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CIG WIRELESS CORP. - 10-KT - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) You should read the following discussion together with our consolidated
financial statements and the related notes and other financial information
included elsewhere in this Report. The discussion in this Report contains
forward-looking statements that involve risks and uncertainties, such as
statements of our plans, objectives, expectations and intentions. The cautionary
statement made in this Report should be read and apply to all related
forward-looking statements wherever they appear in this Report. Our actual
results will likely differ materially from those discussed here.
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Overview
We are a young and dynamic company that develops, operates and owns wireless and
broadcast communication towers in the United States. Our core business consists
of leasing antenna space on our communication sites via long-term contracts. Our
tower infrastructure can accommodate multiple customers for antennas necessary
for the transmission of signals for wireless communication devices. We seek to
increase our site rental revenues by adding more tenants on our wireless
infrastructure, acquiring more towers and constructing new towers.
The following provides some highlights regarding our site rental business as of
December 31, 2012:
Ø We own 67 wireless communication towers that are online and in commercial
service.
Ø We have a geographical presence in 17 states.
Ø Our customer base consists of major wireless communications carriers,
governmental and public entities and utilities.
Ø Approximately 91% of our revenues are derived from site rental revenues of our
communication towers.
Ø Our site rental revenues are recurring in nature and result from long-term
contracts with initial terms ranging between 5 and 10 years with 3-5 renewal
options of five years each.
Ø Monthly or annual rent payments from our tenants are subject to escalation
rates ranging between 3% and 4% per year.
All of our operations are located in the United States. We participate in the
local tower development industry and conduct our operations principally through
subsidiaries of CIG Wireless. Our wholly-owned subsidiaries are "CIG, LLC", "CIG
Properties, LLC", "CIG Services, LLC", "CIG Towers, LLC", "CIG BTS Towers, LLC",
"CIG GA Holding, LLC", "CIG DT Holding, LLC", and "CIG Comp Tower, LLC".
We were incorporated in the state of Nevada in February 2008 and are
headquartered in Atlanta, Georgia. On November 29, 2011, we changed our name
from "Cyber Supply Inc." to "CIG Wireless Corp." to reflect our new business
operation. Our Common Stock is now traded on the Over the Counter BulletinBoard
under the symbol "CIGW".
On October 7, 2011, we acquired all membership interests in CIG Services, LLC
("CIG Services"), a Delaware limited liability company, from Communications
Infrastructure Group LLC, ("CIG, LLC") a Delaware limited liability company. The
membership interests of CIG Services were acquired by us for a nominal amount.
CIG Services was formed by the CIG, LLC to provide comprehensive management and
support services for the operation, administration and management of wireless
towers.
On October 7, 2011, we, through our subsidiary, CIG Services, have entered into
seven Tower Management Agreements (each, a "Tower Management Agreement") with
various related parties whereby we are to maintain, market, operate, manage and
administer certain tower, rooftop or other telecommunication sites owned or
managed by the related parties (the "Tower Sites"). We have acted as the
exclusive agent of the various third parties and managed the Tower Sites in
accordance with all outstanding Tower Site leases, easements, other applicable
agreements, and applicable law and industry standards. We received a monthly fee
from the related parties for the performance of the Tower Site management
services. Each Tower Management Agreement is governed under the laws of the
State of Georgia. On June 30, 2012, four of these Tower Management Agreements
terminated in connection with the June 30, 2012 restructuring, amended on
December 31, 2012, pursuant to which the various related parties received class
A membership interests in CIG, LLC. We continue to receive the monthly fees
related to the remaining three agreements that are still in effect as of
December 31, 2012.
On December 5, 2011, we completed the acquisition of CIG, LLC for 750,000 shares
of Common Stock. Pursuant to the acquisition, we acquired all assets and assumed
all liabilities of CIG, LLC. For accounting purposes, we agreed with the
previous owner to consider the acquisition date November 30, 2011 instead of
December 5, 2011. Differences in the results of operations and cash flows
resulting from the use of the date of November 30 2011 are not considered to be
materially different.
On July 25, 2012, the Board of Directors approved the issuance of Series B
Preferred Stock from our authorized preferred stock. On August 14, 2012, the
Certificate of Designations was filed with the State of Nevada regarding the
rights and preferences of the Series B Preferred Stock. The Preferred Stock is
convertible to Common Stock at the stated value conversion price of $3.00 per
share. The Series B Preferred Stock has a dividend payable at the rate of 6% per
annum and may be redeemed at our sole discretion at any time after the third
anniversary of the date of issuance if the Series B Preferred Stock has not been
converted to Common Stock as of such date. The Series B Preferred Stock
automatically converts into Common Stock upon the closing of an underwritten
public offering of shares of Common Stock having a total gross offering value of
not less than $40 million. All Series B Preferred Stock will vote together with
Common Stock except with respect to any matters pertaining only to the Series B
Preferred Stock as to which the Series B Preferred Stock will vote as a separate
class. Up to 1,700,000 shares of the Series B Preferred Stock are authorized for
issuance by our company at a purchase price of $3.00 per share.
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On September 7, 2012, we completed the acquisition of nineteen communication
towers and related assets and rights from Towers of Texas, Ltd., a privately
held company, for a purchase price of $3.5 million in cash. The acquisition
expands our portfolio of assets and our presence in the Texas region.
On September 7, 2012, we, through our subsidiary CIG Comp Tower, LLC, closed a
new multi-draw term loan credit facility with Macquarie Bank Limited
("Macquarie"). The Macquarie credit facility may be drawn upon by the Borrower,
as guaranteed by our subsidiary CIG Properties, LLC. Macquarie is serving as the
administrative agent, collateral agent and the initial issuing lender under the
Credit Facility.As of December 31, 2012, we had a Credit Facility commitment of
$15.0 million on which we have an outstanding balance of $10.0 million as of
December 31, 2012. This multi-draw term loan credit facility may be expanded up
to $150.0 million.
On November 28, 2012, the Board of Directors of the Company approved the
declaration of the 6% dividends on the Series B Preferred Stock for the amounts
accrued through December 31, 2012. In addition, effective the same day, the
Board of Directors of the Company terminated the designation of the SeriesA 4%
Preferred Stock.
Our tenants lease space on our communications site infrastructure, where they
install and maintain their individual communications network equipment. Our
revenue is primarily generated from tenant leases, and the annual rental
payments depend to a large extent upon numerous factors, including, but not
limited to, tower location, amount of tenant equipment on the tower, ground
space required by the tenant and tower capacity usage. Our tenant leases are
generally non-cancellable and have annual rent escalations. Our primary costs
typically include ground rent which is subject to annual or per term
escalations, property taxes and repairs and maintenance.
Our portfolio of towers consists of towers that were either acquired on the open
market or through the successful awarding to the Company of carrier tower
projects. We have the ability to add new tenants and new equipment for existing
tenants on our sites. Our tenant leases are generally for an initial term that
ranges between 5 and 10 years with 3-5 renewal options of five years each. These
lease contracts normally include rent escalation rates which range between 3-4%
per year, including the renewal periods.
Customers
We have provided site leasing services to the largest wireless carriers such as
AT&T, Sprint, Verizon Wireless, and T-Mobile. In addition, government agencies
(such as Homeland Security, local police and fire departments, and port
authorities) in addition to utilities provide potential supplementary tower
facilities' leasing income. During the three months ended December 31, 2012,
three of our tenants provided approximately 57% of our total revenue.
Sales and Marketing
Our sales and marketing goals are to use existing relationships and develop new
relationships with wireless service providers to lease antenna space to enable
us to grow our site leasing business and successfully bid and win those site
development services contracts that will contribute to our operating margins
which will increase our profitability and expand our business.
Competition
The primary competitors in the site leasing industry are: the independent tower
owners who also provide site leasing services; the national tower development
and management companies; the wireless service providers who own and operate
their own towers and lease antenna space to other providers and alternative
facilities such as rooftops, outdoor and indoor distributed antenna system
("DAS") networks, billboards and electric transmission towers. We believe that
tower location, quality of service to tenants and prices have been and will
continue to be the most significant competitive factors affecting the site
leasing business. We have been providing site leasing services and development
of towers since 2009 through our subsidiary and predecessor, CIG, LLC acquired
by us in December 2011, so our market share is still minimal. However, we intend
to increase our market share through investing in the acquisition and
construction of communication towers in addition to providing excellent service
to our customers.
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We compete with independent tower owners who also provide site rental and
network services, wireless carriers that build, own and operate their own tower
networks and lease space to other wireless communication companies, and owners
of alternative facilities, including rooftops, water towers, broadcast towers,
DAS networks, and utility poles.
Wireless carriers that own and operate their own tower networks generally are
substantially larger and have greater financial resources than us. We believe
that tower location and capacity, deployment speed, quality of service and price
have been and will continue to be the most significant competitive factors
affecting the leasing of a tower.
Competitors in the network services business include site acquisition
consultants, zoning consultants, real estate firms, right-of-way consulting
firms, construction companies, tower owners and managers, radio frequency
engineering consultants, telecommunications equipment vendors who can provide
turnkey site development services through multiple subcontractors, and our
customers' internal staffs. We believe that customers will base their decisions
on the outsourcing of network services on criteria such as experience, track
record, local reputation, price and time for completion of a project.
Operating costs
Cost of site leasing revenue primarily consists of straight-lined site rental
payments for ground; property taxes; site maintenance and monitoring costs;
utilities; property insurance. Other operating costs include lease costs related
to our headquarters; compensation of executives and employees and legal,
accounting and administrative costs.
Employees
As of December 31, 2012, we had thirteen employees, eleven of which are located
at our headquarters in Atlanta, Georgia.
Intellectual Property
We do not own any patents at the present time. We own one registered trademark
related to our "CIG" logo.
Results of operations
The following table represents a comparison of our results of operations for the
three months ended December 31, 2012 to the three months ended December 31,
2011. To provide a meaningful presentation and comparison of our results of
operations, we combined the period from December 1, 2011 to December 31, 2011
(Successor) with the period from October 1, 2011 to November 30, 2011
(Predecessor) to provide the three month ended December 31, 2012 results of
operations as compared to the three months ended December 31, 2011.
Three Months Ended
December 31,2012 December 31, 2011
Revenues:
Rent revenue $ 516,227 $ 363,604
Origination and management fees to related parties 10,087 32,766
Service revenue 41,980 1,820
Total revenues 568,294 398,190
Operating expenses:
Site-related costs 361,327 263,845
General and administrative expenses 1,814,929 1,096,034
Shared services from related parties 67,199 67,258
Depreciation and accretion expense 382,517 243,710
Gain on sale of fixed assets to related party - (117,547 )
Total operating expenses 2,625,972 1,553,300
Loss from operations (2,057,678 ) (1,155,110 )
Other income (expense):
Interest expense (330,523 ) (6,648 )
Gain from forgiveness of debt - 10,980
Losses allocated to related party investors 9,169 918,205
Bargain purchase gain - 1,151,455
Loss on modification of non-controlling interest (781,858 ) -
Total other (expense) income (1,103,212 ) 2,073,992
Net (loss) income (3,160,890 ) 918,882
Net loss attributable to non-controlling interest 356,031 -
Net (loss) income attributable to CIG Wireless Corp. (2,804,859 ) 918,882
Preferred stock dividends (16,706 ) (16,301 )
Net (loss) income attributable to common stockholders $ (2,821,565 ) $
902,581
Net loss per share
Net loss per share, attributable to common stockholders,
basic and diluted
$ (0.14 )
Weighted average shares outstanding, basic and diluted 20,739,931
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Revenues
For the three months ended December 31, 2012, total revenue was approximately
$0.6 million, which was an increase of $0.2 million from $0.4 million as
compared to the same period in the previous year. The increase was primarily due
to the growth in rent revenue resulting from the addition of new tenants on
existing communication towers or in connection with towers developed and built
between the two periods in addition to the tenant lease agreements acquired
through the Towers of Texas acquisition completed in September 2012. Our new
business strategy continues to focus on building our portfolio of communication
towers and expanding our presence geographically across the country.
Site-Related Costs
For the three months ended December 31, 2012, site-related costs were
approximately $0.4 million, which was an increase of $0.1 million from $0.3
million in the same period in the previous year. The increase in the
site-related costs is consistent with the increase in rent revenues between the
two periods. Acquiring and constructing new towers result in incurring
additional ground rent costs and other site-related costs such as insurance,
property taxes and utilities.
General and Administrative Expenses
For the three months ended December 31, 2012, general and administrative
expenses totaled $1.8 million which was an increase of $0.7 million as compared
to $1.1 million in the same period in the previous year. We recorded $0.5
million related to stock-based compensation in connection with the issuance of
stock option grants in our statement of operations for the three months ended
December 31, 2012. Neither we nor our predecessor entity incurred any
stock-based compensation expense for the three months ended December 31, 2011.
Shared Services from Related Parties
For the three months ended December 31, 2012, shared services from related
parties totaled $0.1 million, which was flat compared to the same period of the
prior year. These costs include overhead, administrative and office lease
expenses and are allocated on a pro rata basis based on headcount.
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Depreciation and Accretion Expense
For the three months ended December 31, 2012, depreciation and accretion expense
totaled $0.4 million, which was an increase of $0.2 million from the expense of
$0.2 million in the same period of the prior year. The increase is mainly
related to the depreciation related to eight additional towers that were
capitalized during the year ended December 31, 2012 and the acquisition of
nineteen communication towers in September 2012. In addition, there was an
increase in the fair value of the communication towers acquired from our
predecessor and subsidiary, CIG, LLC, that existed on the date the acquisition
under the ownership of the predecessor entity.
Gain from Sale of Fixed Assets to Related Party
We did not sell any communication towers during the three months ended December
31, 2012. For the three months ended December 31, 2011, we sold one
communication tower to a related party for $0.4 million. As such, we recorded a
gain of $0.1 million from the sale in our statement of operations for that
period under gain from sales of fixed assets to related party.
Interest Expense
For the three months ended December 31, 2012, interest expense totaled $0.3
million, and included interest incurred on our indebtedness in addition to
amortization of debt discounts and deferred financing costs. Interest expense
for the three months ended December 31, 2011 was approximately $7.0 thousand and
was related to certain indebtedness to related party. The major increase in
interest expense is related to interest on our outstanding balance under the
Credit Facility entered into in September 2012.
Gain from Forgiveness of Debt
For the three months ended December 31, 2011, gain from forgiveness of debt was
$11 thousand and was associated with a loan that was due to the former sole
officer who served as a director until October 5, 2011. The note holder was no
longer a related party at the time of the loan forgiveness.
Losses Allocated to Related Party Investors
For the three months ended December 31, 2012, we allocated $9.0 thousand of
losses to the related party investors compared to $0.9 million in the same
period of the previous year. The losses recorded in the three months ended
December 31, 2012 were related to one related party investor who did not convert
its debt during the restructuring that was completed on June 30, 2012 and
amended on December 31, 2012. The five remaining related party investors
converted their debt into class A interests in our subsidiary, CIG, LLC onJune
30, 2012.
Bargain Purchase Gain
For the three months ended December 31, 2011, we recorded in our statement of
operations a bargain purchase gain of $1.2 million related to the acquisition of
CIG, LLC completed during that period. This gain represents the excess of fair
value of net assets acquired over the acquisition consideration.
Losses Allocated to Non-Controlling Interest
For the three months ended December 31, 2012, we recorded approximately $0.4
million in losses allocated to the non-controlling interest. The non-controlling
interest is related to the class A interests that our related party investors
received in connection with the restructuring completed on June 30, 2012 and
amended on December 31, 2012.
Loss on Modification of Non-Controlling Interest
In connection with the amendment of the Restructuring and the Amended and
Restated Limited Liability Company agreement of CIG, LLC (the "Amendment"),
effective on December 31, 2012, we recorded a loss of $0.8 million in our
statement of operations under loss on modification of non-controlling interest.
The loss is due to the modification of the conversion terms in the Amendment and
represents the incremental increase in the fair value of the modified ClassA
Interests.
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Net Loss
For the three months ended December 31, 2012, net loss was $2.8 million as
compared to a net income of $0.9 million in the previous year. The change was
the result of the costs mentioned above incurred in connection with establishing
the foundation of our business, operations and corporate structure in addition
to the bargain purchase gain of $1.2 million and the decrease in the losses
allocated to the related party investors of $0.9 million and the loss on
modification of non-controlling interest of $0.8 million, as amended due to the
Restructuring and its Amendment.
Liquidity and Capital Resources
The following table represents our cash flows for the three months ended
December 31, 2012 (Successor), the one month ended December 31, 2011 (Successor)
and the two months ended November 30, 2011 (Predecessor).
Three Months Ended December 1, 2011 to October 1, 2011 to
December 31, 2012 December 31, 2011 November 30, 2011
Successor Successor Predecessor
Net cash used in operating activities $ (1,362,237 ) $ (424,953 ) $ (893,814 )
Net cash (used in) provided by investing activities (70,706 ) 657,649 125,229
Net cash provided by financing activities 916,280 1,226,469 1,570,761
Net decrease (increase) in cash (516,663 ) 1,459,165 802,176
Cash and cash equivalents, at beginning of period 2,873,432 67,961 214,675
Cash and cash equivalents, at end of period $ 2,356,769 $ 1,527,126 $ 1,016,851
Overview
We entered the communication tower industry through our predecessor company in
2009 in connection with the acquisition of our subsidiary, CIG, LLC. The
acquisition was settled as a non-cash acquisition on December 5, 2011. For
accounting purposes, we accounted for the acquisition as if it occurred on
November 30, 2011. The results of operations and cash flows obtained through the
use of November 30, 2011, rather than December 5, 2011, are not considered to be
materially different. Since the acquisition date, we have entered into multiple
loans and notes payable with related parties. The proceeds were used to fund our
operations, establishing our corporate foundation as well as constructing and
developing new towers. During the three months ended December 31, 2012, we
completed the construction of one new communication tower.
As of December 31, 2012, the balance of our cash and cash equivalents was $2.4
million compared to $2.9 million as of September 30, 2012 and $0.2 million as of
September 30, 2011. We believe that the balance at December 31, 2012 will be
sufficient to meet our cash requirements to operate our business over the next
twelve months. However, this balance is not sufficient enough to provide the
funds required to grow our business and execute on our plan for acquiring and
building new communication towers. Our plan is to use the funds available
through the Credit Facility and raise capital to support our business plan.
However, there is no certainty that we will be successful at raising capital,
nor is there certainty around the amount of funds that may be raised. In
addition, the success of our efforts will be subject to the performance of the
market and investor sentiment regarding the macro and micro conditions under
which we operate including stock market volatility.
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Cash Flows from Operating Activities
Our net cash used in operating activities was $1.4 million during the three
months ended December 31, 2012 compared to $0.4 million during the month of
December 2011 and $0.9 million during the two months ended November 30, 2011.
Cash flows used in operating activities mainly consist of major expenditures
related to the operations of our business in addition to accounting, advisory
and legal costs incurred with the establishment of our business and corporate
structure.
Cash Flows from Investing Activities
Our cash used in investing activities was $0.1 million during the three months
ended December 31, 2012 and mainly consists of payments of $0.1 million related
to construction of towers partially offset by a slight decrease in restricted
cash resulting from the release of funds related to proceeds from the saleof
Series B Preferred Stock.
For the month of December 2011, net cash provided by investing activities was
$0.7 million which mainly consists of cash acquired through the acquisition of
CIG, LLC of $1.0 million partially offset by approximately $0.3 million spent on
the construction of towers. The CIG, LLC acquisition was consummated as a
non-cash transaction through the issuance of 750,000 of common shares of CIG
Wireless.
For the two months ended November 30, 2011, the predecessor entity's net cash
provided by investing activities was $0.1 million, consisting of the proceeds
from sale of one communication tower of $0.4 million partially offset by $0.3
million spent on construction of communication towers.
Cash Flows from Financing Activities
Our net cash provided by financing activities for the three months ended
December 31, 2012 was $0.9 million mainly consisting of net proceeds of $1.3
million obtained through the sale and issuance of 512,425 shares of Series B
Preferred Stock partially offset by payments of $0.4 million on notes payable to
related parties.
For the month of December 2011, net cash provided by financing activities was
$1.2 million consisting of proceeds of $1.0 million obtained through a related
party note payable and $0.2 million proceeds from net advances from related
party investors.
The predecessor entity's net cash provided by financing activities for the two
months ended November 30, 2011 was $1.6 million mainly consisting of net advance
from related parties.
Non-Cash Investing and Financing activities
The following table represents our non-cash investing and financing activities
for the three months ended December 31, 2012 (Successor), the month of December
2011 (Successor) and the two months ended November 30, 2011 (Predecessor).
December 1, 2011 October 1, 2011 to
Three Months Ended to December 31, November 30,
December 31, 2012 2011 2011
Successor Successor Predecessor
Noncash Investing and Financing Activities:
Conversion of preferred shares to common $ - $ 10 $ -
Common stock issued for preferred dividend - 16,301 -
Common stock issued for acquisition of CIG, LLC - 75,000 -
Asset retirement obligation 20,841 - -
Accrual for debt issuance costs 31,737 - -
Accrual for deferred financing costs 200,000 - -
Accrual for preferred stock dividends declared 18,149 - -
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During the three months ended December 31, 2012, we established an asset
retirement obligation of $21 thousand in connection with the towers that were
capitalized during the period. In addition, we accrued for additional deferred
financing costs and debt issuance costs in the amounts of $32 thousand and $200
thousand, respectively which are related to additional deferred financing costs
and debt issuance costs incurred in connection with the Credit Facility entered
into on September 7, 2012. Furthermore, the Board of Directors approved the
declaration of the Series B Preferred Stock for the amounts accrued through
December 31, 2012. As a result, we accrued approximately $18 thousand for Series
B Preferred Stock dividends.
On December 23, 2011, 1,000,000 shares of Series A 4% convertible redeemable
preferred stock ("Series A Preferred Stock"), par value $0.00001 per share,
along with the accrued dividends of $16,301 were converted into 1,008,110 shares
of Common Stock. We originally issued the preferred shares on October 7, 2011 at
$2.00 per share which resulted in aggregate proceeds of $2,000,000. These
proceeds are not presented in the table of cash flows above as the period
presented for the successor entity starts from December 1, 2011. Subsequent to
this transaction, we had no outstanding shares of Series A Preferred Stock.
Effective November 28, 2012, the Board of Directors of the Company terminated
the designation of the Series A Preferred Stock.
On December 5, 2011, we acquired CIG, LLC from BAC Berlin Atlantic Holding GmbH
& Co. KG for 750,000 common shares issued at a fair value of $0.10 per share
which was the price per share of the last issuance of common equity transaction
for cash we completed during the fiscal year 2009.
In connection with the related party investor restructurings disclosed in Note
9, the Company issued three notes in the amounts of $799,000, $432,200 and
$69,050 payable to its related party investors originally maturing on December
31, 2014, December 31, 2014 and on March 31, 2015, respectively. The notes are
unsecured, payable in installments through a repayment schedule until maturity
and bear interest at 4% per annum. Effective December 31, 2012, the Company
amended the Amended and Restated Limited Liability Company Operating Agreement
of CIG, LLC dated June 30, 2012. In connection with the amendment, the Company
amended the repayment schedule of the three notes payable to its related party
investors. As of December 31, 2012, the outstanding balances of the notes were
$583,104, $315,416 and $51,729 will be paid in quarterly installments and will
mature on January 31, 2014 subsequent to the amendment.
Credit Facility
On September 7, 2012, our company, through our subsidiary CIG Comp Tower, LLC
("Comp Tower, or the "Borrower"), closed a new multi-draw term loan credit
facility (the "Credit Facility") with Macquarie Bank Limited ("Macquarie").
The
Credit Facility may be drawn upon by the Borrower, as guaranteed by our
subsidiary CIG Properties, LLC (the "Guarantor"). Macquarie is serving as the
administrative agent, collateral agent and the initial issuing lender under the
Credit Facility. The Credit Agreement, dated as of August 17, 2012, was made by
and among the Borrower, the lenders who are from time-to-time party thereto, and
Macquarie (the "Credit Agreement"); the Security Agreement, dated as of
September 7, 2012, by and among the Borrower and the Guarantor, and Macquarie
(the "Security Agreement"), and the Guaranty, dated as of September 7, 2012, by
the Guarantor in favor of Macquarie (the "Guaranty"). The maturity date for
repayment of all draws on the Credit Facility is September 6, 2017. Comp Tower
is a wholly-owned subsidiary of CIG Properties. The obligations of Comp Tower
and CIG Properties are secured by first priority pledges of all of the equity
interests of Comp Tower and first priority security interests in all tangible
and intangible assets of Comp Tower and CIG Properties. This multi-draw term
loan credit facility may be expanded up to $150 million.
The Credit Facility does not amortize during its term and the entire outstanding
balance including any accrued and unpaid interest is due and payable on the
maturity date. Comp Tower has the option to designate the reference rate of
interest for each specific borrowing under the Credit Facility as amounts are
advanced. Borrowings under the Credit Facility can be drawn either as Adjusted
Base Advances subject to Adjusted Base Rate interest plus a margin of 6.25%; or
as Adjusted Eurodollar Advances subject to Eurodollar Rate interest plus a
margin of 7.25%. The Credit Facility obligations of the Borrower include
payments of commitment fees of 2%, administrative agent fees, early termination
fees and underutilization fees. The interest and commitment fee is paid around
the 15th of each month if the borrowings are subject to the Adjusted Base Rate.
We have the option to repay all the draws on the Credit Facility together with
all accrued and unpaid interest. In addition, the Credit Facility contains yield
protection provisions customary for facilities of this type, protecting the
lenders in the event of breakage losses or changes in reserve or capital
adequacy requirements applicable to the lenders.
Under the terms of the Credit Facility, the administrative agent has certain
rights of first refusal to provide financing on all tower acquisitions proposed
by us or our subsidiaries. If the administrative agent declines to provide such
financing for any reason, we or our subsidiaries other than the CIG Properties
or its subsidiaries may obtain third party financing to purchase such towerassets.
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The Credit Facility Agreement contains conventional representations and
warranties, affirmative covenants, negative covenants, and financial compliance
covenants customary for transactions of this type. Events of default include
failure to pay interest on any loan under the Credit Facility, any material
violation of any representation or warranty under the Credit Agreement, failure
to observe or perform certain covenants under the Credit Agreement, a change in
control of the Borrower, default under any other material indebtedness of the
Borrower, bankruptcy and similar proceedings and failure to pay disbursements
from advances issued under the Credit Facility, as well as other customary
default provisions. Upon an event of default, the applicable interest rate
increases by 2% under the Credit Facility and the lenders have the right to
accelerate payments under the Credit Facility, or call all obligations due under
certain circumstances. We expect to satisfy our cash requirements for working
capital, acquisitions and construction of new towers through equity financing
and funds available through the Credit Facility.
As of December 31, 2012, we had an outstanding balance of $10.0 million under
the credit facility and the associated unamortized balance of the discountswas
$0.8 million.
Series B 6% Convertible Redeemable Preferred Stock
On July 25, 2012, the Board of Directors approved the issuance of Series B
Preferred Stock from our authorized preferred stock. On August 14, 2012, the
Certificate of Designations was filed with the State of Nevada regarding the
rights and preferences of the Series B Preferred Stock. The Series B Preferred
Stock is convertible to Common Stock at the stated value conversion price of
$3.00 per share. The Series B Preferred Stock has a dividend payable at the rate
of 6% per annum and may be redeemed at our sole discretion at any time after the
third anniversary of the date of issuance if the Series B Preferred Stock has
not been converted to Common Stock as of such date. The Series B Preferred Stock
automatically converts into Common Stock upon the closing of an underwritten
public offering of shares of Common Stock having a total gross offering value of
not less than $40 million. All Series B Preferred Stock will vote together with
Common Stock except with respect to any matters pertaining only to the Series B
Preferred Stock as to which the Series B Preferred Stock will vote as a separate
class. Up to 1,700,000 shares of the Series B Preferred Stock are authorized for
issuance by us at a purchase price of $3.00 per share.
We expect to raise additional equity capital during the foreseeable future
through the private placement of Common Stock and other securities in non-public
private securities offerings and issuances pursuant to one or more exemptions
from registration under the Securities Act of 1933, as amended. For that
purpose, we have engaged financial advisors to provide us with capital markets
and investment banking services related to our capital raising efforts in the
form of public or private placements.
Atypical Silent Partnership Agreements
Between November 2009 and February 2010, we entered into six Atypical Silent
Partnership Agreements with related party limited partnership investors through
our predecessor subsidiary, CIG, LLC. Pursuant to these agreements, the related
party investors made contributions to us for the acquisition of tower assets
which are segregated on the books by investment group. No separate legal entity
was created through these agreements. The investment agreements all have similar
terms, conditions, and termination dates as defined in the agreements.
Termination dates range between December 31, 2014 and September 30, 2015. On
each such termination date, each respective investor may elect termination of
the arrangement and we must then make distributions. Because these are mandatory
variable repayment obligations occurring on each termination date, the net
obligations to these investors are classified as long-term subordinated
obligations in our consolidated balance sheets. Management fees, origination
fees and interest charged to the investors and third-party consulting and other
revenue received by the Company not related to the operation of the towers owned
by the investors are separated in the statements of operations.
Except for each termination date, we have the option, in our sole discretion on
whether to pay any proceeds from operations or tower sales to the investors.
The following is a summary of the net profits and liquidation interests of the
six investors prior to the June 30, 2012 internal restructuring and issuance of
the Class A Interests (described in detail below under the caption
"Restructuring"):
Interests
Investor Name Related Party Company
InfraTrust Fuenf GmbH u. Co. KG (IT5) 99.999 % 0.001 %
Infrastructure Asset Pool, LLLP (ITAP) 99.999 % 0.001 %
InfraTrust Zwei GmbH u. Co. KG (IT2) 99.999 % 0.001 %
InfraTrust Premium Sieben GmbH & Co. KG (ITP7) 70 % 30 %
InfraTrust Premium Neun GmbH & Co. KG (ITP9) 60 % 40 %
Diana Damme (Damme) 60 % 40 %
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Profits are allocated to the related party investors until they obtain
designated rates of return of between 8 - 20%. Once the rates of return are
obtained by the related party investors, subsequent profits are allocated based
upon ownership. Losses are allocated at 100% to the investors until net profits
are generated.
Restructuring
On June 30, 2012, we restructured the ownership of certain of our subsidiaries
and our related party investor agreements (the "Restructuring") intended to
align our organization with our strategic plans, including anticipated near-term
financing.
Prior to the Restructuring, title to a number of the wireless communications
towers was held by CIG LLC. However, profit participation rights in the towers
(the "Profit Participation") was separately reserved to related party investment
funds domiciled in the Republic of Germany: InfraTrust Zwei GmbH & Co. KG,
InfraTrust Fünf GmbH & Co. KG, and BAC Infratrust Premium Neun & Co. KG
(collectively, the "Funds"). The respective Profit Participation rights were
previously set forth in three separate Atypical Silent Partnership Agreements
with CIG LLC (the "ASPs").
The Restructuring was required and requested by the manager of the Funds in
order to provide a more conventional legal structure for the ownership of our
towers, while maintaining substantially the same economic rights for the Funds
as derived from the towers. Pursuant to the Restructuring, the Funds will now
derive their economic rights in the towers through preferred Class A Membership
Interests of CIG LLC, as further described below.
In 2011, the Funds were dual chartered as limited partnerships in the State of
Georgia (collectively, the "Georgia LPs"). The Georgia LPs are controlled and
owned by the Funds, as follows: Compartment IT2, LP, Compartment IT5, LP and
Compartment IT9, LP corresponding to InfraTrust Zwei GmbH & Co. KG, Infratrust
Fünf GmbH & Co. KG and BAC Infratrust Premium Neun & Co. KG, respectively.
The CIG LLC Amended and Restated Operating Agreement, dated June 30, 2012, (the
"A&R Operating Agreement") provides for three preferred Class A Membership
Interests: Class A-IT2, Class A-IT5 and Class A-IT9 (collectively, the "Class A
Interests"), issued to Compartment IT2, LP, Compartment IT5, LP and Compartment
IT9, LP, respectively.
At the closing of the Restructuring, the ASPs were assigned and transferred from
the Funds to the corresponding Georgia LPs in connection with the exchange for
the Class A Membership Interests. CIG LLC issued each Georgia LP preferred Class
A Membership Interests to replicate the Profit Participation rights previously
held through the respective ASPs prior to the Restructuring. The ASPs terminated
upon effectiveness of the exchange for Class A Interests.
The CIG LLC A&R Operating Agreement also provides for a class of management
membership interests (the "Management Interests"), which were issued to CIG
Towers, LLC, our subsidiary. CIG, LLC will be managed by another subsidiary, CIG
Solutions, LLC ("CIG Solutions"), as manager. Management of CIG, LLC remains
subject to unanimous consent of the Class A Interests for certain Company
actions. As manager, CIG Solutions will receive a management fee of 1% of the
capital contributions made by the holders of the Class A-IT2 Interests and Class
A-IT9 Interests plus any related party loans and a broker fee of 5% of the gross
value of new towers attributable to the Class A-IT5 Interests plus any related
party loans. The capital contributions are defined by the value of the tower
assets previously underlying the respective ASPs exchanged for the Class A
Interests.
Distributions will be made to Compartment IT2, LP by CIG LLC from: (i) available
funds related to the communication towers attributable to the Class A-IT2
Interests; and (ii) available funds related to any and all communication towers
subsequently acquired with proceeds from loans derived from collateralization of
towers attributable to the Class A-IT2 Interests, in the following order of
priority:
1) 20% return in an amount equal to an internal rate of return on the previously
contributed capital calculated from February 16, 2010, to the holders of the
Class A-IT2 Interests (this 20% return is contingent upon there being net
income generated from the towers, as of the date of this report, CIG LLC and
its wholly-owned subsidiaries have not generated net income); then
2) 80% to the holders of the Class A-IT2 Interests and 20% to the holders of the
Management Interests.
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Distributions will be made to Compartment IT5, LP by CIG LLC from: (i) available
funds related to the communication towers attributable to the Class A-IT5
Interests; and (ii) available funds related to any and all communication towers
subsequently acquired with proceeds from loans derived from collateralization of
towers attributable to the Class A-IT5 Interests, in the following order of
priority:
1) 20% return on its capital contribution, in an amount equal to an internal rate
of return on the previously contributed capital calculated from December 21,
2010 to the holders of the Class A-IT5 Interests (this 20% return is
contingent upon there being net income generated from the towers, as of the
date of this report, CIG LLC and its wholly-owned subsidiaries have not
generated net income); then
2) 80% to the holders of the Class A-IT5 Interests and 20% to the holders of the
Management Interests.
Distributions will be made to Compartment IT9, LP by CIG LLC from: (i) available
funds related to the communication towers attributable to the Class A-IT9
Interests; and (ii) available funds related to any and all communication towers
subsequently acquired with proceeds from loans derived from collateralization of
towers attributable to the Class A-IT9 Interests, in the following order of
priority:
1) 10% return on its capital contribution, in an amount equal to an internal rate
of return on the previously contributed capital calculated from February 26,
2010 to the holders of the Class A-IT9 Interests (this 10% return is
contingent upon there being net income generated from the towers, as of the
date of this report, CIG LLC and its wholly-owned subsidiaries have not
generated net income); then
2) 80% to the holders of the Class A-IT9 Interests and 20% to the holders of the
Management Interests.
Distributions will be made to the holder of the Management Interests as per
above and also from all other funds available for distribution which are: (i)
not related to the respective communication towers attributable to the Class A
Interests; and (ii) not related to any and all communication towers subsequently
acquired with proceeds from loans derived from collateralization of the towers
attributable to Class A Interests. Funds available for distribution are
determined by reference to revenues less expenses, subject to customary
accounting adjustments and reserves.
In the event of a liquidation of CIG LLC, the holders of each of the Class A
Interests will receive the net proceeds from the liquidation of the
corresponding communication towers and related assets contributed by the
respective Georgia LPs to CIG LLC.
At the discretion of the Funds' manager, the Class A Interests are convertible
into common shares, at any time prior to the first anniversary of the date the
Common Stock becomes eligible for electronic book-entry delivery and settlement
depository services by the Depository Trust Company ("DTC Eligibility"). The
Class A Interests will convert into such number of shares of Common Stock equal
to the Class A Member's capital account calculated as of June 30, 2012 adjusted
for the difference between the fair value of the cell phone tower assets as of
June 30, 2012 compared to the carrying book value of the cell phone tower assets
as of June 30, 2012) divided by a conversion price per share calculated by
reference to the dollar value which is equal to 25% less than the prior twenty
trading days' volume weighted average price of the Common Stock. After the first
anniversary date of DTC Eligibility, the Class A Interests remain convertible
into Common Stock without discount upon termination or liquidation of the
respective Georgia LP. The conversion rights of the holders of the Class A
Interests may only be exercised in full. The conversion price is subject to
customary anti-dilution protections.
The shares of Common Stock issued by us upon conversion of the Class A Interests
will be subject to a market stand-down provision, in which the converted shares
may not be sold or traded during the 12 months following issuance. On December
31, 2014 for the Class A-IT2 Interests and Class A-IT5 Interests and on March
31, 2015 for the Class A-IT9 Interests and upon termination of the Class A
interest by the Funds as a result of liquidation, the conversion of the relevant
Class A Interests into Common Stock will be effectuated at a conversion price
equal to the prior twenty trading days' volume weighted average price of the
Common Stock. The Class A Interests may not convert into the number of shares of
Common Stock that exceed the number of authorized shares of Common Stock, less
the number of issued and outstanding shares of Common Stock, less the number of
shares of Common Stock issuable under all our other outstanding convertible
instruments, and also less any of our other obligations to issue shares ofCommon Stock.
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On December 31, 2012, we entered into an amendment of the A&R Operating
Agreement (the "Amendment") which modifies the prices for conversion of the
Class A Interests of CIG, LLC owned by the Compartments into our Common Stock.
Pursuant to this Amendment, the Class A Interests will be subject to an initial
minimum conversion price of $2.00 per share of our Common Stock and an initial
maximum conversion price of $3.00 per share of our Common Stock, with increase
of the maximum conversion price per share after listing of our Common Stock on a
"national securities exchange" as defined in the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder, by $0.50
per share every 30 day period thereafter, up to a maximum conversion price of
$5.50 per share of our Common Stock. The applicable trading value will be
determined by reference to the twenty (20) trading days' volume weighted average
price per share of our Common Stock preceding the date of notice of conversion.
Also, the Amendment sets forth the conversion values at $11,518,900 for all the
compartments and no future adjustments, charges or fees of any nature or kind
will be made to the conversion values of any Class A interests.
Furthermore, the Amendment also provides for the Compartments to retain their
respective performance preferences and liquidation preferences, and all other
ordinary rights to dividends or distributions made by CIG, LLC, provided,
however, any and all distributions of any nature or kind shall in the respective
aggregate applicable to each of the Class A Interests not exceed the respective
conversion value of such Class A Interests. Except with respect to the economic
rights and preferences attributable to the conversion value, the Class A
Interests will not have any other equity participation or liabilities with
respect to any profits or losses of CIG, LLC.
In addition, the Amendment waives the twelve-month market stand-down condition
set forth in the Operating Agreement to the extent shares of our Common Stock
converted from Class A Interests become eligible for resale in reliance on Rule
144 promulgated under the Securities Act ("Rule 144"). Subject to customary
exceptions, the Company has agreed to register such shares of our Common Stock
converted from Class A Interests if for any reason Rule 144 is not available to
the holders of Class A Interests following conversion.
In connection with the amendment, we recorded a loss of $0.8 million in our
statement of operations during the three months ended December 31, 2012. The
loss is due to the modification of the conversion terms in the Amendment and
represents the incremental increase in the fair value of the Class A Interests.
Convertible Related Party Notes payable
At December 31, 2012, we had outstanding convertible notes payable in the amount
of $0.8 million, owed to ENEX. The notes are secured by assets of the Company
and mature within thirty days of demand. The notes are convertible into Common
Stock at $3.00 per share.
Other Third-Party Loans
As of December 31, 2012, we had outstanding loans in the amount of $35,000 due
upon demand to CRG Finance. The loans are unsecured, and bear interest at 10%
per annum.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31,
2012. These contractual obligations relate primarily to our outstanding
borrowings and lease obligations for land interests under our towers over the
term of the lease including option renewals. The debt maturities reflect
contractual maturity dates and the related interest is calculated assuming a
fixed interest rate through the maturity dates of debt obligations.
Fiscal Year Ended December 31,
2013 2014 2015 2016 2017 Thereafter Totals
Credit facility $ - $ - $ - $ - $ 10,000,000 $ - $ 10,000,000
Third-party notes payable
35,000 - - - - - 35,000
Related-party notes payable 800,000 150,249 - - - - 950,249
Related party convertible
notes payable 800,000 - - - - - 800,000
Future interest payments 897,493 851,536 850,000 850,000 579,863 - 4,028,892
Lease obligations 697,373 736,081 733,155 740,370 740,048 10,565,786 14,212,813
Total $ 3,229,866 $ 1,737,866 $ 1,583,155 $ 1,590,370 $ 11,319,911 $ 10,565,786 $ 30,026,954
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Critical Accounting Policies and Estimates
Our Management's discussion and analysis of financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosures of contingent assets and
liabilities. We evaluate our policies and estimates on an ongoing basis,
including those related to impairment of assets, asset retirement obligations,
depreciation and amortization expense, acquisitions, revenue recognition, rent
expense, stock-based compensation and income taxes. Management bases its
estimates on historical experience and various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The following list is
not a comprehensive list of our critical accounting policies; however, we
believe that they necessary to provide an understanding of our financial
condition and results of operations.
Principles of Consolidation and Fiscal Year End
On January 23, 2013, a decision to change our fiscal year end from September 30
to December 31 was approved by our Board of Directors. As such, we and our
consolidated entities report on a 12-month accounting year that ends on the last
day of December of each year. The consolidated financial statements included
elsewhere in this Report include our financial statements and our wholly-owned
subsidiaries for the transition period from October 1, 2012 to December 31,
2012, the period from December 1, 2012 to September 30, 2012 (Successor), the
two months ended November 30, 2011 (Predecessor) and the fiscal year ended
September 30, 2011 (Predecessor). All significant intercompany balances and
transactions have been eliminated in consolidation. We will also present in a
footnote to the financial statements the unaudited statements of operations for
the period from October 1, 2011 to December 31, 2011. In addition, we are
including under Item 8 of this Report our audited financial statements for the
twelve months ended December 31, 2012.
Revenue Recognition and Accounts Receivable
Site leasing revenues are recognized on a monthly basis under lease agreements
when earned and when collectability is reasonably assured, regardless of whether
the payments from the tenants are received in equal monthly amounts. Fixed
escalation clauses present in non-cancellable lease agreements, excluding those
tied to the Consumer Price Index or other incentives present in lease agreements
with our tenants are recognized on a straight-line basis over the fixed,
non-cancellable terms of the applicable leases. The difference between rent
received and straight-lined rent is recorded under deferred rent assets in our
balance sheet. Site leasing payments received in advance are recorded as
deferred revenue in the consolidated balance sheets and recognized as revenues
when earned.
Accounts receivable consists primarily of amounts due from tenants. Related
party accounts receivable represent amounts due from parties that are deemed to
be related in accordance with GAAP and represented separately from other account
receivable. We derive the largest portion of our revenues corresponding trade
receivables and the related deferred rent asset from a small number of tenants
in the telecommunications industry. For the three months ended December 31,
2012, approximately 57% of our revenues were derived from three tenants inthe
industry.
We evaluate periodically our accounts receivable to determine the need for an
allowance for doubtful accounts. This evaluation is based on the history of past
write-offs, and the aging and materiality of the balances. For the three months
ended December 31, 2012, management determined that an allowance for doubtful
accounts is not necessary.
Concentrations
We have certain customers that make up more than 10% of total revenues. During
the three months ended December 31, 2012, we had three customers each making up
more than 10% of total revenue. The customers individually made up 29%, 16% and
12% of total revenues. During the three months ended December 31, 2011, we had
two customers each making up more than 10% of total revenue. The customers
individually made up 37% and 14% of total revenues.
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Rent Expense and Deferred Rent Liability
Many of the leases underlying our tower sites have fixed term rent escalations,
which provide for annual or per term increases in the amount of future ground
rent payable. We calculate straight-line ground rent expense for these leases
based on the term of the underlying ground lease plus all periods, if any, for
which failure to renew the lease imposes an economic additional charge to us
such that renewal appears, at the inception of the lease, to be reasonably
assured. In addition to the straight-line ground rent expense recorded, we also
record an associated straight-line rent liability which is represented under
deferred rent liability in the consolidated financial statements included in
this Report.
Stock-Based Compensation
We account for stock-based compensation in accordance with Codification ASC 718,
"Compensation, Stock Compensation" which requires us to recognize expense based
on the fair value of our stock-based compensation awards. ASC 718 requires the
use of a valuation model to calculate the fair value of the stock-based awards.
We have elected to use the Black-Scholes options pricing model to determine the
grant date fair value of stock option awards. We measure stock-based
compensation based on the fair values of all stock-based awards on the dates of
grant, and recognize stock-based compensation expense using the straight-line
method over the vesting periods. Stock-based compensation expense was $0.5
million for the three months ended December 31, 2012.
Cash and Cash Equivalents
We consider all highly liquid instruments, readily convertible to cash and have
an original maturity of three months or less to be cash equivalents. There were
no cash equivalents as of December 31, 2012, September 30, 2012 and September
30, 2011.
Property, Equipment and Software
Property and equipment primarily consists of the telecommunication towers and is
stated at cost for constructed towers or acquired as an asset acquisition or
estimated fair values for towers acquired in a business acquisition. Costs
incurred during the construction phase of the towers are capitalized. These
costs include direct costs, labor and other indirect costs. Additions,
renovations and improvements are capitalized, while maintenance and repairs are
expensed. Upon the sale or retirement of an asset, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
recognized and recorded in the consolidated statements of operations in the
period the sale or retirement occurs. The carrying value of property and
equipment is reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. If the
sum of the estimated future cash flows (undiscounted) expected to result from
the use and eventual disposition of the asset group is less than the carrying
amount of the asset group, an impairment loss is recognized which is measured
based on the fair value of the asset. Construction in process is impaired when
projects are abandoned or terminated.
Depreciation expense for our property and equipment is computed using the
straight-line method over the estimated useful lives of the underlying assets.
The substantial portion of our property and equipment represents the cost of our
telecommunication towers which is depreciated with an estimated useful life
equal to the shorter of (1) 20 years or (2) the term, including option renewals,
of the ground lease.
Asset Retirement Obligations
We recognize asset retirement obligations associated with our legal obligation
to remove the telecommunication towers or remediate the land on which the tower
resides. In determining the fair value of these asset retirement obligations we
must make several subjective and highly judgmental estimates such as those
related to future removal or remediation costs and discount rates. In the period
a telecommunication tower is acquired or constructed, we record an estimate fair
value of the asset retirement obligation and we accrete such liability through
the tower's useful life which does not exceed 20 years. The associated
retirement costs are capitalized and included in property, equipment and
software and depreciated over their estimated useful life.
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Acquisitions
For acquisitions that meet the criteria of a business, we use the acquisition
method to record the transaction. The cost of an acquisition is measured as the
fair value of the consideration transferred ("Purchase Price") on the
acquisition date. The Purchase Price is then allocated between the assets
acquired and liabilities assumed based on their estimated fair values on the
date of the acquisition. The excess, if any, of the Purchase Price over the net
identifiable assets acquired and liabilities assumed is recognized as goodwill.
If the Purchase Price is lower than the fair value of the identifiable net
assets acquired, the difference is recognized as a gain on business acquisition.
Acquisition costs are expensed and included in general and administrative
expenses in our consolidated statements of operations.
For acquisitions that do not meet the criteria of a business acquisition, we
allocate the Purchase Price to the value of the towers acquired and any related
intangible assets.
The fair value of the assets acquired and liabilities assumed is calculated
using various approaches such as the replacement cost model or the discounted
cash flow valuation method which involves management judgments and estimates
around cash flows, useful life of the assets, age of the towers and discount
rates.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in operations in the period enacted. A valuation allowance
is provided when it is more likely than not that a portion or all of a deferred
tax asset will not be realized. The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income and the reversal of
deferred tax liabilities during the period in which related temporary
differences become deductible. The benefit of tax positions taken or expected to
be taken in our income tax returns are recognized in our consolidated financial
statements if such positions are more likely than not to be sustained upon
examination.
Recent Accounting Pronouncements
Recent accounting pronouncements are included in Note 2 to the accompanying
notes to the consolidated financial statements and are incorporated herein by
reference thereto.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons.
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