<PAGE>
Rule 424(b)(3) of the Securities Act of 1933
Registration Statement 333-50111
PROSPECTUS SUPPLEMENT NO. 3, DATED NOVEMBER 18, 1998
(TO PROSPECTUS DATED JUNE 4, 1998)
AMERICAN TOWER CORPORATION
This Prospectus Supplement No. 3 supplements the Prospectus dated June 4,
1998 of American Tower Corporation, formerly American Tower Systems Corporation
("ATC" or the "Company"), with respect to the filing on November 16, 1998, of
its Form 10-Q for the fiscal quarter ending September 30, 1998, which is
attached hereto.
Pending Transactions --
On November 16, 1998, ATC entered into an Agreement and Plan of Merger
("the Omni Merger Agreement") with OmniAmerica, Inc., a Delaware corporation
("Omni"), and American Towers, Inc., a wholly owned subsidiary of ATC and a
Delaware corporation ("ATI"), pursuant to which Omni will merge with and into
ATI, which will be the surviving corporation (the "Omni Merger"). Omni owns,
manages and develops multi-use telecommunications sites for radio and television
broadcasting, paging, cellular, PCS and other wireless technologies and offers
nationwide, turn-key tower construction and installation services through its
Specialty Constructors subsidiary. Omni currently owns 246 towers (giving effect
to announced transactions) and is currently developing or has agreed to build
approximately 470 more sites for specific tenants. Pursuant to the Omni Merger
Agreement, which has been approved by the Board of Directors of ATC and Omni,
and by holders of shares representing the required majority of the voting power
of Omni Common Stock, Omni stockholders will receive 1.1 shares of ATC Class A
Common Stock for each share of Common Stock of Omni. In the aggregate, ATC will
exchange approximately 17.7 million shares of ATC Class A Common Stock in
exchange for the approximately 16.1 million fully-diluted shares of Common Stock
of Omni, plus the assumption of debt. Consummation of the Omni Merger is
expected to occur in the first quarter of 1999, subject to certain conditions
including, the expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements act of 1976, as amended (the "HSR
Act"). Upon the consummation of the Omni Merger, Jack D. Furst, the Chairman of
Omni and a partner of Hicks, Muse, Tate & Furst Incorporated, Omni's largest
stockholder, will be elected to the Board of Directors of ATC.
On November 16, 1998, ATC entered into an Agreement and Plan of Merger (the
"TeleCom Merger Agreement") with TeleCom Towers, L.L.C., a Delaware limited
liability company ("TeleCom"), and ATI, pursuant to which TeleCom will merge
with and into ATI, which will be the surviving corporation (the "TeleCom
Merger"). TeleCom owns, or co-owns, approximately 367 towers and manages another
130 revenue-generating sites in 27 states. Pursuant to the TeleCom Merger
Agreement, which has been approved by Board of Directors of ATC, the Management
Committee of TeleCom, and by holders of interests representing the required
majority of the voting power of TeleCom interests, ATC will pay a purchase price
for TeleCom of approximately $155.0 million, subject to adjustment for closing
date working capital. ATC will assume approximately $30.0 million of debt,
subject to adjustment for interim acquisitions and capital expenditures. The
purchase price (except for the working capital adjustment, which is payable in
cash) will be paid 60% in ATC Class A Common Stock (based on average stock
prices ten days before and ten days after November 16, 1998) and 40% in cash.
Consummation of the TeleCom Merger is conditioned on, the expiration or early
termination of the waiting period under the HSR Act, and accordingly, is not
expected to take place until the first quarter of 1999. Upon the consummation of
the TeleCom Merger, Dean H. Eisner, Vice President, Business Development and
Planning of Cox Enterprises, Inc., will be elected to the Board of Directors of
ATC.
Any statement contained in the Prospectus as heretofore supplemented shall
be deemed to be modified or superseded to the extent that a statement contained
in the Form 10-Q modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Prospectus.
________________________
Prospectus Supplement No. 3, dated November 18, 1998
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -------------------------------------------------------------------------------
FORM 10-Q
- -------------------------------------------------------------------------------
(Mark One):
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
COMMISSION FILE NUMBER: 001-14195
AMERICAN TOWER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0723837
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
116 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02116
(Address of principal executive offices)
TELEPHONE NUMBER (617) 375-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes X No
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS OF COMMON STOCK OCTOBER 30, 1998
- --------------------------------------------------------------------------------
<S> <C>
Class A Common Stock........................................ 96,178,177 shares
Class B Common Stock........................................ 9,086,726 shares
Class C Common Stock........................................ 3,295,518 shares
- --------------------------------------------------------------------------------
Total....................................................... 108,560,421 shares
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
AMERICAN TOWER CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
<C> <S> <C>
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
December 31, 1997 and September 30, 1998.................... 1
Consolidated Statements of Operations
Three and nine months ended September 30, 1997 and 1998..... 2
Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1998............... 3
Notes to Consolidated Financial Statements................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................. 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................... 19
ITEM 5. OTHER INFORMATION.......................................... 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 20
SIGNATURES................................................. 21
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--UNAUDITED
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 4,596 $ 313,454
Accounts receivable, net of allowance for doubtful
accounts of $125 and $1,138, respectively ....... 3,239 14,455
Unbilled receivables.............................. 2,872
Prepaid and other current assets.................. 790 4,638
Deferred income taxes............................. 63 63
-------- ----------
Total current assets............................ 8,688 335,482
-------- ----------
PROPERTY AND EQUIPMENT, net......................... 117,618 388,315
UNALLOCATED PURCHASE PRICE, net..................... 108,192 662,670
OTHER INTANGIBLE ASSETS, net........................ 8,424 14,647
NOTE RECEIVABLE..................................... 10,700 6,100
DEPOSITS AND OTHER LONG-TERM ASSETS................. 1,735 4,105
DEFERRED INCOME TAXES............................... 24,435
-------- ----------
TOTAL............................................... $255,357 $1,435,754
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................. $ 110 $ 1,125
Accounts payable.................................. 3,738 6,587
Accrued expenses.................................. 4,492 18,387
Accrued separation expenses....................... 5,113
Accrued interest.................................. 914 2,166
Unearned income................................... 1,752 5,978
Due to CBS Corporation............................ 44,809
-------- ----------
Total current liabilities....................... 11,006 84,165
-------- ----------
LONG-TERM DEBT...................................... 90,066 280,480
DEFERRED INCOME TAXES............................... 418
OTHER LONG-TERM LIABILITIES......................... 33 1,195
-------- ----------
Total long-term liabilities..................... 90,517 281,675
-------- ----------
MINORITY INTEREST IN SUBSIDIARIES................... 626 567
-------- ----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CLASS A COMMON STOCK:
$.01 par value, 336,250 shares issued and out-
standing; at estimated redemption value of
$25.50 per share............................... 8,574
-------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock; $0.01 par value; 20,000,000
shares authorized; no shares issued or outstand-
ing..............................................
Class A Common Stock; $.01 par value; 300,000,000
shares authorized; 29,667,883 and 94,396,556
shares issued and outstanding, respectively...... 297 944
Class B Common Stock; $.01 par value; 50,000,000
shares authorized; 4,670,626 and 9,107,962 shares
issued and outstanding, respectively............. 47 91
Class C Common Stock; $.01 par value; 10,000,000
shares authorized; 1,295,518 and 3,295,518 shares
issued and outstanding, respectively............. 13 33
Additional paid-in capital........................ 155,711 1,097,359
Accumulated deficit............................... (2,860) (37,654)
-------- ----------
Total stockholders' equity...................... 153,208 1,060,773
-------- ----------
TOTAL............................................... $255,357 $1,435,754
======== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS--UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------
1997 1998 1997 1998
--------- ---------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Tower rental and management....... $ 3,525 $ 17,719 $ 6,478 $ 39,305
Site acquisition services......... 996 6,572 1,424 18,848
Video, voice and data
transmission..................... 6,187 13,332
-------- ---------- ------- ---------
Total operating revenues........ 4,521 30,478 7,902 71,485
-------- ---------- ------- ---------
OPERATING EXPENSES:
Operating expenses excluding
depreciation and amortization,
tower separation expenses and
corporate general and
administrative expenses:
Tower rental and management..... 1,611 8,087 2,753 18,417
Site acquisition services....... 669 4,677 836 15,412
Video, voice and data
transmission................... 3,928 8,697
Depreciation and amortization..... 1,384 17,243 2,706 32,998
Tower separation expenses......... 159 12,616
Corporate general and
administrative expenses.......... 378 1,561 919 3,186
-------- ---------- ------- ---------
Total operating expenses........ 4,042 35,655 7,214 91,326
-------- ---------- ------- ---------
INCOME (LOSS) FROM OPERATIONS....... 479 (5,177) 688 (19,841)
OTHER INCOME (EXPENSE):
Interest expense.................. (1,000) (7,121) (1,318) (17,023)
Interest income and other, net.... 37 4,451 94 6,283
Minority interest in net earnings
of subsidiaries.................. (60) (66) (221) (255)
-------- ---------- ------- ---------
TOTAL OTHER EXPENSE................. (1,023) (2,736) (1,445) (10,995)
-------- ---------- ------- ---------
LOSS BEFORE BENEFIT FOR INCOME TAXES
AND EXTRAORDINARY LOSSES........... (544) (7,913) (757) (30,836)
INCOME TAX BENEFIT.................. 1,955 49 4,934
-------- ---------- ------- ---------
LOSS BEFORE EXTRAORDINARY LOSSES.... (544) (5,958) (708) (25,902)
EXTRAORDINARY LOSS ON EXTINGUISHMENT
OF DEBT, NET OF INCOME TAX BENEFIT
OF $921............................ (1,382)
EXTRAORDINARY LOSS ON REDEMPTION OF
INTERIM PREFERRED STOCK, NET OF
INCOME TAX BENEFIT OF $5,000....... (7,510) (7,510)
-------- ---------- ------- ---------
NET LOSS............................ $ (544) $ (13,468) $ (708) $ (34,794)
======== ========== ======= =========
BASIC AND DILUTED PER COMMON SHARE:
Loss before extraordinary losses.. $ (0.01) $ (0.06) $ (0.01) $ (0.37)
Extraordinary losses.............. (0.07) (0.13)
-------- ---------- ------- ---------
Net loss.......................... $ (0.01) $ (0.13) $ (0.01) $ (0.50)
======== ========== ======= =========
WEIGHTED AVERAGE COMMON SHARES ..... 48,732 104,621 48,732 70,103
======== ========== ======= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES....................... $ 3,118 $ 2,878
-------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Payments for purchase of property and equipment and
construction activities................................. (8,926) (76,291)
Payments for acquisitions................................ (62,804) (140,384)
Advances of notes receivable............................. (259) (11,100)
Repayment of notes receivable............................ 2,000
Deposits and other long-term assets...................... (2,329) (2,140)
-------- --------
Cash used for investing activities......................... (74,318) (227,915)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities....................... 50,000 205,500
Repayments of other notes payable and credit facilities.. (332) (136,954)
Net proceeds from equity offerings and stock options..... 707,399
Cash transfers to CBS Corporation........................ (221,665)
Net proceeds from Interim Preferred Stock................ 300,000
Redemption of Interim Preferred Stock.................... (303,117)
Contributions from ARS................................... 25,960 56,954
Cash transfers to ARS.................................... (4,150) (51,856)
Distributions to minority interest....................... (314) (314)
Additions to deferred financing costs.................... (42) (22,052)
-------- --------
Cash provided by financing activities...................... 71,122 533,895
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (78) 308,858
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 2,373 4,596
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 2,295 $313,454
======== ========
NON-CASH TRANSACTIONS:
Contribution of fixed assets and other assets from (to)
ARS..................................................... $ (725) $ 6,488
Issuance of common stock and assumption of options for
acquisitions............................................ $363,609
Increase in deferred tax assets from corporate
restructuring........................................... $135,000
Increase in due to CBS Corporation from estimated
remaining tax liabilities............................... $ 54,700
Adjustment to equity for CBS tax liability............... $ 76,960
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared by American Tower
Corporation (ATC or the Company) (formerly American Tower Systems
Corporation), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial information included herein
is unaudited; however the Company believes such information and the
disclosures are adequate to make the information presented not misleading and
reflect all adjustments (consisting only of normal recurring adjustments) that
are necessary for a fair presentation of results of operations for such
periods. Results of interim periods may not be indicative of results for the
full year. These financial statements should be read in conjunction with the
Company's 1997 Annual Report on Form 10-K and periodic reports on Form 10-Q
filed during 1998.
Accounting Policies--In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (FAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is effective for all fiscal quarters of years beginning after June 1999. The
Company has not completed its evaluations of FAS No. 133, but does not expect
it to significantly affect the accounting and reporting of its current hedging
activities.
Effective January 1, 1998, the Company adopted the provisions of FAS No.
130, "Reporting Comprehensive Income." There are currently no items other than
net income which would be classified as part of comprehensive income.
In February 1998, the FASB released FAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits" (FAS 132), which ATC will be
required to adopt in 1998. FAS 132 will require additional disclosure
concerning changes in ATC's pension obligations and assets and eliminates
certain other disclosures no longer considered useful. Adoption of this
standard will have no effect on reported consolidated results of operations or
financial position.
Tower Separation expenses--Tower separation expenses consist of costs
incurred in connection with the separation of the Company from its former
parent and include legal, accounting, financial advisory, and consent
solicitation fees. The Company expects to incur additional separation expenses
through the resolution of the CBS Merger adjustments described in Note 2, but
does not expect such costs to be material to the Company's results of
operations or financial position.
Reclassifications--Certain reclassifications have been made to the 1997
financial statements to conform to the 1998 presentation.
2. BUSINESS AND CORPORATE STRUCTURE
ATC was a majority owned subsidiary of American Radio Systems Corporation
(ARS or American Radio) until consummation of the CBS Merger on June 4, 1998,
as discussed below. American Towers, Inc. (ATI) is a wholly-owned subsidiary
of ATC. American Tower, L.P. (ATLP) is an indirect wholly-owned subsidiary of
ATC. ATI and ATLP are collectively referred to as the Borrower Subsidiaries.
CBS Merger: On June 4, 1998, the merger of American Radio and a subsidiary
of CBS Corporation (CBS) was consummated (the CBS Merger). As a consequence,
all of the shares of ATC Common Stock (the Common Stock) owned by ARS were
distributed to ARS common stockholders and holders of options to acquire ARS
Common Stock have been or will be distributed upon conversion of shares of ARS
7% Convertible Exchangeable Preferred Stock (the Convertible Preferred Stock).
As a consequence of the CBS Merger, ATC ceased to be a subsidiary of, or to be
otherwise affiliated with, American Radio and now operates as an independent
publicly traded company. Pursuant to the provisions of the CBS Merger
Agreement, ATC entered into an agreement (the Separation Agreement) with CBS
and ARS providing for, among other things, the orderly separation of ARS and
ATC, the allocation of certain tax liabilities to ATC and certain closing date
adjustments relating to ARS.
4
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Separation Agreement required ATC to reimburse CBS on a "make-whole"
(after tax) basis for the tax liabilities incurred by ARS attributable to the
distribution of the Common Stock owned by ARS to the ARS security holders and
certain related transactions to the extent that the aggregate amount of taxes
required to be paid by ARS exceeded $20.0 million. The amount of that tax
liability was dependent on the "fair market value" of the Common Stock at the
time of the consummation of the CBS Merger. ATC received an appraisal from an
independent appraisal firm that the "fair market value" of ARS's stock
interest in ATC was equal to $17.25 per share. Based on such appraisal, ARS
paid estimated taxes of approximately $212.0 million and was reimbursed
therefore by ATC. As required by the Separation Agreement, ATC provided CBS
with security of $9.8 million in cash (which may be replaced at ATC's option
with a letter of credit reasonably satisfactory to CBS) in connection with the
filing of estimated tax returns based on such appraisal. Such appraisal is
not, of course, binding on the Internal Revenue Service or other taxing
authorities. The Company financed its tax reimbursement obligations to CBS
with the Interim Preferred Stock proceeds discussed in Note 6. The $212.0
million payment also included estimated payments for the "make-whole"
provisions of the liability associated with the conversion of the Convertible
Preferred Stock and the working capital adjustment described below. Such taxes
gave effect to estimated deductions of approximately $85.1 million available
to ARS as a consequence of the cancellation or exercise of ARS stock options
pursuant to the CBS Merger. ATC's reimbursement obligation with respect to
such taxes would change by approximately $21.0 million for each $1.00 change
in the "fair market value" of the Class A Common Stock under the tax reporting
method followed. The average of the high and low trading prices of the Class A
Common Stock in the when-issued over-the-counter market on June 4, 1998 was
$20.50.
The $212.0 million payment did not include all the taxes payable with
respect to the shares of Class A Common Stock deliverable upon conversion of
the Convertible Preferred Stock; such taxes will be based on the "fair market
value" of the Class A Common Stock at the time of conversion. Conversions have
occurred at various times since June 4, 1998. As of September 30, 1998,
holders of Depositary Shares representing approximately 43% of the Convertible
Preferred Stock have converted or have presented for conversion and ATC has
recorded a liability of approximately $4.7 million due to CBS associated with
these conversions. On September 30, 1998, CBS issued 7% Convertible Preferred
Debentures Due 2011 (the Convertible Preferred Debentures) in exchange for the
then outstanding shares of Convertible Preferred Stock. Holders of the
Convertible Preferred Debentures are entitled to the same conversion rights as
the Convertible Preferred Stock. ATC estimates that its remaining
reimbursement obligation with respect to the taxes on the conversion of
Convertible Preferred Debentures could be approximately $11.3 million under
the tax reporting method followed. Such estimate is based on the October 26,
1998 fair market value of the Class A Common Stock of $21.375 per share. ATC's
obligation for such conversions would change by approximately $1.2 million for
each $1.00 change in the fair market value.
ARS has agreed that it will pursue, for the benefit of and at the cost of
ATC, a refund claim, attributable to the "make-whole" provision, estimated at
between $40.0 million to $45.0 million, based on the appraised "fair market
value" and the estimated taxes attributable to conversions of the Convertible
Preferred Stock set forth above. Any such refund claim will, in fact, be based
on the actual amount of taxes paid. In light of existing tax law, there can,
of course, be no assurance that any such refund claim will be successful.
The Separation Agreement provides for closing balance sheet adjustments
based on the working capital, as defined, and debt levels of ARS as of June 4,
1998. ATC will benefit from or bear the cost of such adjustments. As of June
1998, ATC's preliminary estimate of such adjustments was not expected to
exceed $50.0 million, excluding the reimbursement to CBS for the tax
consequences of any such payment estimated at approximately $33.0 million. The
estimated taxes and refund amount stated above include such estimated tax
reimbursement amount. Such preliminary estimate was based on estimated working
capital and debt amounts that were dependent upon operating results, cash
capital contributions and CBS Merger expenses and the final payment is
contingent upon a series of events as defined in the Separation Agreement. As
a result, ATC recorded a $50.0 million payable to CBS and a corresponding
reduction in equity to reflect management's estimate at that time.
5
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In accordance with the terms of the Separation Agreement, in September 1998,
CBS delivered ATC with a working capital and net debt closing statement
setting forth a proposed purchase price adjustment payment to CBS of
approximately $82.2 million, excluding accrued interest. In October 1998, ATC
provided CBS with a Notice of Disagreement to the proposed purchase price
adjustment indicating that ATC's estimate of the final adjustment payment
aggregated $11.1 million and reserving its rights to make further adjustments
upon the receipt of additional information requested of CBS. In addition, as
noted above, ATC is obligated to reimburse CBS for the tax consequences of
such payment (approximately 66 2/3%) and has paid CBS approximately $33.0
million based on the $50.0 million estimate. CBS is in the process of
reviewing such Notice of Disagreement and is required under the terms of the
Separation Agreement to resolve any differences with ATC by no later than
November 16, 1998, or, in the event that such differences cannot be resolved,
a third party may be employed to arbitrate the dispute. CBS and ATC have
mutually agreed to extend the aforementioned date to December 15, 1998. Under
the circumstances, ATC continues to believe that the amounts previously
recorded represent a reasonable estimate of the amounts which will be paid to
CBS and will adjust the amount as information becomes known to the Company.
In connection with an inter-corporate taxable transfer of assets entered
into in January 1998 by ATC in contemplation of the separation of ATC and ARS,
a portion of the tax with respect to which ATC is obligated to indemnify CBS
was incurred. Such transfer resulted in an increase in the tax bases of ATC's
assets of approximately $366.5 million. ATC will have potential depreciation
and amortization deductions over the next 15 years of $24.4 million per year
resulting in a deferred tax asset of approximately $135.0 million.
3. LOSS PER COMMON SHARE DATA
Basic loss per common share is computed using the weighted average number of
common shares outstanding during each 1998 period presented. Shares
outstanding upon consummation of the CBS Merger are assumed to be outstanding
for the entire 1998 and 1997 period presented. Shares issuable upon exercise
of options have been excluded from the computation as the effect is anti-
dilutive. Had options been included in the computation, shares for the diluted
computation would have increased by approximately 4.4 million and 4.0 million
for the three and nine months ended September 30, 1998, respectively.
4. INCOME TAXES
The Company provides for income taxes at the end of each interim period
based on the estimated effective tax rate for the full fiscal year for each
tax reporting corporate entity. Cumulative adjustments to the tax benefit are
recorded in the interim period in which a change in the estimated annual
effective rate is determined. Through January 1998, the Company participated
in a tax sharing agreement with ARS. The tax sharing agreement was terminated
in connection with the corporate restructuring described in Note 2; the
Company and its subsidiaries will now prepare and file income tax returns on a
separate consolidated basis.
5. UNALLOCATED PURCHASE PRICE
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. 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.
6. STOCKHOLDERS' EQUITY
Interim Preferred Stock Financing--On June 4, 1998, the Company entered into
a stock purchase agreement (the Interim Financing Agreement) with respect to a
preferred stock financing which provided for the issuance
6
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and sale by ATC of up to $400.0 million of Series A Redeemable Pay-In-Kind
Preferred Stock (the Interim Preferred Stock) to finance ATC's obligation to
CBS with respect to tax reimbursement. Dividends, which accrued at a rate
equal to the three-month LIBOR then in effect (approximately 5.69%) plus an
agreed upon adjustable spread (5.0% for the period in which the obligation was
outstanding), have been recorded as interest expense in the accompanying
financial statements. Such interest expense approximated $0.8 million and $3.1
million for the three and nine months ended September 30, 1998, respectively.
The Interim Preferred Stock was redeemed on July 9, 1998 at a redemption
price equal to $1,010 per share plus accrued and unpaid dividends for an
aggregate redemption value of $306.1 million. The Company incurred an
extraordinary loss of approximately $7.5 million, net of a tax benefit of
$5.0 million, during the third quarter of 1998, representing the write-off of
certain commitment, deferred financing and redemption fees.
Offering--On July 8, 1998, the Company completed a public offering of
27,861,987 shares of Class A Common Stock, $.01 par value per share (the Class
A Common Stock) (including 2,361,987 shares sold by the Company pursuant to
the exercise in full of the underwriters' over-allotment option) at $23.50 per
share. Certain selling stockholders sold an additional 3,874,911 shares in the
offering. The Company's net proceeds of the offering (after deduction of the
underwriting discount and estimated offering expenses) were approximately
$625.1 million. On July 9, 1998, the Company used approximately $306.1 million
of the net proceeds from the offering to redeem all of the outstanding shares
of the Interim Preferred Stock at a price of 101% of the stock's liquidation
preference plus accrued and unpaid dividends. The balance was invested in
short-term investment grade securities and will be used, together with
borrowings under the New Credit Facilities, to fund future acquisitions and
construction activities.
7. LONG-TERM DEBT
New Credit Facilities--In June 1998, ATC and the Borrower Subsidiaries
entered into agreements for new credit facilities (the New Credit Facilities).
The New Credit Facilities with ATC provide for a $150.0 million term loan
maturing at the earlier of (i) eight and one-half years or (ii) December 31,
2006, amortizing quarterly in an amount equal to 2.5% of the principal amount
outstanding at June 30, 2001 at the end of each quarter between such date and
June 30, 2006, both inclusive, and the balance in two equal installments on
September 30 and December 31, 2006. The ATC New Credit Facility was fully
drawn at closing and provides for interest rates determined, at the option of
ATC, of either the LIBOR Rate plus 3.50% or the Base Rate (as to be defined)
plus 2.5%. The New Credit Facilities with the Borrower Subsidiaries provide
for $900.0 million credit facilities maturing at the earlier of (a) eight
years or (b) June 30, 2006 consisting of the following: (i) a $250.0 million
multiple-draw term loan, (ii) a $400.0 million reducing revolving credit
facility and (iii) a $250.0 million 364-day revolving credit facility that
converts to a term loan facility thereafter. The Borrower Subsidiaries
borrowed $125.0 million in the form of a term loan and an additional $19.0
million under the revolving credit arrangements that was repaid out of the
proceeds of the Interim Preferred Stock sale. The interest rate provisions are
similar to those in the prior credit agreement. Borrowings under the Borrower
Subsidiaries' New Credit Facilities are conditioned upon compliance with
certain financial ratios and are required to be repaid, commencing June 30,
2001, in increasing quarterly amounts designed to amortize the loans through
maturity. The loans to ATC and the Borrower Subsidiaries are cross-guaranteed
and cross-collateralized by substantially all of the assets of the
consolidated group. The Borrower Subsidiaries are required to pay quarterly
commitment fees depending on their consolidated financial leverage, on the
aggregate unused portion of the aggregate commitment. In connection with the
repayment of borrowings under the prior credit agreement out of proceeds of
borrowings under the New Credit Facilities, ATC recognized an extraordinary
loss of approximately $1.4 million, net of a tax benefit of $0.9 million,
during the second quarter of 1998.
Assumed Debt Obligations--In connection with the ATC Merger discussed in
Note 8, the Company assumed certain long-term note obligations of the acquired
entity including a term note payable that was paid at
7
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
closing, a $4.4 million noninterest-bearing secured note payable, due in
annual installments through December 2000, a $430,000 noninterest-bearing
unsecured note payable, maturing in October 1999 and other long-term
obligations totaling approximately $34,000.
8. ACQUISITIONS
During the first nine months of 1998 and 1997, the Company consummated the
following transactions. See the Form 10-K for additional information on these
transactions.
1998 Acquisitions--
During the nine months ended September 30, 1998, the Company acquired
various communications sites and a major site acquisition business for an
aggregate purchase price of approximately $768.0 million, including the
issuance of approximately 34.8 million shares of Class A Common Stock valued
at approximately $354.0 million. The following describes the more significant
acquisitions:
In January 1998, the Company acquired all of the outstanding stock of Gearon
& Co. Inc. (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 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 owned
or had at the time of acquisition 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.
In January 1998, the Company acquired all of the outstanding stock of OPM-
USA-Inc. (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. In May 1998, the Company paid the second installment of
approximately $18.2 million which was based on the number of towers permitted
and completed and the forward cash flow of the completed towers as of April
30, 1998. In August 1998, the Company paid the third installment of
approximately $3.8 million which was determined on the same basis as the
second installment.
In May 1998, the Company consummated the acquisition of the assets relating
to a teleport business serving the Washington D.C. area for approximately
$30.5 million.
On June 8, 1998, the Company consummated the American Tower Corporation
Merger (ATC Merger) pursuant to which that entity was merged into ATC. The
preliminary purchase price was approximately $550.0 million. At the time of
closing, the acquired company owned approximately 775 communications towers
and managed approximately 125 communications towers. In conjunction with the
ATC Merger, the Company issued 28,782,386 shares of Class A Common Stock
valued at approximately $287.8 million (excluding 1,252,364 shares of Common
Stock reserved for options held by former employees of the acquired company
valued at approximately $9.7 million) and assumed approximately $4.5 million
of redeemable preferred stock (which was paid at closing) and $122.7 million
of debt (of which approximately $118.3 million, including interest and
associated fees, was paid at closing). The purchase price also includes
acquisition costs, assumed working capital and deferred income taxes. The
Company borrowed $57.0 million under the then existing credit agreements to
fund a portion of the debt pay-off. Upon consummation of the ATC Merger, the
Company changed its name from American Tower Systems Corporation to American
Tower Corporation.
8
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In June 1998, the Company merged with a company owning a broadcasting tower
in the Boston, Massachusetts area and issued 720,000 shares of Class A Common
Stock to close the transaction. In connection with this transaction, ATC
acquired a $12.0 million note receivable and issued a corresponding
nonrecourse note payable which is payable only to the extent that payments on
the note receivable are made to ATC. As such, the amounts have been offset in
the accompanying financial statements. In addition, under a put agreement that
was consummated in connection with the merger, the sellers have the right to
require the Company to purchase, at any time prior to June 5, 1999, any or all
shares of ATC Class A Common Stock received pursuant to consummation of the
merger for a purchase price equal to the then current market price. In
connection with the public offering described in Note 6 the sellers sold
383,750 of the 720,000 shares in July 1998 reducing the Company's overall
redemption obligation. Accordingly, the remaining 336,250 shares have been
recorded as redeemable common stock in the accompanying financial statements
based on the September 30, 1998 fair market value of $25.50 per share.
1997 Acquisitions--
During the nine months ended September 30, 1997, ATC acquired various
communications sites and the assets of two affiliated site acquisition
businesses, and two tower site management businesses located in southern
California and South Carolina for an aggregate purchase price of approximately
$63.0 million.
In May 1997, the Company and an unaffiliated party formed a limited
liability company (ATS/PCS, LLC, formerly Communications Systems Development,
LLC) 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 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.
(See Note 10).
The following unaudited pro forma summary for the nine months ended
September 30, 1997 and 1998 presents the consolidated results of operations as
if the acquisitions had occurred as of January 1, 1997 after giving effect to
certain adjustments, including depreciation and amortization of assets and
interest expense on any 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, 1997 or of results which may occur in
the future.
In thousands, except per share data:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Net revenues......................... $ 79,647 $88,705
Loss before extraordinary items...... (37,589) (37,473)
Net loss............................. (37,589) (46,365)
Basic and diluted net loss per common
share............................... $ (0.48) $ (0.53)
</TABLE>
9. RELATED PARTY TRANSACTIONS
During the period that the Company was a majority owned subsidiary of ARS,
the Company received revenues of approximately $112,000, $291,000 and $565,000
from ARS for tower rentals at Company-owned sites for the three months ended
September 30, 1997 and the nine months ended September 30, 1997 and 1998,
respectively.
9
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. OTHER TRANSACTIONS
Consummated Transactions--
In October 1998, the Company acquired approximately 300 towers and certain
tower related assets in six transactions for an aggregate purchase price of
approximately $100.2 million. The most significant transactions included the
acquisition of 166 Atlanta, Georgia area towers. These transactions included
the acquisition of all the outstanding stock of Wauka Communications, Inc. and
the assets of Grid Site Services, Inc. The consideration in these related
transactions included the issuance of 1,430,881 shares of Class A Common
Stock. Included in the total 300 towers referenced above, the Company also
acquired 137 communications sites and tower related assets in the four other
transactions.
In October 1998, the Company contributed cash and a tower aggregating $12.6
million to ATS-Needham LLC, (ATS Needham), a limited liability company in
which ATC owned a 50.1% interest prior to such transactions. ATS Needham also
sold certain assets to the minority interest party. As a result of these
transactions, ATC now owns an 80% interest in ATS Needham.
Pending Transactions--
On November 16, 1998, ATC entered into an Agreement and Plan of Merger (the
Omni Merger Agreement) with OmniAmerica, Inc., a Delaware corporation (Omni),
and ATI, pursuant to which Omni will merge with and into ATI, which will be
the surviving corporation (the Omni Merger). Omni owns, manages and develops
multi-use telecommunications sites for radio and television broadcasting,
paging, cellular, PCS and other wireless technologies and offers nationwide,
turn-key tower construction and installation services through its Specialty
Constructors subsidiary. Omni currently owns 246 towers (giving effect to
announced transactions) and is currently developing or has agreed to build
approximately 470 more sites for specific tenants. Pursuant to the Omni Merger
Agreement, which has been approved by the Board of Directors of ATC and Omni,
and by holders of shares representing the required majority of the voting
power of Omni Common Stock, Omni stockholders will receive 1.1 shares of ATC
Class A Common Stock for each share of Common Stock of Omni. In the aggregate,
ATC will exchange approximately 17.7 million shares of ATC Class A Common
Stock in exchange for the approximately 16.1 million fully-diluted shares of
Common Stock of Omni, plus the assumption of debt. Consummation of the Omni
Merger is expected to occur in the first quarter of 1999, subject to certain
conditions including, the expiration or early termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements act of 1976, as
amended (the HSR Act). Upon the consummation of the Omni Merger, Jack D.
Furst, the Chairman of Omni and a partner of Hicks, Muse, Tate & Furst
Incorporated, Omni's largest stockholder, will be elected to the Board of
Directors of ATC.
On November 16, 1998, ATC entered into an Agreement and Plan of Merger (the
TeleCom Merger Agreement) with TeleCom Towers, L.L.C., a Delaware limited
liability company (TeleCom), and ATI, pursuant to which TeleCom will merge
with and into ATI, which will be the surviving corporation (the TeleCom
Merger). TeleCom owns, or co-owns, approximately 367 towers and manages
another 130 revenue-generating sites in 27 states. Pursuant to the TeleCom
Merger Agreement, which has been approved by Board of Directors of ATC, the
Management Committee of TeleCom, and by holders of interests representing the
required majority of the voting power of TeleCom interests, ATC will pay a
purchase price for TeleCom of approximately $155.0 million, subject to
adjustment for closing date working capital. ATC will assume approximately
$30.0 million of debt, subject to adjustment for interim acquisitions and
capital expenditures. The purchase price (except for the working capital
adjustment, which is payable in cash) will be paid 60% in ATC Class A Common
Stock (based on average stock prices ten days before and ten days after
November 16, 1998) and 40% in cash. Consummation of the TeleCom Merger is
conditioned on, the expiration or early termination of the waiting period
under the HSR Act, and accordingly, is not expected to take place until the
first quarter of 1999. Upon the consummation of the TeleCom Merger, Dean H.
Eisner, Vice President, Business Development and Planning of Cox Enterprises,
Inc., will be elected to the Board of Directors of ATC.
10
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ATC is negotiating certain changes in the ATS/PCS, LLC arrangements,
including the acquisition by ATC of the 58 communications sites in northern
California presently owned by ATS/PCS, LLC in exchange for shares of Class A
Common Stock, arrangements with respect to the development of communications
sites in other locations, a priority return of ATC's construction advances, an
increase in the percentage interest of the other member in ATS/PCS, LLC, and a
management fee to ATC.
In June 1998, ATC entered into an agreement to acquire a company which is in
the process of constructing towers in the Tampa, Florida area. The purchase
price will be based on a multiple of the excess of net revenues less direct
operating expenses for the month preceding closing, less the principal amount
of the secured note referred to below. The purchase price will be payable in
shares of Class A Common Stock (valued at market prices shortly prior to
closing) and, at the election of the seller, cash in an amount not to exceed
49% of the purchase price. ATC is obligated to advance construction funds to
the seller in an aggregate amount not to exceed $12.0 million in the form of a
secured note (guaranteed by the stockholders and secured by the stock of the
seller), of which approximately $6.1 million was advanced through September
30, 1998. The secured note would be payable in the event the acquisition was
not consummated. Subject to the satisfaction of certain conditions, including,
depending on the circumstances, the expiration or earlier termination of the
HSR Act waiting period, the acquisition is expected to be consummated in the
Spring of 1999.
The Company has also entered into three separate agreements to acquire
additional communications sites and tower related assets for an aggregate
purchase price of approximately $9.0 million. Such acquisitions are expected
to close in the fourth quarter of 1998 or first quarter of 1999.
The Company is also pursuing the acquisitions of tower properties and tower
businesses in new and existing locations, although there are no definitive
purchase agreements with respect thereto.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
This discussion contains "forward-looking statements" as that term is used
in the Securities Exchange Act of 1934 including statements concerning
projections, plans, objectives, future events or performance and underlying
assumptions and other statements which are other than statements of historical
fact. Certain important factors may have affected and could in the future
affect ATC's actual results and could cause ATC's actual results for
subsequent periods to differ materially from those expressed in any forward-
looking statement. Such factors include (i) substantial capital requirements
and leverage principally as a consequence of its ongoing acquisition and
construction activities, as well as its remaining tax reimbursement and other
obligations owed to ARS pursuant to the CBS Merger, (ii) dependence on demand
for wireless communications and implementation of digital television, (iii)
the success of ATC's tower construction program, and (iv) the successful
operational integration of the Company's business acquisitions. As ATC was a
wholly-owned subsidiary of American Radio during the periods presented through
June 4, 1998, the consolidated financial statements may not reflect the
results of operations or financial position of ATC had it been an independent,
public company during those periods. Because of ATC's relatively brief
operating history and the large number of recent acquisitions, the following
discussion will not necessarily reveal all significant developing or
continuing trends.
ATC was formed in July 1995 to capitalize on the opportunity in the
communications site industry. ATC is a leading independent owner and operator
of wireless communications towers in the United States. During 1997, its
acquisition and construction activity accelerated and ATC acquired or
constructed approximately 400 sites (and related site management businesses)
and its initial site acquisition and voice, video and data transmission
businesses. Since January 1, 1998, ATC has acquired various communication
sites and a major site acquisition business for an aggregate estimated
purchase price of approximately $868.0 million, including the issuance of
approximately 36.3 million shares of Class A Common Stock valued at
approximately $382.6 million.
Management expects that acquisitions consummated to date will have a
material impact on future revenues, expenses and income from continuing
operations. In addition, the impact of the construction program of ATC is not
reflected to any significant extent in the historical financial information
because most of that activity is of more recent origin and is expected to
accelerate substantially through the remainder of 1998 and 1999.
12
<PAGE>
RESULTS OF OPERATIONS
As of September 30, 1998, ATC operated approximately 1,900 communications
sites, principally in the Northeast and Mid-Atlantic regions, Florida,
California and Texas. As of September 30, 1997, ATC operated approximately 370
communications sites, principally in the Northeast and Mid-Atlantic regions
and Florida. These transactions have significantly affected operations for the
three and nine months ended September 30, 1998 as compared to the three and
nine months ended September 30, 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------- AMOUNT OF PERCENTAGE
1997 1998 INCREASE INCREASE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Tower rental and management reve-
nues............................... $ 3,525 $ 17,719 $14,194 402.7%
Site acquisition service revenues... 996 6,572 5,576 559.8%
Video, voice and data transmission
revenues........................... 6,187 6,187
-------- ---------- ------- --------
Total operating revenues............ 4,521 30,478 25,957 574.1%
-------- ---------- ------- --------
Tower rental and management ex-
penses............................. 1,611 8,087 6,476 402.0%
Site acquisition service expenses... 669 4,677 4,008 599.1%
Video, voice and data transmission
expenses........................... 3,928 3,928
-------- ---------- ------- --------
Total operating expenses excluding
depreciation and amortization,
tower separation and corporate
general and administrative
expenses........................... 2,280 16,692 14,412 632.1%
-------- ---------- ------- --------
Depreciation and amortization....... 1,384 17,243 15,859 1,145.9%
Tower separation expenses........... 159 159
Corporate general and administrative
expenses........................... 378 1,561 1,183 313.0%
Interest expense.................... 1,000 7,121 6,121 612.1%
Interest income and other, net...... 37 4,451 4,414 11,929.7%
Minority interest in net earnings of
subsidiaries....................... 60 66 6 10.0%
Income tax benefit.................. 1,955 1,955
Extraordinary loss on redemption of
Interim
Preferred Stock, net............... 7,510 7,510
-------- ---------- ------- --------
Net loss............................ $ (544) $ (13,468) $12,924 2,375.7%
======== ========== ======= ========
</TABLE>
Except as explained below, substantially all of the increases indicated in
the above table were attributable to the impact of the acquisitions,
principally those that occurred in 1997 and 1998. Site acquisition service
revenues and expenses for the three months ended September 30, 1998 include
the operating results of the Gearon site acquisition division that was
acquired in January 1998 and, to a lesser extent, the operating results of two
similar businesses that were acquired in May 1997. For the three months ended
September 30, 1997, site acquisition service revenues and expenses included
the operating results from the May 1997 related business acquisitions. Video,
voice and data transmission revenues and expenses for the three months ended
September 30, 1998 include the operating results of the Company's first video,
voice and data transmission business acquired in October 1997 and a Washington
D.C. area teleport business acquired in May 1998. The increase in depreciation
and amortization is primarily attributable to the increase in depreciable and
amortizable assets resulting from the 1997 and 1998 acquisitions, and, to a
lesser extent, completed construction projects. Tower separation expenses
relate to financial advisory, legal, accounting and consent solicitation fees
and other expenses incurred in connection with the consummation of the CBS
Merger and the separation of ATC from its former parent on June 4, 1998. The
increase in corporate general and administrative expenses is primarily
attributable to the higher personnel costs associated with supporting ATC's
greater number of tower properties and growth strategy. The increase in
interest expense relates to higher borrowing levels that were used to finance
1997 and 1998 acquisitions and $0.8 million of dividends on the Interim
Preferred Stock. Interest income is related to interest earned on cash
proceeds from the
13
<PAGE>
July 1998 equity offering. The minority interest in net earnings of
subsidiaries represents the elimination of the minority stockholders' earnings
of consolidated subsidiaries. The extraordinary loss was incurred, net of an
income tax benefit of $5.0 million, as a result of the write-off of certain
commitment, deferred financing and redemption fees associated with the
Company's Interim Preferred Stock which was redeemed in July 1998. The
effective tax rate benefit for the three months ended September 30, 1998 was
approximately 24.7%. The effective rate differs from the statutory rate due to
the effect of non-deductible items, principally amortization of goodwill, on
certain stock acquisitions for which no tax benefit has been recorded.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------ AMOUNT OF PERCENTAGE
1997 1998 INCREASE INCREASE
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Tower rental and management reve-
nues................................ $ 6,478 $ 39,305 $32,827 506.7%
Site acquisition service revenues.... 1,424 18,848 17,424 1,223.6%
Video, voice and data transmission
revenues............................ 13,332 13,332
------- --------- ------- -------
Total operating revenues............. 7,902 71,485 63,583 804.6%
------- --------- ------- -------
Tower rental and management ex-
penses.............................. 2,753 18,417 15,664 569.0%
Site acquisition service expenses.... 836 15,412 14,576 1,743.5%
Video, voice and data transmission
expenses............................ 8,697 8,697
------- --------- ------- -------
Total operating expenses excluding
depreciation and amortization, tower
separation and corporate general and
administrative expenses............. 3,589 42,526 38,937 1,084.9%
------- --------- ------- -------
Depreciation and amortization........ 2,706 32,998 30,292 1,119.4%
Tower separation expenses............ 12,616 12,616
Corporate general and administrative
expenses............................ 919 3,186 2,267 246.7%
Interest expense..................... 1,318 17,023 15,705 1,191.6%
Interest income and other, net....... 94 6,283 6,189 6,584.0%
Minority interest in net earnings of
subsidiaries........................ 221 255 34 15.4%
Income tax benefit................... 49 4,934 4,885 9,969.4%
Extraordinary loss on extinguishment
of debt, net........................ 1,382 1,382
Extraordinary loss on redemption of
Interim Preferred Stock, net........ 7,510 7,510
------- --------- ------- -------
Net loss............................. $ (708) $ (34,794) $34,086 4,814.4%
======= ========= ======= =======
</TABLE>
Except as explained below, substantially all of the increases indicated in
the above table were attributable to the impact of the communications sites
and related business acquisitions, principally those that occurred in 1997 and
1998. Site acquisition service revenues and expenses for the nine months ended
September 30, 1998 include the operating results of the Gearon site
acquisition division that was acquired in January 1998 and, to a lesser
extent, the operating results of two similar businesses that were acquired in
May 1997. For the nine months ended September 30, 1997, site acquisition
service revenues and expenses included the operating results from the May 1997
related business acquisitions. Video, voice and data transmission revenues and
expenses for the nine months ended September 30, 1998 include the operating
results of the Company's first video, voice and data transmission business
acquired in October 1997 and a Washington D.C. area teleport business acquired
in May 1998. The increase in depreciation and amortization is primarily
attributable to the increase in depreciable and amortizable assets resulting
from the 1997 and 1998 acquisitions, and, to a lesser extent, completed
construction projects. Tower separation expenses relate to financial advisory,
legal, accounting and consent solicitation fees and other expenses incurred in
connection with the consummation of the CBS Merger and the separation of ATC
from its former parent on June 4, 1998. The increase in corporate general and
administrative expenses is primarily attributable to the higher personnel
costs associated with supporting ATC's greater number
14
<PAGE>
of tower properties and growth strategy. The increase in interest expense
relates to higher borrowing levels that were used to finance 1997 and 1998
acquisitions, and $3.1 million of dividends associated with the Interim
Preferred Stock financing that occurred in June 1998. The increase in interest
income is related to interest earned on invested cash proceeds from the July
1998 equity offering. The minority interest in net earnings of subsidiaries
represents the elimination of the minority stockholders' earnings of
consolidated subsidiaries. The extraordinary loss on the redemption of the
Interim Preferred Stock was incurred, net of an income tax benefit of $5.0
million, as a result of the write-off of certain commitment, deferred
financing and redemption fees associated with the Company's Interim Preferred
Stock which was redeemed in July 1998. The extraordinary loss on the
extinguishment of debt was incurred, net of an income tax benefit of $0.9
million, as a result of the write-off of deferred financing costs associated
with the Company's previous credit agreements which were refinanced in June
1998. The effective tax rate benefit for the nine months ended September 30,
1998 was approximately 16% as compared to 6% for the nine months ended
September 30, 1997. The effective rate differs from the statutory rate due to
the effect of non-deductible items, principally amortization of goodwill, on
certain stock acquisitions for which no tax benefit has been recorded.
LIQUIDITY AND CAPITAL RESOURCES
ATC's liquidity needs arise from its acquisition-related activities, debt
service, working capital and capital expenditures associated principally with
its construction program. Historically, ATC has met its operational liquidity
needs with internally generated funds and has financed the acquisition of
tower related properties and its construction program, including related
working capital needs, with a combination of contributions from American Radio
and bank borrowings. For the nine months ended September 30, 1998, cash flows
from operating activities were $2.9 million, as compared to $3.1 million of
cash flows from operating activities in 1997. The change is primarily
attributable to working capital investments related to communications site
acquisitions and growth.
Cash flows used for investing activities were $227.9 million for the nine
months ended September 30, 1998 as compared to $74.3 million for the nine
months ended September 30, 1997. The increase in 1998 is due to the
acquisition and construction activity in 1998 as compared to 1997.
Cash flows provided by financing activities were $533.9 million for the nine
months ended September 30, 1998 as compared to $71.1 million in 1997. The
increase in 1998 is due principally to the impact of borrowings under the
credit facilities, the Interim Preferred Stock financing activities, and the
sale of common stock pursuant to the ATC Stock Purchase Agreement and the July
1998 equity offering, somewhat offset by the tax payments to CBS.
CBS Merger: The Separation Agreement required ATC to reimburse CBS on a
"make-whole" (after tax) basis for the tax liabilities incurred by ARS
attributable to the distribution of the Common Stock owned by ARS to the ARS
security holders and certain related transactions to the extent that the
aggregate amount of taxes required to be paid by ARS exceeded $20.0 million.
The amount of that tax liability was dependent on the "fair market value" of
the Common Stock at the time of the consummation of the CBS Merger. ATC
received an appraisal from an independent appraisal firm that the "fair market
value" of ARS's stock interest in ATC was equal to $17.25 per share. Based on
such appraisal, ARS paid estimated taxes of approximately $212.0 million and
was reimbursed therefor by ATC. As required by the Separation Agreement, ATC
provided CBS with security of $9.8 million in cash (which may be replaced at
ATC's option with a letter of credit reasonably satisfactory to CBS) in
connection with the filing of estimated tax returns based on such appraisal.
Such appraisal is not, of course, binding on the Internal Revenue Service or
other taxing authorities. The Company financed its tax reimbursement
obligations to CBS with the Interim Preferred Stock proceeds discussed below.
The $212.0 million payment also included estimated payments for the "make-
whole" provisions of the liability associated with the conversion of the
Convertible Preferred Stock and the working capital adjustment described
below. Such taxes gave effect to estimated deductions of approximately $85.1
million available to ARS as a consequence of the cancellation or exercise of
ARS stock options pursuant to the CBS Merger. ATC's reimbursement obligation
with respect to such taxes would change by approximately $21.0 million for
each $1.00 change in the "fair
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market value" of the Class A Common Stock under the tax reporting method
followed. The average of the high and low trading prices of the Class A Common
Stock in the when-issued over-the-counter market on June 4, 1998 was $20.50.
The $212.0 million payment did not include all the taxes payable with
respect to the shares of Class A Common Stock deliverable upon conversion of
the Convertible Preferred Stock; such taxes will be based on the "fair market
value" of the Class A Common Stock at the time of conversion. Conversions have
occurred at various times since June 4, 1998. As of September 30, 1998,
holders of Depositary Shares representing approximately 43% of the Convertible
Preferred Stock have converted or have presented for conversion and ATC has
recorded a liability of approximately $4.7 million due to CBS associated with
these conversions. On September 30, 1998, CBS issued Convertible Preferred
Debentures in exchange for the then outstanding shares of Convertible
Preferred Stock. Holders of the Convertible Preferred Debentures are entitled
to the same conversion rights as the Convertible Preferred Stock. ATC
estimates that its remaining reimbursement obligation with respect to the
taxes on the conversion of Convertible Preferred Debentures could be
approximately $11.3 million under the tax reporting method followed. Such
estimate is based on the October 26, 1998 fair market value of the Class A
Common Stock of $21.375 per share. ATC's obligation for such conversions would
change by approximately $1.2 million for each $1.00 change in the fair market
value.
ARS has agreed that it will pursue, for the benefit of and at the cost of
ATC, a refund claim, attributable to the "make-whole" provision, estimated at
between $40.0 million to $45.0 million, based on the appraised "fair market
value" and the estimated taxes attributable to conversions of the Convertible
Preferred Stock set forth above. Any such refund claim will, in fact, be based
on the actual amount of taxes paid. In light of existing tax law, there can,
of course, be no assurance that any such refund claim will be successful.
The Separation Agreement provides for closing balance sheet adjustments
based on the working capital, as defined, and debt levels of ARS as of June 4,
1998. ATC will benefit from or bear the cost of such adjustments. As of June
1998, ATC's preliminary estimate of such adjustments was not expected to
exceed $50.0 million, excluding the reimbursement to CBS for the tax
consequences of any such payment estimated at approximately $33.0 million. The
estimated taxes and refund amount stated above include such estimated tax
reimbursement amount. Such preliminary estimate was based on estimated working
capital and debt amounts that were dependent upon operating results, cash
capital contributions and CBS Merger expenses and the final payment is
contingent upon a series of events as defined in the Separation Agreement. As
a result, ATC recorded a $50.0 million payable to CBS and a corresponding
reduction in equity to reflect management's estimate at that time.
In accordance with the terms of the Separation Agreement, in September 1998,
CBS delivered ATC with a working capital and net debt closing statement
setting forth a proposed purchase price adjustment payment to CBS of
approximately $82.2 million, excluding accrued interest. In October 1998, ATC
provided CBS with a Notice of Disagreement to the proposed purchase price
adjustment indicating that ATC's estimate of the final adjustment payment
aggregated $11.1 million and reserving its rights to make further adjustments
upon the receipt of additional information requested of CBS. In addition, as
noted above, ATC is obligated to reimburse CBS for the tax consequences of
such payment (approximately 66 2/3%) and has paid CBS approximately $33.0
million based on the $50.0 million estimate. CBS is in the process of
reviewing such Notice of Disagreement and is required under the terms of the
Separation Agreement to resolve any differences with ATC by no later than
November 16, 1998, or, in the event that such differences cannot be resolved,
a third party may be employed to arbitrate the dispute. CBS and ATC have
mutually agreed to extend the aforementioned date to December 15, 1998. Under
the circumstances, ATC continues to believe that the amounts previously
recorded represent a reasonable estimate of the amounts which will be paid to
CBS and will adjust the amount as information becomes known to the Company.
Interim Preferred Stock Financing: On June 4, 1998, ATC issued $300.0
million of Interim Preferred Stock and used the proceeds to fund its tax
reimbursement obligation to CBS, pay the commitment and other fees and
expenses of the issue and sale of such stock and to reduce bank borrowings. As
discussed below, the Interim Preferred Stock was redeemed on July 9, 1998 and
as a result, the Company incurred an extraordinary
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loss of approximately $7.5 million, net of a tax benefit of $5.0 million,
during the third quarter of 1998 representing the write-off of certain
commitment, deferred financing and redemption fees.
Public Offering of Class A Common Stock: On July 8, 1998, the Company
completed a public offering of 27,861,987 shares of Class A Common Stock, $.01
par value per share (including 2,361,987 shares sold by the Company pursuant
to the exercise in full of the underwriters' over-allotment option) at $23.50
per share. Certain selling stockholders sold an additional 3,874,911 shares in
the offering. The Company's net proceeds of the offering (after deduction of
the underwriting discount and estimated offering expenses) were approximately
$625.1 million. On July 9, 1998, the Company used approximately $306.1 million
of the net proceeds from the offering to redeem all of the outstanding shares
of the Interim Preferred Stock at a price of 101% of the stock's liquidation
preference plus accrued on unpaid dividends. The balance was invested in
short-term investment grade securities and together with borrowings under the
New Credit Facilities, have and will be used to fund future acquisitions and
construction activities.
New Credit Facilities: In June 1998, ATC and its Borrower Subsidiaries
entered into definitive agreements with respect to the New Credit Facilities.
In connection with repayment of borrowings under the prior credit agreement
out of proceeds of borrowings under the New Credit Facilities, ATC recognized
an extraordinary loss of approximately $1.4 million, net of a tax benefit of
$0.9 million, during the second quarter of 1998. The terms of the New Credit
Facilities are discussed in Note 7. As of September 30, 1998, ATC had
approximately $281.6 million of long-term debt, of which approximately $150.0
million was outstanding under the ATC credit facility and $125.0 was
outstanding under the Borrower Subsidiaries credit facility.
A substantial portion of ATC's cash flow from operations is required for
debt service. Accordingly, ATC's leverage could make it vulnerable to a
downturn in the operating performance of its tower properties or in economic
conditions. ATC believes that its cash flows from operations will be
sufficient to meet its debt service requirements for interest and scheduled
payments of principal under the New Credit Facilities. If such cash flow were
not sufficient to meet such debt service requirements, ATC might be required
to sell equity securities, refinance its obligations or dispose of one or more
of its properties in order to make such scheduled payments. There can be no
assurance that ATC would be able to effect any of such transactions on
favorable terms.
ATC believes that it has sufficient financial resources available to it,
including borrowings under the New Credit Facilities, to finance operations
for the foreseeable future. ATC intends to finance its non-stock obligations
under pending acquisitions with cash, and, to the extent required, borrowings
under the New Credit Facilities and funds raised through the offering of
equity securities.
During the nine months ended September 30, 1998, ATC had capital
expenditures of approximately $77.0 million primarily related to construction
activities and has completed construction on approximately 200 towers during
this period. During the balance of 1998, ATC plans to build or commence
construction of approximately 230 additional towers (most of which are on a
build to suit basis) at an estimated aggregate remaining cost of approximately
$50.0 million. ATC plans to expand its construction activities and build a
substantial number of towers in 1999, which may aggregate more than 1,500
towers. If additional substantial acquisition or construction opportunities
become available, ATC may require additional financing. Any such financing
could take the form of an increase in the maximum borrowing levels under the
New Credit Facilities (which would be dependent on the ability to meet certain
leverage ratios), the issuance of debt or senior equity securities (which
could have the effect of increasing its consolidated leverage ratios) or
equity securities (which, in the case of Common Stock or securities
convertible into or exercisable for Common Stock, would have a dilutive effect
on the proportionate ownership of ATC of its then existing common
stockholders). There can be no assurance that any such financing would be
available on favorable terms.
Management expects that the consummated acquisitions and current and future
construction activities will have a material impact on liquidity. Management
believes that the acquisition activities, once integrated, will have a
favorable impact on liquidity and will offset the initial effects of the
funding requirements. Management also believes that the construction
activities may initially have an adverse effect on the future liquidity of ATC
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as newly constructed towers will initially decrease overall liquidity,
although, as such sites become more fully operational and achieve higher
utilization, they should generate cash flow, and in the long-term, increase
liquidity.
YEAR 2000
The Company is aware of the issues associated with the Year 2000 as it
relates to information systems and is currently working to resolve the
potential impact. The Company is in the process of selecting an outside
consultant to conduct an extensive review and implement a comprehensive plan
to reduce the probability of operational difficulties due to Year 2000 issues.
Although the Company has not developed a formal plan to date, the Company
believes that, with the assistance of an outside consultant, it is currently
on track towards a timely completion of resolving any potential Year 2000
problems.
The components of the Company's comprehensive plan will include the
assessment of internal systems for modification and/or replacement;
communication with external vendors to determine their state of readiness to
maintain an uninterrupted supply of goods and services to the Company;
communication with customers to ensure that their state of readiness will not
result in any operational issues; evaluation of the Company's equipment and
assets as to their ability to function properly after the turn of the century;
evaluation of facility related issues, and the development of a contingency
plan to address its most likely worst case Year 2000 scenarios. The Company's
comprehensive plan is expected to significantly reduce the Company's level of
uncertainty about the Year 2000 problem and, in particular, about the Year
2000 readiness of its material external agents.
Based on the efforts to date, the Company does not believe that the Year
2000 issue will have a material adverse effect on the Company's results of
operations, liquidity or financial condition or operational activities. With
respect to its own internal information systems, the Company does not believe
that the Year 2000 compliance issue is expected to have a material impact on
the Company's internal information systems as the Company's hardware and
software is either already Year 2000 compliant or required changes are not
expected to generate material costs. The costs incurred to date in this area
have also been immaterial, and the Company does not anticipate that the
estimated future costs, excluding any costs that may be incurred by the
Company as a result of the failure of any third parties to become Year 2000
compliant, of hiring an outside consultant and the preparation and
implementation of a comprehensive plan will be material to the Company.
INFLATION
The impact of inflation on ATC's operations has not been significant to
date. However, there can be no assurance that a high rate of inflation in the
future will not have material adverse effect on ATC's operating results.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB released FAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information" (FAS 131). FAS 131 established
standards for reporting information about the operating segments in its annual
report and interim reports. ATC will provide the required disclosure in its
full year 1998 financial information and will provide required interim
disclosure commencing with its first fiscal quarter of 1999.
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PART II. OTHER INFORMATION.
ITEM 1.--LEGAL PROCEEDINGS.
In the normal course of business, the Company is subject to certain suits
and other matters. Management believes that the eventual resolution of any
pending matters, either individually or in the aggregate, will not have a
material effect on financial position, liquidity or results of operations.
ITEM 5.--OTHER INFORMATION.
The Company has not scheduled its annual shareholders' meeting for 1999.
However, the Company anticipates that the meeting will be held in the month of
May. Shareholder proposals intended to be presented at the 1999 annual
shareholders' meeting must be received by the Secretary of ATC no later than,
January 1, 1999 in order to be included in the Company's proxy statement.
Failure to submit such shareholder proposals by the specified date will result
in management proxies being allowed to use their discretionary voting
authority when the proposal is raised at the annual meeting, without any
discussion of the matter in the proxy statement.
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ITEM 6.--EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Listed below are the exhibits which are filed as part of this Form 10-Q
(according to the number assigned to them in Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT EXHIBIT FILE NO.
----------- ------------------------------------ -----------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated
as of November 16, 1998, by and
among ATC, American Towers, Inc., a
Delaware corporation ("ATI"), and
OmniAmerica, Inc., a Delaware
corporation (Schedules and Exhibits
omitted) .......................... Filed herewith as Exhibit 2.1
2.2 Agreement and Plan of Merger, dated
as of November 16, 1998, by and
among ATC, ATI and TeleCom Towers,
L.L.C., a Delaware limited
liability company (Schedules and
Exhibits omitted).................. Filed herewith as Exhibit 2.2
27 Financial Data Schedule............. Filed herewith as Exhibit 27
</TABLE>
(b) Reports on Form 8-K.
1. Form 8-K (Items 5 and 7) on July 16, 1998.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
American Tower Corporation
By: /s/ Joseph L. Winn
Date: November 16, 1998 -----------------------------------
Joseph L. Winn
Treasurer & Chief Financial Officer
(Duly Authorized Officer)
By: /s/ Justin D. Benincasa
Date: November 16, 1998 -----------------------------------
Justin D. Benincasa
Vice President & Corporate
Controller
(Duly Authorized Officer)
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