ANNUAL
REPORT
201 7
MY FELLOW
STOCKHOLDERS:
As we exit 2017 and begin a new year, I’d like to reflect briefly on industry trends, 2017 accomplishments and how
our strategies are positioning us well to have sustained success.
First, demand for fiber infrastructure continues to be the top telecom theme. Wireless carriers have intensified their
densification plans and we expect the first 5G fixed wireless and mobility network deployments to be launched in
select markets in the United States in 2018. We expect the market level trials and deployments will quickly lead the
wireless carriers to a national 5G roll-out similar to the pattern for 2G, 3G and 4G technology changes. 5G requires
small cells and small cells require fiber and Uniti owns 1.1 million fiber strand miles of lease-able inventory as we enter
the year and expect inventory levels to grow organically and through acquisition throughout the upcoming year.
Second, the 2017 tax reform legislation, the 2017 elimination of the Sprint / T-Mobile merger overhang, and Sprint’s
subsequent announcement to increase investment in their network have generated a positive tailwind for wireless
carrier capital spending that we expect will benefit both our Fiber Infrastructure and Tower operating businesses
and create opportunities for bundled offerings.
Third, the expansion of the Red Compartida wholesale wireless network in Mexico in 2017 and the 2018 ground
breaking of the FirstNet network in the U.S. will create lease-up and build to suit opportunities on both sides of the
border for tower space and new towers. Our strong relationships with the national wireless carriers in both Mexico
and the U.S. should position us well to capitalize.
2017 was an important year in advancing the development of our business units. We acquired two pure-play
fiber companies in 2017 that are highly synergistic with our existing Uniti Fiber business. Our fiber network in the
Southeast now span contiguously along the Gulf Coast and north into Georgia and west into Texas creating one of
the premier and scalable fiber networks in the region. Uniti Fiber covers 32,000 route miles with 1.4 million strands
of fiber. Uniti Fiber revenues grew almost three fold from 2016 to 2017 and exited the year with annual run rate
revenues and Adjusted EBITDA of $267 million and $126 million, respectively. Our integration efforts are progressing
well as we have realized $16 million of annualized run rate expense savings to-date related to the 2016 and 2017
acquisitions and expect additional expense and revenue synergies in future periods. We believe we have established
Uniti Fiber as one of the best operating platforms in the industry.
2017 was a pivotal year in developing our Uniti Towers business unit. We completed the acquisition of 420 towers
in Latin America and are seeing excellent lease-up activity on our tower portfolio in Mexico driven by the expansion
of the national wholesale network. We are also excited about the investment opportunity to construct new Build-
to-Suit (“BTS”) towers. Recent market research forecasts approximately 25,000 new towers will be built in the U.S.
over the next five years and we anticipate we can capture at least 5% of this growth plus additional tower growth
expected in Mexico. Constructing BTS towers adds to our wireless carrier product suite of small cells, and LIT and
dark fiber backhaul solutions and allows us to leverage our current customer relationships to cross-sell and bundle
with our fiber products. We built our first towers in the U.S. in 2017 ending the year with 24. Although the sample size
is small, we have already received colocation applications from second tenants and orders to build fiber backhaul for
the anchor tenant for a handful of towers. We believe we are the first in the industry to bundle traditional backhaul
with owned macro towers and we expect this trend to continue. We have strong momentum in the tower segment
and expect Uniti Towers will be a key component of our revenue growth and diversification in future years.
In early 2018, Uniti Leasing announced our first sale-leaseback transaction since our spin from Windstream in 2015.
Our pending sale-leaseback transaction of a fiber network that will allow us to lease fiber to an anchor customer and
eventually to other carriers is further proof that existing fiber infrastructure is changing and carriers are beginning to
recognize the benefits that shared infrastructure can unlock value and liquidity for owners of fiber networks without
losing control of the services they provide to their customers. Uniti Leasing has created a first mover advantage in
market level shared fiber infrastructure that we will try to exploit as the telecom industry embraces the monetization
benefits of selling unused fiber capacity and low cost leasing option to enter a new market or add capacity to an
existing market.
All in all, our vision to create a real estate investment trust focused solely on communication assets with fiber as its
center point is coming into focus and we are bullish on our future prospects across all three of our Fiber, Tower and
Leasing business segments.
y,
Sincerely,
Kenny A. Gunderman
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _____ to _____
For the fiscal year ended December 31, 2017
OR
Commission File Number 001-36708
Uniti Group Inc.
(Exact name of Registrant as specified in its Charter)
Maryland
( State or other jurisdiction of
incorporation or organization)
10802 Executive Center Drive
Benton Building Suite 300
Little Rock, Arkansas
(Address of principal executive offices)
46-5230630
(I.R.S. Employer
Identification No.)
72211
(Zip Code)
Registrant’s telephone number, including area code: (501) 850-0820
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.0001 Par Value
Name of each exchange
on which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. YES (cid:3) NO (cid:5)
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES (cid:5) NO (cid:3)
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 (cid:3) NO (cid:5)
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 (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the Registrant was required to submit and post such files). YES (cid:3) NO (cid:5)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:3)
Accelerated filer
(cid:5)
Non-accelerated filer
(cid:5) (Do not check if a small reporting company)
Smaller reporting company (cid:5)
Emerging growth company (cid:5)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:3)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES (cid:5) NO (cid:3)
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing
price of the shares of common stock on The NASDAQ Stock Market on June 30, 2017, was $3,342,033,490
The number of shares of Registrant’s Common Stock outstanding as of February 23, 2018 was 175,428,468.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement relating to the 2018 annual meeting of stockholders are incorporated by reference
into Part III of this Annual Report on Form 10-K.
Page
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Table of Contents
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
ii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements as defined under U.S. federal securities
law. Forward-looking statements include all statements that are not historical statements of fact and those regarding
our intent, belief or expectations, including, but not limited to, statements regarding: our expectations regarding the
future growth and demand of the telecommunication industry, future financing plans, business strategies, growth
prospects and operating and financial performance; expectations regarding the impact and integration of Hunt
Telecommunications, LLC ("Hunt") and Southern Light, LLC ("Southern Light"), including expectations regarding
operational synergies with Uniti Towers and Uniti Fiber; expectations regarding settling conversion of our 3%
convertible preferred stock in cash upon conversion; expectations regarding the probability of our obligation to pay
contingent consideration upon Tower Cloud, Inc.'s ("Tower Cloud") or Hunt's achievement of certain defined
operational and financial milestones; expectations regarding future deployment of fiber strand miles and recognition
of revenue related thereto; expectations regarding levels of capital expenditures; expectations regarding the
deductibility of goodwill for tax purposes; expectations regarding the amortization of intangible assets; expectations
regarding the closing of the U.S. TelePacific Holding Corp. (“TPx”) transaction; and expectations regarding the
payment of dividends.
Words such as "anticipate(s)," "expect(s)," "intend(s)," "plan(s)," "believe(s)," "may," "will," "would," "could,"
"should," "seek(s)" and similar expressions, or the negative of these terms, are intended to identify such forward-
looking statements. These statements are based on management's current expectations and beliefs and are subject to
a number of risks and uncertainties that could lead to actual results differing materially from those projected,
forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are
reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material
adverse effect on our operations and future prospects or which could cause actual results to differ materially from
our expectations include, but are not limited to:
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the ability and willingness of our customers to meet and/or perform their obligations under any
contractual arrangements entered into with us, including master lease arrangements;
the ability of our customers to comply with laws, rules and regulations in the operation of the assets we
lease to them;
the ability and willingness of our customers to renew their leases with us upon their expiration, and the
ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event
we replace an existing tenant;
our ability to renew, extend or retain our contracts or to obtain new contracts with significant customers
(including customers of the businesses that we acquire);
the availability of and our ability to identify suitable acquisition opportunities and our ability to acquire
and lease the respective properties on favorable terms or operate and integrate the acquired businesses;
our ability to generate sufficient cash flows to service our outstanding indebtedness;
our ability to access debt and equity capital markets;
the impact on our business or the business of our customers as a result of credit rating downgrades, and
fluctuating interest rates;
adverse impacts of litigation or disputes involving us or our customers;
our ability to retain our key management personnel;
our ability to maintain our status as a real estate investment trust (“REIT”);
changes in the U.S. tax law and other federal, state or local laws, whether or not specific to REITs,
including the impact of the recently enacted U.S. tax reform legislation;
covenants in our debt agreements that may limit our operational flexibility;
3
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the possibility that we may experience equipment failures, natural disasters, cyber attacks or terrorist
attacks for which our insurance may not provide adequate coverage;
the risk that we fail to fully realize the potential benefits of or have difficulty in integrating the
companies we acquire;
other risks inherent in the communications industry and in the ownership of communications
distribution systems, including potential liability relating to environmental matters and illiquidity of real
estate investments;
the risk that the TPx transaction agreements may be modified or terminated prior to expiration or that
the conditions to the TPx transaction may not be satisfied; and
additional factors discussed in Part I, Item 1A “Risk Factors” and Part II, Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on
Form 10-K, as well as those described from time to time in our future reports filed with the U.S.
Securities and Exchange Commission (the “SEC”).
Forward-looking statements speak only as of the date of this Annual Report. Except in the normal course of our public
disclosure obligations, we expressly disclaim any obligation to release publicly any updates or revisions to any
forward-looking statements to reflect any change in our expectations or any change in events, conditions or
circumstances on which any such statement is based.
4
Item 1. Business.
The Company
PART I
Uniti Group Inc. (the “Company”, “Uniti”, “we”, “us” or “our”) was incorporated in the state of Delaware in
February 2014 and reorganized in the state of Maryland on September 4, 2014. Uniti is an independent, internally
managed real estate investment trust (“REIT”) engaged in the acquisition and construction of mission critical
infrastructure in the communications industry. We are principally focused on acquiring and constructing fiber optic
broadband networks, wireless communications towers, copper and coaxial broadband networks and data centers.
On April 24, 2015, we were separated and spun-off (the “Spin-Off”) from Windstream Holdings, Inc. (“Windstream
Holdings” and together with its subsidiaries, “Windstream”) pursuant to which Windstream contributed certain
telecommunications network assets, including fiber and copper networks and other real estate (the “Distribution
Systems”) and a small consumer competitive local exchange carrier (“CLEC”) business (the “Consumer CLEC
Business”) to Uniti and Uniti issued common stock and indebtedness and paid cash obtained from borrowings under
Uniti’s senior credit facilities to Windstream. In connection with the Spin-Off, we entered into a long-term exclusive
triple-net lease (the “Master Lease”) with Windstream, pursuant to which we lease the Distribution Systems back to
Windstream.
Uniti operates as a REIT for U.S. federal income tax purposes. As a REIT, the Company is generally not subject to
U.S. federal income taxes on income generated by its REIT operations, which includes income derived from the
Master Lease. We have elected to treat the subsidiaries through which we operate Uniti Fiber and Consumer CLEC
Business as taxable REIT subsidiaries (“TRSs”). TRSs enable us to engage in activities that do not result in income
that would be qualifying income for a REIT. Our TRSs are subject to U.S. federal, state and local corporate income
taxes.
The Company operates through a customary up-REIT structure, pursuant to which we hold substantially all of our
assets through a partnership, Uniti Group LP, a Delaware limited partnership (the “Operating Partnership”), that we
control as general partner. The only significant difference between the financial position and results of operations of
the Operating Partnership and its subsidiaries compared to the consolidated financial position and consolidated
results of operations of Uniti is that the results for the Operating Partnership and its subsidiaries do not include the
Consumer CLEC Business, which is operated through Talk America Services, LLC (“Talk America”), a direct,
wholly-owned subsidiary of Uniti. This structure is intended to facilitate future acquisition opportunities by
providing the Company with the ability to use common units of the Operating Partnership as a tax-efficient
acquisition currency. As of December 31, 2017, we are the sole general partner of the Operating Partnership and
own approximately 97.7% of the partnership interests in the Operating Partnership.
For the year ended December 31, 2017, we had revenues of $916.0 million, net loss attributable to common
shareholders of $16.6 million, Funds From Operations (“FFO”) of $352.5 million and Adjusted Funds From
Operations (“AFFO”) of $424.8 million. Both FFO and AFFO are non-GAAP financial measures, which we use to
analyze our results. Refer to Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and
Results of Operations, of this Annual Report for additional information regarding these non-GAAP measures. As of
December 31, 2017, we managed our operations in four reportable business segments, which are described in more
detail in Note 13 to our consolidated financial statements contained in Part II, Item 8 Financial Statements and
Supplementary Data.
Business
We are an independent, internally-managed REIT engaged in the acquisition and construction of mission critical
infrastructure in the communications industry. We manage our operations in four separate lines of business: Uniti
Fiber, Uniti Towers, Uniti Leasing and Talk America.
5
Uniti Fiber
Uniti Fiber is a leading provider of infrastructure solutions, including cell site backhaul and small cell for wireless
operators and Ethernet, wavelengths and dark fiber for telecommunications carriers and enterprises. With Uniti
Fiber, our goal is to capitalize on the rising demand by carriers and enterprises for dark fiber, establish ourselves as a
proven small-cell systems provider and leverage wholesale enterprise opportunities as well as opportunities through
the School and Libraries Program (commonly referred to as E-Rate) administered by the Universal Service
Administrative Company. We believe Uniti Fiber is the mission-critical focal point in the modern communications
infrastructure industry and will accelerate our growth and diversification strategy and expand our relationships with
high quality national and international wireless carriers.
On July 3, 2017, we acquired Southern Light and Hunt. Southern Light is a provider of data transport services along
the Gulf Coast region serving twelve attractive Tier II and Tier III markets across Florida, Alabama, Louisiana, and
Mississippi, and Hunt is a provider of data transport to K-12 schools and government agencies with a dense fiber
network in Louisiana. These acquisitions allow us to scale our products and capacity with wireless carriers,
enterprise, wholesale, and E-Rate customers across a significantly expanded Uniti Fiber network.
At December 31, 2017, Uniti Fiber’s revenues under contract were over $1.3 billion, with a network consisting of
1.4 million strand miles of fiber and approximately 16,750 customer connections. Results for Uniti Fiber are
reported in our consolidated financial statements in our Fiber Infrastructure business segment.
Uniti Towers
The strategy of Uniti Towers is to acquire and construct tower and tower-related real estate in the United States and
Latin America. We are focused on markets with strong macroeconomic fundamentals, politically stable
environments and strong underlying communications growth trends. Specifically, our focus is on markets where
numerous investment grade carriers operate and there is strong communications infrastructure potential due to
underpenetrated 5G, 4G or even 3G technology. Uniti Towers also provides build-to-suit opportunities using
customized master lease agreements designed for long-term carrier partnerships. We believe that our strategy of
focusing on fiber and towers in the United States and Latin America through Uniti Fiber and Uniti Towers is highly
synergistic and will drive incremental growth opportunities.
On January 31, 2017, Uniti Towers completed the acquisition of Network Management Holdings LTD (“NMS”). At
close, NMS owned and operated 366 wireless communications towers across Mexico, Colombia, and Nicaragua.
At December 31, 2017, the Uniti Towers’ portfolio consisted of 227 wireless communications towers located in 20
states across the eastern and central United States and 440 wireless communications towers in Latin America.
Results for Uniti Towers are reported in our consolidated financial statements in our Towers business segment.
Uniti Leasing
Uniti Leasing is engaged in acquiring mission-critical communications assets, such as fiber, data centers, next-
generation consumer broadband, coaxial and upgradeable copper, and leasing them back to anchor customers on
either an exclusive or shared-tenant basis. Presently, Uniti Leasing’s primary source of revenue is rental revenues
from leasing the Distribution Systems to Windstream under the Master Lease. We believe our attractive cost of
capital and advantaged REIT structure will enable Uniti Leasing to provide creative and tax-efficient solutions to
additional customers, including (i) sale leaseback transactions, whereby Uniti Leasing acquires existing
infrastructure assets from communications service providers and leases them back on a long-term basis; (ii) capital
investment financing, whereby Uniti Leasing offers communications service providers a cost-efficient method of
raising funds for discrete capital investments to upgrade or expand their network; and (iii) mergers and acquisitions
financing, whereby Uniti Leasing facilitates mergers and acquisition transactions as a capital partner. Results for
Uniti Leasing are reported in our consolidated financial statements in our Leasing business segment.
6
Talk America
We conduct the Consumer CLEC Business through Talk America Services, LLC. Talk America provides local
telephone, high-speed Internet and long distance service to approximately 28,500 customers principally located in
17 states across the eastern and central United States. Substantially all of the network assets used to provide these
services to customers are contracted through interconnection agreements with other telecommunications carriers.
Results for Talk America are reported in our in our consolidated financial statements in our Consumer CLEC
business segment.
Industry
The current communications infrastructure industry is marked by the growing demand for and use of bandwidth-
intensive devices and applications, such as smart devices, real-time and online streaming video, cloud-based
applications, social media and mobile broadband. This growth in consumption requires the support of robust
communications infrastructure, of which fiber networks and communications towers are critical components.
Substantial investments have been made in recent years in fiber networks, lit services and colocation facilities to
keep pace with the increased bandwidth use of both enterprise- and consumer-end users. As companies attempt to
keep pace with this rapidly evolving business sector, communications infrastructure continues to increase in priority
and economic importance. We believe this considerable demand creates tremendous opportunities for us as an
acquirer and operator and as a funding source for operators seeking to capitalize on these trends through build outs
and acquisitions of infrastructure assets.
The wireless communications industry is a prime example of the growing importance of the bandwidth
infrastructure industry. As wireless traffic and mobile data consumption continue to grow worldwide, participants in
the wireless communications industry are increasing their network capacity through the development of new
wireless cell sites and the addition of bandwidth capacity. Consumers are demanding network quality and coverage,
and as a result wireless carriers are making significant capital investments to improve quality, expand their coverage
and remain relevant in a highly competitive industry. We expect this continued growth in capital expenditures to
generate high demands for wireless towers (including strong growth in long-term tower leasing), tower space and
bandwidth infrastructure services.
Strategy
Our primary goal is to create long-term stockholder value by (i) generating reliable and growing cash flows,
(ii) diversifying our tenant and asset base, (iii) paying a consistent dividend, and (iv) maintaining our financial
strength and liquidity. To achieve this goal, we employ a business strategy that leverages our first mover advantages
in the sector and our strong access to the capital markets. The key components of our business strategy are:
Acquire Additional Infrastructure Assets Through Sale Leaseback Transactions
We are actively seeking to acquire communications infrastructure assets from communication service providers and
lease these assets back to the communication service providers on a long-term basis. We believe this type of
transaction benefits the communication service providers with incremental liquidity which can be used to reduce
indebtedness or for other investments, while they continue to focus on their existing business. We will employ a
disciplined, opportunistic acquisition strategy and seek to price transactions appropriately based on, among other
things, growth opportunities, the mix of assets acquired, length and terms of the lease, and credit worthiness of the
tenant.
This strategy will also expand our mix of tenants and other real property and will reduce our revenue concentration
with Windstream. We expect that this objective will be achieved over time as part of our overall strategy to acquire
new distribution systems and other real property within the communications infrastructure industry to further
diversify our overall portfolio.
7
Capitalize on the Market Demand for Increased Bandwidth Infrastructure and Performance
Bandwidth intensive devices and applications are rapidly fueling worldwide consumption of bandwidth, which in
turn fuels a continuously growing demand for stable and secure bandwidth. Communications service providers and
other enterprises whose services and businesses require substantial amounts of bandwidth are increasingly looking
to infrastructure providers to support their bandwidth needs and to expand the reach, performance and security of
their networks. We believe Uniti Fiber is well positioned to capitalize on this ongoing demand for bandwidth
infrastructure solutions.
Fund Capital Extensions and Improvements of Infrastructure Assets for Existing and New Tenants
We believe the communications infrastructure industry in the United States is currently going through an upgrade
cycle driven by the consumer’s general desire for greater bandwidth and wireless services. These upgrades require
significant capital expenditures, and we believe Uniti provides an attractive, non-competitive funding source for
communication service providers to help accelerate the expansion of their networks at an attractive cost of capital.
We intend to support our tenant operators and other communication service providers by providing capital to them
for a variety of purposes, including capacity augmentation projects, tower construction and network expansions. We
expect to structure these investments as lease arrangements that produce additional rents.
Facilitate M&A Transactions in the Communication Service Sector as a Capital Partner
We believe Uniti can provide cost efficient funds to potential acquirors in the communication service sector, and
thereby facilitate M&A transactions as a capital partner. The highly fragmented nature of the communication service
sector is expected to result in more consolidation, which we believe will provide us ample opportunity to pursue
these types of transactions.
Maintain Balance Sheet Strength and Liquidity
We seek to maintain a capital structure that provides the resources and financial flexibility to position us to
capitalize on strategic growth opportunities. Our access to, and cost of, external capital is dependent on various
factors, including general market conditions, credit ratings on our securities, interest rates and expectations of our
future business performance. We intend to maintain a strong balance sheet through disciplined use of leverage,
aiming to lower our relative cost of capital over time, and continuing to have access to multiple sources of capital
and liquidity. As of December 31, 2017, we had $59.8 million of unrestricted cash and cash equivalents, and $470
million of undrawn borrowing capacity under our revolving credit facility. All of our debt is either fixed-rate debt,
or floating-rate debt that we have fixed through the use of interest rate swaps.
Competition
We compete for investments in the communications industry with telecommunications companies, investment
companies, private equity funds, hedge fund investors, sovereign funds and other REITs who focus primarily on
specific segments of the communications infrastructure industry. The communications infrastructure industry is
characterized by a high degree of competition among a large number of participants, including many local, regional
and global corporations. Some of our competitors are significantly larger and have greater financial resources and
lower costs of capital than we have. In addition, revenues from our network properties are dependent, to an extent,
on the ability of our operating partners, like Windstream, to compete with other communication service providers.
However, we believe we are positioned to identify and successfully capitalize on acquisition opportunities that meet
our investment objectives and that we have significant competitive advantages that support our leadership position
in owning, funding the construction of and leasing communications infrastructure, including:
8
First-Mover Advantage; Uniquely Positioned to Capitalize on Expansion Opportunities
We are the first and only REIT primarily focused on the acquisition and construction of mission critical
infrastructure in the communications industry. We believe this provides us with a significant first-mover competitive
advantage to capitalize on the large and fragmented communications infrastructure industry. Additionally, we
believe our position, scale and national reach will help us achieve operational efficiencies and support future growth
opportunities.
Large Scale Anchor Tenant; Stable Rent Revenues
We believe the assets we lease to Windstream under the Master Lease are critical for Windstream to successfully
run its business and operations. Windstream, as our anchor tenant, provides us with a base of stable and highly
predictable rent revenues as an initial platform for us to grow and diversify our portfolio and tenant base.
Windstream is a publicly-traded company that provides advanced network communications, including cloud
computing and managed services, to businesses nationwide. Windstream also offers broadband, phone and digital
TV services to consumers primarily in rural areas. Windstream continues to operate the Distribution Systems, hold
the associated regulatory licenses and own and operate other assets, including distribution systems in select states
not included in the Spin-Off.
Windstream has a diverse customer base, encompassing enterprise and small business customers, carriers and
consumers. The Distribution Systems we lease to Windstream are located in 29 different states across the continental
United States. The fiber assets in any one state do not account for more than 20% of the total route miles in our
network. We believe this geographic diversification will limit the effect of changes in any one market on our overall
performance.
Windstream is subject to the reporting requirements of the SEC, which include the requirements to file annual
reports containing audited financial information and quarterly reports containing unaudited financial information.
Windstream’s filings with the SEC can be found at www.sec.gov. Windstream’s filings are not incorporated by
reference into this Annual Report.
Strong Relationships with Communication Service Providers
Members of our management team have developed an extensive network of relationships with qualified local,
regional and national communication service providers across the United States. This extensive network has been
built by our management team through decades of operating experience, involvement in industry trade organizations
and the development of banking relationships and investor relations within the communications infrastructure
industry. We believe these strong relationships will allow us to effectively source investment opportunities from
communication service providers other than Windstream. We intend to work collaboratively with our operating
partners in providing expansion capital at attractive rates to help them achieve their growth and business objectives.
We will seek to partner with communication service providers who possess local market knowledge, demonstrate
hands-on management and have proven track records.
Experienced and Committed Management Team
Our senior management team is comprised of veteran leaders with strong backgrounds in their respective
disciplines. As a result of extensive public company experience, our senior management team has over 100 years of
combined experience in managing telecommunications operations, consummating mergers and acquisitions and
accessing both debt and equity capital markets to fund growth and maintain a flexible capital structure.
9
Insurance
We maintain, or will require in our leases, including the Master Lease, that our tenants maintain, all applicable lines
of insurance on our properties and their operations. Under the Master Lease, Windstream has the right to self-insure
or use a captive provider with respect to its insurance obligations. We believe that the amount and scope of
insurance coverage provided by our policies and the policies maintained by our tenants are customary for similarly
situated companies in the telecommunications industry. However, our tenants may elect not to, or be able to,
maintain the required insurance coverages, and the failure by any of them to do so could have a material adverse
effect on us. We may not continue to require the same levels of insurance coverage under our leases, including the
Master Lease, and such insurance may not be available at a reasonable cost in the future or fully cover all losses on
our properties upon the occurrence of a catastrophic event. Moreover, we cannot guarantee the future financial
viability of the insurers.
Employees
At December 31, 2017, we had 654 full-time employees. Except for 18 employees in Mexico, none of our
employees are subject to a collective bargaining agreement.
Significant Customers
For the years ended December 31, 2017 and 2016 and for the period from April 24, 2015 to December 31, 2015,
74.8%, 87.9% and 96.3% of our revenues, respectively, were derived from leasing our Distribution Systems to
Windstream Holdings pursuant to the Master Lease.
Government Regulation, Licensing and Enforcement
U.S. Telecommunications Regulatory Overview
Market Overview
Our subsidiaries and our tenants operate in a regulated and highly competitive market. Current and potential
competitors include other communications tower owners, providers of voice and data services, providers of fiber and
other backhaul services, traditional telephone companies, cable companies, Internet service providers, and other
companies. As operators of telecommunications facilities and services, both we and the current and future tenants of
our telecommunications assets are typically subject to extensive and complex federal, state and local
telecommunications laws and regulations. The Federal Communications Commission (“FCC”) regulates the
provision of interstate and international telecommunications services, and state public utility commissions (“PUCs”)
regulate intrastate telecommunications services. Both FCC and PUC telecommunications regulations are wide-
ranging and can subject us and our tenants to civil, criminal and administrative sanctions. We expect that the
telecommunications industry, in general, will continue to face increased competition and regulation. Changes in
laws and regulations and regulatory non-compliance by us or our tenants could have a significant direct or indirect
effect on our operations and financial condition, as detailed below and set forth under “Risk Factors—Risks Related
to Our Business.”
Our operations require that certain of our subsidiaries hold licenses or other forms of authorization from the FCC
and state PUCs in those states where we operate, and in some jurisdictions our subsidiaries must file tariffs or other
price lists describing their rates, terms and conditions of the services they provide. The FCC and PUCs can modify
or terminate a service provider’s license or other authority to provide telecommunications services for failure to
comply with applicable laws and regulations. The FCC and PUCs may also investigate our subsidiaries’ operations
and may impose fines or other penalties for violations of the same. In addition, our subsidiaries are required to
submit periodic reports to the FCC and PUCs documenting their revenues and other data. Some of this information
is used as the basis for the imposition of various regulatory fees and other assessments. In order to engage in certain
transactions in some jurisdictions, including changes of control, the encumbrance of certain assets, the issuance of
securities, the incurrence of indebtedness, the guarantee of indebtedness of other entities, including subsidiaries of
ours, and the transfer of our assets, we are required to provide notice and/or obtain prior approval from certain
governmental agencies.
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Our subsidiaries are subject to a number of federal and state regulations that govern the way we can conduct our
business. Such regulations also impose certain operating costs on our businesses. These regulations can include
restrictions on pricing flexibility for certain products, minimum service quality standards, service reporting,
intercarrier compensation, universal service funding, and other obligations.
We believe that we have structured the operations for our core real estate business in a manner that will not require
us to become regulated as a public utility or common carrier by the FCC or PUCs. But, a number of our business
operations nonetheless are subject to federal, state, and local regulation.
Consumer CLEC Business
Talk America Services operates the Consumer CLEC Business as a reseller of telecommunication services pursuant
to a Wholesale Master Services Agreement and a Master Service Agreement with Windstream. In almost all cases,
Windstream does not own the underlying telecommunication facilities required to support the Consumer CLEC
Business, rather it is a reseller of facility-based services pursuant to wholesale interconnection agreements with
third-party carriers that own the underlying telecommunication facilities. Talk America Services is authorized and
regulated as a CLEC and an interexchange (long-distance) service provider in most states where it has Consumer
CLEC Business customers. These certifications subject Talk America Services to regulations requiring it to file and
maintain tariffs for the rates charged to its Consumer CLEC Business customers for regulated services and to
comply with service quality, service reporting and other regulatory obligations. Talk America Service’s ability to
operate the Consumer CLEC Business is dependent on existing telecommunication regulations that allow access to
such underlying facilities of other carriers at reasonable rates.
With respect to the broadband Internet services that we provide, traditionally, the FCC has recognized that
broadband Internet access services are “information services” subject to limited regulation. In 2015, the FCC issued
a “network neutrality” decision that declared broadband Internet access services to be subject to certain
“telecommunications services” regulation under Title II of the Communications Act of 1934. This decision creates
uncertainty concerning the level of regulation that will apply to broadband services going forward. These regulations
will limit the ways that broadband Internet access service providers can structure business arrangements and manage
their networks and could spur additional restrictions, including rate regulation, which could adversely affect
broadband investment and innovation. The proper scope of such regulations is being debated in Congress and may
be revisited by the FCC. It is unclear at this time how broadband services will be regulated in the future, and the
potential impact those regulations may have on our broadband Internet service business.
Uniti Towers
Uniti Towers is subject to international, federal, state and local regulatory requirements with respect to the
registration, siting, construction, lighting, marking and maintenance of our towers. In the United States, the
construction of new towers or modifications to existing towers may require pre-approval by the FCC and the Federal
Aviation Administration (“FAA”), depending on factors such as tower height and proximity to public airfields.
Towers requiring pre-approval must be registered with the FCC and maintained in accordance with FCC and FAA
standards. Similar requirements regarding pre-approval of the construction and modification of towers are imposed
by regulators in other countries where Uniti Towers owns and operates towers. Non-compliance with applicable
tower-related requirements may lead to monetary penalties or site deconstruction orders.
Regulatory regimes outside of the U.S. and its territories vary by country and locality; however, these regulations
typically require approval from local officials or government agencies prior to tower construction or modification or
the addition of a new antenna to an existing tower. Additionally, some regulations include ongoing obligations
regarding painting, lighting and maintenance. Our international operations may also be subject to limitations on
foreign ownership of land in certain areas. Non-compliance with such regulations may lead to monetary penalties or
deconstruction orders. Our international operations are also subject to various regulations and guidelines regarding
employee relations and other occupational health and safety matters.
In all countries where Uniti Towers operates, it is subject to zoning restrictions and restrictive covenants imposed by
local authorities or community organizations. While these regulations vary, they typically require approval from
local authorities or community standards organizations prior to tower construction or the addition of a new antenna
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to an existing tower. Opposition by local zoning authorities and community residents can delay or prevent new
tower construction or site upgrade projects, thereby increasing the costs and timing of new tower construction and
modifications or site upgrades.
The failure to properly maintain towers pursuant to applicable regulatory requirements, such as but not limited to,
lighting, painting, and other safety standards, can subject us to significant enforcement actions, including monetary
penalties both within the U.S. and abroad.
Uniti Fiber
Our subsidiaries that compose Uniti Fiber own and operate significant fiber and other communications backhaul
facilities throughout various regions of the U.S. The provision of such services is subject to FCC and PUC licensure
in many jurisdictions, and the companies are typically licensed as CLECs and/or interexchange carriers in those
states where they operate. The companies also hold various FCC wireless licenses in order to provide microwave
backhaul services. Because of the nature of the licenses that these companies hold, and the nature of the services
that they provide, they are subject to various federal and state regulatory requirements, including, but not limited to,
revenue and other reporting requirements and tariffing requirements. The companies must also maintain their
wireless licenses with the FCC, which requires construction and notification reporting and other regulatory
requirements. The construction of additions to our current fiber network through our Uniti Fiber subsidiary is also
subject to certain state and local governmental permitting and licensing requirements
Regulatory Changes
Future revenues, costs and capital investment in the communication businesses of our tenants, Talk America
Services, Uniti Fiber, Uniti Towers, and other related entities could be adversely affected by material changes to, or
decisions regarding applicability of, government requirements, including, but not limited to, changes in rules
governing inter-carrier compensation, interconnection access to network facilities, state and federal universal service
fund (“USF”) support, rules governing the prices that can be charged for business data services, infrastructure
location and siting rules, and other requirements. Federal and state communications laws may be amended in the
future, and other laws may affect our business. In addition, certain laws and regulations applicable to us and our
competitors may be, and have been, challenged in the courts and could be changed at any time. We cannot predict
future developments or changes to the regulatory environment or the impact such developments or changes would
have on our business.
In addition, regulations could create significant compliance costs for us. Delays in obtaining FCC and PUC
certifications and regulatory approvals could cause us to incur substantial legal and administrative expenses, and
conditions imposed in connection with such approvals could adversely affect the rates that we are able to charge our
customers. Both our subsidiaries and our tenants may also be affected by legislation and/or regulation imposing new
or additional obligations related to, for example, law enforcement assistance, cyber-security protection, intellectual
property rights protections, environmental protections, consumer privacy, tax, or other areas. We can’t predict how
any such future changes may impact our business, or the business of our tenants.
Environmental Matters
A wide variety of federal, state and local environmental and occupational health and safety laws and regulations
affect telecommunications operations and facilities. These complex laws, and their enforcement, involve a myriad of
regulations, many of which involve strict liability. Some of these federal, state and local laws may directly impact
us. Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property,
such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or
disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic
substances (including government fines and damages for injuries to persons and adjacent property). The cost of any
required remediation, removal, fines or personal property damages and the owner’s liability therefore could exceed
or impair the value of the property and/or the assets of the owner. In addition, the presence of such substances, or the
failure to properly dispose of or remediate such substances, may adversely affect the owner’s ability to sell or rent
such property or to borrow using such property as collateral, which, in turn, could reduce revenues.
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Available Information
Our principal executive offices are located at 10802 Executive Center Drive, Benton Building Suite 300, Little
Rock, AR 72211 and our telephone number is (501) 850-0820. We currently maintain a website at www.uniti.com.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (the ‘‘Exchange Act’’) are available on our website, free of charge, as soon as reasonably practicable after we
electronically file such materials with, or furnish them to, the SEC. Our Exchange Act filings can also be found at
www.sec.gov.
Current copies of our Code of Business Conduct and Ethics & Whistleblower Policy, Corporate Governance
Guidelines, and the charters for our Audit, Compensation and Governance Committees are posted in the Corporate
Governance section of the About Us page of our website at www.uniti.com.
Item 1A. Risk Factors.
Risks Related to Our Business
We are dependent on Windstream Holdings to make payments to us under the Master Lease, and an event that
materially and adversely affects Windstream’s business, financial position or results of operations could
materially and adversely affect our business, financial position or results of operations.
Windstream is the lessee of the Distribution Systems pursuant to the Master Lease and, therefore, is presently the
source of a substantial portion of our revenues. There can be no assurance that Windstream will have sufficient
assets, income and access to financing to enable it to satisfy its payment and other obligations under the Master
Lease. In recent years, Windstream has experienced annual declines in its total revenue and sales. Most recently,
Windstream has endured a challenge from an entity who acquired certain Windstream debt securities for the purpose
of seeking an “event of default” under such securities relating to the Spin-Off. An actual “event of default” would
permit the trustee or holders of at least 25% in aggregate principal amount of outstanding of such Windstream debt
securities to declare the principal amount of all outstanding Windstream debt to be immediately due and payable.
Such an outcome would trigger cross-default provisions in Windstream’s other debt instruments, including
Windstream’s existing credit facility, which, in turn, would trigger a default under the Master Lease. A default by
Windstream under the Master Lease could materially adversely affect our business, assets, financial position, and
results of operations, including our ability to pay dividends to our stockholders as required to maintain our status as
a REIT.
If the Spin-Off, together with certain related transactions, fails to qualify as a tax-free transaction for U.S.
federal income tax purposes, both we and Windstream could be subject to significant tax liabilities and, in certain
circumstances, we could be required to indemnify Windstream for material taxes pursuant to indemnification
obligations under the tax matters agreement entered into in connection with the Spin-Off.
Windstream received a private letter ruling (the “IRS Ruling”) from the Internal Revenue Service (the “IRS”) to the
effect that, on the basis of certain facts presented and representations and assumptions set forth in the request
submitted to the IRS, the Spin-Off will qualify as tax-free under Sections 355 and 368(a)(1)(D) of the Internal
Revenue Code of 1986, as amended (the “Code”). Although a private letter ruling from the IRS generally is binding
on the IRS, if the factual representations and assumptions made in the letter ruling request are untrue or incomplete
in any material respect, then Windstream will not be able to rely on the IRS Ruling. In addition, the IRS Ruling does
not address certain requirements for tax-free treatment of the Spin-Off under Sections 355 and 368(a)(1)(D) of the
Code and Windstream’s use of Uniti indebtedness and common stock to retire certain of Windstream’s indebtedness
(the “debt exchanges”). Accordingly, the Spin-Off was conditioned upon the receipt by Windstream of a tax opinion
from its counsel with respect to the requirements on which the IRS did not rule, which concluded that such
requirements also should be satisfied. The tax opinion was based on, among other things, the IRS Ruling, then
current law and certain representations and assumptions as to factual matters made by Windstream and us. Any
change in currently applicable law, which may or may not be retroactive, or the failure of any factual representation
or assumption to be true, correct and complete in all material respects, could adversely affect the conclusions
reached in the tax opinion. In addition, the tax opinion is not binding on the IRS or the courts, and the IRS or the
courts may not agree with the tax opinion.
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If the Spin-Off were determined to be taxable, Windstream would recognize taxable gain. Under the terms of the tax
matters agreement entered into with Windstream in connection with the Spin-Off (the “Tax Matters Agreement”),
we are generally responsible for any taxes imposed on Windstream that arise from the failure of the Spin-Off and the
debt exchanges to qualify as tax-free for U.S. federal income tax purposes, within the meaning of Section 355 and
Section 368(a)(1)(D) of the Code, as applicable, to the extent such failure to qualify is attributable to certain actions,
events or transactions relating to our stock, indebtedness, assets or business, or a breach of the relevant
representations or any covenants made by us in the Tax Matters Agreement, the materials submitted to the IRS in
connection with the request for the IRS Ruling or the representations provided in connection with the tax opinion.
Our indemnification obligations to Windstream are not limited by any maximum amount and such amounts could be
substantial. If we are required to indemnify Windstream under the circumstances set forth in the Tax Matters
Agreement, we may also be subject to substantial tax liabilities.
In addition, if the Spin-Off or the debt exchanges failed to qualify as tax free for U.S. federal income tax purposes,
Windstream may incur significant tax liabilities that could materially affect Windstream’s ability to make payments
under the Master Lease.
Our level of indebtedness could materially and adversely affect our financial position, including reducing funds
available for other business purposes and reducing our operational flexibility.
As of December 31, 2017, we had outstanding long term indebtedness of approximately $4.5 billion consisting of a
combination of senior notes and term loans. Additionally, we have a revolving credit facility in an aggregate
principal amount of up to $750 million, $470 million of which was undrawn as of December 31, 2017, provided by
a syndicate of banks and other financial institutions. Subject to the restrictions set forth in our debt agreements, our
board of directors may establish and change our leverage policy at any time without stockholder approval. Any
significant additional indebtedness could require a substantial portion of our cash flow to make interest and principal
payments due on our indebtedness. Greater demands on our cash resources may reduce funds available to us to pay
dividends, make capital expenditures and acquisitions, or carry out other aspects of our business strategy. Increased
indebtedness can also limit our ability to adjust rapidly to changing market conditions, make us more vulnerable to
general adverse economic and industry conditions and create competitive disadvantages for us compared to other
companies with relatively lower debt levels. Increased future debt service obligations may limit our operational
flexibility, including our ability to acquire assets, finance or refinance our assets or sell assets as needed.
We intend to pursue acquisitions of additional properties and seek other strategic opportunities, which may result
in the use of a significant amount of management resources or significant costs, and we may not fully realize the
potential benefits of such transactions.
We intend to pursue acquisitions of additional properties and seek acquisitions and other strategic opportunities.
Accordingly, we currently are, and expect in the future to be, engaged in evaluating potential transactions and
other strategic alternatives. Although there is uncertainty that any of these discussions will result in definitive
agreements or the completion of any transaction, we may devote a significant amount of our management resources
to such a transaction, which could negatively impact our operations. We may incur significant costs in connection
with seeking acquisitions or other strategic opportunities regardless of whether the transaction is completed. In the
event that we consummate an acquisition or strategic alternative in the future, there is no assurance that we would
fully realize the potential benefits of such a transaction. Integration may be difficult and unpredictable, and
acquisition-related integration costs, including certain non-recurring charges, could materially and adversely affect
our results of operations. Moreover, integrating assets and businesses may significantly burden management and
internal resources, including the potential loss or unavailability of key personnel. If we fail to successfully integrate
the assets and businesses we acquire, we may not fully realize the potential benefits we expect, and our operating
results could be adversely affected.
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Risks Related to the Status of Uniti as a REIT
If we do not qualify as a REIT, or fail to remain qualified as a REIT, we will be subject to U.S. federal income
tax as a regular corporation and could face a substantial tax liability, which could reduce the amount of cash
available for distribution to our stockholders and to service debt.
We operate as a REIT for U.S. federal income tax purposes. Our qualification as a REIT will depend on our
satisfaction of certain highly technical and complex asset, income, organizational, distribution, stockholder
ownership and other requirements on a continuing basis. Our ability to satisfy the asset tests depends upon our
analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise
determination, and for which we may not obtain independent appraisals.
If we were to fail to qualify as a REIT in any taxable year, we would be subject to U.S. federal income tax on our
taxable income at regular corporate rates, including any applicable alternative minimum tax, and dividends paid to
our stockholders would not be deductible by us in computing our taxable income. Any resulting corporate liability
could be substantial and could reduce the amount of cash available for distribution to our stockholders, which in turn
could have an adverse impact on the value of our common stock and to service debt. Unless we were entitled to
relief under certain Code provisions, we also would be disqualified from reelecting to be taxed as a REIT for the
four taxable years following the year in which we failed to qualify as a REIT.
Legislative or other actions affecting REITs could have a negative effect on us.
The rules dealing with federal income taxation are constantly under review by persons involved in the legislative
process and by the IRS and the U.S. Department of the Treasury (“Treasury”). Changes to the tax laws affecting
REITs or TRSs, which may have retroactive application, could adversely affect our stockholders or us. We cannot
predict how changes in the tax laws might affect our stockholders or us. Accordingly, we cannot provide assurance
that new legislation, Treasury regulations, administrative interpretations or court decisions will not significantly
affect our ability to remain qualified as a REIT, the federal income tax consequences of such qualification, the
determination of the amount of REIT taxable income or the amount of tax paid by the TRSs.
We could fail to qualify as a REIT if income we receive from Windstream is not treated as qualifying income.
Under applicable provisions of the Code, we will not be treated as a REIT unless we satisfy various requirements,
including requirements relating to the sources of our gross income. Rents received or accrued by us from
Windstream will not be treated as qualifying rent for purposes of these requirements if the Master Lease is not
respected as a true lease for U.S. federal income tax purposes and is instead treated as a service contract, joint
venture or some other type of arrangement. If the Master Lease is not respected as a true lease for U.S. federal
income tax purposes, we may fail to qualify as a REIT.
REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our REIT taxable income, determined without regard to the
dividends paid deduction and excluding any net capital gains, in order for us to qualify as a REIT (assuming that
certain other requirements are also satisfied) so that U.S. federal corporate income tax does not apply to earnings
that we distribute. To the extent that we satisfy this distribution requirement and qualify for taxation as a REIT but
distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction
and excluding any net capital gains, we will be subject to U.S. federal corporate income tax on our undistributed net
taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we
distribute to our stockholders in a calendar year is less than a minimum amount specified for REITs under U.S.
federal income tax laws. We intend to make distributions to our stockholders to comply with the REIT requirements
of the Code.
Our FFO is currently generated primarily by rents paid under the Master Lease. From time to time, we may generate
taxable income greater than our cash flow as a result of differences in timing between the recognition of taxable
income and the actual receipt of cash or the effect of nondeductible capital expenditures, the creation of reserves or
required debt or amortization payments. If we do not have other funds available in these situations, we could be
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required to borrow funds on unfavorable terms, sell assets at disadvantageous prices or distribute amounts that
would otherwise be invested in future acquisitions in order to make distributions sufficient to enable us to pay out
enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax,
including the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity.
Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the
value of our common stock and decrease cash available to service debt.
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Even if we remain qualified for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes
on our income and assets, including taxes on any undistributed income and state or local income, property and
transfer taxes. For example, we hold some of our assets and conduct certain of our activities through a TRS that is
subject to U.S. federal, state and local corporate-level income taxes as a regular C corporation. In addition, we may
incur a 100% excise tax on transactions with a TRS if they are not conducted on an arm’s-length basis. Any of these
taxes could decrease cash available for distribution to our stockholders and servicing our debt.
Complying with the REIT requirements may cause us to forego otherwise attractive acquisition opportunities.
To qualify as a REIT for U.S. federal income tax purposes, we must ensure that, at the end of each calendar quarter,
at least 75% of the value of our assets consists of cash, cash items, government securities and “real estate assets” (as
defined in the Code). The remainder of our investments (other than government securities, qualified real estate
assets and securities issued by a TRS) generally cannot include more than 10% of the outstanding voting securities
of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in
general, no more than 5% of the value of our total assets (other than government securities, qualified real estate
assets and securities issued by a TRS) can consist of the securities of any one issuer, no more than 20% of the value
of our total assets can be represented by securities of one or more TRSs, and no more than 25% of the value of our
total assets can be represented by nonqualified publicly offered REIT debt instruments (as defined in the
Code). If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure
within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing
our REIT qualification and suffering adverse tax consequences. As a result of such asset limitations, we may be
required to forego otherwise attractive investments. These actions could have the effect of reducing our income and
amounts available for distribution to our stockholders and servicing our debt.
Risks Related to our Business
We are dependent on the communications industry and may be susceptible to the risks associated with it, which
could materially adversely affect our business, financial position or results of operations.
As the owner, lessor and provider of communications services and distribution systems serving the communications
industry, we are impacted by the risks associated with the communications industry. Therefore, our success is to
some degree dependent on the communications industry, which could be adversely affected by economic conditions
in general, changes in consumer trends and preferences, changes in communications technology and other factors
over which we and our tenants have no control. As we are subject to risks inherent in substantial investments in a
single industry, a decrease in the communications business would likely have an adverse effect on our revenues.
Our business is subject to government regulations and changes in current or future laws or regulations could
restrict our ability to operate our business in the manner currently contemplated.
Our business, and that of our tenants, is subject to federal, state, local and foreign regulation. In certain jurisdictions
these regulations could be applied or enforced retroactively. Local zoning authorities and community organizations
are often opposed to construction in their communities and these regulations can delay, prevent or increase the cost
of new distribution system construction and modifications, thereby limiting our ability to respond to customer
demands and requirements. Existing regulatory policies may materially and adversely affect the associated timing or
cost of such projects and additional regulations may be adopted which increase delays or result in additional costs to
us, or that prevent such projects in certain locations. These factors could materially and adversely affect our
business, results of operations or financial condition. For more information regarding the regulations we are
subject to, please see the section entitled “Business – Government Regulation, Licensing and Enforcement.”
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Any failure of Uniti Fiber’s physical infrastructure or services could lead to significant costs and disruptions.
Uniti Fiber’s business depends on providing customers with highly reliable service. The services provided are
subject to failure resulting from numerous factors, including human error, power loss, improper maintenance,
physical or electronic security breaches, fire, earthquake, hurricane, flood and other natural disasters, water
damage, the effect of war, terrorism and any related conflicts or similar events worldwide, and sabotage and
vandalism. Problems within Uniti Fiber’s networks or facilities, whether within our control or the control of
third-party providers, could result in service interruptions or equipment damage. We may not be able to
efficiently upgrade or change Uniti Fiber’s networks or facilities to meet new demands without incurring
significant costs that we may not be able to pass on to customers. Given the service guarantees that may be
included in Uniti Fiber’s agreements with customers, such disruptions could result in customer credits; however,
we cannot assume that customers will accept these credits as compensation in the future, and we may face
additional liability or loss of customers.
Uniti Fiber uses franchises, licenses, permits, rights-of-way, conduit leases, fiber agreements, and property
leases, which could be canceled or not renewed.
Uniti Fiber must maintain rights-of-way, franchises, and other permits from railroads, utilities, state highway
authorities, local governments, transit authorities, and others to operate its fiber network. We cannot be certain
that we will be successful in maintaining these rights-of-way agreements or obtaining future agreements on
acceptable terms. Some of these agreements are short-term or revocable at will, and we cannot assure you that
we will continue to have access to existing rights-of-way after they have expired or terminated. If a material
portion of these agreements are terminated or are not renewed, we might be forced to abandon these networks.
In order to operate these networks, we must also maintain fiber leases and indefeasible right of use (“IRU”)
agreements between Uniti Fiber and both public and private entities, and there is no assurance that we will be
able to renew those fiber leases and IRU agreements on favorable terms, or at all. If we are unable to renew
those fiber leases and IRU agreements on favorable terms, we may face increased costs or reduced revenues.
In order to expand Uniti Fiber’s network to new locations, we often need to obtain additional rights-of-way,
franchises, and other permits. Our failure to obtain these rights in a prompt and cost-effective manner may
prevent us from expanding our network, which may be necessary to meet our contractual obligations to our
customers and could expose us to liabilities.
If we lose or are unable to renew key real property leases where Uniti Fiber has located networks or facilities, it
could adversely affect our services and increase our costs, as we would be required to restructure or move these
networks or facilities.
New technologies or changes in a tenant’s business model could make our business less desirable
and result in decreasing revenues.
The development and implementation of new technologies designed to enhance the efficiency of communications
distribution systems, including lit fiber networks and wireless equipment, or changes in a tenant’s business model
due to such technological changes, could reduce the need for our services, decrease demand for tower space or fiber
or reduce previously obtainable lease rates for communications infrastructure. In addition, tenants may allocate less
of their budgets to certain types of communications infrastructure, as the industry is trending towards deploying
increased capital to the development and implementation of new technologies. Further, a tenant may decide to no
longer outsource certain types of communications infrastructure or otherwise change its business model, which
would result in a decrease in our revenue. The development and implementation of any of these and similar
technologies to any significant degree or changes in a tenant’s business model could have a material adverse effect
on our business, results of operations or financial condition.
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If we determine that our goodwill has become impaired, we may incur impairment charges, which would
negatively impact our operating results.
At December 31, 2017, we had $673.7 million of goodwill on our consolidated balance sheet. Goodwill represents
the excess of cost over the fair value of net assets acquired in business combinations. We assess potential
impairment of our goodwill at least annually. Impairment may result from significant changes in the manner of use
of the acquired assets, negative industry or economic trends and/or significant underperformance relative to historic
or projected operating results. Changes in these events and conditions or other assumptions could result in an
impairment charge in the future, which could have a significant adverse impact on our reported earnings. For a
discussion of our goodwill impairment testing, see “Critical Accounting Policies-Evaluation of Goodwill
Impairment” in Part II, Item 7A-Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Our foreign operations are subject to economic, political and other risks that could materially and adversely
affect our results of operations and financial condition.
Our international business operations expose us to potential adverse financial and operational problems not typically
experienced in the United States, including:
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international political, economic and legal conditions;
our ability to comply with foreign regulations and/or laws affecting operations and projects;
difficulties in attracting and retaining staff and business partners to operate internationally;
language and cultural barriers;
seasonal reductions in business activities and operations in the countries where our international projects
are located;
integration of foreign operations;
potential adverse tax consequences; and
potential foreign currency fluctuations.
In addition, many of our tenants in our international operations are subsidiaries of global telecommunications
companies. These subsidiaries may not have the explicit or implied financial support of their parent entities. Any of
these factors could adversely affect our results of operations and financial condition.
Our continued operation and expansion outside the United States, including in developing countries, increase the
risk of violations of applicable anti-corruption in the future.
Our internal policies provide for compliance with all applicable anti-corruption laws, but despite our training and
compliance programs, we cannot assure you that our internal control policies and procedures will always protect us
from unauthorized, reckless or criminal acts committed by our employees, agents or partners. A finding that the
Company or its affiliates have violated the U.S. Foreign Corrupt Practices Act (“FCPA”) or similar foreign anti-
corruption laws may result in severe criminal or civil sanctions, which could disrupt our business and result in a
material adverse effect on our reputation, financial condition and results of operations.
We or our tenants may experience uninsured or underinsured losses, which could result in a significant loss of
the capital we have invested in a property, decrease anticipated future revenues or cause us to incur
unanticipated expenses.
The Master Lease requires, and we expect that new lease agreements that we enter into will require, that the tenant
maintain comprehensive insurance and hazard insurance or self-insure its insurance obligations. However, there are
certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods that may be
uninsurable or not economically insurable. Insurance coverage may not be sufficient to pay the full current market
value or current replacement cost of a loss. Inflation, changes in ordinances, environmental considerations, and other
factors also might make it infeasible to use insurance proceeds to replace the property after such property has been
damaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate to restore
the economic position with respect to such property.
18
In addition, even if damage to our properties is covered by insurance, a disruption of business caused by a casualty
event may result in loss of revenue for our tenants or us. Any business interruption insurance may not fully
compensate them or us for such loss of revenue. If one of our tenants experiences such a loss, it may be unable to
satisfy its payment obligations to us under its lease with us.
We rely on information technology in our operations, and any material failure, inadequacy, interruption or
security failure of that technology could harm our business.
We rely on information technology networks and systems, including the Internet, to process, transmit and store
electronic information and to manage or support a variety of our business processes, including financial transactions
and maintenance of records. We rely on commercially available systems, software, tools and monitoring to provide
security for processing, transmitting and storing confidential information. Although we have taken steps to protect
the security of the data maintained in our information systems, it is possible that our security measures will not be
able to prevent the systems’ improper functioning, or the improper disclosure of information in the event of cyber-
attacks. Physical or electronic break-ins, computer viruses, attacks by hackers and similar security breaches, can
create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain
proper function, security and availability of our information systems could interrupt our operations, damage our
reputation, subject us to liability claims or regulatory penalties and could materially and adversely affect us.
Risks Related to Our Common Stock
We cannot assure you of our ability to pay dividends in the future.
It is expected that our dividend will be $2.40 per share per annum, subject to approval of our board of directors. The
qualify as a REIT, the annual dividend must not be less than 90% of our REIT taxable income on an annual basis,
determined without regard to the dividends paid deduction and excluding any net capital gains. Our ability to pay
dividends may be adversely affected by a number of factors, including the risk factors herein. Dividends will be
authorized by our board of directors and declared by us based upon a number of factors, including actual results of
operations, restrictions under Maryland law or applicable debt covenants, our financial condition, our taxable
income, the annual distribution requirements under the REIT provisions of the Code, our operating expenses and
other factors our directors deem relevant. We cannot assure you that we will achieve investment results that will
allow us to make a specified level of cash dividends or year-to-year increases in cash dividends in the future.
Furthermore, while we are required to pay dividends in order to maintain our REIT status (as described above under
“Risks Related to Our Status as a REIT- REIT distribution requirements could adversely affect our ability to execute
our business plan”), we may elect not to maintain our REIT status, in which case we would no longer be required to
pay such dividends. Moreover, even if we do maintain our REIT status, after completing various procedural steps,
we may elect to comply with the applicable distribution requirements by distributing, under certain circumstances,
shares of our common stock in lieu of cash. If we elect not to maintain our REIT status or to satisfy any required
distributions in shares of common stock in lieu of cash, such action could negatively affect our business and
financial condition as well as the market price of our common stock. No assurance can be given that we will pay any
dividends on shares of our common stock in the future.
Our charter restricts the ownership and transfer of our outstanding stock, which may have the effect of delaying,
deferring or preventing a transaction or change of control of our company.
In order for us to qualify as a REIT, not more than 50% in value of our outstanding shares of stock may be owned,
beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year after
the first year for which we elect to be taxed and qualify as a REIT. Additionally, at least 100 persons must
beneficially own our stock during at least 335 days of a taxable year (other than the first taxable year for which we
elect to be taxed and qualify as a REIT). Our charter, with certain exceptions, authorizes our board of directors to
take such actions as are necessary or advisable to preserve our qualification as a REIT. Our charter also provides
that, unless exempted by the board of directors, no person may own more than 9.8% in value or in number,
whichever is more restrictive, of the outstanding shares of our common stock or more than 9.8% in value of the
aggregate of the outstanding shares of all classes and series of our stock. The constructive ownership rules are
complex and may cause shares of stock owned directly or constructively by a group of related individuals or entities
19
to be constructively owned by one individual or entity. These ownership limits could delay or prevent a transaction
or a change in control of us that might involve a premium price for shares of our stock or otherwise be in the best
interests of our stockholders.
Item 1B. Unresolved Staff Comments.
None
Item 2. Properties.
Uniti and its subsidiaries own approximately 97,700 fiber network route miles, representing approximately
4.9 million fiber strand miles, approximately 216,100 route miles of copper cable lines, central office land and
buildings across 41 states and beneficial rights to permits, pole agreements and easements.
Leasing Segment
Uniti Leasing’s network properties include its fiber route miles and copper route miles. Below is a geographic
distribution summary as of December 31, 2017:
Fiber Route Miles
Copper Route
Miles
Location
GA
IA
KY
TX
NC
IL
OH
AR
IN
MI
WI
OK
FL
MO
PA
NM
WV
TN
VA
AL
MS
Other(1)
Total
(1) Includes 13 states.
43,800
32,700
30,300
33,800
18,200
—
10,300
11,200
—
—
—
11,000
7,700
—
8,400
—
5,000
—
—
2,200
1,400
—
216,000
Total Route Miles
53,400
41,200
38,000
41,500
22,400
3,700
13,600
14,100
2,600
2,100
2,100
12,600
9,200
1,300
9,700
900
5,900
800
800
2,800
1,800
300
280,800
9,600
8,500
7,700
7,700
4,200
3,700
3,300
2,900
2,600
2,100
2,100
1,600
1,500
1,300
1,300
900
900
800
800
600
400
300
64,800
20
Fiber Segment
Uniti Fiber’s network properties include its fiber route miles and wireless communication towers. Below is a
geographic distribution summary as of December 31, 2017:
Location
GA
LA
PA
FL
AL
MS
IL
VA
NY
TX
Other(1)
Total
(1) Includes 12 states.
Fiber Route Miles
5,600
4,900
4,400
4,100
3,000
2,700
2,300
1,700
1,500
900
1,800
32,900
Towers Segment
Uniti Tower’s network properties include its wireless communication towers. Below is a geographic distribution
summary as of December 31, 2017:
Towers
Location
LA
NM
TX
AR
NE
MS
PA
MN
AL
GA
OK
Other(1)
Total Domestic(2)
Mexico
Colombia
Nicaragua
Total International
Total
(1) Includes 9 states.
(2) Includes 123 wireless communication towers acquired as part of the acquisitions of Hunt and Southern Light.
120
22
22
13
13
7
5
4
3
3
3
12
227
285
100
55
440
667
Item 3. Legal Proceedings.
In the ordinary course of our business, we are subject to claims and administrative proceedings, none of which we
believe are material or would be expected to have, individually or in the aggregate, a material adverse effect on our
business, financial condition, cash flows or results of operations.
21
Pursuant to the Separation and Distribution Agreement, Windstream has agreed to indemnify us (including our
subsidiaries, directors, officers, employees and agents and certain other related parties) for any liability arising from
or relating to legal proceedings involving Windstream's telecommunications business prior to the Spin-Off, and,
pursuant to the Master Lease, Windstream has agreed to indemnify us for, among other things, any use, misuse,
maintenance or repair by Windstream with respect to the Distribution Systems. Windstream is currently a party to
various legal actions and administrative proceedings, including various claims arising in the ordinary course of its
telecommunications business, which are subject to the indemnities provided by Windstream to us. While these
actions and proceedings are not believed to be material, individually or in the aggregate, the ultimate outcome of
these matters cannot be predicted. The resolution of any such legal proceedings, either individually or in the
aggregate, could have a material adverse effect on Windstream's business, financial position or results of operations,
which, in turn, could have a material adverse effect on our business, financial position or results of operations if
Windstream is unable to meet their indemnification obligations.
Item 4. Mine Safety Disclosures.
None
22
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Market Information
Our common stock is traded on the NASDAQ Global Select Market under the symbol “UNIT.” It has been our
policy to declare quarterly dividends to common shareholders so as to comply with the provisions of the Internal
Revenue Code governing REITs. The following table sets forth, for the periods indicated, the high and low sales
prices per share of our common stock as reported on the NASDAQ Global Select Market, and the cash dividends
declared per common share:
2017
Quarter ended March 31
Quarter ended June 30
Quarter ended September 30
Quarter ended December 31
2016
Quarter ended March 31
Quarter ended June 30
Quarter ended September 30
Quarter ended December 31
Holders
High
$ 29.65
$ 27.78
$ 26.55
$ 18.64
Low
$ 25.20
$
$ 23.15 $
$ 13.81
$
$ 14.18 $
Per Share
Declared
0.60
0.60
0.60
0.60
High
$ 22.91
$ 29.57
$ 32.73
$ 31.54
Low
$
$ 15.13
$ 21.63 $
$ 28.71
$
$ 22.50 $
Per Share
Declared
0.60
0.60
0.60
0.60
As of February 16, 2018, the closing price of our common stock was $16.13 per share as reported on the NASDAQ
Global Select Market. As of February 16, 2018, we had 175,428,601 outstanding shares of common stock, 22,644
record holders and approximately 182,829 beneficial owners of our common stock.
Dividends (Distributions)
Distributions with respect to our common stock is characterized for federal income tax purposes as taxable ordinary
dividends, capital gains dividends, non-dividend distribution or a combination thereof. For the years ended
December 31, 2017 and 2016 and from April 24, 2015 to December 31, 2015 our common stock distribution per
share was $2.40, $2.40, and $1.04, respectively, characterized as follows:
Year Ended December 31,
2017
2016
Period from
April 24 - December 31,
2015
Ordinary dividends
Non-dividend distributions
Total
$
$
1.22 $
1.18
2.40 $
1.31 $
1.09
2.40 $
0.87
0.17
1.04
It is expected that our dividend will be $2.40 per share per annum, subject to approval of our board of directors.
Stock Performance
The following graph shows a comparison from April 20, 2015 (the date our common stock commenced trading on
the NASDAQ Global Select Market) through December 31, 2017 of the cumulative total return for our common
stock, the Standard & Poor's 400 Stock Index (S&P 400 Index), and the MSCI US REIT Index. The graph assumes
that $100 was invested at the market open on April 20, 2015 and that all dividends were reinvested in the common
23
stock of Uniti, the S&P 400 Index and the MSCI US REIT Index. The stock price performance of the following
graph is not necessarily indicative of future stock price performance.
Cumulative Total Stockholder Returns
Based on Investment of $100.00 Beginning on April 20, 2015
Uniti Group Inc.
S&P 400 Index
MSCI US REIT Index
Issuer Purchases of Equity Securities
4/20/2015 12/31/2015 12/31/2016 12/31/2017
84.94
$ 100.00 $
129.90
100.00
115.08
100.00
72.33 $
92.56
100.78
107.65 $
111.76
109.46
The table below provides information regarding shares withheld from Uniti employees to satisfy minimum statutory
tax withholding obligations arising from the vesting of restricted stock granted under the Uniti Group Inc. 2015
Equity Incentive Plan. The shares of common stock withheld to satisfy tax withholding obligations may be
deemed purchases of such shares required to be disclosed pursuant to this Item 5.
Period
October 1, 2017 to October 31, 2017
November 1, 2017 to November 30, 2017
December 1, 2017 to December 31, 2017
Total
Total
Number of
Shares
Purchased(1)
—
474
—
474 $
Average Price
Paid per
Share(2)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
—
16.54
—
16.54
—
—
—
—
—
—
—
—
(1) Excludes 21,504 shares withheld related to awards of Uniti restricted stock held by current Windstream
employees granted in connection with the Spin-Off accordance with the Employee Matters
Agreement. Additional information regarding the Employee Matters Agreement is contained in Note 11 –
Related Party Transactions of the Notes to the Consolidated Financial Statements.
(2) The weighted-average price per share is the weighted-average of the fair market prices at which we calculated
the number of shares withheld to cover tax withholdings for the employees.
24
Item 6. Selected Financial Data.
The following table sets forth selected financial data for Uniti on a consolidated and combined historical basis as of
the dates and for the years indicated.
Prior to April 24, 2015, we did not operate the Consumer CLEC Business separately from Windstream, nor did we
commence our leasing business. The selected historical financial data as of December 31, 2014 and 2013 and for the
period from January 1, 2015 to April 24, 2015 and the years ended December 31, 2014 and 2013 has been derived
from the audited financial statements of the Consumer CLEC Business and Distribution Systems.
The following should be read in conjunction with the combined financial statements, accompanying notes and
Management's Discussion and Analysis of Financial Condition and Results of Operations, each of which are
included elsewhere in this Form 10-K.
Year Ended December 31,
Year Ended December 31,
$
$
(Thousands, except per share data)
Statement of Income Data:
Total revenue(1)
Interest expense
Net (loss) income attributable to common
shareholders
Earnings per common share - basic
Earnings per common share - diluted
Balance Sheet Data:
Total assets(2)
Notes and other debt(3)
Total shareholders' (deficit) equity(4)
Other Data:
Net cash provided by operating activities $
Net cash used in investing activities
Net cash provided by financing activities
Dividends paid
Dividends declared per common share
Funds from operations ("FFO")(5)
Diluted FFO per common share
Adjusted funds from operations
("AFFO")(5)
Diluted AFFO per common share
$
2017
2016
April 24 -
December 31,
2015
January 1
- April 24,
2015
2014
2013
916,032 $
305,994
770,408 $
275,394
476,314 $ 10,149 $
*
181,797
36,015 $
*
45,126
*
(16,552)
(0.10)
(0.13) $
(5,497)
(0.04)
(0.04) $
23,718
0.16
0.16
*
*
*
*
*
*
*
*
*
$ 4,330,082 $ 3,318,752 $ 2,542,636
4,539,026 4,082,749 3,505,228
(1,207,142) (1,402,445) (1,166,906)
405,260 $
(1,019,408)
501,967
400,210
2.40
352,477
2.09
424,824
293,208
375,988 $
(535,231) (1,079,442)
928,714
188,766
156,854
367,830
1.64
2.40
259,829
346,051
1.73
2.27
267,077
398,537
2.51 $
2.61 $
1.78
* $2,588,450 $2,704,882
*
*
*
* 2,580,565 2,695,223
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
* Information not applicable for periods presented
(1)
For periods prior to April 24, 2015, amounts represent revenues of the Consumer CLEC Business as an
integrated operation within Windstream.
(2) As of December 31, 2014 and 2013 amounts represent the combined assets of the Consumer CLEC Business
and the Distribution Systems.
(3) As of December 31, 2017 and 2016, amount includes $56.3 million and $54.5 million of capital lease
obligations, respectively.
(4) As of December 31, 2014 and 2013 amounts include the net assets contributed of the Consumer CLEC
(5)
Business and the Distribution Systems.
For a more detailed discussion and reconciliation of FFO and AFFO, see “Non-GAAP Financial Measures” in
Item 7.
25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management’s discussion and analysis of financial condition and results of operations describes the
principal factors affecting the results of our operations, financial condition, and changes in financial condition, as
well as our critical accounting estimates.
Overview
Company Description
Uniti Group Inc. (the “Company”, “Uniti”, “we”, “us” or “our”) is an independent, internally managed real estate
investment trust (“REIT”) engaged in the acquisition and construction of mission critical infrastructure in the
communications industry. We are principally focused on acquiring and constructing fiber optic broadband networks,
wireless communications towers, copper and coaxial broadband networks and data centers.
On April 24, 2015, we were separated and spun-off (the “Spin-Off”) from Windstream Holdings, Inc. (“Windstream
Holdings” and together with its subsidiaries, “Windstream”) pursuant to which Windstream contributed certain
telecommunications network assets, including fiber and copper networks and other real estate (the “Distribution
Systems”) and a small consumer competitive local exchange carrier (“CLEC”) business (the “Consumer CLEC
Business”), to Uniti and Uniti issued common stock and indebtedness and paid cash obtained from borrowings under
Uniti’s senior credit facilities to Windstream. In connection with the Spin-Off, we entered into a long-term exclusive
triple-net lease (the “Master Lease”) with Windstream, pursuant to which a substantial portion of our real property is
leased to Windstream and from which substantially all of our leasing revenues are currently derived.
Uniti operates as a REIT for U.S. federal income tax purposes. As a REIT, the Company is generally not subject to
U.S. federal income taxes on income generated by its REIT operations, which includes income derived from the
Master Lease. We have elected to treat the subsidiaries through which we operate our fiber business, Uniti Fiber,
and Talk America Services, LLC, which operates the Consumer CLEC Business (“Talk America”), as taxable REIT
subsidiaries (“TRSs”). TRSs enable us to engage in activities that result in income that does not constitute qualifying
income for a REIT. Our TRSs are subject to U.S. federal, state and local corporate income taxes.
The Company operates through a customary up-REIT structure, pursuant to which we hold substantially all of our
assets through a partnership, Uniti Group LP, a Delaware limited partnership (the “Operating Partnership”), that we
control as general partner. This structure is intended to facilitate future acquisition opportunities by providing the
Company with the ability to use common units of the Operating Partnership as a tax-efficient acquisition currency.
As of the date of this report, we are the sole general partner of the Operating Partnership and own approximately
97.7% of the partnership interests in the Operating Partnership.
We expect to grow and diversify our portfolio and tenant base by pursuing a range of transaction structures with
communication service providers, including, (i) sale leaseback transactions, whereby we acquire existing
infrastructure assets from third parties, including communication service providers, and lease them back on a long-
term triple net basis; (ii) whole company acquisitions, which may include the use of one or more TRSs that are
permitted under the tax laws to acquire and operate non-REIT businesses and assets subject to certain limitations;
(iii) capital investment financing, whereby we offer communication service providers a cost efficient method of
raising funds for discrete capital investments to upgrade or expand their network; and (iv) mergers and acquisitions
financing, whereby we facilitate mergers and acquisition transactions as a capital partner.
We manage our operations as four reportable business segments in addition to our corporate operations:
Leasing Segment: Represents our REIT operations and includes the results from our leasing business, Uniti Leasing,
which is engaged in the acquisition of mission-critical communications assets and leasing them to anchor customers
on either an exclusive or shared-tenant basis.
Fiber Infrastructure Segment: Represents the operations of our fiber business, Uniti Fiber, which is a leading
provider of infrastructure solutions, including cell site backhaul and dark fiber, to the telecommunications industry.
26
Towers Segment: Represents the operations of our towers business, Uniti Towers, through which we acquire and
construct tower and tower-related real estate in the United States and Latin America.
Consumer CLEC Segment: Represents the operations of Talk America through which we operate the Consumer
CLEC Business, that prior to the Spin-Off was reported as an integrated operation within Windstream. Talk America
provides local telephone, high-speed internet and long distance services to customers in the eastern and central
United States.
Corporate Operations: Represents our corporate and back office functions. Certain costs and expenses, primarily
related to headcount, insurance, professional fees and similar charges, that are directly attributable to operations of
our business segments are allocated to the respective segments.
We evaluate the performance of each segment based on Adjusted EBITDA, which is a segment performance
measure we define as net income determined in accordance with GAAP, before interest expense, provision for
income taxes, depreciation and amortization, stock-based compensation expense, the impact, which may be
recurring in nature, of transaction and integration related expenses, the write off of unamortized deferred financing
costs, costs incurred as a result of the early repayment of debt, changes in the fair value of contingent consideration
and financial instruments, and other similar items. For more information on Adjusted EBITDA, see “Non-GAAP
Financial Measures.” Detailed information about our segments can be found in Note 13 to our consolidated financial
statements contained in Part II, Item 8 Financial Statements and Supplementary Data.
Significant Business Developments
Tax Reform. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making
significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate
decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S
international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the
mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. We have calculated our
best estimate of the impact of the Act in our year end income tax provision in accordance with our understanding of
the Act and guidance available as of the date of this filing and as a result have recorded $17.4 million as additional
income tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional
amount relates to the remeasurement of certain deferred tax assets and liabilities, based on the rates at which they
are expected to reverse in the future.
Acquisition of Southern Light, LLC. On July 3, 2017, we completed the previously announced acquisition of
Southern Light, LLC (“Southern Light”). We acquired all of the outstanding membership interests of Southern Light
for approximately $638 million in cash, including the payoff of existing indebtedness and unpaid transaction
expenses, and the issuance of 2.5 million common units in the Operating Partnership with an acquisition date fair
value of $64.3 million. Southern Light is a leading provider of data transport services along the Gulf Coast region
serving twelve attractive Tier II and Tier III markets across Florida, Alabama, Louisiana, and Mississippi. Southern
Light’s dense regional fiber network comprises nearly 540,000 fiber strand miles, 5,700 fiber route miles, and over
4,500 on-net locations. The results of operations of Southern Light are reflected in the Fiber Infrastructure segment
beginning July 3, 2017.
Acquisition of Hunt Telecommunications, LLC. On July 3, 2017, we completed the previously announced acquisition
of Hunt Telecommunications, LLC (“Hunt”). The Company acquired all of the outstanding equity interests of Hunt
for approximately $129 million in cash, including the payoff of existing indebtedness and unpaid transaction
expenses, and approximately 1.6 million units in the Operating Partnership with an acquisition date fair value of
$41.6 million. Additional contingent consideration of up to $17 million, with an acquisition date fair value of $16.4
million will be paid upon the achievement of certain defined financial revenue milestones. Hunt is a leading
provider of data transport to K-12 schools and government agencies with a dense fiber network in Louisiana. The
results of operations of Hunt are reflected in the Fiber Infrastructure segment beginning July 3, 2017.
up-REIT Reorganization. On May 9, 2017, we completed our reorganization (the “up-REIT Reorganization”) to
operate through a customary “up-REIT” structure. Under this structure, the Operating Partnership, which we control
as a general partner, holds substantially all of our assets. The financial position and results of operations of the
27
Operating Partnership do not include the Consumer CLEC Business because Talk America is a direct, wholly-
owned subsidiary of Uniti. This structure is intended to facilitate future acquisition opportunities by providing the
Company with the ability to use common units of the Operating Partnership (the “OP Units”) as a tax-efficient
acquisition currency for future acquisitions of assets or entities. Each OP Unit is exchangeable on a one-for-one
basis for shares of our common stock or, at our election, cash of equivalent value.
Issuance of Senior Unsecured Notes. On May 8, 2017, the Company, CSL Capital, LLC and Uniti Fiber Holdings
Inc. co-issued $200 million aggregate principal amount of 7.125% Senior Unsecured Notes due December 15, 2024
(the “May 2017 Notes”). The proceeds from the offering were used to fund a portion of the cash consideration
payable in connection with the acquisition of Southern Light. In connection with the up-REIT Reorganization on
May 9, 2017, the Operating Partnership replaced the Company as a co-issuer of the May 2017 Notes, and the
Company and Uniti Group Finance Inc. became guarantors of the May 2017 Notes. On August 11, 2017, the May
2017 Notes were mandatorily exchanged for notes issued as “additional notes” under the indenture governing our
7.125% Senior Unsecured Notes due December 15, 2024 (the “2024 Notes”).
Issuance of Common Stock. On April 25, 2017, we issued 19.5 million shares of our common stock at a public
offering price of $26.50, resulting in proceeds to the Company of $499 million, net of underwriting discounts and
commissions, which were used to fund a portion of the cash consideration payable in connection with the
acquisitions of Southern Light and Hunt.
Acquisition of NMS. On January 31, 2017, we completed the previously announced acquisition of Network
Management Holdings LTD (‘‘NMS’’). At close, NMS owned and operated 366 wireless communications towers in
Latin America with an additional 105 build-to-suit tower sites under development. The NMS portfolio spans three
Latin America countries with 212 towers in Mexico, 54 in Nicaragua, and 100 in Colombia. The consideration for
the 366 wireless towers currently in operation was $62.6 million, which was funded through cash on hand. Under
the terms of the purchase agreement, we will acquire the towers under development when construction is completed.
As of December 31, 2017, construction was completed on 50 of the 105 towers that were under development at the
time of the NMS acquisition, and we acquired the completed towers pursuant to the purchase agreement for
approximately $5.1 million. The results of operations of NMS are reflected in the Towers segment beginning
January 31, 2017.
28
Comparison of the years ended December 31, 2017 and 2016
The following tables sets forth, for the periods indicated, our results of operations expressed as dollars and as a
percentage of total revenues:
(Thousands)
Revenues:
Leasing
Fiber Infrastructure
Tower
Consumer CLEC
Total revenues
Costs and Expenses:
Interest expense
Depreciation and amortization
General and administrative expense
Operating expense (exclusive of depreciation and
amortization)
Transaction related costs
Other expense
Total costs and expenses
(Loss) income before income taxes
Income tax (benefit) expense
Net (loss)
Net income attributable to noncontrolling interests
Net (loss) attributable to shareholders
Participating securities' share in earnings
Dividends declared on convertible preferred stock
Amortization of discount on convertible preferred
stock
Net (loss) attributable to common shareholders
$
Year Ended
December 31, 2017
% of
Revenues
Year Ended
December 31, 2016
% of
Revenues
$
685,099 74.8% $
202,791 22.1%
10,055 1.1%
18,087 2.0%
916,032 100.0%
305,994 33.4%
434,205 47.4%
72,045 7.9%
102,176 11.2%
38,005 4.1%
11,284 1.2%
963,709 105.2%
(47,677) (5.2%)
(38,849) (4.2%)
(8,828) (1.0%)
611 0.1%
(9,439) (1.0%)
(1,509) (0.2%)
(2,624) (0.3%)
(2,980) (0.3%)
(16,552) (1.8%) $
676,868 87.8%
70,568 9.2%
500 0.1%
22,472 2.9%
770,408 100.0%
275,394 35.7%
375,970 48.8%
35,402 4.6%
49,668 6.4%
33,669 4.4%
- 0.0%
770,103 100.0%
305 0.0%
517 0.1%
(212) (0.0%)
- 0.0%
(212) (0.0%)
(1,557) (0.2%)
(1,743) (0.2%)
(1,985) (0.3%)
(5,497) (0.7%)
The following table sets forth, for the years ended December 31, 2017 and 2016, revenues and Adjusted EBITDA of
our reportable segments:
(Thousands)
Revenues
Adjusted EBITDA
Adjusted EBITDA margin
Less:
Interest expense
Depreciation and amortization
Other expense
Transaction related costs
Stock-based compensation
Income tax benefit
Net loss
Year Ended December 31, 2017
Leasing
$685,099
Fiber
Infrastructure
202,791
$
Towers
$ 10,055
Consumer
CLEC
$ 18,087
Total of
Reportable
Segments
- $ 916,032
Corporate
$
$683,651
$
99.8%
83,987
$
41.4%
(831)
(8.3%)
$ 4,556
25.2%
$(21,839) $ 749,524
81.8%
-
347,999
78,307
4,907
2,607
305,994
385 434,205
11,284
38,005
7,713
(38,849)
$ (8,828)
29
Year Ended December 31, 2016
Leasing
$676,868 $
Fiber
Infrastructure
70,568
Towers
$
500
Consumer
CLEC
$ 22,472
Total of
Reportable
Segments
- $770,408
Corporate
$
$675,114 $
99.7%
25,912
(1,123)
$
36.7% (224.6%)
$ 5,074
22.6%
$(14,793) $690,184
- 89.6%
343,368
28,629
337
3,258
275,394
378 375,970
-
33,669
4,846
517
(212)
$
(Thousands)
Revenues
Adjusted EBITDA
Adjusted EBITDA margin
Less:
Interest expense
Depreciation and amortization
Other expense
Transaction related costs
Stock-based compensation
Income tax expense
Net loss
Revenues
Leasing – Leasing revenues are primarily attributable to rental revenue from leasing our Distribution Systems to
Windstream Holdings pursuant to the Master Lease. Under the Master Lease, Windstream Holdings is responsible
for the costs related to operating the Distribution Systems, including property taxes, insurance, and maintenance and
repair costs. As a result, we do not record an obligation related to the payment of property taxes, as Windstream
makes direct payments to the taxing authorities. The Master Lease has an initial term of 15 years with four five-year
renewal options and encompasses properties located in 29 states. Rent under the Master Lease is an annual fixed
amount of approximately $654 million. Beginning May 2018 and continuing for the remainder of the initial term,
rent under the Master Lease is subject to an annual escalation of 0.5%. Rental revenues over the initial term of the
Master Lease are recognized in the financial statements on a straight-line basis, representing approximately $670.8
million per year.
The Master Lease provides that tenant funded capital improvements (“TCIs”), defined as maintenance, repair,
overbuild, upgrade or replacement to leased network, including without limitation, the replacement of copper
distribution systems with fiber distribution systems, automatically become property of Uniti upon their construction
by Windstream. We receive non-monetary consideration related to TCIs as they automatically become our property,
and we recognize the cost basis of TCIs that are capital in nature as real estate investments and deferred revenue. We
depreciate the real estate investments over their estimated useful lives and amortize the deferred revenue as
additional leasing revenues over the same depreciable life of the TCI assets.
For the year ended December 31, 2017, we recognized $685.1 million of revenue under the Master Lease, which
included $14.3 million of TCI revenue. For the year ended December 31, 2016, we recognized $677.4 million of
revenue under the Master Lease, which included $6.1 million of TCI revenue. The increase in TCI revenue is
attributable to increased investment by Windstream in TCIs. Windstream invested $228 million in TCIs during the
year ended December 31, 2017, an increase from $157 million it invested in TCIs during the year ended December
31, 2016. Since the inception of the Master Lease, Windstream has invested a total of $453.5 million in such
improvements.
Because a substantial portion of our revenue is derived from lease payments by Windstream pursuant to the Master
Lease, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial
condition if Windstream were to default under the Master Lease or otherwise experience operating difficulties and
becomes unable to generate sufficient cash to make payments to us. In recent years, Windstream has experienced
annual declines in its total revenue and sales. Most recently, Windstream has endured a challenge from an entity
who acquired certain Windstream debt securities for the purpose of seeking an “event of default” under such
securities relating to the Spin-Off. An actual “event of default” would permit the trustee or holders of at least 25%
in aggregate principal amount of outstanding of such Windstream debt securities to declare the principal amount of
30
all outstanding Windstream debt to be immediately due and payable. Such an outcome would trigger cross-default
provisions in Windstream’s other debt instruments, including Windstream Services’ existing credit facility, which,
in turn, would trigger a default under the Master Lease. Accordingly, we monitor the credit quality of Windstream
through numerous methods, including by (i) reviewing the credit ratings of Windstream by nationally recognized
credit rating agencies, (ii) reviewing the financial statements of Windstream that are publicly available and that are
required to be delivered to us pursuant to the Master Lease, (iii) monitoring ongoing litigation and news reports
regarding Windstream and its businesses, (iv) conducting research to ascertain industry trends potentially affecting
Windstream, and (v) monitoring the timeliness of its lease payments.
In addition to periodic financial statements, Windstream is obligated under the Master Lease to provide us (i) a
detailed consolidated budget on an annual basis and any significant revisions approved by Windstream’s board of
directors, (ii) prompt notice of any adverse action or investigation by a governmental authority relating to
Windstream’s licenses affecting the leased property, and (iii) any information we require to comply with our
reporting and filing obligations with the SEC. Furthermore, pursuant to the Master Lease, we may inspect the
properties leased to Windstream upon reasonable advance notice, and, no more than twice per year, we may require
Windstream to deliver an officer’s certificate certifying, among other things, its material compliance with the
covenants under the Master Lease, the amount of rent and additional charges payable thereunder, the dates the same
were paid, and any other questions or statements of fact we reasonably request.
Fiber Infrastructure – In our Fiber Infrastructure segment, we recognized $202.8 million of revenue for the year
ended December 31, 2017, of which approximately 55.1% was derived from lit backhaul services, approximately
20.6% was derived from internet and voice revenue, approximately 11.3% was derived from construction revenue
and approximately 13.0% was derived from other services. For the year ended December 31, 2016, we recognized
$70.6 million of revenue Fiber Infrastructure segment, approximately 78% of which was derived from lit backhaul
services. The revenue increase is primarily driven by the timing of the acquisitions of PEG Bandwidth, LLC
(“PEG” or “PEG Bandwidth”), Tower Cloud, Southern Light and Hunt. At December 31, 2017, we had
approximately 16,750 customer connections, up from 5,450 customer connections at December 31, 2016. The
increase is primarily attributable to the July 3, 2017 acquisitions of Southern Light and Hunt.
Towers – For the year ended December 31, 2017, we recognized $10.1 million of revenue in our Towers segment, of
which $7.5 million relates to our Latin American operations, primarily driven by revenues associated with our
January 2017 acquisition of NMS.
At December 31, 2017, the Uniti Towers’ portfolio consisted of 227 wireless communications towers located on 20
states across the Eastern and Central regions in the United States, and 440 wireless communications towers in Latin
America.
Consumer CLEC – For the year ended December 31, 2017, we recognized $18.1 million of revenue from the
Consumer CLEC Business, compared to $22.5 million for the period for the year ended December 31, 2016. The
decrease is primarily attributable to a loss of customers during the period. We served approximately 28,500
customers as of December 31, 2017, a 23% decrease from 37,000 at December 31, 2016. The decrease in customers
is due to the effects of competition and customer attrition.
Interest Expense
Interest expense for the year ended December 31, 2017, totaled $306.0 million, which includes non-cash interest
expense of $23.1 million resulting from the amortization of our debt discounts and debt issuance costs. Interest
expense for the year ended December 31, 2016, totaled $275.4 million, which includes non-cash interest expense of
$16.0 million resulting from the amortization of our debt discounts and debt issuance costs. The increase is primarily
related to interest expense on the additional $150 million aggregate principal amount of 6.00% Senior Secured Notes
issued on June 16, 2016 as an add-on to the Company’s existing senior secured notes (the “add-on Secured
Notes”) and the 2024 Notes of $41 million. This increase was partially offset by approximately $19 million of
interest savings related to the repricing of $2.1 billion of term loans outstanding under our senior secured credit
agreement. Effective February 9, 2017, interest on the term loans was LIBOR plus 3.00% per annum (with a
minimum LIBOR rate of 1.0%), compared to LIBOR plus 4.0% per annum (with a minimum LIBOR rate of 1.0%)
for the year ended December 31, 2016.
31
Depreciation and Amortization Expense
We incur depreciation and amortization expense related to our property, plant and equipment, corporate assets and
intangible assets. Charges for depreciation and amortization for the year ended December 31, 2017 totaled $434.2
million (47.4% of revenue), which included property, plant and equipment depreciation of $415.9 million and
intangible asset amortization of $18.3 million. Charges for depreciation and amortization for the year ended
December 31, 2016 totaled $376.0 million (48.8% of revenue), which included property, plant and equipment
depreciation of $369.9 million and intangible asset amortization of $6.1 million. The increase is primarily driven by
the timing of the acquisitions of PEG, Tower Cloud, Southern Light and Hunt.
General and Administrative Expense
General and administrative expenses include compensation costs (including stock-based compensation awards),
professional and legal services, corporate office costs and other costs associated with the administrative activities of
our segments. For the year ended December 31, 2017, general and administrative costs totaled $72.0 million (7.9%
of revenue), which includes $7.7 million of stock-based compensation expense. For the year ended December 31,
2016, general and administrative costs totaled $35.4 million (4.6% of revenue), which includes $4.8 million of
stock-based compensation expense. The increase is primarily driven by the timing of the acquisitions of PEG and
Tower Cloud, which closed on May 2, 2016 and August 31, 2016, respectively, as well as the acquisition of
Southern Light and Hunt that closed on July 3, 2017.
Operating Expense
Operating expense for the year ended December 31, 2017, totaled $102.2 million (11.2% of revenue), and consisted
of $83.5 million (9.1% of revenue) of expense related to the operation of the Fiber Infrastructure operations, $5.1
million (0.6% of revenue) of expense related to the Tower operations and $13.5 million (1.5% of revenue) of
expense related to the Consumer CLEC Business. For the year ended December 31, 2016, operating expenses
totaled $49.7 million (6.4% of revenue), which related to the operation of the Consumer CLEC Business ($17.4
million) and Fiber Infrastructure operations ($32.1 million).
The increase to Fiber Infrastructure operating expense is primarily driven by the timing of the acquisitions of PEG
and Tower Cloud, which closed on May 2, 2016 and August 31, 2016, respectively, as well as the acquisition of
Southern Light and Hunt that closed on July 3, 2017. For the year ended December 31, 2017, Fiber Infrastructure
operating expenses included $21.1 million of construction-related expenses, $15.9 million of lit service expense,
$11.0 million of tower rent, $10.4 million of maintenance expense, $7.0 million of dark fiber rent and $4.8 million
of payroll-related expense. For the year ended December 31, 2016, Fiber Infrastructure operating expenses included
$7.0 million of tower rent, $5.3 million of payroll-related expense and $4.3 million of lit service expense.
The increase to Tower operating expense is primarily driven by the timing of the acquisition of NMS, which closed
on January 31, 2017. For the year ended December 31, 2017, Tower operating expenses included $3.2 million of
tower rent, $0.9 million of site monitoring expenses and $0.2 million of insurance expense.
Expense associated with the Consumer CLEC Business is primarily attributable to the Wholesale Agreement and the
Master Services Agreement entered between us and Windstream in connection with the Spin-Off, and also included
costs arising under the interconnection agreements with other telecommunication carriers. Expense associated with
the Wholesale Agreement and Master Services Agreement for the year ended December 31, 2017 totaled $10.2
million (1.1% of revenue) and $1.3 million (0.1% of revenue), respectively, and expense associated with the
Wholesale Agreement and the Master Services Agreement for the year ended December 31, 2016 totaled $12.5
million (1.6% of revenue) and $1.7 million (0.2% of revenue), respectively.
Other Expense
Other expense for the year ended December 31, 2017, totaled $11.3 million (1.2% of revenue), primarily as a result
of a net unrealized loss of $10.7 million for mark-to-market adjustments on our contingent consideration
arrangements.
32
Income Tax (Benefit) Expense
We recorded a $38.8 million benefit in income tax benefit for the year ended December 31, 2017. This benefit was
primarily driven by the release of valuation allowance and impact of corporate tax reform. Income tax benefit of
$8.2 million was recorded for the release of a valuation allowance related to the acquisitions of Southern Light and
Hunt. The Southern Light and Hunt transactions resulted in the recording of a deferred tax liability, and this future
reversal of taxable temporary differences supports the realization of deferred tax assets which previously had a
valuation allowance. $17.0 million relates to revision of ending net deferred tax asset balances to the lower future
corporate tax rate.
Comparison of the year ended December 31, 2016 to the period from April 24, 2015 to December 31, 2015
Because we were formed in connection with the Spin-Off from Windstream Holdings on April 24, 2015, the
comparable period results discussed in this section cover only the 252-day period from April 24, 2015 to December
31, 2015. As such, there are inherent limitations to period over period comparability. This discussion should be read
in conjunction with the accompanying audited financial statements, and the notes thereto set forth in Part II, Item 8
of this Annual Report on Form 10-K.
The following table sets forth, for the periods indicated, our results of operations expressed as dollars and as a
percentage of total revenues:
(Thousands)
Revenues:
Leasing
Fiber Infrastructure
Tower
Consumer CLEC
Total revenues
Costs and Expenses:
Interest expense
Depreciation and amortization
General and administrative expense
Operating expense (exclusive of depreciation and
amortization)
Transaction related costs
Other expense
Total costs and expenses
Income before income taxes
Income tax expense
Net (loss) income
Participating securities' share in earnings
Dividends declared on convertible preferred stock
Amortization of discount on convertible preferred
stock
Net (loss) income attributable to common
shareholders
Year Ended
December 31, 2016
% of
Revenues
Period from April 24 -
December 31, 2015
% of
Revenues
$
676,868 87.8% $
70,568 9.2%
500 0.1%
22,472 2.9%
770,408 100.0%
275,394 35.7%
375,970 48.8%
35,402 4.6%
49,668 6.4%
33,669 4.4%
- 0.0%
770,103 100.0%
305 0.0%
517 0.1%
(212) (0.0%)
(1,557) (0.2%)
(1,743) (0.2%)
458,614 96.3%
- 0.0%
- 0.0%
17,700 3.7%
476,314 100.0%
181,797 38.2%
238,748 50.1%
11,208 2.4%
13,743 2.9%
5,210 1.1%
- 0.0%
450,706 94.6%
25,608 5.4%
738 0.2%
24,870 5.2%
(1,152) (0.2%)
- 0.0%
(1,985) (0.3%)
- 0.0%
$
(5,497) (0.7%) $
23,718 5.0%
33
The following table sets forth, for the year ended December 31, 2016 and for the period from April 24, 2015 to
December 31, 2015, revenues and Adjusted EBITDA of our reportable segments:
(Thousands)
Revenues
Adjusted EBITDA
Adjusted EBITDA margin
Less:
Interest expense
Depreciation and amortization
Other expense
Transaction related costs
Stock-based compensation
Income tax expense
Net loss
Year Ended December 31, 2016
Leasing
$676,868 $
Fiber
Infrastructure
70,568
Towers
$
500
Consumer
CLEC
$ 22,472
Total of
Reportable
Segments
- $770,408
Corporate
$
$675,114 $
99.7%
25,912
$
36.7%
(1,123)
(224.6%)
$ 5,074
22.6%
$(14,793) $690,184
-
89.6%
343,368
28,629
337
3,258
275,394
378 375,970
-
33,669
4,846
517
(212)
$
(Thousands)
Revenues
Leasing
$458,614
Infrastructure Towers
$
- $
Period from April 24, 2015 to December 31, 2015
Fiber
Consumer
CLEC
- $ 17,700
Corporate
- $
$
Total of Reportable
Segments
476,314
453,297
95.2%
181,797
238,748
-
5,210
1,934
738
24,870
$457,704
99.8%
$
-
- $
- $ 3,957
22.4%
-
$ (8,364) $
-
235,967
-
-
2,571
210
Adjusted EBITDA
Adjusted EBITDA margin
Less:
Interest expense
Depreciation and amortization
Other expense
Transaction related costs
Stock-based compensation
Income tax expense
Net income
Revenues
Leasing – For the year ended December 31, 2016, we recognized $676.9 million of revenue under the Master Lease,
which included $6.1 million of TCI revenue. For the period from April 24, 2015 to December 31, 2015, we
recognized $458.6 million of revenue under the Master Lease, which includes $0.8 million of TCI revenue. The
increase is primarily attributable to a full year of revenue during 2016 as compared to 252 days of revenue during
the period from April 24, 2015 to December 31, 2015. We funded $43.1 million of capital expenditures related to
the Distribution Systems on December 29, 2015. Monthly rent paid by Windstream increased by approximately $3.5
million per year in accordance with the Master Lease effective as of the date we provided the funding. During the
years ended December 31, 2016 and for the period from April 24, 2015 through December 31, 2015, we recorded
$157.0 million and $68.6 million of TCIs, respectively.
Fiber Infrastructure – We recognized $70.6 million of revenue, approximately 78% of which was derived from lit
backhaul services, from our Fiber Infrastructure segment for the year ended December 31, 2016. This revenue was
derived from the newly acquired PEG Bandwidth and Tower Cloud businesses. Revenues related to the PEG
Bandwidth acquisition have been included in our results of operations for the period from May 2, 2016 to December
31, 2016 and revenues related to the Tower Cloud acquisition have been included in our results of operations for the
period from September 1, 2016 to December 31, 2016. At December 31, 2016, we had approximately 5,450
customer connections.
34
Consumer CLEC – For the year ended December 31, 2016, we recognized $22.5 million of revenue from the
Consumer CLEC Business, compared to $17.7 million for the period from April 24, 2015 to December 31, 2015.
The increase is primarily attributable to a full year of revenue during 2016 as compared to 252 days of revenue
during the prior year period. We served approximately 37,000 customers as of December 31, 2016, a 19.6%
decrease from 46,000 at December 31, 2015. The decrease in customers is due to the effects of competition and
customer attrition.
Interest Expense
Interest expense for the year ended December 31, 2016 totaled $275.4 million (35.7% of revenue), which included
non-cash interest expense of $16.0 million resulting from the amortization of our debt discounts and debt issuance
costs. During the year ended December 31, 2016, we incurred $4.1 million in interest expense related to borrowings
under our Revolving Credit Facility, $4.9 million related to the add-on Secured Notes and $1.2 million in interest
expense related to the 2024 Notes.
Interest expense for the period from April 24, 2015 to December 31, 2015 totaled $181.8 million, which included
non-cash interest expense of $10.0 million resulting from the amortization of our debt discounts and debt issuance
costs.
Depreciation and Amortization Expense
Charges for depreciation and amortization for the year ended December 31, 2016 totaled $376.0 million (48.8% of
revenue), which included property, plant and equipment depreciation of $369.9 million and intangible asset
amortization of $6.1 million. Charges for depreciation and amortization for the period from April 24, 2015 to
December 31, 2015 totaled $238.7 million (50.1% of revenue), which included real estate investment depreciation of
$235.9 million, corporate asset depreciation of $0.2 million and intangible asset amortization of $2.6 million.
General and Administrative Expense
General and administrative expenses include compensation costs (including stock-based compensation awards),
professional and legal services, corporate office costs and other costs associated with administrative activities. For
the year ended December 31, 2016, general and administrative costs totaled $35.4 million (4.6% of revenue), which
included $4.8 million of stock-based compensation expense. For the year ended December 31, 2016, our general and
administrative expenses included $13.1 million (1.7% of revenue) of expense related to the newly acquired PEG
Bandwidth and Tower Cloud businesses.
For the period from April 24, 2015 to December 31, 2015, general and administrative costs totaled $11.2 million
(representing 2.4 % of revenue), which includes $1.9 million of stock-based compensation expense.
Operating Expense
Operating expense for the year ended December 31, 2016 totaled $49.7 million (6.4% of revenue), which consists of
$17.4 million (2.3% of revenue) of expense related to the operation of the Consumer CLEC Business and $32.1
million (4.2% of revenue) of expense related to the newly acquired PEG Bandwidth and Tower Cloud businesses.
For the year ended December 31, 2016, Fiber Infrastructure operating expenses include $7 million of tower rent,
$5.3 million of payroll-related expense, and $4.3 million of lit service expense.
Operating expense for the period from April 24, 2015 to December 31, 2015 totaled $13.7 million (2.9% of
revenue), which consisted primarily of expenses related to the operation of the Consumer CLEC Business.
Non-GAAP Financial Measures
We refer to EBITDA, Adjusted EBITDA, Funds From Operations ("FFO") (as defined by the National Association
of Real Estate Investment Trusts ("NAREIT")) and Adjusted Funds From Operations ("AFFO") in our analysis of
our results of operations, which are not required by, or presented in accordance with, accounting principles generally
35
accepted in the United States ("GAAP"). While we believe that net income, as defined by GAAP, is the most
appropriate earnings measure, we also believe that EBITDA, Adjusted EBITDA, FFO and AFFO are important non-
GAAP supplemental measures of operating performance for a REIT.
We define "EBITDA" as net income, as defined by GAAP, before interest expense, provision for income taxes and
depreciation and amortization. We define "Adjusted EBITDA" as EBITDA before stock-based compensation
expense and the impact, which may be recurring in nature, of transaction and integration related costs (collectively,
"transaction related costs"), the write-off of unamortized deferred financing costs, costs incurred as a result of the
early repayment of debt, changes in the fair value of contingent consideration and financial instruments, and other
similar items (although we may not have had such charges in the periods presented). We believe EBITDA and
Adjusted EBITDA are important supplemental measures to net income because they provide additional information
to evaluate our operating performance on an unleveraged basis. Since EBITDA and Adjusted EBITDA are not
measures calculated in accordance with GAAP, they should not be considered as an alternative to net income
determined in accordance with GAAP.
Because the historical cost accounting convention used for real estate assets requires the recognition of depreciation
expense except on land, such accounting presentation implies that the value of real estate assets diminishes
predictably over time. However, since real estate values have historically risen or fallen with market and other
conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could
be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs
that excludes historical cost depreciation and amortization, among other items, from net income, as defined by
GAAP. FFO is defined by NAREIT as net income applicable to common shareholders computed in accordance with
GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization and
impairment charges. We compute FFO in accordance with NAREIT's definition.
We define AFFO as FFO excluding (i) transaction and integration costs; (ii) certain non-cash revenues and expenses
such as stock-based compensation expense, amortization of debt and equity discounts, amortization of deferred
financing costs, depreciation and amortization of non-real estate assets, straight line revenues, non-cash income
taxes, and the amortization of other non-cash revenues to the extent that cash has not been received, such as revenue
associated with the amortization of tenant capital improvements; (iii) the impact, which may be recurring in nature,
of the write-off of unamortized deferred financing fees, additional costs incurred as a result of early repayment of
debt, changes in the fair value of contingent consideration and financial instruments and similar items less
maintenance capital expenditures. We believe that the use of FFO and AFFO, and their respective per share
amounts, combined with the required GAAP presentations, improves the understanding of operating results of
REITs among investors and analysts, and makes comparisons of operating results among such companies more
meaningful. We consider FFO and AFFO to be useful measures for reviewing comparative operating performance.
In particular, we believe AFFO, by excluding certain revenue and expense items, can help investors compare our
operating performance between periods and to other REITs on a consistent basis without having to account for
differences caused by unanticipated items and events, such as transaction and integration related costs. The
Company uses FFO and AFFO, and their respective per share amounts, only as performance measures, and FFO and
AFFO do not purport to be indicative of cash available to fund our future cash requirements. While FFO and AFFO
are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from
operations or net income as defined by GAAP and should not be considered an alternative to those measures in
evaluating our liquidity or operating performance.
Further, our computations of EBITDA, Adjusted EBITDA, FFO and AFFO may not be comparable to that reported
by other REITs or companies that do not define FFO in accordance with the current NAREIT definition or that
interpret the current NAREIT definition or define EBITDA, Adjusted EBITDA and AFFO differently than we do.
36
The reconciliation of our net income to EBITDA and Adjusted EBITDA and of our net income attributable to
common shareholders to FFO and AFFO for the years ended December 31, 2017, 2016 and for the period from
April 24, 2015 to December 31, 2015 is as follows:
(Thousands)
Net (loss) income
Depreciation and amortization
Interest expense
Income tax (benefit) expense
EBITDA
Stock based compensation
Other (income) expense
Transaction related costs
Adjusted EBITDA
(Thousands)
Net (loss) income attributable to common
shareholders
Real estate depreciation and amortization
Participating securities' share in earnings
Participating securities' share in FFO
Adjustments for noncontrolling interests
FFO attributable to common shareholders
$
$
$
$
$
Transaction related costs
Change in fair value of contingent consideration
Amortization of deferred financing costs and
debt discount
Stock-based compensation
Non-real estate depreciation and amortization
Straight-line revenue
Maintenance capital expenditures
Amortization of discount on convertible
preferred stock
Adjustment to deferred tax valuation allowance
and tax rate change
Other non-cash (revenue) expense, net
Adjustments for noncontrolling interests
AFFO attributable to common shareholders
$
Critical Accounting Estimates
Year Ended December 31,
2017
2016
Period from
April 24 - December
31, 2015
(8,828) $
434,205
305,994
(38,849)
692,522 $
7,713
11,284
38,005
749,524 $
(212) $
375,970
275,394
517
651,669 $
4,846
-
33,669
690,184 $
24,870
238,748
181,797
738
446,153
1,934
-
5,210
453,297
Year Ended December 31,
2017
2016
Period from
April 24 - December
31, 2015
(16,552) $
373,449
1,509
(1,509)
(4,420)
352,477 $
38,005
10,736
23,102
7,713
60,756
(15,136)
(4,434)
2,980
(36,240)
(14,871)
(264)
424,824 $
(5,497) $
351,548
1,557
(1,557)
-
346,051 $
33,669
-
16,002
4,846
24,422
(17,293)
(3,327)
1,985
-
(7,818)
-
398,537 $
23,718
236,177
1,152
(1,218)
-
259,829
5,210
-
10,004
1,934
2,571
(11,795)
-
-
-
(676)
-
267,077
We make certain judgments and use certain estimates and assumptions when applying accounting principles in the
preparation of our financial statements. The nature of the estimates and assumptions are material due to the levels of
subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to
change. We have identified the accounting for income taxes, revenue recognition, useful lives of assets, the
impairment of property, plant and equipment, goodwill impairment and business combinations as critical accounting
estimates, as they are the most important to our financial statement presentation and require difficult, subjective and
complex judgments.
37
We believe the current assumptions and other considerations used to estimate amounts reflected in our financial
statements are appropriate. However, if actual experience differs from the assumptions and other considerations
used in estimating amounts reflected in our financial statements, the resulting changes could have a material adverse
effect on our results of operations and, in certain situations, could have a material adverse effect on our financial
condition.
Income Taxes
We have elected on our U.S. federal income tax return for the taxable year ending December 31, 2015 to be treated
as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, we must
distribute at least 90% of our annual REIT taxable income to shareholders, and meet certain organizational and
operational requirements, including asset holding requirements. As a REIT, we will generally not be subject to U.S.
federal income tax on income that we distribute as dividends to our shareholders. If we fail to qualify as a REIT in
any taxable year, we will be subject to U.S. federal income tax, including any applicable alternative minimum tax
for open taxable years through 2017, on our taxable income at regular corporate income tax rates, and we could not
deduct dividends paid to our shareholders in computing taxable income. Any resulting corporate liability could be
substantial and could materially and adversely affect our net income and net cash available for distribution to
shareholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from
reelecting to be taxed as a REIT for the four taxable years following the year in which we failed to qualify as a
REIT.
We intend to make regular quarterly dividend payments of all or substantially all of our annual REIT taxable income
to holders of our common stock, and therefore no provision is required in the accompanying Consolidated Financial
Statements for U.S. federal income taxes related to the activities of the REIT and its passthrough subsidiaries. We
are subject to the statutory requirements of the locations in which we conduct business, and state and local income
taxes are accrued as deemed required in the best judgment of management based on analysis and interpretation of
respective tax laws.
We have elected to treat the subsidiaries through which we operate Uniti Fiber and Talk America as TRSs. TRSs
enable us to engage in activities that result in income that does not constitute qualifying income for a REIT. Our
TRSs are subject to U.S. federal, state and local corporate income taxes.
Deferred tax assets and liabilities are recognized under the asset and liability method for the estimated future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently
enacted tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the
period of the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax
assets unless it is more likely than not that such assets will be realized.
We recognize the benefit of tax positions that are "more likely than not" to be sustained upon examination based on
their technical merit. The benefit of a tax position is measured at the largest amount that has a greater than 50
percent likelihood of being realized upon ultimate settlement. If applicable, we will report tax-related penalties and
interest expense as a component of income tax expense.
The Company will be subject to a federal corporate level tax (currently 35%, and 21% starting in 2018) on any gain
recognized from the sale of assets occurring within a five year recognition period after the Spin-Off up to the
amount of the built in gain that existed on April 24, 2015, which is based on the fair market value of the assets in
excess of the Company’s tax basis as of such date.
Revenue Recognition
Leasing revenues are primarily derived from providing access to or usage of leased networks and facilities. Leasing
revenues are recognized on a straight-line basis over the initial lease term. Revenues derived from other
telecommunications services, including broadband, long distance and enhanced service revenues are recognized
38
monthly as services are provided. Sales of customer premise equipment and modems are recognized when products
are delivered to and accepted by customers.
Service revenues are primarily derived from providing broadband transport and backhaul communications services
and are recognized when (i) persuasive evidence of an arrangement exists, (ii) the services have been provided to the
customer, (iii) the sales price is fixed or determinable, and (iv) the collection of the sales price is reasonably assured.
Services provided to the Company’s customers are pursuant to contractual fee-based arrangements, which generally
provide for recurring fees charged for the use of designated portions of the Company’s network and typically range
for a period of three to ten years. The Company’s revenue arrangements often include upfront fees charged to the
customer for the cost of establishing the necessary components of the Company’s network prior to the
commencement of use by the customer. Fees charged to customers for the recurring use of the Company’s network
are recognized during the related periods of service. Upfront fees that are billed in advance of providing services are
deferred until such time the customer accepts the Company’s network and then are recognized as service revenues
ratably over a period in which substantive services required under the revenue arrangement are expected to be
performed, which is the initial term of the arrangement.
Useful Lives of Assets
The calculation of depreciation and amortization expense is based on the estimated economic useful lives of the
underlying property, plant and equipment and customer lists, tenant contracts and network intangible assets. Some
of our Distribution Systems assets use a group composite depreciation method. Under this method, when plant is
retired, the original cost, net of salvage value, is charged against accumulated depreciation and no immediate gain or
loss is recognized on the disposition of the plant.
Rapid changes in technology or changes in market conditions could result in significant changes to the estimated
useful lives of our property, plant and equipment that could materially affect the carrying value of these assets and
our future operating results. An extension of the average useful life of our property, plant and equipment of one year
would decrease depreciation expense by approximately $29.4 million per year, while a reduction in the average
useful life of one year would increase depreciation expense by approximately $36.5 million per year.
At December 31, 2017, our unamortized finite lived intangible assets totaled $429.4 million, and are amortized
using the straight-line method over their estimated useful lives with the exception of the customer list intangible
assets related to our Consumer CLEC Business, which were brought over at carry-over basis at the time of the
Company’s spin-off from Windstream Holdings, Inc. in 2015, and are amortized using the sum-of-the-years’-digits
method over their estimated useful lives. A reduction in the average useful lives of our finite lived intangible asset of
one year would have increased the amount of amortization expense recorded in 2017 by approximately $0.7 million.
Impairment of Property, Plant, and Equipment
We continually monitor events and changes in circumstances that could indicate that the carrying amount of our
property, plant and equipment may not be recoverable or realized. When indicators of potential impairment suggest
that the carrying value may not be recoverable, we assess the recoverability by estimating whether we will recover
the carrying value of those assets through its undiscounted future cash flows and the eventual disposition of the
asset. If, based on this analysis, we do not believe that we will be able to recover the carrying value of our property,
plant and equipment, we would record an impairment loss to the extent that the carrying value exceeds the estimated
fair value of the related assets.
Business Combinations
We apply the acquisition method of accounting for acquisitions meeting the definition of a business combination,
where assets acquired and liabilities assumed are recorded at fair value at the date of each acquisition, and the results
of operations are included with those of the Company from the dates of the respective acquisitions. Any excess of
the purchase price paid by the Company over the amounts recognized for assets acquired and liabilities assumed is
recorded as goodwill. ASC 805, Business Combinations, also requires acquirers, among other things, to estimate the
acquisition date fair value of any contingent consideration and to recognize any subsequent changes in the fair value
39
of contingent consideration in earnings. When provisional amounts are initially recorded, the Company continues to
evaluate acquisitions for a period not to exceed one year after the applicable acquisition date of each transaction to
determine whether any additional adjustments are needed to the allocation of the purchase price paid for the assets
acquired and liabilities assumed.
Goodwill
Goodwill is recognized for the excess of purchase price over the fair value of net assets of businesses acquired.
Goodwill is reviewed for impairment at least annually. In accordance with ASC 350-20, Intangibles-Goodwill and
Other, we evaluate goodwill for impairment between annual impairment tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Unless
circumstances otherwise dictate, the annual impairment test is performed in the fourth quarter. Application of
the goodwill impairment test requires judgment, including: the identification of reporting units; assignment of assets
and liabilities to reporting units; assignment of goodwill to reporting units; determination of the fair value of each
reporting unit; and an assumption as to the form of the transaction in which the reporting unit would be acquired by
a market participant (either a taxable or nontaxable transaction).
We estimate the fair value of our reporting units (which are our segments) using a combination of an income
approach based on the present value of estimated future cash flows and a market approach based on market data of
comparable businesses and acquisition multiples paid in recent transactions. If the carrying value of a reporting
unit's net assets is less than its fair value, no indication of impairment exists. If the carrying amount of the reporting
unit's goodwill is greater than the implied fair value of its goodwill, an impairment loss must be recognized for the
excess and charged to operations.
Inherent in our preparation of cash flow projections are significant assumptions and estimates derived from a review
of our operating results, business plans, expected growth rates, capital expenditure plans, cost of capital and tax
rates. We also make certain forecasts about future economic conditions, interest rates and other market data. Many
of the factors used in assessing fair value are outside the control of management, and these assumptions and
estimates may change in future periods. Small changes in assumptions or estimates could materially affect the
estimate of the fair value of a reporting unit, and therefore could affect the likelihood and amount of potential
impairment.
As of December 31, 2017 and 2016, all of our Goodwill is included in our Fiber Infrastructure segment. We
performed our goodwill impairment analysis during the fourth quarter and we concluded the implied fair value of
our Fiber Infrastructure reporting unit was in excess of its carrying value by less than 2%. During the year ended
December 31, 2017 and 2016 and for the period April 24, 2015 through December 31, 2015, no impairment losses
were recognized.
Liquidity and Capital Resources
Our principal liquidity needs are to fund operating expenses, meet debt service requirements, fund investment
activities, and make dividend distributions. Our primary sources of liquidity and capital resources are cash on hand,
cash provided by operating activities (primarily arising under the Master Lease with Windstream), borrowings under
our credit agreement by and among the Operating Partnership, CSL Capital, LLC and Uniti Group Finance Inc., the
guarantors and lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the
“Credit Agreement”), and proceeds from the issuance of debt and equity securities.
As of December 31, 2017, we had $59.8 million of unrestricted cash and cash equivalents, and $470.0 million of
undrawn borrowing capacity under the senior secured revolving credit facility pursuant to the Credit Agreement,
variable rate, that matures April 24, 2020 (the “Revolving Credit Facility”).
Cash provided by operating activities totaled $405.3 million, $375.9 million and $293.2 million for the years ended
December 31, 2017 and 2016 and for the period from April 24, 2015 through December 31, 2015, respectively. Cash
provided by operating activities is primarily attributable to our leasing activities.
40
Cash used in investing activities was $1.0 billion for the year ended December 31, 2017, which was driven by the
acquisitions of Southern Light ($636.1 million), Hunt ($126.0 million), NMS assets ($69.7 million), ground lease
investments ($21.8 million), partially offset by a Tower Cloud working capital adjustment ($0.2 million) and capital
expenditures ($166.0 million), primarily related to our Uniti Fiber and Uniti Towers businesses. Cash used in
investing activities was $535.2 million for the year ended December 31, 2016, which was driven by the acquisitions
of PEG Bandwidth ($315.4 million) and Tower Cloud ($173.4 million) and capital expenditures ($46.4 million).
Cash used in investing activities was $1.1 billion for the period from April 24, 2015 through December 31, 2015,
due to consideration paid to Windstream for its contribution of the Distribution Systems and the Consumer CLEC
Business in connection with the Spin-Off ($1.04 billion) and capital expenditures ($44 million), primarily related to
the funding of capital expenditures related to the Distribution Systems.
Cash provided by financing activities was $502.0 million for the year ended December 31, 2017, which primarily
represents the net proceeds from the sale of common stock through a public offering ($498.9 million) and proceeds
from the 2024 Notes issued in May 2017 ($201.0 million), which were used to fund the acquisitions of Southern
Light and Hunt, and net borrowings under the Revolving Credit Facility ($280.0 million), partially offset by
dividend payments ($400.2 million), deferred financing costs related to the term loan repricing and 2024 Notes
issued in May 2017 ($28.5 million), contingent consideration payments ($19.9 million), and principal payments
related to the $2.14 billion senior secured term loan B facility that matures on October 24, 2022 (the “Term Loan
Facility” and together with the Revolving Credit Facility, the “Facilities”) ($21.1 million). Cash provided by
financing activities was $188.8 million for the year ended December 31, 2016, which primarily represents the
proceeds from the 2024 Notes ($400 million), add-on Notes issued in June 2016 ($148.9 million), proceeds from the
sale of common stock ($54.2 million), partially offset by dividend payments ($367.8 million) and principal
payments related to the Term Loan Facility ($22.0 million). Cash provided by financing activities was $928.7
million for the period from April 24, 2015 through December 31, 2015, which primarily represents the proceeds
received from the Term Loan Facility of $1.1 billion, partially offset by dividend payments of $156.9 million.
Master Lease
The Master Lease has an initial term of 15 years which, at the option of Windstream, may be extended for up to four
renewal terms of five years each beyond the initial term. In addition, Windstream has the right to extend the initial
term from 15 years to 20 years and, if exercised, the number of renewal terms will be reduced to three so that the
maximum term (taking into account all renewals) is 35 years. The initial annual rent under the Master Lease is $650
million during the first three years. Commencing with the fourth year, the rent is subject to annual escalation of
0.5%. The rent for the first year of each renewal term will be an amount agreed to by us and Windstream, or if we
are unable to agree, the renewal rent will be determined by an independent appraisal process. Commencing with the
second year of each renewal term, the renewal rent will increase at an escalation rate of 0.5%. In addition, if we fund
any capital improvements requested by Windstream, the rent will be increased to account for such funding.
At-the-Market Common Stock Offering Program
We have an effective shelf registration statement on file with the SEC (the “Registration Statement”) to offer and
sell various securities from time to time. Under the Registration Statement, we have established an at-the-market
common stock offering program (the “ATM Program”) to sell shares of common stock having an aggregate offering
price of up to $250.0 million. During the year ended December 31, 2017, no sales were made under the ATM
Program. This program provides additional financial flexibility and an alternative mechanism to access the capital
markets at an efficient cost as and when we need financing, including for acquisitions. While we have not used the
program to date, we currently intend to utilize the program when we believe the price we can obtain for our common
stock is attractive.
UPREIT Operating Partnership Units
On May 9, 2017, the Company completed its previously announced reorganization (the “up-REIT Reorganization”)
to operate through a customary “up-REIT” structure. Under this structure, the Operating Partnership now holds
substantially all of the Company’s assets and is the parent company of, among others, CSL Capital, LLC,
Uniti Group Finance Inc. and Uniti Fiber Holdings Inc.
41
Our UPREIT structure, enables us to acquire properties by issuing to sellers, as a form of consideration, limited
partnership interests in our operating partnership, (commonly called “OP Units”). The limited partner equity
interests in our operating partnership are exchangeable on a one-for-one basis for shares of our common stock or, at
our election, cash of equivalent value. We believe that this structure will facilitate our ability to acquire individual
properties and portfolios of properties by enabling us to structure transactions which will defer taxes payable by a
seller while preserving our available cash for other purposes, including the possible payment of dividends. We
issued limited partnership interests as part of the acquisition consideration for the recently completed acquisitions of
Hunt and Southern Light.
Senior Notes
At December 31, 2017, the Operating Partnership and its wholly-owned subsidiaries, CSL Capital, LLC, and Uniti
Group Finance Inc. (collectively, the “Borrowers”) had outstanding $550.0 million aggregate principal amount of
6.00% Senior Secured Notes due April 15, 2023 (the “Secured Notes”), $1.11 billion aggregate principal amount of
8.25% Senior Notes due October 15, 2023 (the “2023 Notes”) and $600 million aggregate principal amount of
7.125% Senior Unsecured Notes due December 15, 2024 (the “2024 Notes,” and together with the Secured Notes and
2023 Notes, the “Notes”).
In connection with the up-REIT Reorganization, the Operating Partnership replaced the Company and assumed its
obligations as an obligor under the Notes and Facilities. The Company subsequently became a guarantor of the
Notes and Facilities. Because the Operating Partnership is not a corporation, a corporate co-obligor that is a
subsidiary of the Operating Partnership was also added to the Notes and Credit Agreement as part of the up-REIT
Reorganization. Uniti Group Finance Inc. is the corporate co-obligor under the Credit Agreement and co-issuer of
the Secured Notes and the 2023 Notes, and Uniti Fiber Holdings Inc. is the co-issuer of the 2024 Notes. Separate
financial statements of the Operating Partnership have not been included since the Operating Partnership is not a
registrant.
Credit Agreement
The Borrowers are party to the Credit Agreement, which provides for the Term Loan Facility (in an initial principal
amount of $2.14 billion) and the Revolving Credit Facility. The term loans bear interest at a rate equal to LIBOR,
subject to a 1.0% floor, plus an applicable margin equal to 3.00%, and are subject to amortization of 1.0% per annum.
All obligations under the Credit Agreement are guaranteed by (i) the Company and (ii) certain of the Operating
Partnership’s wholly-owned subsidiaries (the “Subsidiary Guarantors”), and are secured by substantially all of the
assets of the Borrowers and the Subsidiary Guarantors, which assets also secure the Secured Notes. The Revolving
Credit Facility bears interest at a rate equal to LIBOR plus 1.75% to 2.25% based on our consolidated secured leverage
ratio, as defined in the Credit Agreement. On April 28, 2017, we amended the Credit Agreement to increase the
commitments under our Revolving Credit Facility from $500 million to $750 million. Other terms of the Revolving
Credit Facility remain unchanged.
The Borrowers are subject to customary covenants under the Credit Agreement, including an obligation to maintain
a consolidated secured leverage ratio, as defined in the Credit Agreement, not to exceed 5.00 to 1.00. We are
permitted, subject to customary conditions, to incur (i) incremental term loan borrowings and/or increased
commitments under the Credit Agreement in an unlimited amount, so long as, on a pro forma basis after giving
effect to any such borrowings or increases, our consolidated secured leverage ratio, as defined in the Credit
Agreement, does not exceed 4.00 to 1.00 and (ii) other indebtedness, so long as, on a pro forma basis after giving
effect to any such indebtedness, our consolidated total leverage ratio, as defined in the Credit Agreement, does not
exceed 6.50 to 1.00 and our consolidated secured leverage ratio, as defined in the Credit Agreement, does not
exceed 4.00 to 1.00. In addition, the Credit Agreement contains customary events of default, including a cross
default provision whereby the failure of the Borrowers or certain of their subsidiaries to make payments under other
debt obligations, or the occurrence of certain events affecting those other borrowing arrangements, could trigger an
obligation to repay any amounts outstanding under the Credit Agreement. In particular, a repayment obligation
could be triggered if (i) the Borrowers or certain of their subsidiaries fail to make a payment when due of any
principal or interest on any other indebtedness aggregating $75.0 million or more, or (ii) an event occurs that causes,
or would permit the holders of any other indebtedness aggregating $75.0 million or more to cause, such
42
indebtedness to become due prior to its stated maturity. As of September 30, 2017, the Borrowers were in
compliance with all of the covenants under the Credit Agreement.
Interest Rate Swaps
On April 27, 2015 we entered into interest rate swap agreements to mitigate the interest rate risk inherent in our
variable rate Term Loan Facility. These interest rate swaps are designated as cash flow hedges and have a notional
value of $2.13 billion and mature on October 24, 2022. The weighted average fixed rate paid is 2.105%, and the
variable rate received resets monthly to the one-month LIBOR subject to a minimum rate of 1.0%.
Outlook
We anticipate our cash on hand and borrowing availability under our Revolving Credit Facility, combined with our
cash flows provided by leasing activities will be sufficient to fund our business operations, debt service and
distributions to our shareholders over the next twelve months. However, we may take advantage of opportunities to
generate additional liquidity through capital markets transactions. The amount, nature and timing of any capital
markets transactions will depend on: our operating performance and other circumstances; our then-current
commitments and obligations; the amount, nature and timing of our capital requirements; any limitations imposed
by our current credit arrangements; and overall market conditions. These expectations are forward-looking and
subject to a number of uncertainties and assumptions. If our expectations about our liquidity prove to be incorrect,
we could be subject to a shortfall in liquidity in the future, and this shortfall may occur rapidly and with little or no
notice, which would limit our ability to address the shortfall on a timely basis.
Contractual Obligations
As of December 31, 2017, we had contractual obligations and commitments as follows:
(millions)
Long-term debt(a)
Interest payments on long-term debt
obligations(b)
Operating leases
Capital leases
Network deployment(c)
Total projected obligations and
commitments(d)
Payments Due by Period
Less than 1
Year
1-3
Years
3-5
Years
More than
5 Years
Total
$
21
$
322
$
2,024
$
2,260 $4,627
250
14
8
64
498
16
15
-
481
7
12
-
194 1,423
54
17
89
54
64
-
$
357
$
851
$
2,524
$
2,525 $6,257
Excludes $144.2 million of unamortized discounts on long-term debt and deferred financing costs.
Interest rates on our Term Loan Facility are based on our swap rates.
(a)
(b)
(c) Network deployment purchase commitments are for success-based projects for which we have a signed
customer contract before we commit resources to expand our network.
Excludes $6.8 million of derivative asset related to interest rate swaps maturing on October 24, 2022.
(d)
Dividends
We have elected to be taxed as a REIT for U.S. federal income tax purposes. U.S. federal income tax law generally
requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for
dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it
annually distributes less than 100% of its taxable income. In order to maintain our REIT status, we intend to make
regular quarterly dividend payments of all or substantially all of our taxable income to holders of our common stock
out of assets legally available for this purpose, if and to the extent authorized by our board of directors. Before we
make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both
our operating requirements and debt service obligations. If our cash available for distribution is less than our taxable
43
income, we could be required to sell assets or borrow funds to make cash dividends or we may make a portion of the
required dividend in the form of a taxable distribution of stock or debt securities.
On January 12, 2018, we paid, to shareholders of record as of the close of business on December 29, 2017, a cash
dividend on our common stock of $0.60 per share for the period from October 1, 2017 through December 31, 2017.
On October 13, 2017, we paid, to shareholders of record as of the close of business on September 29, 2017, a cash
dividend on our common stock of $0.60 per share for the period July 1, 2017 through September 30, 2017.
On July 14, 2017, we paid, to shareholders of record as of the close of business on June 30, 2017, a cash dividend on
our common stock of $0.60 per share for the period from April 1, 2017 through June 30, 2017.
On April 14, 2017, we paid, to shareholders of record as of the close of business on March 31, 2017, a cash dividend
on our common stock of $0.60 per share for the period from January 1, 2017 through March 31, 2017.
On January 13, 2017, we paid, to shareholders of record as of the close of business on December 30, 2016, a cash
dividend on our common stock of $0.60 per share for the period from October 1, 2016 through December 31, 2016.
Capital Expenditures
Capital expenditures for the Distribution Systems leased under the Master Lease are generally the responsibility of
Windstream. The Master Lease stipulates that Windstream can request that we fund $50 million of capital
expenditures per year for five years (but in no event to extend beyond the end of the sixth year of the Master Lease);
however, Windstream cannot require Uniti to make such capital expenditures. If we elect to fund requested capital
expenditures, the annual lease payments will be increased by 8.125% of the capital expenditures funded by us during
the first two years and at a floating rate based on our cost of capital thereafter. No capital expenditure funding
requests were made by Windstream for the year ended December 31, 2017.
We categorize our capital expenditures as either (i) success-based, (ii) maintenance, or (iii) corporate and non-
network. We define success-based capital expenditures as those which are tied to contractual obligations to
customers or are discretionary in nature and are intended to add growth capacity to our existing
network. Maintenance capital expenditures are those necessary to keep existing network elements fully
operational. We anticipate continuing to invest in our network infrastructure across our Uniti Fiber and Uniti
Towers portfolios, and expect that cash on hand, borrowings under our Revolving Credit Facility, and cash flows
provided by operating activities will be sufficient to support these investments.
Off Balance-Sheet Arrangements
As of the date of this Annual Report on Form 10-K, we do not have any off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Our primary market risk exposure is interest rate risk with respect to our variable rate indebtedness under our Term
Loan Facility. In addition, we have a variable rate Revolving Credit Facility in an aggregate principal amount of $750
million, which has $470 million of undrawn borrowing capacity as of the date of this Annual Report on Form 10-K.
To manage this exposure, we have entered into interest rate swap agreements in order to mitigate the interest rate risk
inherent in our variable rate Term Loan Facility. We also expect to manage our exposure to interest rate risk by
maintaining a mix of fixed and variable rates for our indebtedness. The interest rate risk for variable rate debt has been
mitigated through the interest rate swap agreement, and the interest rate for our remaining debt has a fixed rate,
therefore a hypothetical 10% change in interest rates effective at December 31, 2017 would have no material adverse
impact on Uniti’s results of operations.
An increase in interest rates could make the financing of any acquisition by us more costly. Rising interest rates
could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon
refinancing and increase interest expense on refinanced indebtedness.
44
Foreign Currency Exchange Rate Fluctuation
Approximately 1% of our revenues were denominated in foreign currencies for the year ended December 31,
2017. Cost of sales and operating costs related to these sales are largely denominated in the same respective
currencies, thereby partially limiting our transaction risk exposure. A uniform 10% strengthening in the value of the
U.S. dollar relative to the currencies in which our transactions are denominated would have resulted in a decrease in
net loss of $0.2 million for the year ended December 31, 2017. This hypothetical calculation assumes that each
exchange rate would change in the same direction relative to the U.S. dollar.
45
Item 8. Financial Statements and Supplementary Data.
Uniti Group Inc.
Consolidated Financial Statements
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Uniti Group Inc.
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Shareholders’ Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
CLEC Business
Report of Independent Registered Public Accounting Firm
Statement of Revenues and Direct Expenses
Notes to Financial Statement
Page
47
49
50
51
52
54
55
90
91
92
46
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Uniti Group Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Uniti Group Inc. and its subsidiaries as of
December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income (loss),
shareholders’ deficit and cash flows for each of the years in the period ended December 31, 2017 and 2016 and for
the period from April 24, 2015 through December 31, 2015, including the related notes and financial statement
schedules listed in the index appearing under Item 15 (collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control over financial reporting as of December 31,
2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their
cash flows for each of the years in the period ended December 31, 2017 and 2016 and for the period from April 24,
2015 through December 31, 2015 in conformity with accounting principles generally accepted in the United States
of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the
Company's internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management has
excluded Southern Light, LLC and Hunt Telecommunications, LLC from its assessment of internal control over
financial reporting as of December 31, 2017 because they were acquired by the Company in purchase business
combinations during 2017. We have also excluded Southern Light, LLC and Hunt Telecommunications, LLC from
our audit of internal control over financial reporting. Southern Light, LLC and Hunt Telecommunications, LLC are
47
wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our
audit of internal control over financial reporting represent 11.0% and 3.5% of total assets, respectively and 5.0% and
1.8% of total revenue, respectively, of the related consolidated financial statement amounts as of and for the year
ended December 31, 2017.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ PricewaterhouseCoopers LLP
Little Rock, Arkansas
March 1, 2018
We have served as the Company’s auditor since 2014.
48
Uniti Group Inc.
Consolidated Balance Sheets
(Thousands, except par value)
Assets:
Property, plant and equipment, net
Cash and cash equivalents
Accounts receivable, net
Goodwill
Intangible assets, net
Straight-line revenue receivable
Derivative asset
Other assets
Total Assets
Liabilities, Convertible Preferred Stock and Shareholders' Deficit:
Liabilities:
Accounts payable, accrued expenses and other liabilities, net
Accrued interest payable
Deferred revenue
Derivative liability
Dividends payable
Deferred income taxes
Capital lease obligations
Contingent consideration
Notes and other debt, net
Total liabilities
Commitments and contingencies (Note 14)
December 31, 2017
December 31, 2016
$
$
$
$
$
$
3,053,889
59,765
43,652
673,729
429,357
47,041
6,793
15,856
4,330,082
77,634
28,684
537,553
-
109,557
55,478
56,329
105,762
4,482,697
5,453,694
2,670,037
171,754
15,281
262,334
160,584
29,088
-
9,674
3,318,752
40,977
27,812
261,404
6,102
94,607
28,394
54,535
98,600
4,028,214
4,640,645
Convertible Preferred Stock, Series A, $0.0001 par value, 88 shares
authorized, issued and outstanding, $87,500 liquidation value
83,530
80,552
Shareholders' Deficit:
Preferred stock, $0.0001 par value, 50,000 shares authorized, no shares
issued and outstanding
Common stock, $0.0001 par value, 500,000 shares authorized, issued
and outstanding: 174,852 shares at December 31, 2017 and 155,139 at
December 31, 2016
Additional paid-in capital
Accumulated other comprehensive income (loss)
Distributions in excess of accumulated earnings
Total Uniti shareholders' deficit
Noncontrolling interests - operating partnership units
Total shareholders' deficit
-
-
17
644,328
7,821
(1,960,715)
(1,308,549)
101,407
(1,207,142)
15
141,092
(6,369)
(1,537,183)
(1,402,445)
-
(1,402,445)
Total Liabilities, Convertible Preferred Stock, and Shareholders'
Deficit
$
4,330,082
$
3,318,752
The accompanying notes are an integral part of these consolidated financial statements.
49
Uniti Group Inc.
Consolidated Statements of Income
$
(Thousands, except per share data)
Revenues:
Leasing
Fiber Infrastructure
Tower
Consumer CLEC
Total revenues
Costs and Expenses:
Interest expense
Depreciation and amortization
General and administrative expense
Operating expense (exclusive of depreciation,
accretion and amortization)
Transaction related costs
Other expense
Total costs and expenses
(Loss) income before income taxes
Income tax (benefit) expense
Net (loss) income
Net income attributable to noncontrolling interests
Net (loss) income attributable to shareholders
Participating securities' share in earnings
Dividends declared on convertible preferred
stock
Amortization of discount on convertible
preferred stock
Net (loss) income attributable to common
shareholders
(Loss) earnings per common share (Note 12):
Basic
Diluted
$
$
$
Weighted-average number of common shares
outstanding
Basic
Diluted
Year Ended December 31,
2017
2016
Period from
April 24 - December
31, 2015
685,099 $
202,791
10,055
18,087
916,032
305,994
434,205
72,045
102,176
38,005
11,284
963,709
(47,677)
(38,849)
(8,828)
611
(9,439)
(1,509)
676,868 $
70,568
500
22,472
770,408
275,394
375,970
35,402
49,668
33,669
-
770,103
305
517
(212)
-
(212)
(1,557)
(2,624)
(1,743)
(2,980)
(1,985)
458,614
-
-
17,700
476,314
181,797
238,748
11,208
13,743
5,210
-
450,706
25,608
738
24,870
-
24,870
(1,152)
-
-
(16,552) $
(5,497) $
23,718
(0.10) $
(0.13) $
(0.04) $
(0.04) $
0.16
0.16
168,693
168,989
152,473
152,473
149,835
149,835
Dividends declared per common share
$
2.40 $
2.40 $
1.64
The accompanying notes are an integral part of these consolidated financial statements.
50
Uniti Group Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Thousands)
Net (loss) income
Other comprehensive income (loss):
Unrealized gain (loss) on derivative
contracts
Changes in foreign currency translation
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income attributable to
noncontrolling interest
Comprehensive income (loss) attributable
to common shareholders
Year Ended December 31,
2017
2016
Period from
April 24 -
December 31, 2015
$
(8,828) $
(212) $
24,870
12,895
1,660
14,555
5,727
976
(675)
(267)
(942)
(1,154)
-
(5,427)
-
(5,427)
19,443
-
$
4,751 $
(1,154) $
19,443
The accompanying notes are an integral part of these consolidated financial statements.
51
(Thousands, except share
data)
Balance at April 24,
2015
Net income
Distributions to
Windstream related to
Spin-Off
Other comprehensive
loss
Common stock
dividends
Equity issuance cost
Stock-based
compensation
Other
Balance at December
31, 2015
2016 Activity:
Net loss
Issuance of common
stock
Amortization of
discount on
convertible preferred
stock
Other comprehensive
loss
Common stock
dividends
Convertible preferred
stock dividends
Equity issuance cost
Net share settlement
Stock-based
compensation
Balance at December
31, 2016
2017 Activity:
Net loss
Issuance of common
stock
Amortization of
discount on
convertible preferred
stock
Other comprehensive
income
Common stock
dividends
Distributions to
noncontrolling interest
Uniti Group Inc.
Consolidated Statements of Shareholders’ Deficit
Preferred Stock
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Distributions
in Excess of
Accumulated
Earnings
Noncontrolling
Interests
Total
Shareholders'
Deficit
Shares Amount
Shares
Amount
- $
-
- 149,827,214 $
-
-
15 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35,245
-
-
-
-
-
-
-
- $
-
-
-
-
(542)
1,934
-
- $ 2,508,405 $
24,870
-
- $ 2,508,420
24,870
-
- (3,447,879)
- (3,447,879)
(5,427)
-
-
-
-
-
(247,361)
(114)
-
(807)
-
-
-
-
-
(5,427)
(247,361)
(656)
1,934
(807)
- $
- 149,862,459 $
15 $
1,392 $
(5,427) $(1,162,886) $
- $(1,166,906)
-
-
-
-
-
-
-
-
-
-
-
-
-
- 5,077,629
- 137,665
-
-
-
-
-
-
-
-
-
-
-
-
-
198,549
-
(1,985)
-
-
-
-
-
-
-
-
-
(623)
(203)
4,846
-
-
-
(942)
(212)
-
(212)
-
-
-
-
137,665
-
-
(1,985)
(942)
-
(370,186)
-
(370,186)
-
-
-
-
(1,743)
-
(2,156)
-
-
-
-
-
(1,743)
(623)
(2,359)
4,846
- $
- 155,138,637 $
15 $141,092 $
(6,369) $(1,537,183) $
- $(1,402,445)
-
-
-
-
-
-
-
-
-
-
- 19,528,302
2 517,499
-
-
-
-
-
-
-
-
-
(2,980)
-
-
-
-
-
-
-
-
-
14,190
(9,439)
611
(8,828)
-
-
-
-
517,501
-
(2,980)
365
14,555
-
(410,054)
-
(410,054)
-
-
(4,978)
(4,978)
52
Convertible preferred
stock dividends
Equity issuance cost
Contributions from
noncontrolling interest
holders
Purchase of
noncontrolling interest
Net share settlement
Stock-based
compensation
Balance at December
31, 2017
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
184,575
-
-
- (18,575)
-
-
-
-
-
-
(421)
7,713
-
-
-
-
-
-
(2,624)
-
-
-
(2,624)
(18,575)
-
105,969
105,969
-
(1,415)
(560)
-
(560)
(1,836)
-
-
7,713
- $
- 174,851,514 $
17 $644,328 $
7,821 $(1,960,715) $
101,407 $(1,207,142)
The accompanying notes are an integral part of these consolidated financial statements.
53
Uniti Group Inc.
Consolidated Statements of Cash Flows
(Thousands)
Cash flow from operating activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization
Amortization of deferred financing costs and debt
discount
Deferred income taxes
Straight-line rental revenues
Stock-based compensation
Change in fair value of contingent consideration
Other
Changes in assets and liabilities, net of acquisitions:
Accounts receivable
Other assets
Accounts payable, accrued expenses and other
liabilities
Net cash provided by operating activities
Cash flow from investing activities
Acquisition of businesses, net of cash acquired
Consideration paid to Windstream Services, LLC
Acquisition of ground lease investments
NMS asset acquisition (Note 4)
Capital expenditures - other
Net cash used in investing activities
Cash flow from financing activities
Principal payment on debt
Dividends paid
Payments of contingent consideration
Proceeds from issuance of Term Loans
Proceeds from issuance of Notes
Borrowings under revolving credit facility
Payments under revolving credit facility
Capital lease payments
Deferred financing costs
Common stock issuance, net of costs
Purchase of noncontrolling interest
Distributions paid to noncontrolling interest
Net share settlement
Cash in-lieu of fractional shares
Net cash provided by financing activities
Effect of exchange rates on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Non-cash investing and financing activities:
Property and equipment acquired but not yet paid
Tenant capital improvements
Acquisition of businesses through non-cash
consideration
Issuance of notes and other debt to Windstream
Services, LLC, net of deferred financing costs
($34,681)
Year Ended December 31,
2017
2016
Period from
April 24 -
December 31, 2015
$
(8,828)
$
(212) $
24,870
434,205
23,102
(41,171)
(15,136)
7,713
10,736
872
(10,524)
(1,560)
5,851
405,260
(761,887)
-
(21,764)
(69,729)
(166,028)
(1,019,408)
(21,080)
(400,210)
(19,999)
-
201,000
845,000
(565,000)
(3,237)
(28,539)
498,926
(560)
(2,498)
(1,836)
-
501,967
192
(111,989)
171,754
59,765
$
15,285
227,969
$
$
122,395
-
$
$
375,970
238,748
16,002
(2,186)
(17,293)
4,846
-
936
(3,516)
(1,365)
2,806
375,988
(488,788)
-
(11,543)
-
(34,900)
(535,231)
(22,027)
(367,830)
-
-
548,875
641,000
(641,000)
(1,549)
(20,557)
54,213
-
-
(2,359)
-
188,766
(267)
29,256
142,498
171,754 $
5,752 $
156,972 $
259,996 $
10,004
(1,211)
(11,795)
1,934
-
(3)
(215)
(1,148)
32,024
293,208
-
(1,035,029)
-
-
(44,413)
(1,079,442)
(10,700)
(156,854)
-
1,127,000
-
-
-
-
(30,057)
(543)
-
-
(113)
(19)
928,714
-
142,480
18
142,498
-
68,569
-
- $
2,412,829
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
54
Uniti Group Inc.
Notes to the Consolidated Financial Statements
Note 1. Organization and Description of Business
Uniti Group Inc. (the “Company,” “Uniti,” “we,” “us,” or “our”), formerly known as Communications Sales and
Leasing, Inc., was incorporated in the state of Delaware in February 2014 and reorganized in the state of Maryland
on September 4, 2014. We are an independent, internally managed real estate investment trust (“REIT”) engaged in
the acquisition and construction of mission critical infrastructure in the communications industry. We are principally
focused on acquiring and constructing fiber optic broadband networks, wireless communications towers, copper and
coaxial broadband networks and data centers. We manage our operations in four separate lines of business: Uniti
Fiber, Uniti Towers, Uniti Leasing, and the Consumer CLEC Business.
The Company operates through a customary “up-REIT” structure, pursuant to which we hold substantially all of our
assets through a partnership, Uniti Group LP, a Delaware limited partnership (the “Operating Partnership”), that we
control as general partner, with the only significant difference between the financial position and results of
operations of the Operating Partnership and its subsidiaries compared to the consolidated financial position and
consolidated results of operations of Uniti is that the results for the Operating Partnership and its subsidiaries do not
include Uniti’s Consumer CLEC segment, which consists of Talk America Services. The up-REIT structure is
intended to facilitate future acquisition opportunities by providing the Company with the ability to use common
units of the Operating Partnership as a tax-efficient acquisition currency. As of December 31, 2017, we are the sole
general partner of the Operating Partnership and own approximately 97.7% of the partnership interests in the
Operating Partnership.
Note 2. Basis of Presentation and Consolidation
The accompanying Consolidated Financial Statements include all accounts of the Company, its wholly-owned
and/or controlled subsidiaries, which consist of the Operating Partnership. Under the Accounting Standards
Codification 810, Consolidation (“ASC 810”), the Operating Partnership is considered a variable interest entity and
is consolidated in the Consolidated Financial Statements of Uniti Group Inc. as the Company has determined to be
the primary beneficiary. All material intercompany balances and transactions have been eliminated.
ASC 810 provides guidance on the identification of entities for which control is achieved through means other than
voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any,
should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the
equity investors (if any) lack (i) the ability to make decisions about the entity’s activities through voting or similar
rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual
returns of the entity; (2) the equity investment at risk is insufficient to finance that entity’s activities without
additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to
their economic interests and substantially all of the activities of the entity involve or are conducted on behalf of an
investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered
to be the primary beneficiary. The primary beneficiary is defined by the entity having both of the following
characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s
performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be
significant to the VIE.
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) for financial information set forth in the Accounting Standards Codification
(“ASC”), as published by the Financial Accounting Standards Board (“FASB”), and with the applicable rules and
regulations of the Securities and Exchange Commission (“SEC”).
Note 3. Summary of Significant Accounting Policies
Use of Estimates—The preparation of financial statements, in accordance with GAAP, requires management to
make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying financial
statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the
55
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
financial statements. Actual results may differ from the estimates and assumptions used in preparing the
accompanying financial statements, and such differences could be material.
Property, Plant and Equipment—Property, plant and equipment is stated at original cost, net of accumulated
depreciation. The Company capitalizes costs incurred in bringing property, plant and equipment to an operational
state, including all activities directly associated with the acquisition, construction, and installation of the related
assets it owns. The Company capitalizes a portion of the interest costs it incurs for assets that require a period of
time to get them ready for their intended use. The amount of interest that is capitalized is based on the average
accumulated expenditures made during the period involved in bringing the assets comprising a network to an
operational state at the Company’s weighted average interest rate during the respective accounting period.
The Company also enters into leasing arrangements providing for the long-term use of constructed fiber that is then
integrated into the Company’s network infrastructure. For each lease that qualifies as a capital lease, the present
value of the lease payments, which may include both periodic lease payments over the term of the lease as well as
upfront payments to the lessor, is capitalized at the inception of the lease and included in property and equipment.
As of December 31, 2017 and 2016, the accumulated amortization of our capital lease assets was $10.1 million and
$3.2 million, respectively.
Certain property, plant and equipment acquired as part of our spin-off from Windstream Holdings, Inc
(“Windstream Holdings” and together with its consolidated subsidiaries “Windstream”) is depreciated using a group
composite depreciation method. Under this method, when property is retired, the original cost, net of salvage value,
is charged against accumulated depreciation and no immediate gain or loss is recognized on the disposition of the
property. For all other property, which includes amortization of capital lease assets, depreciation is computed using
the straight-line method over the estimated useful life of the respective property. When the property is retired or
otherwise disposed of, the related cost and accumulated depreciation are written-off, with the corresponding gain or
loss reflected in operating results. Construction in progress includes direct materials and labor related to fixed assets
during the construction period. Depreciation will begin once the construction period has ceased and the related asset
has been placed into service, in which it will be depreciated over its useful life.
Costs of maintenance and repairs to property, plant and equipment subject triple-net leasing arrangements are the
responsibility of our tenant. Costs of maintenance and repairs to property, plant and equipment not subject to triple-
net leasing arrangements are expensed as incurred.
We acquire real property interests from third parties who own land where communications infrastructure assets are
located and desire to monetize the underlying real property. These real property interests entitle us to receive rental
payments from leases on our sites. The financial results of the acquired real property interests are included in the
Leasing segment from the date of acquisition and were not material, individually or in the aggregate, to our results
of operations. Real property interests are recorded in property, plant and equipment on our Consolidated Balance
Sheet.
Tenant Capital Improvements—Our lease with Windstream provides that tenant funded capital improvements
(“TCIs”), defined as maintenance, repair, overbuild, upgrade or replacements to the leased network, including,
without limitation, the replacement of copper distribution systems with fiber distribution systems, automatically
become property of Uniti upon their construction by Windstream. We receive non-monetary consideration related to
the TCIs as they automatically become our property, and we recognize the cost basis of TCIs that are capital in
nature as real estate investments and deferred revenue. We depreciate the real estate investments over their estimated
useful lives and amortize the deferred revenue as additional leasing revenues over the same depreciable life of the
TCI assets. At December 31, 2017 and 2016, the net book value of TCIs recorded as a component of property, plant
and equipment on our Consolidated Balance Sheet was $432.4 million and $218.7 million, respectively. For the
years ended December 31, 2017 and 2016, we recognized $14.3 million and $6.1 million of revenue and
depreciation expense related to TCIs, respectively. From the period April 24, 2015 to December 31, 2015 we
recognized $0.8 million of revenue and depreciation expense related to TCIs.
Impairment of Long-Lived Assets—We review long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset group may not be recoverable from future undiscounted
net cash flows we expect the asset group to generate. If the asset group is not fully recoverable, an impairment loss
56
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
would be recognized for the difference between the carrying value of the asset group and its estimated fair value
based on discounted net future cash flows. During the years ended December 31, 2017, 2016 and from the period
April 24, 2015 to December 31, 2015, there were no events or changes in circumstances indicating that the carrying
amount of any of our assets groups to not be recoverable from future undiscounted net cash flows we expect the
asset groups to generate, and no impairment losses were recognized.
Asset Retirement Obligations—The Company records obligations to perform asset retirement activities, primarily
including requirements to remove equipment from leased space or customer sites as required under the terms of the
related lease and customer agreements. The fair value of the liability for asset retirement obligations, which
represents the net present value of the estimated expected future cash outlay, is recognized in the period in which it
is incurred and the fair value of the liability can reasonably be estimated. The liability accretes as a result of the
passage of time and related accretion expense is recognized in the Consolidated Statements of Income. The
associated asset retirement costs are capitalized as an additional carrying amount of the related long-lived asset and
depreciated on a straight-line basis over the asset’s useful life. As of December 31, 2017 and 2016, our aggregate
carrying amount of asset retirement obligations totaled $9.4 million and $4.2 million, respectively. During the year
ended December 31, 2017, we incurred liabilities of $4.4 million and recognized $0.8 million of accretion expense
related to asset retirement obligations.
Cash and Cash Equivalents—Cash and cash equivalents include all non-restricted cash held at financial institutions
and other non-restricted highly liquid short-term investments with original maturities of three months or less.
Derivative Instruments and Hedging Activities—We account for our derivatives in accordance with FASB ASC
815, Derivatives and Hedging, in which we reflect all derivative instruments at fair value as either assets or
liabilities on our Consolidated Balance Sheet. For derivative instruments that are designated and qualify as hedging
instruments, we record the effective portion of the gain or loss on the hedged instruments as a component of
accumulated other comprehensive income or loss. Any ineffective portion of a derivative’s change in fair value is
immediately recognized within net income. For derivatives that do not meet the criteria for hedge accounting,
changes in fair value are immediately recognized within net income. See Note 5 and Note 7.
Intangible Assets—Intangible assets are presented in the financial statements at cost less accumulated amortization
and are amortized using the straight-line method over their estimated useful lives with the exception of the customer
list intangible assets related to our Consumer CLEC Business, which were brought over at carry-over basis at the
time of the Company’s spin-off from Windstream in 2015, and are amortized using the sum-of-the-years’-digits
method over their estimated useful lives.
Foreign Currency Translation—The financial statements of our international subsidiaries whose functional currency
is the local currency, and includes the Mexican Peso and Colombian Peso, are translated into U.S. dollars using the
exchange rate at the balance sheet date for assets and liabilities and the weighted average exchange rate for the
applicable period for revenues, expenses, gains and losses. Translation adjustments are recorded as a separate
component of comprehensive income in stockholders’ equity.
Reclassifications—Certain prior year amounts have been reclassified to conform with current year
presentation. During 2017, we managed and reported our operations in four reportable business segments: Leasing,
Fiber Infrastructure, Towers and Consumer CLEC. Prior year information, including revenues on the Consolidated
Statement of Income, has been recast to conform to the current year presentation.
Transaction Related Costs—The Company expenses transaction related costs in the period in which they are
incurred and services are received. Transaction related costs include incremental acquisition pursuit, transaction and
integration costs, including unsuccessful acquisition pursuit costs. Pursuit and transaction costs include professional
services (legal, accounting, advisory, regulatory, etc.), finder’s fees, travel expenses, and other direct expenses
associated with an acquisition. Integration costs include direct costs necessary to integrate an acquired business,
including professional services, systems and data conversion, severance and retention bonuses payable to employees
of an acquired business.
Debt Issuance Costs—The Company recognizes debt issuance costs related to a recognized debt liability as a direct
deduction from the carrying amount of the debt liability, consistent with debt discounts. The costs, which include
57
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
underwriting, legal, and other direct costs related to the issuance of debt, are amortized over the contractual term of
the debt using the effective interest method.
Revenue Recognition—We recognize leasing revenues on a straight-line basis over the applicable lease term when
collectability is reasonably assured. Recognizing leasing income on a straight-line basis generally results in
recognized revenues during the first half of the lease term in excess of cash amounts contractually due from our
tenants, creating a straight-line rent receivable.
We evaluate the collectability of straight-line rent receivables and record a provision for doubtful accounts if
management believes the receivables to be uncollectible. At December 31, 2017 and 2016, no allowance was
recorded related to our straight-line rent receivable.
We lease certain assets to Windstream under a triple-net lease, whereby Windstream is responsible for the costs
related to operating the Distribution Systems, including property taxes, insurance and maintenance and repair costs.
As a result, we do not record an obligation related to the payment of property taxes or insurance, as Windstream
makes direct payments to the taxing authorities and insurance carriers, respectively.
The Company recognizes service revenues related to its broadband transport and backhaul communications services
when (i) persuasive evidence of an arrangement exists, (ii) the services have been provided to the customer, (iii) the
sales price is fixed or determinable, and (iv) the collection of the sales price is reasonably assured. Services provided
to the Company’s customers are rendered pursuant to contractual fee-based arrangements, which generally provide
for recurring fees charged for the use of designated portions of the Company’s network and typically range for a
period of three to ten years. The Company’s revenue arrangements often include upfront fees charged to the
customer for the cost of establishing the necessary components of the Company’s network prior to the
commencement of use by the customer. Fees charged to customers for the recurring use of the Company’s network
are recognized during the related periods of service. Upfront fees that are billed in advance of providing services are
deferred until such time the customer accepts the Company’s network and then are recognized as service revenues
ratably over a period in which substantive services required under the revenue arrangement are expected to be
performed, which is the initial term of the arrangement.
We evaluate the collectability of service receivables by considering a variety of factors. The Company typically does
not require collateral. When the Company becomes aware of a specific customer’s inability to meet its financial
obligations, the Company records a specific reserve for bad debt to reduce the related accounts receivable to the
amount the Company reasonably believes is collectible. When appropriate, the Company also records reserves for
bad debts for all other customers based on a variety of factors including the length of time the receivable is past due,
the financial health of the customer, macroeconomic considerations and historical experience. If circumstances
related to specific customers change, the Company adjusts its estimates of the recoverability of receivables as
needed. At December 31, 2017 and 2016, the allowance recorded for service receivables was $1.0 million and $1.4
million, respectively.
Consumer CLEC Business revenues are primarily derived from providing access to or usage of leased networks and
facilities, and are recognized over the period that the corresponding services are rendered to customers. Revenues
derived from other telecommunications services, including broadband, long distance and enhanced service revenues
are recognized monthly as services are provided. Sales of customer premise equipment and modems are recognized
when products are delivered to and accepted by customers.
Stock-Based Compensation—We account for stock-based compensation using the fair value method of accounting.
We have determined that our stock-based payment awards granted in exchange for employee services qualify as
equity classified awards, which are measured based on the fair value of the award on the date of the grant. The fair
value of restricted stock-based payments is based on the market value of our common stock on the date of grant. The
fair value of performance-based awards, which have performance conditions, is based on a Monte Carlo simulation.
The fair value of all stock-based compensation is recognized over the period during which an employee is required
to provide services in exchange for the award. See Note 10.
58
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Income Taxes—We have elected on our U.S. federal income tax return to be treated as a REIT under the Internal
Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, we must distribute at least 90% of our
annual REIT taxable income to shareholders, and meet certain organizational and operational requirements,
including asset holding requirements. As a REIT, we will generally not be subject to U.S. federal income tax on
income that we distribute as dividends to our shareholders. If we fail to qualify as a REIT in any taxable year, we
will be subject to U.S. federal income tax, including any applicable alternative minimum tax for open taxable years
through 2017, on our taxable income at regular corporate income tax rates, and we could not deduct dividends paid
to our shareholders in computing taxable income. Any resulting corporate liability could be substantial and could
materially and adversely affect our net income and net cash available for distribution to shareholders. Unless we
were entitled to relief under certain Code provisions, we also would be disqualified from reelecting to be taxed as a
REIT for the four taxable years following the year in which we failed to qualify as a REIT.
We intend to make regular quarterly dividend payments of all or substantially all of our annual REIT taxable income
to holders of our common stock, and therefore no provision is required in the accompanying Consolidated Financial
Statements for U.S. federal income taxes related to the activities of the REIT and its passthrough subsidiaries. We
are subject to the statutory requirements of the locations in which we conduct business, and state and local income
taxes are accrued as deemed required in the best judgment of management based on analysis and interpretation of
respective tax laws.
We have elected to treat the subsidiaries through which we operate Uniti Fiber and Talk America as taxable REIT
subsidiaries (“TRSs”). TRSs enable us to engage in activities that result in income that does not constitute
qualifying income for a REIT. Our TRSs are subject to U.S. federal, state and local corporate income taxes.
Deferred tax assets and liabilities are recognized under the asset and liability method for the estimated future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently
enacted tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the
period of the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax
assets unless it is more likely than not that such assets will be realized.
We recognize the benefit of tax positions that are "more likely than not" to be sustained upon examination based on
their technical merit. The benefit of a tax position is measured at the largest amount that has a greater than 50
percent likelihood of being realized upon ultimate settlement. If applicable, we will report tax-related penalties and
interest expense as a component of income tax expense. We currently have a liability for unrecognized tax benefits
of $5.3 million.
The Company will be subject to a federal corporate level tax (currently 35%, 21% beginning 2018 and beyond) on
any gain recognized from the sale of assets occurring within a five year recognition period after the Spin-Off up to
the amount of the built in gain that existed on April 24, 2015, which is based on the fair market value of the assets in
excess of the Company’s tax basis as of such date.
Business Combinations—In accordance with ASC 805, Business Combinations, we apply the acquisition method of
accounting for acquisitions meeting the definition of a business combination or asset acquisition, where assets
acquired and liabilities assumed are recorded at fair value at the date of each acquisition, and the results of
operations are included with those of the Company from the dates of the respective acquisitions. For acquisitions
meeting the definition of a business combination, any excess of the purchase price paid by the Company over the
amounts recognized for assets acquired and liabilities assumed is recorded as goodwill. ASC 805 also requires
acquirers, among other things, to estimate the acquisition date fair value of any contingent consideration and to
recognize any subsequent changes in the fair value of contingent consideration in earnings. When provisional
amounts are initially recorded, the Company continues to evaluate acquisitions for a period not to exceed one year
after the applicable acquisition date of each transaction to determine whether any additional adjustments are needed
to the allocation of the purchase price paid for the assets acquired and liabilities assumed. For acquisitions meeting
the definition of an asset acquisition, the fair value of the consideration transferred, including transaction costs, is
allocated to the assets acquired and liabilities assumed based on their relative fair values. No goodwill is recognized
in an asset acquisition.
59
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Noncontrolling Interest—The limited partner equity interests in our operating partnership are exchangeable on a
one-for-one basis for shares of our common stock or, at our election, cash of equivalent value. All of the limited
partner equity interests in our operating partnership not held by the Company are reflected as noncontrolling
interests. In the consolidated statements of operations, we allocate net income (loss) attributable to noncontrolling
interests to arrive at net income (loss) attributable to shareholders based on their proportionate share.
For transactions that result in changes to the Company's ownership interest in our operating partnership, the carrying
amount of noncontrolling interests is adjusted to reflect such changes. The difference between the fair value of the
consideration received or paid and the amount by which the noncontrolling interest is adjusted is reflected as an
adjustment to additional paid-in capital on the consolidated balance sheets.
Goodwill—Goodwill is recognized for the excess of purchase price over the fair value of net assets of businesses
acquired. Goodwill is reviewed for impairment at least annually. In accordance with ASC 350-20, Intangibles-
Goodwill and Other, we evaluate goodwill for impairment between annual impairment tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying
amount. Unless circumstances otherwise dictate, the annual impairment test is performed in the fourth quarter.
Application of the goodwill impairment test requires judgment, including: the identification of reporting units;
assignment of assets and liabilities to reporting units; assignment of goodwill to reporting units; determination of the
fair value of each reporting unit; and an assumption as to the form of the transaction in which the reporting unit
would be acquired by a market participant (either a taxable or nontaxable transaction).
We estimate the fair value of our reporting units (which are our segments) using a combination of an income
approach based on the present value of estimated future cash flows and a market approach based on market data of
comparable businesses and acquisition multiples paid in recent transactions. If the carrying value of a reporting
unit's net assets is less than its fair value, no indication of impairment exists. If the carrying amount of the reporting
unit's goodwill is greater than the implied fair value of its goodwill, an impairment loss must be recognized for the
excess and charged to operations.
Inherent in our preparation of cash flow projections are significant assumptions and estimates derived from a review
of our operating results, business plans, expected growth rates, capital expenditure plans, cost of capital and tax
rates. We also make certain forecasts about future economic conditions, interest rates and other market data. Many
of the factors used in assessing fair value are outside the control of management, and these assumptions and
estimates may change in future periods. Small changes in assumptions or estimates could materially affect the
estimate of the fair value of a reporting unit, and therefore could affect the likelihood and amount of potential
impairment.
As of December 31, 2017 and 2016, all of our Goodwill is included in our Fiber Infrastructure segment. We
performed our goodwill impairment analysis during the fourth quarter and we concluded the implied fair value of
our Fiber Infrastructure reporting unit was in excess of its carrying value by less than 2%. During the years ended
December 31, 2017 and 2016 and for the period April 24 2015 to December 31, 2015, no impairment losses were
recognized.
Earnings per Share—Outstanding restricted stock awards that contain rights to non-forfeitable dividends are deemed
to be participating securities, requiring the application of the two-class method of computing basic and dilutive
earnings per share.
Basic earnings per share includes only the weighted average number of common shares outstanding during the
period. Dilutive earnings per share includes the weighted average number of common shares and the dilutive effect
of restricted stock and performance-based awards outstanding during the period, when such awards are dilutive. See
Note 12.
Concentration of Credit Risks—In connection with the Spin-Off, we entered into the Master Lease agreement with
Windstream, pursuant to which all real property associated with the Spin-Off is leased to Windstream and from
which substantially all of Uniti’s leasing revenues are currently derived. Windstream is a publicly traded company
60
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
and is subject to the periodic filing requirements of the Securities Exchange Act of 1934, as amended. Windstream
filings can be found at www.sec.gov. Windstream filings are not incorporated by reference in this Annual Report on
Form 10-K.
Revenue under the Master Lease provided 74.8% of our revenue for the year ended December 31, 2017 and 87.9%
of our revenue for the year ended December 31, 2016. Because our revenue is primarily derived from lease
payments by Windstream pursuant to the Master Lease, there could be a material adverse impact on our
consolidated results of operations, liquidity and/or financial condition if Windstream experiences operating
difficulties and becomes unable to generate sufficient cash to make payments to us. In recent years, Windstream has
experienced annual declines in its total revenue and sales. Accordingly, we monitor the credit quality of Windstream
through numerous methods, including by (i) reviewing the credit ratings of Windstream by nationally recognized
credit rating agencies, (ii) reviewing the financial statements of Windstream that are publicly available and that are
required to be delivered to us pursuant to the Master Lease, (iii) monitoring news reports regarding Windstream and
its businesses, (iv) conducting research to ascertain industry trends potentially affecting Windstream, and (v)
monitoring the timeliness of its payments to us under the Master Lease.
Recently Issued Accounting Standards—In January 2017, the FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), in an effort to clarify the
definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption
permitted. We adopted ASU 2017-01 effective January 1, 2017, with prospective application. As a result of the
adoption of ASU 2017-01, the Company’s acquisition of NMS (see Note 4) was determined to be an asset
acquisition. Transaction costs associated with asset acquisitions, which includes our real property interest
investments, are capitalized as opposed to being recorded as an expense as is required prior to adoption of ASU
2017-01, had this been a business combination.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on reducing the
diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.
In addition to other specific cash flow issues, ASU 2016-15 provides clarification on when an entity should separate
cash receipts and cash payments into more than one class of cash flows and when an entity should classify those
cash receipts and payments into one class of cash flows on the basis of predominance. The new guidance is effective
for the fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and early
adoption is permitted. The Company does not anticipate the adoption of this accounting standard to have a material
impact on our financial statements.
In August 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging
(Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which amends and
simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk
management activities in the financial statements. ASU 2017-12 is effective for annual periods beginning after
December 15, 2018 and interim periods within those annual periods, and earlier adoption is permitted. The
Company is currently evaluating the impacts the adoption of this accounting standard will have on our financial
statements.
In February 2017, the FASB issued ASU No. 2017-05, Other Income - Gains and Losses from the Derecognition of
Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for
Partial Sales of Nonfinancial Assets (“ASU 2017-05”), which provides guidance for recognizing gains and losses
from the transfer of nonfinancial assets and for partial sales of nonfinancial assets, and is effective for financial
statements issued for fiscal years and interim periods beginning after December 15, 2017. The Company will adopt
ASU 2017-05 effective January 1, 2018 using the modified retrospective approach and there will not be a material
impact on our financial statements with the adoption of this accounting standard.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the
Accounting for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to perform a hypothetical
purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which
61
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-
04 is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted, and applied
prospectively. We adopted ASU 2017-04 effective January 1, 2017, and there was no material impact on our
financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”).
This update outlines a single comprehensive revenue recognition model for entities to follow in accounting for
revenue from contracts with customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue for
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled to receive for those goods or services. ASU 2014-09 is effective for annual periods
beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted for
public companies for annual periods beginning after December 15, 2016. The Company intends to adopt the revenue
recognition guidance on January 1, 2018 using the modified retrospective approach by recognizing the cumulative
effect of initially applying the new standard as an increase to the opening balance of retained earnings. The
Company’s implementation efforts include reviewing revenue contracts and the identification of revenue within the
scope of the guidance. As ASU 2014-09 does not impact lessor accounting, the Company believes our accounting
for leasing revenues will not be significantly impacted. While the Company currently has not identified any
material changes in the timing of revenue recognition, we do anticipate an impact to our Fiber Infrastructure costs,
primarily related to the capitalization of commission expense under ASU 2014-09, and are currently in the process
of quantifying such impacts.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASC 842”), which sets out the principles for the
recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and
lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating
leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This
classification will determine whether lease expense is recognized based on an effective interest method or on a
straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and
a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a
term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new
standard also replaces existing sale-lease back guidance with a new model applicable to lessees and lessors. In
addition, it also requires lessors to record gross revenues and expenses associated with costs paid directly by lessees
for the benefit of the lessors, such as real estate taxes and insurance, if the lessor is the named beneficiary. The
provisions of this guidance are effective for annual periods beginning after December 31, 2018, and for interim
periods therein. The Company is currently evaluating this guidance to determine the impact it will have on our
financial statements by reviewing its existing operating lease contracts, where we are the lessee and service contracts
that may include embedded leases. The Company expects a gross-up of its Consolidated Balance Sheets as a result
of recognizing lease liabilities and right of use assets, the extent of the impact of a gross-up is under evaluation. The
Company does not anticipate material changes to the recognition of operating lease expense in its Consolidated
Statements of Income.
Note 4. Business Combinations and Asset Acquisitions
Asset Acquisitions
Network Management Holdings LTD
On January 31, 2017, we completed the acquisition of NMS. The Company accounted for the acquisition of NMS as
an asset purchase. At close, NMS owned and operated 366 wireless communications towers in Latin America with
an additional 105 build to suit tower sites under development. The NMS portfolio spans three Latin American
countries with 212 towers in Mexico, 54 towers in Nicaragua, and 100 towers in Colombia. The consideration for
the 366 wireless towers in operation as of the transaction close date was $62.6 million, which was funded through
cash on hand, and is presented in NMS asset acquisition on the Consolidated Statements of Cash Flows. NMS
conducts its operations through three non-U.S. subsidiaries and the Company has determined that the functional
currencies for the Mexican, Nicaraguan and Colombian subsidiaries are the Mexican Peso, U.S. Dollar and
Colombian Peso, respectively. The non-U.S. subsidiaries in which NMS conducts its operations are subject to
62
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
income tax in the jurisdictions in which they operate. The acquisition did not result in a step up in tax basis under
local law. The Company recorded a net deferred tax liability of $18.4 million and a liability for unrecognized tax
benefits of $5.3 million in connection with the acquisition. The deferred tax liability is primarily related to the
excess of the recorded amounts for Property, Plant & Equipment and Intangibles over their respective historical tax
bases. Under the terms of the purchase agreement, we will acquire the towers under development when construction
is completed. The NMS towers are reflected in our Towers segment. See Note 13. The following is a summary of
the estimated fair values of the assets acquired and liabilities assumed:
Property, plant and equipment
Accounts receivable
Other assets
Intangible assets
Accounts payable, accrued expenses and other liabilities
Intangible liabilities
Deferred income taxes
Total purchase consideration
$
$
(thousands)
36,417
2,826
1,623
52,437
(8,895)
(3,440)
(18,403)
62,565
Of the $52.4 million of acquired intangible assets, $37.4 million was assigned to tenant contracts (22 year life),
$13.5 million was assigned to network (22 year life) and $1.5 million was assigned to acquired above-market leases
(10 year life). The acquired below-market lease intangible liability of $3.4 million has a 10 year life. See Note 8.
As of December 31, 2017, construction was completed on 50 of the 105 towers that were under development at the
time of the NMS acquisition, and we acquired the completed towers pursuant to the purchase agreement for
approximately $5.1 million.
Business Combinations
2017 Transactions
Southern Light, LLC
On July 3, 2017, we acquired 100% of the outstanding equity of Southern Light for $638.1 million in cash and 2.5
million common units in the Operating Partnership with an acquisition date fair value of $64.3 million. Southern
Light is a leading provider of data transport services along the Gulf Coast region serving twelve attractive Tier II
and Tier III markets across Florida, Alabama, Louisiana, and Mississippi. The acquisition was recorded by
allocating the costs of the assets acquired based on their estimated fair values at the acquisition date. The excess of
the cost of the acquisition over the fair value of the assets acquired is recorded as goodwill within our Fiber
Infrastructure segment. See Note 13. The following is a summary of the estimated fair values of the assets acquired
and liabilities assumed:
Property, plant and equipment
Cash and cash equivalents
Accounts receivable
Other assets
Goodwill
Intangible assets
Accounts payable, accrued expenses and other liabilities
Deferred revenue
Deferred income taxes
Capital lease obligations
Total purchase consideration
63
$
$
(thousands)
279,467
1,992
11,139
1,287
318,620
160,100
(19,846)
(38,134)
(9,004)
(3,189)
702,432
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
The above purchase price allocation is considered preliminary and is subject to revision when the valuation of assets
and liabilities is finalized upon receipt of the final valuation report from a third party valuation expert, and resolution
of contractual adjustments, such as working capital adjustments, set forth in the merger agreement, which is
anticipated to be finalized during the first half of 2018.
The goodwill arising from the transaction is primarily attributable to the expansion of our fiber network through the
complementary nature of Southern Light’s fiber network to our existing fiber network, including anticipated
incremental sales and cost savings. For federal income tax purposes, the transaction was treated as partially taxable
(for portion paid in cash) and partially non-taxable (for portion paid with common units in the Operating
Partnership). The portion of the acquisition that was treated as a taxable acquisition resulted in tax deductible
goodwill. No tax deductible goodwill resulted from the portion of the acquisition that was treated as non-taxable.
We acquired an intangible asset that was assigned to customer relationships of $160.1 million (15 year life).
The acquired business contributed revenue of $45.5 million and an operating income of $4.6 million, which
excludes transaction related costs, to our consolidated results from the date of acquisition through December 31,
2017. We recorded transaction related costs related to the acquisition of Southern Light for the year ended
December 31, 2017 of $14.8 million within transaction related costs on the Consolidated Statement of Income.
The acquisition of Southern Light was structured in a manner such that Southern Light ended up being owned by a
subsidiary of ours with a pre-existing valuation allowance primarily related to deferred tax assets associated with net
operating loss carryforwards. The acquisition of Southern Light also resulted in a change to our assessment of the
need for a valuation allowance against these deferred tax assets, which resulted in a decrease to the valuation
allowance of $8.0 million. The decrease in valuation allowance was recorded as an income tax benefit during the
year ended December 31, 2017.
Hunt Telecommunications, LLC
On July 3, 2017, we acquired 100% of the outstanding equity of Hunt for $129.3 million in cash and 1.6 million
common units in the Operating Partnership with an acquisition date fair value of $41.6 million. Additional
contingent consideration of up to $17 million, with an acquisition date fair value of $16.4 million, may be paid upon
the achievement of certain financial revenue milestones by delivering shares of our common stock. See Note
5. Hunt is a leading provider of data transport to K-12 schools and government agencies with a dense fiber network
in Louisiana. The acquisition was recorded by allocating the costs of the assets acquired based on their estimated fair
values at the acquisition date. The excess of the cost of the acquisition over the fair value of the assets acquired is
recorded as goodwill within our Fiber Infrastructure segment. See Note 13.
Property, plant and equipment
Cash and cash equivalents
Accounts receivable
Other assets
Goodwill
Intangible assets
Accounts payable, accrued expenses and other liabilities
Deferred revenue
Deferred income taxes
Capital lease obligations
Total purchase consideration
$
$
(thousands)
59,682
3,181
4,906
413
93,023
73,000
(2,579)
(3,800)
(40,391)
(164)
187,271
The above purchase price allocation is considered preliminary and is subject to revision when the valuation of assets
and liabilities is finalized upon receipt of the final valuation report from a third party valuation expert, which is
anticipated to be finalized during the first half of 2018.
64
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
The goodwill arising from the transaction is primarily attributable to the expansion of our fiber network through the
complementary nature of Hunt’s fiber network to our existing fiber network, including anticipated incremental sales
and cost savings. The goodwill is not expected to be deductible for tax purposes.
We acquired an intangible asset that was assigned to customer relationships of $73 million (18 year life).
The acquired business contributed revenue of $16.5 million and an operating income of $2.7 million, which
excludes transaction and transition costs, to our consolidated results from the date of acquisition through December
31, 2017. We recorded transaction related costs related to the acquisition of Hunt for the year ended December
31, 2017 of $5.9 million within transaction related costs on the Consolidated Statement of Income.
The following table presents the unaudited pro forma summary of our financial results as if the Southern Light and
Hunt business combinations had occurred on January 1, 2016. The pro forma results include additional depreciation
and amortization resulting from purchase accounting adjustments, and interest expense associated with debt used to
fund the acquisition. The pro forma results do not include any synergies or other benefits of the acquisition. The pro
forma results are not indicative of future results of operations, or results that might have been achieved had the
acquisition been consummated on January 1, 2016.
(Thousands, except per share data)
Pro forma revenue
Pro forma net income (loss)
Pro forma net income (loss) per share
2016 Transactions
Tower Cloud, Inc.
Year Ended
Year Ended
December 31, 2017
December 31, 2016
$
$
980,303 $
4,267
0.02 $
891,373
(2,482)
(0.01)
On August 31, 2016, we acquired 100% of the outstanding equity of Tower Cloud, Inc. (“Tower Cloud”) for $187.5
million in cash and 1.9 million shares of our common stock with an acquisition date fair value of $58.5
million. Additional contingent consideration of up to $130 million, with an acquisition date fair value of $98.6
million, may be paid upon the achievement of certain defined operational and financial milestones. At the
Company’s discretion, a combination of cash and Uniti common shares may be used to satisfy the contingent
consideration payments, provided that at least 50% of the aggregate amount of payments is satisfied in cash. Tower
Cloud provides data transport services, with particular focus on providing infrastructure solutions to the wireless and
enterprise sectors, including fiber-to-the-tower backhaul, small cell networks, and dark fiber deployments.
Following the close of the transaction, the Tower Cloud business and the previously acquired PEG Bandwidth
business were combined into a unified fiber infrastructure organization, Uniti Fiber. The operating results from this
acquisition are included in the consolidated financial statements from the acquisition date. The acquisition was
recorded by allocating the costs of the assets acquired based on their estimated fair values at the acquisition date.
The excess of the cost of the acquisition over the fair value of the assets acquired is recorded as goodwill within our
Fiber Infrastructure segment. See Note 13. During the first quarter of 2017, certain contractual working capital
adjustments resulted in a $0.2 million reduction of the purchase price and goodwill. The following is a summary of
the estimated fair values of the assets acquired and liabilities assumed:
65
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Property, plant and equipment
Cash and cash equivalents
Accounts receivable
Other assets
Goodwill
Intangible assets
Accounts payable, accrued expenses and other liabilities
Deferred revenue
Deferred income taxes
Capital lease obligations
Total purchase consideration
$
$
(thousands)
163,680
14,346
3,043
2,595
117,032
116,218
(16,782)
(23,900)
(24,866)
(6,750)
344,616
The goodwill is primarily attributable to strategic opportunities that arose from the acquisition of Tower Cloud. The
acquisition was treated as a taxable acquisition of the outstanding stock of Tower Cloud, Inc. Thus, none of the
goodwill is expected to be deductible for tax purposes.
We acquired an intangible asset that was assigned to customer relationships of $116.2 million (30 year life).
Tower Cloud had federal net operating loss (“NOL”) carryforwards of approximately $81.2 million at the date of the
acquisition, which will expire between 2026 and 2036. As a result of the change in ownership, the utilization of
NOL carryforwards is subject to limitations imposed by the Internal Revenue Code. The gross deferred tax assets
associated with the NOL and other temporary differences as of August 31, 2016 were approximately $37.0 million,
with respect to which we have determined that a valuation allowance is not required. A net deferred tax liability of
$24.8 million was recorded in connection with the acquisition, which is primarily related to the excess of the
recorded amounts for Property, Plant and Equipment and Intangible Assets over their respective historical tax bases.
The acquired business contributed revenue of $13.5 million and an operating loss of $2.1 million, which excludes
transaction and transition costs, to our consolidated results from the date of acquisition through December 31, 2016.
We recorded transaction related costs related to the acquisition of Tower Cloud for the year ended December
31, 2016 of $9.1 million within transaction related costs on the Consolidated Statement of Income.
The following table presents the unaudited pro forma summary of our financial results as if the business
combination had occurred as of the Spin-Off. The pro forma results include additional depreciation and amortization
resulting from purchase accounting adjustments, adjustments to amortized deferred revenue, and interest expense
associated with debt used to fund the acquisition. The pro forma results do not include any synergies or other
benefits of the acquisition. The pro forma results are not indicative of future results of operations, or results that
might have been achieved had the acquisition been consummated as of the Spin-Off.
(Thousands, except per share data)
Pro forma revenue
Pro forma net (loss) income
Pro forma net (loss) income per share
PEG Bandwidth, LLC
Year Ended
December 31, 2016
Period from
April 24 - December 31,
2015
$
$
798,054 $
(3,581)
(0.02) $
505,764
17,609
0.12
On May 2, 2016, we acquired 100% of the outstanding equity of PEG Bandwidth for $322.5 million in cash, the
issuance of 87,500 shares of our 3.00% Series A Convertible Preferred Stock with a fair value of $78.6 million and 1
million shares of our common stock with an acquisition date fair value of $23.2 million. PEG Bandwidth is a leading
provider of infrastructure solutions, including cell site backhaul and dark fiber, to the telecommunications industry.
The operating results from this acquisition are included in the consolidated financial statements from the acquisition
date. The acquisition was recorded by allocating the costs of the assets acquired based on their estimated fair values
at the acquisition date. The excess of the cost of the acquisition over the fair value of the assets acquired is recorded
66
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
as goodwill within our Fiber Infrastructure segment. See Note 13. The following is a summary of the estimated fair
values of the assets acquired and liabilities assumed:
Property, plant and equipment
Cash and cash equivalents
Accounts receivable
Other assets
Goodwill
Intangible assets
Accounts payable, accrued expenses and other liabilities
Deferred revenue
Capital lease obligations
Total purchase consideration
$
$
(thousands)
293,030
7,003
6,584
5,161
145,054
38,000
(8,643)
(12,700)
(49,195)
424,294
The goodwill is primarily attributable to strategic opportunities that arose from the acquisition of PEG Bandwidth.
The goodwill is expected to be deductible for tax purposes.
Of the $38 million of acquired intangible assets, $36 million was assigned to customer relationships (weighted
average 17 year life) and $2 million was assigned to trademarks (indefinite life).
The acquired business contributed revenue of $57.0 million and an operating loss of $8.8 million, which excludes
transaction and transition costs, to our consolidated results from the date of acquisition through December 31, 2016.
We recorded transaction related costs related to the acquisition of PEG Bandwidth for the year ended December
31, 2016 of $11.2 million within transaction related costs on the Consolidated Statement of Income.
The following table presents the unaudited pro forma summary of our financial results as if the business
combination had occurred as of the Spin-Off. The pro forma results include additional depreciation and amortization
resulting from purchase accounting adjustments, adjustments to amortized deferred revenue, and interest expense
associated with debt used to fund the acquisition. The pro forma results do not include any synergies or other
benefits of the acquisition. The pro forma results are not indicative of future results of operations, or results that
might have been achieved had the acquisition been consummated as of the Spin-Off.
(Thousands, except per share data)
Pro forma revenue
Pro forma net income
Pro forma net income per share
Summit Wireless Infrastructure, LLC
Year Ended
December 31, 2016
Period from
April 24 - December 31,
2015
$
$
797,637 $
6,264
0.04 $
529,911
19,809
0.13
On January 22, 2016, we acquired 100% of the outstanding equity of Summit Wireless Infrastructure LLC
(“Summit”). Summit builds, owns and operates telecommunication infrastructure serving wireless carriers in
Mexico. Consideration given to acquire Summit included performance-based shares of common equity valued at
$1.1 million, which will vest in full on the third anniversary of the closing date, subject to Summit meeting certain
performance targets, and the assumption of Summit’s existing debt. The financial results of Summit are included in
the Towers segment from the date of acquisition and were not material, individually or in the aggregate, to our
results of operations and therefore, pro forma financial information has not been presented.
Note 5. Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements, establishes a hierarchy of valuation techniques based on the
observability of inputs utilized in measuring assets and liabilities at fair values. This hierarchy establishes market-
based or observable inputs as the preferred source of values, followed by valuation models using management
assumptions in the absence of market inputs. The three levels of the hierarchy are as follows:
67
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can
access at the assessment date
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly
Level 3 – Unobservable inputs for the asset or liability
Our financial instruments consist of cash and cash equivalents, accounts and other receivables, derivative
instruments, contingent consideration, our outstanding notes and other debt, and accounts, interest and dividends
payable.
The following table summarizes the fair value of our financial instruments at December 31, 2017 and 2016:
(Thousands)
At December 31, 2017
Assets
Derivative asset
Total
Liabilities
Total
(Thousands)
At December 31, 2016
Liabilities
Senior secured term loan B - variable rate, due
October 24, 2022
Senior secured notes - 6.00% , due April 15, 2023
Senior unsecured notes - 8.25%, due October 15,
2023
Senior unsecured notes - 7.125%, due December 15,
2024
Senior secured revolving credit facility, variable rate,
due April 24, 2020
Contingent consideration
Quoted Prices in
Active Markets
(Level 1)
Prices with Other
Observable Inputs
(Level 2)
Total
Prices with
Unobservable
Inputs
(Level 3)
$
$
6,793 $
6,793 $
— $
— $
6,793 $
6,793 $
$ 2,011,237 $
540,375
1,073,925
— $
—
2,011,237 $
540,375
—
1,073,925
542,250
—
542,250
279,972
105,762
$ 4,553,521 $
—
—
— $
279,972
—
4,447,759 $
—
105,762
105,762
Quoted Prices in
Active Markets
(Level 1)
Prices with Other
Observable Inputs
(Level 2)
Total
Prices with
Unobservable
Inputs
(Level 3)
—
—
—
—
—
—
Senior secured term loan B - variable rate, due
October 24, 2022
Senior secured notes - 6.00% , due April 15, 2023
Senior unsecured notes - 8.25%, due October 15,
2023
Senior unsecured notes - 7.125%, due December 15,
2024
Derivative liability
Contingent consideration
Total
$ 2,139,586 $
569,250
— $
—
2,139,586 $
569,250
1,176,600
—
1,176,600
—
—
—
404,000
6,102
98,600
$ 4,394,138 $
—
—
—
— $
404,000
6,102
—
4,295,538 $
—
—
98,600
98,600
68
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
The carrying value of cash and cash equivalents, accounts and other receivables, and accounts, interest and
dividends payable approximate fair values due to the short-term nature of these financial instruments.
The total principal balance of our Notes and other debt was $4.6 billion at December 31, 2017, with a fair value of
$4.4 billion. The estimated fair value of the Notes and other debt was based on available external pricing data and
current market rates for similar debt instruments, among other factors, which are classified as Level 2 inputs within
the fair value hierarchy. Derivative instruments are carried at fair value. See Note 7. The fair value of our interest
rate swap is determined based on the present value of expected future cash flows using observable, quoted LIBOR
swap rates for the full term of the swap and also incorporate credit valuation adjustments to appropriately reflect
both Uniti 's own non-performance risk and non-performance risk of the respective counterparties. The Company
has determined that the majority of the inputs used to value its derivative instruments fall within Level 2 of the fair
value hierarchy; however the associated credit valuation adjustments utilized Level 3 inputs, such as estimates of
credit spreads, to evaluate the likelihood of default by the Company and its counterparties. As of December 31,
2017, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall
valuation of its derivative positions and has determined that the credit valuation adjustment is not significant to the
overall value of the derivatives. As such, the Company classifies its derivative instruments valuation in Level 2 of
the fair value hierarchy.
As part of the acquisition of Hunt on July 3, 2017, we may be obligated to pay contingent consideration (the “Hunt
Contingent Consideration”) upon the achievement of certain defined revenue milestones; therefore, we have
recorded the estimated fair value of contingent consideration of approximately $11.5 million as of December 31,
2017. See Note 4. In accordance with the Hunt merger agreement, Uniti common shares will be used to satisfy the
contingent consideration payment. The fair value of the Hunt Contingent Consideration at December 31, 2017 was
determined using the closing price of our common shares in the active market and probability estimates of future
earnings and is classified as Level 3.
As part of the acquisition of Tower Cloud on August 31, 2016, we may be obligated to pay contingent consideration
upon achievement of certain defined operational and financial milestones; therefore, we recorded the estimated fair
value of future contingent consideration of $94.3 million as of December 31, 2017. The fair value of the contingent
consideration as of December 31, 2017, was determined using a discounted cash flow model and probability
adjusted estimates of the future earnings and is classified as Level 3. During the year ended December 31, 2017, we
paid $20.0 million for the achievement of certain milestones in accordance with the Tower Cloud merger agreement.
Changes in the fair value of contingent consideration will be recorded in our Consolidated Statement of Income in
the period in which the change occurs. For the year ended December 31, 2017, there was a $10.7 million increase in
the fair value of the contingent consideration that was recorded in Other expense on the Consolidated Statements of
Income.
The following is a roll forward of our liability measured at fair value on a recurring basis using unobservable inputs
(Level 3):
(Thousands)
Contingent consideration
December 31,
2016
98,600 $
$
Transfers into
Level 3
16,425 $
Settlements
10,736 $ (19,999) $
December 31,
2017
105,762
(Gain)/Loss
included in
earnings
69
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Note 6. Property, Plant and Equipment
The carrying value of property, plant and equipment is as follows:
(Thousands)
Land
Building and improvements
Real property interests
Poles
Fiber
Equipment
Copper
Conduit
Tower assets
Capital lease assets
Construction in progress
Other assets
Corporate assets
Less accumulated depreciation
Net property, plant and equipment
Depreciable Lives
Indefinite $
3 - 40 years
See Note 3
30 years
30 years
5 - 7 years
20 years
30 years
20 years
See Note 3
See Note 3
15 - 20 years
3 - 7 years
December 31, 2017
28,269
325,445
34,580
243,710
2,669,058
213,574
3,656,385
91,210
59,327
97,592
112,489
8,258
2,690
7,542,587
(4,488,698)
3,053,889
$
December 31, 2016
26,833
$
318,967
12,265
234,393
2,243,822
130,945
3,538,566
90,540
4,307
89,723
52,685
5,299
2,731
6,751,076
(4,081,039)
2,670,037
$
Capital lease assets above represent fiber leases, where we have the exclusive, unrestricted, and indefeasible right to
use one, a pair, or more strands of fiber of a fiber cable.
Depreciation expense for the years ended December 31, 2017, 2016 and for the period from April 24, 2015 to
December 31, 2015 was $415.9 million, $369.9 million and $236.2 million, respectively.
Note 7. Derivative Instruments and Hedging Activities
The Company uses derivative instruments to mitigate the effects of interest rate volatility inherent in our variable
rate debt, which could unfavorably impact our future earnings and forecasted cash flows. The Company does not use
derivative instruments for speculative or trading purposes.
On April 27, 2015, we entered into interest rate swap agreements to mitigate the interest rate risk inherent in our
variable rate Senior Secured Term Loan B facility. These interest rate swaps are designated as cash flow hedges and
have a notional value of $2.13 billion and mature on October 24, 2022. The weighted average fixed rate paid is
2.105%, and the variable rate received resets monthly to the one-month LIBOR subject to a minimum rate of 1.0%.
The Company does not currently have any master netting arrangements related to its derivative contracts.
The following table summarizes the fair value and the presentation in our Consolidated Balance Sheet:
(Thousands)
Interest rate swaps
Interest rate swaps
Location on Consolidated
Balance Sheet
Derivative asset
Derivative liability
December 31, 2017
$
$
6,793
-
December 31, 2016
$
$
-
6,102
As of December 31, 2017, all of the interest rate swaps were valued in net unrealized gain positions and recognized
as an asset balance within the derivative asset balance. As of December 31, 2016, all of the interest rate swaps were
valued in net unrealized loss positions and recognized as liability balances within the derivative liability balance. For
the years ended December 31, 2017 and 2016, the amount recorded in other comprehensive income related to the
unrealized loss on derivative instruments was $7.7 million and $24.5 million, respectively. The amount reclassified
out of other comprehensive income into interest expense on our Consolidated Statement of Income for the years
70
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
ended December 31, 2017 and 2016 was $20.6 million and $23.8 million, respectively. For the years ended
December 31, 2017 and 2016, there were no ineffective portions of the change in fair value derivatives.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest
expense as interest payments are made on our variable-rate debt. During the next twelve months, ending December
31, 2018, we estimate that $17.5 million will be reclassified as an increase to interest expense.
Note 8. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill occurring during the year ended December 31, 2017 and 2016, are as
follows:
(Thousands)
Goodwill at December 31, 2015
Goodwill associated with 2016 acquisitions
Goodwill at December 31, 2016
Goodwill purchase accounting adjustments
Goodwill associated with 2017 acquisitions
Goodwill at December 31, 2017
The carrying value of our other intangible assets is as follows:
Fiber Infrastructure
Total
$
$
$
- $
262,334
262,334 $
(248)
411,643
673,729 $
-
262,334
262,334
(248)
411,643
673,729
(Thousands)
Indefinite life intangible assets:
Trade name
Finite life intangible assets:
Customer lists
Tenant contracts
Network(1)
Acquired below-market leases
Total intangible assets
Less: Accumulated amortization
Total intangible assets, net
Finite life intangible liabilities:
Acquired above-market leases
Total intangible liabilities
Less: Accumulated amortization
Total intangible liabilities, net(2)
December 31, 2017
December 31, 2016
Cost
Accumulated
Amortization
Cost
Accumulated
Amortization
$
2,000
$
- $
2,000
$
-
421,743
38,527
13,951
1,509
477,730
(48,373)
429,357
(46,049)
(1,605)
(581)
(138)
188,642
-
-
-
(30,058)
-
-
-
190,642
(30,058)
160,584
$
3,455
$
(317) $
3,455
(317)
3,138
$
-
$
-
-
-
-
$
$
$
(1) Reflects the potential to lease additional tower capacity on the existing towers due to their geographical location
and capacity as of the valuation date.
(2) Recorded in accounts payable, accrued expenses and other liabilities, net on the Consolidated Balance Sheet.
Amortization expense for the years ended December 31, 2017, 2016 and for the period from April 24, 2015 to
December 31, 2015 was $18.3 million, $6.1 million and $2.6 million, respectively. Amortization expense is
71
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
estimated to be $25.1 million in 2018, $24.4 million in 2019, $23.9 million in 2020, $23.5 million in 2021 and $23.0
million in 2022.
Note 9. Notes and Other Debt
All debt, including the senior secured credit facility and notes described below, are obligations of the Operating
Partnership and certain of its subsidiaries as discussed below. The Company is, however, a guarantor of such debt.
Notes and other debt is as follows:
(Thousands)
Principal amount
Less unamortized discount, premium and debt issuance costs
Notes and other debt less unamortized discount and debt issuance costs
December 31, 2017 December 31, 2016
$
4,167,967
(139,753)
4,028,214
4,626,887 $
(144,190)
4,482,697 $
$
Notes and other debt at December 31, 2017 and 2016 consisted of the following:
(Thousands)
Senior secured term loan B - variable rate, due October
24, 2022
(discount is based on imputed interest rate of 5.66%)
Senior secured notes - 6.00%, due April 15, 2023
(discount is based on imputed interest rate of 6.29%)
Senior unsecured notes - 8.25%, due October 15, 2023
(discount is based on imputed interest rate of 9.06%)
Senior unsecured notes - 7.125%, due December 15,
2024
Senior secured revolving credit facility, variable rate, due
April 24, 2020
Total
December 31, 2017
December 31, 2016
Unamortized
Discount,
Premium and
Debt Issuance
Costs
Unamortized
Discount and
Debt Issuance
Costs
Principal
Principal
$ 2,086,887 $
(87,140) $2,107,967 $
(78,699)
550,000
(8,508)
550,000
(9,817)
1,110,000
(40,467) 1,110,000
(45,599)
600,000
(8,075)
400,000
(5,638)
280,000
$ 4,626,887
-
-
(144,190) $4,167,967 $ (139,753)
-
At December 31, 2017, notes and other debt included the following: (i) $2.1 billion under the senior secured term
loan B facility that matures on October 24, 2022 (“Term Loan Facility”) pursuant to the credit agreement by and
among the Operating Partnership, CSL Capital, LLC and Uniti Group Finance Inc., the guarantors and lenders party
thereto and Bank of America, N.A., as administrative agent and collateral agent (the “Credit Agreement”); (ii)
$550.0 million aggregate principal amount of 6.00% Senior Secured Notes due April 15, 2023 (the “Secured
Notes”); (iii) $1.11 billion aggregate principal amount of 8.25% Senior Notes due October 15, 2023 (the “2023
Notes”); and (iv) $600.0 million aggregate principal amount of 7.125% Senior Unsecured Notes due December 15,
2024 (the “2024 Notes” and together with the Secured Notes and 2023 Notes, the “Notes”), and (v) $280.0 million
under the senior secured revolving credit facility, variable rate, that matures April 24, 2020 pursuant to the Credit
Agreement (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Facilities”).
On May 9, 2017, the Company completed its previously announced reorganization (the “up-REIT Reorganization”)
to operate through a customary “up-REIT” structure. Under this structure, the Operating Partnership now holds
substantially all of the Company’s assets and is the parent company of, among others, CSL Capital, LLC,
Uniti Group Finance Inc. and Uniti Fiber Holdings Inc. In connection with the up-REIT Reorganization, the
Operating Partnership replaced the Company and assumed its obligations as an obligor under the Notes and
Facilities. The Company subsequently became a guarantor of the Notes and Facilities. Because the Operating
Partnership is not a corporation, a corporate co-obligor that is a subsidiary of the Operating Partnership was also
added to the Notes and Credit Agreement as part of the up-REIT Reorganization. As discussed below, Uniti Group
Finance Inc. is the corporate co-obligor under the Credit Agreement and co-issuer of the Secured Notes and the 2023
72
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Notes, and Uniti Fiber Holdings Inc. is the co-issuer of the 2024 Notes. Separate financial statements of the
Operating Partnership have not been included since the Operating Partnership is not a registrant.
Credit Agreement
The Operating Partnership and its wholly-owned subsidiaries, CSL Capital, LLC, and Uniti Group Finance Inc.
(collectively, the “Borrowers”) are party to the Credit Agreement, which provides for the Term Loan Facility (in an
initial principal amount of $2.14 billion) and the Revolving Credit Facility. The term loans were repriced on
February 9, 2017 and now bear interest at a rate equal to LIBOR, subject to a 1.0% floor, plus an applicable margin
equal to 3.00%, and are subject to amortization of 1.0% per annum. All obligations under the Credit Agreement are
guaranteed by (i) the Company and (ii) certain of the Operating Partnership’s wholly-owned subsidiaries (the
“Subsidiary Guarantors”), and are secured by substantially all of the assets of the Borrowers and the Subsidiary
Guarantors, which assets also secure the Secured Notes. The Revolving Credit Facility bears interest at a rate equal
to LIBOR plus 1.75% to 2.25% based on our consolidated secured leverage ratio, as defined in the Credit
Agreement. On April 28, 2017, we amended the Credit Agreement to increase the commitments under our
Revolving Credit Facility from $500 million to $750 million. Other terms of the Revolving Credit Facility remain
unchanged.
The Borrowers are subject to customary covenants under the Credit Agreement, including an obligation to maintain
a consolidated secured leverage ratio, as defined in the Credit Agreement, not to exceed 5.00 to 1.00. We are
permitted, subject to customary conditions, to incur (i) incremental term loan borrowings and/or increased
commitments under the Credit Agreement in an unlimited amount, so long as, on a pro forma basis after giving
effect to any such borrowings or increases, our consolidated secured leverage ratio, as defined in the Credit
Agreement, does not exceed 4.00 to 1.00 and (ii) other indebtedness, so long as, on a pro forma basis after giving
effect to any such indebtedness, our consolidated total leverage ratio, as defined in the Credit Agreement, does not
exceed 6.50 to 1.00 and our consolidated secured leverage ratio, as defined in the Credit Agreement, does not
exceed 4.00 to 1.00. In addition, the Credit Agreement contains customary events of default, including a cross
default provision whereby the failure of the Borrowers or certain of their subsidiaries to make payments under other
debt obligations, or the occurrence of certain events affecting those other borrowing arrangements, could trigger an
obligation to repay any amounts outstanding under the Credit Agreement. In particular, a repayment obligation
could be triggered if (i) the Borrowers or certain of their subsidiaries fail to make a payment when due of any
principal or interest on any other indebtedness aggregating $75.0 million or more, or (ii) an event occurs that causes,
or would permit the holders of any other indebtedness aggregating $75.0 million or more to cause, such
indebtedness to become due prior to its stated maturity. As of December 31, 2017, the Borrowers were in
compliance with all of the covenants under the Credit Agreement.
The Notes
The Borrowers, as co-issuers, have outstanding $550 million aggregate principal amount of the Secured Notes, of
which $400 million was originally issued on April 24, 2015 at an issue price of 100% of par value and the remaining
$150 million was issued on June 9, 2016 at an issue price of 99.25% of the par value as an add-on to the existing
Secured Notes. The Borrowers, as co-issuers, also have outstanding $1.11 billion aggregate principal amount of the
2023 Notes that were originally issued on April 24, 2015 at an issue price of 97.055% of par value. The Secured
Notes and the 2023 Notes are guaranteed by the Company and the Subsidiary Guarantors.
The Operating Partnership and its wholly-owned subsidiaries, CSL Capital, LLC and Uniti Fiber Holdings Inc., as
co-issuers, have outstanding $600 million aggregate principal amount of the 2024 Notes, of which $400 million was
originally issued on December 15, 2016 at an issue price of 100% of par value and the remaining $200 million of
which was issued on May 8, 2017 at an issue price of 100.50% of par value under a separate indenture and was
mandatorily exchanged on August 11, 2017 for 2024 Notes issued as “additional notes” under the indenture
governing the 2024 Notes. The 2024 Notes are guaranteed by the Company, Uniti Group Finance Inc. and the
Subsidiary Guarantors.
73
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Deferred Financing Cost
Deferred financing costs were incurred in connection with the issuance of the Notes and the Facilities. These costs
are amortized using the effective interest method over the term of the related indebtedness, and are included in
interest expense in our Consolidated Statements of Income. For the year ended December 31, 2017, 2016 and for the
period from April 24, 2015 to December 31, 2015, we recognized $13.6 million, $7.8 million and $4.8 million of
non-cash interest expense, respectively, related to the amortization of deferred financing costs.
Aggregate annual maturities of our long-term obligations at December 31, 2017 are as follows:
(Thousands)
2018
2019
2020
2021
2022
Thereafter
Total
$
$
21,079
21,079
301,079
21,079
2,002,571
2,260,000
4,626,887
As discussed in Note 6, we have acquired property pursuant to capital leases. At December 31, 2017, future
minimum lease payments under capital lease obligations are as follows:
(Thousands)
2018
2019
2020
2021
2022
Thereafter
Total minimum payments
Less amount representing interest
Total
Note 10. Stock-Based Compensation
$
$
8,407
8,083
7,048
6,309
6,155
53,461
89,463
(33,134)
56,329
The Company’s Board of Directors adopted the Uniti Group Inc. 2015 Equity Incentive Plan (the “Equity Plan”),
which is administered by the Compensation Committee of the Board of Directors. Awards issuable under the Equity
Plan include incentive stock options, “non-qualified” stock options, stock appreciation rights, performance units and
performance shares, restricted shares, and restricted stock units.
In connection with the Spin-Off, the Company issued 538,819 restricted shares and 70,889 performance-based
restricted stock units to employees of Windstream in accordance with the terms of the Employee Matters Agreement
between the Company and Windstream. Under the Employee Matters Agreement, which governs the compensation
and employee benefit obligations of Uniti and Windstream with respect to the current and former employees of each
company, employees of Windstream who held equity awards as of the date of the Spin-Off were entitled to receive
equity awards of Uniti in the same proportion as if the equity awards had been common shares on the date of the
Spin-Off. The Uniti awards issued have the same form and vesting requirements as the underlying Windstream
awards. For the purposes of vesting in the Uniti awards, continued service with Windstream is deemed to be
continued service with Uniti. We do not recognize any compensation expense in our Consolidated Statement of
Income related to these awards, as none of the employees granted awards provide service to Uniti. There were no
restricted shares and performance-based restricted stock units issued to Windstream employees that remained
outstanding at December 31, 2017.
74
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Restricted Awards
During the year ended December 31, 2017, the Company granted 234,294 shares of restricted stock to employees,
which had a fair value of $6.0 million as of the date of grant. We calculate the grant date fair value of non-vested
shares of restricted stock awards using the closing sale prices on the trading day on the grant date. The restricted
stock awards are amortized on a straight-line basis to expense over the vesting period, which is generally three
years. As of December 31, 2017, there were 4,992,583 shares available for future issuance under the Equity Plan.
The following table sets forth the number of unvested restricted stock awards and the weighted-average fair value of
these awards at the date of grant:
Restricted Awards
Weighted Average Fair Value at
Grant Date
Aggregate Intrinsic
Value(1) ($000s)
Unvested balance December 31, 2016
Granted
Forfeited
Vested
Unvested balance, December 31, 2017
493,891 $
234,294 $
(33,041) $
(106,956) $
588,188 $
22.60
25.56
24.77
20.73
24.00 $
10,464
(1) The aggregate intrinsic value is calculated as the market value of our common stock as of December 29, 2017.
The market value as of December 29, 2017 was $17.79 per share, which was the closing price of our common
stock reported for transactions effected on the NASDAQ Global Select Market on December 29, 2017, the final
trading day of 2017.
During the year ended December 31, 2016, there were 308,146 shares of restricted stock granted with a weighted-
average fair value of $20.56 per share. During the period from April 24, 2015 to December 31, 2015, there were
241,140 shares of restricted granted with a weighted-average fair value of $25.82 per share.
The total fair value of shares vested for the years ended December 31, 2017 and 2016 was $2.9 million and $1.1
million, respectively.
As of December 31, 2017, total unrecognized compensation expense on restricted awards was approximately $6.6
million, and the expense is expected to be recognized over a weighted average vesting period of 0.9 years.
Performance Awards
The Company grants long-term incentives to members of management in the form of performance-based restricted
stock units (“PSUs”) under the Equity Plan. The number of PSUs earned is based on the Company’s achievement of
specified performance goals, over a specified performance period, and may range from 0% to 200% of the target
shares. The PSUs have a service condition that will expire at the end of the three-year performance period provided
that the holder continues to be employed by the Company at the end of the performance period. Holders of PSUs are
entitled to dividend equivalents, which will be accrued quarterly and paid in cash upon the vesting of a PSU.
Dividend equivalents are forfeited to the extent that the underlying PSU is forfeited.
75
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
On February 13, 2017, we issued 91,995 PSUs equal to 100% of the target amount, with an aggregate value of $3.1
million on the grant date. The PSUs, in addition to a service condition, are subject to the Company’s performance
versus the total return of the MSCI US REIT Index and a triple-net lease peer group, as defined by the
Compensation Committee. Upon evaluating the results of the market conditions, the final number of shares is
determined and such shares vest based on satisfaction of the service condition. The PSUs are amortized on a
straight-line basis over the vesting period. During the year ended December 31, 2017, no PSUs were forfeited due to
termination of service. The following table sets forth the number of unvested PSUs and the weighted-average fair
value of these awards at the date of grant:
Unvested balance December 31, 2016
Granted
Forfeited
Vested
Unvested balance, December 31, 2017
Performance Awards
Weighted Average Fair
Value at Grant Date
Aggregate Intrinsic
Value(1) ($000s)
162,630 $
91,995 $
— $
— $
254,625 $
21.13
33.75
—
—
25.69
$
4,530
(1) The aggregate intrinsic value is calculated as the market value of our common stock as of December 29, 2017.
The market value as of December 29, 2017 was $17.79 per share, which was the closing price of our common
stock reported for transactions effected on the NASDAQ Global Select Market on December 29, 2017, the final
trading day of 2017.
During the year ended December 31, 2016, there were 101,660 PSUs granted with a weighted-average fair value of
$20.71 per share. During the period from April 24, 2015 to December 31, 2015, there were 60,970 PSUs granted
with a weighted-average fair value of $21.82 per share.
As of December 31, 2017, total unrecognized compensation expense related to PSUs was approximately $3.2
million, and the weighted-average vesting period was 1.3 years. The fair value of each PSU award is estimated at the
date of grant using a Monte Carlo simulation. The simulation requires assumptions for expected volatility, risk-free
return, and dividend yield. Our assumptions include a 0% dividend yield, which is the mathematical equivalent to
reinvesting the dividends over the three-year performance period as is consistent with the terms of the PSUs. The
following table summarizes the assumptions used to value the PSUs granted during the years ended December 31,
2017 and 2016 and for the period from April 24, 2015 to December 31, 2015:
Expected term (years)
Expected volatility
Expected annual dividend
Risk free rate
Year Ended December 31,
2017
2016
Period from
April 24 - December
31, 2015
3.0
33.6%
0.0%
1.5%
3.0
48.8%
0.0%
0.9%
2.9
26.6%
0.0%
0.9%
For the years ended December 31, 2017, 2016 and for the period from April 24, 2015 to December 31, 2015, we
recognized $7.7 million, $4.8 million and $1.9 million, respectively, of compensation expense related to restricted
stock awards and performance-based awards, which is recorded in general and administrative expense on our
Consolidated Statement of Income.
Note 11. Related Party Transactions
In connection with the Spin-Off, we issued approximately 149.8 million shares of our common stock, par value
$0.0001 per share, to Windstream as partial consideration for the contribution of the Distribution Systems and the
Consumer CLEC Business. Windstream Holdings distributed approximately 80.4% of the Uniti shares it received to
existing stockholders of Windstream Holdings and retained a passive ownership interest of approximately 19.6% of
the common stock of Uniti. As a result of this ownership Windstream was deemed to be a related party.
76
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
On June 15, 2016, Windstream Holdings disposed of 14.7 million shares of our common stock, representing
approximately half of its retained ownership interest. On June 24, 2016, Windstream Holdings disposed of its
remaining 14.7 million shares of our common stock as part of a public offering. The Company did not receive any
proceeds resulting from the disposition of these shares.
Accordingly, Windstream is no longer deemed a related party under applicable accounting regulations. Our
consolidated financial statements reflect the following transactions with Windstream during the periods in which
Windstream was deemed a related party.
Revenues – The Company records leasing revenue pursuant to the Master Lease. For the six months ended June 30,
2016, we recognized leasing revenues of $337.6 million related to the Master Lease. For the period from April 24,
2015 to December 31, 2015, we recognized leasing revenues of $458.6 million related to the Master Lease, which
includes $0.8 million of TCI revenue recognized as a result of upgrades made by Windstream to the Distribution
Systems.
General and Administrative Expenses – We are party to a Transition Services Agreement (“TSA”) pursuant to
which Windstream and its affiliates provide, on an interim basis, various services, including but not limited to
information technology services, payment processing and collection services, financial and tax services, regulatory
compliance and other support services. On April 1, 2016, the TSA ceased and we incurred $19,000 of related TSA
expense for the three months ended March 31, 2016. For the period from April 24, 2015 to December 31, 2015, we
incurred $0.1 million of expense under the TSA.
CLEC Operating Expenses – We are party to a Wholesale Master Services Agreement (“Wholesale Agreement”)
and a Master Services Agreement with Windstream related to the Consumer CLEC Business. Under the Wholesale
Agreement, Windstream provides us transport services (local and long distance telecommunications service),
provisioning services (directory assistance, directory listing, service activation and service changes), and repair
services (routine and emergency network maintenance, network audits and network security). Under the Master
Services Agreement, Windstream provides billing and collections services to Uniti. During the six months ended
June 30, 2016, we incurred expenses of $6.6 million and $0.9 million related to the Wholesale Agreement and
Master Services Agreement, respectively. During the period from April 24, 2015 to December 31, 2015 we incurred
expenses of $10.1 million and $1.1 million related to the Wholesale Agreement and Master Services Agreement,
respectively.
Employee Matters Agreement – We are party to an Employee Matters Agreement (“Employee Matters Agreement”)
with Windstream that governs the respective compensation and employee benefit obligations of the Company and
Windstream in connection with and following the Spin-Off. Under the Employee Matters Agreement, if requested
by a Windstream employee, the Company is required to withhold shares to satisfy the employee’s tax obligations
arising from the recognition of income and the vesting of shares related to awards of Uniti restricted stock held by
the employee that were granted in connection with the Spin-Off. In that case, the Company must pay to Windstream
an amount of cash equal to the amount required to be withheld to satisfy minimum statutory tax withholding
obligations or, at the request of Windstream, remit such cash directly to the applicable taxing authorities. During the
six months ended June 30, 2016, we withheld 91,412 common shares to satisfy these minimum statutory tax-
withholding obligations and delivered $1.9 million to Windstream for remittance to the applicable taxing authorities.
Tower Purchase – In May, 2016, we completed the previously announced transaction with Windstream to acquire 32
wireless towers owned by Windstream and operating rights for 49 wireless towers previously conveyed to the
Company in the Spin-Off for a purchase price of approximately $3 million.
Lease Amendment – During the quarter ended March 31, 2016, we amended the Master Lease with Windstream (the
“Master Lease Amendment”) to allow for the transfer of ownership rights or exchanges of indefeasible rights of use
(an “IRU”) and other long term rights in certain fiber and associated assets constituting leased property under the
Master Lease. We will enter into such transactions pursuant to certain fiber exchange agreements under which we
will grant to a third party ownership rights in certain fiber assets or an IRU in certain fiber assets that constitute
leased property under the Master Lease in exchange for Uniti receiving ownership rights in certain fiber assets or an
IRU in certain fiber assets of the third party, which we will then lease to Windstream as leased property under the
Master Lease. Under the terms of the Master Lease Amendment, Windstream is responsible for any taxes imposed
77
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
on Uniti related to the sale, exchange or other disposition of the fiber assets delivered to a third party or the granting
of rights to the leased property that arise from fiber exchange agreements. As of June 30, 2016, no such transactions
had been consummated. The Master Lease Amendment also permits us to install, own and operate certain wireless
communication towers, antennas and related equipment on designated portions of the leased property.
Landlord Funded Capital Expense – Windstream Holdings requested, and we funded, $43.1 million of capital
expenditures related to the Distribution Systems on December 29, 2015. Monthly rent paid by Windstream increased
in accordance with the Master Lease effective as of the date we provided the funding, which equates to
approximately $3.5 million of incremental rent per year.
Note 12. Earnings Per Share
Our restricted stock awards are considered participating securities as they receive non-forfeitable rights to dividends
at the same rate as common stock. As participating securities, we included these instruments in the computation of
earnings per share under the two-class method described in FASB ASC 260, Earnings per Share.
We also issue PSUs; however these units contain forfeitable rights to receive dividends and are therefore considered
non-participating restrictive shares and are not dilutive under the two-class method until performance conditions are
met. During the years ended December 31, 2017 and 2016, approximately 76,000 and 220,000 PSUs, respectively,
were excluded from the computation of diluted net loss per share because their effect is anti-dilutive as a result of
our net loss for these periods. For the period from April 24, 2015 through December 31, 2015, approximately 61,000
PSUs were excluded from the computation of diluted earnings per share as their performance conditions had not
been met.
The earnings per share impact of the Series A Shares (See Note 18) is calculated using the net share settlement
method, whereby the redemption value of the instrument is assumed to be settled in cash and only the conversion
premium, if any, is assumed to be settled in shares. The Series A Shares provide Uniti the option to cash or share
settle the instrument, and it is our policy to settle the instrument in cash upon conversion.
The Hunt merger agreement provides for the issuance of additional common shares upon the achievement of certain
defined revenue milestones. See Note 4. The earnings per share impact of the Hunt Contingent Consideration is
calculated under the method described in ASC 260 for the treatment of contingently issuable shares in weighted-
average shares outstanding.
78
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
The following sets forth the computation of basic and diluted earnings per share under the two-class method:
Year Ended December 31,
Period from
2017
2016
April 24 - December 31, 2015
(Thousands, except per share data)
Basic earnings per share:
Numerator:
Net (loss) income attributable to
shareholders
Less: Income allocated to
participating securities
Dividends declared on convertible
preferred stock
Amortization of discount on
convertible preferred stock
Net (loss) income attributable to
common shares
$
Denominator:
Basic weighted-average common shares
outstanding
Basic (loss) earnings per common share
$
(Thousands, except per share data)
Diluted earnings per share:
Numerator:
Net (loss) income attributable to
shareholders
Less: Income allocated to
participating securities
Dividends declared on convertible
preferred stock
Amortization of discount on
convertible preferred stock
Mark-to-market gain on share
settled contingent consideration
arrangments
Net (loss) income attributable to
common shares
Denominator:
Basic weighted-average common shares
outstanding
Contingent consideration (See Note
5)
Effect of dilutive non-participating
securities
Weighted-average shares for dilutive
earnings per common share
Dilutive (loss) earnings per common share
$
$
(9,439) $
(212) $
(1,509)
(1,557)
(2,624)
(1,743)
(2,980)
(1,985)
(16,552) $
(5,497) $
23,718
168,693
(0.10) $
152,473
(0.04) $
149,835
0.16
Year Ended December 31,
Period from
2017
2016
April 24 - December 31, 2015
$
(9,439) $
(212) $
(1,509)
(1,557)
(2,624)
(1,743)
(2,980)
(1,985)
(4,944)
—
$
(21,496) $
(5,497) $
23,718
24,870
(1,152)
—
—
24,870
(1,152)
—
—
—
168,693
152,473
149,835
296
—
—
—
168,989
(0.13) $
152,473
(0.04) $
—
—
149,835
0.16
79
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Note 13. Segment Information
Our management, including our chief executive officer, who is our chief operating decision maker, manages our
operations as four operating business segments in addition to our corporate operations and include:
Leasing: Represents our REIT operations and includes the results from our leasing programs, Uniti Leasing, which
is engaged in the acquisition of mission-critical communications assets and leasing them back to anchor customers
on either an exclusive or shared-tenant basis.
Fiber Infrastructure: Represents the operations of our fiber business, Uniti Fiber, which is a leading provider of
infrastructure solutions, including cell site backhaul and dark fiber, to the telecommunications industry.
Towers: Represents the operations of our towers business, Uniti Towers, through which we acquire and construct
tower and tower-related real estate in the United States and Latin America.
Consumer CLEC: Represents the operations of Talk America Services (“Talk America”) through which we operate
the Consumer CLEC Business, that prior to the Spin-Off was reported as an integrated operation within
Windstream. Talk America provides local telephone, high-speed internet and long distance services to customers in
the eastern and central United States.
Corporate: Represents our corporate and back office functions. Certain costs and expenses, primarily related to
headcount, insurance, professional fees and similar charges, that are directly attributable to operations of our
business segments are allocated to the respective segments.
Management evaluates the performance of each segment using Adjusted EBITDA, which is a segment performance
measure defined as net income determined in accordance with GAAP, before interest expense, provision for income
taxes, depreciation and amortization, stock-based compensation expense, the impact, which may be recurring in
nature, of transaction related expenses, the write off of unamortized deferred financing costs, costs incurred as a
result of the early repayment of debt, changes in the fair value of contingent consideration and financial instruments,
and other similar items. The Company believes that net income, as defined by GAAP, is the most appropriate
earnings metric; however we believe that Adjusted EBITDA serves as a useful supplement to net income because it
allows investors, analysts and management to evaluate the performance of our segments in a manner that is
comparable period over period. Adjusted EBITDA should not be considered as an alternative to net income as
determined in accordance with GAAP.
Selected financial data related to our segments is presented below for the years ended December 31, 2017 and 2016
and for the period from April 24, 2015 to December 31, 2015:
(Thousands)
Revenues
Adjusted EBITDA
Adjusted EBITDA margin
Less:
Interest expense
Depreciation and amortization
Other expense
Transaction related costs
Stock-based compensation
Income tax benefit
Net loss
Year Ended December 31, 2017
Leasing
$685,099
Fiber
Infrastructure
202,791
$
Towers
$ 10,055
Consumer
CLEC
$ 18,087
Total of
Reportable
Segments
- $916,032
Corporate
$
$683,651
$
99.8%
83,987
$
41.4%
(831)
(8.3%)
$ 4,556
$(21,839) $749,524
-
81.8%
25.2%
347,999
78,307
4,907
2,607
305,994
385 434,205
11,284
38,005
7,713
(38,849)
$ (8,828)
Capital expenditures (1)
$
-
$
152,918
$104,540
$
-
$
63 $257,521
80
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
(Thousands)
Revenues
Adjusted EBITDA
Adjusted EBITDA margin
Less:
Interest expense
Depreciation and amortization
Other expense
Transaction related costs
Stock-based compensation
Income tax expense
Net loss
Year Ended December 31, 2016
Leasing
$676,868
Fiber
Infrastructure
70,568
$
Towers
$
500
Consumer
CLEC
$ 22,472
Total of
Reportable
Segments
- $770,408
Corporate
$
$675,114
$
99.7%
25,912
$ (1,123)
$ 5,074
36.7%
(224.6%)
22.6%
$(14,793) $690,184
-
89.6%
343,368
28,629
337
3,258
275,394
378 375,970
-
33,669
4,846
517
(212)
$
Capital expenditures (1)
$
-
$
31,006
$ 15,262
$
-
$
175 $ 46,443
(Thousands)
Revenues
Leasing
$458,614
Infrastructure Towers
$
- $
Period from April 24, 2015 to December 31, 2015
Fiber
Consumer
CLEC
- $ 17,700
Corporate
- $
$
Total of Reportable
Segments
$457,704
$
99.8%
- $
-
- $ 3,957
-
22.4%
$ (8,364) $
-
235,967
-
-
2,571
210
Adjusted EBITDA
Adjusted EBITDA margin
Less:
Interest expense
Depreciation and amortization
Other expense
Transaction related costs
Stock-based compensation
Income tax expense
Net income
476,314
453,297
95.2%
181,797
238,748
-
5,210
1,934
738
24,870
Capital expenditures (1)
$ 43,077
$
- $
- $
-
$ 1,336 $
44,413
(1) Segment capital expenditures represents capital expenditures, the NMS asset acquisition and ground lease
investments as reported in the investing activities section of the Consolidated Statement of Cash Flows.
Total assets by business segment as of December 31, 2017 and December 31, 2016 are as follows:
(Thousands)
Leasing
Fiber Infrastructure
Towers
Consumer CLEC
Corporate
Total of reportable segments
81
December 31, 2017 December 31, 2016
$
2,238,517
914,082
18,004
14,239
133,910
3,318,752
2,121,857 $
2,009,175
157,180
10,919
30,951
4,330,082
$
$
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Our principal geographical regions consist of the United States and Latin America, which includes Mexico,
Colombia and Nicaragua. Summarized geographical information related to the Company’s revenues for the years
ended December 31 2017, 2016 and for the period from April 24, 2015 to December 31, 2015 is as follows:
(Thousands)
United States revenues
Latin America revenues
Total revenues
Year Ended December 31,
2017
2016
$
$
908,576 $
7,456
916,032 $
770,351 $
57
770,408 $
Period from
April 24 -
December 31, 2015
476,314
-
476,314
Summarized geographical information related to the Company’s long-lived assets as of December 31, 2017 and
2016 is as follows:
(Thousands)
United States long-lived assets
Latin America long-lived assets
Total long-lived assets
December 31,
2017
3,382,894 $
98,352
3,481,246 $
2016
2,826,442
2,179
2,828,621
$
$
Note 14. Commitments and Contingencies
In the ordinary course of our business, we are subject to claims and administrative proceedings, none of which we
believe are material or would be expected to have, individually or in the aggregate, a material adverse effect on our
business, financial condition, cash flows or results of operations.
We have fiber lease agreements and office space lease agreements under non-cancelable operating leases. Rental
expense under operating leases for the years ended December 31, 2017, 2016 and for the period from April 24, 2015
to December 31, 2015 approximated $25.2 million, $10.9 million and $132,000, respectively. Future minimum
payments, by year and in the aggregate, under non-cancellable operating leases with initial or remaining lease terms
of one year or more, are as follows:
(Thousands)
2018
2019
2020
2021
2022
Thereafter
Total
$
$
14,336
10,007
7,107
4,411
2,760
16,663
55,284
Pursuant to the Separation and Distribution Agreement, Windstream has agreed to indemnify us (including our
subsidiaries, directors, officers, employees and agents and certain other related parties) for any liability arising from
or relating to legal proceedings involving Windstream's telecommunications business prior to the Spin-Off, and,
pursuant to the Master Lease, Windstream has agreed to indemnify us for, among other things, any use, misuse,
maintenance or repair by Windstream with respect to the Distribution Systems. Windstream is currently a party to
various legal actions and administrative proceedings, including various claims arising in the ordinary course of its
telecommunications business, which are subject to the indemnities provided by Windstream to us.
Under the terms of the Tax Matters Agreement entered into with Windstream, we are generally responsible for any
taxes imposed on Windstream that arise from the failure of the Spin-Off and the debt exchanges to qualify as tax-
free for U.S. federal income tax purposes, within the meaning of Section 355 and Section 368(a)(1)(D) of the Code,
as applicable, to the extent such failure to qualify is attributable to certain actions, events or transactions relating to
82
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
our stock, indebtedness, assets or business, or a breach of the relevant representations or any covenants made by us
in the Tax Matters Agreement, the materials submitted to the IRS in connection with the request for the private letter
ruling or the representations provided in connection with the tax opinion. We believe that the probability of us
incurring obligations under the Tax Matters Agreement are remote; and therefore, have recorded no such liabilities
in our consolidated balance sheet.
Note 15. Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive income (loss) by component is as follows for the year ended
December 31, 2017:
(Thousands)
Cash flow hedge changes in fair value gain (loss):
$
Balance at beginning of period
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Net other comprehensive income
Less: Other comprehensive (loss) income attributable to
noncontrolling interest
Balance at end of period
Foreign currency translation gain (loss):
Balance at beginning of period
Translation adjustments
Net other comprehensive income
Less: Other comprehensive (loss) income attributable to
noncontrolling interest
Balance at end of period
Accumulated other comprehensive income (loss) at end of
period
2017
2016
2015
(6,102) $
(7,735)
(5,427) $
(24,465)
—
(21,682)
20,630
6,793
442
6,351
(267)
1,660
1,393
(77)
1,470
23,790
(6,102)
—
(6,102)
—
(267)
(267)
—
(267)
16,255
(5,427)
—
(5,427)
—
—
—
—
-
$
7,821 $
(6,369) $
(5,427)
Note 16. Income Taxes
We have elected on our U.S. federal income tax return to be treated as a REIT and thus have no provision for U.S.
federal income tax related to activities of the REIT and its passthrough subsidiaries. The REIT and certain of its
subsidiaries are subject to certain state and local income taxes, franchise taxes, and gross receipts taxes. Our TRSs
are subject to U.S. federal, state and local corporate income taxes.
83
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Income tax expense (benefit) for the years ended December 31, 2017 and 2016 and for the period from April 24,
2015 to December 31, 2015 as reported in the accompanying Consolidated Statement of Income was comprised of
the following:
(Thousands)
Current
Federal
State
Total current expense
Deferred
Federal
State
Foreign
Total deferred expense
Total income tax (benefit) expense
Year Ended December 31,
2017
2016
Period from
April 24 - December
31, 2015
$
$
1,456 $
866
2,322
(36,956)
(3,837)
(378)
(41,171)
(38,849) $
1,596 $
1,107
2,703
(1,488)
(698)
-
(2,186)
517 $
1,208
741
1,949
(770)
(441)
-
(1,211)
738
An income tax expense reconciliation between the U.S. statutory tax rate and the effective tax rate is as follows:
$
(Thousands)
Income from continuing operations, before tax
Income tax at U.S. statutory federal rate
Increases (decreases) resulting from:
State taxes, net of federal benefit
Benefit of REIT status
Capitalized transaction costs
Change in valuation allowance
Adjustment of deferred tax balances
Permanent differences
Foreign taxes
Rate differential
Income tax (benefit) expense
$
Year Ended December 31,
2017
2016
Period from
April 24 - December
31, 2015
(47,667) $
(16,687)
(429)
8,836
(4,820)
(8,176)
(217)
60
(378)
(17,038)
(38,849) $
$
305
107
(224)
(4,016)
(3,915)
8,176
149
52
-
188
517 $
24,795
8,665
266
(8,193)
-
-
-
-
-
-
738
The effective tax rate on income from continuing operations differs from tax at the statutory rate primarily due to
our status as a REIT, certain capitalized costs incurred to acquire assets that were transferred to a TRS, changes in
valuation allowance related to deferred tax assets of a TRS, and the impact of corporate tax reform, discussed below.
The Tax Cuts and Jobs Act (“Tax Bill”) was enacted on December 22, 2017. The Tax Bill reduces the U.S. federal
corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain
foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.
At December 31, 2017, we have not completed our accounting for the tax effects of enactment of the Tax Bill;
however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing
deferred tax balances and the one-time transition tax. In other cases, we have not been able to make a reasonable
estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes,
and the provisions of the tax laws that were in effect immediately prior to enactment.
For the items for which we were able to determine a reasonable estimate, we recognized a non-cash provisional
benefit in the amount of $17.0 million due to the revaluing of the Company’s deferred tax liabilities, which is
84
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
included as a component of income tax expense from continuing operations. Given the current structure of the
Company, it is anticipated that there will be limited to no impact related to the one-time transition tax on historic
foreign earnings.
Future regulatory and rulemaking interpretations and decisions of the Tax Bill may impact the Company’s tax
position. Therefore the estimated impact of provisions outside of the write-down of cumulative deferred tax
liabilities remains uncertain. Corrective or supplemental legislation and its impact will be considered in the
Company’s financial statements in the period ending September 30, 2018.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
The components of the Company's deferred tax assets and liabilities are as follows:
(Thousands)
Deferred tax assets:
Deferred revenue
Accrued bonuses
Goodwill
Stock based compensation
Accrued expenses and other
Asset retirement obligation
Inventory reserve
Net operating loss carryforwards
Deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Property, plant & equipment
Customer list intangible
Other intangible amortization
Other
Deferred tax liabilities
Deferred tax liability, net
$
$
$
$
December 31, 2017
December 31, 2016
17,114 $
101
-
506
2,023
1,341
248
36,229
57,562
-
57,562
(43,817) $
(68,795)
(291)
(137)
(113,040) $
(55,478) $
4,244
520
1,886
179
802
790
401
39,916
48,738
(8,176)
40,562
(20,923)
(47,721)
(137)
(175)
(68,956)
(28,394)
As of December 31, 2016, the Company’s deferred tax assets were primarily the result of U.S. federal and state
NOL carryforwards. A valuation allowance of $8.2 million was recorded against its gross deferred tax asset balance
as of December 31, 2016. During 2017, the Company recorded a full-year valuation allowance release of $8.2
million on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than
not to be realized.
As of each reporting date, the Company’s management considers new evidence, both positive and negative, that
could impact management’s view with regard to future realization of deferred tax assets. Given the Company has
significant deferred tax liabilities which are not limited by Sec. 269(a)(1) of the Code, management determined that
sufficient positive evidence exists as of December 31, 2017, to conclude that it is more likely than not that additional
deferred taxes of $8,176 are realizable, and therefore, removed the valuation allowance accordingly.
On August 31, 2016, we acquired 100% of the outstanding equity of Tower Cloud, Inc., which had federal NOL
carryforwards of approximately $81.2 million at the date of the acquisition that will expire between 2026 and 2036.
As a result of the change in ownership, the utilization of Tower Cloud, Inc. NOL carryforwards is subject to
limitations imposed by the Code.
85
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
We have total federal NOL carryforwards as of December 31, 2017 of approximately $133.8 million which will
expire between 2026 and 2037.
With the exception of Tower Cloud, Inc., our 2014 returns remain open to examination. As Tower Cloud, Inc. has
NOLs available to carry forward, the applicable tax years will generally remain open to examination several years
after the applicable loss carryforwards have been utilized or expire.
The Company or its subsidiaries file tax returns in the U.S. federal jurisdiction, various state and local jurisdictions,
and certain foreign jurisdictions. A reconciliation of the Company’s beginning and ending liability for unrecognized
tax benefits is as follows:
(Thousands)
Balance at January 1
Additions related to acquisitions
Additions for tax positions for the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Balance at December 31
$
$
2017
-
3,036
-
-
-
-
3,036
The Company’s entire liability for unrecognized tax benefit would affect the annual effective tax rate if recognized.
The Company does not expect a significant change in the balance of unrecognized tax benefits within the next 12
months.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as additional tax
expense. The Company recorded no interest expense or penalties for the period ending December 31, 2017. The
Company’s balance of accrued interest and penalties related to unrecognized tax benefits as of December 31, 2017
was $2.3 million.
Note 17. Supplemental Cash Flow Information
Cash paid for interest expense and income taxes is as follows:
(Thousands)
Supplemental cash flow information:
Cash paid for interest
Cash paid for income taxes
Note 18. Capital Stock
Year Ended December 31,
2017
2016
Period from
April 24 -
December 31, 2015
$
$
276,071
4,388
$
$
255,945 $
3,003 $
147,428
1,284
On April 25, 2017, we issued 19.5 million shares of our common stock, par value $0.0001 per share. The shares
were sold at a public offering price of $26.50, generating proceeds of approximately $518 million, before
underwriter discounts and transaction costs. The Company used the proceeds from this offering to fund a portion of
the cash consideration paid in connection with the acquisitions of Southern Light and Hunt that closed on July 3,
2017.
On August 31, 2016, we issued 1.9 million shares of our common stock, par value $0.0001 per share, as partial
consideration for all outstanding equity interests of Tower Cloud. See Note 4.
On June 24, 2016, in connection with Windstream’s disposition of its retained ownership interest in Uniti pursuant
to the public offering (See Note 11), we issued 2.2 million additional shares of our common stock. The shares were
sold at a public offering price of $26.01, resulting in proceeds to the Company of $54.8 million, net of underwriting
discounts and commissions, which were used to repay existing borrowings under our Revolving Credit Facility.
On May 2, 2016, we issued 1 million shares of our common stock, par value $0.0001 per share, as partial
consideration for all outstanding equity interests of PEG Bandwidth. See Note 4. In addition, we issued 87,500
86
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
shares of the Company’s 3% Series A Convertible Preferred Stock, $0.0001 par value (“Series A Shares”), with a
liquidation value of $87.5 million. The Series A Shares are non-voting and entitle the holders to receive cumulative
dividends at the rate per annum of 3.0%, payable in cash. Holders of the Series A Shares have the option to convert
at any time after three years, or are mandatorily convertible after eight years at a conversion rate of 28.5714 shares
of common stock per Series A Share, subject to adjustment for certain dilutive events not to exceed a conversion
rate of 50.5305 shares of common stock per Series A Share. The Series A Shares provide us the option to cash or
share settle, and it is our policy to settle in cash upon conversion. Upon liquidation, each holder of the Series A
Shares shall be entitled to receive the liquidation preference per share of $1,000 plus an amount equal to the
accumulated and unpaid dividends on such shares. The Series A Shares were recorded at inception on the
Consolidated Balance Sheet as mezzanine equity at fair value.
We are authorized to issue up to 500,000,000 shares of voting common stock and 50,000,000 shares of preferred
stock, of which 174,851,514 and 0 shares, respectively, were outstanding at December 31, 2017. We had
325,148,486 shares of voting common stock available for issuance at December 31, 2017.
Note 19. Dividends (Distributions)
Distributions with respect to our common stock is characterized for federal income tax purposes as taxable ordinary
dividends, capital gains dividends, non-dividend distribution or a combination thereof. For the years ended
December 31, 2017 and 2016 and for the period from April 24, 2015 to December 31, 2015 our common stock
distribution per share was $2.40, $2.40 and $1.04, respectively, characterized as follows:
Ordinary dividends
Non-dividend distributions
Total
$
$
1.22 $
1.18
2.40 $
1.31 $
1.09
2.40 $
0.87
0.17
1.04
Year Ended December 31,
2017
2016
Period from
April 24 - December 31,
2015
Note 20. Future Minimum Rents
Future minimum lease payments to be received, excluding operating expense reimbursements, from tenant under
non-cancelable operating leases as of December 31, 2017, are as follows:
(Thousands)
2017
2018
2019
2020
2021
Thereafter
Total
$
$
661,859
666,703
669,838
672,998
675,904
5,109,341
8,456,643
Note 21. Employee Benefit Plan
We sponsor a defined contribution plan under section 401(k) of the Internal Revenue Code, which covers employees
who are 21 years of age and over. Under this plan, we match voluntary employee contributions at a rate of 100% for
the first 3% of an employee’s annual compensation and at a rate of 50% for the next 2% of an employee’s annual
compensation. Employees vest in our contribution immediately. Our expense related to the plan recognized for the
years ended December 31, 2017, 2016 and for the period April 24, 2015 to December 31, 2015 was $0.8 million,
$0.4 million and $0.1 million, respectively.
We sponsor a deferred compensation plan. The plan is established and maintained by the Company primarily to
permit certain management or highly compensated employees of the Company and its subsidiaries, within the
meaning of Section 301(a) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), to
87
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
defer a percentage of their compensation. The plan is an unfunded deferred compensation plan intended to qualify
for the exemptions provided in, and shall be administered in a manner consistent with Section 201, 301 and 401 of
ERISA and Section 409A of the Internal Revenue Code of 1986, as amended.
Note 22. Subsequent Events
On March 1, 2018, we announced that Uniti has entered into agreements to acquire and lease-back fiber assets from
privately-held U.S. TelePacific holding Corp. (“TPx”) for aggregate consideration of $95 million in cash. In the
transactions, Uniti will acquire and leaseback to TPx, on a triple-net basis, 38,000 fiber strand miles located across
California, Nevada, Texas, and Massachusetts. In addition, Uniti will acquire and have exclusive use of 7,000 fiber
strand miles located in Texas, which are adjacent to Uniti Fiber’s southern network footprint. Uniti will also have
non-exclusive rights to market, on behalf of TPx, certain of the fiber assets in California and Massachusetts.
The transactions are subject to customary closing conditions and are expected to close in two tranches, with the non-
California assets expected to close in the second quarter of 2018 and the remaining California assets to close in the
third quarter of 2018. The initial lease term will be 15 years with five 5-year renewal options at TPx’s
discretion. Upon the closing of both transactions, annual cash rent will initially be $8.8 million with a fixed annual
escalator of 1.5%.
Note 23. Supplemental Guarantor Information
Pursuant to SEC Regulation S-X Rule 3-10 “Financial statements of guarantors and issuers of guaranteed securities
registered or being registered,” the Company historically has provided condensed consolidating financial
information for CSL Capital and the Guarantors because the 2023 Notes and the guarantees thereof were previously
registered with the SEC under the Securities Act of 1933, as amended. Effective as of May 9, 2017 (the effective
date of the previously announced up-REIT Reorganization (see Note 9)), the 2023 Notes ceased to be an obligation
of the Company, and the Company was no longer required to provide supplemental guarantor information related to
the 2023 Notes.
Note 24. Quarterly Results of Operations (unaudited)
Selected quarterly information for each of the four quarters in the year ended December 31, 2017:
(Thousands, except per share data)
Total revenues
Loss before income taxes
Net (loss) income
Net (loss) income attributable to common
shareholders
Basic (loss) earnings per common share
Diluted (loss) earnings per common share
Dividends declared per common share
2017
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
211,473 $
(20,379)
(20,000)
213,013 $
(16,385)
(16,460)
245,210 $
(3,837)
4,835
246,336
(7,076)
22,797
(21,788)
(18,242)
2,939
(0.14) $
(0.14) $
0.60 $
(0.11) $
(0.11) $
0.60 $
0.02 $
(0.02) $
0.60 $
20,539
-
0.12
0.12
0.60
$
$
$
$
88
Uniti Group Inc.
Notes to the Consolidated Financial Statements – Continued
Selected quarterly information for each of the four quarters in the year ended December 31, 2016:
(Thousands, except per share data)
Total revenues
Income (loss) before income taxes
Net income (loss)
Net income (loss) attributable to common
shareholders
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Dividends declared per common share
$
$
$
$
2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
174,675 $
8,480
8,036
188,573 $
(1,208)
(1,535)
200,240 $
(2,215)
(2,343)
206,920
(4,752)
(4,370)
7,681
(2,871)
(4,144)
(6,163)
0.05 $
0.05 $
0.60 $
(0.02) $
(0.02) $
0.60 $
(0.03) $
(0.03) $
0.60 $
(0.04)
(0.04)
0.60
89
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Uniti Group Inc.
We have audited the accompanying special purpose statement of revenue and direct expenses for the period from
January 1, 2015 to April 24, 2015 of the Competitive Local Exchange Carrier (“CLEC”) Business of Windstream
Holdings, Inc. This special purpose financial statement is the responsibility of the Company’s management. Our
responsibility is to express an opinion on this special purpose financial statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the special purpose financial statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the special purpose financial statement. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall special purpose financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying special purpose financial statement was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission as described in Note 2 and are not intended to be a complete
presentation of CLEC’s revenues and expenses.
In our opinion, the special purpose financial statement referred to above present fairly, in all material respects, the
revenues and direct expenses for the period from January 1, 2015 through April 24, 2015 of the CLEC Business of
Windstream Holdings, Inc. in conformity with accounting principles generally accepted in the United States of
America.
/s/ PricewaterhouseCoopers LLP
Little Rock, Arkansas
March 7, 2016
90
Consumer CLEC Business
Statement of Revenues and Direct Expenses
(Thousands)
Revenues
Direct expenses:
Cost of revenues
Selling, general, and administrative
Amortization
Total direct expenses
Revenues in Excess of Direct Expenses
For the Period
January 1 - April 24, 2015
10,149
$
5,552
22
1,283
6,857
3,292
$
The accompanying notes are an integral part of these financial statements.
91
Consumer CLEC Business
Notes to Financial Statement
Note 1. Description of Business
Uniti Group Inc. (the “Company,” “Uniti,” “we,” “us” or “our”), formerly known as Communications Sales and
Leasing, Inc., was incorporated in the state of Delaware in February 2014 and reorganized in the state of Maryland
on September 4, 2014. On April 24, 2015, in connection with the separation and spin-off of Uniti from Windstream
Holdings, Inc. (“Windstream Holdings” and together with its consolidated subsidiaries “Windstream”), Windstream
contributed certain telecommunications network assets, including fiber and copper networks and other real estate
(the “Distribution Systems”) and a small consumer competitive local exchange carrier (“CLEC”) business (the
“Consumer CLEC Business”) to Uniti in exchange for cash, shares of common stock of Uniti and certain
indebtedness of Uniti (the “Spin-Off”).
The Consumer CLEC Business, which historically has been reported as an integrated operation within Windstream,
offers voice, broadband, long-distance, and value-added services to residential customers located primarily in rural
locations. Substantially all of the network assets used to provide these services to customers are contracted through
interconnection agreements with other telecommunications carriers. Prior to the Spin-Off, Windstream ceased
accepting new residential customers in the service areas covered by the Consumer CLEC Business.
Note 2. Basis of Presentation
Subsequent to the Spin-Off, all financial results of the Consumer CLEC Business are reported within the
consolidated financial statements of Uniti. The accompanying Statement of Revenues and Direct Expenses for the
period January 1, 2015 to April 24, 2015 (the “Spin Date”) has been prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (the “SEC”), as permitted by the SEC and is not
intended to be a complete presentation of the results of operations of the Consumer CLEC Business. The elements of
the financial statements are stated in accordance with accounting principles generally accepted in the United States
(“GAAP”). Certain information and footnote disclosures have been condensed or omitted as permitted by the SEC’s
rules and regulations. In the opinion of management, all adjustments considered necessary for a fair statement of the
results presented have been included. The results of operations for the period presented are not necessarily indicative
of results of the Consumer CLEC Business following the Spin-Off.
The accompanying Statement of Revenues and Direct Expenses include all direct costs incurred in connection with
the operation of the Consumer CLEC Business for which specific identification was practicable. In addition, direct
costs incurred by Windstream to operate the Consumer CLEC Business for which specific identification was not
practicable have been allocated based on assumptions that management believes reasonable under the circumstances
as more fully discussed in Note 4. The Statement of Revenues and Direct Expenses excludes costs that are not
directly related to the Consumer CLEC Business including general corporate overhead costs, interest expense and
income taxes.
Note 3. Summary of Significant Accounting Policies
Use of Estimates —The preparation of financial statements, in accordance with GAAP, requires management to
make estimates and assumptions that affect the reported amounts of revenues and expenses. The estimates and
assumptions used in the accompanying financial statement are based upon management’s evaluation of the relevant
facts and circumstances as of the date of the financial statement. Actual results may differ from the estimates and
assumptions used in preparing the accompanying financial statement, and such differences could be material.
Revenue Recognition—Service revenues are primarily derived from providing access to or usage of leased networks
and facilities. Service revenues are recognized over the period that the corresponding services are rendered to
customers. Revenues derived from other telecommunications services, including broadband, long distance and
enhanced service revenues are recognized monthly as services are provided. Sales of customer premise equipment
and modems are recognized when products are delivered to and accepted by customers.
92
Consumer CLEC Business
Notes to Financial Statement – Continued
In assessing collectability of receivables, management considers a number of factors, including historical collection
experience, aging of the accounts receivable balances and current economic conditions. When internal collection
efforts on accounts have been exhausted, the accounts are written off by reducing the allowance for doubtful
accounts. The provision for doubtful accounts, which is included in cost of service, was $111,000 for the period
from January 1, 2015 to Spin Date.
Subsequent Events—The accompanying financial statements of the Consumer CLEC Business are derived from the
consolidated financial statements of Windstream, which issued its audited consolidated financial statements as of
and for the year ended December 31, 2015 on February 25, 2016. Accordingly, management has evaluated
transactions for consideration as recognized subsequent events in the accompanying financial statement through the
date of February 25, 2016. In addition, management has evaluated transactions that occurred as of the issuance of
these financial statements on March 7, 2016 for purposes of disclosure of unrecognized subsequent events.
Note 4. Allocations
As described in Note 2, the accompanying Statement of Revenues and Direct Expenses of the Consumer CLEC
Business includes all direct costs incurred in connection with the operation of the Consumer CLEC Business for
which specific identification was practicable. In addition, certain costs incurred by Windstream to operate the
Consumer CLEC Business for which specific identification was not practicable have been allocated based on
revenues and sales. These allocated expenses are included in “Cost of revenues” and “Selling, general and
administrative.”
General and administrative costs incurred by Windstream not directly related to the Consumer CLEC Business have
not been allocated to these operations. Costs not allocated include amounts related to executive management,
accounting, treasury and cash management, data processing, legal, human resources and certain occupancy costs.
93
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the
Exchange Act, that are designed to ensure that information required to be disclosed by us in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to management, including our principal executive and
principal financial officers as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated
the effectiveness of our disclosure controls and procedures as of December 31, 2017. Based on this evaluation, our
principal executive officer and principal financial officer concluded that our disclosure controls and procedures were
effective as of December 31, 2017.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles, and includes
those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the
Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may
deteriorate.
On July 3, 2017, the Company completed the acquisitions of Southern Light, LLC and Hunt Telecommunications,
LLC. Management excluded Southern Light, LLC and Hunt Telecommunications, LLC from its assessment of
internal control over financial reporting as of December 31, 2017 because they were acquired by the Company in
purchase business combinations in 2017. Southern Light, LLC and Hunt Telecommunications, LLC represent
11.0% and 3.5% of total assets, respectively and 5.0% and 1.8% of total revenue, respectively, of the related
consolidated financial statement amounts as of and for the year ended December 31, 2017.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated
the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control - Integrated Framework (2013).
94
Based on this evaluation under the framework in Internal Control - Integrated Framework (2013) issued by COSO,
management concluded the Company’s internal control over financial reporting was effective as of December 31,
2017.
The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, who has audited the
consolidated financial statements included in this Annual Report on Form 10-K, has also audited the effectiveness of
the Company’s internal control over financial reporting as of December 31, 2017, as stated in their report which
appears in Part II, Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended
December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information.
None
95
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Except as set forth below, the information required by this item is incorporated by reference from the definitive
proxy statement to be filed within 120 days after December 31, 2017, pursuant to Regulation 14A under the
Exchange Act in connection with our 2018 annual meeting of stockholders.
We have a code of ethics as defined in Item 406 of Regulation S-K, which code applies to all of our directors and
employees, including our principal executive officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions. A copy of this code of ethics, titled “Code of Business Conduct
and Ethics & Whistleblower Policy,” is available free of charge in the Corporate Goverance section of the About Us
page on our website at www.uniti.com. We intend to satisfy the disclosure requirements of Form 8-K regarding any
amendment to, or a waiver from, any provision of our code of ethics by posting such amendment or waiver on our
website.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference from the definitive proxy statement to be filed
within 120 days after December 31, 2017, pursuant to Regulation 14A under the Exchange Act in connection with
our 2018 annual meeting of stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Except as set forth below, the information required by this item is incorporated by reference from the definitive
proxy statement to be filed within 120 days after December 31, 2017, pursuant to Regulation 14A under the
Exchange Act in connection with our 2018 annual meeting of stockholders.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table contains information about our equity compensation plan as of December 31, 2017:
EQUITY COMPENSATION PLAN INFORMATION
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
(c)
-
-
-
-
-
-
4,992,5831
-
4,992,583
Plan category
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved by
security holders
Total
1
Shares available for issuance under the Uniti Group Inc. 2015 Equity Incentive Plan.
96
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference from the definitive proxy statement to be filed
within 120 days after December 31, 2017, pursuant to Regulation 14A under the Exchange Act in connection with
our 2018 annual meeting of stockholders.
Item 14. Principal Accounting Fees and Services.
The information required by this item is incorporated by reference from the definitive proxy statement to be filed
within 120 days after December 31, 2017, pursuant to Regulation 14A under the Exchange Act in connection with
our 2018 annual meeting of stockholders.
97
Item 15. Exhibits, Financial Statement Schedules.
Financial Statements
PART IV
See Index to Consolidated Financial Statements in “Financial Statements and Supplementary Data.”
Financial Statement Schedules
Uniti Group Inc. Schedule I – Condensed Financial Information of the Registrant (Parent Company) on page S-1 of
this report.
Uniti Group Inc. Schedule II – Valuation and Qualifying Accounts on page S-5 of this report.
Uniti Group Inc. Schedule III – Schedule of Real Estate Investments and Accumulated Depreciation on page S-6 of
this report.
Index to Exhibits
Exhibit No.
Description
2.1
2.2
2.3**
2.4
2.5
2.6
3.1
3.2
Separation and Distribution Agreement, dated as of March 26, 2015, by and among Windstream
Holdings, Inc., Windstream Services, LLC and Communications Sales & Leasing, Inc.
(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated and
filed with the SEC as of March 26, 2015 (File No. 001-36708))
Agreement and Plan of Merger, dated as of January 7, 2016, by and among Communications Sales
& Leasing, Inc., CSL Bandwidth Inc., Penn Merger Sub, LLC, PEG Bandwidth, LLC, PEG
Bandwidth Holdings, LLC, and PEG Bandwidth Holdings, LLC, as Unitholders’ Representative
(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated and
filed with the SEC as of January 12, 2016 (File No. 001-36708))
Agreement and Plan of Merger, dated as of June 20, 2016, by and among Communications Sales &
Leasing, Inc., CSL Fiber Holdings LLC, Thor Merger Sub, Inc., Tower Cloud, Inc. and Shareholder
Representative Services LLC, as representative of the equityholders of Tower Cloud, Inc.
(incorporated by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q dated
and filed with the SEC as of August 11, 2016 (File No. 001-36708))
First Amendment, dated as of August 11, 2016, to the Agreement and Plan of Merger, dated as of
June 20, 2016, by and among Communications Sales & Leasing, Inc., CSL Fiber Holdings LLC,
Thor Merger Sub, Inc., Tower Cloud, Inc. and Shareholder Representative Services LLC, as
representative of the equityholders of Tower Cloud, Inc. (incorporated by reference to Exhibit 2.2 to
the Company’s Quarterly Report on Form 10-Q dated and filed with the SEC as of August 11, 2016
(File No. 001-36708))
Membership Interests Purchase Agreement, dated as of April 7, 2017, by and among Uniti Group
Inc., Uniti Fiber Holdings Inc. and SLF Holdings, LLC (incorporated by reference to Exhibit 2.1 to
the Company’s Current Report on Form 8-K dated and filed with the SEC as of April 11, 2017 (File
No. 001-36708))
Amended and Restated Agreement of Limited Partnership of Uniti Group LP, dated July 3, 2017, by
and between Uniti and Uniti Group LP LLC (incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K dated and filed with the SEC as of July 3, 2017 (File No.
001-36708))
Articles of Amendment and Restatement of Communications Sales & Leasing, Inc. (incorporated by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated and filed with the
SEC as of April 10, 2015 (File No. 001-36708))
Articles of Amendment of Communications Sales & Leasing, Inc. (incorporated by reference to
Exhibit 3.1 to the Company’s Current Report on Form 8-K dated and filed with the SEC as of
February 28, 2017 (File No. 001-36708))
98
Exhibit No.
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
Description
Amended and Restated Bylaws of Uniti Group Inc. (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K dated as of May 1, 2017 and filed with the SEC as of May
2, 2017 (File No. 001-36708))
Indenture, dated as of April 24, 2015, among Communications Sales & Leasing, Inc. and CSL
Capital, LLC, as Issuers, the guarantors named therein, and Wells Fargo Bank, National
Association, as trustee, governing the 8.25% Senior Notes due 2023 (incorporated by reference to
Exhibit 4.2 to the Company’s Current Report on Form 8-K dated and filed with the SEC as of April
27, 2015 (File No. 001-36708))
Form of 8.25% Senior Note due 2023 (included in Exhibit 4.1 above) (incorporated by reference to
Exhibit 4.4 to the Company’s Current Report on Form 8-K dated and filed with the SEC as of April
27, 2015 (File No. 001-36708))
Second Supplemental Indenture (8.25% Senior Notes due 2023), dated as of October 19, 2016,
among Communications Sales & Leasing, Inc. and CSL Capital, LLC, as Issuers, the guarantors
thereto and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.3 to the
Company’s Annual Report on Form 10-K dated and filed with the SEC as of February 23, 2017
(File No. 001-36708))
Fifth Supplemental Indenture, dated as of May 9, 2017, to the indenture dated as of April 24, 2015,
among Uniti Group LP, Uniti Group Finance Inc., CSL Capital, LLC, Uniti Group Inc., the
guarantors named therein and Wells Fargo Bank, National Association, as trustee, governing the
8.25% Senior Notes due 2023 (incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K dated and filed with the SEC as of May 9, 2017 (File No. 001-36708))
Sixth Supplemental Indenture, dated as of May 9, 2017, to the indenture dated as of April 24, 2015,
among Uniti Group LP, Uniti Group Finance Inc., CSL Capital, LLC, Uniti Group Inc., the
guarantors named therein and Wells Fargo Bank, National Association, as trustee, governing the
8.25% Senior Notes due 2023 (incorporated by reference to Exhibit 4.2 to the Company’s Current
Report on Form 8-K dated and filed with the SEC as of May 9, 2017 (File No. 001-36708))
Indenture, dated as of April 24, 2015, among Communications Sales & Leasing, Inc. and CSL
Capital, LLC, as Issuers, the guarantors named therein, and Wells Fargo Bank, National
Association, as trustee and as collateral agent, governing the 6.00% Senior Secured Notes due 2023
(incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated and
filed with the SEC as of April 27, 2015 (File No. 001-36708))
Form of 6.00% Senior Secured Note due 2023 (included in Exhibit 4.6 above) (incorporated by
reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K dated and filed with the
SEC as of April 27, 2015 (File No. 001-36708))
Second Supplemental Indenture (6.00% Senior Secured Notes due 2023), dated as of June 14, 2016,
among Communications Sales & Leasing, Inc. and CSL Capital, LLC, as Issuers, the guarantors
thereto and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.6 to the
Company’s Annual Report on Form 10-K dated and filed with the SEC as of February 23, 2017
(File No. 001-36708))
Third Supplemental Indenture (6.00% Senior Secured Notes due 2023), dated as of October 19,
2016, among Communications Sales & Leasing, Inc. and CSL Capital, LLC, as Issuers, the
guarantors thereto and Wells Fargo Bank, National Association (incorporated by reference to
Exhibit 4.7 to the Company’s Annual Report on Form 10-K dated and filed with the SEC as of
February 23, 2017 (File No. 001-36708))
Sixth Supplemental Indenture, dated as of May 9, 2017, to the indenture dated as of April 24, 2015,
among Uniti Group LP, Uniti Group Finance Inc., CSL Capital, LLC, Uniti Group Inc., the
guarantors named therein and Wells Fargo Bank, National Association, as trustee and collateral
agent, governing the 6.00% Senior Secured Notes due 2023 (incorporated by reference to Exhibit
4.3 to the Company’s Current Report on Form 8-K dated and filed with the SEC as of May 9, 2017
(File No. 001-36708))
99
Exhibit No.
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
Description
Seventh Supplemental Indenture, dated as of May 9, 2017, to the indenture dated as of April 24,
2015, among Uniti Group LP, Uniti Group Finance Inc., CSL Capital, LLC, Uniti Group Inc., the
guarantors named therein and Wells Fargo Bank, National Association, as trustee and collateral
agent, governing the 6.00% Senior Secured Notes due 2023 (incorporated by reference to Exhibit
4.4 to the Company’s Current Report on Form 8-K dated and filed with the SEC as of May 9, 2017
(File No. 001-36708))
Articles Supplementary for 3.00% Series A Convertible Preferred Stock (incorporated by reference
to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated and filed with the SEC as of
May 4, 2016 (File No. 001-36708))
Articles of Amendment to Articles Supplementary for 3.00% Series A Convertible Preferred Stock
(incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated and
filed with the SEC as of May 9, 2017 (File No. 001-36708))
Indenture, dated as of December 15, 2016, among Communications Sales & Leasing, Inc. and CSL
Capital, LLC, as Issuers, the guarantors named therein, and Wells Fargo Bank, National
Association, as trustee, governing the 7.125% Senior Notes due 2024 (incorporated by reference to
Exhibit 4.1 of the Company’s Current Report on Form 8-K dated and filed with the SEC as of
December 15, 2016 (File No. 001-36708))
Form of 7.125% Senior Note due 2024 (included in Exhibit 4.14 above) (incorporated by reference
to Exhibit 4.2 of the Company’s Current Report on Form 8-K dated and filed with the SEC as of
December 15, 2016 (File No. 001-36708))
First Supplemental Indenture, dated as of February 22, 2017, to the Indenture, dated as of December
15, 2016, among Communications Sales & Leasing, Inc. and CSL Capital, LLC, as Issuers, the
guarantors named therein, and Wells Fargo Bank, National Association, as trustee, governing the
7.125% Senior Notes due 2024 (incorporated by reference to Exhibit 4.11 to the Company’s Annual
Report on Form 10-K dated and filed with the SEC as of February 23, 2017 (File No. 001-36708))
Third Supplemental Indenture, dated as of May 9, 2017, to the indenture dated as of December 15,
2016, among Uniti Group LP, Uniti Fiber Holdings Inc., CSL Capital, LLC, Uniti Group Inc., the
guarantors named therein and Wells Fargo Bank, National Association, as trustee, governing the
7.125% Senior Notes due 2024 (incorporated by reference to Exhibit 4.5 to the Company’s Current
Report on Form 8-K dated and filed with the SEC as of May 9, 2017 (File No. 001-36708))
Fourth Supplemental Indenture, dated as of May 9, 2017, to the indenture dated as of December 15,
2016, among Uniti Group LP, Uniti Fiber Holdings Inc., CSL Capital, LLC, Uniti Group Inc., the
guarantors named therein and Wells Fargo Bank, National Association, as trustee, governing the
7.125% Senior Notes due 2024 (incorporated by reference to Exhibit 4.6 to the Company’s Current
Report on Form 8-K dated and filed with the SEC as of May 9, 2017 (File No. 001-36708))
Fifth Supplemental Indenture, dated as of August 11, 2017, among Uniti Group LP, Uniti Fiber
Holdings Inc., and CSL Capital, LLC, as Issuers, the guarantors named therein, and Wells Fargo
Bank, National Association, as trustee, relating to the 7.125% Senior Notes due 2024 (incorporated
by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q dated and filed with
the SEC as of November 2, 2017 (File No. 001-36708))
Indenture, dated as of May 8, 2017, among Uniti Fiber Holdings Inc, Uniti Group Inc. and CSL
Capital, LLC, as Issuers, the guarantors named therein, and Wells Fargo Bank, National
Association, as trustee, governing the 7.125% Senior Notes due 2024 (incorporated by reference to
Exhibit 4.1 to the Company’s Current Report on Form 8-K dated and filed with the SEC as of May
8, 2017 (File No. 001-36708))
Form of 7.125% Senior Note due 2024 (included in Exhibit 4.20 above) (incorporated by reference
to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated and filed with the SEC as of
May 8, 2017 (File No. 001-36708))
100
Exhibit No.
4.22
4.23
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9+
10.10+
Description
First Supplemental Indenture, dated as of May 9, 2017, to the indenture dated as of May 8, 2017,
among Uniti Group LP, Uniti Fiber Holdings Inc., CSL Capital, LLC, Uniti Group Inc., the
guarantors named therein and Wells Fargo Bank, National Association, as trustee, governing the
7.125% Senior Notes due 2024 (incorporated by reference to Exhibit 4.7 to the Company’s Current
Report on Form 8-K dated and filed with the SEC as of May 9, 2017 (File No. 001-36708))
Second Supplemental Indenture, dated as of May 9, 2017, to the indenture dated as of May 8, 2017,
among Uniti Group LP, Uniti Fiber Holdings Inc., CSL Capital, LLC, Uniti Group Inc., the
guarantors named therein and Wells Fargo Bank, National Association, as trustee, governing the
7.125% Senior Notes due 2024 (incorporated by reference to Exhibit 4.8 to the Company’s Current
Report on Form 8-K dated and filed with the SEC as of May 9, 2017 (File No. 001-36708))
Master Lease, entered into as of April 24, 2015, by and among CSL National, L.P. and the other
entities listed therein, as Landlord, and Windstream Holdings, Inc., as Tenant (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated and filed with the
SEC as of April 27, 2015 (File No. 001-36708))
Tax Matters Agreement, entered into as of April 24, 2015, by and among Windstream Holdings,
Inc., Windstream Services, LLC and Communications Sales & Leasing, Inc. (incorporated by
reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated and filed with the
SEC as of April 27, 2015 (File No. 001-36708))
Transition Services Agreement, dated April 24, 2015, by and between Windstream Services, LLC
and CSL National, L.P., on behalf of itself and its Affiliates, including Talk America Services, LLC
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated and
filed with the SEC as of April 27, 2015 (File No. 001-36708))
Intellectual Property Matters Agreement, dated as of April 24, 2015, by and among Windstream
Services, LLC, individually and on behalf of its subsidiaries that may hold certain intellectual
property as described therein, CSL National, LP, and Talk America Services, LLC (incorporated by
reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated and filed with the
SEC as of April 27, 2015 (File No. 001-36708))
Wholesale Master Services Agreement, dated April 24, 2015, between Windstream
Communications, Inc. and Talk America Services, LLC (incorporated by reference to Exhibit 10.6
to the Company’s Current Report on Form 8-K dated and filed with the SEC as of April 27, 2015
(File No. 001-36708))
Master Services Agreement, dated as of April 24, 2015, by and between Windstream Services, LLC,
on behalf of itself and its competitive local exchange and interexchange carrier affiliates, and Talk
America Services, LLC (incorporated by reference to Exhibit 10.8 to the Company’s Current Report
on Form 8-K dated and filed with the SEC as of April 27, 2015 (File No. 001-36708))
Credit Agreement, dated as of April 24, 2015, by and among Communications Sales & Leasing, Inc.
and CSL Capital, LLC, as Borrowers, the guarantors party thereto, the lenders party thereto from
time to time and Bank of America, N.A., as administrative agent, collateral agent, swing line lender
and L/C issuer (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on
Form 8-K dated and filed with the SEC as of April 27, 2015 (File No. 001-36708))
Recognition Agreement, dated April 24, 2015, by and among CSL National, LP and the other
entities listed therein, as Landlord, and Windstream Holdings, Inc., as Tenant, and JPMorgan Chase
Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.11 to the Company’s
Current Report on Form 8-K dated and filed with the SEC as of April 27, 2015 (File No. 001-
36708))
Employment Agreement between Communications Sales & Leasing, Inc. and Kenneth Gunderman,
effective as of February 12, 2015 (incorporated by reference to Exhibit 10.9 to Amendment No. 3 to
the Company’s Registration Statement on Form 10 dated and filed with the SEC as of March 12,
2015 (File No. 001-36708))
Communications Sales & Leasing, Inc. 2015 Equity Incentive Plan (incorporated by reference to
Exhibit 10.12 to Amendment No. 3 to the Company’s Registration Statement on Form 10 dated and
filed with the SEC as of March 12, 2015 (File No. 001-36708))
101
Exhibit No.
10.11+
10.12+
10.13+
10.14+
10.15+
10.16
10.17+
10.18
10.19
10.20
10.21+
10.22
10.23
10.24
10.25
Description
Severance Agreement, dated as of June 1, 2015, by and between Communications Sales & Leasing,
Inc. and Mark A. Wallace (incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated and filed with the SEC as of June 3, 2015 (File No. 001-36708))
Severance Agreement, dated as of June 1, 2015, by and between Communications Sales & Leasing,
Inc. and Daniel L. Heard (incorporated by reference to Exhibit 10.16 to the Company’s Registration
Statement on Form S-4 dated and filed with the SEC as of July 2, 2015 (File No. 333-205450))
Form of Restricted Shares Agreement for employees (incorporated by reference to Exhibit 10.3 to
the Company’s Current Report on Form 8-K dated and filed with the SEC as of June 3, 2015 (File
No. 001-36708))
Form of Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit
10.4 to the Company’s Current Report on Form 8-K dated and filed with the SEC as of June 3, 2015
(File No. 001-36708))
Form of Restricted Shares Agreement for non-employee directors (incorporated by reference to
Exhibit 10.5 to the Company’s Current Report on Form 8-K dated and filed with the SEC as of June
3, 2015 (File No. 001-36708))
Form of Indemnity Agreement (incorporated by reference to Exhibit 10.20 to the Company’s
Registration Statement on Form S-4 dated and filed with the SEC as of July 2, 2015 (File No. 333-
205450))
Communications Sales & Leasing, Inc. Deferred Compensation Plan, effective August 10, 2015
(incorporated by reference to Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q dated
and filed with the SEC as of August 13, 2015 (File No. 001-36708))
Form of Lockup Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K dated and filed with the SEC as of January 12, 2016 (File No. 001-36708))
Stockholders’ and Registration Rights Agreement, dated May 2, 2016, by and between
Communications Sales and Leasing, Inc. and PEG Bandwidth Holdings, LLC (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated and filed with the
SEC as of May 4, 2016 (File No. 001-36708))
Amendment No. 1 to Master Lease, entered into as of February 12, 2016, by and among CSL
National, L.P. and the other entities listed therein, as Landlord, and Windstream Holdings, Inc., as
Tenant (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q
dated and filed with the SEC as of May 12, 2016 (File No. 001-36708))
Communications Sales & Leasing, Inc. 2016 Short Term Incentive Plan (incorporated by reference
to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated and filed with the SEC as
of May 4, 2017 (File No. 001-36708))
Letter Agreement between Searchlight II CLS, L.P. and Communications Sales and Leasing, Inc.
dated as of June 15, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q dated and filed with the SEC as of August 11, 2016 (File No. 001-36708))
Registration Rights Agreement by and among each of the parties listed on the signature pages
thereto and Communications Sales & Leasing, Inc. dated as of June 15, 2016 (incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q dated and filed with the
SEC as of August 11, 2016 (File No. 001-36708))
Amendment No. 1 to the Credit Agreement, dated as of October 21, 2016 by and among
Communications Sales & Leasing, Inc. and CSL Capital, LLC, as borrowers, the guarantors party
thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent and collateral
agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
dated and filed with the SEC as of October 21, 2016 (File No. 001-36708))
Amendment No. 2 to the Credit Agreement, dated as of February 9, 2017 by and among
Communications Sales & Leasing, Inc. and CSL Capital, LLC, as borrowers, the guarantors party
thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent and collateral
agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
dated and filed with the SEC as of February 9, 2017 (File No. 001-36708))
102
Exhibit No.
10.26
10.27+***
10.28
21.1*
23.1*
23.2*
31.1*
Description
Amendment No. 3 to the Credit Agreement, dated as of April 28, 2017 by and among Uniti Group
Inc. and CSL Capital, LLC, as borrowers, the guarantors party thereto, the lenders party thereto, and
Bank of America, N.A., as administrative agent and collateral agent (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated as of May 1, 2017 and filed with
the SEC as of May 2, 2017 (File No. 001-36708))
Communications Sales & Leasing, Inc. 2017 Short Term Incentive Plan (incorporated by reference
to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q dated and filed with the SEC as
of May 4, 2017 (File No. 001-36708))
Borrower Assumption Agreement and Joinder, dated as of May 9, 2017 by and among Uniti Group
Inc., as initial borrower, Uniti Group LP and Uniti Group Finance Inc., as borrowers, the guarantors
party thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent and
collateral agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K dated and filed with the SEC as of May 9, 2017 (File No. 001-36708))
List of Subsidiaries of Uniti Group Inc.
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2*
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
*
**
Filed herewith
Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment granted by,
and have been filed separately with, the Securities and Exchange Commission. Also, certain exhibits and
schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company
agrees to furnish a supplemental copy of any such omitted exhibit or schedule to the Securities and Exchange
Commission upon request but may request confidential treatment for any exhibit or schedule so furnished.
*** Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment granted by,
and have been filed separately with, the Securities and Exchange Commission.
Constitutes a management contract or compensation plxan or arrangement.
+
ITEM 16. FORM 10-K SUMMARY
None.
103
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 1, 2018
UNITI GROUP INC.
By:
/s/ Kenneth A. Gunderman
Kenneth A. Gunderman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ Kenneth A. Gunderman
Kenneth A. Gunderman
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Mark A. Wallace
Mark A. Wallace
Executive Vice President – Chief Financial Officer and
Treasurer
(Principal Financial Officer)
/s/ Blake Schuhmacher
Blake Schuhmacher
Vice President – Chief Accounting Officer
(Principal Accounting Officer)
March 1, 2018
March 1, 2018
March 1, 2018
/s/ Francis X. Frantz
Francis X. Frantz
Chairman and Director
March 1, 2018
/s/ Jennifer S. Banner
Jennifer S. Banner
Director
/s/ Scott G. Bruce
Scott G. Bruce
/s/ Andrew Frey
Andrew Frey
Director
Director
/s/ David L. Solomon
David L. Solomon
Director
March 1, 2018
March 1, 2018
March 1, 2018
March 1, 2018
104
Uniti Group Inc.
Schedule I – Condensed Financial Information of
The Registrant (Parent Company)
Condensed Balance Sheets
(Thousands, except par value)
Assets:
Cash and cash equivalents
Accounts receivable, net
Other assets
Investment in consolidated subsidiaries
Total Assets
Liabilities:
Accrued interest payable
Derivative liability
Dividends payable
Contingent consideration
Notes and other debt, net
Total liabilities
December 31, 2017
December 31, 2016
$
$
$
2,188 $
—
(9)
(1,120,120)
(1,117,941) $
— $
—
107,078
—
—
107,078
131,145
(3)
1,066
2,801,234
2,933,442
27,812
6,102
94,607
98,600
4,028,214
4,255,335
Convertible Preferred Stock, Series A, $0.0001 par value, 88
shares authorized, issued and outstanding, $87,500 liquidation value
83,530
80,552
Shareholders' Deficit:
Preferred stock, $0.0001 par value, 50,000 shares authorized, no
shares issued and outstanding
Common stock, $0.0001 par value, 500,000 shares authorized,
issued and outstanding: 174,852 shares at December 31, 2017
and 155,139 at December 31, 2016
Additional paid-in capital
Accumulated other comprehensive income
Distributions in excess of accumulated earnings
Total Uniti shareholders' deficit
Total Liabilities, Convertible Preferred Stock, and
Shareholders' Deficit
—
—
17
644,328
7,821
(1,960,715)
(1,308,549)
15
141,092
(6,369)
(1,537,183)
(1,402,445)
$
(1,117,941) $
2,933,442
See notes to Consolidated Financial Statements of Uniti Group Inc. included in Financial Statements and
Supplementary Data.
S-1
Uniti Group Inc.
Schedule I – Condensed Financial Information of
The Registrant (Parent Company)
Condensed Statements of Comprehensive Income
(Thousands)
Costs and Expenses:
Interest expense
General and administrative expense
Transaction related costs
Other expense
Total costs and expenses
Operating loss
Earnings from consolidated subsidiaries
(Loss) income before income taxes
Net (loss) income
Comprehensive (loss) income
Year Ended December 31,
2017
2016
Period from
April 24 -
December 31, 2015
$
$
119,702 $
40
—
9,253
128,995
(128,995)
119,556
(9,439)
(9,439)
4,751 $
267,959 $
4,829
3,945
—
276,733
(276,733)
276,521
(212)
(212)
(1,154) $
181,797
1,934
—
—
183,731
(183,731)
208,601
24,870
24,870
19,443
See notes to Consolidated Financial Statements of Uniti Group Inc. included in Financial Statements and
Supplementary Data.
S-2
Uniti Group Inc.
Schedule I – Condensed Financial Information of
The Registrant (Parent Company)
Condensed Statements of Cash Flows
(Thousands)
Cash flow from operating activities
Net cash (used in) provided by operating activities
Cash flow from investing activities
Consideration paid to Windstream Services
Net cash used in investing activities
Cash flow from financing activities
Principal payment on debt
Dividends paid
Proceeds from issuance of Term Loans
Proceeds from issuance of Notes
Borrowings under revolving credit facility
Payments under revolving credit facility
Payments of contingent consideration
Purchase of noncontrolling interests
Deferred financing costs
Common stock issuance, net of costs
Net share settlement
Intercompany transactions, net
Cash in-lieu of fractional shares
Net cash provided by investing activities
Effect of exchange rates on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year Ended December 31,
2017
2016
Period from
April 24 -
December 31, 2015
$
(602,530) $
(59,076) $
106,332
—
—
—
—
(1,035,029)
(1,035,029)
(5,270)
(400,210)
—
201,000
350,000
(125,000)
(18,791)
(560)
(24,686)
498,926
(1,836)
—
—
473,573
—
(128,957)
131,145
2,188 $
(22,027)
(367,830)
—
548,875
641,000
(641,000)
—
—
(20,557)
54,213
(2,359)
(111)
—
190,204
—
131,128
17
131,145
$
(10,700)
(156,854)
1,127,000
—
—
—
—
—
(30,057)
(543)
(113)
-
(19)
928,714
—
17
—
17
$
See notes to Consolidated Financial Statements of Uniti Group Inc. included in Financial Statements and
Supplementary Data.
S-3
Uniti Group Inc.
Schedule I – Condensed Financial Information of
The Registrant (Parent Company)
Notes to Condensed Financial Statements
Note 1. Background and Basis of Presentation
Uniti Group Inc.’s parent company financial information has been derived from its consolidated financial statements
and should be read in conjunction with the consolidated financial statements and notes of Uniti and its subsidiaries
included in Item 8 Financial Statements and Supplementary Data in this Annual Report on Form 10-K.
Note 2. Subsidiary Transactions
Investment in Subsidiaries
On May 9, 2017, the parent company completed its previously announced reorganization (the “up-REIT
Reorganization”) to operate through a customary “up-REIT” structure, pursuant to which we hold substantially all of
our assets through a partnership, Uniti Group LP, a Delaware limited partnership (the “Operating Partnership”), that
we control as general partner, with the only significant difference between the financial position and results of
operations of the Operating Partnership and its subsidiaries compared to the consolidated financial position and
consolidated results of operations of Uniti is that the results for the Operating Partnership and its subsidiaries do not
include Uniti’s Consumer CLEC segment, which consists of Talk America Services. Under this structure, the
Operating Partnership now holds substantially all of Uniti Group Inc.’s assets, liabilities and results of operations.
In connection with the up-REIT Reorganization, the Operating Partnership replaced Uniti Group Inc. and assumed
its obligations as an obligor under Uniti Group Inc.’s notes and debt facilities.
Dividends
Cash dividends received from subsidiaries and recorded in Cash Flow from Operating Activities in the Condensed
Statement of Cash Flows were $104.9 million for the year ended December 31, 2017. No cash dividends were received
for the year ended December 31, 2016 and for the period April 24, 2015 through December 31, 2015.
S-4
Uniti Group Inc.
Schedule II – Valuation and Qualifying Accounts
(dollars in thousands)
Column A
Column B
Column C
Additions
Column D Column E
Description
Valuation allowance for deferred tax
assets:
Balance at
Beginning of Period
Charged to
Cost
and Expenses
Charged to
Other Accounts Deductions
Balance at
End of Period
Year Ended December 31, 2017
Year Ended December 31, 2016
Period from April 24 - December 31,
2015
Allowance for Doubtful Accounts
Year Ended December 31, 2017
Year Ended December 31, 2016
Period from April 24 - December 31,
2015
$
$
$
$
$
$
8,176 $
- $
- $
- $
- $
- $
1,352 $
- $
(86) $
1,352 $
- $
- $
- $
8,176 $
(8,176) $
- $
-
8,176
- $
45 $
- $
- $
- $
-
(300) $
- $
1,011
1,352
- $
-
S-5
Uniti Group Inc.
Schedule III – Real Estate Investments and Accumulated Depreciation
As of December 31, 2017
(dollars in thousands)
Col. A
Col. B Col. C
Col. D
Col. E Col. F
Col. G Col. H Col. I
Cost capitalized
subsequent to
acquisition(1) (3)
Life on which
Depreciation
in Latest
Income
Initial cost
to
company(1) Improvements
Encumbrances
—
$
Carry
Costs
(1) (1) $
Accumulated
Depreciation
—
Date of
Construction(2)
(2)
28,269 $
Date
Acquired(2)
Statements is
Computed
Gross
Amount
Carried at
Close of
Period(5)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
—
—
—
—
—
—
—
—
—
—
(156,620)
323,939
(1) (1)
(179,514)
(1) (1)
243,710
(946,564)
(1) (1) 2,153,942
(1) (1)
(36)
889
(1) (1) 3,656,384 (3,055,096)
(57,205)
90,235
(1) (1)
(2,921)
55,150
(1) (1)
(1) (1)
34,580
(495)
(1) (1)
8,334
(1,338)
(1) (1)
8,048
—
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2) Indefinite
3 - 40
years
(2)
(2) 30 years
(2) 30 years
(2) 5 -7 years
(2) 20 years
(2) 30 years
(2) 20 years
(2) See Note 3
15 - 20
years
(2)
(2) See Note 3
Description
Land
Building and
improvements
Poles
Fiber
Equipment
Copper
Conduit
Towers
Real property
interest
Other assets
Construction
in progress
(1) Given the voluminous nature and variety of our real estate investment assets, this schedule omits columns C and
D from the schedule III presentation.
(2) Because additions and improvements to our real estate investment assets are ongoing, construction and acquisition
dates are not applicable.
(3) For the year ended December 31, 2017, the amount of capitalized costs related to the Distribution Systems is as
follows (millions):
Tenant capital improvements(4)
$ 228.0
(4) Tenant capital improvements represent, maintenance, repair, overbuild, upgrade or replacements to the leased
network, including, without limitation, the replacement of copper distribution systems with fiber distribution
systems. We receive non-monetary consideration related to the TCIs as they automatically become our property,
and we recognize the cost basis of TCIs that are capital in nature.
(5) Aggregate cost for Federal income tax purposes related to our real estate investment assets is $6.3 billion.
S-6
Uniti Group Inc.
Schedule III – Real Estate Investments and Accumulated Depreciation
As of December 31, 2017
(dollars in thousands)
Gross amount at beginning
Additions during period:
Tenant capital improvements
Acquisitions
Other
Total additions
Deductions during period:
Cost of real estate sold or disposed
Other
Total deductions
Balance at end
Gross amount of accumulated depreciation at beginning
Additions during period:
Depreciation
Other
Total additions
Deductions during period:
Amount of accumulated depreciation for assets sold or disposed
Other
Total deductions
Balance at end
2017
2016
$ 6,256,248 $ 6,093,541
227,969
80,132
45,552
353,653
156,972
15,848
-
172,820
6,421
-
6,421
10,113
-
10,113
$ 6,603,480 $ 6,256,248
2017
2016
$ 4,054,748 $ 3,720,890
351,332
(45)
351,287
343,971
-
343,971
6,246
-
6,246
-
10,113
10,113
$ 4,399,789 $ 4,054,748
S-7
DIRECTORS:
Francis X. Frantz – Chairman of the Board of Uniti Group Inc.
Kenneth A. Gunderman – President and Chief Executive Officer, Uniti Group Inc.
Jennifer S. Banner – Chief Executive Officer, Schaad Companies, LLC
David L. Solomon – Founder and Managing Director, Meritage Funds
Scott G. Bruce – Managing Director, Associated Partners, LP
Andrew Frey – Partner, Searchlight Capital Partners, L.P.
y
CORPORATE OFFICERS:
Kenneth A. Gunderman – President and Chief Executive Officer
Mark A. Wallace – Executive Vice President, Chief Financial Officer and Treasurer
Daniel L. Heard – Executive Vice President, General Counsel and Secretary
Blake Schuhmacher – Vice President, Chief Accounting Officer
TRANSFER AGENT AND REGISTRAR
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
Little Rock, Arkansas
CORPORATE HEADQUARTERS
10802 Executive Center Drive
Benton Building, Suite 300
Little Rock, AR 72211
INVESTOR RELATIONS
Website: www.uniti.com
Contact: investor.relations@uniti.com
LISTING
NASDAQ Global Select Market,
Ticker Symbol “UNIT”
10802 Executive Center Dr.
Benton Building, Suite 300
Little Rock, AR 72211
501-850-0820
www.uniti.com