<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934*
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF
1934
FOR THE TRANSITION PERIOD FROM TO .
_______ _______
COMMISSION FILE NUMBER 333-46025
AMERICAN TOWER SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0598206
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
116 HUNTINGTON AVENUE BOSTON, MASSACHUSETTS 02116
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(617) 375-7500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
<S> <C>
None None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
(TITLE OF CLASS)
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or d15(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 No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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. [_]*
*This question is not currently applicable to the Company because it has not
registered any class of equity security pursuant to Section 12 of the
Securities Exchange Act of 1934.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of April 7, 1998 was approximately
$15,143,500 based on a per share price of $22 5/8, the average of the bid and
asked prices of the Company's capital stock as quoted on the "when-issued"
inter-dealer bulletin board of the over-the-counter market on April 7, 1998.
Alternately, the price at which the common equity was last sold was $10.00 per
share on January 22, 1998. As of April 7, 1998, 36,351,266 shares of Class A
Common Stock, 9,329,576 shares of Class B Common Stock and 3,295,518 shares of
the Class C Common Stock were issued and outstanding.
** This constitutes a Special Financial Report pursuant to Rule 15d-2 and
accordingly contains only the Registrant's audited financial statements and
related financial statement schedules for the fiscal year ended December
31, 1997. The Registrant's Registration Statement on Form S-4, covering
shares of the Registrant's Common Stock, par value $.01 per share, became
effective on February 17, 1998. Because the Company is not subject to
Section 14 of the Exchange Act at this time, it has no obligation and is
not furnishing an annual report or proxy materials to security holders.
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<PAGE>
PARTS I, II, III.
Not required by Rule 15d-2.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report.
(1) Index to Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
Independent Auditors' Report............................................. F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996............. F-2
Consolidated Statements of Operations for the years ended December 31,
1997 and 1996 and the period from July 17, 1995 (Incorporation) to
December 31, 1995 ...................................................... F-3
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1997 and 1996 and the period from July 17, 1995
(Incorporation) to December 31, 1995 ................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1996 and the period from July 17, 1995 (Incorporation) to
December 31, 1995 ...................................................... F-5
Notes to Consolidated Financial Statements............................... F-6
(b) Reports on Form 8-K. Not applicable.
(c) Exhibits. Not required by Rule 15d-2.
Signatures................................................................ (i)
(d) Index to Financial Statement Schedules.
Schedule I--Condensed Financial Information of Registrant................. S-1
Schedule II--Valuation and Qualifying Accounts............................ S-3
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
American Tower Systems Corporation:
We have audited the accompanying consolidated balance sheets of American
Tower Systems Corporation and subsidiaries (the "Company"), a wholly owned
subsidiary of American Radio Systems Corporation, as of December 31, 1997 and
1996 and the related consolidated statements of operations, stockholder's
equity and cash flows for the years ended December 31, 1997 and 1996 and the
period from July 17, 1995 (Incorporation) to December 31, 1995. Our audits
also included the financial statement schedules listed in the Index at Item
14. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the companies as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for the years ended December 31, 1997 and 1996 and the period from
Incorporation to December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
March 6, 1998 (except for Note 4,
as to which the date is March 27, 1998)
F-1
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 4,595,500 $ 2,373,360
Accounts receivable, net of allowance for doubtful
accounts of $125,000 and $47,000 in 1997 and
1996, respectively .............................. 3,238,877 236,990
Prepaid and other current assets.................. 789,677 79,657
Deferred income taxes............................. 62,560
------------ -----------
Total current assets............................ 8,686,614 2,690,007
------------ -----------
PROPERTY AND EQUIPMENT, net......................... 117,617,776 19,709,523
UNALLOCATED PURCHASE PRICE, net..................... 108,192,255 12,954,959
OTHER INTANGIBLE ASSETS, net........................ 8,424,406 1,336,361
INVESTMENT IN AFFILIATE............................. 310,305 325,000
NOTES RECEIVABLE.................................... 10,700,000
DEPOSITS AND OTHER LONG-TERM ASSETS................. 1,424,540 101,803
------------ -----------
TOTAL............................................... $255,355,896 $37,117,653
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................. $ 110,391 $ 117,362
Accounts payable.................................. 3,738,230 1,058,822
Accrued expenses.................................. 4,492,064 715,322
Accrued interest.................................. 913,624
Unearned income................................... 1,752,248 252,789
------------ -----------
Total current liabilities....................... 11,006,557 2,144,295
------------ -----------
LONG-TERM DEBT...................................... 90,066,269 4,417,896
DEFERRED INCOME TAXES............................... 417,628 279,218
OTHER LONG-TERM LIABILITIES......................... 32,750 18,950
------------ -----------
Total long-term liabilities..................... 90,516,647 4,716,064
------------ -----------
MINORITY INTEREST IN SUBSIDIARIES................... 625,652 528,928
------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDER'S EQUITY:
Preferred Stock; $0.01 par value; 20,000,000
shares authorized; no shares issued or outstand-
ing..............................................
Common Stock; $.01 par value; 10,000,000 shares
authorized, 3,000 shares issued and outstanding
in 1996.......................................... 30
Class A Common Stock; $.01 par value; 200,000,000
shares authorized; 29,667,883 shares issued and
outstanding...................................... 296,679
Class B Common Stock; $.01 par value; 50,000,000
shares authorized; 4,670,626 shares issued and
outstanding...................................... 46,706
Class C Common Stock; $.01 par value; 10,000,000
shares authorized; 1,295,518 shares issued and
outstanding...................................... 12,955
Additional paid-in capital........................ 155,710,741 30,318,420
Accumulated deficit............................... (2,860,041) (590,084)
------------ -----------
Total stockholder's equity...................... 153,207,040 29,728,366
------------ -----------
TOTAL............................................... $255,355,896 $37,117,653
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROM JULY 17, 1995
(INCORPORATION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Tower (includes revenue from related
parties of $389,000 and $70,000 in 1997
and 1996, respectively)................ $13,025,257 $2,816,633 $ 162,933
Site acquisition services............... 2,122,547
Video, voice and data transmission...... 2,083,756
Other................................... 276,907 80,245 186
----------- ---------- ----------
Total operating revenues.............. 17,508,467 2,896,878 163,119
----------- ---------- ----------
OPERATING EXPENSES:
Operating expenses excluding
depreciation and amortization and
corporate general and administrative
expenses:
Tower.................................. 6,080,273 1,362,284 59,417
Site acquisition services.............. 1,360,217
Video, voice and data transmission..... 1,272,682
Depreciation and amortization........... 6,326,323 989,936 57,428
Corporate general and administrative
expense................................ 1,536,263 830,248 230,109
----------- ---------- ----------
Total operating expenses.............. 16,575,758 3,182,468 346,954
----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS............. 932,709 (285,590) (183,835)
----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense........................ (3,039,235)
Interest income and other, net.......... 235,023 36,204
Minority interest in net earnings of
subsidiaries........................... (177,313) (184,897)
----------- ---------- ----------
TOTAL OTHER EXPENSE....................... (2,981,525) (148,693)
----------- ---------- ----------
LOSS BEFORE BENEFIT (PROVISION) FOR INCOME
TAXES AND EXTRAORDINARY LOSS............. (2,048,816) (434,283) (183,835)
BENEFIT (PROVISION) FOR INCOME TAXES...... 472,671 (45,390) 73,424
----------- ---------- ----------
LOSS BEFORE EXTRAORDINARY LOSS............ (1,576,145) (479,673) (110,411)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF
DEBT, NET OF INCOME TAX BENEFIT OF
$462,500................................. (693,812)
----------- ---------- ----------
NET LOSS.................................. $(2,269,957) $ (479,673) $ (110,411)
=========== ========== ==========
BASIC AND DILUTED PRO FORMA PER COMMON
SHARE AMOUNTS:
Loss before extraordinary loss.......... $ (0.03)
Extraordinary loss...................... (0.01)
-----------
Net loss................................ $ (0.05)
===========
PRO FORMA WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING................ 48,691,790
===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROM JULY 17, 1995
(INCORPORATION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
------------------ -------------------- -------------------- --------------------
CLASS A CLASS B CLASS C
-------------------- -------------------- -------------------- ADDITIONAL
OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
----------- ------ ----------- -------- ----------- -------- ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock to
parent.......... 10
Contributions
from parent:
Cash............ $ 242,215
Non-cash........ 3,816,445
Cash transfers to
parent.......... (179,426)
Net loss......... $ (110,411)
------ ------------ -----------
BALANCE, DECEMBER
31, 1995........ 10 3,879,234 (110,411)
Issuance of
common stock to
parent.......... 2,990 $30 (30)
Contributions
from parent:
Cash............ 2,548,557
Non-cash........ 29,856,885
Transfers to par-
ent:
Cash............ (4,866,226)
Non-cash........ (1,100,000)
Net loss......... (479,673)
------ --- ------------ -----------
BALANCE, DECEMBER
31, 1996........ 3,000 30 30,318,420 (590,084)
Contributions
from parent:
Cash............ 143,073,631
Non-cash........ 50,000
Transfers to par-
ent:
Cash............ (16,650,000)
Non-cash........ (725,000)
Recapitalization
(Note 8)........ (3,000) (30) 29,667,883 $296,679 4,670,626 $ 46,706 1,295,518 $ 12,955 (356,310)
Net loss......... (2,269,957)
------ --- ---------- -------- --------- -------- --------- -------- ------------ -----------
BALANCE, DECEMBER
31, 1997........ -- $-- 29,667,883 $296,679 4,670,626 $ 46,706 1,295,518 $ 12,955 $155,710,741 $(2,860,041)
====== === ========== ======== ========= ======== ========= ======== ============ ===========
<CAPTION>
TOTAL
-------------
<S> <C>
Issuance of
common stock to
parent..........
Contributions
from parent:
Cash............ $ 242,215
Non-cash........ 3,816,445
Cash transfers to
parent.......... (179,426)
Net loss......... (110,411)
-------------
BALANCE, DECEMBER
31, 1995........ 3,768,823
Issuance of
common stock to
parent..........
Contributions
from parent:
Cash............ 2,548,557
Non-cash........ 29,856,885
Transfers to par-
ent:
Cash............ (4,866,226)
Non-cash........ (1,100,000)
Net loss......... (479,673)
-------------
BALANCE, DECEMBER
31, 1996........ 29,728,366
Contributions
from parent:
Cash............ 143,073,631
Non-cash........ 50,000
Transfers to par-
ent:
Cash............ (16,650,000)
Non-cash........ (725,000)
Recapitalization
(Note 8)........
Net loss......... (2,269,957)
-------------
BALANCE, DECEMBER
31, 1997........ $153,207,040
=============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROM JULY 17, 1995
(INCORPORATION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
------------- ------------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................. $ (2,269,957) $ (479,673) $(110,411)
Adjustments to reconcile net loss to
cash provided by (used in) operating
activities:
Depreciation and amortization....... 6,326,323 989,936 57,428
Minority interest in net earnings of
subsidiary......................... 177,313 184,897
Amortization of deferred financing
costs.............................. 187,910
Provision for losses on accounts
receivable......................... 124,350 47,044
Extraordinary loss, net............. 693,812
Deferred income taxes............... 146,529 108,715
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable............... (3,155,831) (246,867) (37,167)
Prepaid and other current assets.. 158,897 (226,814) (54,499)
Accounts payable and accrued
expenses......................... 5,096,378 1,580,284 93,860
Accrued interest.................. 913,624
Unearned income................... 1,499,459 252,789
Other long-term liabilities....... 13,800 18,950
------------- ------------- ---------
Cash provided by (used in) operating
activities........................... 9,912,607 2,229,261 (50,789)
------------- ------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property
and equipment and construction..... (20,614,412)
Payments for tower related
acquisitions....................... (184,075,851)
Advances of notes receivable........ (10,961,416)
Deposits and other long-term
assets............................. (1,131,247)
-------------
Cash used for investing activities.. (216,782,926)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility.... 151,000,000 2,500,000
Repayment of credit facility........ (65,000,000)
Borrowings under other notes
payable............................ 231,115
Repayments of other notes payable... (358,598) (106,697)
Contributions from parent........... 143,073,631 2,548,557 242,215
Cash transfers to parent............ (16,650,000) (4,866,226) (179,426)
Distributions to minority interest.. (419,160) (174,650)
Additions to deferred financing
costs.............................. (2,553,414)
------------- ------------- ---------
Cash provided by financing
activities........................... 209,092,459 132,099 62,789
------------- ------------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.......................... 2,222,140 2,361,360 12,000
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD............................ 2,373,360 12,000
------------- ------------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... 4,595,500 $ 2,373,360 $ 12,000
============= ============= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Corporate Structure--American Tower Systems Corporation and
subsidiaries (collectively, ATS or the Company) is a wholly-owned subsidiary
of American Radio Systems Corporation (ARS or the Parent). American Tower
Systems (Delaware), Inc. (ATSI) is a wholly-owned subsidiary of the Company
which holds substantially all the operating assets and liabilities of the
business.
The Company was incorporated on July 17, 1995 (Incorporation) for the
purpose of acquiring, developing, marketing, managing and operating wireless
communications tower sites throughout the United States, for use by wireless
communications providers and television and radio broadcasters.
In January 1998, ATS completed a corporate restructuring pursuant to which
ATS and ATSI contributed their assets and liabilities to a newly formed
operating subsidiary, American Tower Systems, L.P., (ATSLP). In connection
therewith, ATSI and ATSLP became co-borrowers under the Loan Agreement
described in Note 4. The tax sharing agreement between ARS and ATS described
in Note 7 was terminated in connection with the corporate restructuring.
ATS's primary business is the leasing of antennae sites on multi-tenant
towers for a diverse range of wireless communications industries, including
personal communications services (PCS), cellular, paging, specialized mobile
radio, enhanced specialized mobile radio (ESMR) and fixed microwave, as well
as radio and television broadcasters. ATS also offers its customers a broad
range of network development services, including network design, site
acquisition, zoning and other regulatory approvals, site construction and
antennae installation. ATS intends to expand these services and to capitalize
on its relationships with its wireless customers through major built to suit
construction projects. ATS is also engaged in the video, voice and data
transmission business, which it currently conducts in the New York City to
Washington, D.C. corridor and in Texas.
As of December 31, 1997, the Company owned and/or operated approximately 670
wireless communication sites, principally in the Northeast and Mid-Atlantic
regions, Florida and California.
In September 1997, ARS entered into a merger agreement (as amended and
restated in December 1997, the CBS Merger Agreement) with a subsidiary of CBS
Corporation (CBS), pursuant to which a subsidiary of CBS will merge with and
into ARS and ARS will become a subsidiary of CBS (the CBS Merger). Following
consummation of the CBS Merger, ATS will operate as an independent, publicly
owned corporation (the Tower Separation). Each holder of record, at the
effective time of the CBS Merger, of shares of ARS common stock will receive:
(i) $44.00 per share in cash; and (ii) one share of ATS common stock of the
same class as the class of ARS Common Stock to be surrendered. ARS and ATS
will enter into certain agreements pursuant to the CBS Merger Agreement
providing for, among other things, the orderly separation of ARS and ATS, the
transfer of lease obligations to ATS of leased space on certain towers owned
or leased by ARS to ATS, and the allocation of certain tax liabilities between
ARS and ATS. ATS is obligated to reimburse ARS for the tax liabilities
attributable to the distribution of ATS common stock pursuant to the CBS
Merger and the earlier deconsolidation (for federal and state income tax
purposes) of ATS from ARS (the CBS Merger Tax Liability). Based on an estimate
of "fair market value" using available information as of March 27, 1998 of
$16.00 per share of ATS common stock, the estimated CBS Merger Tax Liability
is approximately $173.0 million of which approximately $20.0 million will be
borne by ARS and the remaining obligation (of approximately $153.0 million)
will be paid by ATS. The estimated federal income tax liability will increase
or decrease by approximately $14.8 million for each $1.00 increase or decrease
in the "fair market value" per share of the ATS common stock. ATS expects to
use the proceeds of an equity offering or external financing to reimburse ARS
for such tax liability if due in 1998 or to use borrowings under the Loan
Agreement if due in 1999; the timing of such payment depends on when the CBS
Merger is consummated. (See Note 5).
F-6
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition, following the CBS Merger, ATS will assume ARS' lease
obligations with respect to ARS' corporate headquarters in Boston,
Massachusetts and certain senior executives of ARS will become employees of
ATS. Future lease payments required under the lease agreements assumed
aggregate approximately $1.6 million through July 2006.
The CBS Merger has been approved by the stockholders of ARS who hold
sufficient voting power to approve such action. Consummation of the Merger is
subject to, among other things, the expiration or earlier termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, (HSR Act) and the approval by the Federal Communications
Commission (FCC) of the transfer of control of ARS' FCC licenses with respect
to its radio stations to CBS. Subject to the satisfaction of such conditions,
the CBS Merger is expected to be consummated in the Spring of 1998.
Principles of Consolidation and Basis of Presentation--The accompanying
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Investments in affiliates, where ATS owns more than 20 percent of
the voting power of the affiliate but not in excess of 50 percent, are
accounted for using the equity method. Separate financial information
regarding equity method investees is not significant. The Company also
consolidates its 50.1% interest and its 70.0% interest in two other tower
communications limited liability companies, with the other members'
investments reflected as minority interest in subsidiaries in the accompanying
consolidated financial statements.
Through December 31, 1997, ATS effectively operated as a stand-alone entity,
with its own corporate staff and headquarters, and received minimal assistance
from personnel of the Parent. Accordingly, the accompanying consolidated
financial statements do not include any cost allocations from the Parent.
However, the consolidated financial statements may not reflect the results of
operations or financial position of ATS had it been an independent public
company during the periods presented.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results may differ from those estimates, and
such differences could be material to the consolidated financial statements.
Revenue Recognition--Tower revenues are recognized when earned. Escalation
clauses and other incentives present in tower lease agreements with the
Company's customers are recognized on a straight-line basis over the term of
the leases. Site acquisition and video voice and data transmission revenues
are recognized as such services are provided. Amounts billed or received prior
to services being performed are deferred until such time as the revenue is
earned.
Corporate General and Administrative Expense--Corporate general and
administrative expense consists of corporate overhead costs not specifically
allocable to any of the Company's individual business properties.
Concentration of Credit Risk--The Company extends credit to customers on an
unsecured basis in the normal course of business. The Company has policies
governing the extension of credit and collection of amounts due from
customers.
Derivative Financial Instruments--The Company uses derivative financial
instruments as a means of managing interest-rate risk associated with current
debt or anticipated debt transactions that have a high probability of being
executed. The Company's interest rate protection agreements generally consist
of interest rate swap agreements and interest rate cap agreements. These
instruments are matched with either fixed or variable rate debt, and payments
thereon are recorded on a settlement basis as an adjustment to interest
expense. Premiums paid to purchase interest rate cap agreements are amortized
as an adjustment of interest expense over the life of the contract. Derivative
financial instruments are not held for trading purposes. (See Note 4).
F-7
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
demand deposits and short-term investments with remaining maturities when
purchased of three months or less.
Property and Equipment and Unallocated Purchase Price--Property and
equipment are recorded at cost, or at estimated fair value in the case of
acquired properties. Cost includes expenditures for communications sites and
related assets and the net amount of interest cost associated with significant
capital additions. Approximately $458,000 and $120,000 of interest was
capitalized for the years ended December 31, 1997 and 1996, respectively.
Depreciation is provided using the straight-line method over estimated useful
lives ranging from three to fifteen years.
The excess of purchase price over the estimated fair value of net assets
acquired has been preliminarily recorded as unallocated purchase price and is
being amortized over an estimated aggregate useful life of fifteen years using
the straight-line method. Accumulated amortization aggregated approximately
$3,726,000 and $356,000 at December 31, 1997 and 1996, respectively. The
consolidated financial statements reflect the preliminary allocation of
certain purchase prices as the appraisals for some acquisitions have not yet
been finalized. The Company is currently conducting studies to determine the
purchase price allocations and expects that upon final allocation the average
estimated useful life will approximate fifteen years. The final allocation of
purchase price is not expected to have a material effect on the Company's
consolidated results of operations, liquidity or financial position.
Intangible Assets--Intangible assets are being amortized on a straight-line
basis over their estimated useful lives, ranging from five to eight years.
Other intangible assets consist principally of a noncompetition agreement,
deferred financing costs and deferred acquisition costs. Deferred private
placement fees and Tower Separation fees will be reclassified to additional
paid-in capital upon consummation of the related transactions. (See Note 3).
Notes Receivable--In connection with the acquisition of OPM-USA-INC. (OPM)
and the acquisition of Gearon & Co. Inc. (Gearon) described in Note 11, the
Company entered into certain note agreements prior to consummation of these
acquisitions. The Company agreed to advance OPM an amount not to exceed
$37.0 million, of which approximately $5.7 million (excluding accrued
interest) was advanced as of December 31, 1997. The note bore interest at
prime rate plus 3%, was unsecured and was settled upon closing of the OPM
acquisition.
The Company agreed to advance Gearon an amount not to exceed $10.0 million
prior to closing, of which approximately $5.0 million was advanced as of
December 31, 1997. The note bore interest at approximately 7.25%, was
unsecured and was paid upon closing of the Gearon acquisition.
Income Taxes--Deferred taxes are provided to reflect temporary differences
in basis between book and tax assets and liabilities, and net operating loss
carryforwards. Deferred tax assets and liabilities are measured using
currently enacted tax rates. Through December 31, 1997, ATS filed as part of a
consolidated filing group with ARS; there are no significant differences
between the tax provision or benefit recorded and the amounts measured on a
separate return basis. (See Note 7).
Pro Forma Loss Per Common Share--Pro forma loss per common share is computed
using the number of shares of common stock expected to be outstanding upon
consummation of the CBS Merger. These shares include shares issued pursuant to
the stock purchase agreement described in Note 8 and the Gearon acquisition
described in Note 11 and also includes shares of ATS common stock issuable
upon exercise of ARS options (each ARS option in effect represents the right
to receive $44 in cash and one ATS share; such exercise is expected to occur
upon closing). Shares issuable upon exercise of ATS and ATSI options have been
excluded from the computation as the effect is anti-dilutive. Had ATS and ATSI
options been included in the computation, shares for diluted computation would
have been increased by 5,268,255.
F-8
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impairment of Long-Lived Assets--Recoverability of long-lived assets is
determined by periodically comparing the forecasted undiscounted net cash
flows of the operations to which the assets relate to the carrying amount,
including associated intangible assets of such operations. Through December
31, 1997, no impairments requiring adjustment have occurred.
Stock-Based Compensation--Compensation related to equity grants or awards to
employees is measured using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25. (See Note 8).
Fair Value of Financial Instruments--The Company believes that the carrying
value of all financial instruments, excluding the interest rate protection
agreements, is a reasonable estimate of fair value as of December 31, 1997 and
1996. The fair value of the interest rate protection agreements are obtained
from independent market quotes. These values represent the amount the Company
would receive or pay to terminate the agreements taking into consideration
current market interest rates. The Company would expect to pay approximately
$97,000 to settle these agreements at December 31, 1997. There were no
interest rate protection agreements at December 31, 1996. (See Note 4).
Retirement Plan--Employees of the Company are eligible for participation in
a 401(k) plan sponsored by ARS, subject to certain minimum age and length-of-
employment requirements. Administrative expenses of the plan are borne by ARS
and are not significant to ATS. Under the plan, the Company matches 30% of the
participants' contributions up to 5% of compensation. The Company contributed
approximately $16,800 and $6,000 for the years ended December 31, 1997 and
1996, respectively. The Company's contributions for the period from
Incorporation to December 31, 1995 were not material.
Recent Accounting Pronouncements--In June 1997, the FASB released FAS No.
130 "Reporting Comprehensive Income" (FAS 130), and FAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information" (FAS 131). Those
pronouncements will be effective in 1998. FAS 130 establishes standards for
reporting comprehensive income items and will require the Company to provide a
separate statement of comprehensive income; reported financial statement
amounts will be affected by this adoption. FAS 131 establishes standards for
reporting information about the Company's operating segments in its annual
report and interim reports and will require the Company to adopt this standard
in 1998.
In February 1998, the FASB released FAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits" (FAS 132), which the Company
will be required to adopt in 1998. FAS 132 will require additional disclosure
concerning changes in the Company's pension obligations and assets and
eliminates certain other disclosures no longer considered useful. Adoption
will not have any effect on reported consolidated results of operations or
consolidated financial position.
Reclassifications--Certain reclassifications have been made to the 1995 and
1996 financial statements to conform with the 1997 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Land and improvements........................... $ 17,955,568 $ 4,081,011
Buildings and improvements...................... 17,731,874
Towers.......................................... 48,315,930 11,473,259
Technical equipment............................. 3,624,239 53,124
Transmitter equipment........................... 18,211,996 13,550
Office equipment, furniture, fixtures and other
equipment...................................... 4,076,212 317,025
Construction in progress........................ 10,641,639 4,276,410
------------ -----------
Total....................................... 120,557,458 20,214,379
Less accumulated depreciation and amortization.. (2,939,682) (504,856)
------------ -----------
Property and equipment, net..................... $117,617,776 $19,709,523
============ ===========
</TABLE>
F-9
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. OTHER INTANGIBLE ASSETS
Other intangible assets consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Non-compete agreement................................ $5,530,000
Deferred financing costs............................. 2,519,312 $1,255,474
Deferred acquisition costs........................... 438,238 93,965
Deferred private placement fees...................... 546,023
Other................................................ 100,923
---------- ----------
Total............................................. 9,134,496 1,349,439
Less accumulated amortization........................ (710,090) (13,078)
---------- ----------
Other intangible assets, net......................... $8,424,406 $1,336,361
========== ==========
</TABLE>
4. FINANCING ARRANGEMENTS
Outstanding amounts under the Company's long-term financing arrangements
consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Loan Agreement...................................... $88,500,000 $2,500,000
Note payable--other................................. 1,466,854 1,557,701
Other obligations................................... 209,806 477,557
----------- ----------
Total............................................... 90,176,660 4,535,258
Less current portion................................ (110,391) (117,362)
----------- ----------
Long-term debt...................................... $90,066,269 $4,417,896
=========== ==========
</TABLE>
Loan Agreements--In October 1997, ATSI entered into a new loan agreement
with a syndicate of banks (the Loan Agreement), which replaced the previously
existing credit agreement. All amounts outstanding under the previous
agreement were repaid with proceeds from the Loan Agreement. The following
discussion, with the exception of the information regarding interest rates and
availability under the agreements, is based on the terms and conditions of the
Loan Agreement. Collectively, the previous loan agreement and the 1997 Loan
Agreement (as amended and restated on December 31, 1997 and March 27, 1998)
are referred to as the Loan Agreements.
The Loan Agreement provides ATSI with a $250.0 million loan commitment based
on ATSI maintaining certain operational ratios, and an additional $150.0
million loan at the discretion of ATSI. The Loan Agreement may be borrowed,
repaid and reborrowed without reducing the availability until June 2005 except
as specified in the Loan Agreement; thereafter, availability decreases in an
amount equal to 50% of excess cash flow, as defined in the Loan Agreement, for
the fiscal year immediately preceding the calculation date. In addition, the
Loan Agreement requires commitment reductions in the event of sale of ATSI's
common stock or debt instruments, and/or permitted asset sales, as defined in
the Loan Agreement.
Outstanding amounts under the Loan Agreements bear interest at either LIBOR
(5.90% as of December 31, 1997 and 5.78% as of December 31, 1996) plus 1.0% to
2.25% or Base Rate, as defined in the Loan Agreements, plus 0.00% to 1.00%.
The spread over LIBOR and the Base Rate varies from time to time, depending
upon ATSI's financial leverage. Under certain circumstances, ATSI may request
that rates be fixed or capped. For the years ended December 31, 1997 and 1996,
the weighted average interest rate of the Loan Agreements was 7.54% and 8.75%,
respectively.
There was $32.7 million and $67.5 million available under the Loan
Agreements at December 31, 1997 and 1996, respectively. ATSI pays quarterly
commitment fees ranging from .375% to .50%, based on ATSI's financial leverage
and the unused portion of the aggregated commitment. Commitment fees paid
related to the Loan Agreements aggregated approximately $416,000 and $24,000
for the years ended December 31, 1997 and 1996, respectively.
F-10
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Loan Agreement contains certain financial and operational covenants and
other restrictions with which ATSI must comply, whether or not any borrowings
are outstanding, including among others, maintenance of certain financial
ratios, limitations on acquisitions, additional indebtedness and capital
expenditures, as well as restrictions on cash distributions unless certain
financial tests are met, and the use of borrowings. The obligations of ATSI
under the Loan Agreement are collateralized by a first priority security
interest in substantially all of the assets of ATSI. ATS has pledged all of
its stock to the banks as security for ATSI's obligations under the Loan
Agreement. ATS is in the process of negotiating an amended and restated loan
agreement with its senior lenders, pursuant to which the Company expects that
the existing maximum borrowing will be increased from $400.0 million to $900.0
million, subject to compliance with certain financial ratios, and ATS will be
able to borrow an additional $150.0 million, subject to compliance with
certain less restrictive ratios. Borrowings under an amended loan agreement
will also be available to finance acquisitions. In connection with the
refinancing, the Company expects to recognize an extraordinary loss of
approximately $1.4 million, net of a tax benefit of $0.9 million, during the
second quarter of 1998.
Following the closing of the Loan Agreement in October 1997, ATSI incurred
an extraordinary loss of approximately $1,156,000 (approximately $694,000 net
of the applicable income tax benefit) representing the write-off of deferred
financing fees associated with the previous agreement.
Derivative Positions--Under the terms of the Loan Agreement, ATSI is
required, under certain conditions, to enter into interest rate protection
agreements. There were no such agreements outstanding at December 31, 1996. As
of December 31, 1997, ATSI maintained a swap agreement, expiring in January
2001, under which the interest rate is fixed with respect to $7.3 million of
notional principal amount at approximately 6.4%. ATSI also maintained two cap
agreements; one expiring in July 2000, under which the interest rate is fixed
with respect to $21.6 million of notional principal amount at approximately
9.5%, and one expiring in November 1999, under which the interest rate is
fixed with respect to $7.0 million of notional principal amount at
approximately 8.5%. ATSI's exposure under these agreements is limited to the
impact of variable interest rate fluctuations and the periodic settlement of
amounts due under these agreements if the other parties fail to perform.
Note Payable--Other--A limited liability company, which is under majority
control of the Company, has a note secured by the minority shareholder's
interest in the limited liability company. Interest rates under this note are
determined, at the option of the limited liability company, at either the
Floating Rate (as defined in the note agreement) or the Federal Home Loan
BankBoston rate plus 2.25%. As of December 31, 1997 and 1996, the effective
interest rate on borrowings under this note was 8.02%. The note is payable in
equal monthly principal payments with interest through 2006.
Other Obligations--In connection with various acquisitions, the Company
assumed certain long-term obligations of the acquired entities. Substantially
all of these obligations were repaid during 1997, with the remaining unpaid
obligation payable in monthly installments through 2014.
Future principal payments required under the Company's financing
arrangements at December 31, 1997 are approximately:
<TABLE>
<S> <C>
Year Ending:
1998............................................................. $ 110,000
1999............................................................. 119,000
2000............................................................. 128,000
2001............................................................. 137,000
2002............................................................. 148,000
Thereafter....................................................... 89,535,000
-----------
Total.......................................................... $90,177,000
===========
</TABLE>
F-11
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
Lease Obligations--The Company leases space for its existing offices in
Florida, California, Pennsylvania and Virginia, space on various
communications towers and land under operating leases that expire over various
terms. The Company also subleases space on communications towers under
substantially the same terms and conditions, including cancellation rights, as
those found in its own lease contracts. Most leases allow cancellation at will
or under certain technical circumstances. Many of the leases also contain
renewal options with specified increases in lease payments upon exercise of
the renewal option.
Future minimum rental payments under noncancelable leases in effect at
December 31, 1997, excluding assumption of the ARS lease obligations described
in Note 1, are approximately as follows:
<TABLE>
<S> <C>
Year Ending:
1998............................................................. $ 3,996,000
1999............................................................. 3,508,000
2000............................................................. 3,213,000
2001............................................................. 2,706,000
2002............................................................. 1,992,000
Thereafter....................................................... 10,373,000
-----------
Total.......................................................... $25,788,000
===========
</TABLE>
Aggregate rent expense under operating leases for the years ended December
31, 1997, 1996 and period ended December 31, 1995 approximated $2,110,000,
$420,000, and $5,000, respectively.
Customer Leases--The Company leases space on its various tower properties
(both owned and managed) to customers which typically are for set periods of
time, although some leases are cancellable at the customers' option and others
are automatically renewed and have no fixed term. Long-term leases typically
contain provisions for renewals and specified rent increases over the lease
term.
Future minimum rental receipts expected to be received from customers under
noncancelable lease agreements in effect at December 31, 1997 are
approximately as follows:
<TABLE>
<S> <C>
Year Ending:
1998............................................................. $21,017,000
1999............................................................. 16,899,000
2000............................................................. 14,691,000
2001............................................................. 12,369,000
2002............................................................. 8,128,000
Thereafter....................................................... 26,892,000
-----------
Total.......................................................... $99,996,000
===========
</TABLE>
Tower rental revenues under the Company's sub-leases approximated $978,000
and $468,000 for the years ended December 31, 1997 and 1996, respectively.
Acquisition Commitments--See Notes 9 and 11 for information with respect to
acquisitions and related commitments.
CBS Merger--The CBS Merger Tax Liability has been estimated based on an
assumed fair market value of the ATS Common Stock of $16.00 per share price,
resulting in a tax liability of approximately $173.0 million, of which $20.0
million will be borne by ARS and the remaining obligation will be required to
be paid by ATS pursuant to provisions of the CBS Merger Agreement. The
Company's portion of the CBS Merger Tax Liability
F-12
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
is expected to be paid with the proceeds of an equity offering or external
financing if due in 1998, or borrowings under ATS's Loan Agreement if due in
1999; the timing of such payment is dependent upon the timing of the
consummation of the CBS Merger. Such estimated tax liability would increase or
decrease by approximately $14.8 million for each $1.00 per share increase or
decrease in the fair market value of the ATS Common Stock.
The CBS Merger Agreement also provides for closing date balance sheet
adjustments based upon the working capital and specified debt levels
(including the liquidation preference of the ARS Cumulative Preferred Stock)
of ARS at the effective time of the CBS Merger which may result in payments to
be made by either ARS or ATS to the other party following the closing date of
the CBS Merger. ATS will benefit from or bear the cost of such adjustments.
Since the amounts of working capital and debt are dependent upon future
operations and events, including without limitation cash flow from operations,
capital expenditures, and expenses of the CBS Merger, neither ARS nor ATS is
able to state with any degree of certainty what payments, if any, will be owed
following the closing date by either ARS or ATS to the other party.
Litigation--The Company periodically becomes involved in various claims and
lawsuits that are incidental to its business. In the opinion of management,
there are no matters currently pending which would, in the event of adverse
outcome, have a material impact on the Company's consolidated financial
position, the results of operations or liquidity.
6. RELATED PARTY TRANSACTIONS
The Company received revenues of approximately $389,000 and $70,000 from ARS
for tower rentals at Company-owned sites for the years ended December 31, 1997
and 1996, respectively.
ARS has contributed substantially all of the Company's capitalization and
had funded substantially all of the 1996 acquisitions and certain 1997
acquisitions described in Note 9.
In January 1998, ARS contributed certain tower sites to the Company (See
Note 11).
In January 1998, the Company consummated the transactions contemplated by a
stock purchase agreement with certain related parties. (See Note 8).
In December 1997, ARS contributed a tower site and related assets in West
Palm Beach, Florida to the Company at ARS' book value, which approximated
$50,000.
During January 1996, ARS contributed a tract of undeveloped land of
approximately two acres to the Company. The transfer was recorded at ARS' book
value of approximately $425,000.
In March 1996, ARS contributed approximately 200 acres of undeveloped land
to the Company. The transfer was recorded at ARS' book value of approximately
$2.3 million.
In November 1996, the Company transferred a tract of land to ARS. The
transfer was recorded at ATS' book value of approximately $1.1 million.
In December 1996, ARS contributed a tower site and related assets in
Peabody, Massachusetts to the Company at ARS' book value, which aggregated
approximately $1.1 million.
In December 1996, ARS contributed a tower site and related assets located in
Philadelphia, Pennsylvania, to the Company. These assets were contributed at
their initial estimated fair value of approximately $1.5 million, based on a
preliminary appraisal. In June 1997, the fair value of the tower site and
related assets was determined to be approximately $775,000 based on a final
independent appraisal. The net book value carried by ATS was adjusted by
approximately $725,000 to reflect the change in estimate. This change in
estimate did not have a material effect on the consolidated financial position
or the results of operations of ATS.
F-13
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
Effective October 15, 1996, the Company entered into a tax sharing agreement
with ARS. In accordance with this agreement, the Company's share of the
consolidated federal income tax benefit (liability) is calculated as a portion
of ARS' consolidated income tax benefit (liability). Any income tax benefit
(provision) attributable to the Company is payable to (due from) ARS. The
Company's reported provision or benefit is not significantly different from
what would have been recorded on a separate return basis. The tax sharing
agreement was terminated in connection with the corporate restructuring
described in Note 1, pursuant to which the Company will now prepare and file
income tax returns on a separate company basis.
The income tax benefit (provision) was comprised of the following:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-------------------------
1997 1996 1995
--------- -------- -------
<S> <C> <C> <C>
Current:
Federal...................................... $ 444,236 $ 53,907 $62,503
State........................................ 174,964 9,418 10,921
Deferred:
Federal...................................... (125,545) (92,547)
State........................................ (20,984) (16,168)
--------- -------- -------
Income tax benefit (provision)................. $ 472,671 $(45,390) $73,424
========= ======== =======
</TABLE>
A reconciliation between the U.S. statutory rate and the effective rate was
as follows for the periods presented:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate...................................... (34)% (34)% (34)%
State taxes, net of federal benefit..................... (6) (6) (6)
Nondeductible intangible amortization................... 17 49
Other................................................... 1
--- --- ---
Effective tax rate...................................... (23)% 10 % (40)%
=== === ===
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
were composed of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Assets:
Allowances for financial reporting purposes which
are currently nondeductible--current............... $ 62,560
Net operating loss carryforwards.................... $ 2,071
Valuation allowances................................ (2,071)
Liabilities:
Property and equipment and intangible assets........ (417,628) (168,125)
Partnership investments............................. (77,648)
Long-term rental agreements......................... (33,445)
--------- ---------
Net deferred tax liabilities......................... $(355,068) $(279,218)
========= =========
</TABLE>
F-14
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. STOCKHOLDER'S EQUITY
Recapitalization--In November 1997, the Company restated its certificate of
incorporation to increase the aggregate number of shares of all classes of
stock which it is authorized to issue to 280,000,000 shares as follows:
20,000,000 shares of preferred stock $.01 par value per share, 260,000,000
shares of common stock $.01 par value per share, of which 200,000,000 is Class
A, 50,000,000 is Class B and 10,000,000 is Class C. The Class A and B entitles
the holder to one and ten votes, respectively, per share. The Class C is non-
voting.
In addition, at that time, the Company effected a recapitalization, pursuant
to which each share of the Company's existing common stock was cancelled and
the Company was recapitalized with 29,667,883 shares of Class A common stock,
4,670,626 shares of Class B common stock and 1,295,518 shares of Class C
common stock.
ATS Stock Purchase Agreement--On January 22, 1998, the Company consummated
the transactions contemplated by the stock purchase agreement (the ATS Stock
Purchase Agreement), dated as of January 8, 1998, with Steven B. Dodge,
Chairman of the Board, President and Chief Executive Officer of ARS and ATS,
and certain other officers and directors of ARS (or their affiliates or family
members or family trusts), pursuant to which those persons purchased
8.0 million shares of ATS Common Stock at a purchase price of $10.00 per share
for an aggregate purchase price of $80.0 million, including 4.0 million shares
by Mr. Dodge for $40.0 million. Payment of the purchase price was in the form
of cash aggregating approximately $30.6 million and in the form of notes
aggregating approximately $49.4 million due on the earlier of the consummation
of the CBS Merger or, in the event the CBS Merger Agreement is terminated,
December 31, 2000. The notes bear interest at the six-month London Interbank
Rate, as measured from time to time, plus 1.5% per annum, and are secured by
shares of ARS Common Stock having a fair market value of not less than 175% of
the principal amount of and accrued and unpaid interest on the note. The notes
are prepayable at any time at the option of the debtor and will be due and
payable, at the option of the Company, in the event of certain defaults as
described in the ATS Stock Purchase Agreement.
Stock Option Plans--In November 1997, the Company instituted the 1997 Stock
Option Plan (the Plan) which provides for the granting of options to employees
and directors to acquire up to 10,000,000 shares of ATS Class A and Class B
Common Stock. The Plan is expected to be amended in connection with the ATC
Merger, described in Note 11, to limit future grants to Class A Common Stock.
No options were granted under the Plan during 1997. In January 1998, the
Company granted 2,911,300 options at an exercise price of $10 per share to
employees and directors of ATS and subsequently granted 1,400,000 options at
an exercise price of $13 per share to employees of an acquired company. (See
Note 11).
ATSI also has a stock option plan which provides for the granting of options
to employees to acquire up to 1,000,000 shares of the common stock of ATSI, of
which options to purchase an aggregate of 682,000 shares have been issued. In
addition, approximately 665,000 options to purchase shares of ARS Common Stock
held by current and future employees of ATS may be exchanged for ATS options.
The ATSI options will be exchanged for ATS options and the ARS options may be
exchanged in a manner that will preserve the spread in such options between
the option exercise price and the fair market value of the stock subject
thereto and the ratio of the spread to the exercise price prior to such
conversion. These ARS options are expected to be exchanged, at least in part,
into options to acquire, stock of ATS, as part of the CBS Merger.
Exercise prices in the case of incentive stock options are not less than the
fair value of the underlying common stock on the date of grant. Exercise
prices in the case of non-qualified stock options are set at the discretion of
the Board of Directors. Options vest ratably over various periods, generally
five years, commencing one year from the date of grant. There have been no
option grants at exercise prices less than fair value.
F-15
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the ATSI option activity for the periods
presented:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE NUMBER AVERAGE
PRICE CURRENTLY REMAINING
OPTIONS PER SHARE EXERCISABLE LIFE (YEARS)
------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Granted during 1996 and
outstanding at December 31,
1996........................... 550,000 $5.00 160,000 8.71
Granted......................... 172,000 $7.50-$8.00 9.24
Cancelled....................... (40,000) $5.00
------- ----------- ------- ----
Outstanding as of December 31,
1997........................... 682,000 160,000 8.89
======= ======= ====
</TABLE>
As described in Note 1, the intrinsic value method is used to determine
compensation associated with stock option grants. No compensation cost has
been recognized to date for grants under the Plan. Had compensation cost for
the Company's stock option plan been determined based on the fair value at the
grant date for awards in 1996 and 1997 consistent with the provisions of SFAS
123, the Company's net loss would have been approximately $2,492,000 and
approximately $568,000 for the years ended December 31, 1997 and 1996,
respectively. Pro forma basic and diluted net loss per common share would have
been approximately $(0.05) for the year ended December 31, 1997.
The "fair value" of each option grant is estimated on the date of grant
using the minimum value method based on the following key assumptions: risk-
free interest rate of 6.3% and expected lives of 5 years. In accordance with
the provisions of SFAS 123, since the Company's stock is not publicly traded,
expected volatility in stock price has been omitted in determining the fair
value for options granted.
9. ACQUISITIONS
1997 Acquisitions--
In December 1997, the Company consummated the acquisition of a tower site in
Northern California for approximately $2.0 million.
In October 1997, the Company acquired two affiliated entities operating
approximately 110 tower sites and a tower site management business located
principally in northern California for approximately $45.0 million. In
connection therewith, the Company had also agreed to loan up to $1.4 million
to the sellers on an unsecured basis, of which approximately $0.26 million had
been advanced and was repaid at closing.
In October 1997, the Company acquired tower sites and certain video, voice
and data transport operations for approximately $70.25 million. The acquired
business owned or leased approximately 128 tower sites, principally in the
Mid-Atlantic region, with the remainder in California and Texas.
In September 1997, the Company acquired nine tower sites in Massachusetts
and Rhode Island for approximately $7.2 million and land in Oklahoma for
approximately $0.6 million.
In August 1997, the Company acquired six tower sites in Connecticut and
Rhode Island for approximately $1.5 million.
F-16
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In July 1997, the Company, in individual transactions, acquired the
following:
(i) the assets of three affiliated entities which owned and operated
approximately fifty towers and a tower site management business in
southern California for an aggregate purchase price of approximately
$33.5 million;
(ii) the assets of one tower site in Washington, D.C. for
approximately $0.9 million;
(iii) the assets of six tower sites in Pennsylvania for approximately
$0.3 million and
(iv) the rights to build five tower sites in Maryland for
approximately $0.5 million.
In May 1997, the Company acquired 21 tower sites and a tower site management
business in Georgia, North Carolina and South Carolina for approximately $5.4
million. The agreement also provides for additional payments by the Company if
the seller is able to arrange for the purchase or management of tower sites
presently owned by an unaffiliated public utility in South Carolina, which
payments could aggregate up to approximately $1.2 million; management believes
that it is unlikely that any such arrangement will be entered into.
In May 1997, the Company acquired the assets of two affiliated companies
engaged in the site acquisition business in various locations in the United
States for approximately $13.0 million.
In May 1997, the Company and an unaffiliated party formed a limited
liability company to own and operate communication towers which will be
constructed on over 50 tower sites in northern California. The Company
advanced approximately $0.8 million to this entity and currently owns a 70%
interest in the entity, with the remaining 30% owned by an unaffiliated party.
The Company is obligated to provide additional financing for the construction
of these and any additional towers it may approve; the obligation for such 50
tower sites is estimated to be approximately $5.3 million. The accounts of the
limited liability company are included in the consolidated financial
statements with the other party's investment reflected as minority interest in
subsidiary.
In May 1997, the Company acquired three tower sites in Massachusetts for
approximately $0.26 million.
1996 Acquisitions--
In February 1996, the Company acquired Skyline Communications and Skyline
Antenna Management in exchange for an aggregate of 26,989 shares of ARS Class
A Common Stock, having a fair value of approximately $774,000, $2.2 million in
cash, and the assumption of approximately $300,000 of long-term debt which was
paid at closing. Skyline Communications owned eight towers, six of which are
in West Virginia and the remaining two in northern Virginia. Skyline Antenna
Management managed more than 200 antenna sites, primarily in the northeast
region of the United States.
In April 1996, the Company acquired BDS Communications, Inc. and BRIDAN
Communications Corporation for 257,495 shares of ARS Class A common stock
having a fair value of approximately $7.4 million and $1.9 million in cash of
which approximately $1.5 million was paid at closing. BDS Communications owned
three towers in Pennsylvania and BRIDAN Communications managed or had sublease
agreements on approximately forty tower sites located throughout the mid-
Atlantic region.
In July 1996, the Company entered into a limited liability company agreement
with an unaffiliated party relating to the ownership and operation of a tower
site in Needham, Massachusetts, whereby the Company acquired a 50.1% interest
in the corporation for approximately $3.8 million in cash. The accounts of the
limited liability company are included in the consolidated financial
statements with the other party's investment reflected as minority interest in
subsidiary.
In October 1996, the Company acquired the assets of tower sites in Hampton,
Virginia and North Stonington, Connecticut for approximately $1.4 million and
$1.0 million in cash, respectively.
F-17
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Substantially all of the 1996 acquisitions were consummated by ARS and the
net assets were subsequently contributed to the Company.
The acquisitions consummated during 1997 and 1996 have been accounted for by
the purchase method of accounting. The purchase price has been preliminarily
allocated to the assets acquired, principally intangible and tangible assets,
and the liabilities assumed based on their estimated fair values at the date
of acquisition. The excess of purchase price over the estimated fair value of
the net assets acquired has been recorded as unallocated purchase price. The
financial statements reflect the preliminary allocation of certain purchase
prices as the appraisals of the assets acquired have not been finalized. The
Company does not expect any changes in depreciation and amortization as a
result of such appraisals to be material to the consolidated results of
operations.
Unaudited Pro Forma Operating Results--The operating results of these
acquisitions have been included in the Company's consolidated results of
operations from the date of acquisition. The following unaudited pro forma
summary presents the consolidated results of operations as if the acquisitions
had occurred as of January 1, 1996 after giving effect to certain adjustments,
including depreciation and amortization of assets and interest expense on debt
incurred to fund the acquisitions. These unaudited pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisitions been made as of January 1, 1996
or results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Net revenues.................................... $44,933,000 $35,601,000
Loss before extraordinary loss.................. (8,998,000) (21,716,000)
Net loss........................................ (9,692,000) (21,716,000)
Basic and diluted pro forma loss per common
share.......................................... (0.20)
</TABLE>
10. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and noncash investing and financing
activities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Supplemental cash flow information:
Cash paid during the period for interest (including
amounts capitalized).............................. $2,398,201 $ 90,539
Cash paid during the period for income taxes....... 124,988
Noncash investing and financing activities:
Property and equipment transferred from Parent..... 50,000 11,103,352
Property and equipment transferred to Parent....... (725,000)
Land transferred to Parent......................... (1,100,000)
Deferred financing costs paid by Parent............ 1,255,474
Investment in affiliate paid by Parent............. 325,000
Details of acquisitions financed by Parent:
Purchase price of net assets acquired.............. 20,954,401
Liabilities assumed................................ (2,219,637)
Stock issued by Parent............................. (8,153,312)
-----------
Cash paid by Parent................................ 10,581,452
Less: cash acquired................................ (1,600,000)
-----------
Net cash paid by Parent for acquisitions........... $ 8,981,452
===========
</TABLE>
F-18
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. OTHER TRANSACTIONS
Consummated Transactions:
In January 1998, the Company consummated an agreement to acquire all of the
outstanding stock of Gearon, a company based in Atlanta, Georgia, for an
aggregate purchase price of approximately $80.0 million. The purchase price
consisted of approximately $32.0 million in cash and assumed liabilities and
the issuance of approximately 5.3 million shares of ATS Class A Common Stock.
Gearon is engaged in site acquisition, development, construction and facility
management of wireless network communication facilities on behalf of its
customers and owns or has under construction approximately 40 tower sites.
Following consummation, the Company granted options to acquire up to 1,400,000
shares of Class A Common Stock at an exercise price of $13.00 to employees of
Gearon. (See Notes 1 and 8).
In January 1998, the Company consummated the acquisition of OPM, a company
which owned approximately 90 towers at the time of acquisition. In addition,
OPM is in the process of developing an additional 160 towers that are expected
to be constructed during the next 12 to 18 months. The purchase price, which
is variable and based on the number of towers completed and the forward cash
flow of the completed OPM towers, could aggregate up to $105.0 million, of
which approximately $21.3 million was paid at the closing. The Company had
also agreed to provide the financing to OPM to enable it to construct the 160
towers in an aggregate amount not to exceed $37.0 million (less advances as of
consummation aggregating approximately $5.7 million, excluding accrued
interest). (See Note 1).
In January 1998, the Company consummated the acquisition of a communications
site with six towers in Tucson, Arizona for approximately $12.0 million.
In January 1998, the Company consummated the acquisition of a tower near
Palm Springs, California for approximately $0.75 million.
In January 1998, ARS transferred to ATS 14 communications sites currently
used by ARS and various third parties (with an ARS net book value of
approximately $4.2 million), and ARS and ATS entered into leases or subleases
of space on the transferred towers. Two additional communications sites will
be transferred and leases entered into following acquisition by ARS of the
sites from third parties.
In February 1998, the Company acquired 11 communications tower sites in
northern California for approximately $11.8 million.
Pending Transactions:
In December 1997, the Company entered into a merger agreement with American
Tower Corporation (ATC) pursuant to which ATC will merge with and into ATS,
which will be the surviving corporation. Pursuant to the merger, ATS expects
to issue an aggregate of approximately 30.3 million shares of ATS Class A
Common Stock (including shares issuable upon exercise of options to acquire
ATC Common Stock which will become options to acquire ATS Class A Common
Stock). ATC is engaged in the business of acquiring, developing, and
leasing wireless communications sites to companies using or providing cellular
telephone, paging, microwave and specialized mobile radio services. At
December 31, 1997, ATC owned and operated approximately 775 communications
towers located in 31 states primarily in the western, eastern and southern
United States. Consummation of the transaction is subject to, among other
things, the expiration or earlier termination of the Hart-Scott Rodino
Antitrust Improvements Act of 1976, as amended (HSR Act) waiting period, and
is expected to occur in the Spring of 1998.
F-19
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
In January 1998, the Company entered into an agreement to purchase the
assets relating to a teleport business serving the Washington, D.C. area for a
purchase price of approximately $30.5 million. The facility is located in
northern Virginia, inside of the Washington Beltway, on ten acres.
In February 1998, the Company entered into an agreement to acquire a tower
in Sacramento, California for approximately $1.2 million.
Consummation of the pending transactions, which are subject to certain
conditions, including in certain cases, receipt of FCC approvals and the
expiration or earlier termination of the HSR Act waiting period, are expected
to occur in the second quarter of 1998.
* * * * * *
F-20
<PAGE>
SIGNATURES
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 on the 9th day of
April, 1998.
AMERICAN TOWER SYSTEMS CORPORATION
By: /s/ Steven B. Dodge
-----------------------------
Steven B. Dodge
Chief Executive Officer
President and Chairman of the
Board
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
SIGNATURE TITLE
/s/ Steven B. Dodge Chairman of the Board,
- ----------------------------- Chief Executive Officer
STEVEN B. DODGE and President
/s/ Joseph L. Winn Chief Financial Officer
- ----------------------------- and Director
JOSEPH L. WINN
/s/ Alan L. Box Executive Vice President
- ----------------------------- and Director
ALAN L. BOX
/s/ Justin D. Benincasa Vice President and Corporate
- ----------------------------- Controller
JUSTIN D. BENINCASA
/s/ Thomas H. Stoner Director
- -----------------------------
THOMAS H. STONER
Director
- -----------------------------
ARNOLD L. CHAVKIN
/s/ J. Michael Gearon, Jr. Director
- -----------------------------
J. MICHAEL GEARON, JR.
(i)
<PAGE>
SCHEDULE I
AMERICAN TOWER SYSTEMS CORPORATION
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Investments in and advances to subsidiaries......... $154,187,760 $30,536,512
Deferred income taxes............................... 62,560 --
------------ -----------
Total......................................... $154,250,320 $30,536,512
============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Deferred income taxes............................... $ 417,628 $ 279,218
Minority interest in subsidiaries................... 625,652 528,928
Commitments and Contingencies....................... -- --
Stockholder's Equity (Note Below):
Preferred Stock; $0.01 par value; 20,000,000
shares authorized; no shares issued or outstand-
ing..............................................
Common Stock, $.01 par value, 10,000,000 shares
authorized, 3,000 shares issued and outstanding
in 1996.......................................... -- 30
Class A Common Stock; $.01 par value; 200,000,000
shares authorized; 29,667,883 shares issued and
outstanding...................................... 296,679 --
Class B Common Stock; $.01 par value; 50,000,000
shares authorized; 4,670,626 shares issued and
outstanding...................................... 46,706 --
Class C Common Stock; $.01 par value; 10,000,000
shares authorized; 1,295,518 shares issued and
outstanding...................................... 12,955 --
Additional paid-in capital........................ 155,710,741 30,318,420
Accumulated deficit............................... (2,860,041) (590,084)
------------ -----------
Total stockholder's equity...................... 153,207,040 29,728,366
------------ -----------
Total......................................... $154,250,320 $30,536,512
============ ===========
</TABLE>
Note: Please see page F-4, "Consolidated Statements of Stockholder's Equity,"
for activity occurring in the equity section of American Tower Systems
Corporation (ATS).
Note: ATS is currently a wholly-owned subsidiary of American Radio Systems
Corporation. In connection with a loan agreement maintained by the ATS'
wholly owned subsidiary, American Tower Systems (Delaware), Inc. ATS has
pledged its interest in such subsidiary.
S-1
<PAGE>
SCHEDULE I
AMERICAN TOWER SYSTEMS CORPORATION
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROM
JULY 17, 1995 (INCORPORATION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Revenues.................................... $ -- $ -- $ --
Equity in net loss of subsidiaries.......... (2,269,957) (479,673) (110,411)
----------- --------- ---------
Net Loss.................................... $(2,269,957) $(479,673) $(110,411)
=========== ========= =========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROM
JULY 17, 1995 (INCORPORATION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
------------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................... $ (2,269,957) $ (479,673) $(110,411)
Adjustments to reconcile net loss to
cash flows from operating activities:
Equity in net losses of
subsidiaries........................ 2,269,957 479,673 110,411
------------- ----------- ---------
Cash flows from operating
activities.......................... -- -- --
------------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash transfers to Parent............... (16,650,000) (4,866,226) (179,426)
Investment by Parent................... 143,073,631 2,548,557 242,215
------------- ----------- ---------
Cash flows from investing
activities.......................... 126,423,631 (2,317,669) 62,789
------------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash transfers from subsidiary......... 16,650,000 4,866,226 179,426
Investments in subsidiary.............. (143,073,631) (2,548,557) (242,215)
------------- ----------- ---------
Cash flows from financing
activities.......................... (126,423,631) 2,317,669 (62,789)
------------- ----------- ---------
CASH AND CASH EQUIVALENTS.............. $ -- $ -- $ --
============= =========== =========
</TABLE>
Note: As of December 31, 1997, ATS was a holding company whose only asset
consists of the stock of its wholly owned subsidiary American Tower
Systems (Delaware), Inc. (ATSI). As of such date, ATSI held all operating
assets of the consolidated group. ATS' income or loss is limited to the
income or loss of ATSI, after elimination of income or loss attributable
to minority investors in subsidiaries and investments of ATSI.
S-2
<PAGE>
SCHEDULE II
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM JULY 17, 1995 (INCORPORATION) TO DECEMBER 31, 1995 AND
THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
---------- ---------- -------- ---------- --------
BALANCE
BALANCE AT CHARGED TO CHARGED AT END
BEGINNING COSTS AND TO OTHER OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Period from July 17, 1995
to December 31, 1995..... $ -- $ -- $-- $ -- $ --
Year Ended December 31,
1996..................... $ -- $ 47,044 $-- $ -- $ 47,044
Year Ended December 31,
1997..................... $47,044 $124,350 $-- $46,310 $125,084
</TABLE>
S-3
