201 8
ANNUAL
REPORT
MY FELLOW
STOCKHOLDERS:
As we turn the page on 2018, I would like to reflect on current industry trends and company milestones we achieved
during the year.
Just like last year, demand for fiber infrastructure continued to be one of the top telecom themes in 2018 and
going into 2019. In preparation for a broader roll out of 5G wireless and fixed wireless services, our wireless carrier
customers are looking to densify their networks with both additional macro backhaul towers, as well as small cell
nodes. As bandwidth consumption increases and new technologies continue to evolve and develop, the need for
low-latency, dense fiber will continue to increase. This densification will require a tremendous amount of fiber and
we believe that both Uniti Fiber and Uniti Leasing are uniquely positioned to capture this demand with over 5 million
fiber strand miles of valuable, owned fiber.
At Uniti Fiber, we completed three dark fiber projects in 2018 and are currently in the process of completing the
build out of several more dark fiber and small cell projects, primarily in the Southeast, by the end of 2019. In fact, we
deployed our 1,000th small cell during the fourth quarter of 2018. We currently have approximately 1,700 small cells
in our backlog and expect to deploy over 1,350 small cells in 2019. As we complete these projects, we will focus on
leasing them up, not only with additional wireless opportunities, but Enterprise/Wholesale, E-Rate and Government
opportunities as well, all of which have attractive economics and incremental yields. We also closed our acquisition
of Information Transport Solutions, Inc. (“ITS”) in October of 2018. ITS is a full-service provider of technology
solutions to educational institutions, and will play a key role in enhancing our E-Rate offering to our customers.
We continue to see positive momentum in our tower business as well. In 2018, we completed 209 towers in the U.S.,
bringing our total tower count to 430 towers. In the U.S., we continue to expect to build between 200 to 300 towers,
on average, annually over the next 5 years. With the backdrop of 5G densification, national wireless carriers continue
to look for vendor diversity on new tower builds. Recently, AT&T announced that Uniti Towers is a strategic tower
provider for them and we look forward to fostering and expanding this relationship with AT&T for years to come. We
continue to believe this comprehensive product suite distinguishes Uniti in the market place. We also entered into
an agreement to sell our Latin America tower portfolio for approximately $100 million. We believe this transaction
realizes significant value for our stockholders, and also allows Uniti to focus more on communications infrastructure
growth opportunities in the U.S.
At Uniti Leasing, we announced four transactions in 2018, entering into sale leasebacks with TPx and CableSouth,
acquiring fiber assets from CenturyLink, and entering into a dark fiber lease with a national cable provider. We have
been successful so far in leasing up these assets and expect similar opportunities to be abundant in 2019. We also
recently announced our first strategic OpCo/PropCo transaction with Macquarie Infrastructure Partners in acquiring
the fiber assets of Bluebird Network. We believe this deal structure can be replicated with other operating partners
and provides the framework for future similar structured transactions. Together, these announced transactions
represent an estimated incremental $45 million of annual revenue, and we expect over 90% Adjusted EBITDA
margins with little to no additional capex required.
2018 was also a year that presented Uniti with its own unique set of challenges, as our largest customer,
Windstream, was involved in litigation relating to the spinoff of certain telecommunication assets into Uniti. In early
2019, Windstream received an unfavorable court ruling, and subsequently commenced voluntary reorganization
proceedings under Chapter 11 of the U.S. Bankruptcy Code. We are obviously disappointed by the outcome, but we
have been contingency planning with our board and advisors for this possibility for some time now. For example,
we had been focusing on smaller M&A transactions in order to minimize our capital markets exposure given the
volatility in our securities. As a result, and as a result of several other steps we are taking, we believe we now have
the ability to navigate the Windstream bankruptcy proceedings, and still be able to invest in our premier fiber,
tower, and leasing businesses, including potentially pursuing smaller M&A transactions. We are also confident that
Windstream will successfully navigate the restructuring process and remain focused on operating its business in
normal course in the meantime.
Finally, I would like to thank our investors, customers, and employees for their loyal support. Uniti has a strong base
of high value assets and operations, and at this unique moment and time in Uniti’s history, we believe the decision to
invest our discretionary capital into growing each of our business units, as well as pursuing value accretive M&A, will
result in better long-term returns for our stockholders.
Sincerely,
y,
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, 2018
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 every Interactive Data File required to be submitted 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 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:5)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an 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)
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 Global Select Market on June 30, 2018, was $2,842,783,509
The number of shares of the Registrant’s common stock outstanding as of March 6, 2019 was 183,103,947.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement relating to the 2019 annual meeting of stockholders are incorporated by reference
into Part III of this Annual Report on Form 10-K.
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
Item 6. Selected Financial Data
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. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
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
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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
effect of Windstream Holdings, Inc.’s (“Windstream Holdings” and together with its subsidiaries, “Windstream”)
bankruptcy and Windstream’s performance under its long-term exclusive triple-net lease with us (the “Master
Lease”); our expectations with respect to the treatment of the Master Lease in Windstream’s petition for relief under
Chapter 11 of the Bankruptcy Code; our expectations regarding the effect of substantial doubt about our ability to
continue as a going concern; our expectations regarding the future growth and demand of the telecommunication
industry, future financing plans, business strategies, growth prospects, operating and financial performance, and our
future liquidity needs and access to capital; expectations regarding the impact and integration of Information
Transport Solutions, Inc. (“ITS”), CableSouth Media, LLC (“CableSouth”) and M2 Connections, 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 reclassification of accumulated other
comprehensive income (loss) related to derivatives to interest expense; expectations regarding the amortization of
intangible assets; expectations regarding the closing of the OpCo-PropCo partnership with Macquarie Infrastructure
Partners (“MIP”) and related acquisition of Bluebird Network, LLC (“Bluebird”); expectations regarding the closing
of the sale of Uniti Towers’ business in Latin America (the “Towers Disposition”); 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 future prospects of our largest customer, Windstream Holdings, which, following a finding that it is
in default of certain of its debt, on February 25, 2019, filed a voluntary petition for relief under Chapter
11 of the Bankruptcy Code;
our ability to continue as a going concern if Windstream Holdings were to reject the Master Lease or be
unable or unwilling to perform its obligations under the Master Lease;
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;
3
•
•
•
•
•
•
•
•
•
•
•
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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”), including as a result of the
effects of the recent events with respect to our largest customer, Windstream Holdings;
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;
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 agreements regarding the Bluebird acquisition may be modified or terminated prior to
expiration or that the conditions to the Bluebird acquisition may not be satisfied;
the risk that the agreements regarding the Towers Disposition may be modified or terminated or that the
conditions to the Towers Disposition 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 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 a substantial portion of our real property is
leased to Windstream and from which a substantial portion 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 December 31, 2018, 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, 2018, we had revenues of $1,017.6 million, net income attributable to common
shareholders of $8.0 million, Funds From Operations (“FFO”) of $373.7 million and Adjusted Funds From
Operations (“AFFO”) of $443.8 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, 2018, we managed our operations in four reportable business segments, which are described in more
detail in Note 14 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.
Refer to Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Overview—Significant Business Developments, of this Annual Report for additional information regarding
significant developments in our business in 2018.
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 fiber is the mission-critical focal point in the modern communications
infrastructure industry and that Uniti Fiber will accelerate our growth and diversification strategy and expand our
relationships with high quality national and international wireless carriers.
At December 31, 2018, Uniti Fiber’s revenues under contract were over $1.3 billion, with a network consisting of
1.7 million strand miles of fiber and approximately 18,200 customer connections. Results for Uniti Fiber are
reported in our consolidated financial statements in our Fiber Infrastructure business segment.
Uniti Towers
Uniti Towers’ primary business is constructing and leasing space on communications towers to wireless service
providers and other tenants in a number of other industries. Uniti Towers’ leadership has substantial experience in
the telecommunications industry and has been overseeing construction and operation of thousands of wireless
towers both domestically and abroad for decades. Uniti Towers 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 through Uniti Fiber and Uniti Towers is highly synergistic and will drive incremental
growth opportunities.
At December 31, 2018, Uniti Towers’ portfolio consisted of 430 wireless communications towers located in 26
states across the eastern and central regions in the United States, and 498 wireless communications towers in Latin
America. Results for Uniti Towers are reported in our consolidated financial statements in our Towers business
segment.
On February 19, 2019, the Company announced it had agreed to sell Uniti Towers’ Latin America business to an
entity controlled by Phoenix Towers International (“PTI”) for cash consideration of approximately $100 million.
PTI will acquire approximately 500 towers located across Mexico, Colombia and Nicaragua. The transaction is
subject to customary closing conditions and is expected to close by the end of the first quarter of 2019.
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, a substantial portion of Uniti Leasing’s revenue is rental
revenues from leasing the Distribution Systems to Windstream pursuant to 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.
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 22,500 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 consolidated financial statements in our Consumer CLEC business
segment.
6
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 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 actively seek 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.
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 options. 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.
7
Fund Capital Extensions to Existing and New Tenants for Improvements of Infrastructure Assets
We believe the communications infrastructure industry in the United States is currently going through an upgrade
cycle driven by consumers’ 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 improvement and 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 acquirers in the communication service sector, and
thereby facilitate M&A transactions as a capital partner, including by partnering with operators through use of
“OpCo-PropCo” structures, pursuant to we acquire the underlying network and other assets and the operator
acquires the operations. 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, 2018, we had $38.0 million of unrestricted cash and cash equivalents, and $110
million of undrawn borrowing capacity under our revolving credit facility, although we have since drawn
substantially all of our revolver capacity. As of December 31, 2018, with the exception of 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:
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.
8
Large Scale Anchor Tenant
We believe the assets we lease to Windstream under the Master Lease are critical for Windstream to successfully
run its business and operations, and that Windstream will need the assets subject to the Master Lease while it
undergoes its restructuring as set forth under “Risk Factors”. Windstream, as our anchor tenant, provides us with a
base of 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 and technology
solutions for businesses across the United States. Windstream also offers broadband, entertainment and security
solutions to consumers and small businesses 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. Our senior management team has extensive experience managing telecommunications operations,
consummating mergers and acquisitions and accessing both debt and equity capital markets to fund growth and
maintain a flexible capital structure.
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.
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Employees
At December 31, 2018, we had 798 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, 2018, 2017 and 2016, 68.2%, 74.8% and 87.9% of our revenues, respectively,
were derived from leasing our Distribution Systems to Windstream Holdings pursuant to the Master Lease.
On February 25, 2019, Windstream filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in
the U.S. Bankruptcy Court for the Southern District of New York. For a discussion of the impact that Windstream’s
bankruptcy may have on the Master Lease, see Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K.
Government Regulation, Licensing and Enforcement
U.S. Telecommunications Regulatory Overview
Market Overview
Our subsidiaries and our tenants operate in a regulated market. 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. Federal and
state telecommunications laws and regulations are wide-ranging, and violations of them 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 regulation. Changes in laws and regulations and violations of federal or state laws or
regulations 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 across all segments 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 assets, we are required to provide
notice and/or obtain prior approval from certain governmental agencies. Failure to obtain such approvals could
subject us to fines or other penalties.
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, contributions to universal service, and other obligations.
We have sought to structure 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 are nonetheless subject to federal, state, and local regulation, and we cannot guarantee that our core real
estate business will not become further subject to federal, state, and local regulation in the future.
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Consumer CLEC Business
Talk America 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 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 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’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. The FCC is considering proposals to eliminate the requirement that incumbent
local exchange carriers offer unbundled network elements to companies like Windstream and Talk America. We
cannot predict how the FCC will resolve those proposals, nor whether such network elements will continue to be
available in the future at the rates they are available today.
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. These regulations
would have limited the ways that broadband Internet access service providers could structure business arrangements
and manage their networks and spurred additional restrictions, including rate regulation, which could adversely
affect broadband investment and innovation. In 2017, the FCC voted to return broadband Internet access service to
its prior classification as “information services.” As a result of these decisions, state legislators and governors have
introduced, and in some cases passed, state laws and executive orders requiring different levels of adherence to
“network neutrality” principles for broadband Internet access service providers active in the applicable states. As a
result of these laws and regulations, 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 United States 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
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.
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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 United States 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 United States. 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. New fiber network construction is also subject to certain state and local governmental permitting and
licensing requirements. Delays in the local and state permitting process can delay the construction of new facilities.
Failure to abide by permit requirements can subject the company to fines and other penalties.
Regulatory Changes
Future revenues, costs and capital investment in the communication businesses of our tenants, Talk America, 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, access to unbundled network elements, and other requirements. Federal and state communications laws and
regulations may be amended in the future, and other new laws and regulations 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 vacated or modified 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 cannot 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 laws and regulations, and their enforcement, involve
complex and varied requirements, and many such laws and regulations impose strict liability for violations. 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 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, including as a
result of its recent petition for relief under Chapter 11 of the Bankruptcy Code, 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, sales and cash flow, and has
had its credit ratings downgraded by nationally recognized credit rating agencies multiple times over the past 12
months. Windstream has been involved in litigation with an entity who acquired certain Windstream debt securities
and thereafter issued a notice of default as to such securities relating to the Spin-Off. Windstream challenged the
matter in federal court and a trial was held in July 2018. On February 15, 2019, the federal court judge issued a
ruling against Windstream, finding that its attempts to waive such default were not valid; that an “event of default”
occurred with respect to such debt securities; and that the holder’s acceleration of such debt in December 2017 was
effective.
In response to the adverse outcome, on February 25, 2019, Windstream filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.
In bankruptcy, Windstream has the option to assume or reject the Master Lease. We believe that the Master Lease is
essential to Windstream’s operations, however it is difficult to predict what could occur in a bankruptcy
restructuring, and even a temporary disruption in payments to us may require us to fund certain expenses and
obligations (e.g., real estate taxes, insurance and maintenance expenses) to preserve the value of our properties and
avoid the imposition of liens on our properties and could impact our ability to fund other cash obligations, including
dividends necessary to maintain REIT status, non-essential capital expenditures and, in an extreme case, our debt
service obligations. A rejection by Windstream of the Master Lease or its inability or unwillingness to meet its rent
and other obligations under the Master Lease could materially adversely affect our consolidated results of
operations, liquidity, and financial condition, including our ability to service debt and pay dividends to our
stockholders as required to maintain our status as a REIT.
In the event of a rejection of the Master Lease, we cannot assure you that we will be able to locate a suitable
replacement tenant or if we are successful in locating a replacement tenant, that the rental payments from the new
tenant would not be significantly less than the existing rental payments. In addition, a rejection of the Master Lease
by Windstream would result in an “event of default” under our Credit Agreement if we are unable to enter into a
replacement lease that satisfies certain criteria set forth in the Credit Agreement within ninety (90) calendar days and
we do not maintain pro forma compliance with a consolidated secured leverage ratio, as defined in the Credit
Agreement, of 5.00 to 1.00.
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There is substantial doubt about our ability to continue as a going concern.
There is substantial doubt about our ability to continue as a going concern and in its opinion on our December 31,
2018 financial statements, PricewaterhouseCoopers LLP, our independent registered public accounting firm,
expressed substantial doubt as to whether we could continue as a going concern within one year after the date the
financial statements are issued as a result of Windstream’s bankruptcy petition and the bankruptcy’s uncertain
effects on the Master Lease. Our financial statements do not include any adjustments that may result from the
outcome of this uncertainty. While the outcome is uncertain, we expect Windstream will continue to perform on the
Master Lease and believe the probability of Windstream rejecting the lease in bankruptcy to be remote because the
Master Lease is central to Windstream’s operations. We intend to reduce our capital expenditures and dividend as
well as seek external funding in order to sustain our operations. If we do not succeed in raising such funds and
reducing such expenditures and if Windstream elects to reject the Master Lease, we could experience a material
adverse effect on our business and our stockholders may lose some or all of their investment in us. In addition, a
failure to provide 2018 audited financial statements without a going concern opinion to the lenders under our Credit
Agreement by March 31, 2019 would constitute a breach of the covenants of our Credit Agreement and, unless such
default is waived by our lenders, would constitute an immediate event of default. If an event of default were to
occur under our Credit Agreement, the Credit Agreement’s administrative agent could declare all outstanding loans
immediately due and payable. Such an acceleration would trigger cross-default provisions within the indentures
governing our senior notes and thereby entitle the trustee and noteholders to accelerate the repayment of the senior
notes.
On March 18, 2019, we received a limited waiver from our lenders under our Credit Agreement, waiving an event of
default related solely to the receipt of a going concern opinion from our auditors for our 2018 audited financial
statements. The limited waiver was issued in connection with the fourth amendment (the “Amendment”) to our
Credit Agreement. During the pendency of Windstream’s bankruptcy, or at such earlier time when certain other
conditions are specified, the Amendment generally limits our ability under the Credit Agreement to (i) prepay
unsecured indebtedness and (ii) pay cash dividends in excess of 90% of our REIT taxable income, determined
without regard to the dividends paid deduction and excluding any net capital gains. The Amendment also increases
the interest rate on our Term Loan Facility, which will now bear a rate of LIBOR, subject to a 1.0% floor, plus an
applicable margin equal to 5.0%, a 200 basis point increase over our previous rate. This increase will be in effect
though the remaining term of the facility, which matures on October 24, 2022.
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, 2018, 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, $110 million of which was undrawn as of December 31, 2018, provided by
a syndicate of banks and other financial institutions. We have since drawn substantially all of our revolver capacity.
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, and our ability to pay dividends. Please see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital
Resources—Credit Agreement” for information about the terms of the limited waiver we received from the lenders
to our Credit Agreement.
In addition, we continuously evaluate opportunities to refinance or repurchase existing debt. However, in light of
recent developments and uncertainty surrounding Windstream and the effect of substantial doubt about our ability to
continue as a going concern, there can be no assurance that any debt refinanced would be on similar or more
favorable terms than our existing agreements. This would include the risk that interest rates could increase and/or
there may be changes to our existing covenants.
We anticipate that we will have sufficient access to liquidity to fund our cash needs; if we are unable to do so, we
would need to reduce our spending and it could have an adverse effect on us.
We anticipate continuing to invest in our network infrastructure across our Uniti Leasing, Uniti Fiber and Uniti
Towers portfolios. We have also committed to spend $175 million on our proposed acquisition of Bluebird (for
which we have obtained committed financing), net of the collection of prepaid rent. We anticipate declaring
dividends for the 2019 tax year to comply with our REIT distribution requirements. We anticipate that we will
partially finance these needs, together with operating expenses (including our debt service obligations) from our $38
million of cash on hand and $110 million of borrowing availability under the Revolving Credit Facility (although we
have since drawn substantially all of our revolver capacity), cash flows provided by operating activities, together
with funds anticipated from announced divestures. However, we may need to access the capital markets to generate
additional funds in an amount sufficient to fund our business operations, announced investment activities, capital
expenditures, debt service and distributions to our shareholders. We are closely monitoring the equity and debt
markets and will seek to access them promptly when we determine market conditions are appropriate. The amount,
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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 or we are unable to access the capital markets as we anticipate, we would be
subject to a shortfall in liquidity in the future which could lead to a reduction in our capital expenditures and/or
dividends and, in an extreme case, our ability to pay our debt service obligations. If this shortfall occurs rapidly and
with little or no notice, it could limit our ability to address the shortfall on a timely basis.
In light of recent developments and uncertainty surrounding Windstream, we may take measures to conserve cash as
we anticipate that it may be difficult for us to access the capital markets at attractive rates until such uncertainty is
clarified. Accordingly, we may elect to suspend, delay or reduce success-based capital expenditures and dividend
payments to conserve cash and if necessary, we may pay one or more dividends that are required to maintain or
REIT status in shares to the extent allowed under IRS REIT rules. If our assumptions are incorrect, we could need
additional sources of liquidity to fund our cash needs and cannot assure that we will obtain them.
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.
In light of Windstream developments, we may curtail our acquisition activities during the pendency of
Windstream’s bankruptcy in an effort to conserve cash.
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 designed to enhance
the efficiency of communications distribution systems (including lit fiber networks and wireless equipment), 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 or development and implementation of
any such new technologies 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
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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.”
If we determine that our goodwill has become impaired, we may incur impairment charges, which would
negatively impact our operating results.
At December 31, 2018, we had $692.4 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 any changes in key assumptions regarding our
fair value, including any potential impacts of recent developments surrounding Windstream, as set forth in the first
risk factor. 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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•
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•
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international political, economic and legal conditions;
compliance 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 operations outside the United States increase the risk of violations of applicable anti-corruption
laws in the future.
Our internal policies provide for compliance with all applicable anti-corruption laws, but despite our training and
compliance programs, we cannot ensure 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.
17
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.
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.
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.
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.
18
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 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 re-electing to be taxed as a REIT for the four taxable years following the year in which we
failed to qualify as a REIT.
In addition, as a result of the limited waiver and amendment to our Credit Agreement (discussed in the second risk
factor) our ability to make cash distributions to our shareholders in amounts exceeding 90% of our REIT taxable
income, determined without regard to the dividends paid deduction and excluding any capital gains, generally will
be restricted. As a result, we may be required to record a provision in our Consolidated Financial Statements for
U.S. federal income taxes related to the activities of the REIT and its passthrough subsidiaries for any undistributed
income. 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.
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 sale-leaseback transactions, such as income from
Windstream pursuant to the Master Lease, 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 or other lessees will not be treated as qualifying rent for purposes of these requirements if the relevant
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 any of our leases, including 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, and we could elect
to pay dividends substantially in the form of additional shares of our common stock.
We generally must qualify as a REIT and distribute annually at least 90% of our REIT taxable income, determined
without regard to the dividends paid deduction and excluding any net capital gains, for the U.S. federal corporate
income tax not to apply to earnings that we distribute (assuming that certain other requirements are also satisfied).
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 currently intend to make distributions to our stockholders to comply with the REIT requirements of the
Code. However, as indicated in the risk factors above, as a result of recent developments surrounding Windstream,
we may suspend, delay or reduce our dividend to conserve cash, and during the pendency of Windstream’s
bankruptcy, or at such earlier time when certain other conditions are specified, (discussed in the second risk factor)
our ability to make cash distributions to our shareholders in amounts exceeding 90% of our REIT taxable income,
determined without regard to the dividends paid deduction and excluding any net capital gains, generally will be
restricted. Accordingly, because we are required to make distributions in certain amounts to our shareholders in
19
order to maintain our REIT status and avoid incurring entity-level income and excise tax, we may elect to pay one or
more dividends to our shareholders substantially in the form of additional shares of common stock. If we do so, the
common stock that we distribute would be taxable dividend income to our shareholders, in whole or in part, based
on the fair market value of our common stock at the time the dividend is paid.
Our FFO is currently generated largely 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
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 and 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.
Recent developments surrounding Windstream could adversely affect our ability to continue to qualify as a REIT.
In addition to satisfying the distribution requirement described above in the immediately preceding risk factor, we
must satisfy a number of other requirements in order to qualify as a REIT. Recent developments surrounding
Windstream, as described above in the first risk factor, could adversely affect our ability to satisfy several of these
requirements and thus our ability to continue to qualify as a REIT.
For example, in order to qualify as a REIT for any year, at the end of each calendar quarter, at least 75% of the value
of our assets must consist of cash, cash items, government securities and “real estate assets” (as defined in the
Code), and no more than 20% of the value of our total assets can be represented by securities (other than qualified
real estate assets) of one or more TRSs, If we fail to comply with either of 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. Our ability to satisfy these requirements
depends in substantial part on the value of the assets that are the subject of the Master Lease with Windstream, and
any diminution in the value of such assets, including as a result of any diminution in the implied value of the Master
Lease as a result of changes in the financial condition or creditworthiness of Windstream, Windstream’s rejection of
the Master Lease in bankruptcy or Windstream’s inability or unwillingness to meet its rent and other obligations
under the Master Lease, could adversely affect our ability to satisfy these requirements at the end of any calendar
quarter, and there can be no assurance that we would be able to timely correct any such failure or otherwise qualify
for any statutory relief provision.
In addition, under applicable provisions of the Code, we will not be treated as a REIT for any year unless we satisfy
various requirements, including requirements relating to the sources of our gross income in such year. Our ability to
satisfy these gross income tests depends in substantial part on our receipt of rents paid under the Master Lease. The
rejection by Windstream of the Master Lease, Windstream’s inability or unwillingness to meet its rent and other
obligations under the Master Lease, or any suspension, delay or other reduction in the amount of rent that we receive
under the Master Lease could adversely affect our ability to qualify as a REIT.
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.
20
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 (other than qualified real estate assets) 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 Common Stock
We cannot guarantee our ability to pay dividends in the future.
To qualify as a REIT, our 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 ensure 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. As a result
of recent actions related to Windstream, as set forth in the first risk factor, we may choose to reduce or suspend our
dividend for a period of time until the situation is clarified. Moreover, during the pendency of Windstream’s
bankruptcy, or at such earlier time when certain other conditions are specified, (discussed in the second risk factor
and “Risks Related to the Status of Uniti as a REIT – REIT distribution requirements could adversely affect our
ability to execute our business plan”) our ability to make cash distributions to our shareholders in amounts
exceeding 90% of our REIT taxable income, determined without regard to the dividends paid deduction and
excluding any net capital gains, generally will be restricted. Accordingly, because we are required to make
distributions in certain amounts to our shareholders in order to maintain our REIT status and avoid incurring entity-
level income and excise tax, we may elect to pay one or more dividends to our shareholders substantially in the form
of additional shares of common stock. If we do so, the common stock that we distribute would be taxable dividend
income to our shareholders, in whole or in part, based on the fair market value of our common stock at the time the
dividend is paid.
Furthermore, while we are required to pay dividends in order to maintain our REIT status (as described above under
“Risks Related to the Status of Uniti 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.
The market price and trading volume of our common stock may fluctuate widely.
We cannot predict the prices at which our common stock may trade. The market price of our common stock has
fluctuated significantly since February 15, 2019 and may continue to fluctuate significantly, depending upon many
factors, some of which may be beyond our control, including the collateral consequences that have resulted, or could
result, from Windstream’s bankruptcy.
21
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
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
22
Item 2. Properties.
Uniti and its subsidiaries own approximately 112,300 fiber network route miles, representing approximately
5.6 million fiber strand miles, approximately 215,100 route miles of copper cable lines, central office land and
buildings across 42 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, 2018:
Fiber Route Miles
Copper Route
Miles
Location
GA
TX
IA
KY
NC
IL
OH
AR
IN
FL
MI
WI
CA
OK
MO
PA
TN
NM
VA
WV
AL
NV
CO
AZ
OR
KS
WY
MS
Other(1)
Total
(1) Includes 13 states.
43,800
33,400
32,700
30,200
18,200
—
10,300
11,100
—
7,700
—
—
—
10,800
8,400
100
—
—
4,800
—
—
2,200
—
—
—
—
—
1,400
100
215,200
Total Route Miles
53,800
42,900
41,300
38,400
22,900
3,700
13,800
14,500
2,700
9,900
2,100
2,100
1,800
12,500
10,000
1,500
1,300
1,100
5,900
900
700
2,900
600
500
500
500
500
1,800
1,100
292,200
10,000
9,500
8,600
8,200
4,700
3,700
3,500
3,400
2,700
2,200
2,100
2,100
1,800
1,700
1,600
1,400
1,300
1,100
1,100
900
700
700
600
500
500
500
500
400
1,000
77,000
23
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, 2018:
Location
GA
LA
FL
PA
AL
MS
IL
VA
NY
TX
Other(1)
Total
(1) Includes 14 states.
Fiber Route Miles
5,700
5,500
5,100
4,400
3,500
2,800
2,400
1,600
1,500
900
1,900
35,300
24
Towers Segment
Uniti Towers’ network properties include its wireless communication towers. Below is a geographic distribution
summary as of December 31, 2018:
Location
LA
TX
WI
IL
AR
AL
NM
MS
GA
NE
KY
MN
OK
PA
TN
OH
NC
SC
Other(1)
Total Domestic
Mexico
Colombia
Nicaragua
Total International
Total
(1) Includes 8 states.
Item 3. Legal Proceedings.
Towers
154
65
25
24
22
20
20
19
17
12
9
7
6
5
5
3
3
3
11
430
342
101
55
498
928
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.
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. If Windstream
assumes the Master Lease, it would be obligated to honor all indemnification claims. If Windstream were to reject
the Master Lease, any indemnification claims would be treated as unsecured claims, and, if that were to occur, there
can be no assurance we would receive any indemnification payments from Windstream. 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 its indemnification obligations.
25
Windstream has been involved in litigation with an entity who acquired certain Windstream debt securities and
thereafter issued a notice of default as to such securities relating to the Spin-Off. Windstream challenged the matter
in federal court and a trial was held in July 2018. On February 15, 2019, the federal court judge issued a ruling
against Windstream, finding that Windstream’s attempts to waive such default were not valid; that an “event of
default” occurred with respect to such debt securities; and that the holder’s acceleration of such debt in December
2017 was effective.
In response to the adverse outcome, on February 25, 2019, Windstream filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.
In bankruptcy, Windstream has the option to assume or reject the Master Lease. While we believe that the Master
Lease is essential to Windstream’s operations, it is difficult to predict what could occur in a restructuring, and even a
temporary disruption in payments to us may require us to fund certain expenses and obligations (e.g., real estate
taxes and maintenance expenses) to preserve the value of our properties and avoid the imposition of liens on our
properties and could impact our ability to fund other cash obligations, including dividends necessary to maintain
REIT status, non-essential capital expenditures and, in an extreme case, our debt service obligations. See Item 1A
Risk Factors for additional information concerning the impact Windstream’s bankruptcy may have on our operations
and financial conditions. A rejection by Windstream of the Master Lease or its inability or unwillingness to meet its
rent and other obligations under the Master Lease could materially adversely affect our consolidated results of
operations, liquidity, and financial condition, including our ability to service debt, comply with debt covenants and
pay dividends to our stockholders as required to maintain our status as a REIT. A rejection of the Master Lease by
Windstream would result in an “event of default” under our Credit Agreement if we are unable to enter into a
replacement lease that satisfies certain criteria set forth in the Credit Agreement within ninety (90) calendar days and
we do not maintain pro forma compliance with a consolidated secured leverage ratio, as defined in the Credit
Agreement, of 5.00 to 1.00.
Item 4. Mine Safety Disclosures.
None
26
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.”
Holders
As of March 6, 2019, the closing price of our common stock was $8.63 per share as reported on the NASDAQ
Global Select Market. As of March 6, 2019, we had 183,103,947 outstanding shares of common stock, 21,340
record holders and approximately 155,003 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. It has been our policy to
declare dividends to common shareholders so as to comply with the provisions of the Internal Revenue Code
governing REITs.
Any dividends must be declared by our Board of Directors, which will take into account various factors including
our current and anticipated operating results, our financial position, REIT requirements, conditions prevailing in the
market, restrictions in our debt documents and additional factors they deem appropriate. Dividend payments are not
guaranteed and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, not to
pay dividends or to change the amount paid as dividends. As a result of recent actions related to Windstream, as set
forth in Item 1A Risk Factors, we may choose to reduce or suspend our dividend for a period of time until the
situation is clarified. In addition, during the pendency of Windstream’s bankruptcy, or at such earlier time when
certain other conditions are specified, the Amendment to our Credit Agreement (as set forth in Item 1A Risk
Factors) generally limits our ability under the Credit Agreement to pay cash dividends in excess of 90% of our REIT
taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains.
27
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, 2018 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
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 12/31/2018
84.93
$ 100.00 $
115.50
100.00
109.89
100.00
107.65 $
111.76
109.46
84.94 $
129.90
115.08
72.33 $
92.56
100.78
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, 2018 to October 31, 2018
November 1, 2018 to November 30, 2018
December 1, 2018 to December 31, 2018
Total
Total
Number of
Shares
Purchased
Average Price
Paid per
Share(1)
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
300 $
3,940
—
4,240 $
19.82
20.10
—
20.08
—
—
—
—
—
—
—
—
(1) 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.
28
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 for the period
from January 1, 2015 to April 24, 2015 and the year ended December 31, 2014 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,
2017
April 24 –
December 31,
January 1
- April 24,
Year Ended
December 31,
2014
2015
476,314 $
181,797
$
$
2015
2018
2016
0.04
7,989
0.05
(5,497)
(0.04)
23,718
0.16
(16,552)
(0.10)
770,408 $
275,394
916,032 $
305,994
$ 1,017,634 $
319,591
(Thousands, except per share data)
Statement of Income Data:
Total revenue(1)
Interest expense
Net income (loss) attributable to
common shareholders
Earnings (loss) per common share -
basic
Earnings (loss) per common share -
diluted
Balance Sheet Data:
Total assets(2)
$ 4,592,937 $ 4,330,082 $ 3,318,752 $ 2,542,636
Notes and other debt(3)
3,505,228
4,901,515 4,539,026 4,082,749
Total shareholders' (deficit) equity(4) (1,493,203) (1,207,142) (1,402,445)
(1,166,906)
Other Data:
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
2.40
373,741
2.11
443,755
2.40
352,477
2.09
424,824
2.40
346,051
2.27
398,537
1.64
259,829
1.73
267,077
426,094
367,830
400,210
156,854
2.51 $
2.51 $
2.61 $
(0.13)
(0.04)
1.78
0.16
$
$
$
10,149 $
*
36,015
*
*
*
*
*
*
*
* $ 2,588,450
*
*
* 2,580,565
*
*
*
*
*
*
*
*
*
*
*
*
* 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 amounts represent the combined assets of the Consumer CLEC Business and the
Distribution Systems.
(3) As of December 31, 2018, 2017, and 2016, amount includes $55.3 million, $56.3 million, and $54.5 million of
capital lease obligations, respectively.
(4) As of December 31, 2014 amounts include the net assets contributed of the Consumer CLEC Business and the
(5)
Distribution Systems.
For a more detailed discussion and reconciliation of FFO and AFFO, see “Non-GAAP Financial Measures” in
Item 7.
29
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 a substantial portion 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, including through
operating company/property company (“OpCo-PropCo”) structures.
We manage our operations as four reportable business segments in addition to our corporate operations:
Leasing Segment: Represents a component of 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.
30
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.
Towers Segment: Represents the operations of our towers business, Uniti Towers, through which we acquire and
construct tower and tower-related real estate and lease space on communications towers to wireless service
providers and other tenants. Uniti Towers is a component of our REIT operations.
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 office and shared service functions. Certain costs and expenses,
primarily related to headcount, information technology systems, 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, gains or losses on dispositions, 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
Windstream Bankruptcy Filing. Windstream has been involved in litigation with an entity who acquired certain
Windstream debt securities and thereafter issued a notice of default as to such securities relating to the Spin-
Off. Windstream challenged the matter in federal court and a trial was held in July 2018. On February 15, 2019, the
federal court judge issued a ruling against Windstream, finding that Windstream’s attempts to waive such default
were not valid; that an “event of default” occurred with respect to such debt securities; and that the holder’s
acceleration of such debt in December 2017 was effective.
In response to the adverse outcome, on February 25, 2019, Windstream filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.
In bankruptcy, Windstream has the option to assume or reject the Master Lease. While we believe that the Master
Lease is essential to Windstream’s operations, it is difficult to predict what could occur in a restructuring, and even a
temporary disruption in payments to us may require us to fund certain expenses and obligations (e.g., real estate
taxes and maintenance expenses) to preserve the value of our properties and avoid the imposition of liens on our
properties and could impact our ability to fund other cash obligations, including dividends necessary to maintain
REIT status, non-essential capital expenditures and, in an extreme case, our debt service obligations. See Item 1A
Risk Factors for additional information concerning the impact Windstream’s bankruptcy may have on our operations
and financial condition. A rejection by Windstream of the Master Lease or its inability or unwillingness to meet its
rent and other obligations under the Master Lease could materially adversely affect our consolidated results of
operations, liquidity, and financial condition, including our ability to service debt, comply with debt covenants and
pay dividends to our stockholders as required to maintain our status as a REIT.
In addition, a rejection of the Master Lease by Windstream would result in an “event of default” under our Credit
Agreement if we are unable to enter into a replacement lease that satisfies certain criteria set forth in the Credit
Agreement within ninety (90) calendar days and we do not maintain pro forma compliance with a consolidated
secured leverage ratio, as defined in the Credit Agreement, of 5.00 to 1.00.
31
Going Concern. There are conditions and events which raise substantial doubt about our ability to continue as a
going concern and in its opinion on our December 31, 2018 financial statements, PricewaterhouseCoopers LLP, our
independent registered public accounting firm, expressed substantial doubt as to whether we could continue as a
going concern within one year after the date the financial statements are issued as a result of Windstream’s
bankruptcy petition and its potential uncertain effects on the Master Lease. Our financial statements do not include
any adjustments that may result from the outcome of this uncertainty. We expect Windstream will continue to
perform on the Master Lease and believe it is unlikely that Windstream will reject the Master Lease because the
Master Lease is central to Windstream’s operations. We also intend to reduce our capital expenditures and dividend
as well as seek external funding in order to sustain our operations. The failure to provide 2018 audited financial
statements without a going concern opinion to the lenders under our Credit Agreement by March 31, 2019 would
constitute a breach of the covenants of our Credit Agreement and, unless such default is waived by our lenders,
would constitute an immediate event of default. If an event of default were to occur under our Credit Agreement,
the Credit Agreement’s administrative agent could declare all outstanding loans immediately due and payable. Such
an acceleration would trigger cross-default provisions within the indentures governing our senior notes and thereby
entitle the trustee and noteholders to accelerate the repayment of the senior notes.
On March 18, 2019, we received a limited waiver from our lenders under our Credit Agreement, waiving an event of
default related solely to the receipt of a going concern opinion from our auditors for our 2018 audited financial
statements. The limited waiver was issued in connection with the Amendment to our Credit Agreement. During the
pendency of Windstream’s bankruptcy, or at such earlier time when certain other conditions are specified, the
Amendment generally limits our ability under the Credit Agreement to (i) prepay unsecured indebtedness and (ii)
pay cash dividends in excess of 90% of our REIT taxable income, determined without regard to the dividends paid
deduction and excluding any net capital gains. The Amendment also increases the interest rate on our Term Loan
Facility, which will now bear a rate of LIBOR, subject to a 1.0% floor, plus an applicable margin equal to 5.0%, a
200 basis point increase over our previous rate. This increase will be in effect though the remaining term of the
facility, which matures on October 24, 2022.
Sale of Latin American Tower Portfolio. On February 19, 2019, the Company announced it had agreed to sell its
Uniti Towers’ business in Latin America to an entity controlled by Phoenix Towers International (“PTI”) for cash
consideration of approximately $100 million. PTI will acquire approximately 500 towers located across Mexico,
Colombia and Nicaragua. The transaction is subject to customary closing conditions and is expected to close by the
end of the first quarter of 2019. This sale will realize value for our stockholders and allows us to focus on growth
opportunities in the United States. Uniti Towers will continue to be a significant component of our strategy to
provide a full suite of solutions to wireless carriers and other customers.
Bluebird Network, LLC Operating Company – Property Company Transaction. On January 15, 2019, the Company
entered into an OpCo-PropCo transaction with Macquarie Infrastructure Partners (“MIP”) to acquire Bluebird
Network, LLC (“Bluebird”). MIP operates within the Macquarie Infrastructure and Real Assets ("MIRA") division
of Macquarie Group. Bluebird’s network consists of approximately 178,000 fiber strand miles in the Midwest
across Missouri, Kansas, Illinois and Oklahoma. In the transaction, Uniti has agreed to purchase the Bluebird fiber
network and MIP has agreed to purchase the Bluebird operations. In addition, Uniti has agreed to sell Uniti Fiber’s
Midwest operations to MIP, while Uniti will retain its existing Midwest fiber network. Uniti is acquiring the fiber
network of Bluebird for $319 million, of which $175 million will be funded by Uniti in cash and $144 million from
pre-paid rent to be received from MIP at closing. In connection with the sale of the Company’s Midwest operations,
we will receive total upfront cash of approximately $37 million, including related pre-paid rent to be received from
MIP at closing. These transactions are subject to regulatory and other closing conditions and are expected to close
by the end of the third quarter of 2019. Concurrently with the closing of these transactions, Uniti will lease the
Bluebird fiber network and its Midwest fiber network on a combined basis to MIP, under a long-term triple net
lease, with initial annual cash rents of approximately $20.3 million. The lease will be reported within the results of
our Leasing segment. The Midwest operations that will be sold to MIP are currently reported in our Fiber
Infrastructure segment.
Acquisition of Information Transport Solutions, Inc. On October 19, 2018, we completed the acquisition of
Information Transport Solutions, Inc. (“ITS”). We acquired all the outstanding membership interests of ITS for
approximately $59.6 million in cash, including the payoff of existing indebtedness and unpaid transaction expenses.
ITS is a full-service provider of technology solutions, primarily to educational institutions in Alabama and Florida.
32
Over 30% of ITS’s total revenue is on Uniti Fiber’s network, which is expected to increase under Uniti Fiber’s
ownership. The results of operations of ITS are reflected in the Fiber Infrastructure segment beginning October 19,
2018.
Hurricane Michael. During October 2018 Hurricane Michael made landfall as a Category 4 hurricane. The storm
resulted in significant damage to the Uniti Fiber network in Florida’s Bay County and surrounding areas. Shortly
after landfall we dedicated substantial internal and third-party resources to repair and replace the damaged network,
as well as to make enhancements to the network in the impacted areas. As of December 31, 2018, we incurred $3.0
million of costs associated with the restoration efforts and wrote off $3.7 million of network assets that were
destroyed. We anticipate full recovery of these costs and expense through insurance proceeds.
Acquisition and Lease-back of CableSouth Media, LLC Fiber Assets. On October 9, 2018, we completed the
acquisition of fiber assets from CableSouth Media, LLC (“CableSouth”) for cash consideration of $31 million. In
the transaction, Uniti acquired 43,000 fiber strand miles located across Arkansas, Louisiana and Mississippi, of
which 34,000 fiber strand miles were leased back to CableSouth on a triple-net basis. Uniti has exclusive use of
9,000 fiber strand miles, which are adjacent to Uniti Fiber’s southern network footprint. The initial lease term is 20
years with four 5-year renewal options at CableSouth’s discretion. Annual cash rent is initially $2.9 million with a
fixed annual escalator of 2.0%. The results of this transaction are recorded within our Leasing segment.
Acquisition and Lease-back of U.S. TelePacific Holding Corp. Fiber Assets. On September 19, 2018, we completed
the acquisition and lease-back of the California fiber assets of U.S. Telepacific Holding Corp. (“TPx”), for total cash
consideration of $70 million. On May 1, 2018, we completed the acquisition and lease-back of the non-California
fiber assets of TPx, which included exclusive use fiber strand miles in Texas, for total cash consideration of $25
million. The initial lease term is 15 years with five 5-year renewal options at TPx’s discretion. Initial annual cash
rent related to the non-California and California assets is $8.8 million with a fixed annual escalator of 1.5%. The
results of these transactions are recorded within our Leasing segment.
IRS Private Letter Ruling. During July 2018, we received a favorable private letter ruling (“PLR”) from the Internal
Revenue Service (“IRS”) in connection with our request for guidance to clarify the treatment of income the
Company receives from certain communication infrastructure assets. In the PLR, the IRS addressed and favorably
ruled that the revenues generated from certain communication infrastructure assets that presently are part of our
TRSs would be considered rent from real property.
Dark Fiber Acquisition and Anchor Tenant Lease. On May 10, 2018, the Company acquired from CenturyLink, Inc.
30 long-haul intercity dark fiber routes totaling 11,000 route miles and 270,000 fiber strand miles across 25
states. This transaction was approved by the U.S. Department of Justice as a condition of the merger between
CenturyLink, Inc. and Level 3 Communications, Inc., and adds attractive, high demand assets to Uniti
Leasing. Simultaneously with this purchase, the Company executed an anchor tenant lease with a Fortune 100
company for 11% of the fiber strand miles. During August 2018, the Company executed a lease agreement with a
national multiple system operator (“MSO”) on existing Uniti Leasing fiber. The lease term will be 20 years
covering approximately 9,900 route miles or 41,000 fiber strand miles. Annual results related to the agreements are
reported within our Leasing segment.
33
Comparison of the years ended December 31, 2018 and 2017
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:
Year Ended
December 31, 2018
% of
Revenues
Year Ended
December 31, 2017
% of
Revenues
$
699,847 68.8% $
289,239 28.4%
14,617 1.4%
13,931 1.4%
1,017,634 100.0%
685,099 74.8%
202,791 22.1%
10,055 1.1%
18,087 2.0%
916,032 100.0%
Interest expense, net
Depreciation and amortization
General and administrative expense
Operating expense (exclusive of depreciation and
amortization)
Transaction related costs
Other (income) expense
Total costs and expenses
Income (loss) before income taxes
Income tax benefit
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to shareholders
Participating securities' share in earnings
Dividends declared on convertible preferred stock
Amortization of discount on convertible preferred
stock
Net income (loss) attributable to common shareholders $
319,591 31.4%
451,750 44.4%
85,198 8.4%
305,994 33.4%
434,205 47.4%
72,045 7.9%
137,065 13.4%
17,410 1.7%
(4,504) (0.4%)
1,006,510 98.9%
11,124 1.1%
(5,421) (0.5%)
16,545 1.6%
358 0.0%
16,187 1.6%
(2,594) (0.2%)
(2,624) (0.3%)
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%)
7,989 0.8% $
(2,980) (0.3%)
(16,552) (1.8%)
34
The following table sets forth, for the years ended December 31, 2018 and 2017, revenues and Adjusted EBITDA of
our reportable segments:
(Thousands)
Revenues
Adjusted EBITDA
Adjusted EBITDA margin
Less:
Interest expense, net
Depreciation and amortization
Other income
Transaction related costs
Stock-based compensation
Income tax benefit
Other
Net income
(Thousands)
Revenues
Adjusted EBITDA
Adjusted EBITDA margin
Less:
Interest expense, net
Depreciation and amortization
Other expense
Transaction related costs
Stock-based compensation
Income tax benefit
Net loss
Revenues
Year Ended December 31, 2018
Leasing
$699,847
Fiber
Infrastructure
289,239
$
Towers
$14,617
Consumer
CLEC
$ 13,931
Total of
Reportable
Segments
- $1,017,634
Corporate
$
$(21,759) $ 802,883
$697,545
$
99.7%
123,389
$
42.7%
355
2.4%
$ 3,353
24.1%
-
78.9%
337,126
105,651
6,704
1,994
275
$
319,591
451,750
(4,504)
17,410
8,064
(5,421)
(552)
16,545
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)
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 5-year
renewal options and encompasses properties located in 29 states. Cash rent under the Master Lease is currently $657
million and is subject to an annual escalation of 0.5% each May through the initial term. 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 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 TCIs as they automatically become our property,
35
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, 2018, we recognized $693.9 million of revenue under the Master Lease, which
included $23.1 million of non-cash TCI revenue and $15.1 million of non-cash straight-line rental revenue. For the
year ended December 31, 2017, we recognized $685.1 million of revenue under the Master Lease, which included
$14.3 million of non-cash TCI revenue and $17.3 million of non-cash straight-line rental revenue. The increase in
TCI revenue is attributable to continued investment by Windstream in TCIs. Windstream invested $153.6 million in
TCIs during the year ended December 31, 2018, a decrease from $228.0 million it invested in TCIs during the year
ended December 31, 2017. Since the inception of the Master Lease, Windstream has invested a total of $607.1
million in such improvements.
Because a substantial portion of our revenue and cash flows are 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, financial condition and/or ability to pay dividends and service debt if Windstream were to default under
the Master Lease or otherwise experiences operating or liquidity 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, sales and cash flow, and has had its credit ratings downgraded by nationally recognized credit rating
agencies multiple times over the past 12 months. In addition, Windstream has been involved in litigation with an
entity who acquired certain Windstream debt securities and thereafter issued a notice of default as to such securities
relating to our spin-off from Windstream. On December 7, 2017, the entity issued a notice of acceleration to
Windstream claiming that the alleged default had matured into an “event of default” and that the principal amount,
along with accrued interest, of such securities was due and payable immediately. Windstream challenged the matter
in federal court and a trial was held in July 2018. On February 15, 2019, the federal court judge issued a ruling
against Windstream, finding that Windstream’s attempts to waive such default were not valid; that an “event of
default” occurred with respect to such debt securities; and that the holder’s acceleration of such debt in December
2017 was effective.
In response to the adverse outcome, on February 25, 2019, Windstream filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.
In bankruptcy, Windstream has the option to assume or reject the Master Lease. While we believe that the Master
Lease is essential to Windstream’s operations, it is difficult to predict what could occur in a restructuring, and even a
temporary disruption in payments to us may require us to fund certain expenses and obligations (e.g., real estate
taxes and maintenance expenses) to preserve the value of our properties and avoid the imposition of liens on our
properties and could impact our ability to fund other cash obligations, including dividends necessary to maintain
REIT status, non-essential capital expenditures and, in an extreme case, our debt service obligations. See Item 1A
Risk Factors for additional information concerning the impact Windstream’s bankruptcy may have on our operations
and financial condition. A rejection by Windstream of the Master Lease or its inability or unwillingness to meet its
rent and other obligations under the Master Lease could materially adversely affect our consolidated results of
operations, liquidity, and financial condition, including our ability to service debt and pay dividends to our
stockholders as required to maintain our status as a REIT.
Windstream is a publicly traded company 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.
For the year ended December 31, 2018, we recognized $6.0 million of leasing revenues from non-Windstream
triple-net leasing and dark fiber indefeasible rights of use (“IRU”) arrangements. No such revenues were recognized
for the year ended December 31, 2017.
Fiber Infrastructure – For the years ended December 31, 2018 and 2017, we recognized $289.2 and $202.8 of
revenue, in our Fiber Infrastructure segment. The increase is primarily attributable to the timing of the acquisitions
of Southern Light, LLC (“Southern Light”) and Hunt Telecommunications LLC (“Hunt”), which were both acquired
on July 3, 2017. Southern Light and Hunt contributed revenues of $132.8 million and $61.9 million, to our
36
consolidated results for the year-ended December 31, 2018 and for the period from the date of acquisition through
December 31, 2017, respectively. In addition, we acquired ITS on October 19, 2018, which contributed $8.9 million
of revenues from the date of acquisition to December 31, 2018. Revenue components for the Fiber Infrastructure
segment for the years ended December 31, 2018 and 2017 consisted of the following:
(Thousands)
Fiber Infrastructure revenues:
Lit backhaul services
Enterprise and wholesale
E-Rate and government
Dark fiber and small cells
Other services
Total Fiber Infrastructure revenues
Year Ended December 31,
2018
2017
Amount
% of
Segment
Revenues
Amount
% of
Segment
Revenues
$
$
132,361
63,519
74,752
14,115
4,492
289,239
45.8% $
22.0%
25.8%
4.9%
1.5%
100.0% $
117,574
36,542
43,021
5,200
454
202,791
58.0%
18.0%
21.2%
2.6%
0.2%
100.0%
At December 31, 2018, we had approximately 18,200 customer connections, up from 16,750 customer connections
at December 31, 2017.
Towers – Towers revenues for the years ended December 31, 2018 and 2017 consisted of the following:
(Thousands)
Towers revenues:
United States
Latin America
Total
Year Ended December 31,
2018
2017
Amount
% of
Segment
Revenues
Amount
% of
Segment
Revenues
$
$
5,207
9,410
14,617
35.6% $
64.4%
100.0% $
2,599
7,456
10,055
25.8%
74.2%
100.0%
The increased revenue for the year ended December 31, 2018, compared to the year ended December 31, 2017, is
primarily driven by our development activities in the United States and acquisition of additional NMS development
towers in Latin America pursuant to our purchase agreement with Network Management Holdings LTD (“NMS”).
During 2018 we completed the construction of 203 towers in the U.S. and added 58 towers in Latin America, of
which 39 were NMS development towers. As of December 31, 2018 we acquired 89 of the 105 towers that were
under development at the time of the NMS acquisition, and the remaining 16 development towers were cancelled
and will not be completed and purchased.
At December 31, 2018, the Uniti Towers’ portfolio consisted of 430 wireless communications towers located in 26
states across the eastern and central regions in the United States, and 498 wireless communications towers in Latin
America.
Consumer CLEC – For the year ended December 31, 2018, we recognized $13.9 million of revenue from the
Consumer CLEC Business, compared to $18.1 million for the year ended December 31, 2017. The decrease is
primarily attributable to a loss of customers during the period. We served approximately 22,500 customers as of
December 31, 2018, a 21.1% decrease from 28,500 at December 31, 2017. The decrease in customers is due to the
effects of competition and customer attrition.
Interest Expense, net
Interest expense for the year ended December 31, 2018, totaled $319.6 million, which includes non-cash interest
expense of $24.6 million resulting from the amortization of our debt discounts and debt issuance costs, partially
37
offset by $5.6 million of capitalized interest. 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. The increase is related to $5.9 million of interest expense on the 2024
Notes issued in May of 2017, an increase in interest expense incurred on the revolving credit facility of $10.8
million due to increased borrowings and LIBOR rates compared to the prior year. This was partially offset by a
decrease in interest expense related to capitalized interest of $5.6 million, which was not incurred in the year ended
December 31, 2017.
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, 2018 totaled $451.8
million (44.4% of revenue), which included property, plant and equipment depreciation of $425.2 million and
intangible asset amortization of $26.6 million. 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. The increase is primarily driven
by the timing of the acquisitions of Southern Light and Hunt that closed on July 3, 2017.
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, 2018, general and administrative costs totaled $85.2 million (8.4%
of revenue), which includes $8.1 million of stock-based compensation expense. 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. The increase is primarily driven by the timing of the acquisitions of Southern
Light and Hunt that closed on July 3, 2017.
Operating Expense
Operating expense for the year ended December 31, 2018, totaled $137.1 million (13.4% of revenue) compared to
$102.2 million (11.2% of revenue) for the year ended December 31, 2017. Operating expense for our reportable
segments for the years ended December 31, 2018 and 2017 consisted of the following:
(Thousands)
Operating expense by segment:
Fiber Infrastructure
Towers
CLEC
Leasing
Total operating expenses
Year Ended December 31,
2018
2017
% of
Consolidated
Revenues
Amount
% of
Consolidated
Revenues
Amount
$
$
117,781 11.5% $
0.8%
1.0%
0.1%
137,065 13.4% $
7,989
10,576
719
83,515
5,131
13,530
-
9.1%
0.6%
1.5%
0.0%
102,176 11.2%
Fiber Infrastructure – The increase to Fiber Infrastructure operating expense is primarily driven by the timing of the
acquisitions of Southern Light and Hunt. For the year ended December 31, 2018, Fiber Infrastructure operating
expenses totaled $117.8 million as compared to $83.5 million for the year ended December 31, 2017. The
remaining increase was primarily driven by an increase in construction-related expenses and network costs,
specifically lit service and maintenance expenses.
Towers – Our Towers segment operating expense consists primarily of ground rent, some or all of which may be
passed to our tenants, as well as regulatory fees and maintenance and repairs. For the year ended December 31,
2018, Towers operating expense included $5.1 million of ground rent expense, compared to $3.2 million of ground
38
rent expense for the year ended December 31, 2017. The change is attributable to an increase in completed towers
at December 31, 2018 from December 31, 2017, driven by our development activity in the United States and
acquisition of additional NMS development towers in Latin America.
Consumer CLEC – Expense associated with the Consumer CLEC Business is primarily attributable to the Wholesale
Agreement and the Master Services Agreement entered into between us and Windstream in connection with the
Spin-Off, and also includes 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, 2018 totaled $7.8 million (0.8% of revenue) and $0.7 million (0.1% of revenue), respectively, and
expense associated with the Wholesale Agreement and the 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.
Other (Income) Expense
Other income for the year ended December 31, 2018, totaled $4.5 million (0.4% of revenue), primarily as a result of
a net unrealized gain of $3.7 million for mark-to-market adjustments on our contingent consideration arrangements.
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.
Income Tax Benefit
We recorded $5.4 million in income tax benefit for the year ended December 31, 2018. This benefit was primarily
driven by pre-tax losses in our Fiber Infrastructure Segment which resulted in an income tax benefit of
approximately $6.1 million, including $1.3 million of income tax benefit related to the impact of the Tax Bill on
certain purchase accounting adjustments related to 2017 acquisitions that were recorded in 2018. We recorded a
combined income tax expense of approximately $0.7 million related to our Leasing Segment and Consumer CLEC
Segment. This was primarily driven by pre-tax income in our Consumer CLEC Segment and state tax expense
recorded in our Leasing Segment.
39
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:
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%
676,868 87.8%
70,568 9.2%
500 0.1%
22,472 2.9%
770,408 100.0%
Interest expense, net
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
$
305,994 33.4%
434,205 47.4%
72,045 7.9%
275,394 35.7%
375,970 48.8%
35,402 4.6%
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%)
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%)
(2,980) (0.3%)
(16,552) (1.8%) $
(1,985) (0.3%)
(5,497) (0.7%)
40
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, net
Depreciation and amortization
Other expense
Transaction related costs
Stock-based compensation
Income tax benefit
Net loss
(Thousands)
Revenues
Adjusted EBITDA
Adjusted EBITDA margin
Less:
Interest expense, net
Depreciation and amortization
Other expense
Transaction related costs
Stock-based compensation
Income tax expense
Net loss
Revenues
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)
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)
$
Leasing – 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.
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 in the 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 Inc. (“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.
41
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 in 20
states across the eastern and central regions of 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 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, net
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.
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 acquisitions 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 Fiber Infrastructure segment operations, $5.1 million
(0.6% of revenue) of expense related to the Towers segment 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).
42
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 expense, $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 Towers 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 into 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.
Income Tax (Benefit) Expense
We recorded $38.8 million 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.
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
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.
43
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 related 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 TCIs; (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 the early repayment of debt, gains or losses on
dispositions, 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 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.
44
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, 2018, 2017 and 2016 is as follows:
(Thousands)
Net income (loss)
Depreciation and amortization
Interest expense, net
Income tax (benefit) expense
EBITDA
Stock based compensation
Other (income) expense
Transaction related costs
Adjusted EBITDA
(Thousands)
Net income (loss) 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
2018
Year Ended December 31,
2017
2016
16,545 $
451,750
319,591
(5,421)
782,465 $
8,064
(5,056)
17,410
802,883 $
(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
2018
Year Ended December 31,
2017
2016
7,989 $
374,388
2,594
(2,594)
(8,636)
373,741 $
17,410
(3,721)
24,614
8,064
77,362
(15,048)
(5,686)
(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
2,980
-
(34,426)
(1,535)
443,755 $
(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
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.
45
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 elected on our initial 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 2018, 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.
Subject to the restrictions imposed by the waiver and amendment to our Credit Agreement (as discussed below
under “—Liquidity and Capital Resources—Credit Agreement”), our ability to make cash distributions to our
shareholders in amounts exceeding 90% of our REIT taxable income, determined without regard to the dividends
paid deduction and excluding any capital gains, generally will be restricted. As a result, we may be required to
record a provision in our Consolidated Financial Statements for U.S. federal income taxes related to the activities of
the REIT and its passthrough subsidiaries for any undistributed income. 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 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.
46
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
monthly as services are provided. Sales of customer premise equipment 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 a 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 $27.2 million per year, while a reduction in the average
useful life of one year would increase depreciation expense by approximately $36.6 million per year.
At December 31, 2018, our unamortized finite lived intangible assets totaled $432.8 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 Spin-
Off, 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 2018 by approximately $1.2 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. During the years ended December 31, 2018, 2017 and 2016, no impairment losses
were recognized.
47
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. The fair value of the acquired assets and liabilities are estimated using the income, market and/or cost
approach. The income approach utilizes the present value of estimated future cash flows that a business or asset can
be expected to generate, while under the market approach, the fair value of an asset or business reflects the price at
which comparable assets are purchased under similar circumstances. Inherent in our preparation of cash flow
projections are significant assumptions and estimates derived from a review of 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. Small changes in these assumptions or estimates could materially affect the cash
flow projections, and therefore could affect the estimated fair value. Impact these assumptions or estimates include
customer retention, execution of our business plans, which impact growth, cost escalation impacting margin, the
level of capital expenditures required to sustain our growth and market factors, including stock price fluctuations
and increased rates, impacting our cost of capital.
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,
Business Combinations, also requires acquirers to, among other things, estimate the acquisition date fair value of any
contingent consideration and 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.
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 significant 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 is greater than the fair value of the reporting unit, an impairment loss must be recognized for the excess and
charged to operations not exceed the carrying value of goodwill.
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 these assumptions or estimates could materially affect our
cash flow projections, and therefore could affect the likelihood and amount of potential impairment. Potential
events that could negatively impact these assumptions or estimates include customer losses or poor execution of our
business plans, which impact growth, cost escalation impacting margin, the level of capital expenditures required to
48
sustain our growth and market factors, including stock price fluctuations and increased rates, impacting our cost of
capital. The market approach uses market data of comparable business and acquisition multiples paid in recent
transactions to estimate fair value, and a declines in these multiples could affect the likelihood and amount of
potential impairment.
As of December 31, 2018 and 2017, 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 5%. During the years ended
December 31, 2018 and 2017, no impairment losses were recognized.
In light of the recent developments surrounding Windstream, as noted in Item 1A Risk factors, if there were to be a
material change in the forecasted cash flows at Uniti Fiber, including the level of capital expenditures, our
conclusions regarding the likelihood and amount of any potential impairment could change.
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, 2018, we had $38.0 million of unrestricted cash and cash equivalents, and $110.0 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”). Subsequent to December 31, 2018, we
have borrowed substantially all remaining capacity under the Revolving Credit Facility.
Cash provided by operating activities totaled $472.8 million, $405.3 million and $376.0 million for the years ended
December 31, 2018, 2017 and 2016, respectively. Cash provided by operating activities is primarily attributable to
our leasing activities.
Cash used in investing activities was $480.5 million for the year ended December 31, 2018, which was driven by
capital expenditures ($423.6 million), primarily related to our Uniti Fiber and Uniti Leasing businesses, and the
acquisition of ITS ($53.7 million). 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 financing activities was $13.8 million for the year ended December 31, 2018, which was driven by
dividend payments ($426.1 million), principal payments on our senior secured term loan ($21.1 million), contingent
consideration payments ($18.6 million), distributions to noncontrolling interest ($9.9 million), partially offset by net
borrowings under the Revolving Credit Facility ($360.0 million) and net proceeds under our ATM Program ($109.4
million). 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 senior secured term loan ($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).
49
Windstream Master Lease
A substantial portion of our leasing revenue and cash flow from operations is derived from the Master Lease with
Windstream. 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. Commencing with the fourth year, the
rent is subject to annual escalation of 0.5%, and cash rents recorded during the year ended December 31, 2018 was
$655.7 million. 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.
On February 15, 2019, the federal court judge issued a ruling against Windstream, finding that Windstream’s attempts
to waive such default were not valid; that an “event of default” occurred with respect to such debt securities; and that
the holder’s acceleration of such debt in December 2017 was effective. In response to the adverse outcome, on
February 25, 2019, Windstream filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the
U.S. Bankruptcy Court for the Southern District of New York.
In bankruptcy, Windstream has the option to assume or reject the Master Lease. While we believe that the Master
Lease is essential to Windstream’s operations, it is difficult to predict what could occur in a restructuring, and even a
temporary disruption in payments to us may require us to fund certain expenses and obligations (e.g., real estate taxes,
insurance and maintenance expenses) to preserve the value of our properties and avoid the imposition of liens on our
properties and could impact our ability to fund other cash obligations, including dividends necessary to maintain REIT
status, non-essential capital expenditures, compliance with debt covenants and, in an extreme case, our debt service
obligations. See Item 1A Risk Factors for additional information concerning the impact Windstream’s bankruptcy
may have on our operations and financial condition. A rejection by Windstream of the Master Lease or its inability or
unwillingness to meet its rent and other obligations under the Master Lease could materially adversely affect our
consolidated results of operations, liquidity, and financial condition, including our ability to service debt and pay
dividends to our stockholders as required to maintain our status as a REIT.
In the event of a rejection of the Master Lease, we cannot assure you that we will be able to locate a suitable
replacement tenant or if we are successful in locating a replacement tenant, that the rental payments from the new
tenant would not be significantly less than the existing rental payments. In addition, a rejection of the Master Lease by
Windstream would result in an “event of default” under our Credit Agreement if we are unable to enter into a
replacement lease that satisfies certain criteria set forth in the Credit Agreement within ninety (90) calendar days and
we do not maintain pro forma compliance with a consolidated secured leverage ratio, as defined in the Credit
Agreement, of 5.00 to 1.00.
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, 2018, we issued and sold 5.5 million shares of
common stock at a weighted average price of $20.19 per share under the ATM Program, receiving net proceeds of
$109.4 million, after commissions of $1.4 million and other offering costs. As of December 31, 2018, we have
approximately $139.0 million available for issuance 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.
50
UPREIT Operating Partnership Units
During 2017, the Company completed its 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.
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 the 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 acquisitions of Hunt and Southern
Light in 2017.
Senior Notes
At December 31, 2018, 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 (in an aggregate principal amount of up to $750 million).
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.
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
51
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, 2018, the Borrowers were in
compliance with all of the covenants under the Credit Agreement. However, we would be in breach of the
requirement to deliver audited financial statements without a going concern opinion if we are unable to provide 2018
audited financial statements without a going concern opinion to lenders under our Credit Agreement by March 31,
2019.
On March 18, 2019, we received a limited waiver from our lenders under our Credit Agreement, waiving an event of
default related solely to the receipt of a going concern opinion from our auditors for our 2018 audited financial
statements. The limited waiver was issued in connection with the Amendment to our Credit Agreement. During the
pendency of Windstream’s bankruptcy, or at such earlier time when certain other conditions are specified, the
Amendment generally limits our ability under the Credit Agreement to (i) prepay unsecured indebtedness and (ii)
pay cash dividends in excess of 90% of our REIT taxable income, determined without regard to the dividends paid
deduction and excluding any net capital gains. The Amendment also increases the interest rate on our Term Loan
Facility, which will now bear a rate of LIBOR, subject to a 1.0% floor, plus an applicable margin equal to 5.0%, a
200 basis point increase over our previous rate. This increase will be in effect though the remaining term of the
facility, which matures on October 24, 2022.
Interest Rate Swaps
We are party to 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 $2.07
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 continuing to invest in our network infrastructure across our Uniti Leasing, Uniti Fiber and Uniti
Towers portfolios. We have also committed to spend $175 million on our proposed acquisition of Bluebird (for
which we have obtained committed financing), net of the collection of prepaid rent. We anticipate declaring
dividends for the 2019 tax year to comply with our REIT distribution requirements. We anticipate that we will
partially finance these needs, together with operating expenses (including debt service) from our $38 million of cash
on hand and $110 million of borrowing availability under the Revolving Credit Facility (although we have since
drawn substantially all of our revolver capacity), cash flows provided by operating activities, together with funds
anticipated from announced divestures. However, we may need to access the capital markets to generate additional
funds that will be sufficient to fund our business operations, announced investment activities, capital expenditures,
debt service and distributions to our shareholders. We are closely monitoring the equity and debt markets and will
seek to access them promptly when we determine market conditions are appropriate.
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 or we are unable to access the capital markets as we anticipate, we would be
subject to a shortfall in liquidity in the future which could lead to a reduction in our capital expenditures and/or
dividends. If this shortfall occurs rapidly and with little or no notice, it could limit our ability to address the shortfall
on a timely basis.
In addition to exploring potential capital markets transactions, the Company regularly evaluates market conditions,
its liquidity profile, and various financing alternatives for opportunities to enhance its capital structure. If
opportunities are favorable, the Company may refinance or repurchase existing debt. However, there can be no
assurances that any debt refinancing would be on similar or more favorable terms than our existing arrangements.
This would include the risk that interest rates could increase and/or there may be changes to our existing covenants.
52
In light of recent developments and uncertainty surrounding Windstream and the effect of substantial doubt about
our ability to continue a going concern, each as set forth under “Risk Factors”, we may take measures to conserve
cash as we anticipate that it may be difficult for us to access the capital markets at attractive rates until such
uncertainty is clarified. Accordingly, we may elect to suspend, delay or reduce success-based capital expenditures
and dividend payments to conserve cash. If our assumptions are incorrect, we could need additional sources of
liquidity to fund our cash needs and cannot assure that we will obtain them. Because our Master Lease is essential
to Windstream’s operations, we expect that any disruption in payments by Windstream would be limited, and we
believe that if we take such actions, we would have enough liquidity to fund our cash needs within one year after the
date the financial statements are issued. If our assumptions are incorrect, we could need additional sources of
liquidity to fund our cash needs and cannot assure that we will obtain them.
Contractual Obligations
As of December 31, 2018, 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)
Other Long-Term Liabilities
Contingent consideration(d)
Total projected obligations and
commitments(e)
Payments Due by Period
Less than 1
Year
1-3
Years
3-5
Years
More than
5 Years
Total
$
21
$
682
$
3,663
$
600
$4,966
250
11
9
38
56
497
12
14
-
17
384
6
13
-
-
42
15
52
-
1,173
44
88
38
-
73
$
385
$
1,222
$
4,066
$
709
$6,382
(a)
(b)
Excludes $119.6 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. Excludes the impact to the fourth
amendment to our Credit Agreement discussed above in “Liquidity and Capital Resources—Credit
Agreement”.
(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.
(d) Cash settled contingent consideration related to the August 31, 2016 acquisition of Tower Cloud, Inc.
Excludes $10.0 million of share settled contingent consideration.
Excludes $31.0 million of derivative asset related to interest rate swaps maturing on October 24, 2022.
(e)
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
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
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.
53
The following table below sets out details regarding our cash dividends on our common stock:
Period
October 1, 2017 - December 31, 2017
January 1, 2018 - March 31, 2018
April 1, 2018 - June 30, 2018
July 1, 2018 - September 30, 2018
October 1, 2018 - December 31, 2018
Payment Date
January 12, 2018 $
$
April 13, 2018
July 13, 2018
$
October 15, 2018 $
January 15, 2019 $
Cash Dividend Per
Share
Record Date
0.60 December 29, 2017
0.60 March 30, 2018
0.60
June 29, 2018
0.60 September 28, 2018
0.60 December 31, 2018
Any dividends must be declared by our Board of Directors, which will take into account various factors including
our current and anticipated operating results, our financial position, REIT requirements, conditions prevailing in the
market, restrictions in our debt documents and additional factors they deem appropriate. Dividend payments are not
guaranteed and our Board of Directors may decide, in its absolute discretion, at any time and for any reason, not to
pay dividends or to change the amount paid as dividends. In light of recent developments with Windstream, we may
take measures to conserve cash, which may include a suspension, delay or reduction in our dividend. Moreover,
during the pendency of Windstream’s bankruptcy, or at such earlier time when certain other conditions are specified,
(discussed in the second risk factor and “Risk Related to the Status of Uniti as a REIT – REIT distribution
requirements could adversely affect our ability to execute our business plan”) our ability to make cash distributions
to our shareholders in amounts exceeding 90% of our REIT taxable income, determined without regard to the
dividends paid deduction and excluding any net capital gains, generally will be restricted.
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 at a floating rate based on our cost of capital. No capital
expenditure funding requests were made by Windstream for the year ended December 31, 2018.
We categorize our capital expenditures as either (i) success-based, (ii) maintenance, (iii) integration or (iv) corporate
and non-network. We define success-based capital expenditures as those related to installing existing or anticipated
contractual customer service orders. Maintenance capital expenditures are those necessary to keep existing network
elements fully operational. Integration capital expenditures are those made specifically with respect to recent
acquisitions that are essential to integrating acquired companies in our business. We anticipate continuing to invest
in our network infrastructure across our Uniti Leasing, 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.
In light of recent developments with Windstream, we may to take measures to conserve cash, which may include a
suspension, delay or reduction in success-based capital expenditures. We are closely monitoring developments of
the Windstream bankruptcy and continually assess our capital expenditure plans in light of such developments.
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
54
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 $110 million of undrawn borrowing capacity as of December 31, 2018. To manage this exposure
under our Term Loan Facility, we have entered into interest rate swap agreements in order to mitigate the interest rate
risk inherent in our variable rate Term Loan Facility. As of December 31, 2018, the interest rate risk for our Term Loan
Facility has been mitigated through this interest rate swap agreement, and, with the exception of our Revolving Credit
Facility, the interest rate for our remaining debt has a fixed rate. A hypothetical 10% change in interest rates effective
at December 31, 2018, would have had a $2.0 million impact on Uniti’s results of operations for the year ended
December 31, 2018.
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.
In connection with the fourth amendment to our Credit Agreement obtained on March 18, 2019, the interest rate on
our Term Loan Facility increased 200 basis points to LIBOR, subject to a 1.0% floor, plus an applicable margin
equal to 5.0%.
Foreign Currency Exchange Rate Fluctuation
Approximately 1% of our revenues were denominated in foreign currencies for the year ended December 31,
2018. 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 an increase in
net income of less than $0.1 million for the year ended December 31, 2018. This hypothetical calculation assumes
that each exchange rate would change in the same direction relative to the U.S. dollar.
55
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
Page
57
59
60
61
62
64
65
56
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 (the
“Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive
income (loss), shareholders’ deficit and cash flows for each of the three years in the period ended December 31,
2018, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the COSO.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company’s most significant
customer, Windstream Holdings, Inc., which accounts for approximately 68.2% of consolidated total revenues for
the year ended December 31, 2018, filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code,
and uncertainties surrounding potential impacts to the Company resulting from Windstream Holdings, Inc.’s
bankruptcy filing raise substantial doubt about the Company’s ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
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
57
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 Information Transport Solutions, Inc. from its assessment of internal control over financial reporting as of
December 31, 2018, because it was acquired by the Company in a purchase business combination during 2018. We
have also excluded Information Transport Solutions, Inc. from our audit of internal control over financial reporting.
Information Transport Solutions, Inc. is a wholly-owned subsidiary whose total assets and total revenues excluded
from management’s assessment and our audit of internal control over financial reporting represent 0.4% and 0.9%,
respectively, of the related consolidated financial statement amounts as of and for the year ended December 31,
2018.
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 18, 2019
We have served as the Company’s auditor since 2014.
58
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
Dividends payable
Deferred income taxes
Capital lease obligations
Contingent consideration
Notes and other debt, net
Total liabilities
Commitments and contingencies (Note 15)
December 31, 2018
December 31, 2017
$
$
$
$
$
$
3,209,006
38,026
104,063
692,385
432,821
61,785
31,043
23,808
4,592,937
94,179
28,097
726,262
113,744
52,434
55,282
83,401
4,846,233
5,999,632
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
Convertible Preferred Stock, Series A, $0.0001 par value, 88 shares
authorized, issued and outstanding, $87,500 liquidation value
86,508
83,530
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: 180,536 shares at December 31, 2018 and 174,852 at
December 31, 2017
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
-
-
18
757,517
30,105
(2,373,218)
(1,585,578)
92,375
(1,493,203)
17
644,328
7,821
(1,960,715)
(1,308,549)
101,407
(1,207,142)
Total Liabilities, Convertible Preferred Stock, and Shareholders'
Deficit
$
4,592,937
$
4,330,082
The accompanying notes are an integral part of these consolidated financial statements.
59
Uniti Group Inc.
Consolidated Statements of Income
Year Ended December 31,
2018
2017
2016
$
(Thousands, except per share data)
Revenues:
Leasing
Fiber Infrastructure
Tower
Consumer CLEC
Total revenues
Costs and Expenses:
Interest expense, net
Depreciation and amortization
General and administrative expense
Operating expense (exclusive of depreciation,
accretion and amortization)
Transaction related costs
Other (income) expense
Total costs and expenses
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to shareholders
Participating securities' share in earnings
Dividends declared on convertible preferred
stock
Amortization of discount on convertible
preferred stock
Net income (loss) attributable to common
shareholders
Earnings (loss) per common share (Note 13):
Basic
Diluted
$
$
$
Weighted-average number of common shares
outstanding
Basic
Diluted
699,847 $
289,239
14,617
13,931
1,017,634
319,591
451,750
85,198
137,065
17,410
(4,504)
1,006,510
11,124
(5,421)
16,545
358
16,187
(2,594)
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)
(2,624)
(2,624)
(2,980)
(2,980)
7,989 $
(16,552) $
0.05 $
0.04 $
(0.10) $
(0.13) $
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)
(1,743)
(1,985)
(5,497)
(0.04)
(0.04)
176,169
177,071
168,693
168,989
152,473
152,473
The accompanying notes are an integral part of these consolidated financial statements.
60
Uniti Group Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Thousands)
Net income (loss)
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,
2018
2017
2016
$
16,545 $
(8,828) $
(212)
24,251
(1,440)
22,811
39,356
12,895
1,660
14,555
5,727
884
976
(675)
(267)
(942)
(1,154)
-
$
38,472 $
4,751 $
(1,154)
The accompanying notes are an integral part of these consolidated financial statements.
61
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
- $
- 149,862,459 $
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
184,575
-
(2,980)
-
-
-
-
-
-
-
-
- (18,575)
-
-
-
-
-
-
(421)
7,713
-
-
-
14,190
(9,439)
611
(8,828)
-
-
-
-
517,501
-
(2,980)
365
14,555
-
(410,054)
-
(410,054)
-
-
-
-
-
-
-
-
(4,978)
(4,978)
(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)
-
-
-
-
-
-
1,859
-
1,859
62
(Thousands, except share
data)
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) income
Issuance of common
stock
Amortization of
discount on
convertible preferred
stock
Other comprehensive
income
Common stock
dividends
Distributions to
noncontrolling interest
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
2018 Activity:
Cumulative effect
adjustment for
adoption of new
accounting standard
Net income
At-the-market
issuance of common
stock, net of offering
costs
Amortization of
discount on
convertible preferred
stock
Other comprehensive
income
Common stock
dividends
Distributions to
noncontrolling interest
Convertible preferred
stock dividends
Net share settlement
Stock-based
compensation
Balance at December
31, 2018
Uniti Group Inc.
Consolidated Statements of Shareholders’ Deficit
-
-
-
-
-
-
16,187
358
16,545
-
- 5,496,763
1 109,441
-
-
-
109,442
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
187,694
-
-
-
-
-
-
-
-
-
-
(1,336)
8,064
-
(2,980)
-
22,284
-
-
-
(2,980)
527
22,811
-
(427,656)
-
(427,656)
-
-
-
-
-
(9,917)
(9,917)
(2,624)
(269)
-
-
-
-
(2,624)
(1,605)
8,064
- $
- 180,535,971 $
18 $757,517 $
30,105 $(2,373,218) $
92,375 $(1,493,203)
The accompanying notes are an integral part of these consolidated financial statements.
63
Uniti Group Inc.
Consolidated Statements of Cash Flows
Year Ended December 31,
2018
2017
2016
$
16,545 $
(8,828) $
(212)
451,750
434,205
375,970
(Thousands)
Cash flow from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) 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
Acquisition of ground lease investments
NMS asset acquisition (Note 5)
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 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
Net cash (used in) 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
$
$
$
$
24,614
(7,385)
(15,048)
8,064
(3,721)
7,818
(52,792)
1,755
41,218
472,818
(53,669)
-
(3,299)
(423,575)
(480,543)
(21,080)
(426,094)
(18,640)
-
500,000
(140,000)
(5,946)
-
109,441
-
(9,917)
(1,605)
(13,841)
(173)
(21,739)
59,765
38,026 $
17,901 $
153,615 $
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 $
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
-
$
122,395 $
259,996
The accompanying notes are an integral part of these consolidated financial statements.
64
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”) was incorporated 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, 2018, 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 and, its wholly-owned
and/or controlled subsidiaries, which includes 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”).
Going Concern
In accordance with Accounting Standards Update ("ASU") 2014-15, Disclosure of Uncertainties about an Entity's
Ability to Continue as a Going Concern (Subtopic 205-40), the Company’s management has evaluated whether there
are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to
continue as a going concern within one year after the date of the financial statements are issued.
65
We are party to a Master Lease agreement (the “Master Lease”) with Windstream Holdings, Inc. (“Windstream
Holdings” and together with its consolidated subsidiaries “Windstream”), from which 68.2% of our revenue for the
year ended December 31, 2018 was derived. Windstream has been involved in litigation with an entity who
acquired certain Windstream debt securities and thereafter issued a notice of default as to such securities related to
our spin-off from Windstream (“Spin-Off”). Windstream challenged the matter in federal court and a trial was held
in July 2018. On February 15, 2019, the federal court judge issued a ruling against Windstream, finding that an
“event of default” occurred with respect to such debt securities, and that the holder’s acceleration of such debt in
December 2017 was effective. In response to the adverse outcome, on February 25, 2019, Windstream filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern
District of New York.
In bankruptcy, Windstream has the option to assume or reject the Master Lease. Because the Master Lease is a
single indivisible Master Lease with a single rent payment, the lease must be assumed or rejected in whole and
cannot be sub-divided by facility or market. A significant amount of Windstream’s revenue is generated from the
use of our network included in the Master Lease, and we believe that the Master Lease is essential to Windstream’s
operations. Furthermore, Windstream is designated as a “carrier of last resort” in certain markets where it utilizes
the Master Lease to provide service to its customers, and Windstream would require approval from the Public Utility
Commissions and the Federal Communications Commission to cease providing service in those markets. As a
result, we believe the probability of Windstream rejecting the lease in bankruptcy to be remote. However, a
rejection of the Master Lease, or even a temporary disruption in payments to us, may require us to fund certain
expenses and obligations (e.g., real estate taxes, insurance and maintenance expenses) to preserve the value of our
properties, and could materially adversely affect our consolidated results of operations, liquidity and financial
condition, including our ability to service debt, comply with debt covenants and pay dividends to our stockholders as
required to maintain our status as a REIT. As a result, conditions or events have been identified that are present that
raise substantial doubt about the Company’s ability to continue as a going concern.
The Company has considered the mitigating effects of management’s plans to alleviate the substantial doubt about
the ability to continue as going concern in the event there is a disruption in the payments due to us under the Master
Lease prior to Windstream’s assumption or rejection of the lease. Those plans include deferring, reducing or
delaying cash dividends and capital expenditures, if necessary, paying one or more dividends that are required to
maintain our REIT status in shares to the extent allowed under the IRS REIT rules, curtailing acquisition activities,
accessing the capital markets and identifying alternative sources of liquidity. Based on our analysis, including
consideration of the timing of petitioners’ requirements to make post-petition lease payments under U.S. bankruptcy
law, we believe that we have adequate liquidity to continue to fund our operations for twelve months after the
issuance of the financial statements.
Although management has concluded the probability of a rejection of the Master Lease to be remote, and has noted
the absence of any provision in the Master Lease that contemplates renegotiation of the lease and the lack of any
ability of the bankruptcy court to unilaterally reset the rent or terms of the lease, it is difficult to predict what could
occur in Windstream’s bankruptcy restructuring. The Company has evaluated its ability to continue as a going
concern in light of the possibility of a consensual renegotiation of the Master Lease, and the impact of any
renegotiated lease on our compliance with our debt covenants. We note that our Credit Agreement prohibits the
Company from amending the Master Lease that, among other provisions, pro forma for any such amendment, would
result in a consolidated secured leverage ratio that exceeds 5.0 to 1.0. Furthermore, management has no intention to
enter into a lease amendment that would violate our debt covenants.
However, because there can be no certainty as of the outcome of Windstream’s decision to assume or reject the
Master Lease, uncertainties exist as to the outcome or impacts of any potential consensual renegotiation of the
Master Lease. Therefore, substantial doubt about our ability to continue as a going concern within one year after the
issuance of the financial statements exists.
The accompanying consolidated financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going
concern.
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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
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, 2018 and 2017, the accumulated amortization of our capital lease assets was $15.8 million and
$10.1 million, respectively.
Certain property, plant and equipment acquired as part of our spin-off from 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, 2018 and 2017, the net book value of TCIs recorded as a component of property, plant
and equipment on our Consolidated Balance Sheet was $562.9 million and $432.4 million, respectively. For the
years ended December 31, 2018, 2017 and 2016, we recognized $23.1 million, $14.3 million, and $6.1 million of
revenue and depreciation expense related to TCIs, respectively.
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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
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, 2018, 2017 and 2016, 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, 2018 and 2017, our aggregate
carrying amount of asset retirement obligations totaled $10.4 million and $9.4 million, respectively. During the year
ended December 31, 2018 and 2017, we incurred liabilities of $0.1 million and $4.4 million related to asset
retirement obligations, respectively. During the year ended December 31, 2018, 2017, and 2016, we recognized
$0.9 million, $4.4 million, and $0.8 million of accretion expense related to asset retirement obligations, respectively.
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 6 and Note 8.
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 Spin-Off, 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—During 2017 and forward, we managed and reported our operations in four reportable business
segments: Leasing, Fiber Infrastructure, Towers and Consumer CLEC. Certain prior year asset categories and
related amounts in Note 7 have been reclassified to conform with 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.
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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
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, 2018 and 2017, 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 adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”) on
January 1, 2018 (see Note 4). Prior to the adoption of Topic 606, the Company recognized 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 was 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, 2018 and 2017, the allowance recorded for service receivables was $2.3 million and $1.0
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 11.
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Income Taxes—We elected on our initial 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 2018, 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.
Subject to the temporary restriction imposed by the waiver and amendment to our Credit Agreement (see Note 10),
our ability to make cash distributions to our shareholders in amounts exceeding 90% of our REIT taxable income,
determined without regard to the dividends paid deduction and excluding any capital gains, generally will be
restricted. As a result, we may be required to record a provision in our Consolidated Financial Statements for U.S.
federal income taxes related to the activities of the REIT and its passthrough subsidiaries for any undistributed
income. 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 unrecognized tax benefits of $3.0 million
recorded in deferred incomes taxes on our Consolidated Balance Sheet.
The Company will be subject to a federal corporate level tax 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. The fair value of
the acquired assets and liabilities are estimated using the income, market and/or cost approach. The income
approach utilizes the present value of estimated future cash flows that a business or asset can be expected to
generate, while under the market approach, the fair value of an asset or business reflects the price at which
comparable assets are purchased under similar circumstances. Inherent in our preparation of cash flow projections
are significant assumptions and estimates derived from a review of 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. Small changes in these assumptions or estimates could materially affect the cash
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flow projections, and therefore could affect the estimated fair value. Impact these assumptions or estimates include
customer retention, execution of our business plans, which impact growth, cost escalation impacting margin, the
level of capital expenditures required to sustain our growth and market factors, including stock price fluctuations
and increased rates, impacting our cost of capital.
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 to, among other things, estimate the acquisition date fair value of any contingent
consideration and 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.
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 significant 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 is greater than the fair value of the reporting unit, an impairment loss must be recognized for the excess and
charged to operations not exceed the carrying value of goodwill.
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 these assumptions or estimates could materially affect our
cash flow projections, and therefore could affect the likelihood and amount of potential impairment. Potential
events that could negatively impact these assumptions or estimates include customer losses or poor execution of our
business plans, which impact growth, cost escalation impacting margin, the level of capital expenditures required to
sustain our growth and market factors, including stock price fluctuations and increased rates, impacting our cost of
capital. The market approach uses market data of comparable business and acquisition multiples paid in recent
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transactions to estimate fair value. Declines in the comparable business and acquisitions multiples could affect the
likelihood and amount of potential impairment.
As of December 31, 2018 and 2017, 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 5%. During the years ended
December 31, 2018 and 2017, no impairment losses were recognized.
In light of the recent developments below surrounding Windstream, as discussed in “Concentration of Credit Risks”,
if there were to be changes in assumptions impacting the forecasted cash flows at Uniti Fiber, our conclusions
regarding the likelihood and amount of any potential impairment could change.
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 13.
Concentration of Credit Risks—We are party to a Master Lease with Windstream from which substantially all of
Uniti’s leasing revenues and operating cash flows are currently derived. Revenue under the Master Lease provided
68.2% of our revenue for the year ended December 31, 2018, 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 a substantial portion of our
revenue and cash flows are 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, financial condition and/or ability to
pay dividends and service debt if Windstream were to default under the Master Lease or otherwise experiences
operating or liquidity 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, sales and cash flow, and has had its credit
ratings downgraded by nationally recognized credit rating agencies multiple times over the past 12 months. In
addition, Windstream has been involved in litigation with an entity who acquired certain Windstream debt securities
and thereafter issued a notice of default as to such securities relating to our spin-off from Windstream. On December
7, 2017, the entity issued a notice of acceleration to Windstream claiming that the alleged default had matured into
an “event of default” and that the principal amount, along with accrued interest, of such securities was due and
payable immediately. Windstream challenged the matter in federal court and a trial was held, in July 2018. On
February 15, 2019, the federal court judge issued a ruling against Windstream, finding that Windstream’s attempts
to waive such default were not valid; that an “event of default” occurred with respect to such debt securities; and
that the holder’s acceleration of such debt in December 2017 was effective.
In response to the adverse outcome, on February 25, 2019, Windstream filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.
In bankruptcy, Windstream has the option to assume or reject the Master Lease. While we believe that the Master
Lease is essential to Windstream’s operations, it is difficult to predict what could occur in a restructuring, and even a
temporary disruption in payments to us may require us to fund certain expenses and obligations (e.g., real estate
taxes, insurance and maintenance expenses) to preserve the value of our properties and avoid the imposition of liens
on our properties and could impact our ability to fund other cash obligations, including dividends necessary to
maintain REIT status, non-essential capital expenditures and, in an extreme case, our debt service obligations. See
Note 2. A rejection by Windstream of the Master Lease or its inability or unwillingness to meet its rent and other
obligations under the Master Lease could materially adversely affect our consolidated results of operations,
liquidity, and financial condition, including our ability to service debt, comply with debt covenants and pay
dividends to our stockholders as required to maintain our status as a REIT.
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Windstream is a publicly traded company 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.
Recently Adopted Accounting Pronouncements
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. We adopted
ASU 2016-15 effective January 1, 2018, and there was no material impact on our financial position.
In August 2017, the FASB issued 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. We adopted ASU 2017-12 effective January 1, 2018,
and there was no material impact on our financial position.
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. We adopted ASU 2017-05
effective January 1, 2018, using the modified retrospective approach and there was no material impact on our
financial position.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
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. Topic 606 is effective for annual periods
beginning after December 15, 2017 and interim periods within those annual periods. We adopted Topic 606 as of
January 1, 2018 using the modified retrospective transition method. See Note 4.
Recent Accounting Pronouncements Not Yet Adopted
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. The accounting
for lessors remains largely unchanged from existing guidance. Leases with a term of 12 months or less will be
accounted for similar to existing guidance for operating leases today. The provisions of this guidance are effective
for annual periods beginning after December 31, 2018, and for interim periods therein, and it is required to applied
using the modified retrospective approach for all leases existing as of the effective date. 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, including ground, tower, equipment, office and fiber lease arrangements, in which 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
73
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.
In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842) – Land Easement Practical Expedient for
Transition to Topic 842. This standard permits an entity to elect an optional transition practical expedient to not
evaluate land easements that exist or expire before the Company's adoption of ASC 842 and that were not previously
accounted for as leases under ASC 840. The Company intends to elect this transition provision.
Note 4. Revenues
Adoption of ASC Topic 606, Revenue from Contracts with Customers
Except for the changes below, we have consistently applied the accounting policies to all periods presented in these
Consolidated Financial Statements.
On January 1, 2018, we adopted Topic 606 using the modified retrospective method, whereby the cumulative effect
of initially applying Topic 606 is recognized as an adjustment to the opening balance of equity at January 1, 2018.
Therefore, comparative information has not been adjusted and continues to be reported under ASC 605, Revenue
Recognition. We recorded a net increase to opening retained earnings of $1.9 million as of January 1, 2018 due to
the cumulative impact of adopting Topic 606, with the impact primarily related to commission costs that are
capitalized under Topic 606 which were previously expensed.
The details of the significant changes and quantitative impact of the changes are set out below. We have applied this
guidance only to contracts that were not completed as of January 1, 2018, the date of initial application.
Commissions
We previously recognized commission fees related to obtaining a contract as selling expenses when incurred. Under
Topic 606 and Topic 340, Other Assets and Deferred Costs, when they are incremental or expected to be recovered,
we capitalize those commission fees as costs of obtaining a contract and amortize them consistently with the pattern
of transfer of the product or service to which the asset relates. These amortized costs are included in general and
administrative expense on the Consolidated Statements of Income. These deferred balances were $2.5 million and
$4.9 million at January 1, 2018 and December 31, 2018, respectively, and included in Other Assets on the
Consolidated Balance Sheets; Other Assets would have been lower by those amounts under revenue recognition and
cost guidance applicable to us prior to the adoption of Topic 606 and Topic 340. For the year ended December 31,
2018, the impact to costs as a result of applying Topic 606 was a decrease of $2.4 million, as compared to what the
general and administrative expense would have been under previous revenue and cost recognition guidance. There
would have been no other differences in our Consolidated Balance Sheets as of December 31, 2018 or Consolidated
Statements of Income for the year ended December 31, 2018 under previous revenue and cost recognition guidance
as compared to Topic 606 and Topic 340.
Nature of goods and services
The following is a description of principal activities, separated by reportable segments (see Note 14), from which the
Company generates its revenues.
Leasing
Leasing revenue represents the results from our leasing program, 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. Due to the nature of these activities, they are outside the scope of the guidance of Topic 606,
and are recognized under other applicable guidance, including ASC 840, Leases (“Topic 840”).
74
Fiber Infrastructure
The Fiber Infrastructure segment represents the operations of our fiber business, Uniti Fiber, which provides (i)
consumer, enterprise, wholesale and backhaul lit fiber, (ii) E-rate, (iii) small cell, (iv) construction services, (v) dark
fiber and (vi) other revenue generating activities.
Consumer, enterprise, wholesale, and backhaul lit fiber fall under the guidance of Topic 606. Revenue
is recognized over the life of the contracts in a pattern that reflects the satisfaction of Uniti’s stand-
ready obligation to provide lit fiber services. The transaction price is equal to the monthly-recurring
charge multiplied by the contract term, plus any non-recurring or variable charges. For each contract,
the customer is invoiced monthly.
E-rate contracts involve providing lit fiber services to schools and libraries, and is governed by Topic
606. Revenue is recognized over the life of the contract in a pattern that reflects the satisfaction of
Uniti’s stand-ready obligation to provide lit fiber services. The transaction price is equal to the
monthly-recurring charge multiplied by the contract term, plus any non-recurring or variable charges.
For each contract, the customer is invoiced monthly.
Small cell contracts provide improved network connection to areas that may not require or
accommodate a tower. Small cell arrangements typically contain five streams of revenue: site
development, radio frequency (“RF”) design, dark fiber lease, construction services, and maintenance
services. Site development, RF design and construction are each separate services and are considered
distinct performance obligations under Topic 606. Dark fiber and associated maintenance services
constitute a lease, and as such, they are outside the scope of Topic 606 and are governed by other
applicable guidance.
Construction revenue is generated from contracts to provide various construction services such as
equipment installation or the laying of fiber. Construction revenue is recognized over time as
construction activities occur as we are either enhancing a customer’s owned asset or constructing an
asset with no alternative use to us and we would be entitled to our costs plus a reasonable profit margin
if the contract was terminated early by the customer. We are utilizing our costs incurred as the
measure of progress of satisfying our performance obligation.
Dark fiber arrangements represent operating leases under Topic 840 and is outside the scope of Topic
606. When (i) a customer makes an advance payment or (ii) a customer is contractually obligated to
pay any amounts in advance, which is not deemed a separate performance obligation, deferred leasing
revenue is recorded. This leasing revenue is recognized ratably over the expected term of the contract,
unless the pattern of service suggests otherwise.
The Company generates revenues from other services, such as consultation services and equipment
sales. Revenue from the sale of customer premise equipment and modems that are not provided as an
essential part of the telecommunications services, including broadband, long distance, and enhanced
services is recognized when products are delivered to and accepted by the customer. Revenue from
customer premise equipment and modems provided as an essential part of the telecommunications
services, including broadband, long distance, and enhanced services are recognized over time in a
pattern that reflects the satisfaction of the service performance obligation.
i.
ii.
iii.
iv.
v.
vi.
Towers
The Towers segment represents the operations of our towers business, Uniti Towers, through which we acquire and
construct tower and tower-related real estate, which we then lease to our customers in the United States and Latin
America. Revenue from our towers business qualifies as a lease under Topic 840 and is outside the scope of Topic
606.
75
Consumer CLEC
The Consumer CLEC segment represents the operations of Talk America Services (“Talk America”) through which
we operate the Consumer CLEC Business, which provides local telephone, high-speed internet and long-distance
services to customers in the eastern and central United States. Customers are billed monthly for services rendered
based on actual usage or contracted amounts. The transaction price is equal to the monthly-recurring charge
multiplied by the initial contract term (typically 12 months), plus any non-recurring or variable charges.
Disaggregation of Revenue
The following table presents our revenues disaggregated by revenue stream.
(Thousands)
Revenue disaggregated by revenue stream
Revenue from contracts with customers
Fiber Infrastructure
Lit backhaul
Enterprise and wholesale
E-Rate and government
Other
Fiber Infrastructure
Consumer CLEC
Total revenue from contracts with customers
Revenue accounted for under other applicable guidance
Total revenue
Year Ended December 31,
2017(1)
2018
2016(1)
$
$
$
132,361 $
63,519
74,752
4,492
275,124 $
13,931
289,055
728,579
1,017,634 $
117,574 $
36,542
43,021
454
197,591 $
18,087
215,678
700,354
916,032 $
54,739
7,140
8,062
252
70,193
22,472
92,665
677,743
770,408
(1) As noted above, prior period amounts have not been adjusted under the modified retrospective method.
At January 1, 2018 and December 31, 2018 lease receivables were $10.9 million and $45.5 million, respectively,
and receivables from contracts with customers were $31.2 million and $57.1 million, respectively.
Contract Assets (Unbilled Revenue) and Liabilities (Deferred Revenue)
Contract assets primarily consist of unbilled construction revenue where we are utilizing our costs incurred as the
measure of progress of satisfying our performance obligation. When the contract price is invoiced, the related
unbilled receivable is reclassified to trade accounts receivable, where the balance will be settled upon the collection
of the invoiced amount. Contract liabilities are generally comprised of 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. During the year ended December 31, 2018, we recognized revenues of $14.7 million that
was included in the January 1, 2018 contract liabilities balance.
The following table provides information about contract assets and contract liabilities accounted for under Topic
606.
(Thousands)
Balance at January 1, 2018
Balance at December 31, 2018
Contract Assets
$
$
2,490 $
5,540 $
Contract
Liabilities
26,256
15,473
76
Transaction Price Allocated to Remaining Performance Obligations
Performance obligations within contracts to stand ready to provide services are typically satisfied over time or as
those services are provided. Contract assets primarily relate to costs incremental to obtaining contracts and contract
liabilities primarily relate to deferred revenue from non-recurring charges. The deferred revenue is recognized, and
the liability reduced, over the contract term as the Company completes the performance obligation. As of December
31, 2018, our future revenues (i.e. transaction price related to remaining performance obligations) under contract
accounted for under Topic 606 totaled $646.7 million, of which $572.0 million is related to contracts that are
currently being invoiced and have an average remaining contract term of 2.7 years, while $74.7 million represents
our backlog for sales bookings which have yet to be installed and have an average remaining contract term of 4.5
years.
Practical Expedients and Exemptions
We do not disclose the value of unsatisfied performance obligations for contracts that have an original expected
duration of one year or less.
We exclude from the transaction price any amounts collected from customers for sales taxes and therefore, they are
not included in revenue.
Note 5. 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
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 and 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 14. The following is a summary of
the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:
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
77
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 9.
As of December 31, 2018, we have acquired 89 of the 105 towers that were under development at the time of the
NMS acquisition, and 16 of the development towers were cancelled and will not be completed and purchased.
Business Combinations
2018 Transactions
Information Transport Solutions, Inc.
On October 19, 2018, we acquired 100% of the outstanding equity of Information Transport Solutions, Inc. (“ITS”)
for cash consideration of $59.6 million. ITS is a full-service managed services provider of technology solutions,
primarily to educational institutions in Alabama and Florida. This acquisition expands Uniti Fiber’s product
offerings and strengthens relationships with new and existing E-Rate customers. 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 14. The following is a summary of the estimated fair values of the assets acquired
and liabilities assumed as of the acquisition date:
Property, plant and equipment
Cash and cash equivalents
Accounts receivable
Other assets
Goodwill
Intangible assets
Accounts payable, accrued expenses and other liabilities
Deferred revenue
Total purchase consideration
$
$
(thousands)
4,270
5,931
3,909
7,238
11,210
30,254
(2,645)
(567)
59,600
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 specialist, 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 2019.
The goodwill arising from the transaction is primarily attributable to strategic opportunities that arose from the
acquisition of ITS, including strengthening relationships with new and existing E-Rate customers and anticipated
incremental sales and cost savings. For federal income tax purposes, the transaction was treated as a taxable
acquisition. Thus, all of the goodwill is expected to be deductible for tax purposes.
We acquired an intangible asset that was assigned to customer relationships of $30.3 million (14 year life). The
Company determined the useful life for the customer relationship by applying an income approach (using the multi-
period excess earnings method with a discount rate commensurate to the risk of the asset) and resulted from two key
considerations: attrition rate and cumulative present value of cash flows, including assessing the period over which
the asset is expected to contribute to the Company’s future cash flows.
The acquired business contributed revenue of $9.0 million and an operating income of $0.5 million, which excludes
transaction related costs, to our consolidated results from the date of acquisition through December 31, 2018. We
recorded transaction related costs related to the acquisition of ITS for the year ended December 31, 2018 of $0.3
million within transaction related costs on the Consolidated Statement of Income.
78
The following table presents the unaudited pro forma summary of our financial results as if the ITS acquisition had
occurred on January 1, 2017. The pro forma results include additional amortization resulting from purchase
accounting adjustments related to the intangible asset. 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, 2017.
(Thousands, except per share data)
Pro forma revenue
Pro forma net income (loss)
2017 Transactions
Southern Light, LLC
Year Ended
Year Ended
December 31, 2018
December 31, 2017
$
1,054,192 $
17,727
967,512
(6,763)
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 14. The following is a summary of the estimated fair values of the assets acquired
and liabilities assumed as of the acquisition date:
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)
279,467
1,992
11,139
1,287
319,508
160,100
(19,846)
(38,134)
(9,892)
(3,189)
702,432
During the second quarter of 2018, the purchase price allocation was adjusted to record $0.9 million of deferred tax
liabilities that existed at the date of acquisition.
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
Company determined the useful life for the customer relationship by applying an income approach (using the multi-
period excess earnings method with a discount rate commensurate to the risk of the asset) and resulted from two key
considerations: attrition rate and cumulative present value of cash flows, including assessing the period over which
the asset is expected to contribute to the Company’s future cash flows.
79
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
6. 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 14. The following is a summary of the
estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:
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
99,580
73,000
(3,741)
(6,036)
(43,550)
(164)
187,271
During the first quarter of 2018, the purchase price allocation was adjusted to record certain deferred revenues and
accrued liabilities that existed at the date of acquisition. Deferred revenue and accrued liabilities increased $2.2
million and $1.2 million, respectively.
During the second quarter of 2018, the purchase price allocation was adjusted to record $3.2 million of deferred tax
liabilities that existed at the date of acquisition.
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
Company determined the useful life for the customer relationship by applying an income approach (using the multi-
period excess earnings method with a discount rate commensurate to the risk of the asset) and resulted from two key
considerations: attrition rate and cumulative present value of cash flows, including assessing the period over which
the asset is expected to contribute to the Company’s future cash flows.
80
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)
2016 Transactions
Tower Cloud, Inc.
Year Ended
Year Ended
December 31, 2017
December 31, 2016
$
980,303 $
4,267
891,373
(2,482)
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 14. 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 as of the acquisition date:
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.
81
We acquired an intangible asset that was assigned to customer relationships of $116.2 million (30 year life). The
Company determined the useful life for the customer relationship by applying an income approach (using the multi-
period excess earnings method with a discount rate commensurate to the risk of the asset) and resulted from two key
considerations: attrition rate and cumulative present value of cash flows, including assessing the period over which
the asset is expected to contribute to the Company’s future cash flows.
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. 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
PEG Bandwidth, LLC
Year Ended
December 31, 2016
$
798,054
(3,581)
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 (“Series A Shares”) 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 as goodwill within our Fiber Infrastructure segment. See Note 14. The
following is a summary of the estimated fair values of the assets acquired and liabilities assumed as of the
acquisition date:
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
82
$
$
(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 Company determined the
useful life for the customer relationship by applying an income approach (using the multi-period excess earnings
method with a discount rate commensurate to the risk of the asset) and resulted from two key considerations:
attrition rate and cumulative present value of cash flows, including assessing the period over which the asset is
expected to contribute to the Company’s future cash flows.
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
Summit Wireless Infrastructure, LLC
Year Ended
December 31, 2016
$
797,637
6,264
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 6. 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:
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
83
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, 2018 and 2017:
Quoted Prices in
Active Markets
(Level 1)
Prices with Other
Observable Inputs
(Level 2)
Total
Prices with
Unobservable
Inputs
(Level 3)
$
$
31,043 $
31,043 $
— $
— $
31,043 $
31,043 $
(Thousands)
At December 31, 2018
Assets
Derivative asset
Total
Liabilities
Total
(Thousands)
At December 31, 2017
Assets
Derivative asset
Total
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
$ 1,877,303 $
504,625
965,700
496,500
639,936
83,401
$ 4,567,465 $
— $
—
—
—
—
—
— $
1,877,303 $
504,625
965,700
496,500
639,936
—
4,484,064 $
—
83,401
83,401
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 $
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
Total
$ 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
—
—
—
—
—
—
—
—
—
—
—
—
84
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 $5.0 billion at December 31, 2018, with a fair value of
$4.5 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 8. 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,
2018, 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 $10.0 million as of December 31,
2018. See Note 5. 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, 2018 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. On January 4, 2019, we settled the Hunt Contingent Consideration in full
satisfaction of the obligation through the issuance of 645,385 common shares having a fair value of $11.2 million.
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 $73.4 million as of December 31, 2018. The fair value of the contingent
consideration as of December 31, 2018, was determined using a discounted cash flow model and probability
adjusted estimates of the operational milestones and is classified as Level 3. During the year ended December 31,
2018, we paid $18.6 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, 2018, there was a $3.7 million decrease 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,
2017
105,762 $
$
Transfers into
Level 3
— $
Settlements
(3,721) $ (18,640) $
December 31,
2018
83,401
(Gain)/Loss
included in
earnings
85
Note 7. 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
Property, plant and equipment, net
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, 2018
29,304
340,238
34,878
248,989
3,005,304
256,838
3,721,649
89,692
120,073
123,017
137,585
11,524
4,214
8,123,305
(4,914,299)
3,209,006
$
December 31, 2017
27,110
$
333,121
34,580
243,710
2,671,216
201,490
3,656,384
91,210
59,610
93,465
112,489
10,232
7,970
7,542,587
(4,488,698)
3,053,889
$
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, 2018, 2017, and 2016 was $425.2 million, $415.9 million
and $369.9 million, respectively.
Note 8. 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.
We are party to 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 $2.07 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
Location on Consolidated
Balance Sheet
Derivative asset
December 31, 2018
$
31,043
December 31, 2017
$
6,793
As of December 31, 2018 and 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 on the Consolidated Balance Sheets. For the years
ended December 31, 2018, 2017 and 2016, the amount recorded in other comprehensive income related to the
unrealized gain on derivative instruments was $21.6 million, $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 ended December 31, 2018, 2017 and 2016 was $2.6 million, $20.6 million and $23.8 million,
86
respectively. For the years ended December 31, 2018, 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, 2019, we estimate that $4.1 million will be reclassified as a decrease to interest expense.
Note 9. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill occurring during the year ended December 31, 2018 and 2017, are as
follows:
(Thousands)
Goodwill at December 31, 2016
Goodwill purchase accounting adjustments
Goodwill associated with 2017 acquisitions
Goodwill at December 31, 2017
Goodwill purchase accounting adjustments
Goodwill associated with 2018 acquisitions
Goodwill at December 31, 2018
$
Fiber Infrastructure
Total
262,334 $
(248)
411,643
673,729
7,446
11,210
692,385
262,334
(248)
411,643
673,729
7,446
11,210
692,385
The carrying value of our other intangible assets is as follows:
(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
December 31, 2018
Cumulative
Translation
Adjustment
Accumulated
Amortization
Cost
December 31, 2017
Cumulative
Translation
Adjustment
Accumulated
Amortization
Cost
$
2,000 $
- $
- $
2,000 $
- $
-
451,997
37,386
13,541
1,509
506,988
(74,167)
$ 432,821
-
411
144
-
(69,393) 421,743
(3,293)
37,386
(1,192)
13,541
1,509
(289)
-
1,141
410
-
(46,049)
(1,605)
(581)
(138)
477,730
(48,373)
$ 429,357
$
3,440 $
(182) $
(624) $
3,440 $
15 $
(317)
Total intangible liabilities
Less: Accumulated amortization
Total intangible liabilities, net(2)
3,258
(624)
2,634
$
3,455
(317)
3,138
$
87
(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.
As of December 31, 2018, the remaining weighted average amortization period of the Company’s intangible assets
was 18.3 years. Amortization expense for the years ended December 31, 2018, 2017 and 2016 was $25.5 million,
$18.3 million and $6.1 million, respectively. Amortization expense is estimated to be $26.6 million in 2019, $26.1
million in 2020, $25.6 million in 2021, $25.2 million in 2022 and $25.1 million in 2023.
Note 10. 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, 2018 December 31, 2017
$
4,626,887
(144,190)
4,482,697
4,965,808 $
(119,575)
4,846,233 $
$
Notes and other debt at December 31, 2018 and 2017 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, 2018
December 31, 2017
Unamortized
Discount,
Premium and
Debt Issuance
Costs
Unamortized
Discount and
Debt Issuance
Costs
Principal
Principal
$ 2,065,808 $
(70,337) $2,086,887 $
(87,140)
550,000
(7,116)
550,000
(8,508)
1,110,000
(34,900) 1,110,000
(40,467)
600,000
(7,222)
600,000
(8,075)
640,000
$ 4,965,808
-
280,000
-
(119,575) $4,626,887 $ (144,190)
At December 31, 2018, 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 Unsecured 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)
$640.0 million under the senior secured revolving credit facility, variable rate, that matures April 24, 2020 pursuant
88
to the Credit Agreement (the “Revolving Credit Facility” and, together with the Term Loan Facility, the
“Facilities”).
During 2017, the Company completed its 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 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, 2018, the Borrowers were in
compliance with all of the covenants under the Credit Agreement. However, we would be in breach of the
requirement to deliver audited financial statements without a going concern opinion if we were unable to provide
2018 audited financial statements without a going concern opinion to the lenders under our Credit Agreement by
March 31, 2019.
On March 18, 2019, we received a limited waiver from our lenders under our Credit Agreement, waiving an event of
default related solely to the receipt of a going concern opinion from our auditors for our 2018 audited financial
statements. The limited waiver was issued in connection with the fourth amendment (the “Amendment”) to our
Credit Agreement. During the pendency of Windstream’s bankruptcy, or at such earlier time when certain other
conditions are specified, the Amendment generally limits our ability under the Credit Agreement to (i) prepay
89
unsecured indebtedness and (ii) pay cash dividends in excess of 90% of our REIT taxable income, determined
without regard to the dividends paid deduction and excluding any net capital gains. The Amendment also increases
the interest rate on our Term Loan Facility, which will now bear a rate of LIBOR, subject to a 1.0% floor, plus an
applicable margin equal to 5.0%, a 200 basis point increase over our previous rate. This increase will be in effect
though the remaining term of the facility, which matures on October 24, 2022.
A termination of the Master Lease would result in an “event of default” under the Credit Agreement, if a
replacement lease was not entered into within ninety (90) calendar days and we do not maintain pro forma
compliance with a consolidated secured leverage ratio, as defined in the Credit Agreement, of 5.00 to 1.00.
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.
The failure to provide 2018 financial statements without a going concern opinion to the lenders under our Credit
Agreement by March 31, 2019 would constitute a breach of the covenants of our Credit Agreement and, absent the
waiver by our lenders, would constitute an immediate event of default. If any event of default were to occur under
our Credit Agreement and the Credit Agreement’s administrative agent declares all outstanding loans immediately
due and payable, such an acceleration would trigger cross-default provisions within the indentures governing our
senior notes and thereby entitle the trustee and noteholders to accelerate the repayment of the Secured Notes, the
2023 Notes and the 2024 Notes.
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, 2018, 2017 and 2016,
we recognized $14.7 million, $13.6 million and $7.8 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, 2018 are as follows:
(Thousands)
2019
2020
2021
2022
2023
Thereafter
Total
$
$
21,080
661,080
21,080
2,002,568
1,660,000
600,000
4,965,808
90
As discussed in Note 7, we have acquired property pursuant to capital leases. At December 31, 2018, future
minimum lease payments under capital lease obligations are as follows:
(Thousands)
2019
2020
2021
2022
2023
Thereafter
Total minimum payments
Less amount representing interest
Total
Note 11. Stock-Based Compensation
$
$
8,683
7,357
6,638
6,484
6,457
52,533
88,152
(32,870)
55,282
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.
Restricted Awards
During the year ended December 31, 2018, the Company granted 396,705 shares of restricted stock to employees,
which had a fair value of $5.5 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, 2018, there were 4,724,876 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, 2017
Granted
Forfeited
Vested
Unvested balance, December 31, 2018
588,188 $
396,705 $
(35,559) $
(281,706) $
667,628 $
24.00
14.02
19.62
24.42
18.03 $
10,395
(1) The aggregate intrinsic value is calculated as the market value of our common stock as of December 31, 2018.
The market value as of December 31, 2018 was $15.57 per share, which was the closing price of our common
stock reported for transactions effected on the NASDAQ Global Select Market on December 31, 2018, the final
trading day of 2018.
During the year ended December 31, 2017, there were 234,294 shares of restricted stock granted with a weighted-
average fair value of $25.56 per share. 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.
The total fair value of shares vested for the years ended December 31, 2018 and 2017 was $6.9 million and $2.9
million, respectively.
As of December 31, 2018, total unrecognized compensation expense on restricted awards was approximately $6.2
million, and the expense is expected to be recognized over a weighted average vesting period of 0.9 years.
91
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 and paid in cash upon the vesting of a PSU. Dividend
equivalents are forfeited to the extent that the underlying PSU is forfeited.
On February 6, 2018, we issued 169,549 PSUs equal to 100% of the target amount, with an aggregate value of $3.3
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, 2018, 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, 2017
Granted
Forfeited
Vested
Unvested balance, December 31, 2018
Performance Awards
Weighted Average Fair
Value at Grant Date
Aggregate Intrinsic
Value(1) ($000s)
254,625 $
169,549 $
(60,970) $
— $
363,204 $
25.69
19.30
21.82
—
23.35
$
5,655
(1) The aggregate intrinsic value is calculated as the market value of our common stock as of December 31, 2018.
The market value as of December 31, 2018 was $15.57 per share, which was the closing price of our common
stock reported for transactions effected on the NASDAQ Global Select Market on December 31, 2018, the final
trading day of 2018.
During the year ended December 31, 2017, there were 91,995 PSUs granted with a weighted-average fair value of
$33.75 per share. During the year ended December 31, 2016, there were 101,660 PSUs granted with a weighted-
average fair value of $20.71 per share.
As of December 31, 2018, total unrecognized compensation expense related to PSUs was approximately $3.7
million, and the weighted-average vesting period was 1.4 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,
2018, 2017 and 2016:
Expected term (years)
Expected volatility
Expected annual dividend
Risk free rate
Employee Stock Purchase Plan
Year Ended December 31,
2018
2017
2016
3.0
48.5%
0.0%
2.3%
3.0
33.6%
0.0%
1.5%
3.0
48.8%
0.0%
0.9%
On May 17, 2018, our stockholders approved and adopted the Uniti Group Inc. Employee Stock Purchase Plan (the
“ESPP”). The ESPP authorizes us to issue up to 2,000,000 shares of our common stock to any of our employees so
92
long as the employee is employed on the first day of the applicable offering period. Under the ESPP, there are two
six-month plan periods during each calendar year, one beginning January 1 and ending on June 30, and one
beginning on July 1 and ending on December 31. Under the terms of the ESPP, employees can choose each plan
period to have up to 15% of their annual base earnings, limited to $25,000 withheld to purchase our common stock.
The purchase price of the stock is 85% of the lower of its beginning-of-period or end-of-period market price. Under
the ESPP, no shares were sold to employees during the year ended 2018. As of December 31, 2018, there were
2,000,000 shares available for future issuance under the ESPP. The following table summarizes the assumptions
used to value the purchase rights granted under the ESPP during the year ended December 31, 2018:
Expected term (years)
Expected volatility
Expected annual dividend
Risk free rate
Year Ended December 31, 2018
0.5
37.0%
11.3%
2.1%
For the years ended December 31, 2018, 2017 and 2016, we recognized $8.1 million, $7.7 million and $4.8 million,
respectively, of compensation expense related to restricted stock awards, performance-based awards and the ESPP,
which is recorded in general and administrative expense on our Consolidated Statement of Income.
Note 12. 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.
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, upon its disposition of these shares,
Windstream was 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.
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.
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.
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
93
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
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.
Note 13. 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, approximately76,000 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.
The earnings per share impact of the Series A Shares (See Note 19) 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 as of December 31, 2018, it is our policy to settle the instrument in cash upon conversion.
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. See Note 5. 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. The arrangement
provides Uniti the option to cash settle, and it is our policy to settle 100% of the obligation in cash upon the
achievement of the defined milestones. As such, there is no impact to our share count for the purposes of the
earnings per share calculation.
The Hunt merger agreement provides for the issuance of additional common shares upon the achievement of certain
defined revenue milestones. See Note 5. 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. See the accompanying table for the impact.
94
The following sets forth the computation of basic and diluted earnings per share under the two-class method:
(Thousands, except per share data)
Basic earnings per share:
Numerator:
$
Net income (loss) attributable to shareholders
Less: Income allocated to participating
securities
Dividends declared on convertible preferred
stock
Amortization of discount on convertible
preferred stock
Net income (loss) attributable to common
shares
Denominator:
Basic weighted-average common shares
outstanding
Basic earnings (loss) per common share
$
$
Year Ended December 31,
2018
2017
2016
16,187 $
(9,439) $
(2,594)
(1,509)
(2,624)
(2,624)
(2,980)
(2,980)
7,989 $
(16,552) $
(212)
(1,557)
(1,743)
(1,985)
(5,497)
176,169
0.05 $
168,693
(0.10) $
152,473
(0.04)
(Thousands, except per share data)
Diluted earnings per share:
Numerator:
Net income (loss) 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 arrangements
Net income (loss) 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 earnings (loss) per common share
$
Note 14. Segment Information
Year Ended December 31,
2018
2017
2016
16,187 $
(9,439) $
(1,665)
(1,509)
(2,624)
(2,624)
(2,980)
(2,980)
(1,433)
(4,944)
(212)
(1,557)
(1,743)
(1,985)
—
7,485 $
(21,496) $
(5,497)
176,169
645
168,693
296
152,473
—
257
—
—
177,071
0.04 $
168,989
(0.13) $
152,473
(0.04)
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:
95
Leasing: Represents a component of 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 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. Uniti Towers is a component of our
REIT operations.
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 office and shared service 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, 2018, 2017 and
2016:
(Thousands)
Revenues
Adjusted EBITDA
Adjusted EBITDA margin
Less:
Interest expense
Depreciation and amortization
Other income
Transaction related costs
Stock-based compensation
Income tax benefit
Other
Net income
Year Ended December 31, 2018
Leasing
$699,847
Fiber
Infrastructure
289,239
$
Towers
$14,617
Consumer
CLEC
$ 13,931
Total of
Reportable
Segments
- $1,017,634
Corporate
$
$(21,759) $ 802,883
$697,545
$
99.7%
123,389
$
42.7%
355
2.4%
$ 3,353
24.1%
-
78.9%
337,126
105,651
6,704
1,994
275
$
319,591
451,750
(4,504)
17,410
8,064
(5,421)
(552)
16,545
Capital expenditures (1)
$152,140
$
199,689
$74,932
$
-
$
114 $ 426,875
96
(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
(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
(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, 2018 and December 31, 2017 are as follows:
(Thousands)
Leasing
Fiber Infrastructure
Towers
Consumer CLEC
Corporate
Total of reportable segments
December 31,
2018
2,119,045 $
2,194,311
231,749
10,374
37,458
4,592,937
$
2017
2,121,857
2,009,175
157,180
10,919
30,951
4,330,082
$
$
97
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, 2018, 2017 and 2016 is as follows:
(Thousands)
United States revenues
Latin America revenues
Total revenues
Year Ended December 31,
$
$
2018
1,008,224 $
9,410
1,017,634 $
2017
2016
908,576 $
7,456
916,032 $
770,351
57
770,408
Summarized geographical information related to the Company’s long-lived assets as of December 31, 2018 and
2017 is as follows:
(Thousands)
United States long-lived assets
Latin America long-lived assets
Total long-lived assets
Note 15. Commitments and Contingencies
December 31,
2018
3,543,874 $
96,894
3,640,768 $
2017
3,382,894
98,352
3,481,246
$
$
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, 2018, 2017 and 2016 approximated $28.7 million,
$25.2 million and $10.9 million, 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)
2019
2020
2021
2022
2023
Thereafter
Total
$
$
10,585
7,543
4,815
3,186
2,382
15,269
43,780
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 to us by Windstream. If Windstream
assumes the Separation and Distribution Agreement and or the Master Lease in bankruptcy, it would be obligated to
honor all indemnification claims arising under such agreement. If the Separation and Distribution Agreement and or
the Master Lease are rejected in Windstream’s bankruptcy, any claims on the applicable indemnity would be treated
as unsecured claims, and, if that were to occur, there can be no assurance we would receive any related
indemnification payments from Windstream in connection with the applicable indemnity claims.
98
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
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 16. Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive income (loss) by component is as follows for the years ended
December 31, 2018, 2017 and 2016:
(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 (loss)
Less: Other comprehensive 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 (loss)
Less: Other comprehensive loss attributable to
noncontrolling interest
Balance at end of period
2018
2017
2016
6,351 $
21,626
(6,102) $
(7,735)
(5,427)
(24,465)
2,624
30,601
559
30,042
1,470
(1,440)
30
(33)
63
20,630
6,793
442
6,351
(267)
1,660
1,393
(77)
1,470
23,790
(6,102)
—
(6,102)
—
(267)
(267)
—
(267)
Accumulated other comprehensive income (loss) at end of
period
$
30,105 $
7,821 $
(6,369)
Note 17. Income Taxes
We elected on our initial 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 2018, 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.
Subject to the temporary restriction imposed by the waiver and amendment to our Credit Agreement (see Note 10),
our ability to make cash distributions to our shareholders in amounts exceeding 90% of our REIT taxable income,
determined without regard to the dividends paid deduction and excluding any capital gains, generally will be
99
restricted. As a result, we may be required to record a provision in our Consolidated Financial Statements for U.S.
federal income taxes related to the activities of the REIT and its passthrough subsidiaries for any undistributed
income. 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.
Income tax (benefit) expense for the years ended December 31, 2018, 2017 and 2016 as reported in the
accompanying Consolidated Statements 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,
2018
2017
2016
$
$
674 $
1,290
1,964
(5,451)
(1,770)
(164)
(7,385)
(5,421) $
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
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,
2018
2017
2016
11,124 $
2,336
(655)
(5,687)
-
-
(26)
41
(111)
(1,319)
(5,421) $
(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
The effective tax rate on income from continuing operations differs from tax at the statutory rate primarily due to
our status as a REIT and the impact of corporate tax reform on certain adjustments to deferred taxes related to 2017
acquisitions, discussed below.
The Tax Cuts and Jobs Act (“Tax Bill”) was enacted on December 22, 2017. The Tax Bill reduced the U.S. federal
corporate tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain
foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings.
100
Consistent with Staff Accounting Bulletin No. 118 issued by the SEC, which provided for a measurement period of
one year from the enactment date to finalize the accounting for effects of the Tax Bill, the Company provisionally
recorded income tax benefit of $17.0 million related to the Tax Bill in the fourth quarter of 2017. During the second
quarter of 2018, the purchase price allocations related to our acquisitions of Hunt Telecommunications, LLC and
Southern Light, LLC were adjusted to record additional deferred tax liabilities of $3.2 million and $0.9 million,
respectively, that existed as of the acquisition date. These deferred tax liabilities were recorded at the tax rate in
effect as of the date of acquisition. Upon enactment of the Tax Bill, the incremental deferred tax liability would have
been adjusted to the newly enacted corporate tax rate. This resulted in a decrease to the deferred tax liability and an
income tax benefit of $1.3 million recorded in the second quarter of 2018.
As of December 31, 2018, we have completed our accounting for the tax effects of enactment of the Tax Bill and
recorded no significant adjustments to our provisional amounts other than as described above.
Future regulatory and rulemaking interpretations or other guidance clarifying provisions of the Tax Bill may impact
the Company’s tax position.
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
Stock based compensation
Accrued expenses and other
Asset retirement obligation
Inventory reserve
Other
Net operating loss carryforwards
Deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Property, plant and equipment
Customer list intangible
Other intangible amortization
Deferred or prepaid costs
Other
Deferred tax liabilities
Deferred tax liability, net
December 31, 2018
December 31, 2017
$
$
$
$
20,373 $
298
823
857
1,458
544
904
92,443
117,700
-
117,700
(97,651) $
(67,382)
(3,954)
(1,147)
-
(170,134) $
17,114
101
506
2,023
1,341
248
36,229
57,562
-
57,562
(43,817)
(68,795)
(291)
-
(137)
(113,040)
(52,434) $
(55,478)
As of December 31, 2018, the Company’s deferred tax assets were primarily the result of U.S. federal and state
NOL carryforwards.
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, 2018, to conclude that it is more likely than not that all of its
deferred tax assets are realizable, and therefore, no valuation allowance has been recorded.
101
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. As a result of the change in ownership,
the utilization of Tower Cloud, Inc. NOL carryforwards is subject to limitations imposed by the Code.
Approximately $18.3 million of the Tower Cloud, Inc. NOL carryforward was utilized in 2017. The remaining
Tower Cloud, Inc. NOL carryforwards will expire between 2026 and 2036.
We have total federal NOL carryforwards as of December 31, 2018 of approximately $165.2 million which will
expire between 2026 and 2037, and approximately $189.2 million which will not expire but the utilization of which
will be limited to 80% of taxable income annually under provisions enacted in the Tax Bill.
With the exception of Tower Cloud, Inc., our 2015 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
2018
2017
$
$
3,036 $
-
-
-
-
-
3,036 $
-
3,036
-
-
-
-
3,036
The Company’s entire liability for unrecognized tax benefit would affect the annual effective tax rate if recognized.
On February 19, 2019 the Company announced it had agreed to sell its Uniti Towers’ business in Latin America.
The transaction is subject to customary closing conditions and is expected to close in the first quarter of 2019. See
Note 23. As a result of the sale, the balance of unrecognized tax benefits will decrease 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, 2018. The
Company’s balance of accrued interest and penalties related to unrecognized tax benefits as of December 31, 2018
was $2.3 million.
Note 18. Supplemental Cash Flow Information
Cash paid for interest expense and income taxes is as follows:
(Thousands)
Cash payments for:
Year Ended December 31,
2018
2017
2016
Interest (net of capitalized interest)
Income Taxes
$
$
281,364
1,688
$
$
276,071
4,388
$
$
255,945
3,003
Note 19. Capital Stock
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. As of December 31, 2018, Company has issued and sold an aggregate of 5.5 million
shares of common stock at a weighted average price of $20.19 per share under the ATM Program, receiving net
proceeds of $109.4 million, after commissions of $1.4 million and other offering costs.
102
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 May 2, 2016, we issued 87,500 shares of the Company’s 3% Series A Convertible Preferred Stock, $0.0001 par
value, 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 180,535,971 and 0 shares, respectively, were outstanding at December 31, 2018. We had
319,464,029 shares of voting common stock available for issuance at December 31, 2018.
Note 20. 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, 2018, 2017, and 2016, our common stock distribution per share was $2.40, $2.40 and $2.40,
respectively, characterized as follows:
Ordinary dividends
Non-dividend distributions
Total
$
$
1.53 $
0.87
2.40 $
1.22 $
1.18
2.40 $
1.31
1.09
2.40
Year Ended December 31,
2018
2017
2016
Note 21. Future Minimum Rents
Future minimum lease payments to be received, excluding operating expense reimbursements, from tenants under
non-cancelable operating leases as of December 31, 2018, are as follows:
(Thousands)
2019
2020
2021
2022
2023
Thereafter
Total
$
$
724,269
693,596
696,713
699,561
702,663
4,706,951
8,223,753
103
Note 22. 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, 2018, 2017 and 2016 was $1.2 million, $0.8 million and $0.4 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
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 23. Subsequent Events
On January 15, 2019, the Company entered into an OpCo-PropCo transaction with Macquarie Infrastructure
Partners (“MIP”) to acquire Bluebird Network, LLC (“Bluebird”). MIP operates within the Macquarie Infrastructure
and Real Assets ("MIRA") division of Macquarie Group. Bluebird’s network is located in the Midwest across
Missouri, Kansas, Illinois, and Oklahoma. In the transaction, Uniti agreed to purchase the Bluebird fiber network
and MIP agreed to purchase the Bluebird operations. In addition, Uniti has agreed to sell Uniti Fiber’s Midwest
operations to MIP for $37 million, including related pre-paid rent to be received from MIP at closing, while Uniti
will retain its existing Midwest fiber network. Uniti is acquiring the fiber network of Bluebird for $319 million, of
which $175 million will be funded by Uniti in cash and $144 million from pre-paid rent to be received from MIP at
closing. These transactions are subject to regulatory and other closing conditions and are expected to close by the
end of the third quarter of 2019. Concurrently with the closing of these transactions, Uniti will lease the Bluebird
fiber network and its Midwest fiber network on a combined basis to MIP, under a long-term triple net lease, with
initial annual cash rents of approximately $20.3 million. The lease will be reported within the results of our Leasing
segment.
On February 19, 2019, the Company announced it had agreed to sell Uniti Towers’ Latin America business to an
entity controlled by Phoenix Towers International (“PTI”) for cash consideration of approximately $100 million.
PTI will acquire approximately 500 towers located across Mexico, Colombia and Nicaragua. The transaction is
subject to customary closing conditions and is expected to close by the end of the first quarter of 2019.
As a result of the adverse court ruling Windstream received on February 15, 2019 (see Note 2), the Company has
evaluated the potential impacts to our Consolidated Financial Statements as of and for the year ended December 31,
2018, concluding that no adjustments were required to be made to amounts reported on the financial statements at
this time. We will continue to monitor the situation and evaluate any potential impacts to our first quarter 2019
Condensed Consolidated Financial Statements including, but not limited to, compliance with debt covenants, our
quarterly REIT compliance test, goodwill impairment and long-lived asset impairment tests, the collectability of our
straight line rent receivable related to the Master Lease and our assertion that we will cash settle any contingent
consideration arrangements or Series A Shares upon conversion by the holders.
We may take measures to conserve cash as we anticipate that it would be difficult for us to access the capital
markets at attractive rates until uncertainty is clarified and because of the risk of disruptions in payments by
Windstream during its bankruptcy proceeding. Accordingly, we may elect to suspend, delay or reduce success-
based capital expenditures and our dividend to conserve cash. Because our Master Lease is essential to
Windstream’s operations, we expect that any disruption in payments by Windstream would be limited, and we
believe that if we take such actions, we would have adequate liquidity to fund our operations for twelve months after
the date the financial statements are issued.
104
Note 24. Quarterly Results of Operations (unaudited)
Selected quarterly information for each of the four quarters in the year ended December 31, 2018:
(Thousands, except per share data)
Total revenues
Income (loss) before income taxes
Net income (loss)
Net (loss) income attributable to common
shareholders
Basic (loss) earnings per common share
Diluted (loss) earnings per common share
Dividends declared per common share
$
$
$
$
2018
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
246,915 $
135
1,231
247,329 $
(6,239)
(3,593)
252,636 $
2,758
4,224
270,754
14,470
14,683
(870)
(5,562)
2,075
12,346
(0.00) $
(0.01) $
0.60 $
(0.03) $
(0.03) $
0.60 $
0.01 $
0.01 $
0.60 $
0.07
0.05
0.60
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
20,539
(0.14) $
(0.14) $
0.60 $
(0.11) $
(0.11) $
0.60 $
0.02 $
(0.02) $
0.60 $
0.12
0.12
0.60
$
$
$
$
105
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, 2018. 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, 2018.
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 October 19, 2018, the Company completed the acquisitions of Information Transport Solutions, Inc. (“ITS”)
Management excluded ITS from its assessment of internal control over financial reporting as of December 31, 2018
because ITS was acquired by the Company in a purchase business combination in 2018. ITS represents 0.4% of
total assets and 0.9% of total revenue, of the related consolidated financial statement amounts as of and for the year
ended December 31, 2018.
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, 2018. 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).
106
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,
2018.
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, 2018, 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, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information.
As noted above, on March 18, 2019, we entered into the fourth amendment and limited waiver (the “Amendment”)
to our Credit Agreement among Uniti Group LP, Uniti Group Finance 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. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Liquidity and Capital Resources—Credit Agreement” for additional information about the material terms of the
Amendment. The foregoing descriptions of the Amendment are qualified in their entirety by reference to the
Amendment, a copy of which is filed as Exhibit 10.11 hereto.
107
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, 2018, pursuant to Regulation 14A under the
Exchange Act in connection with our 2019 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 Governance 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, 2018, pursuant to Regulation 14A under the Exchange Act in connection with
our 2019 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, 2018, pursuant to Regulation 14A under the
Exchange Act in connection with our 2019 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, 2018:
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)
-
-
-
-
-
-
6,724,8761
-
6,724,876
Plan category
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved by
security holders
Total
1
Amount includes 4,724,876 shares available for issuance under the Uniti Group Inc. 2015 Equity Incentive
Plan and 2,000,000 shares Uniti Group Inc. Employee Stock Purchase Plan.
108
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, 2018, pursuant to Regulation 14A under the Exchange Act in connection with
our 2019 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, 2018, pursuant to Regulation 14A under the Exchange Act in connection with
our 2019 annual meeting of stockholders.
109
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) Condensed
Balance Sheets as of December 31, 2018 and 2017, and the related Condensed Statements of Comprehensive
Income and Cash Flows for each of the three years in the period ended December 31, 2018, including the related
notes, appearing on pages S-1, S-2, S-3, and S-4 of this report.
Uniti Group Inc. Schedule II – Valuation and Qualifying Accounts for each of the three years in the period ended
December 31, 2018 appearing on page S-5 of this report.
Uniti Group Inc. Schedule III – Schedule of Real Estate Investments and Accumulated Depreciation as of December
31, 2018 appearing 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
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))
110
Exhibit No.
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Description
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))
Articles of Amendment of Uniti Group 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 May 18, 2018 (File No.
001-36708))
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))
111
Exhibit No.
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
Description
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))
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))
112
Exhibit No.
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11*
Description
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))
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))
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))
Amendment No. 4 to the Credit Agreement, dated as of March 18, 2019, among Uniti Group LP,
Uniti Group Finance 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.
113
Exhibit No.
10.12
Description
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))
10.13
10.14+
10.15+
10.16+
10.17+
10.18+
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 Uniti Group Inc. and Kenneth Gunderman, effective as of
December 14, 2018 (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 December 14, 2018 (File No. 001-36708))
Severance Agreement, dated as of September 10, 2018, by and between Uniti Group Inc. and Mark
A. Wallace (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 September 14, 2018 (File No. 001-36708))
Severance Agreement, dated as of September 10, 2018, by and between Uniti Group Inc. and Daniel
L. Heard (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 September 14, 2018 (File No. 001-36708))
Uniti Group Inc. 2015 Equity Incentive Plan, as amended and restated effective March 28, 2018
(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 March 29, 2018 (File No. 001-36708))
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))
10.19+*
Form of Restricted Shares Agreement for employees
10.20+
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))
10.21+*
Form of Performance-Based Restricted Stock Unit Agreement
10.22+
10.23+
10.24+
10.25+
Form of Restricted Shares Agreement for non-employees (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 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))
114
Exhibit No.
10.26+
Description
Uniti Group Inc. Amended and Restated Employee Stock Purchase Plan (incorporated by reference
to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 dated and filed with the SEC
as of June 7, 2018 (File No. 333-225501))
10.27
10.28
10.29
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))
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))
10.30+
Communications Sales & Leasing, Inc. 2017 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 10, 2018 (File No. 001-36708))
10.31+***
Uniti Group Inc. 2018 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 10, 2018 (File
No. 001-36708))
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
List of Subsidiaries of Uniti Group Inc.
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.
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
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
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed herewith
115
**
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 plan or arrangement.
+
ITEM 16. FORM 10-K SUMMARY
None.
116
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 18, 2019
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
Senior Vice President – Chief Accounting Officer
(Principal Accounting Officer)
March 18, 2019
March 18, 2019
March 18, 2019
/s/ Francis X. Frantz
Francis X. Frantz
Chairman and Director
March 18, 2019
/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 18, 2019
March 18, 2019
March 18, 2019
March 18, 2019
117
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
Total Assets
Liabilities:
Accrued other liabilities
Dividends payable
Cash distributions and losses in excess of investments in
consolidated subsidiaries
Contingent consideration
Notes and other debt, net
Total liabilities
December 31, 2018
December 31, 2017
$
$
$
261 $
-
-
261 $
30 $
111,265
1,388,036
-
-
1,499,331
2,188
-
-
2,188
9
107,078
1,120,120
-
-
1,227,207
Convertible Preferred Stock, Series A, $0.0001 par value, 88
shares authorized, issued and outstanding, $87,500 liquidation value
86,508
83,530
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: 180,536 shares at December 31, 2018
and 174,852 at December 31, 2017
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
$
-
-
18
757,517
30,105
(2,373,218)
(1,585,578)
17
644,328
7,821
(1,960,715)
(1,308,549)
261 $
2,188
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
Income (loss) before income taxes
Net income (loss)
Comprehensive income (loss)
Year Ended December 31,
2018
2017
2016
$
$
- $
22
-
-
22
(22)
16,209
16,187
16,187
38,472 $
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)
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 provided by (used in) operating activities
Year Ended December 31,
2018
2017
2016
$
425,771 $
(602,530) $
(59,076)
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 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 (used in) 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
-
-
-
-
-
-
-
(426,094)
-
-
-
-
-
-
109,441
(1,604)
(109,441)
-
(427,698)
-
(1,927)
2,188
261
(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
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
During 2017, the parent company completed its 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. 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, 2018, we are the sole general partner of the
Operating Partnership and own approximately 97.7% of the partnership interests in the Operating Partnership.
Dividends
Cash dividends received from subsidiaries and recorded in Cash Flow from Operating Activities in the Condensed
Statement of Cash Flows were $426.1 million and $104.9 million for the year ended December 31, 2018 and 2017,
respectively. No cash dividends were received for the year ended December 31, 2016.
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:
Year Ended December 31, 2018
Year Ended December 31, 2017
Year Ended December 31, 2016
Allowance for Doubtful Accounts
Year Ended December 31, 2018
Year Ended December 31, 2017
Year Ended December 31, 2016
Balance at
Beginning of Period
Charged to
Cost
and Expenses
Charged to
Other Accounts Deductions
Balance at
End of Period
$
$
$
$
$
$
- $
8,176 $
- $
1,011 $
1,352 $
- $
- $
- $
- $
- $
- $
8,176 $
- $
(8,176) $
- $
1,333 $
(86) $
1,352 $
- $
45 $
- $
(56) $
(300) $
- $
-
-
8,176
2,288
1,011
1,352
S-5
Uniti Group Inc.
Schedule III – Real Estate Investments and Accumulated Depreciation
As of December 31, 2018
(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)
Initial cost
to
company(1
)
Improveme
nts
Carry
Costs
Gross
Amount
Carried at
Close of
Period(5)
Accumula
ted
Depreciati
on
(1)
(1)
(1) $ 26,672 $ —
(165,6
(1)
(1)
(1) 327,280
04)
(182,5
(1)
(1)
(1) 248,989
77)
(1)
(1)
(1)
(1)
(1)
(1)
5
52
827)
(21)
2,399,41
(1,077,
(1)
(1)
(1)
9
626)
3,721,64
(3,243,
(1)
(1)
(1)
(1)
(1)
5)
89,692
(1) 115,351 (6,486)
(59,90
(1)
(1)
(1)
34,878 (1,135)
(1)
(1)
(1)
11,524 (1,945)
(1)
(1)
(1)
24,597
—
—
—
—
—
—
—
—
—
—
—
Date of
Construction
(2)
Date
Acquired(
2)
Life on whic
h
Depreciation
in Latest
Income
Statements
is Computed
Indefinite
3 - 40
years
(2)
(2)
(2)
30 years
30 years
(2)
(2) 5 -7 years
(2)
20 years
(2)
(2)
(2)
(2)
(2)
30 years
20 years
See Note
3
15 - 20
years
See Note
3
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
(2)
Encumbra
nces
$ —
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, 2018, the amount of capitalized costs related to the Distribution Systems is as
follows (millions):
Tenant capital improvements(4)
$ 153.6
(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 $6.5 billion.
S-6
Uniti Group Inc.
Schedule III – Real Estate Investments and Accumulated Depreciation
As of December 31, 2018
(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
2018
2017
$ 6,603,480 $ 6,256,248
153,615
231,142
18,439
403,196
227,969
80,132
45,552
353,653
6,577
-
6,577
6,421
-
6,421
$ 7,000,099 $ 6,603,480
2018
2017
$ 4,399,789 $ 4,054,748
343,282
(423)
342,859
351,332
(45)
351,287
3,522
-
3,522
6,246
-
6,246
$ 4,739,126 $ 4,399,789
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.
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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 – Senior 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