaries are translated into U.S. Dollars at the exchange rate in effect at the end of the applicable fiscal reporting period and all foreign currency revenues and expenses are translated at the average monthly exchange rates. Translation adjustments are reflected in equity as a component of Accumulated other comprehensive income (loss) (“AOCI”) in the condensed consolidated balance sheets.

Transactional gains and losses on foreign currency transactions are reflected in Other expense in the condensed consolidated statements of operations. However, the effect from fluctuations in foreign currency exchange rates on intercompany notes whose payment is not planned or anticipated in the foreseeable future is reflected in AOCI in the condensed consolidated balance sheets. During the three months ended June 30, 2014, the Company recorded unrealized foreign currency losses of $53.2 million, of which $29.6 million was recorded in AOCI and $23.6 million was recorded in Other expense. During the six months ended June 30, 2014, the Company recorded unrealized foreign currency losses of $68.7 million, of which $43.1 million was recorded in AOCI and $25.6 million was recorded in Other expense.

Accounting Standards Updates—In April 2014, the Financial Accounting Standards Board (the “FASB”) issued additional guidance on reporting discontinued operations. Under this guidance, only disposals representing a strategic shift in operations would be presented as discontinued operations. This guidance requires expanded disclosure that provides information about the assets, liabilities, income and expenses of discontinued operations. Additionally, the guidance requires additional disclosure for a disposal of a significant part of an entity that does not qualify for discontinued operations reporting. This guidance will be effective for reporting periods beginning on or after December 15, 2014 with early adoption permitted for disposals or classifications of assets as held-for-sale that have not been reported in financial statements previously issued or available for issuance. The Company adopted this guidance during the six months ended June 30, 2014 and the adoption did not have a material effect on the Company’s financial statements.

In May 2014, the FASB issued new revenue recognition guidance, which requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in GAAP. The amendment will become effective on January 1, 2017, and early application is not

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

permitted. The standard permits the use of either the retrospective or cumulative effect transition method. Leases are not included in the scope of this standard. The Company is evaluating the impact this standard will have on its financial statements.

2. Prepaid and Other Current Assets

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


	June 30, 2014		December 31, 2013 (1)
Prepaid operating ground leases	$	86,700	$	95,580
Prepaid income tax		62,593		52,612
Acquisition deposit in escrow		59,024		—
Unbilled receivables		37,871		25,412
Prepaid assets		26,693		34,243
Value added tax and other consumption tax receivables		15,730		77,016
Other miscellaneous current assets		54,187		56,022

Balance	$	342,798	$	340,885

(1)	December 31, 2013 balances have been revised to reflect purchase accounting measurement period adjustments.

3. Goodwill and Other Intangible Assets

The changes in the carrying value of goodwill for the Company’s business segments are as follows (in thousands):


	Rental and Management				Network Development Services			Total
	Domestic		International		Network Development Services			Total
Balance as of January 1, 2014 (1)	$	3,258,680	$	547,746	$	2,000		$	3,808,426
Additions		33,671		4,232		—			37,903
Effect of foreign currency translation		—		8,614		—			8,614
Other (2)		—		—		(12	)		(12	)

Balance as of June 30, 2014	$	3,292,351	$	560,592	$	1,988		$	3,854,931

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

(2)	Other represents the fair value adjustment to goodwill associated with the Company’s third-party structural analysis business, which was considered held-for-sale at June 30, 2014.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

The Company’s other intangible assets subject to amortization consist of the following as of (in thousands):


		June 30, 2014							December 31, 2013 (1)
	Estimated Useful Lives	Gross Carrying Value		Accumulated Amortization			Net Book Value		Gross Carrying Value		Accumulated Amortization			Net Book Value
	(years)
Acquired network location (2)	Up to 20	$	2,437,303	$	(869,234	)	$	1,568,069	$	2,419,708	$	(791,359	)	$	1,628,349
Acquired customer-related intangibles	15-20		6,283,602		(1,307,289	)		4,976,313		6,026,480		(1,170,239	)		4,856,241
Acquired licenses and other intangibles	3-20		6,755		(2,815	)		3,940		6,583		(2,297	)		4,286
Economic Rights, TV Azteca	70		28,927		(14,560	)		14,367		28,783		(14,229	)		14,554

Total		$	8,756,587	$	(2,193,898	)	$	6,562,689	$	8,481,554	$	(1,978,124	)	$	6,503,430
Deferred financing costs, net (3)	N/A							75,193							76,875

Other intangible assets, net							$	6,637,882						$	6,580,305

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

(2)	Acquired network location intangibles are amortized over the shorter of the term of the corresponding ground lease taking into consideration lease renewal options and residual value or up to 20 years, as the Company considers these intangibles to be directly related to the tower assets.

(3)	Deferred financing costs are amortized over the term of the respective debt instruments to which they relate using the effective interest method. This amortization is included in Interest expense rather than in Depreciation, amortization and accretion expense.

The acquired network location intangibles represent the value to the Company of the incremental revenue growth that could potentially be obtained from leasing the excess capacity on acquired communications sites. The acquired customer-related intangibles typically represent the value to the Company of customer contracts and relationships in place at the time of an acquisition, including assumptions regarding estimated renewals.

The Company amortizes its acquired network intangibles and customer-related intangibles on a straight-line basis over their estimated useful lives. As of June 30, 2014, the remaining weighted average amortization period of the Company’s intangible assets, excluding deferred financing costs and the TV Azteca Economic Rights detailed in note 5 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013, is approximately 16 years. Amortization of intangible assets for the three and six months ended June 30, 2014 was approximately $101.6 million and $204.2 million, respectively, and amortization of intangible assets for the three and six months ended June 30, 2013 was approximately $61.1 million and $120.3 million, respectively. Amortization expense excludes amortization of deferred financing costs, which is included in Interest expense on the condensed consolidated statements of operations. Based on current exchange rates, the Company expects to record amortization expense (excluding amortization of deferred financing costs) as follows over the remaining current year and the next five subsequent years (in millions):


Fiscal Year
2014 (remaining year)	$	207.4
2015		412.5
2016		409.8
2017		407.5
2018		405.4
2019		403.3

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

During the three months ended June 30, 2014, the Company determined that its operations in Panama and its third-party structural analysis business were held-for-sale. The Company assessed the carrying value of its operations in Panama, which are included in its international rental and management segment, and concluded that the value is expected to be recoverable and, accordingly, no impairment charge was recorded. The Company recorded an impairment charge of $4.1 million during the three and six months ended June 30, 2014 for its third-party structural analysis business, which is included in its network development services segment, related to the write down of its intangible assets and goodwill to fair value. For additional information on assets held-for-sale, see note 7.

4. Accrued Expenses

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


	June 30, 2014		December 31, 2013 (1)
Accrued construction costs	$	72,878	$	52,446
Accrued property and real estate taxes		65,533		54,529
Payroll and related withholdings		35,484		50,843
Accrued rent		34,002		28,456
Other accrued expenses		214,717		228,801

Balance	$	422,614	$	415,075

(1)	December 31, 2013 balances have been revised to reflect purchase accounting measurement period adjustments.

5. Long-Term Obligations

Current portion of long-term obligations—In connection with its acquisition of MIP Tower Holdings LLC (“MIPT”) (see note 14) on October 1, 2013, the Company assumed approximately $1.49 billion principal amount of existing indebtedness under six series, consisting of eleven separate classes, of Secured Tower Revenue Notes issued by certain subsidiaries of Global Tower Partners (“GTP”) in several securitization transactions (the “GTP Notes”). The Series 2010-1 Class C Notes and the Series 2010-1 Class F Notes (together, the “Series 2010-1 Notes”) have an aggregate principal amount outstanding of $250.0 million and an anticipated repayment date of February 15, 2015. As a result, the aggregate principal amount of $250.0 million and the unamortized premium of $3.4 million of the Series 2010-1 Notes is reflected in Current portion of long-term obligations in the condensed consolidated balance sheets.

In addition, the Company’s 4.625% senior unsecured notes mature on April 1, 2015. As a result, the aggregate principal amount of $600.0 million, net of unamortized discount of $0.1 million, is reflected in Current portion of long-term obligations in the condensed consolidated balance sheets.

Costa Rica Loan—In connection with its acquisition of MIPT, the Company assumed $32.6 million of secured debt in Costa Rica (the “Costa Rica Loan”), which it repaid in full in February 2014.

Colombian Bridge Loans—In connection with the acquisition of communications sites in Colombia, one of the Company’s Colombian subsidiaries entered into six Colombian Peso (“COP”) denominated bridge loans for an aggregate principal amount of 108.0 billion COP (approximately $57.4 million). As of June 30, 2014, the interest rate was 7.86% and the maturity date of the loans was July 31, 2014. In July 2014, the maturity date of the loans was extended to August 31, 2014.

Mexican Loan—In connection with the acquisition of towers in Mexico from NII Holdings, Inc. (“NII”) during the fourth quarter of 2013, one of the Company’s Mexican subsidiaries entered into a 5.2 billion Mexican Peso (“MXN”) denominated unsecured bridge loan (the “Mexican Loan”) and subsequently borrowed

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

approximately 4.9 billion MXN (approximately $374.7 million at the date of borrowing). The Mexican subsidiary’s ability to draw down the remaining 0.3 billion MXN under the Mexican Loan expired in February 2014. During the six months ended June 30, 2014, the Mexican subsidiary repaid 1.1 billion MXN (approximately $80.4 million on the date of repayment) of the outstanding indebtedness with cash on hand. As of June 30, 2014, the Company had 3.9 billion MXN (approximately $298.6 million) outstanding under the Mexican Loan, which is reflected in Current portion of long-term obligations in the condensed consolidated balance sheets.

Colombian Loan—In connection with the establishment of the Company’s joint venture with Millicom International Cellular SA (“Millicom”) and the acquisition of certain communications sites in Colombia, ATC Colombia B.V., a majority owned subsidiary of the Company, entered into a U.S. Dollar-denominated shareholder loan agreement (the “Colombian Loan”), as the borrower, with the Company’s wholly owned subsidiary (the “ATC Colombian Subsidiary”), and a wholly owned subsidiary of Millicom (the “Millicom Subsidiary”), as the lenders. The portion of the Colombian Loan made by the ATC Colombian Subsidiary is eliminated in consolidation, and the portion of the Colombian Loan made by the Millicom Subsidiary is reported as outstanding debt. During the six months ended June 30, 2014, the joint venture borrowed an additional $3.0 million under the Colombian Loan, which was subsequently converted from debt to equity, and the balance as of June 30, 2014 is $35.1 million. In July 2014, the Company purchased Millicom’s interest in the joint venture and the Colombian Loan using proceeds from borrowings under the Company’s $2.0 billion multi-currency senior unsecured revolving credit facility. As a result, all amounts outstanding under the Colombian Loan will be eliminated in consolidation.

Richland Notes—In connection with its acquisition of entities holding a portfolio of communications sites from Richland Properties LLC and other related entities (“Richland”) (see note 14), the Company assumed approximately $196.5 million of secured debt (the “Richland Notes”) and recorded a fair value premium of $5.5 million upon acquisition. In June 2014, the Company repaid the outstanding indebtedness, paid prepayment consideration and wrote-off the unamortized premium associated with the fair value adjustment. As a result, the Company recorded a Loss on retirement of long-term obligations in the accompanying condensed consolidated statements of operations of $1.3 million.

2012 Credit Facility—During the six months ended June 30, 2014, the Company repaid $88.0 million of outstanding indebtedness under its $1.0 billion senior unsecured revolving credit facility (the “2012 Credit Facility”) with net proceeds from a registered public offering of $250.0 million aggregate principal amount of reopened 3.40% senior unsecured notes due 2019 and $500.0 million aggregate principal amount of reopened 5.00% senior unsecured notes due 2024. As of June 30, 2014, the Company has no amounts outstanding under the 2012 Credit Facility and $7.5 million of undrawn letters of credit. The Company maintains the ability to draw down and repay amounts under the 2012 Credit Facility in the ordinary course.

The 2012 Credit Facility matures on January 31, 2017, does not require amortization of principal and may be paid prior to maturity in whole or in part at the Company’s option without penalty or premium. The current margin over the London Interbank Offered Rate (“LIBOR”) that the Company would incur (should it choose LIBOR) on borrowings is 1.625%, and the current commitment fee on the undrawn portion of the 2012 Credit Facility is 0.225%.

2013 Credit Facility—During the six months ended June 30, 2014, the Company repaid $1.4 billion of outstanding indebtedness under its $2.0 billion multi-currency senior unsecured revolving credit facility (the “2013 Credit Facility”) using (i) proceeds from a registered public offering of $250.0 million aggregate principal amount of reopened 3.40% senior unsecured notes due 2019 and $500.0 million aggregate principal amount of reopened 5.00% senior unsecured notes due 2024, (ii) proceeds from the issuance of mandatory convertible preferred stock in May 2014 (see note 11) and (iii) cash on hand. During the six months ended June 30, 2014, the Company borrowed an additional $360.0 million under the 2013 Credit Facility, which it primarily used to fund recent acquisitions, including the acquisition from Richland, and the repayment of the Richland Notes.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

As of June 30, 2014, the Company has $783.0 million outstanding under the 2013 Credit Facility and approximately $3.2 million of undrawn letters of credit. In July 2014, the Company borrowed a net amount of $140.0 million under the 2013 Credit Facility, a portion of which it used to purchase Millicom’s interest in the Colombian joint venture and the Colombian Loan. The 2013 Credit Facility includes an expansion option allowing the Company to request additional commitments of up to $750.0 million, including in the form of a term loan. The Company maintains the ability to draw down and repay amounts under the 2013 Credit Facility in the ordinary course.

The 2013 Credit Facility matures on June 28, 2018 and includes two one-year renewal periods at the Company’s option. The 2013 Credit Facility does not require amortization of principal and may be paid prior to maturity in whole or in part at the Company’s option without penalty or premium. The current margin over LIBOR that the Company incurs on borrowings is 1.250%, and the current commitment fee on the undrawn portion of the 2013 Credit Facility is 0.150%.

Short-Term Credit Facility—On September 20, 2013, the Company entered into a $1.0 billion senior unsecured revolving credit facility (the “Short-Term Credit Facility”). The Short-Term Credit Facility does not require amortization of principal and may be repaid prior to maturity in whole or in part at the Company’s option without penalty or premium. The Company may reduce or terminate the unutilized portion of the commitments under the Short-Term Credit Facility in whole or in part without penalty.

The Short-Term Credit Facility matures on September 19, 2014. The current margin over LIBOR that the Company would incur (should it choose LIBOR) on borrowings is 1.250%, and the current commitment fee on the undrawn portion is 0.150%. As of June 30, 2014, the Company has no amounts outstanding under the Short-Term Credit Facility and maintains the ability to draw down and repay amounts under the Short-Term Credit Facility in the ordinary course.

2013 Term Loan—On October 29, 2013, the Company entered into a $1.5 billion unsecured term loan (the “2013 Term Loan”), which includes an expansion option allowing the Company to request additional commitments of up to $500.0 million. The 2013 Term Loan matures on January 3, 2019, and the current interest rate is LIBOR plus 1.250%.

Senior Notes Offering—On January 10, 2014, the Company completed a registered public offering through a reopening of its (i) 3.40% senior unsecured notes due 2019 (the “3.40% Notes”), in an aggregate principal amount of $250.0 million and (ii) 5.00% senior unsecured notes due 2024 (the “5.00% Notes”), in an aggregate principal amount of $500.0 million. The net proceeds from the offering were approximately $763.8 million, after deducting commissions and estimated expenses. As a result, the aggregate outstanding principal amount of each of the 3.40% Notes and the 5.00% Notes is $1.0 billion.

The Company used a portion of the proceeds, together with cash on hand, to repay $88.0 million of outstanding indebtedness under the 2012 Credit Facility and $710.0 million of outstanding indebtedness under the 2013 Credit Facility.

The reopened 3.40% Notes issued on January 10, 2014 have identical terms as, are fungible with and are part of a single series of senior debt securities with the 3.40% Notes issued on August 19, 2013. The reopened 5.00% Notes issued on January 10, 2014 have identical terms as, are fungible with and are part of a single series of senior debt securities with the 5.00% Notes issued on August 19, 2013.

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

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

The Company may redeem the 3.40% Notes or the 5.00% Notes at any time at a redemption price equal to 100% of the principal amount, plus a make-whole premium, together with accrued interest to the redemption date. If the Company undergoes a change of control and ratings decline, each as defined in the supplemental indenture, the Company may be required to repurchase all of the 3.40% Notes and the 5.00% Notes at a purchase price equal to 101% of the principal amount of the 3.40% Notes and the 5.00% Notes, plus accrued and unpaid interest (including additional interest, if any), up to but not including the repurchase date. The 3.40% Notes and the 5.00% Notes rank equally with all of the Company’s other senior unsecured debt and are structurally subordinated to all existing and future indebtedness and other obligations of its subsidiaries.

The supplemental indenture contains certain covenants that restrict the Company’s ability to merge, consolidate or sell assets and its (together with its subsidiaries’) ability to incur liens. These covenants are subject to a number of exceptions, including that the Company and its subsidiaries may incur certain liens on assets, mortgages or other liens securing indebtedness, if the aggregate amount of such liens does not exceed 3.5x Adjusted EBITDA, as defined in the supplemental indenture.

6. Derivative Financial Instruments

The Company is exposed to certain risks related to its ongoing business operations. The primary risk managed through the use of derivative instruments is interest rate risk. From time to time, the Company enters into interest rate protection agreements to manage exposure to variability in cash flows relating to forecasted interest payments. Under these agreements, the Company is exposed to credit risk to the extent that a counterparty fails to meet the terms of a contract. The Company’s credit risk exposure is limited to the current value of the contract at the time the counterparty fails to perform.

If a derivative is designated as a cash flow hedge, the effective portion of changes in the fair value of the derivative is recorded in AOCI and is recognized in the results of operations when the hedged item affects earnings. The ineffective portion of changes in the fair value of cash flow hedges is recognized immediately in the results of operations. For derivative instruments not designated as hedging instruments, changes in fair value are recognized in the results of operations in the period in which the change occurs.

Certain of the Company’s foreign subsidiaries have entered into interest rate swap agreements to manage exposure to variability in interest rates on debt in Colombia and South Africa and these interest rate swap agreements have been designated as cash flow hedges.

South Africa

One of the Company’s South African subsidiaries has fifteen interest rate swap agreements outstanding, which mature on the earlier of termination of the underlying debt or March 31, 2020. The interest rate swap agreements provide that the Company pay a fixed interest rate ranging from 6.09% to 7.83% and receive variable interest at the three-month Johannesburg Interbank Agreed Rate (JIBAR) over the term of the interest rate swap agreements. The notional value is reduced in accordance with the repayment schedule under the related credit agreement.

Colombia

One of the Company’s Colombian subsidiaries has an interest rate swap agreement outstanding, which matures on the earlier of termination of the underlying debt or November 30, 2020. The interest rate swap agreement provides that the Company pay a fixed interest rate of 5.78% and receive variable interest at the three-month Inter-bank Rate (IBR) over the term of the interest rate swap agreement. The notional value is reduced in accordance with the repayment schedule under the related credit agreement.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

Costa Rica

One of the Company’s Costa Rican subsidiaries had three interest rate swaps agreements, which were terminated upon repayment of the Costa Rica Loan in February 2014.

The notional amount and fair value of the interest rate swap agreements are as follows (in thousands):


	June 30, 2014						December 31, 2013
	Local			USD			Local			USD
South Africa (ZAR)
Notional		457,079			42,969			469,354			44,732
Fair Value		3,773			355			939			90
Colombia (COP)
Notional		100,743,750			53,553			101,250,000			52,547
Fair Value		(1,625,102	)		(864	)		(3,000,236	)		(1,557	)
Costa Rica (USD)
Notional		—			—			N/A			42,000
Fair Value		—			—			N/A			(628	)

As of June 30, 2014 and December 31, 2013, the South African interest rate swap agreements were in an asset position and were included in Notes receivable and other non-current assets on the condensed consolidated balance sheets. The Colombian interest rate swap agreement was in a liability position and was included in Other non-current liabilities on the condensed consolidated balance sheets.

During the three months ended June 30, 2014 and 2013, the interest rate swap agreements had the following impact on the Company’s condensed consolidated financial statements (in thousands):


Three Months Ended June 30,	Gain(Loss) Recognized in Other Comprehensive Income—Effective Portion		Gain(Loss) Reclassified from AOCI into Income - Effective Portion			Location of Gain(Loss) Reclassified from AOCI into Income- Effective Portion		Gain(Loss) Recognized in Income - Ineffective Portion		Location of Gain(Loss) Recognized in Income - Ineffective Portion
2014	$	226	$	(670	)		Interest Expense		N/A		N/A
2013	$	4,138	$	(704	)		Interest Expense		N/A		N/A

During the six months ended June 30, 2014 and 2013, the interest rate swap agreements had the following impact on the Company’s condensed consolidated financial statements (in thousands):


Six Months Ended June 30,	Gain(Loss) Recognized in Other Comprehensive Income—Effective Portion			Gain(Loss) Reclassified from AOCI into Income - Effective Portion			Location of Gain(Loss) Reclassified from AOCI into Income- Effective Portion		Gain(Loss) Recognized in Income - Ineffective Portion		Location of Gain(Loss) Recognized in Income - Ineffective Portion
2014	$	(361	)	$	(1,639	)		Interest Expense		N/A		N/A
2013	$	3,205		$	(1,312	)		Interest Expense		N/A		N/A

As of June 30, 2014, approximately $0.7 million related to derivatives designated as cash flow hedges and recorded in AOCI is expected to be reclassified into earnings in the next twelve months.

For additional information on the Company’s interest rate swap agreements, see notes 7 and 8.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

7. Fair Value Measurements

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

Level 1

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

Level 2

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

Level 3

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

Items Measured at Fair Value on a Recurring Basis—The fair value of the Company’s financial assets and liabilities that are required to be measured on a recurring basis at fair value is as follows (in thousands):


	June 30, 2014
	Fair Value Measurements Using					Assets/Liabilities at Fair Value
	Level 1	Level 2		Level 3		Assets/Liabilities at Fair Value
Assets:
Short-term investments (1)		$	15,298			$	15,298
Interest rate swap agreements		$	355			$	355
Liabilities:
Acquisition-related contingent consideration				$	31,025	$	31,025
Interest rate swap agreements		$	864			$	864


	December 31, 2013
	Fair Value Measurements Using					Assets/Liabilities at Fair Value
	Level 1	Level 2		Level 3		Assets/Liabilities at Fair Value
Assets:
Short-term investments (1)		$	18,612			$	18,612
Interest rate swap agreements		$	90			$	90
Liabilities:
Acquisition-related contingent consideration				$	31,890	$	31,890
Interest rate swap agreements		$	2,185			$	2,185

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

Interest Rate Swap Agreements

The fair value of the Company’s interest rate swap agreements is determined using pricing models with inputs that are observable in the market or can be derived principally from, or corroborated by, observable market data. Fair valuations of the interest rate swap agreements reflect the value of the instrument including the values associated with counterparty risk, the Company’s own credit standing and the value of the net credit differential between the counterparties to the derivative contract.

Acquisition-Related Contingent Consideration

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

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

may be required to pay additional consideration upon the conversion of certain barter agreements with other wireless carriers to cash-paying lease agreements. In addition, in Costa Rica, Panama 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.

Acquisition-related contingent consideration is initially measured and recorded at fair value as an element of consideration paid in connection with an acquisition with subsequent adjustments recognized in Other operating expenses in the condensed consolidated statements of operations. The Company determines the fair value of acquisition-related contingent consideration, and any subsequent changes in fair value using a discounted probability-weighted approach. This approach takes into consideration Level 3 unobservable inputs including probability assessments of expected future cash flows over the period in which the obligation is expected to be settled and applies a discount factor that captures the uncertainties associated with the obligation. Changes in these unobservable inputs could significantly impact the fair value of the liabilities recorded in the accompanying condensed consolidated balance sheets and adjustments recorded in the condensed consolidated statements of operations.

As of June 30, 2014, the Company estimates that the value of all potential acquisition-related contingent consideration required payments to be between zero and $44.6 million. During the three months ended June 30, 2014 and 2013, the fair value of the contingent consideration changed as follows (in thousands):


	2014			2013
Balance as of April 1	$	31,342		$	25,201
Additions		406			313
Payments		(674	)		(1,033	)
Change in fair value		(952	)		(2,007	)
Foreign currency translation adjustment		903			(1,256	)

Balance as of June 30	$	31,025		$	21,218

During the six months ended June 30, 2014 and 2013, the fair value of the contingent consideration changed as follows (in thousands):


	2014			2013
Balance as of January 1	$	31,890		$	23,711
Additions		406			478
Payments		(1,289	)		(4,222	)
Change in fair value		(370	)		3,307
Foreign currency translation adjustment		388			(2,056	)

Balance as of June 30	$	31,025		$	21,218

Items Measured at Fair Value on a Nonrecurring Basis

Assets held and used—The Company’s long-lived assets are measured at fair value on a nonrecurring basis using Level 3 inputs. During the three and six months ended June 30, 2014, the Company did not record any asset impairment charges and during the three and six months ended June 30, 2013, the Company recorded an asset impairment charge of $0.1 million.

Assets held-for-sale—During the three months ended June 30, 2014, based on a strategic review of the international rental and management segment and components of the network development services segment, the Company determined that its operations in Panama and its third-party structural analysis business were held-for-sale.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

As of June 30, 2014, the net carrying value of the assets and liabilities held-for-sale in Panama is $15.1 million, primarily including $8.0 million of Property and equipment, net and $5.6 million of Other intangible assets, net. The carrying value approximates fair value and, as a result, the Company did not record any impairment charges during the three and six months ended June 30, 2014.

As of June 30, 2014, the carrying value of the assets held-for-sale related to the Company’s third-party structural analysis business is $2.4 million of Other intangible assets, net, which reflects an impairment charge of $4.1 million related to the write down of intangibles and goodwill to fair value. The Company completed the sale of this business in July 2014.

The impairment charges for both assets held and used and assets held-for-sale are recorded in Other operating expenses in the accompanying condensed consolidated statements of operations. These adjustments were determined by comparing the estimated net proceeds from sale of assets or the projected future discounted cash flows to be provided from the long-lived assets (calculated using Level 3 inputs) to the asset’s carrying value. There were no other items measured at fair value on a nonrecurring basis during the six months ended June 30, 2014.

Fair Value of Financial Instruments—The carrying value of the Company’s financial instruments that reasonably approximate fair value at June 30, 2014 and December 31, 2013 includes cash and cash equivalents, restricted cash, accounts receivable and accounts payable. The Company’s estimates of fair value of its long-term obligations, including the current portion, are based primarily upon reported market values. For long-term debt not actively traded, fair value was estimated using either indicative price quotes or a discounted cash flow analysis using rates for debt with similar terms and maturities. As of June 30, 2014, the carrying value and fair value of long-term obligations, including the current portion, are $14.0 billion and $14.5 billion, respectively, of which $9.2 billion was measured using Level 1 inputs and $5.3 billion was measured using Level 2 inputs. As of December 31, 2013, the carrying value and fair value of long-term obligations, including the current portion, were $14.5 billion and $14.7 billion, respectively, of which $8.6 billion was measured using Level 1 inputs and $6.1 billion was measured using Level 2 inputs.

8. Accumulated Other Comprehensive Loss

The changes in Accumulated other comprehensive loss for the three months ended June 30, 2014 and 2013 are as follows (in thousands):


	Unrealized Losses on Cash Flow Hedges (1)			Deferred Loss on the Settlement of the Treasury Rate Lock			Foreign Currency Items			Total
Balance as of April 1, 2014	$	(1,970	)	$	(2,829	)	$	(267,611	)	$	(272,410	)
Other comprehensive income before reclassifications, net of tax		325			—			20,622			20,947
Amounts reclassified from accumulated other comprehensive loss, net of tax		344			199			—			543

Net current-period other comprehensive income		669			199			20,622			21,490

Balance as of June 30, 2014	$	(1,301	)	$	(2,630	)	$	(246,989	)	$	(250,920	)

(1)	Losses on cash flow hedges have been reclassified into Interest expense in the accompanying condensed consolidated statements of operations. The tax effect of less than $0.1 million is included in income tax expense for the three months ended June 30, 2014.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited


	Unrealized Losses on Cash Flow Hedges (1)			Deferred Loss on the Settlement of the Treasury Rate Lock			Foreign Currency Items			Total
Balance as of April 1, 2013	$	(5,162	)	$	(3,628	)	$	(149,253	)	$	(158,043	)
Other comprehensive income (loss) before reclassifications, net of tax		3,570			—			(120,394	)		(116,824	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		410			201			—			611

Net current-period other comprehensive income (loss)		3,980			201			(120,394	)		(116,213	)

Balance as of June 30, 2013	$	(1,182	)	$	(3,427	)	$	(269,647	)	$	(274,256	)

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

The changes in Accumulated other comprehensive loss for the six months ended June 30, 2014 and 2013 are as follows (in thousands):


	Unrealized Losses on Cash Flow Hedges (1)			Deferred Loss on the Settlement of the Treasury Rate Lock			Foreign Currency Items			Total
Balance as of January 1, 2014	$	(1,869	)	$	(3,029	)	$	(306,322	)	$	(311,220	)
Other comprehensive (loss) income before reclassifications, net of tax		(455	)		—			59,333			58,878
Amounts reclassified from accumulated other comprehensive loss, net of tax		1,023			399			—			1,422

Net current-period other comprehensive income		568			399			59,333			60,300

Balance as of June 30, 2014	$	(1,301	)	$	(2,630	)	$	(246,989	)	$	(250,920	)

(1)	Losses on cash flow hedges have been reclassified into Interest expense in the accompanying condensed consolidated statements of operations. The tax effect of $0.1 million is included in income tax expense for the six months ended June 30, 2014.


	Unrealized Losses on Cash Flow Hedges (1)			Deferred Loss on the Settlement of the Treasury Rate Lock			Foreign Currency Items			Total
Balance as of January 1, 2013	$	(4,358	)	$	(3,827	)	$	(175,162	)	$	(183,347	)
Other comprehensive income (loss) before reclassifications, net of tax		2,456			—			(94,485	)		(92,029	)
Amounts reclassified from accumulated other comprehensive loss, net of tax		720			400			—			1,120

Net current-period other comprehensive income (loss)		3,176			400			(94,485	)		(90,909	)

Balance as of June 30, 2013	$	(1,182	)	$	(3,427	)	$	(269,647	)	$	(274,256	)

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

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

9. Income Taxes

The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year. Cumulative adjustments to the Company’s estimate are recorded in the interim period in which a change in the estimated annual effective tax rate is determined. The Company reorganized to qualify as a REIT for the taxable year commencing January 1, 2012. As a REIT, the Company continues to be subject to income taxes on the income of its TRSs, and taxation in foreign jurisdictions where it conducts international operations. Under the provisions of the Internal Revenue Code of 1986, as amended, the Company may deduct amounts distributed to stockholders against the income generated in its QRSs. The Company is able to offset income in both its TRSs and QRSs by utilizing their respective net operating losses. In addition, MIPT has been organized and has qualified as a REIT. For so long as MIPT continues to elect separate REIT status, it is independently subject to, and must comply with, the same REIT requirements that the Company must satisfy in order to qualify as a REIT, together with all other rules applicable to REITs.

The Company provides valuation allowances if, based on the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets.

As of June 30, 2014 and December 31, 2013, the total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was approximately $37.7 million and $31.1 million, respectively. The increase in the amount of unrecognized tax benefits during the three and six months ended June 30, 2014 is primarily attributable to the additions to the Company’s existing tax positions and fluctuations in foreign currency exchange rates. The Company expects the unrecognized tax benefits to change over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdiction during this timeframe, as described in note 14 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013. The impact of the amount of such changes to previously recorded uncertain tax positions could range from zero to $14.6 million.

The Company recorded penalties and income tax-related interest expense during the three and six months ended June 30, 2014 of $1.9 million and $3.2 million, respectively, and during the three and six months ended June 30, 2013 of $1.3 million and $2.6 million, respectively. As of June 30, 2014 and December 31, 2013, the total amount of accrued penalties and income tax-related interest included in Other non-current liabilities in the condensed consolidated balance sheets was $34.8 million and $30.9 million, respectively.

10. Stock-Based Compensation

The Company recognized stock-based compensation expense during the three and six months ended June 30, 2014 of $18.8 million and $43.4 million, respectively, and stock-based compensation expense during the three and six months ended June 30, 2013 of $17.1 million and $38.1 million, respectively. Stock-based compensation expense for the three and six months ended June 30, 2013 included $1.1 million related to the modification of the vesting and exercise terms for certain employees’ equity awards. The Company capitalized stock-based compensation expense of $0.4 million during each of the three months ended June 30, 2014 and 2013, and $0.8 million during each of the six months ended June 30, 2014 and 2013, as property and equipment.

Summary of Stock-Based Compensation Plans—The Company maintains equity incentive plans that provide for the grant of stock-based awards to its directors, officers and employees. The 2007 Equity Incentive Plan (the “2007 Plan”) provides for the grant of non-qualified and incentive stock options, as well as restricted stock units, restricted stock and other stock-based awards. Exercise prices in the case of non-qualified and incentive stock options are not less than the fair value of the underlying common stock on the date of grant. Equity awards

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

typically vest ratably over various periods, generally four years, and stock options generally expire ten years from the date of grant. As of June 30, 2014, the Company has the ability to grant stock-based awards with respect to an aggregate of 14.2 million shares of common stock under the 2007 Plan.

The Company’s Compensation Committee adopted a death, disability and retirement benefits program in connection with equity awards granted on or after January 1, 2013, which provides for accelerated vesting and extended exercise periods of stock options and restricted stock units upon an employee’s death or permanent disability, or upon an employee’s qualified retirement, provided certain eligibility criteria are met. Due to the accelerated recognition of stock-based compensation expense related to awards granted to retirement eligible employees, the Company recognized an incremental $1.2 million and $9.7 million of stock-based compensation expense during the three and six months ended June 30, 2014, respectively, and an incremental $0.6 million and $7.3 million of stock-based compensation expense during the three and six months ended June 30, 2013, respectively.

Stock Options—The Company’s option activity for the six months ended June 30, 2014 is as follows:


	Number of Options
Outstanding as of January 1, 2014		6,106,171
Granted		1,858,633
Exercised		(627,037	)
Forfeited		(100,830	)
Expired		(33,188	)

Outstanding as of June 30, 2014		7,203,749

The fair value of each option granted during the six months ended June 30, 2014 is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions noted in the table below:


Range of risk-free interest rate		1.46%-1.74%
Weighted average risk-free interest rate		1.64%
Expected life of option grants		4.5 years
Range of expected volatility of underlying stock price		22.45% -23.35%
Weighted average expected volatility of underlying stock price		23.09%
Expected annual dividend yield		1.50%

The weighted average grant date fair value per share during the six months ended June 30, 2014 was $14.84. As of June 30, 2014, total unrecognized compensation expense related to unvested stock options is $45.2 million and is expected to be recognized over a weighted average period of approximately two years.

Restricted Stock Units—The following table summarizes the Company’s restricted stock unit activity during the six months ended June 30, 2014:


	Number of Units
Outstanding as of January 1, 2014		1,840,137
Granted		786,584
Vested		(689,501	)
Forfeited		(91,769	)

Outstanding as of June 30, 2014		1,845,451

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

As of June 30, 2014, total unrecognized compensation expense related to unvested restricted stock units granted under the 2007 Plan is $102.7 million and is expected to be recognized over a weighted average period of approximately two years.

Employee Stock Purchase Plan—The Company maintains an employee stock purchase plan (“ESPP”) for all eligible employees as described in note 15 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013. Under the ESPP, shares of the Company’s common stock may be purchased on the last day of each bi-annual offering period at a 15% discount of the lower of the closing market value on the first or last day of such offering period. The offering periods run from June 1 through November 30 and from December 1 through May 31 of each year. During the six months ended June 30, 2014, employee contributions were accumulated to purchase an estimated 44,000 shares under the ESPP.

Key assumptions used to apply the Black-Scholes pricing model for shares purchased through the ESPP during the six months ended June 30, 2014, which resulted in a fair value per share of $14.35, are as follows:


Approximate risk-free interest rate		0.11%
Expected life of shares		6 months
Expected volatility of underlying stock price over the option period		16.59%
Expected annual dividend yield		1.50%

11. Equity

5.25% Mandatory Convertible Preferred Stock Offering—On May 12, 2014, the Company completed a registered public offering of 6,000,000 shares of its 5.25% Mandatory Convertible Preferred Stock, Series A, par value $0.01 per share (the “Mandatory Convertible Preferred Stock”). The net proceeds of the offering were $582.9 million after deducting commissions and estimated expenses. The Company used the net proceeds from this offering to fund recent acquisitions, including the acquisition from Richland, initially funded by indebtedness incurred under the 2013 Credit Facility.

Unless converted earlier, each share of the Mandatory Convertible Preferred Stock will automatically convert on May 15, 2017, into between 0.9174 and 1.1468 shares of common stock, depending on the applicable market value of the common stock and subject to anti-dilution adjustments. Subject to certain restrictions, at any time prior to May 15, 2017, holders of the Mandatory Convertible Preferred Stock may elect to convert all or a portion of their shares into common stock at the minimum conversion rate then in effect.

Dividends on shares of Mandatory Convertible Preferred Stock are payable on a cumulative basis when, as and if declared by the Company’s Board of Directors (or an authorized committee thereof) at an annual rate of 5.25% on the liquidation preference of $100.00 per share, on February 15, May 15, August 15 and November 15 of each year, commencing on August 15, 2014 to, and including, May 15, 2017. The Company may pay dividends in cash or, subject to certain limitations, in shares of common stock or any combination of cash and shares of common stock. The terms of the Mandatory Convertible Preferred Stock provide that, unless full cumulative dividends have been paid or set aside for payment on all outstanding Mandatory Convertible Preferred Stock for all prior dividend periods, no dividends may be declared or paid on common stock.

Stock Repurchase Program—In March 2011, the Board of Directors approved a stock repurchase program, pursuant to which the Company is authorized to purchase up to $1.5 billion of common stock (the “2011 Buyback”). On September 6, 2013, the Company temporarily suspended repurchases in connection with its acquisition of MIPT.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

Under the 2011 Buyback, the Company is authorized to purchase shares from time to time through open market purchases or privately negotiated transactions at prevailing prices in accordance with securities laws and other legal requirements, and subject to market conditions and other factors. To facilitate repurchases, the Company makes purchases pursuant to trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, which allows the Company to repurchase shares during periods when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.

The Company continues to manage the pacing of the remaining $1.1 billion under the 2011 Buyback in response to general market conditions and other relevant factors, including its financial policies. The Company expects to fund any further repurchases of its common stock through a combination of cash on hand, cash generated by operations and borrowings under its credit facilities. Purchases under the 2011 Buyback are subject to the Company having available cash to fund repurchases.

Sales of Equity Securities—The Company receives proceeds from sales of its equity securities pursuant to its ESPP and upon exercise of stock options granted under its equity incentive plans. During the six months ended June 30, 2014, the Company received an aggregate of $30.7 million in proceeds upon exercises of stock options and from its ESPP.

Distributions—During the six months ended June 30, 2014, the Company declared the following cash distributions:


	Declaration Date		Payment Date		Record Date		Distribution per share		Aggregate Payment Amount (in millions)
Common stock		March 6, 2014		April 25, 2014		April 10, 2014	$	0.32	$	126.6
Common stock		May 21, 2014		July 16, 2014		June 17, 2014	$	0.34	$	134.6
Preferred stock		May 21, 2014		August 15, 2014		August 1, 2014	$	1.3563	$	8.1

The Company accrues distributions on unvested restricted stock unit awards granted subsequent to January 1, 2012, which are payable upon vesting. As of June 30, 2014, the amount accrued for distributions payable related to unvested restricted stock units is $2.3 million. During the six months ended June 30, 2014, the Company paid $0.6 million of distributions upon the vesting of restricted stock units.

To maintain its REIT status, the Company expects to continue paying regular distributions, the amount, timing and frequency of which will be determined, and subject to adjustment, by the Company’s Board of Directors.

12. Earnings Per Share

Basic net income per common share represents net income attributable to American Tower Corporation common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted net income per common share represents net income attributable to American Tower Corporation common stockholders divided by the weighted average number of common shares outstanding during the period and any dilutive common share equivalents, including shares issuable (i) upon the vesting of restricted stock awards, (ii) upon exercise of stock options and (iii) upon conversion of the Mandatory Convertible Preferred Stock (see note 11). Dilutive common share equivalents also include the dilutive impact of the Verizon transaction (see note 13).

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

The Company uses the treasury stock method to calculate the effect of its outstanding restricted stock awards and stock options and uses the if-converted method to calculate the effect of its outstanding Mandatory Convertible Preferred Stock. The following table sets forth basic and diluted net income per common share computational data for the three and six months ended June 30, 2014 and 2013 (in thousands, except per share data):


	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014			2013
Net income attributable to American Tower Corporation stockholders	$	234,431		$	99,821	$	436,930		$	271,228
Dividends declared on preferred stock		(4,375	)		—		(4,375	)		—

Net income attributable to American Tower Corporation common stockholders		230,056			99,821		432,555			271,228

Basic weighted average common shares outstanding		395,872			395,420		395,511			395,330
Dilutive securities		3,716			4,038		3,941			4,329

Diluted weighted average common shares outstanding		399,588			399,458		399,452			399,659

Basic net income attributable to American Tower Corporation common stockholders per common share	$	0.58		$	0.25	$	1.09		$	0.69

Diluted net income attributable to American Tower Corporation common stockholders per common share	$	0.58		$	0.25	$	1.08		$	0.68

Shares Excluded From Dilutive Effect

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Restricted stock awards		3		—		1		—
Stock options		2,497		1,229		2,342		860
Preferred stock (1)		3,733		—		1,877		—

(1)	Issued on May 12, 2014.

13. Commitments and Contingencies

Litigation

The Company periodically becomes involved in various claims, lawsuits and proceedings that are incidental to its business. In the opinion of Company management, after consultation with counsel, there are no matters currently pending that would, in the event of an adverse outcome, materially impact the Company’s consolidated financial position, results of operations or liquidity.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

TriStar Litigation—The Company was involved in several lawsuits against TriStar Investors LLP and its affiliates (“TriStar”) in various states regarding single tower sites where TriStar had taken land interests under the Company’s owned or managed sites and the Company believes TriStar induced the landowner to breach obligations to the Company. In addition, on February 16, 2012, TriStar brought a federal action against the Company in the United States District Court for the Northern District of Texas (the “District Court”), in which TriStar principally alleged that the Company made misrepresentations to landowners when competing with TriStar for land under the Company’s owned or managed sites. On January 22, 2013, the Company filed an amended answer and counterclaim against TriStar and certain of its employees, denying Tristar’s claims and asserting that TriStar engaged in a pattern of unlawful activity, including: (i) entering into agreements not to compete for land under certain towers; and (ii) making widespread misrepresentations to landowners regarding both TriStar and the Company. Both parties sought injunctive relief that would prohibit the other party from making certain statements when interacting with landowners, as well as significant damages. On April 3, 2014, the District Court ruled on the parties’ cross-motions for summary judgment, permitting both parties’ claims of misrepresentation to proceed to trial, as well as related state law actions, and dismissing certain of the parties’ other claims. Pursuant to a Settlement Agreement dated July 9, 2014, all pending state and federal actions between the Company and TriStar were dismissed with prejudice and without payment of damages.

Commitments

AT&T Transaction—The Company has an agreement with SBC Communications Inc., a predecessor entity to AT&T Inc. (“AT&T”), that currently provides for the lease or sublease of approximately 2,430 towers from AT&T with the lease commencing between December 2000 and August 2004. Substantially all of the towers are part of the Company’s securitization transaction completed in March 2013. The average term of the lease or sublease for all sites at the inception of the agreement was approximately 27 years, assuming renewals or extensions of the underlying ground leases for the sites. The Company has the option to purchase the sites subject to the applicable lease or sublease upon its expiration. Each tower is assigned to an annual tranche, ranging from 2013 to 2032, which represents the outside expiration date for the sublease rights to that tower. The purchase price for each site is a fixed amount stated in the sublease for that site plus the fair market value of certain alterations made to the related tower by AT&T. As of June 30, 2014, the Company has purchased four of the subleased towers upon expiration of the applicable agreement. The aggregate purchase option price for the remaining towers leased and subleased is approximately $623.5 million, and will accrete at a rate of 10% per year to the applicable expiration of the lease or sublease of a site. For all such sites purchased by the Company prior to June 30, 2020, AT&T will continue to lease the reserved space at the then-current monthly fee which shall escalate in accordance with the standard master lease agreement for the remainder of AT&T’s tenancy. Thereafter, AT&T shall have the right to renew such lease for up to four successive five-year terms. For all such sites purchased by the Company subsequent to June 30, 2020, AT&T has the right to continue to lease the reserved space for successive one-year terms at a rent equal to the lesser of the agreed upon market rate and the then-current monthly fee, which is subject to an annual increase based on changes in the Consumer Price Index.

Verizon Transaction—In December 2000, the Company entered into an agreement with ALLTEL, a predecessor entity to Verizon Wireless (“Verizon”), to acquire towers through a 15-year sublease agreement. Pursuant to the agreement, as amended, with Verizon, the Company acquired rights to approximately 1,800 towers in tranches between April 2001 and March 2002. The Company has the option to purchase each tower at the expiration of the applicable sublease, which will occur in tranches between April 2016 and March 2017 based on the original closing date for such tranche of towers. The purchase price per tower as of the original closing date was $27,500 and will accrete at a rate of 3% per annum through the expiration of the applicable sublease. The aggregate purchase option price for the subleased towers is approximately $72.2 million as of June 30, 2014. At Verizon’s option, at the expiration of the sublease, the purchase price would be payable in cash or with 769 shares of the Company’s common stock per tower, which would be valued at approximately $122.8 million in the aggregate based on the closing price at June 30, 2014.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

Other Contingencies—The Company is subject to income tax and other taxes in the geographic areas where it operates, and periodically receives notifications of audits, assessments or other actions by taxing authorities. The Company evaluates the circumstances of each notification based on the information available, and records a liability for any potential outcome that is probable or more likely than not unfavorable, if the liability is also reasonably estimable. On January 21, 2014, the Company received an income tax assessment in the amount of 22.6 billion Indian Rupees (approximately $369.0 million on the date of assessment), asserting tax liabilities arising out of a transfer pricing review of transactions by Essar Telecom Infrastructure Private Limited (“ETIPL”), and more specifically involving the issuance of share capital and the determination by the tax authority that an income tax obligation arose as a result of such issuance. The assessment was made with respect to transactions that took place in the tax year commencing in 2008, prior to the Company’s acquisition of ETIPL. Under the Company’s definitive acquisition agreement of ETIPL, the seller is obligated to indemnify and defend the Company with respect to any tax-related liability that may arise from activities prior to March 31, 2010. The Company believes that there is no basis upon which the tax assessment can be enforced under existing tax law and accordingly has not recorded an obligation in the consolidated financial statements. The assessment is being challenged with the appellate authorities.

14. Acquisitions

All of the acquisitions described below are accounted for as business combinations and are consistent with the Company’s strategy to expand in selected geographic areas.

The estimates of the fair value of the assets acquired and liabilities assumed at the date of the applicable acquisition are subject to adjustment during the measurement period (up to one year from the particular acquisition date). The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, including contingent consideration, and residual goodwill and any related tax impact. The fair 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 values is reflected as if the adjustments had been completed on the acquisition date. The impact of all changes that do not qualify as measurement period adjustments are included in current period earnings. If the actual results differ from the estimates and judgments used in these fair values, the amounts recorded in the condensed consolidated financial statements could be subject to a possible impairment of the intangible assets or goodwill, or require acceleration of the amortization expense of intangible assets in subsequent periods. During the six months ended June 30, 2014, the Company made certain purchase accounting measurement period adjustments related to several acquisitions and therefore retrospectively adjusted the fair value of the assets acquired and liabilities assumed in the condensed consolidated balance sheet as of December 31, 2013.

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 and six months ended June 30, 2014 from the date of respective acquisition. The date of acquisition, and by extension the point at which the Company begins to recognize the results of an acquisition may be dependent upon, among other things, the receipt of contractual consents, the commencement and extent of leasing arrangements and the timing of the transfer of title or rights to

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

the assets, which may be accomplished in phases. For sites acquired from communications service providers, these sites may never have been operated as a business and were utilized solely by the seller as a component of their network infrastructure. An acquisition, depending on its size and nature, may or may not involve the transfer of business operations or employees.

The estimated aggregate impact of the 2014 acquisitions on the Company’s revenues and gross margin for the six months ended June 30, 2014 is approximately $10.2 million and $7.6 million, respectively. The revenues and gross margin amounts also reflect incremental revenues from the addition of new tenants to the acquired sites subsequent to the date of acquisition. Incremental amounts of segment selling, general, administrative and development expense have not been reflected as the amounts attributable to acquisitions are not comparable.

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 and general administrative costs, and are included in Other operating expenses in the condensed consolidated statements of operations. During the three and six months ended June 30, 2014, the Company recognized acquisition and merger related expenses, including the fair value adjustments to contingent consideration, of $4.8 million and $14.6 million, respectively. During the three and six months ended June 30, 2013, the Company recognized acquisition and merger related expenses, including the fair value adjustments to contingent consideration, of $3.3 million and $16.9 million, respectively. In addition, during the three and six months ended June 30, 2014, the Company recorded $3.2 million and $5.7 million, respectively, of integration costs related to recently closed acquisitions.

2014 Acquisitions

Richland Acquisition—On April 3, 2014, the Company, through one of its wholly-owned subsidiaries, acquired entities holding a portfolio of 60 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 for an aggregate purchase price of $385.9 million. The purchase price was satisfied with approximately $182.9 million in cash, approximately $6.5 million payable to the seller upon satisfaction of certain closing conditions and the assumption of $196.5 million of 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 (see note 5).

International Acquisitions—During the six months ended June 30, 2014, the Company acquired a total of 136 communications sites and related assets in Brazil, Ghana and Mexico, for an aggregate purchase price of $25.8 million (including value added tax of $0.8 million) and acquired additional net assets of approximately $0.1 million. The Company also acquired 299 communications sites in Mexico for an aggregate purchase price of $44.1 million (including value added tax of $5.6 million). The Company assumed net liabilities of approximately $3.8 million, resulting in total consideration of approximately $40.3 million, which 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. Each purchase price is subject to post-closing adjustments.

Other U.S. Acquisitions—During the six months ended June 30, 2014, the Company acquired a total of 30 communications sites and equipment, as well as four property interests, in the United States for an aggregate purchase price of $33.6 million (including $0.4 million of contingent consideration). The Company also assumed net liabilities of approximately $0.4 million, resulting in total consideration of approximately $33.2 million. The aggregate purchase price is subject to post-closing adjustments.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

The following table summarizes the preliminary allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed 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 as of June 30, 2014.


	Richland			International			Other U.S.
Current assets	$	7,819		$	7,309		$	20
Non-current assets		—			996			—
Property and equipment		173,686			29,900			7,696
Intangible assets (1):
Customer-related intangible assets		185,000			20,409			18,928
Network location intangible assets		1,800			10,772			3,370
Current liabilities		(3,954	)		(1,307	)		(439	)
Long-term obligations (2)		(201,999	)		—			—
Other non-current liabilities		(2,922	)		(6,126	)		(74	)

Fair value of net assets acquired	$	159,430		$	61,953		$	29,501

Goodwill (3)		29,996			4,232			3,675

(1)	Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years.

(2)	Long-term obligations included $196.5 million of Richland’s existing indebtedness and a fair value adjustment of $5.5 million. The fair value adjustment was based primarily on reported market values using Level 2 inputs.

(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.

2013 Acquisitions

MIPT Acquisition

On October 1, 2013, the Company, through its wholly owned subsidiary American Tower Investments LLC, acquired 100% of the outstanding common membership interests of MIPT, a private REIT and the parent company of GTP, an owner and operator, through its various operating subsidiaries, of approximately 4,860 communications sites in the United States and approximately 510 communications sites in Costa Rica and Panama. GTP also manages rooftops and holds property interests that it leases to communications service providers and third-party tower operators.

The preliminary purchase price of $4.9 billion was satisfied with approximately $3.3 billion in cash, including an aggregate of approximately $2.8 billion from borrowings under the Company’s credit facilities, and the assumption of approximately $1.5 billion of MIPT’s existing indebtedness.

The consideration consisted of the following (in thousands):


Cash consideration (1)	$	3,330,462
Assumption of existing indebtedness at historical cost		1,527,621

Estimated total purchase price	$	4,858,083

(1)

Cash consideration includes $14.5 million of an additional purchase price adjustment which was paid to the sellers during the six months ended June 30, 2014 and is reflected in Accrued expenses on the consolidated balance sheet included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

The following table summarizes the updated allocation of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed for the MIPT acquisition based upon the estimated fair value at the date of acquisition (in thousands).


	Updated Purchase Price Allocation (1)			Preliminary Purchase Price Allocation (2)
Cash and cash equivalents	$	35,967		$	35,967
Restricted cash		30,883			30,883
Accounts receivable, net		10,021			10,021
Prepaid and other current assets		35,614			22,875
Property and equipment		920,782			996,901
Intangible assets (3):
Customer-related intangible assets		2,464,300			2,629,188
Network location intangible assets		532,000			467,300
Notes receivable and other non-current assets		63,682			4,220
Accounts payable		(9,456	)		(9,249	)
Accrued expenses		(36,755	)		(37,004	)
Accrued interest		(3,253	)		(3,253	)
Current portion of long-term obligations		(2,820	)		(2,820	)
Unearned revenue		(35,905	)		(35,753	)
Long-term obligations (4)		(1,573,366	)		(1,573,366	)
Asset retirement obligations		(43,089	)		(43,089	)
Other non-current liabilities		(8,693	)		(37,326	)

Fair value of net assets acquired	$	2,379,912		$	2,455,495

Goodwill (5)		950,550			874,967

(1)	Balances are reflected in the accompanying condensed consolidated balance sheets as of June 30, 2014.

(2)	Balances are reflected in the consolidated balance sheets in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

(3)	Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years.

(4)	Long-term obligations included $1.5 billion of MIPT’s existing indebtedness and a fair value adjustment of $53.0 million. The fair value adjustment was based primarily on reported market values using Level 2 inputs.

(5)	Goodwill was allocated to the Company’s domestic and international rental and management segments, as applicable, and the Company expects goodwill recorded will not be deductible for tax purposes.

Other 2013 Acquisitions

Axtel Mexico Acquisition—On January 31, 2013, the Company acquired 883 communications sites from Axtel, S.A.B. de C.V. for an aggregate purchase price of $248.5 million.

NII Acquisition—On August 8, 2013, the Company entered into an agreement with NII to acquire up to 1,666 communications sites in Mexico and 2,790 communications sites in Brazil in two separate transactions.

On November 8, 2013, the Company acquired 1,473 communications sites in Mexico from NII for an initial aggregate purchase price of approximately $436.0 million (including value added tax of approximately $60.3 million) and net assets of approximately $0.9 million for total cash consideration of approximately $436.9 million. The purchase price was subsequently reduced to approximately $427.0 million (including value added tax of approximately $59.0 million) during the six months ended June 30, 2014 as a result of post-closing adjustments, while net assets acquired remained unchanged. The purchase price is subject to further post-closing adjustments. The Company’s right to purchase additional sites in Mexico expired on May 30, 2014.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

On December 6, 2013, the Company acquired 1,937 communications sites in Brazil from NII for an initial aggregate purchase price of approximately $349.0 million. The purchase price was subsequently reduced to approximately $342.7 million during the six months ended June 30, 2014 as a result of post-closing adjustments. In addition, on June 26, 2014, the Company purchased an additional 103 communications sites for an aggregate purchase price of approximately $18.6 million, which are reflected above in “2014 Acquisitions”. The purchase price is subject to post-closing adjustments and the purchase of the remaining sites is subject to diligence and customary closing conditions.

Z Sites Acquisition—On November 29, 2013, the Company acquired 238 communications sites from Z-Sites Locação de Imóveis Ltda for an aggregate purchase price of approximately $122.8 million. The purchase price was subsequently increased to approximately $123.9 million during the six months ended June 30, 2014 and is subject to post-closing adjustments.

Other International Acquisitions—During the year ended December 31, 2013, the Company acquired a total of 714 additional communications sites in Brazil, Chile, Colombia, Ghana, Mexico and South Africa, for an aggregate purchase price of $89.8 million (including contingent consideration of $4.1 million and value added tax of $4.9 million).

Other U.S. Acquisitions—During the year ended December 31, 2013, the Company acquired a total of 55 additional communications sites and 23 property interests in the United States for an aggregate purchase price of $65.6 million, subject to post-closing adjustments. The purchase price included cash paid of approximately $65.2 million and net liabilities assumed of approximately $0.4 million.

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


	Axtel Mexico (1)			NII Mexico (2)			NII Brazil			Z Sites			Other International			Other U.S.
Current assets	$	—		$	59,938		$	—		$	—		$	4,863		$	1,220
Non-current assets		2,626			10,738			7,201			6,436			1,991			44
Property and equipment		86,100			143,680			111,094			26,881			44,844			23,537
Intangible assets (3):
Customer-related intangible assets		119,392			132,897			143,037			62,286			20,590			29,325
Network location intangible assets		43,031			66,069			80,568			17,350			20,727			7,935
Current liabilities		—			—			—			—			—			(454	)
Other non-current liabilities		(9,377	)		(10,478	)		(13,188	)		(1,502	)		(8,168	)		(848	)

Fair value of net assets acquired	$	241,772		$	402,844		$	328,712		$	111,451		$	84,847		$	60,759

Goodwill (4)		6,751			25,056			13,978			12,493			4,970			4,403

(1)	The allocation of the purchase price was finalized during the year ended December 31, 2013.

(2)	Current assets includes approximately $59.0 million of value added tax.

(3)	Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years.

(4)	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.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

The following table summarizes the preliminary allocation, unless otherwise noted, of the aggregate purchase price paid and the amounts of assets acquired and liabilities assumed for the fiscal year 2013 acquisitions. The allocation is based upon the 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, 2013.


	Axtel Mexico (1)			NII Mexico (2)			NII Brazil			Z Sites			Other International			Other U.S.
Current assets	$	—		$	61,183		$	—		$	—		$	4,863		$	1,220
Non-current assets		2,626			11,969			4,484			6,157			1,991			44
Property and equipment		86,100			147,364			105,784			24,832			44,844			23,803
Intangible assets (3):
Customer-related intangible assets		119,392			135,175			149,333			64,213			20,590			29,325
Network location intangible assets		43,031			63,791			93,867			17,123			20,727			7,607
Current liabilities		—			—			—			—			—			(454	)
Other non-current liabilities		(9,377	)		(10,478	)		(13,188	)		(1,502	)		(8,168	)		(786	)

Fair value of net assets acquired	$	241,772		$	409,004		$	340,280		$	110,823		$	84,847		$	60,759

Goodwill (4)		6,751			27,928			8,704			11,953			4,970			4,403

(1)	The allocation of the purchase price was finalized during the year ended December 31, 2013.

(2)	Current assets includes approximately $60.3 million of value added tax.

(3)	Customer-related intangible assets and network location intangible assets are amortized on a straight-line basis over periods of up to 20 years.

(4)	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.

Pro Forma Consolidated Results

The following table presents the unaudited pro forma financial results as if the 2013 acquisitions had occurred on January 1, 2012 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 acquisitions 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 for these acquisitions are not available. The pro forma results do not include any anticipated cost synergies, costs or other effects of the planned integration of the acquisitions. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on the dates indicated, nor are they indicative of the future operating results of the Company.


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Pro forma revenues	$	1,033,541	$	941,291	$	2,031,066	$	1,879,156
Pro forma net income attributable to American Tower Corporation common stockholders	$	230,506	$	74,956	$	434,176	$	212,146
Pro forma net income per common share amounts:
Basic net income attributable to American Tower Corporation common stockholders	$	0.58	$	0.19	$	1.10	$	0.54
Diluted net income attributable to American Tower Corporation common stockholders	$	0.58	$	0.19	$	1.09	$	0.53

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

Other Signed Acquisitions

BR Towers Acquisition—On June 13, 2014, the Company entered into an agreement with GPCP V, a private equity fund managed by GP Investments, Ltd., FIP Multisetorial Plus, a private equity fund managed by Bradesco BBI, and other shareholders, to acquire 100% of the equity interests of BR Towers S.A., a Brazilian telecommunications real estate company that is expected to own approximately 2,530 towers and the exclusive use rights for approximately 2,110 additional towers in Brazil at closing. The purchase price of 2.18 billion Brazilian Reais (“BRL”) (approximately $990.3 million) is subject to customary adjustments. The Company deposited 130.0 million BRL (approximately $59.0 million) in escrow for this transaction, which is reflected in Prepaid and other current assets in the condensed consolidated balance sheets as of June 30, 2014.

U.S. Acquisition—In July 2014, the Company entered into an agreement to acquire 154 communications sites in the United States for approximately $132.5 million, subject to customary adjustments.

Acquisition-Related Contingent Consideration

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.

Colombia—Under the terms of the agreement with Colombia Movil S.A. E.S.P., the Company is required to make additional payments upon the conversion of certain barter agreements with other wireless carriers to cash paying lease agreements. Based on current estimates, the Company expects the value of potential contingent consideration payments required to be made under the agreement to be between zero and $37.6 million and estimates it to be $24.6 million using a probability weighted average of the expected outcomes at June 30, 2014. During the three and six months ended June 30, 2014, the Company recorded an increase in fair value of $0.5 million and $1.0 million, respectively, in Other operating expenses in the accompanying condensed consolidated statements of operations.

Ghana—Under the terms of its agreement, as amended, with MTN Group Limited, the Company is required to make additional payments upon the conversion of certain barter agreements with other wireless carriers to cash paying lease agreements. Based on current estimates, the Company expects the value of potential contingent consideration payments required to be made under the amended agreement to be between zero and $0.5 million and estimates it to be $0.5 million using a probability weighted average of the expected outcomes at June 30, 2014.

MIPT—In connection with the acquisition of MIPT, the Company assumed additional contingent consideration liability related to previously closed acquisitions in Costa Rica, Panama and the United States. The Company is required to make additional payments to the sellers if certain pre-designated tenant leases commence during a limited specified period of time after the applicable acquisition was completed, generally one year or less. The Company initially recorded $9.3 million of contingent consideration liability as part of the preliminary purchase price allocation upon closing of the acquisition. Based on current estimates, the Company expects the value of potential contingent consideration payments required to be made under these agreements to be between zero and $6.1 million and estimates it to be $5.5 million using a probability weighted average of the expected outcomes at June 30, 2014. During the three and six months ended June 30, 2014, the Company recorded a decrease in fair value of $1.4 million in Other operating expenses in the accompanying condensed consolidated statements of operations. During the three and six months ended June 30, 2014, the Company made payments under these agreements of $0.7 million and $1.3 million, respectively.

Other U.S.—In connection with other acquisitions in the United States, the Company is required to make additional payments if certain pre-designated tenant leases commence during a specified period of time. The Company initially recorded $0.4 million of contingent consideration liability as part of the preliminary purchase price allocation upon closing of certain acquisitions, which, based on current estimates, also represents the estimated balance at June 30, 2014 and the maximum potential liability.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

For more information regarding contingent consideration, see note 7.

15. Business Segments

The Company operates in three business segments, (i) domestic rental and management, (ii) international rental and management and (iii) network development services. The Company’s primary business is leasing antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies and municipalities and tenants in a number of other industries. This business is referred to as the Company’s rental and management operations and is comprised of domestic and international segments, which, as of June 30, 2014, consist of the following:

•

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

•

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

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

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

The accounting policies applied in compiling segment information below are similar to those described in note 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Among other factors, in evaluating financial performance in each business segment, management uses segment gross margin and segment operating profit. The Company defines segment gross margin as segment revenue less segment operating expenses excluding stock-based compensation expense recorded in costs of operations; Depreciation, amortization and accretion; Selling, general, administrative and development expense; and Other operating expenses. The Company defines segment operating profit as segment gross margin less Selling, general, administrative and development expense attributable to the segment, excluding stock-based compensation expense and corporate expenses. For reporting purposes, the international rental and management segment gross margin and segment operating profit also include Interest income, TV Azteca, net. These measures of segment gross margin and segment operating profit are also before Interest income, Interest expense, Loss on retirement of long-term obligations, Other income (expense), Net income (loss) attributable to noncontrolling interest, Income (loss) on equity method investments and Income tax provision (benefit). The categories of expenses indicated above, such as depreciation, have been excluded from segment operating performance as they are not considered in the review of information or the evaluation of results by management. There are no significant revenues resulting from transactions between the Company’s operating segments. All intercompany transactions are eliminated to reconcile segment results and assets to the condensed consolidated statements of operations and condensed consolidated balance sheets.

Summarized financial information concerning the Company’s reportable segments for the three and six months ended June 30, 2014 and 2013 is shown in the following tables. The “Other” column (i) represents amounts excluded from specific segments, such as business development operations, stock-based compensation expense and corporate expenses included in Selling, general, administrative and development expense; Other operating expenses; Interest income; Interest expense; Loss on retirement of long-term obligations; and Other income (expense), and (ii) reconciles segment operating profit to Income from continuing operations before income taxes, as these amounts are not utilized in assessing each segment’s performance.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited


	Rental and Management				Total Rental and Management		Network Development Services		Other		Total
Three months ended June 30, 2014	Domestic		International		Total Rental and Management		Network Development Services		Other		Total
	(in thousands)
Segment revenues	$	659,743	$	346,018	$	1,005,761	$	25,696			$	1,031,457
Segment operating expenses (1)		126,340		136,501		262,841		8,981				271,822
Interest income, TV Azteca, net		—		2,662		2,662		—				2,662

Segment gross margin		533,403		212,179		745,582		16,715				762,297

Segment selling, general, administrative and development expense (1)		28,313		34,472		62,785		2,326				65,111

Segment operating profit	$	505,090	$	177,707	$	682,797	$	14,389			$	697,186

Stock-based compensation expense									$	18,835		18,835
Other selling, general, administrative and development expense										15,006		15,006
Depreciation, amortization and accretion										245,427		245,427
Other expense (principally interest expense and other expenses)										174,457		174,457

Income from continuing operations before income taxes											$	243,461

Total assets	$	14,149,220	$	6,466,380	$	20,615,600	$	58,611	$	173,526	$	20,847,737

(1)	Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $0.5 million and $18.4 million, respectively.


	Rental and Management				Total Rental and Management		Network Development Services		Other		Total
Three months ended June 30, 2013	Domestic		International		Total Rental and Management		Network Development Services		Other		Total
	(in thousands)
Segment revenues	$	521,043	$	268,156	$	789,199	$	19,631			$	808,830
Segment operating expenses (1)		95,208		102,752		197,960		7,343				205,303
Interest income, TV Azteca, net		—		3,586		3,586		—				3,586

Segment gross margin		425,835		168,990		594,825		12,288				607,113

Segment selling, general, administrative and development expense (1)		24,243		32,490		56,733		2,324				59,057

Segment operating profit	$	401,592	$	136,500	$	538,092	$	9,964			$	548,056

Stock-based compensation expense									$	17,055		17,055
Other selling, general, administrative and development expense										24,097		24,097
Depreciation, amortization and accretion										184,608		184,608
Other expense (principally interest expense and other (expense) income)										249,630		249,630

Income from continuing operations before income taxes											$	72,666

Total assets	$	8,618,294	$	5,414,526	$	14,032,820	$	48,603	$	257,971	$	14,339,394

(1)	Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $0.4 million and $16.6 million, respectively.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited


	Rental and Management				Total Rental and Management		Network Development Services		Other		Total
Six months ended June 30, 2014	Domestic		International		Total Rental and Management		Network Development Services		Other		Total
	(in thousands)
Segment revenues	$	1,295,522	$	670,359	$	1,965,881	$	49,665			$	2,015,546
Segment operating expenses (1)		247,849		265,455		513,304		18,783				532,087
Interest income, TV Azteca, net		—		5,257		5,257		—				5,257

Segment gross margin		1,047,673		410,161		1,457,834		30,882				1,488,716

Segment selling, general, administrative and development expense (1)		55,722		63,688		119,410		4,856				124,266

Segment operating profit	$	991,951	$	346,473	$	1,338,424	$	26,026			$	1,364,450

Stock-based compensation expense									$	43,439		43,439
Other selling, general, administrative and development expense										41,780		41,780
Depreciation, amortization and accretion										491,190		491,190
Other expense (principally interest expense and other expenses)										333,618		333,618

Income from continuing operations before income taxes											$	454,423

(1)	Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $1.0 million and $42.5 million, respectively.


	Rental and Management				Total Rental and Management		Network Development Services		Other		Total
Six months ended June 30, 2013	Domestic		International		Total Rental and Management		Network Development Services		Other		Total
	(in thousands)
Segment revenues	$	1,036,719	$	529,913	$	1,566,632	$	44,926			$	1,611,558
Segment operating expenses (1)		187,041		201,968		389,009		17,622				406,631
Interest income, TV Azteca, net		—		7,129		7,129		—				7,129

Segment gross margin		849,678		335,074		1,184,752		27,304				1,212,056

Segment selling, general, administrative and development expense (1)		47,141		62,025		109,166		5,225				114,391

Segment operating profit	$	802,537	$	273,049	$	1,075,586	$	22,079			$	1,097,665

Stock-based compensation expense									$	38,097		38,097
Other selling, general, administrative and development expense										49,312		49,312
Depreciation, amortization and accretion										370,412		370,412
Other expense (principally interest expense and other (expense) income)										387,008		387,008

Income from continuing operations before income taxes											$	252,836

(1)	Segment operating expenses and segment selling, general, administrative and development expenses exclude stock-based compensation expense of $0.8 million and $37.3 million, respectively.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements relating to our goals, beliefs, plans or current expectations and other statements that are not of historical facts. For example, when we use words such as “project,” “believe,” “anticipate,” “expect,” “forecast,” “estimate,” “intend,” “should,” “would,” “could,” “may” or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements. Certain important factors may cause actual results to differ materially from those indicated by our forward-looking statements, including those set forth under the caption “Risk Factors” in Part II, Item 1A. of this Quarterly Report on Form 10-Q. Forward-looking statements represent management’s current expectations and are inherently uncertain. We do not undertake any obligation to update forward-looking statements made by us.

The discussion and analysis of our financial condition and results of operations that follow are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ significantly from these estimates under different assumptions or conditions. This discussion should be read in conjunction with our condensed consolidated financial statements herein and the accompanying notes thereto, information set forth under the caption “Critical Accounting Policies and Estimates” of our Annual Report on Form 10-K for the year ended December 31, 2013, and in particular, the information set forth therein under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

We are a leading independent owner, operator and developer of wireless and broadcast communications real estate. Our primary business is leasing antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data and data providers, government agencies and municipalities and tenants in a number of other industries. We refer to this business as our rental and management operations, which accounted for approximately 98% of our total revenues for the six months ended June 30, 2014. Through our network development services, we offer tower-related services domestically, including site acquisition, zoning and permitting services and structural analysis services, which primarily support our site leasing business and the addition of new tenants and equipment on our sites. We began operating as a real estate investment trust (“REIT”) for federal income tax purposes effective January 1, 2012.

Our communications real estate portfolio of 69,200 sites, as of June 30, 2014, includes wireless and broadcast communications towers and distributed antenna system (“DAS”) networks, which provide seamless coverage solutions in certain in-building and outdoor wireless environments. Our portfolio primarily consists of towers that we own and towers that we operate pursuant to long-term lease arrangements, including, as of June 30, 2014, 28,203 towers domestically and 40,619 towers internationally. Our portfolio also includes 378 DAS networks. In addition to the communications sites in our portfolio, we manage rooftop and tower sites for property owners under various contractual arrangements. We also hold property interests that we lease to communications service providers and third-party tower operators.

In October 2013, we acquired MIP Tower Holdings LLC (“MIPT”), a private REIT and parent company to Global Tower Partners (“GTP”), an owner and operator of approximately 5,370 communications sites, through its various operating subsidiaries, in the United States, Costa Rica and Panama. GTP also manages rooftops and holds property interests that it leases to communications service providers and third-party tower operators. As a result of our acquisition of MIPT, we own an interest in a subsidiary REIT, and are currently evaluating the continued election of MIPT’s private REIT status.

The following table details the number of communications sites we own or operate as of June 30, 2014:


Country	Number of Owned Sites		Number of Operated Sites (1)
United States		21,286		7,211
International:
Brazil		6,774		155
Chile		1,191		—
Colombia		2,835		706
Costa Rica		460		—
Germany		2,031		—
Ghana		2,009		—
India		12,131		—
Mexico		8,517		199
Panama (2)		58		—
Peru		499		—
South Africa		1,912		—
Uganda		1,226		—

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

(2)	During the three months ended June 30, 2014, we determined that the operations in Panama were held-for-sale.

Our continuing operations are reported in three segments: domestic rental and management, international rental and management and network development services. Among other factors, in evaluating operating performance in each business segment, management uses segment gross margin and segment operating profit. We define segment gross margin as segment revenue less segment operating expenses, excluding stock-based compensation expense recorded in costs of operations; Depreciation, amortization and accretion; Selling, general, administrative and development expense; and Other operating expense. We define segment operating profit as segment gross margin less Selling, general, administrative and development expense attributable to the segment, excluding stock-based compensation expense and corporate expenses. Segment gross margin and segment operating profit for the international rental and management segment also include Interest income, TV Azteca, net (see note 15 to our condensed consolidated financial statements included herein). These measures of segment gross margin and segment operating profit are also before Interest income, Interest expense, Loss on retirement of long-term obligations, Other income (expense), Net income (loss) attributable to noncontrolling interest, Income (loss) on equity method investments and Income tax provision (benefit).

In the section that follows, we provide information regarding management’s expectations of long-term drivers of demand for our communications sites, as well as our current results of operations, financial position and sources and uses of liquidity. In addition, we highlight key trends, which management believes provide valuable insight into our operating and financial resource allocation decisions.

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

The primary factors affecting the revenue growth of our domestic and international rental and management segments are:

•

Recurring revenues from tenant leases attributable to sites that existed in our portfolio as of the beginning of the prior year period (“legacy sites”);

•

Contractual rent escalations on existing tenant leases, net of cancellations;

•

New revenue attributable to leasing additional space on our legacy sites; and

•

New revenue attributable to sites acquired or constructed since the beginning of the prior year period (“new sites”).

The majority of our tenant leases with wireless carriers are typically for an initial non-cancellable term of five to ten years, with multiple five-year renewal terms. Accordingly, nearly all of the revenue generated by our rental and management operations during the six months ended June 30, 2014 is recurring revenue that we should continue to receive in future periods. Based upon foreign currency exchange rates and the tenant leases in place as of June 30, 2014, we expect to generate approximately $23 billion of non-cancellable tenant lease revenue over future periods, absent the impact of straight-line lease accounting. Most of our tenant leases have provisions that periodically increase the rent due under the lease, typically annually based on a fixed escalation (approximately 3.0% in the United States) or an inflationary index in our international markets.

Revenue lost from either cancellations of leases at the end of their terms or rent negotiations historically has not had a material adverse effect on the revenues generated by our rental and management operations. During the six months ended June 30, 2014, loss of revenue from tenant lease cancellations or renegotiations represented less than 1.5% of our rental and management operations revenues.

Demand Drivers. We continue to believe that our site leasing revenue is likely to increase due to the growing use of wireless communications services and our ability to meet the corresponding incremental demand for wireless real estate by adding new tenants and new equipment for existing tenants on our legacy sites, which increases these sites’ utilization and profitability. In addition, we believe the majority of our site leasing activity will continue to come from wireless service providers. Our legacy site portfolio and our established tenant base provide us with new business opportunities, which have historically resulted in consistent and predictable organic revenue growth as wireless carriers seek to increase the coverage and capacity of their existing networks, while also deploying next generation wireless technologies. In addition, we intend to continue to supplement the organic growth on our legacy sites by selectively developing or acquiring new sites in our existing and new markets where we can achieve our risk adjusted return on investment objectives.

Based on industry research and projections, we expect the following key industry trends will result in incremental revenue opportunities for us:

•

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

•

Wireless service providers compete based on the overall capacity and coverage of their existing wireless networks. To maintain or improve their network performance as overall network usage increases, our tenants continue to deploy additional equipment across their existing sites while also adding new cell sites. We anticipate increasing network densification over the next several years, as existing network infrastructure is anticipated to be insufficient to account for rapidly increasing levels of wireless data usage.

•

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

•

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

As part of our international expansion initiatives, we have targeted markets in three stages of network development in order to diversify our international exposure and position us to benefit from a number of different wireless technology deployments over the long term. In addition, we have focused on building relationships with

large multinational carriers such as MTN Group Limited, Telefónica S.A. and Vodafone Group PLC. We believe that consistent carrier investments in their networks across our international markets position us to generate meaningful organic revenue growth going forward.

In emerging markets, such as Ghana, India and Uganda, wireless networks tend to be significantly less advanced than those in the United States, and initial voice networks continue to be deployed in underdeveloped areas. In more developed urban locations within these markets, early-stage data network deployments are underway. Carriers are focused on completing voice network build-outs while also investing in initial data networks as wireless data usage and smartphone penetration within their customer bases begin to accelerate.

In markets with rapidly evolving network technology, such as South Africa and most of the countries in Latin America where we do business, initial voice networks, for the most part, have already been built out, and carriers are focused on third generation (3G) network build outs, with select investments in fourth generation (4G) technology. Recent spectrum auctions in these rapidly evolving markets have allowed incumbent carriers to accelerate their data network deployments and have also enabled new entrants to begin initial investments in data networks. Smartphone penetration and wireless data usage in these markets are growing rapidly, which mandates that carriers continue to invest in their networks in order to maintain and augment their quality of service.

Finally, in markets with more mature network technology, such as Germany, carriers are focused on deploying 4G data networks to account for rapidly increasing wireless data usage. With a more mature customer base, higher smartphone penetration and significantly higher per capita data usage, carrier investment in networks is focused on 4G coverage and capacity.

We believe that the network technology migration we have seen in the United States, which has led to significantly denser networks and meaningful new business commencements for us over a number of years, will ultimately be replicated in our less advanced international markets. As a result, we expect to be able to leverage our extensive international portfolio of over 40,000 communications sites and the relationships we have built with our carrier customers to drive sustainable, long-term growth.

Rental and Management Operations Expenses. Direct operating expenses incurred by our domestic and international rental and management segments include direct site level expenses and consist primarily of ground rent, property taxes, repairs and maintenance, security and power and fuel costs, some of which may be passed through to our tenants. These segment direct operating expenses exclude all segment and corporate selling, general, administrative and development expenses, which are aggregated into one line item entitled Selling, general, administrative and development expense in our condensed consolidated statements of operations. In general, our domestic and international rental and management segments’ selling, general, administrative and development expenses do not significantly increase as a result of adding incremental tenants to our legacy sites and typically increase only modestly year-over-year. As a result, leasing additional space to new tenants on our legacy sites provides significant incremental cash flow. We may, however, incur additional segment selling, general, administrative and development expenses as we increase our presence in geographic areas where we have recently launched operations or are focused on expanding our portfolio. Our profit margin growth is therefore positively impacted by the addition of new tenants to our legacy sites and can be temporarily diluted by our development activities.

Network Development Services Segment Revenue Growth. As we continue to focus on growing our rental and management operations, we anticipate that our network development services revenue will continue to represent a small percentage of our total revenues. Through our network development services segment, we offer tower-related services, including site acquisition, zoning and permitting services and structural analysis services, which primarily support our site leasing business and the addition of new tenants and equipment on our sites, including in connection with provider network upgrades.

Non-GAAP Financial Measures

Included in our analysis of our results of operations are discussions regarding earnings before interest, taxes, depreciation, amortization and accretion, as adjusted (“Adjusted EBITDA”), Funds From Operations, as defined by the National Association of Real Estate Investment Trusts (“NAREIT FFO”) and Adjusted Funds From Operations (“AFFO”).

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

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

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

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

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

Results of Operations

Three Months Ended June 30, 2014 and 2013 (in thousands, except percentages)

Revenue


	Three Months Ended June 30,				Amount of Increase (Decrease)		Percent Increase (Decrease)
	2014		2013		Amount of Increase (Decrease)		Percent Increase (Decrease)
Rental and management
Domestic	$	659,743	$	521,043	$	138,700		27	%
International		346,018		268,156		77,862		29

Total rental and management		1,005,761		789,199		216,562		27
Network development services		25,696		19,631		6,065		31

Total revenues	$	1,031,457	$	808,830	$	222,627		28	%

Total revenues for the three months ended June 30, 2014 increased 28% to $1,031.5 million. The increase was primarily attributable to an increase in both of our rental and management segments, including organic revenue growth attributable to our legacy sites, and revenue growth attributable to the approximately 13,545 new sites that we have constructed or acquired since April 1, 2013. Approximately $84.0 million of the increase was attributable to revenues generated by MIPT.

Domestic rental and management segment revenue for the three months ended June 30, 2014 increased 27% to $659.7 million. This growth was comprised of:

•

Revenue growth of approximately 15% attributable to the addition of approximately 4,860 domestic sites, as well as managed sites, rooftops and land interests under third-party sites in connection with our acquisition of MIPT;

•

Revenue growth from legacy sites of approximately 11%, which includes approximately 8% from new tenant leases and amendments to existing tenant leases, and less than 2% from accelerated revenue recognition under a multi-year equipment agreement with a major tenant. In addition, approximately 1% of the revenue growth on our legacy sites was attributable to contractual rent escalations, net of tenant lease cancellations;

•

Revenue growth from new sites (excluding MIPT) of approximately 2%, resulting from the construction or acquisition of approximately 810 new sites, as well as land interests under third-party sites since April 1, 2013; and

•

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

International rental and management segment revenue for the three months ended June 30, 2014 increased 29% to $346.0 million. This growth was comprised of:

•

Revenue growth from new sites (excluding MIPT) of approximately 19%, resulting from the construction or acquisition of approximately 7,365 new sites since April 1, 2013;

•

Revenue growth from legacy sites of approximately 17%, which includes approximately 14% due to incremental revenue primarily generated from new tenant leases and amendments to existing tenant leases on our legacy sites and approximately 3% attributable to contractual rent escalations, net of tenant lease cancellations;

•

Revenue growth of approximately 3% from the impact of straight-line lease accounting;

•

Revenue growth of over 1% attributable to the addition of approximately 510 sites in Costa Rica and Panama in connection with our acquisition of MIPT; and

•

A decrease of approximately 11% attributable to the negative impact from foreign currency translation, which includes, among others, the negative impact of approximately 4% related to fluctuations in Ghanaian Cedi (“GHS”), approximately 3% related to fluctuations in Brazilian Reais (“BRL”) and approximately 2% related to fluctuations in Indian Rupees (“INR”).

Network development services segment revenue for the three months ended June 30, 2014 increased 31% to $25.7 million. The increase was primarily due to increased revenue from structural engineering services.

Gross Margin


	Three Months Ended June 30,				Amount of Increase (Decrease)		Percent Increase (Decrease)
	2014		2013		Amount of Increase (Decrease)		Percent Increase (Decrease)
Rental and management
Domestic	$	533,403	$	425,835	$	107,568		25	%
International		212,179		168,990		43,189		26

Total rental and management		745,582		594,825		150,757		25
Network development services		16,715		12,288		4,427		36	%

Domestic rental and management segment gross margin for the three months ended June 30, 2014 increased 25% to $533.4 million. This growth was comprised of:

•

Gross margin growth of approximately 14% attributable to the addition of approximately 4,860 domestic sites, as well as managed sites, rooftops and land interests under third-party sites, in connection with our acquisition of MIPT;

•

Gross margin growth from legacy sites of approximately 11%, primarily associated with the increase in revenue, as described above;

•

Gross margin growth from new sites (excluding MIPT) of approximately 2%, resulting from the construction or acquisition of approximately 810 new sites, as well as land interests under third-party sites since April 1, 2013; and

•

A decrease of approximately 2% from the impact of straight-line lease accounting.

International rental and management segment gross margin for the three months ended June 30, 2014 increased 26% to $212.2 million. This growth was comprised of:

•

Gross margin growth from new sites (excluding MIPT) of approximately 15%, resulting from the construction or acquisition of approximately 7,365 new sites since April 1, 2013;

•

Gross margin growth from legacy sites of approximately 15%, primarily associated with the increase in revenue, as described above;

•

Gross margin growth of approximately 5% from the impact of straight-line lease accounting;

•

Gross margin growth of less than 2% attributable to the addition of approximately 510 sites in Costa Rica and Panama in connection with our acquisition of MIPT; and

•

A decrease of approximately 11% attributable to the negative impact from foreign currency translation, which includes, among others, the negative impact of approximately 4% related to fluctuations in GHS, approximately 3% related to fluctuations in BRL and less than 2% related to fluctuations in Mexican Pesos (“MXN”).

Network development services segment gross margin for the three months ended June 30, 2014 increased 36% to $16.7 million, primarily due to the increase in revenue as described above.

Selling, General, Administrative and Development Expense


	Three Months Ended June 30,				Amount of Increase (Decrease)			Percent Increase (Decrease)
	2014		2013		Amount of Increase (Decrease)			Percent Increase (Decrease)
Rental and management
Domestic	$	28,313	$	24,243	$	4,070			17	%
International		34,472		32,490		1,982			6

Total rental and management		62,785		56,733		6,052			11
Network development services		2,326		2,324		2			—
Other		33,388		40,746		(7,358	)		(18	)

Total selling, general, administrative and development expense	$	98,499	$	99,803	$	(1,304	)		(1	)%

Total selling, general, administrative and development expense (“SG&A”) for the three months ended June 30, 2014 decreased 1% to $98.5 million. The decrease was primarily attributable to a decrease in other SG&A, partially offset by increased SG&A in our domestic and international rental and management segments.

Domestic rental and management segment SG&A for the three months ended June 30, 2014 increased 17% to $28.3 million. The increase was primarily driven by increasing personnel costs to support our business, including additional costs associated with the acquisition of MIPT.

International rental and management segment SG&A for the three months ended June 30, 2014 increased 6% to $34.5 million. The increase was primarily due to the impact of increased personnel costs to support our business, partially offset by the impact of foreign currency fluctuations, as well as the reversal of bad debt expense for amounts previously reserved.

Network development services segment SG&A for the three months ended June 30, 2014 remained constant at $2.3 million.

Other SG&A for the three months ended June 30, 2014 decreased 18% to $33.4 million, primarily due to a $9.1 million decrease in corporate SG&A, partially offset by an increase of $1.7 million related to stock-based compensation expense. The decrease in corporate SG&A was primarily related to the recovery of $6.7 million in legal expenses and the reversal of a $2.8 million reserve associated with a non-recurring state tax item. The decrease in corporate SG&A was partially offset by an increase in personnel costs to support our business.

Operating Profit


	Three Months Ended June 30,				Amount of Increase (Decrease)		Percent Increase (Decrease)
	2014		2013		Amount of Increase (Decrease)		Percent Increase (Decrease)
Rental and management
Domestic	$	505,090	$	401,592	$	103,498		26	%
International		177,707		136,500		41,207		30

Total rental and management		682,797		538,092		144,705		27
Network development services		14,389		9,964		4,425		44	%

Domestic rental and management segment operating profit for the three months ended June 30, 2014 increased 26% to $505.1 million. The growth was primarily attributable to the increase in our domestic rental and management segment gross margin (25%) and was partially offset by an increase in our domestic rental and management segment SG&A (17%).

International rental and management segment operating profit for the three months ended June 30, 2014 increased 30% to $177.7 million. The growth was primarily attributable to the increase in our international rental and management segment gross margin (26%) and was partially offset by an increase in our international rental and management segment SG&A (6%).

Network development services segment operating profit for the three months ended June 30, 2014 increased 44% to $14.4 million. The increase was primarily attributable to the increase in network development services segment gross margin (36%).

Depreciation, Amortization and Accretion


	Three Months Ended June 30,				Amount of Increase (Decrease)		Percent Increase (Decrease)
	2014		2013		Amount of Increase (Decrease)		Percent Increase (Decrease)
Depreciation, amortization and accretion	$	245,427	$	184,608	$	60,819		33	%

Depreciation, amortization and accretion for the three months ended June 30, 2014 increased 33% to $245.4 million. The increase was primarily attributable to the depreciation, amortization and accretion associated with the acquisition or construction of approximately 13,545 sites since April 1, 2013, which resulted in an increase in property and equipment and intangible assets subject to amortization.

Other Operating Expenses


	Three Months Ended June 30,				Amount of Increase (Decrease)		Percent Increase (Decrease)
	2014		2013		Amount of Increase (Decrease)		Percent Increase (Decrease)
Other operating expenses	$	12,757	$	5,898	$	6,859		116	%

Other operating expenses for the three months ended June 30, 2014 increased 116% to $12.8 million. The increase was primarily attributable to an increase of $4.8 million in integration and acquisition related costs, as well as, an increase of $3.9 million in impairment charges, which included the write down to fair value of certain of our assets held-for-sale. This increase was partially offset by a decrease in losses from sale or disposal of assets.

Interest Expense


	Three Months Ended June 30,				Amount of Increase (Decrease)		Percent Increase (Decrease)
	2014		2013		Amount of Increase (Decrease)		Percent Increase (Decrease)
Interest expense	$	146,234		100,815	$	45,419		45	%

Interest expense for the three months ended June 30, 2014 increased 45% to $146.2 million. The increase was primarily attributable to an increase of $5.3 billion in our average debt outstanding, which was primarily used to fund our acquisitions, partially offset by a decrease in our annualized weighted average cost of borrowing from 4.69% to 4.03%. The weighted average contractual interest rate was 4.07% at June 30, 2014.

Loss on Retirement of Long-Term Obligations


	Three Months Ended June 30,				Amount of Increase (Decrease)			Percent Increase (Decrease)
	2014		2013		Amount of Increase (Decrease)			Percent Increase (Decrease)
Loss on retirement of long-term obligations	$	1,284	$	2,669	$	(1,385	)		(52	)%

During the three months ended June 30, 2014 and 2013, we recorded a loss on retirement of long-term obligations of $1.3 million and $2.7 million, respectively. During the three months ended June 30, 2014, we repaid the notes assumed in connection with the acquisition of entities holding a portfolio of communications sites from Richland Properties LLC and other related entities (“Richland”) and paid prepayment consideration and wrote-off the unamortized premium associated with the fair value adjustment. During the three months ended June 30, 2013, we recorded $2.7 million of loss related to the acceleration of the remaining deferred financing costs associated with our $1.0 billion unsecured revolving credit facility entered into in April 2011 (the “2011 Credit Facility”), which was terminated in June 2013.

Other Expense


	Three Months Ended June 30,				Amount of Increase (Decrease)			Percent Increase (Decrease)
	2014		2013		Amount of Increase (Decrease)			Percent Increase (Decrease)
Other expense	$	16,463	$	141,660	$	(125,197	)		(88	)%

During the three months ended June 30, 2014, other expense was $16.5 million, which reflected $23.6 million of unrealized foreign currency losses, as compared to $142.9 million of unrealized foreign currency losses during the three months ended June 30, 2013. We record unrealized foreign currency gains or losses as a result of fluctuations in the foreign currency exchange rates primarily associated with our intercompany notes and similar unaffiliated balances denominated in a currency other than the subsidiaries’ functional currencies. During the three months ended June 30, 2014, we recorded unrealized foreign currency losses of $53.2 million, of which $29.6 million was recorded in Accumulated other comprehensive income (loss) (“AOCI”) and $23.6 million was recorded in Other expense (see note 1 to the condensed consolidated financial statements included herein).

Income Tax Provision (Benefit)

Three Months Ended
June 30,

Amount of
Increase
(Decrease)

Percent
Increase
(Decrease)