<PAGE>
Filing pursuant to Rule 424(b)(4)
Registration No. 333-70881
No. 333-71731
25,300,000 Shares
[LOGO OF AMERICAN TOWER CORP. APPEARS HERE]
Class A Common Stock
------------
Of the shares of Class A Common Stock offered, 24,000,000 shares are being
sold by American Tower and 1,300,000 shares are being sold by the
selling stockholders. American Tower will not receive any proceeds
from shares sold by the selling stockholders.
American Tower has granted the underwriters an option to purchase a maximum of
1,700,000 additional shares to cover over-allotments of shares.
Holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock to ten votes per share generally. After
this Offering and the consummation of pending acquisitions, Steven B.
Dodge and Thomas H. Stoner, together with their affiliates, will
have approximately 32.9% of the combined voting power.
Our Class A Common Stock is listed on the New York Stock Exchange under the
symbol "AMT". On February 3, 1999, the closing sale price of our Class A
Common Stock was $25.625.
Investing in our Class A Common Stock involves risks. See "Risk Factors" on
page 9.
<TABLE>
<CAPTION>
Underwriting Proceeds to Proceeds to
Price to Discounts and American Selling
Public Commissions Tower Stockholders
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Per Share.................. $ 25.00 $ 0.875 $ 24.125 $ 24.125
Total...................... $632,500,000 $22,137,500 $579,000,000 $31,362,500
</TABLE>
Delivery of the shares of Class A Common Stock will be made on or about
February 9, 1999, against payment in immediately available funds.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this Prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
BT Alex. Brown
Lehman Brothers
Morgan Stanley Dean Witter
Salomon Smith Barney
Bear, Stearns & Co. Inc.
Merrill Lynch & Co.
NationsBanc Montgomery Securities LLC
Prospectus dated February 3, 1999
<PAGE>
[MAP OF THE UNITED STATES SHOWING TOWER SITES APPEARS HERE]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Cautionary Note Regarding Forward-Looking Statements..................... (i)
Note to Reader........................................................... (ii)
Prospectus Summary....................................................... 1
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 14
Market Prices and Dividend Policy........................................ 15
Capitalization........................................................... 16
Dilution................................................................. 18
Unaudited Pro Forma Condensed
Consolidated Financial Statements....................................... 19
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................................................... 30
Industry Overview......................................................... 39
Business.................................................................. 42
Management................................................................ 58
Principal and Selling Stockholders........................................ 66
Description of Certain Indebtedness....................................... 70
Description of Capital Stock.............................................. 72
Shares Eligible for Future Sale........................................... 75
Underwriting.............................................................. 76
Notice to Canadian Residents.............................................. 78
Validity of the Shares.................................................... 79
Experts................................................................... 79
Where You Can Find More Information....................................... 80
Definition Cross-Reference Sheet.......................................... 81
Index to Financial Statements............................................. F-1
</TABLE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document that are subject to
risks and uncertainties. These could cause actual events to differ materially
from those we predict in our forward-looking statements. Forward-looking
statements include the information concerning possible or assumed future
results of operations of American Tower, OmniAmerica or TeleCom. They also
include statements concerning (i) the outcome of our growth strategy, (ii)
future liquidity and capital expenditures, (iii) future construction and
acquisition activities, (iv) future debt levels and the ability to obtain
financing and service debt, (v) future competitive conditions in the
communications site and wireless carrier industries, (vi) future regulatory
developments in the communications site and wireless carrier industries, (vii)
projected growth of the wireless communications and wireless carrier
industries, and (viii) future general economic conditions. Also, when we use
words such as "believe", "expect", "anticipate" or similar expressions, we are
making forward-looking statements. You should note that many factors, some of
which are discussed elsewhere in this document, could affect our company in the
future and could cause our results to differ materially from those expressed in
our forward-looking statements contained in this document. For a discussion of
some of these factors that may cause our actual results to differ materially
from those suggested by the forward-looking statements, please read carefully
the information under "Risk Factors" beginning on page 9.
* * *
Our principal executive offices are located at 116 Huntington Avenue, Boston,
Massachusetts 02116. Our telephone number is (617) 375-7500.
Unless otherwise stated, all information contained in this document assumes
that we did not sell to the underwriters the additional shares they may buy at
their option to cover over-allotments. See "Underwriting" on page 76.
i
<PAGE>
NOTE TO READER
The Way We Describe Ourselves in this Prospectus
Our company has been actively buying other companies and raising capital for
its business. We believe you will have a better picture of us if we show how we
look with all those transactions included. Therefore, we present a lot of the
information in this document on a "what if" basis to show how we would look if
we had owned these purchased companies for all of the various periods or now.
For the most part, the entire text portion of this document (that is, pages 1-
80) describes us on this "what if" basis. This "what if" information includes
all businesses we have acquired since the start of 1998. It also includes all
businesses and parts of businesses that we are now in the process of acquiring,
if we have signed a legally binding contract.
The special financial information called "Pro Forma" includes some but not all
of the "what if" acquisitions. This Pro Forma information includes only the
major acquisitions. We call the major acquisitions and other "what if"
information used in this Pro Forma information the "ATC Pro Forma
Transactions". We occasionally refer to this Pro Forma information in the
document text, but label it clearly when we do that.
Both the document text and the Pro Forma financial information include the
pending OmniAmerica Merger and the TeleCom Merger described in this document.
Our historical financial statements starting on page F-1 show us as we actually
were, without any "what if" changes. This is also true of the historical
information we took from those financial statements and included in some of the
tables in the textual part of this document.
Finally, a few places in the text of this document also refer to us as we
actually exist, without any "what if" changes. We have tried to make it clear
when that is the case.
We refer to ourselves in this document as "American Tower", "ATC" and the
"Company".
Defined Terms
We use certain terms in this document repeatedly. They have a very specific
meaning that would be cumbersome to explain each time we use the term. For
example, it would be cumbersome to list all the transactions that comprise the
"ATC Pro Forma Transactions" each time we use that term. Accordingly, we have
given that term a defined meaning, as indicated by the initial capitalized
letters of the term. A list of these defined terms begins on page 81. It
contains the page reference where the terms are defined in this document, which
is usually the first place they are used.
ii
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information about American Tower, including
our pending mergers with OmniAmerica and TeleCom. It is not complete and may
not contain all of the information that you should consider before investing in
the Class A Common Stock. You should carefully read this entire document,
including the "Risk Factors" section beginning on page 9 and the financial
statements and the notes to those statements beginning on page F-6.
AMERICAN TOWER
Introduction
American Tower is a leading independent owner and operator of wireless
communications and broadcast towers in the United States. ATC's strategy is to
use its leading position to take advantage of the growth opportunities inherent
in the rapidly expanding and highly fragmented communications site industry.
ATC has grown in less than four years to a company that will operate more than
3,200 towers in 44 states and the District of Columbia, giving effect to all
pending mergers and acquisitions.
ATC's primary business is the leasing of antennae sites on multi-tenant towers
for a diverse range of wireless communications industries, including PCS,
cellular, ESMR, SMR, paging and fixed microwave, as well as radio and
television broadcasters. ATC also offers its customers a broad range of network
development services, including network design, site acquisition, zoning and
other regulatory approvals, tower construction and antennae installation. ATC
also operates a video, voice, data and Internet transmission business in the
New York City to Washington, D.C. corridor and Texas.
ATC operates or is constructing towers in major cities throughout the United
States and has its largest tower clusters in California, Florida and Texas. For
the year ended December 31, 1997, ATC had pro forma net revenues of $177.2
million and EBITDA of $57.6 million. For the nine months ended September 30,
1998, ATC had pro forma net revenues of $158.3 million and EBITDA of $45.5
million.
American Tower has achieved its growth predominantly through acquisitions. ATC
will continue to pursue strategic acquisitions, including possible transactions
with large wireless service providers seeking to sell their towers.
More recently, ATC has embarked on a major construction program. In 1998,
American Tower (exclusive of acquired or to be acquired companies) constructed
or had under construction more than 500 towers at an aggregate cost of
approximately $108.0 million. The 1999 combined business plans of ATC,
OmniAmerica and TeleCom (its two major pending acquisitions), call for
construction of between 1,300 and 1,700 towers at an estimated cost of between
$220.0 million and $325.0 million (exclusive of broadcast towers). The actual
number of towers built may be outside of that range because of more attractive
investment opportunities from acquisitions (in which case it could be less) or
significant new build to suit projects with wireless service providers (in
which case it could be more).
ATC has a diversified base of approximately 2,500 customers. No customer
accounted for more than 10% of its pro forma net revenues from site leasing
activities for the nine months ended September 30, 1998. The five largest
customers accounted for less than 30% of such net revenues. ATC's wide range of
customers includes most of the major wireless service providers, including
Airtouch, Alltell, AT&T Wireless, Bell Atlantic Mobile, BellSouth, GTE
Mobilnet, Houston Cellular, Metrocall, Mobile Comm, Nextel, Omnipoint, PacBell,
PageNet, PowerTel, PrimeCo PCS, SkyTel, Southwestern Bell, Sprint PCS and
Western Wireless. In addition, most of the major radio and television
broadcasters are ATC's customers, including ABC, CBS, Chancellor Media, Clear
Channel, CNN, Fox and NBC.
ATC provides site acquisition services to most of the major wireless service
providers. It has constructed or is constructing towers on a build to suit
basis for BellSouth, Nextel, Omnipoint, PrimeCo PCS and Southwestern Bell. The
principal
1
<PAGE>
users of ATC's video, voice, data and Internet services are television
broadcasters and other video suppliers, such as CBS, CNN, Fox and TCI.
Industry Overview
ATC's growth strategy seeks to capitalize on the rapid expansion taking place
in the wireless communications industry. ATC believes the increase in demand
for wireless communications is attributable to a number of factors. These
include:
. decreasing costs of wireless services;
. increasing mobility of the U.S. population and the growing awareness of
the benefits of mobile communications;
. technological advances in communications equipment;
. favorable changes in telecommunications regulations; and
. business and consumer preferences for higher quality voice and data
transmission.
ATC believes that as the wireless communications industry has grown it has
become more competitive. As a consequence, many carriers are seeking to
preserve capital and speed access to their markets by focusing on activities
that contribute directly to subscriber growth and by outsourcing infrastructure
requirements such as owning, constructing and maintaining towers. ATC also
believes that many carriers are, for similar reasons, increasingly co-locating
transmission facilities with those of others. Management believes this trend is
likely to accelerate because of regulatory restrictions and the growing
tendency of local municipalities to require that towers accommodate multiple
tenants. Management also believes that certain national and other large
wireless service providers will prefer to deal with a company, such as ATC,
that can meet the majority of such providers' needs within a particular market
or region. In the past, wireless service providers had to deal with a large
number of individual tower owners, construction companies and other service
providers. See "Risk Factors" beginning on page 9.
Growth Strategy
ATC's objective is to enhance its position as a leading U.S. provider of
communications site and network development services to the wireless
communications and broadcasting industries. ATC's growth strategy consists of
the following principal elements:
Internal Growth through Sales, Service and Capacity Utilization. Management
believes that a substantial opportunity for profitable growth exists by fully
leasing the antennae space on its towers. The costs of operating a site are
largely fixed. Therefore, leasing more space significantly improves tower
operating margins and return on invested capital.
Growth by Construction. Management intends to focus on new tower development
for the foreseeable future. In most cases, ATC intends to work with one or more
"anchor" tenants to develop an overall master plan for a particular tower
cluster (we refer to this work as "build to suit"). This strategy serves to
minimize, to some extent, the risks associated with the investment. In some
cases, however, management may invest in the zoning and permitting of sites,
and even the construction of towers, without an anchor tenant when it believes
demand will exist in the near term.
Management also intends to pursue new tower construction to service the demand
for digital television and for tower space for radio antennae displaced by
digital television requirements.
Over time, management believes that as many as half of its towers will result
from new construction, with the vast majority of these designed to serve the
wireless communications industry.
In addition to its 1999 construction plans, ATC is seeking several major build
to suit projects, including as part of major acquisitions with wireless service
providers seeking to divest their towers. However, no definitive agreements may
result.
The ability to obtain, and commit to, large new construction projects will
require significant financial resources. ATC believes that its cost of capital,
relative to the cost of capital of its competitors, will be an important
distinguishing factor in determining the success of its growth by construction
strategy. Based on its previous capital
2
<PAGE>
market transactions, management believes that it has a good reputation in the
financial community. That reputation should help ATC raise capital on the
favorable terms necessary to finance its growth.
Growth by Acquisition. ATC has achieved a leading industry position primarily
through acquisitions. ATC will continue to target strategic acquisitions in
both existing and new markets or regions, possibly including non-U.S. markets.
Among the potential acquisitions are tower networks owned by major wireless
service providers. These providers may seek to divest their ownership of such
networks for reasons similar to those motivating them to outsource their new
construction requirements. These acquisitions may also involve construction
commitments for the seller's tower needs. The transactions may be substantial,
involving several thousand towers and purchase prices in the hundreds of
millions of dollars. Construction commitments that may attend such acquisitions
may also entail hundreds of millions of dollars of capital investment. ATC has
submitted proposals to several wireless service providers in the past, none of
which have resulted in definitive agreements to date. It intends to continue to
pursue such opportunities actively.
History
In early 1995, Steven B. Dodge, the then Chairman of the Board, President and
Chief Executive Officer of American Radio, and other members of its management,
recognized the opportunity in the communications site industry as a consequence
of its ownership and operation of broadcast towers. American Radio formed ATC
to capitalize on this opportunity. American Radio distributed its ATC stock to
its securityholders in connection with its merger with CBS Corporation in June
1998.
Recent and Pending Transactions
Consummated Acquisitions. Since January 1, 1998, ATC has acquired various
communications sites and tower service related businesses for an estimated
purchase price of $926.0 million, including shares of Class A Common Stock
valued (at the time of the relevant agreement) at $382.6 million.
Pending Acquisitions.
OmniAmerica Merger. In November 1998, OmniAmerica, Inc. (we refer to it as
"OmniAmerica") and a subsidiary of ATC agreed to merge (we refer to such merger
as the "OmniAmerica Merger"). ATC expects to issue 17.7 million shares of Class
A Common Stock to OmniAmerica stockholders, assuming all OmniAmerica stock
options are exercised.
OmniAmerica is a national independent owner and operator of towers with 223
towers in 24 states, including 12 towers on ten sites managed for others.
OmniAmerica also has pending acquisitions for up to 27 towers. Its principal
tower clusters are located in Florida, Illinois, Kentucky, New Mexico, Ohio,
Oklahoma, Tennessee and Texas.
OmniAmerica is also a leading builder of wireless communications and broadcast
towers, providing a complete package of design, construction and installation
services. OmniAmerica also manufactures and sells wireless infrastructure
components used in the construction and maintenance of wireless communications
transmitting and receiving facilities.
The OmniAmerica stockholders have approved the OmniAmerica Merger. The
principal remaining condition to be met is the expiration of the antitrust
review period under the Hart-Scott-Rodino Antitrust Act of 1976, as amended (we
refer to this act as the "HSR Act"). ATC expects the OmniAmerica Merger to
close in the spring of this year. Completion of the OmniAmerica Merger is not
dependent on closing the TeleCom Merger.
TeleCom Merger. In November 1998, TeleCom Towers, L.L.C. (we refer to it as
"TeleCom") and a subsidiary of ATC agreed to merge (we refer to such merger as
the "TeleCom Merger"). ATC will pay $148.8 million, subject to certain
adjustments, in the TeleCom Merger. The purchase price is payable 60% ($89.3
million, assuming no adjustment) in shares of Class A Common Stock and 40%
($59.5 million, assuming no such adjustment) in cash. The number of shares of
Class A Common Stock to be delivered is based on a per share price of $21.25
for the Class A Common Stock, subject to certain adjustments.
3
<PAGE>
Assuming no adjustments, ATC will issue approximately 4.2 million shares upon
completion of the TeleCom Merger.
TeleCom is a national owner and operator of communications sites, primarily
serving wireless service providers. TeleCom owns or co-owns 271 towers and
manages an additional 121 sites in 27 states. Its principal tower clusters are
located in Illinois, Ohio, Texas and Virginia.
TeleCom investors have approved the TeleCom Merger. The principal remaining
condition to be met is the expiration of the antitrust review period under the
HSR Act. ATC expects the TeleCom Merger to close in the spring of this year.
Completion of the TeleCom Merger is not dependent on closing the OmniAmerica
Merger.
4
<PAGE>
THIS OFFERING
Class A Common Stock offered........ 24,000,000 shares by ATC
1,300,000 shares by the Selling
---------- Stockholders
25,300,000 shares of Class A Common
---------- Stock
Common Stock to be outstanding
after this Offering and the ATC 141,940,917 shares of Class A Common
Pro Forma Transactions............. ----------- Stock
9,001,060 shares of Class B Common
----------- Stock
2,615,872 shares of Class C Common
----------- Stock
153,557,849 shares of Common Stock
-----------
Voting rights....................... The Class A Common Stock and the Class B
Common Stock generally vote as a single
class. Class A Common Stock has one vote
per share and Class B Common Stock has
ten votes per share. The Class A Common
Stock, voting as a separate class, is
entitled to elect two independent
directors. Delaware corporate law and
ATC's charter also require class votes
on some matters. Approximately 32.9% of
the total voting power will be owned by
Steven B. Dodge and Thomas H. Stoner,
together with their affiliates, after
this Offering and the Mergers. See
"Principal and Selling Stockholders" on
page 66. The Class C Common Stock is
generally nonvoting. We use the term
"Common Stock" to mean all of these
classes.
Other rights........................ Each class of Common Stock has the same
rights to dividends and upon
liquidation. The Class B Common Stock
and the Class C Common Stock are
convertible into Class A Common Stock on
a share-for-share basis. The Class B
Common Stock cannot be sold or
transferred, except to certain
categories of persons specified in ATC's
charter. The Class B Common Stock
automatically converts into Class A
Common Stock upon the occurrence of
certain events. See "Description of
Capital Stock--Common Stock" and "--
Voting Rights" on page 72.
New York Stock Exchange symbol (we
refer to it as the "NYSE")......... AMT
Use of proceeds..................... ATC estimates the net proceeds from this
Offering will be $578.3 million ($619.3
million if the Underwriters' over-
allotment option is exercised in full).
It expects to use such proceeds to
finance construction activities and
pending and future acquisitions.
5
<PAGE>
SELECTED FINANCIAL DATA
The financial data set forth below has been derived from the consolidated
financial statements of American Tower included elsewhere in this document. We
have presented certain pro forma financial data giving effect to the ATC Pro
Forma Transactions and this Offering. We expect that both the OmniAmerica
Merger and the TeleCom Merger will be accounted for as purchases. This means
that for accounting and financial reporting purposes, the results of
OmniAmerica and TeleCom will be included with those of American Tower only
after the date of the applicable merger. It also means that the assets and
liabilities of OmniAmerica and of TeleCom will be valued at fair value with the
purchase costs determined based on the average market value of the Class A
Common Stock at the time of the execution of its merger agreement and, in the
case of the TeleCom Merger, the amount of cash to be delivered in the
applicable merger, plus the amount of liabilities of OmniAmerica and of TeleCom
at the time of the applicable merger.
The data as of and for the nine months ended September 30, 1998 is unaudited.
However, management believes it contains all adjustments, consisting only of
normal recurring accruals, necessary to present such information fairly. The
data should be read in conjunction with American Tower's audited and unaudited
financial statements and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on page 30. The pro forma
financial data with respect to the year ended December 31, 1997 and the nine
months ended September 30, 1998 reflects certain adjustments, as explained
elsewhere in this document. Therefore, any comparison of such pro forma
financial data with the historical financial data for periods prior to 1997 is
inappropriate. Such pro forma financial data gives effect to the ATC Pro Forma
Transactions and this Offering.
In this document, we use the term "ATC Pro Forma Transactions" to mean: (i) the
OmniAmerica Merger, (ii) the TeleCom Merger, (iii) the ATC Separation, (iv) the
Diablo Transaction, (v) the Meridian Transaction, (vi) the Gearon Transaction,
(vii) the OPM Transaction, (viii) the MicroNet Transaction, (ix) the Old ATC
Merger, (x) the Wauka Transaction, (xi) the ATC Private Placement and (xii) the
July Offering. However, the data does not reflect all of the consummated or
pending acquisitions or pending construction. See "Unaudited Pro Forma
Condensed Consolidated Financial Statements"on page 19.
Prior to the ATC Separation on June 4, 1998, American Tower operated as a
subsidiary of American Radio and not as an independent company. Therefore, the
results of operations and the financial condition shown below for such period
may be different from what they might have been had ATC operated as a separate,
independent company. The information is also not necessarily indicative of
ATC's future results of operations or financial condition.
6
<PAGE>
AMERICAN TOWER CORPORATION
Selected Financial Data(1)
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Nine Months Ended
December 31, 1997 September 30, September 30, 1998
------------------------ ------------------- ------------------
Historical
-------------------
July 17, 1995 Year Ended
through December 31,
December 31, 1995 1996 Historical Pro Forma(2) 1997 1998 Pro Forma(2)
----------------- ------------ ---------- ------------ -------- --------- ------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net operating
revenues.............. $163 $2,897 $ 17,508 $177,189 $ 7,902 $ 71,485 $158,286
----- ------ --------- -------- -------- --------- --------
Operating expenses:
Operating expenses
excluding
depreciation,
amortization and
corporate general and
administrative....... 60 1,362 8,713 116,078 3,589 42,526 109,566
Depreciation and
amortization......... 57 990 6,326 108,864 2,706 32,998 90,521
Tower separation ex-
penses............... 12,616 12,616
Corporate general and
administrative
expenses ............ 230 830 1,536 3,536 919 3,186 3,186
----- ------ --------- -------- -------- --------- --------
Total operating ex-
penses............... 347 3,182 16,575 228,478 7,214 91,326 215,889
----- ------ --------- -------- -------- --------- --------
Operating income
(loss)................ (184) (285) 933 (51,289) 688 (19,841) (57,603)
Interest income (ex-
pense), net........... -- 36 (2,789) (1,224) (10,740) (5,240)
Other income (expense),
net(3)................ -- (185) (193) 242 (221) (255) 273
----- ------ --------- -------- -------- --------- --------
Loss before income
taxes and
extraordinary items... (184) (434) (2,049) (51,047) (757) (30,836) (62,570)
Benefit (provision) for
income taxes.......... 74 (46) 473 10,779 49 4,934 17,822
----- ------ --------- -------- -------- --------- --------
Loss before extraordi-
nary items............ $(110) $ (480) $ (1,576) $(40,268) $ (708) $ (25,902) $(44,748)
===== ====== ========= ======== ======== ========= ========
Basic and diluted pro
forma loss per common
share before
extraordinary
items(4).............. $ (0.03) $ (0.26) $ (0.01) $ (0.37) $ (0.29)
========= ======== ======== ========= ========
Basic and diluted pro
forma common shares
outstanding........... 48,732 153,494 48,732 70,103 153,494
========= ======== ======== ========= ========
Other Operating Data:
Tower cash flow(5)..... $ 103 $1,535 $ 8,795 $ 61,111 $ 4,313 $ 28,959 $ 48,720
EBITDA(5).............. (127) 705 7,259 57,575 3,394 25,773 45,534
EBITDA margin(5)....... (N/A) 24.3% 41.5% 32.5% 43.0% 36.1% 28.8%
After-tax cash
flow(5)............... (53) 510 4,750 68,596 1,998 7,096 45,773
Cash provided by (used
for) operating
activities............ (51) 2,229 9,913 -- 3,118 2,878 --
Cash (used for) invest-
ing activities........ -- -- (216,783) -- (74,318) (227,915) --
Cash provided by
financing activities.. 63 132 209,092 -- 71,122 533,895 --
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997 1998
---- ---- ---- -----
<S> <C> <C> <C> <C>
Tower Data:
Towers operated at beginning of period(6).................. -- 3 269 660
Towers acquired(7)........................................ 3 265 310 1,969
Towers constructed........................................ -- 1 81 272
--- --- --- -----
Towers operated at end of period(6)........................ 3 269 660 2,901
=== === === =====
Aggregate towers constructed(8)............................ 3 31 240 718
=== === === =====
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, September 30, 1998
------------------------ -----------------------
Historical Historical Pro Forma(2)
------------------------ ---------- ------------
1995 1996 1997
------ ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.... $ 12 $ 2,373 $ 4,596 $ 313,454 $ 700,181
Working capital (deficiency),
excluding current portion of
long-term debt.............. (40) 663 (2,209) 252,442 659,233
Property and equipment, net.. 3,759 19,710 117,618 388,315 560,815
Total assets................. 3,863 37,118 255,356 1,435,754 2,648,456
Long-term debt, including
current portion............. -- 4,535 90,177 281,605 282,154
Total stockholders' equity... 3,769 29,728 153,207 1,060,773 2,117,912
</TABLE>
- -------
(1) American Radio Systems Corporation (we refer to it as "American Radio" or
"ARS") organized a tower subsidiary (we refer to it as "ATI") on July 17,
1995 and contributed all of the issued and outstanding capital stock of
that subsidiary to ATC on September 24, 1996. Year-to-year comparisons are
significantly affected by the timing of acquisitions of communications
sites and related businesses and construction of towers, both of which have
been numerous during the period. The principal acquisitions made in 1996,
1997 and 1998 are described in "Business--Recent Transactions" on page 49
and the Consolidated Financial Statements of American Tower on page F-6.
(2) The December 31, 1997 and September 30, 1998 pro forma information gives
effect to the ATC Pro Forma Transactions and this Offering, as of the
beginning of the relevant period. The unaudited pro forma Balance Sheet
Data as of September 30, 1998 gives effect to the OmniAmerica Merger, the
TeleCom Merger and the Wauka Transaction (the only ATC Pro Forma
Transactions not then consummated) and this Offering, as if each of the
foregoing had occurred on September 30, 1998. ATC Pro Forma Transactions do
not include all of the consummated or pending acquisitions or pending
construction. See "Business--Recent Transactions" on page 49 and "Unaudited
Pro Forma Condensed Consolidated Financial Statements" on page 19. For pro
forma information with respect to American Tower, assuming consummation of
one but not both of the Mergers, in each case before giving effect to this
Offering, see the Unaudited Pro Forma Condensed Consolidated Balance
Sheets, and Note (d) of the Notes to Unaudited Pro Forma Condensed
Consolidated Statements of Operations for the year ended December 31, 1997
and the nine months ended September 30, 1998.
(3) Includes equity in earnings from unconsolidated subsidiaries offset by the
elimination of the 49.9% member's earnings of ATS Needham, LLC (we refer to
it as "ATS Needham"), in which ATLP, an indirect wholly-owned subsidiary of
ATC, held a 50.1% interest at September 30, 1998 (80% interest in October
1998), and the elimination of the 30% member's loss of ATS/PCS (formerly
Communications Systems Development LLC), in which ATLP holds a 70%
interest.
(4) Basic and diluted loss per share has been computed using (a) in the case of
historical information prior to the ATC Separation, the number of shares
outstanding following the ATC Separation and (b) in the case of pro forma
information, the number of shares expected to be outstanding following the
ATC Separation and the transactions discussed in Note (2) above and the
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements on
page 21.
(5) We use the term "Tower Cash Flow" to mean operating income (loss) before
depreciation and amortization, corporate general and administrative
expenses and tower separation expenses. "EBITDA" is used by us to mean
operating income (loss) before depreciation and amortization and tower
separation expenses. "After-tax cash flow" means income (loss) before
extraordinary items, plus depreciation and amortization, less preferred
stock dividends. All of such terms include deferred revenue attributable
to certain leases. We do not consider Tower Cash Flow, EBITDA and after-
tax cash flow as a substitute for alternative measures of operating
results or cash flow from operating activities or as a measure of ATC's
profitability or liquidity. Although these measures of performance are not
calculated in accordance with generally accepted accounting principles (we
refer to them as "GAAP"), we have included them because they are generally
used in the communications site industry as a measure of a company's
operating performance. More specifically, we believe they can assist in
comparing company performances on a consistent basis without regard to
depreciation and amortization. The concern is that depreciation and
amortization can vary significantly among companies depending on
accounting methods, particularly where acquisitions are involved, or non-
operating factors such as historical cost bases. We believe Tower Cash
Flow is useful because it enables you to compare tower performances before
the effect of expenses (corporate general and administrative) that do not
relate directly to such performance.
(6) Includes information with respect to ATC only and is for the year shown,
except 1998, which is as of September 30, and assumes consummation of all
acquisitions then pending, but does not include towers then under
construction by ATC. See Note (8) below.
(7) Includes towers managed for others as follows: 1996--251; 1997--86; and
1998--598.
(8) Includes towers constructed in each period by ATC and all acquired (or to
be acquired) companies, including, in certain cases, towers constructed for
and owned by third parties.
8
<PAGE>
RISK FACTORS
You should consider carefully the following factors and other information in
this document before deciding to invest in the Class A Common Stock.
Substantial Capital Requirements and High Debt Levels
ATC's acquisition and construction activities require substantial capital
resources. During 1998, ATC made capital investments aggregating approximately
$108.0 million for construction, predominantly for new towers. The 1999
combined business plans of ATC, OmniAmerica and TeleCom call for construction
of between 1,300 and 1,700 towers at an estimated cost of between $220.0
million and $325.0 million (exclusive of broadcast towers). The actual number
of towers built may be outside of that range because of more attractive
investment opportunities from acquisitions (in which case it could be less) or
significant new build to suit projects with wireless service providers (in
which case it could be more). ATC is actively seeking several major build to
suit projects and acquisitions with major wireless service providers seeking to
divest ownership of their towers, which could involve substantial capital
expenditures.
ATC has financed its capital requirements principally through bank borrowings
and sales of its Common Stock. As of September 30, 1998, on a pro forma basis,
giving effect to the ATC Pro Forma Transactions, as well as all of the other
pending acquisitions (but not planned construction or, except as noted, this
Offering), ATC would have had (i) aggregate borrowings of $474.7 million
($282.2 million after this Offering), an obligation to CBS of $50.0 million and
cash and cash equivalents of $314.5 million ($700.2 million after this
Offering) and (ii) aggregate unused borrowing capacity under its bank credit
facilities of $138.0 million ($331.0 million after this Offering). The proceeds
from this Offering will not affect ATC's borrowing capacity, except to the
extent they are used to repay borrowings under the Credit Facilities. You
should be aware that ATC may not be able to implement its growth strategy as
rapidly as it hopes because of the limits on its borrowing capacity, unless it
were willing to sell equity securities. Moreover, American Tower may not be
able to sell its equity securities on favorable terms because such sales are
subject, among other things, to market conditions outside of ATC's control.
ATC expects that it will continue to borrow funds to finance construction and
acquisitions and to operate with substantial leverage. If ATC's revenues and
cash flow do not meet expectations, ATC may have reduced borrowing capacity.
More importantly, you should be aware that if cash flow is not sufficient to
meet debt service requirements, ATC might not be able to sell equity or debt
securities, refinance its obligations or dispose of operating assets on
favorable terms or at all.
ATC's borrowing arrangements (we refer to them as the "Credit Facilities")
require ATC and its subsidiaries to satisfy certain financial and operational
covenants until borrowings are repaid and before new borrowings can be made.
Such provisions include the maintenance of financial ratios and restrictions on
additional indebtedness, capital expenditures, use of borrowed funds, permitted
investments and cash distributions. The lenders under the Credit Facilities
have a first priority security interest in substantially all of the operating
assets and property other than many of the towers of ATC and its subsidiaries.
Management believes that, upon consummation of this Offering, ATC will have
sufficient available funds to finance current construction plans and consummate
pending acquisitions, including both Mergers, and to finance several other
major acquisition and/or construction opportunities. However, in the unlikely
event that ATC were to negotiate more than a limited number of such major
transactions, it might require additional financing. Such financing might take
the form of a substantial increase in the maximum borrowing levels under the
Credit Facilities. That, however, would be dependent on ATC's ability to meet
various financial leverage ratios. Alternatively, ATC might issue other
debt securities (which would require the consent of ATC's senior lenders) or
senior equity securities (which would increase leverage). If ATC required
additional funds, particularly in the case of several major acquisition and/or
construction opportunities with wireless service providers, it would probably
seek to sell Class A Common Stock, convertible securities or warrants (which
would dilute the proportionate ownership of ATC by its then existing common
stockholders). ATC may not be able to obtain any such financing on favorable
terms or at all.
9
<PAGE>
Dependence on Demand for Tower Space
A substantial portion of ATC's revenues are dependent on the demand for rental
space on its towers. Many factors affect the demand for tower space rental,
most of which are beyond the control of American Tower. The demand for tower
space may be affected by, among other things:
. consumer demand for wireless services;
. the financial condition of wireless service providers and their
preference for owning or leasing antennae sites;
. governmental licensing of broadcast rights, zoning, environmental and
other governmental regulations;
. national and regional economic conditions, including a slowdown in the
growth of wireless communications, a downturn in a particular wireless
segment or a decrease in the number of carriers, nationally or locally,
in a particular segment; and
. technological changes.
Demand could also be adversely affected by "roaming" and "resale" arrangements.
These arrangements enable a provider to serve customers outside its license
area, to give licensed providers the right to enter into arrangements to serve
overlapping license areas and to permit nonlicensed providers to enter the
wireless marketplace. Wireless providers might consider such roaming and resale
arrangements as superior to constructing their own facilities or leasing
antennae space from ATC. Any material decrease in demand or proliferation of
"roaming" and "resale" arrangements could have a material adverse effect on
ATC.
The demand for antenna space is dependent, to a significantly lesser extent, on
the needs of television and radio broadcasters. Among other things, certain
technological advances, including the development of satellite-delivered radio,
may reduce the need for tower-based broadcast transmission. ATC could also be
affected adversely should the development of digital television be delayed or
impaired, or if demand for it were to be less than anticipated because of
delays, disappointing technical performance or cost to the consumer.
Construction of New Towers
ATC's growth strategy is highly dependent on its ability to complete tower
construction in a timely and cost effective manner. ATC cannot control the
principal factors that can prevent, delay or increase the cost of construction.
Such factors include zoning and local permitting requirements, environmental
group opposition, availability of skilled construction personnel and
construction equipment, adverse weather conditions and federal regulations. As
the pace of tower construction has increased in recent years, the required
manpower and equipment have been in increasing demand. The anticipated increase
in construction activity, for both ATC and the industry, could significantly
increase costs and delay time schedules associated with tower construction,
either of which could have a material adverse effect on ATC. The construction
of towers to accommodate the introduction of digital television service could
be particularly affected by a potential shortage of construction capability.
The scope of ATC's forecasted construction program is substantially greater
than the combined past construction programs of ATC and the various companies
it has acquired. As a consequence, ATC may not have enough experienced and
qualified personnel to complete its construction program on time and within
budget. Personnel shortages may also affect ATC's ability to manage effectively
the substantially increased number of towers it is constructing and acquiring.
ATC competes for new tower construction sites with wireless service providers,
site developers and other independent communications site operating companies.
ATC believes that competition for tower construction sites will increase and
that additional competitors will enter the communications site market, some of
which
10
<PAGE>
may have greater financial and other resources than ATC. Such increased
competition will probably result in increased acquisition or leasing costs to
ATC.
In addition to competing for new tower construction sites, ATC faces strong
competition for build to suit opportunities, principally from other independent
communications site operators and site developers. Certain of those competitors
have more extensive experience and offer a broader range of services,
principally in constructing towers rather than managing the construction of
others. To date, ATC has not itself constructed towers, but rather managed the
construction activities of independent third parties. The absence of an in-
house construction capability may create problems, if the OmniAmerica Merger is
not consummated, in times of industry shortages.
American Tower, and others in the industry, are increasingly devoting their
construction activities to build to suit projects. Under these arrangements,
ATC, and others, agree with a major wireless service provider to build a
network of a significant number of towers to the provider's specification.
Build to suit activities involve certain additional risks. Although such
projects involve an "anchor" tenant, ATC may not be able to secure a sufficient
number of additional tenants to ensure adequate investment returns. This may be
particularly true for the larger build to suit projects that ATC is seeking. In
fact, one of the reasons providers may be entering into build to suit
arrangements (rather than, as in the past, undertaking their own construction)
is that many of the proposed sites may be expensive or difficult to build on or
in undesirable locations for many other wireless service providers. Such
projects also entail the additional risk of a greater dependence on a single
customer with, in many instances, more favorable lease and control provisions
than those made available generally by ATC to its tenants. In addition, as
explained above, ATC's experience has been limited principally to projects of
considerably smaller scope than those it is now undertaking and others on which
it will be bidding.
See "--Substantial Capital Requirements and High Debt Levels" on page 9 for
additional risks associated with financing major construction projects.
As a consequence of all of the foregoing factors, ATC's construction program,
including one or more of its build to suit projects, might have a material
adverse effect on ATC.
Acquisition Strategy
The success of ATC's growth continues to be dependent, although to a lesser
extent than in the past, on its ability to implement its acquisition strategy.
Such strategy involves substantial risks, including increasing leverage and
debt service requirements, combining disparate company cultures and facilities,
operating towers on a national and possibly international basis in many diverse
markets and acquiring companies (such as OmniAmerica) that are in businesses in
which ATC does not presently operate. Certain of these risks may be increased
with larger acquisitions, particularly those involving divestitures by wireless
service providers. Such transactions will entail the additional risk of
dependence on a single customer with, most likely, more favorable lease and
control provisions than those made available generally by ATC to its tenants.
In addition, management will be responsible for an increasingly larger pool of
assets and may not be able to recruit and retain a sufficient number of
experienced and qualified senior and regional managers. ATC believes that the
integration of some future acquisitions may present difficult challenges.
ATC competes for tower and site acquisitions principally with other independent
tower owners and operators. Increased competition, which ATC has experienced
and believes may intensify, has resulted in substantially higher prices,
particularly for towers being divested by wireless service providers. ATC may
not, therefore, be able to complete acquisitions on as favorable terms as in
the past. Under certain circumstances, it may also be required to pay higher
prices or agree to less favorable terms than it would otherwise have desired.
You should also be aware that, assuming consummation of the Mergers, American
Tower may be impeded in its future acquisition activities by antitrust
constraints, either in local markets or on a regional or national basis.
See "--Substantial Capital Requirements and High Debt Levels" on page 9 for
additional risks associated with financing major acquisitions.
11
<PAGE>
For all of the reasons discussed above, ATC's past or future acquisitions,
individually or in combination, may have a material adverse effect on it.
Dependence on Key Personnel
ATC's growth strategy is dependent on the efforts of ATC's Chief Executive
Officer, Steven B. Dodge, and its other executive officers. ATC has not entered
into employment agreements with any of its executive officers, other than J.
Michael Gearon, Jr., the former principal stockholder and chief executive
officer of Gearon & Co., Inc. ("Gearon"), and Douglas Wiest, the Chief
Operating Officer. Many of the executive, regional and other officers have
options to purchase shares of Common Stock, subject generally to five-year
vesting provisions. ATC may not, however, be able to retain such officers, or
prevent them from competing in the event of their departure. The loss of these
officers could have a material adverse effect upon ATC. ATC does not maintain
key man life insurance of any significance on the lives of any of such
officers. In addition, the pendency of the OmniAmerica Merger and the TeleCom
Merger (we refer to them as the "Mergers") may increase the risk that certain
key employees of OmniAmerica and TeleCom could decide to seek employment
elsewhere. The departure of key employees of OmniAmerica or TeleCom would harm
ATC should the Mergers be consummated.
Control by the Principal Stockholders; Restrictions on Change of Control
On December 31, 1998, giving pro forma effect to the consummation of the ATC
Pro Forma Transactions and this Offering, the directors and executive officers
of ATC, together with their affiliates, owned "beneficially" approximately
42.1% (46.1% before giving effect to the Mergers) of the combined voting power
of the Common Stock. On such basis, Mr. Dodge, together with his affiliates,
owned "beneficially" approximately 27.0% (29.6% before giving effect to the
Mergers) of the combined voting power. See "Principal and Selling Stockholders"
on page 66. Accordingly, Mr. Dodge, together with a limited number of other
directors, may be able to control the vote on all matters submitted to a vote
of the holders of the Common Stock, except with respect to (i) the election of
two independent directors and (ii) those matters that require a 66 2/3% vote or
a class vote. Control by Mr. Dodge and others may have the effect of
discouraging certain types of transactions involving an actual or potential
change of control of ATC.
ATC's charter also contains provisions limiting the aggregate voting ownership
of Mr. Dodge (and his Controlled Entities as defined therein) and provides for
the automatic conversion of all of his (and their) Class B Common Stock to
Class A Common Stock should his voting percentage fall below 21.3% of the total
voting power of all shares of Common Stock outstanding.
The Credit Facilities provide that a "Change of Control" (as defined therein)
of ATC constitutes an "Event of Default". In addition, the Communications Act
of 1934, as amended, and the rules of the Federal Communications Commission
("FCC") require the prior consent of the FCC for any change of control of ATC.
Finally, certain provisions of the Delaware General Corporation Law (the
"DGCL") may have the effect of discouraging a third party from making an
acquisition proposal for ATC and may thereby inhibit a change of control.
Risk Associated with New Technologies
The emergence of new technologies could reduce the need for tower-based
transmission and reception and may, thereby, have a negative impact on ATC's
operations. For example, the FCC has granted license applications for several
low-earth orbiting satellite systems that are intended to provide mobile voice
and/or data services. In November 1998, a company became the first to offer
commercially a service intended to provide global satellite phone coverage.
Although such systems are highly capital-intensive and do not yet have an
extensive commercial record, mobile satellite systems could compete with land-
based wireless communications systems, thereby reducing the demand for the
infrastructure services provided by ATC. Additionally, the growth in delivery
of video services by direct broadcast satellites and the development and
implementation of signal combining technologies (which permit one antenna to
service two different
12
<PAGE>
frequencies of transmission and, thereby, two customers) and satellite-delivery
systems may reduce the need for tower-based broadcast transmission. The
occurrence of any of these factors could have a material adverse effect on ATC.
Year 2000 Related Risks
ATC, like all companies, faces certain risks associated with the fact that many
computers and computer software programs were not designed to recognize the
change from 1999 to 2000 or are otherwise unable to process dates related to
the turn of the millennium. These computers (and the systems they control)
might malfunction or cease to work unless they are reprogrammed or replaced by
the end of 1999. In December 1998, ATC formally engaged an outside consultant
to help it conduct an assessment of the potential impact of the Year 2000
computer problem. Because ATC has not completed its assessment of the impact of
Year 2000 on its business, it cannot definitely state at this time whether it
has any material Year 2000 exposure. One known area of Year 2000 exposure for
all operators of communications sites is tower lighting systems. Year 2000-
related problems could cause ATC's tower structures light systems to fail which
would create a hazard to air navigation. Tower owners, such as ATC, are
responsible for tower lighting to comply with FCC and Federal Aviation
Administration ("FAA") requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000" on page 36.
Certain Perceived Health Risks
ATC and the lessees of antennae sites on its towers are subject to government
regulations relating to radio frequency (we sometimes refer to it as "RF")
emissions. In recent years, there have been several substantial studies by the
scientific community investigating the potential connection between RF
emissions and possible negative health effects, including cancer. The results
of these studies have, to date, been inconclusive. ATC has not been subject to
any claims relating to RF emissions, although it is possible that such claims
may arise in the future. Because ATC does not maintain any significant
insurance with respect to such matters, such claims, if substantiated, could
have a material adverse effect on ATC.
Environmental Matters
Under various federal, state and local environmental laws, an owner, lessee or
operator of real estate may be liable for the costs of investigation, removal
or remediation of soil and groundwater contaminated by certain hazardous
substances or wastes. Certain of such laws impose responsibility and liability
even if the owner, lessee or operator was unaware of or not responsible for the
contamination. Such liability often continues even if the property has been
sold. The owner, lessee or operator of contaminated real estate may also be
subject to common law claims by third parties based on damages resulting from
off-site migration of the contamination. ATC may be potentially liable for such
environmental expenses which in light of the number of properties owned or
leased by it could be substantial.
Lack of Dividends; Restrictions on Payment of Dividends and Repurchase of
Common Stock; Dilution
ATC does not expect to pay cash dividends for the foreseeable future. Rather,
ATC intends to retain any available earnings for the growth of its business. In
addition, the Credit Facilities restrict the payment of cash dividends or other
distributions and the repurchase, redemption or other acquisition of equity
securities of ATC. See "Description of Capital Stock--Dividend Restrictions" on
page 73. The public offering price exceeds the net tangible book value per
share. Investors who purchase shares of Class A Common Stock in this Offering
will sustain immediate and substantial dilution (approximately $19.75 per
share). See "Dilution" on page 18.
13
<PAGE>
USE OF PROCEEDS
ATC estimates that its net proceeds from this Offering (after deduction of the
underwriting discount and estimated offering expenses) will be $578.3 million
($619.3 million if the Underwriters' over-allotment option is exercised in
full). ATC expects to use such net proceeds to finance the construction of
towers, ATC's remaining obligations with respect to acquisitions, including the
OmniAmerica Merger and the TeleCom Merger, and for general working capital
purposes. ATC may also utilize such borrowings to finance, among other things,
acquisitions of additional communications sites or other related businesses.
ATC is actively considering, and intends to continue actively considering
opportunities to acquire communications sites and related properties as more
fully discussed under "Business--Growth Strategy--Growth by Acquisition" on
page 45.
As of September 30, 1998, on a pro forma basis, assuming consummation of the
ATC Pro Forma Transactions and all other pending acquisitions, but not this
Offering, ATC would have had indebtedness under the Credit Facilities of
approximately $467.6 million. After giving effect to this Offering and assuming
the use of the net proceeds described above, as of such date, on such pro forma
basis, ATC would have had borrowings under the Credit Facilities of $275.0
million, an obligation to CBS Corporation ("CBS") of $50.0 million and cash and
cash equivalents of approximately $700.2 million. The Chase Manhattan Bank
("Chase") is a lender under the Credit Facilities for the Borrower Subsidiaries
and will receive its proportionate share (5.2%) of any repayments of
borrowings. Chase is an affiliate of Chase Equity Associates. See "Management--
Certain Transactions" on page 64, "Principal and Selling Stockholders" on page
66 and the Notes to Consolidated Financial Statements of American Tower on page
F-10.
ATC will not receive any proceeds from the sale of Class A Common Stock by the
selling stockholders.
14
<PAGE>
MARKET PRICES AND DIVIDEND POLICY
Market Price Data
On February 27, 1998, the Class A Common Stock commenced trading on a "when-
issued" basis on the inter-dealer bulletin board of the over-the-counter
market. The Class A Common Stock commenced trading on the NYSE on June 5, 1998
(the day after ATC separated from American Radio). The following table presents
trading information for the Class A Common Stock for the periods indicated, in
such "when issued" market or, since June 4, 1998, on the NYSE.
<TABLE>
<CAPTION>
High Low
Class A Common Stock ------- -------
1998
----
<S> <C> <C>
Quarter Ended March 31 (commencing February 27, 1998)......... $20.25 $15.50
Quarter Ended June 30......................................... 26.125 18.75
Quarter Ended September 30.................................... 28.625 14.375
Quarter Ended December 31..................................... 29.625 13.25
<CAPTION>
1999
----
<S> <C> <C>
From January 1 to February 3 ................................. 30.25 24.125
</TABLE>
On February 3, 1999, the last reported sale price of Class A Common Stock on
the NYSE was $25.625. The outstanding shares of Common Stock as of January 1,
1999 were as follows: 96,620,615 shares of Class A Common Stock, 9,001,060
shares of Class B Common Stock and 3,002,008 shares of Class C Common Stock. As
of January 15, 1999, there were 365 record holders of the Class A Common Stock,
75 record holders of the Class B Common Stock and one record holder of the
Class C Common Stock.
ATC has not paid a dividend on any class of Common Stock and anticipates that
it will retain future earnings, if any, to fund the development and growth of
its business. It does not anticipate paying cash dividends on shares of Common
Stock in the foreseeable future. In addition, each ATC subsidiary is restricted
under the Credit Facilities from paying dividends or making distributions and
repurchasing, redeeming or otherwise acquiring any shares of Common Stock.
Since ATC has no significant assets other than its ownership of various
subsidiaries, all of which are so restricted, its ability to pay cash dividends
in the foreseeable future is restricted. The Credit Facilities also restrict
the payment of cash dividends by ATC. See "Description of Capital Stock--
Dividend Restrictions" on page 73 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
on page 34.
15
<PAGE>
CAPITALIZATION
The first column in the following table shows ATC's actual historical
capitalization as of September 30, 1998. The second column shows ATC's
capitalization as adjusted on a "what if" basis to show the effect of the ATC
Pro Forma Transactions, including the OmniAmerica Merger and the TeleCom
Merger, as if ATC had completed them on September 30, 1998. The third column
shows ATC's capitalization as further adjusted to show the effect of this
Offering, as if ATC had completed it on September 30, 1998. For information on
ATC's capitalization showing the effect of one but not the other merger, see
the September 30, 1998 Unaudited Pro Forma Condensed Consolidated Balance
Sheets of American Tower on page 20.
Management believes that the assumptions used provide a reasonable basis on
which to present such pro forma capitalization. You should read the
capitalization table below in conjunction with the historical financial
statements of ATC included elsewhere in this document, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on page 30 and
"Unaudited Pro Forma Condensed Consolidated Financial Statements" on page 19.
We have provided the capitalization table below for informational purposes
only. It is not necessarily indicative of ATC's capitalization or financial
condition had we consummated the transactions and events referred to above on
the date assumed. It is also not necessarily indicative of ATC's future
capitalization or financial condition.
<TABLE>
<CAPTION>
September 30, 1998
-----------------------------------
Pro Forma
for ATC Pro Forma
Pro Forma for this
Historical Transactions Offering
---------- ------------ ----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents................ $ 313,454 $ 314,517 $ 700,181
========== ========== ==========
Long-term debt, including current
portion(1)(2):
Borrowings under the Credit
Facilities............................ $ 275,000 $ 467,586 $ 275,000
Other long-term debt................... 6,605 7,154 7,154
---------- ---------- ----------
Total long-term debt................. 281,605 474,740 282,154
---------- ---------- ----------
Redeemable Class A Common Stock.......... 8,574 8,574 8,574
---------- ---------- ----------
Stockholders' equity(3):
Common Stock(4)
Class A Common Stock................. 944 1,168 1,411
Class B Common Stock................. 91 91 91
Class C Common Stock................. 33 33 29
Additional paid-in capital........... 1,097,359 1,576,024 2,154,035
Accumulated deficit.................. (37,654) (37,654) (37,654)
---------- ---------- ----------
Total stockholders' equity........... 1,060,773 1,539,662 2,117,912
---------- ---------- ----------
Total capitalization ................ $1,350,952 $2,022,976 $2,408,640
========== ========== ==========
</TABLE>
- --------
(1) For additional information, see "Unaudited Pro Forma Condensed Consolidated
Financial Statements" on page 19 and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" on page 34.
(2) See the Notes to Consolidated Financial Statements on page F-10 and
"Description of Certain Indebtedness" on page 70 for additional information
regarding the components and terms of ATC's long-term debt. Approximately
$21.9 million was required (on a net basis) to finance the balance of the
purchase price of the OPM Transaction. We have discussed the OPM
Transaction, as well as certain other transactions, in the Notes to
Consolidated Financial Statements of American Tower on page F-10.
(3) Consists of (a) Preferred Stock, par value $.01 per share, 20,000,000
authorized shares, none issued or outstanding; (b) Class A Common Stock,
par value $.01 per share, 300,000,000 authorized shares; shares issued and
outstanding: 94,396,556 (historical), 116,754,366 (pro forma for the ATC
Pro Forma
16
<PAGE>
Transactions), 141,140,502 (pro forma for this Offering); (c) Class B Common
Stock, par value $.01 per share, 50,000,000 authorized shares; shares issued
and outstanding: 9,107,962 (historical, pro forma for the ATC Pro Forma
Transactions and pro forma for this Offering); and (d) Class C Common Stock,
par value $.01 per share, 10,000,000 authorized shares; shares issued and
outstanding: 3,295,518 (historical and pro forma for the ATC Pro Forma
Transactions), 2,909,382 (pro forma for this Offering). Outstanding share
numbers do not give effect to subsequent conversions of shares of Class B
Common Stock or Class C Common Stock to Class A Common Stock, except for
shares being sold in this Offering. The outstanding share information gives
effect to all consummated acquisitions. Outstanding shares exclude 336,250
shares of Class A Common Stock shown as Redeemable Class A Common Stock.
(4) The number of outstanding shares does not include, except as otherwise
indicated: (a) shares of Class A Common Stock issuable upon conversion of
Class B Common Stock or Class C Common Stock, (b) shares issuable upon
exercise of options currently outstanding to purchase an aggregate of
11,206,261 shares of Common Stock or (c) shares issuable pursuant to
pending acquisitions (other than the Mergers). See the Notes to
Consolidated Financial Statements on page F-10 and "Business--Recent
Transactions--Pending Acquisitions" on page 50.
17
<PAGE>
DILUTION
As of September 30, 1998, the pro forma net tangible book value of ATC, after
giving effect to the ATC Pro Forma Transactions, was $225.3 million or $1.74
per share of Common Stock. "Pro forma net tangible book value per share"
represents the amount of total pro forma assets, less pro forma goodwill and
other pro forma intangible assets of ATC, reduced by the amount of total pro
forma liabilities and divided by the pro forma number of shares of Common Stock
outstanding. After giving effect to the application of the net proceeds from
the sale of shares of Class A Common Stock by ATC in this Offering (after
deduction of the underwriting discount and estimated offering expenses), the as
adjusted pro forma net tangible book value of ATC as of such date would have
been $803.6 million or $5.25 per share. This represents an immediate increase
in such pro forma net tangible book value of $3.51 to existing stockholders and
an immediate dilution in net tangible book value of $19.75 per share to new
investors purchasing shares in this Offering.
The following table illustrates the dilution per share as described above:
<TABLE>
<S> <C> <C>
Initial public offering price per share......................... $25.00
Pro forma net tangible book value per share before this
Offering............................................... $1.74
Increase attributable to this Offering.................. 3.51
-----
As adjusted pro forma net tangible book value per share after
this Offering.................................................. 5.25
------
Dilution to new investors....................................... $19.75
======
</TABLE>
18
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements
of American Tower consist of unaudited pro forma condensed consolidated balance
sheets as of September 30, 1998 and unaudited pro forma condensed consolidated
statements of operations for the year ended December 31, 1997 and for the nine
months ended September 30, 1998, adjusted for the ATC Pro Forma Transactions
and this Offering, as if such transactions had been consummated on the first
day of the period (in the case of the unaudited pro forma condensed
consolidated statements of operations) and the date of the unaudited pro forma
condensed consolidated balance sheets (to the extent not consummated as of such
date). With respect to acquisitions, the pro forma statements give effect only
to the ATC Pro Forma Transactions based on their significance in relation to
all of ATC's acquisitions. You should read the unaudited pro forma condensed
consolidated balance sheets and the unaudited pro forma condensed consolidated
statements of operations in conjunction with American Tower's consolidated
financial statements and notes thereto, as well as the financial statements and
notes thereto of certain businesses that have been or may be acquired, which
are included elsewhere in this document. The unaudited pro forma condensed
consolidated balance sheets and the unaudited pro forma condensed consolidated
statements of operations are not necessarily indicative of the financial
condition or the results of operations that ATC would have reported had such
events actually occurred on the date specified, nor are they indicative of the
financial condition or the results of operations ATC would have had if ATC had
operated as a separate, independent company during such periods. Finally, they
are not necessarily indicative of ATC's future financial condition or results
of operations.
In reviewing the unaudited pro forma condensed consolidated financial
statements set forth below, in addition to the assumptions and other matters
noted in the above paragraph and in the notes to the unaudited pro forma
condensed consolidated financial statements, you should note that we have
estimated the incremental costs that ATC will incur because ATC is an
independent company and we have reflected those in the pro forma adjustments.
However, the actual incremental costs for such independent operations may
exceed such estimated amounts.
ATC has also presented two supplemental unaudited condensed consolidated pro
forma balance sheets, which reflect the consummation of this Offering and one,
but not both, of the Mergers. A similar presentation with respect to the
unaudited pro forma condensed consolidated statements of operations is located
in Note (e) to the Notes to Unaudited Pro Forma Condensed Consolidated
Statements of Operations on pages 25 and 29.
19
<PAGE>
AMERICAN TOWER CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Supplemental
----------------------
Adjustments for Pro Forma Pro Forma Pro Forma
ATC for ATC Adjustments Pro Forma Excluding Excluding
Pro Forma Pro Forma for this for this TeleCom OmniAmerica
Historical Transactions(a) Transactions Offering(b) Offering Merger Merger
---------- --------------- ------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents........... $ 313,454 $ 1,063 $ 314,517 $ 385,664 $ 700,181 $ 789,800 $ 763,559
Accounts receivable,
net................... 14,455 29,933 44,388 44,388 37,082 21,776
Other current assets... 7,573 10,962 18,535 18,535 18,296 7,947
Notes receivable....... 6,100 6,100 6,100 6,100 6,100
Property and equipment,
net................... 388,315 172,500 560,815 560,815 508,315 460,815
Intangible assets,
net................... 677,317 637,015 1,314,332 1,314,332 1,146,607 904,196
Deferred tax asset..... 24,435 (24,435) -- --
Deposits and other
assets................ 4,105 4,105 4,105 4,105 4,105
---------- -------- ---------- --------- ---------- ---------- ----------
Total................. $1,435,754 $827,038 $2,262,792 $ 385,664 $2,648,456 $2,510,305 $2,168,498
========== ======== ========== ========= ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities,
excluding current
portion of long-term
debt.................. $ 83,040 $ 20,831 $ 103,871 $ 103,871 $ 98,536 $ 88,622
Deferred income taxes.. 134,183 134,183 134,183 90,587 30,525
Other long-term
liabilities........... 1,195 1,195 1,195 1,195 1,195
Long-term debt,
including current
portion............... 281,605 193,135 474,740 $(192,586) 282,154 282,154 282,154
Minority interest...... 567 567 567 567 567
Redeemable common
stock................. 8,574 8,574 8,574 8,574 8,574
Stockholders' equity... 1,060,773 478,889 1,539,662 578,250 2,117,912 2,028,692 1,756,861
---------- -------- ---------- --------- ---------- ---------- ----------
Total................. $1,435,754 $827,038 $2,262,792 $ 385,664 $2,648,456 $2,510,305 $2,168,498
========== ======== ========== ========= ========== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheets of
American Tower.
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
We have prepared the unaudited pro forma condensed consolidated balance sheets
as of September 30, 1998 to give effect, as of such date, to the OmniAmerica
Merger, the TeleCom Merger and the Wauka Transaction, which are the only ATC
Pro Forma Transactions not completed by that date, and this Offering. See the
Notes to Consolidated Financial Statements of American Tower for a description
of the transactions included in the ATC Pro Forma Transactions.
(a) The following table sets forth the pro forma balance sheet adjustments as
of September 30, 1998 (in thousands).
<TABLE>
<CAPTION>
Wauka OmniAmerica TeleCom Pro Forma
Transaction Merger Merger Adjustments
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents....... $ 116 $ 786 $ 161 $ 1,063
Accounts receivable, net........ 15 22,612 7,306 29,933
Other current assets............ 135 10,588 239 10,962
Property and equipment, net..... 20,000 100,000 52,500 172,500
Intangible assets, net.......... 59,154 410,136 167,725 637,015
Deferred tax asset.............. (24,435) (24,435)
------- -------- -------- --------
Total......................... $79,420 $544,122 $203,496 $827,038
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities, excluding
current portion of long-term
debt........................... $ 247 $ 15,249 $ 5,335 $ 20,831
Deferred income taxes........... 11,364 103,658 19,161 134,183
Long-term debt, including
current portion................ 39,191 64,164 89,780 193,135
Stockholders' equity............ 28,618 361,051 89,220 478,889
------- -------- -------- --------
Total......................... $79,420 $544,122 $203,496 $827,038
======= ======== ======== ========
</TABLE>
The OmniAmerica Merger, the TeleCom Merger and the Wauka Transaction will be
accounted for under the purchase method of accounting.
Borrowings to finance the TeleCom Merger include assumed debt and borrowings to
be incurred to pay the cash portion of the TeleCom Merger Consideration.
TeleCom cash has been reduced as an offset to the TeleCom Merger Consideration
increase attributable to the working capital adjustment.
The following table sets forth the purchase prices and related pro forma
financing of the transactions described above (in thousands).
<TABLE>
<CAPTION>
Common Stock
Issued or to
Purchase Be Issued
Price Borrowings by ATC
-------- ---------- ------------
<S> <C> <C> <C>
Wauka Transaction.............................. $ 79,154 $38,642 $ 28,618
OmniAmerica Merger............................. 510,136 64,164 352,409
TeleCom Merger................................. 220,224 89,780 89,220
</TABLE>
ATC has or expects to issue a total of approximately 22.3 million shares of
Class A Common Stock to effect all of the transactions described above, as
follows: the OmniAmerica Merger--16.7 million shares; the TeleCom Merger--4.2
million shares; and the Wauka Transaction--1.4 million shares.
(b) To record the issuance of 24.0 million shares of Class A Common Stock based
on the initial public offering price of $25.00 per share and the net proceeds
(estimated at approximately $578.3 million) of this Offering.
21
<PAGE>
AMERICAN TOWER CORPORATION
(FORMERLY AMERICAN TOWER SYSTEMS CORPORATION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Adjustments Pro Forma for Adjustments Adjustments
for ATC Pro ATC Pro for for Adjustments Pro Forma
Forma Forma OmniAmerica TeleCom for this for this
Historical Transactions(a) Transactions Merger(b) Merger(c) Offering(d) Offering(e)
---------- --------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $17,508 $ 78,813 $ 96,321 $ 72,981 $ 7,887 $177,189
Operating expenses...... 8,713 45,152 53,865 60,158 2,055 116,078
Depreciation and
amortization........... 6,326 53,847 60,173 34,009 14,682 108,864
Corporate general and
administrative
expenses............... 1,536 2,000 3,536 3,536
------- -------- -------- -------- ------- ------ --------
Operating income
(loss)................. 933 (22,186) (21,253) (21,186) (8,850) (51,289)
------- -------- -------- -------- ------- ------ --------
Other expense (income):
Interest expense,
net................... 2,789 (2,789)
Other expense
(income), net......... 193 193 (435) (242)
------- -------- -------- -------- ------- ------ --------
Total other expense
(income)............ 2,982 (2,789) 193 (435) (242)
------- -------- -------- -------- ------- ------ --------
Loss before income
taxes.................. (2,049) (19,397) (21,446) (20,751) (8,850) (51,047)
Income tax benefit (f).. 473 2,449 2,922 5,519 2,338 10,779
------- -------- -------- -------- ------- ------ --------
Loss before
extraordinary item..... $(1,576) $(16,948) $(18,524) $(15,232) $(6,512) $(40,268)
======= ======== ======== ======== ======= ====== ========
Pro forma basic and
diluted loss per common
share before
extraordinary item..... $ (0.17) $ (0.26)
======== ========
Pro forma basic and
diluted common shares
outstanding(g)......... 108,567 16,727 4,200 24,000 153,494
======== ======== ======= ====== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
The unaudited pro forma condensed consolidated statements of operations for the
year ended December 31, 1997 gives effect to the ATC Pro Forma Transactions and
this Offering, as if each of the foregoing had occurred on January 1, 1997.
(a) To record the results of operations for the ATC Pro Forma Transactions
other than the OmniAmerica Merger and the TeleCom Merger. The results of
operations have been adjusted to: (i) reverse historical interest expense of
$7.0 million; and (ii) record a reduction to net interest expense of $2.8
million for the year ended December 31, 1997 as a result of the reduction of
debt with the proceeds of the July Offering.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $9.3 million for the year ended
December 31, 1997 and record depreciation and amortization expense of $53.8
million for the year ended December 31, 1997 based on estimated allocations of
purchase prices. Depreciation expense for property, plant and equipment
acquired has been determined based on an average life of 15 years. Costs of
acquired intangible assets for the transactions are amortized over 15 years.
The preliminary estimates of the fair value of property, plant and equipment
and intangible assets may change upon final appraisal.
Corporate general and administrative expenses of the prior owners has not been
carried forward into the pro forma condensed consolidated financial statements
as these costs represent duplicative facilities and compensation to owners
and/or executives not retained by ATC. Because ATC already maintains its own
separate corporate headquarters which provides services substantially similar
to those represented by these costs, they are not expected to recur following
the acquisition. After giving effect to an estimated $2.0 million of
incremental costs, ATC believes that it has existing management capacity
sufficient to provide such services without incurring additional incremental
costs.
The following table sets forth the historical results of operations for the ATC
Pro Forma Transactions (other than the OmniAmerica Merger and the TeleCom
Merger) for the year ended December 31, 1997 (in thousands).
<TABLE>
<CAPTION>
Meridian Diablo MicroNet Gearon OPM Wauka
Transaction Transaction Transaction Transaction Transaction Transaction
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $2,385 $6,957 $15,103 $29,930 $ 863 $3,569
Operating expenses...... 1,730 4,876 8,695 19,688 1,146 1,696
Depreciation and
amortization........... 211 393 2,626 186 428 571
Corporate general and
administrative
expenses............... 500 488 1,209
------ ------ ------- ------- ------- ------
Operating income
(loss)................. 444 1,188 3,782 10,056 (1,199) 93
Other (income) expense:
Interest expense, net.. 80 110 636 742
Other expense
(income).............. (133) (34) (95) (16)
------ ------ ------- ------- ------- ------
Income (loss) from
operations before
income taxes........... $ 364 $1,211 $ 3,816 $10,151 $(1,819) $ (649)
====== ====== ======= ======= ======= ======
</TABLE>
(continued)
23
<PAGE>
<TABLE>
<CAPTION>
ATC
Old ATC Private ATC July Pro Forma
Merger Placement Separation Offering Adjustments Total
------- --------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $20,006 $ 78,813
Operating expenses...... 7,321 45,152
Depreciation and
amortization........... 4,903 $ 44,529 53,847
Corporate general and
administrative
expenses............... (197) 2,000
------- -------- --------
Operating income
(loss)................. 7,782 (44,332) (22,186)
Other (income) expense:
Interest expense
(income), net......... 5,439 $(6,352) $20,960(i) $(24,404) (2,789)
Other expense (income),
net................... 514 (236)
------- ------- --------- -------- -------- --------
Income (loss) from
operations before
income taxes........... $ 1,829 $ 6,352 $ (20,960) $ 24,404 $(44,096) $(19,397)
======= ======= ========= ======== ======== ========
</TABLE>
- --------
(b) To record the results of operations for the OmniAmerica Merger. The results
of operations have been adjusted to reverse historical interest expense of $0.6
million. No additional debt would be incurred for the year ended December 31,
1997 as a result of $625.1 million of net proceeds raised pursuant to the July
Offering.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $5.8 million for the year ended
December 31, 1997 and record depreciation and amortization expense of $33.2
million for the year ended December 31, 1997 based on estimated allocations of
purchase prices. Depreciation expense for property, plant and equipment
acquired has been determined based on an average life of 15 years. Costs of
acquired intangible assets for the transactions are amortized over 15 years.
The preliminary estimates of the fair value of property, plant and equipment
and intangible assets may change upon final appraisal.
Approximately $0.9 million of corporate general and administrative expenses of
OmniAmerica has not been carried forward into the pro forma condensed
consolidated financial statements as these costs represent duplicative
facilities and compensation to owners and/or executives not retained by ATC.
Because ATC already maintains its own separate corporate headquarters which
provides services substantially similar to those represented by these costs,
they are not expected to recur following the acquisition. The balance of the
costs were reclassified to operating expenses.
(c) To record the results of operations for the TeleCom Merger. The results of
operations have been adjusted to reverse historical interest expense of $1.9
million. No additional debt would be incurred for the year ended December 31,
1997 as a result of $625.1 million of net proceeds raised pursuant to the July
Offering.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $2.9 million for the year ended
December 31, 1997 and record depreciation and amortization expense of $14.7
million for the year ended December 31, 1997 based on estimated allocations of
purchase prices. Depreciation expense for property, plant and equipment
acquired has been determined based on an average life of 15 years. Costs of
acquired intangible assets for the transactions are amortized over 15 years.
The preliminary estimates of the fair value of property, plant and equipment
and intangible assets may change upon final appraisal.
Approximately $3.3 million of corporate general and administrative expenses of
TeleCom has not been carried forward into the pro forma condensed consolidated
financial statements as these costs represent duplicative facilities and
compensation to owners and/or executives not retained by ATC. Because ATC
already maintains its own separate corporate headquarters which provides
services substantially similar to those represented by these costs, they are
not expected to recur following the acquisition.
(d) No pro forma effect to interest income has been given for investable cash
related to the net proceeds from this Offering.
24
<PAGE>
(e) The following table sets forth the results of the consummation of this
Offering and one, but not both, of the Mergers, and the other ATC Pro Forma
Transactions (in thousands, except per share data).
<TABLE>
<CAPTION>
Pro Forma Pro Forma
for the for the
OmniAmerica TeleCom
Merger Only Merger Only
----------- -----------
<S> <C> <C>
Net revenues.......................................... $169,302 $104,208
Operating expenses.................................... 114,023 55,920
Depreciation and amortization......................... 94,182 74,855
Corporate general and administrative expenses......... 3,536 3,536
-------- --------
Operating income (loss)............................... (42,439) (30,103)
-------- --------
Other expense (income):
Other expense (income), net......................... (242) 193
-------- --------
Loss before income taxes.............................. (42,197) (30,296)
Income tax benefit.................................... 8,441 5,260
-------- --------
Loss before extraordinary item........................ $(33,756) $(25,036)
======== ========
Pro forma basic and diluted loss per common share
before extraordinary item............................ $ (0.23) $ (0.18)
======== ========
Pro forma basic and diluted common shares
outstanding.......................................... 149,294 136,767
======== ========
</TABLE>
(f) To record the tax effect of the pro forma adjustments and impact on ATC's
estimated effective tax rate. The actual effective tax rate may be different
once the final allocation of purchase price is determined.
(g) Includes shares of Class A Common Stock issued or expected to be issued
pursuant to (i) the Wauka Transaction (1.4 million), (ii) the OmniAmerica
Merger (16.7 million), (iii) the TeleCom Merger (4.2 million) and (iv) this
Offering (24.0 million).
25
<PAGE>
AMERICAN TOWER CORPORATION
(FORMERLY AMERICAN TOWER SYSTEMS CORPORATION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Adjustments Pro Forma for Adjustments Adjustments
for ATC Pro ATC Pro for for Adjustments
Forma Forma OmniAmerica TeleCom for This
Historical Transactions(a) Transactions Merger(b) Merger(c) Offering(d) Pro Forma(e)
---------- --------------- ------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 71,485 $ 16,509 $ 87,994 $ 61,649 $ 8,643 $158,286
Operating expenses...... 42,526 6,893 49,419 56,479 3,668 109,566
Depreciation and
amortization........... 32,998 21,005 54,003 25,507 11,011 90,521
Tower separation
expenses............... 12,616 12,616 12,616
Corporate general and
administrative
expenses............... 3,186 3,186 3,186
-------- -------- -------- -------- ------- -------- --------
Operating income
(loss)................. (19,841) (11,389) (31,230) (20,337) (6,036) (57,603)
-------- -------- -------- -------- ------- -------- --------
Other expense:
Interest expense,
net................... 10,740 (3,187) 7,553 3,839 5,372 $(11,524) 5,240
Other expense
(income), net......... 255 255 (528) (273)
-------- -------- -------- -------- ------- -------- --------
Total other expense
(income)............ 10,995 (3,187) 7,808 3,311 5,372 (11,524) 4,967
-------- -------- -------- -------- ------- -------- --------
Income (loss) before
income taxes........... (30,836) (8,202) (39,038) (23,648) (11,408) 11,524 (62,570)
Income tax benefit
(provision)(f)......... 4,934 6,439 11,373 7,373 3,685 (4,609) 17,822
-------- -------- -------- -------- ------- -------- --------
Income (loss) before
extraordinary items.... $(25,902) $ (1,763) $(27,665) $(16,275) $(7,723) $ 6,915 $(44,748)
======== ======== ======== ======== ======= ======== ========
Pro forma basic and
diluted loss per common
share before
extraordinary items.... $ (0.25) $ (0.29)
======== ========
Pro forma basic and
diluted common shares
outstanding(g)......... 108,567 16,727 4,200 24,000 153,494
======== ======== ======= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
The unaudited pro forma condensed consolidated statement of operations for the
nine months ended September 30, 1998 gives effect to the ATC Pro Forma
Transactions and this Offering as if each of the foregoing had occurred on
January 1, 1998.
(a) To record the results of operations for the ATC Pro Forma Transactions
other than the OmniAmerica Merger and the TeleCom Merger. The results of
operations have been adjusted to: (i) reverse historical net interest expense
of $4.2 million; and (ii) record a reduction to net interest expense of $3.2
million for the nine months ended September 30, 1998, as a result of the
reduction of debt to be incurred in connection with the ATC Pro Forma
Transactions acquisitions, other than the OmniAmerica Merger and the TeleCom
Merger, with the proceeds from the July Offering.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $4.0 million for the nine months ended
September 30, 1998 and record depreciation and amortization expense of $21.0
million for the nine months ended September 30, 1998 based on estimated
allocations of purchase prices. Depreciation expense for property, plant and
equipment acquired has been determined based on an average life of 15 years.
Costs of acquired intangible assets for the transactions are amortized over
15 years. The preliminary estimates of the fair value of property, plant and
equipment and intangible assets may change upon final appraisal.
Corporate general and administrative expenses of the prior owners has not been
carried forward into the pro forma condensed consolidated financial statements
as these costs represent duplicative facilities and compensation to owners
and/or executives not retained by ATC. Because ATC already maintains its own
separate corporate headquarters which provides services substantially similar
to those represented by these costs, they are not expected to recur following
the acquisition.
The following table sets forth the historical results of operations for the ATC
Pro Forma Transactions (other than the OmniAmerica Merger and the TeleCom
Merger) for the nine months ended September 30, 1998 (in thousands).
<TABLE>
<CAPTION>
Gearon Old ATC ATC Wauka July Pro Forma
Transaction Merger Separation Transaction Offering Adjustments Total
----------- ------- ---------- ----------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $ 904 $11,337 $4,268 $16,509
Operating expenses...... 1,087 3,936 1,870 6,893
Depreciation and
amortization........... 19 3,125 860 $ 17,001 21,005
Corporate general and
administrative
expenses............... 1,170 (1,170)
------ ------- ------ -------- -------
Operating income
(loss)................. (202) 4,276 368 (15,831) (11,389)
Other (income) expense:
Interest expense
(income), net........ (17) 3,333 $ 8,901 898 $(18,662) 2,360 (3,187)
Other expense
(income)............. 574 5,144 (14) (5,704)
------ ------- ------- ------ -------- -------- -------
Income (loss) from
operations before
income taxes........... $ (759) $(4,201) $(8,901) $ (516) $ 18,662 $(12,487) $(8,202)
====== ======= ======= ====== ======== ======== =======
</TABLE>
(b) To record the results of operations for the OmniAmerica Merger. The results
of operations have been adjusted to: (i) reverse historical interest expense of
$1.1 million; and (ii) record interest expense of $3.8 million for the nine
months ended September 30, 1998 as a result of approximately $64.2 million of
additional net debt to be incurred in connection with the OmniAmerica Merger.
27
<PAGE>
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $5.6 million for the nine months ended
September 30, 1998 and record depreciation and amortization expense of $25.5
million for the nine months ended September 30, 1998 based on estimated
allocations of purchase prices. Depreciation expense for property, plant and
equipment acquired has been determined based on an average life of 15 years.
Costs of acquired intangible assets for the transactions are amortized over
15 years. The preliminary estimates of the fair value of property, plant and
equipment and intangible assets may change upon final appraisal.
Approximately $0.8 million of corporate general and administrative expenses of
OmniAmerica has not been carried forward into the pro forma condensed
consolidated financial statements as these costs represent duplicative
facilities and compensation to owners and/or executives not retained by ATC.
Because ATC already maintains its own separate corporate headquarters which
provides services substantially similar to those represented by these costs,
they are not expected to recur following the acquisition. The balance of the
costs were reclassified to operating expenses.
(c) To record the results of operations for the TeleCom Merger. The results of
operations have been adjusted to: (i) reverse historical interest expense of
$3.6 million; and (ii) record interest expense of $5.3 million for the nine
months ended September 30, 1998 as a result of approximately $89.8 million of
additional net debt to be incurred in connection with the TeleCom Merger.
The results of operations have also been adjusted to reverse historical
depreciation and amortization expense of $5.8 million for the nine months ended
September 30, 1998 and record depreciation and amortization expense of $11.0
million for the nine months ended September 30, 1998 based on estimated
allocations of purchase prices. Depreciation expense for property, plant and
equipment acquired has been determined based on an average life of 15 years.
Costs of acquired intangible assets for the transactions are amortized over
15 years. The preliminary estimates of the fair value of property, plant and
equipment and intangible assets may change upon final appraisal.
Approximately $4.7 million of corporate general and administrative expenses of
TeleCom has not been carried forward into the pro forma condensed consolidated
financial statements as these costs represent duplicative facilities and
compensation to owners and/or executives not retained by ATC. Because ATC
already maintains its own separate corporate headquarters which provides
services substantially similar to those represented by these costs, they are
not expected to recur following the acquisition.
(d) To record the pro forma effect to interest expense from the repayment of
certain debt with proceeds from this Offering. No pro forma effect has been
given to investable cash after the repayment of debt.
28
<PAGE>
(e) The following table sets forth the results of the consummation of this
Offering and one, but not both, of the Mergers, and the other ATC Pro Forma
Transactions (in thousands, except per share data).
<TABLE>
<CAPTION>
Pro Forma Pro Forma
for the for the
OmniAmerica TeleCom
Merger Only Merger Only
----------- -----------
<S> <C> <C>
Net revenues.......................................... $149,643 $ 96,637
Operating expenses.................................... 105,898 53,087
Depreciation and amortization......................... 79,510 65,014
Tower separation expenses............................. 12,616 12,616
Corporate general and administrative expenses......... 3,186 3,186
-------- --------
Operating income (loss)............................... (51,567) (37,266)
-------- --------
Other expense (income):
Interest expense, net............................... 5,240 5,240
Other expense (income).............................. (273) 255
-------- --------
Total other expense (income)...................... 4,967 5,495
-------- --------
Loss before income taxes.............................. (56,534) (42,761)
Income tax benefit.................................... 16,286 11,985
-------- --------
Loss before extraordinary items....................... $(40,248) $(30,776)
======== ========
Pro forma basic and diluted loss per common share
before extraordinary items........................... $ (0.27) $ (0.23)
======== ========
Pro forma basic and diluted common shares
outstanding.......................................... 149,294 136,767
======== ========
</TABLE>
(f) To record the tax effect of the pro forma adjustments and the impact on
ATC's estimated effective tax rate. The actual effective tax rate may be
different once the final allocation of purchase price is determined.
(g) Includes shares of Class A Common Stock issued or expected to be issued
pursuant to (i) the Wauka Transaction (1.4 million), (ii) the OmniAmerica
Merger (16.7 million), (iii) the TeleCom Merger (4.2 million) and (iv) this
Offering (24.0 million).
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
This discussion contains "forward-looking statements", including statements
concerning projections, plans, objectives, future events or performance and
underlying assumptions and other statements which are other than statements of
historical fact. Various factors affect and in the future will affect ATC's
results and could in the future cause ATC's actual results to differ materially
from those expressed in any forward-looking statement. Such factors include:
. substantial capital requirements and leverage principally as a
consequence of its ongoing acquisition and construction activities;
. dependence on demand for wireless communications and implementation of
digital television;
. the success of ATC's tower construction program; and
. the successful operational integration of American Tower's 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, data and Internet
transmission businesses. Since January 1, 1998, ATC has acquired various
communications sites and a major site acquisition business for an aggregate
estimated purchase price of $926.0 million, including the issuance of 36.3
million shares of Class A Common Stock valued (at the time of the relevant
agreement) at $382.6 million.
In June 1998, ATC became an independent public company when its parent,
American Radio, distributed all of its ATC Common Stock to American Radio's
securityholders (we refer to this as the "ATC Separation") and merged and
became a subsidiary of CBS. ATC remains liable to pay CBS amounts relating to
American Radio's tax obligations in the ATC Separation. See "Business--Recent
Transactions--ATC Separation" on page 54 and the Notes to Consolidated
Financial Statements of American Tower on page F-10.
Management expects that acquisitions consummated to date will have a material
impact on future revenues, expenses and income from continuing operations. In
addition, the historical financial information does not reflect the impact of
the construction program of ATC to any significant extent because most of that
activity is of more recent origin and is expected to accelerate substantially
during 1999.
Results of Operations
As of September 30, 1998, ATC operated approximately 1,900 communications
sites, as compared to 370 communications sites as of September 30, 1997. The
acquisitions reflected in such growth have significantly affected operations
for the nine months ended September 30, 1998 as compared to the nine months
ended September 30, 1997.
30
<PAGE>
Nine Months Ended September 30, 1997 and 1998 (in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended September
30,
---------------- Amount of
1997 1998 Increase
------ -------- ---------
<S> <C> <C> <C>
Tower rental and management revenues.............. $6,478 $ 39,305 $32,827
Site acquisition service revenues................. 1,424 18,848 17,424
Video, voice, data and Internet transmission
revenues......................................... -- 13,332 13,332
------ -------- -------
Total operating revenues.......................... 7,902 71,485 63,583
------ -------- -------
Tower rental and management expenses.............. 2,753 18,417 15,664
Site acquisition service expenses................. 836 15,412 14,576
Video, voice, data and Internet 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
------ -------- -------
Depreciation and amortization..................... 2,706 32,998 30,292
Tower separation expenses......................... 12,616 12,616
Corporate general and administrative expenses..... 919 3,186 2,267
Interest expense.................................. 1,318 17,023 15,705
Interest income and other, net.................... 94 6,283 6,189
Minority interest in net earnings of
subsidiaries..................................... 221 255 34
Income tax benefit................................ 49 4,934 4,885
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
====== ======== =======
Tower cash flow................................... $4,313 $ 28,959 $24,646
====== ======== =======
EBITDA............................................ $3,394 $ 25,773 $22,379
====== ======== =======
</TABLE>
Except as explained below, the communications sites and related business
acquisitions, principally those that occurred in 1997 and 1998, accounted for
substantially all of the increases indicated in the above table.
Site acquisition service revenues and expenses for the nine months ended
September 30, 1998 include the operating results of the Gearon site acquisition
business (January 1998) and, to a lesser extent, the operating results of two
similar businesses (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 acquisitions.
Video, voice and data transmission revenues and expenses for the nine months
ended September 30, 1998 include the operating results of American Tower's
first video, voice, data and Internet 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.
American Tower's separation expenses relate primarily to one-time financial
advisory, legal, accounting and consent solicitation fees and other expenses
incurred in connection with the ATC Separation. American Tower expects to incur
additional separation expenses, but does not expect such costs to be material
to American Tower's results of operations or financial position.
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.
31
<PAGE>
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 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 Interim Preferred Stock that 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 American Tower'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 ATC recorded no tax benefit.
Year Ended December 31, 1997 and 1996 (in thousands)
As of December 31, 1997, ATC operated 670 communications sites, as compared to
270 communications sites as of December 31, 1996. See the Notes to Consolidated
Financial Statements on page F-10 for a description of the acquisitions
consummated in 1997 and 1996. These transactions have significantly affected
operations for the year ended December 31, 1997 as compared to the year ended
December 31, 1996 (in thousands).
<TABLE>
<CAPTION>
Amount of
Increase
1996 1997 (Decrease)
------ ------- ----------
<S> <C> <C> <C>
Tower rental and management revenues............... $2,817 $13,025 $10,208
Site acquisition service revenues.................. -- 2,123 2,123
Video, voice, data and Internet transmission
revenues.......................................... -- 2,084 2,084
Other.............................................. 80 276 196
------ ------- -------
Total operating revenues........................... 2,897 17,508 14,611
------ ------- -------
Tower rental and management expenses............... 1,362 6,080 4,718
Site acquisition service expenses.................. -- 1,360 1,369
Video, voice data and Internet transmission
expenses.......................................... -- 1,273 1,273
------ ------- -------
Operating expenses excluding depreciation and
amortization and corporate general and
administrative expenses........................... 1,362 8,713 7,351
------ ------- -------
Depreciation and amortization...................... 990 6,326 5,336
Corporate general and administrative expenses...... 830 1,536 706
Interest expense (income), net..................... (36) 2,789 2,825
Minority interest in net earnings of subsidiaries.. 185 193 (8)
Income tax benefit (provision)..................... (46) 473 519
Extraordinary loss................................. -- 694 694
------ ------- -------
Net loss........................................... $ (480) $(2,270) $ 1,790
====== ======= =======
Tower cash flow.................................... $1,535 $ 8,795 $ 7,260
====== ======= =======
EBITDA............................................. $ 705 $ 7,259 $ 6,554
====== ======= =======
</TABLE>
32
<PAGE>
As noted above, ATC consummated numerous acquisitions in 1997 and 1996, many of
which were of a material size. Except as explained below, substantially all of
the increases indicated in the above table were attributable to the impact of
these communications sites and related business acquisitions, principally those
that occurred in 1997.
The increase in depreciation and amortization was primarily attributable to the
increase in depreciable and amortizable assets resulting from the 1996 and 1997
acquisitions and, to a substantially lesser extent, completed construction
projects.
The increase in corporate general and administrative expenses was 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 related to higher borrowing levels which were
used to finance the 1997 acquisitions and, to a substantially lesser extent,
the 1996 acquisitions.
The minority interest in net earnings of subsidiaries represents the
elimination of the minority stockholder's earnings of consolidated
subsidiaries. The increase is related to increased overall earnings of ATS
Needham, in which ATC held a 50.1% interest.
The effective tax rate for the year ended December 31, 1997 was approximately
23%. The effective tax rate in 1997 is due to the effect of non-deductible
items, principally amortization of goodwill, on certain stock acquisitions. In
1996, ATC recorded a tax provision of approximately $46,000 despite a loss
before taxes of approximately $434,000. This primarily resulted from non-
deductible items, principally amortization of goodwill for which no tax benefit
was recorded.
The extraordinary loss in 1997 of approximately $0.7 million net of tax,
represents the write-off of deferred financing fees associated with ATC's loan
agreement.
Year Ended December 31, 1996 and Period Ended December 31, 1995 (in thousands)
As of December 31, 1996, ATC operated approximately 270 communications sites as
compared to three communications sites as of December 31, 1995. See the Notes
to Consolidated Financial Statements on page F-21 for a description of the
acquisitions consummated in 1996. These transactions have significantly
affected operations for the year ended December 31, 1996 as compared to the
period from July 17, 1995 (date of incorporation) to December 31, 1995 (in
thousands).
<TABLE>
<CAPTION>
Amount of
Increase
1995 1996 (Decrease)
----- ------ ----------
<S> <C> <C> <C>
Total operating revenues............................. $ 163 $2,897 $2,734
Operating expenses excluding depreciation and
amortization and corporate general and
administrative expenses............................. 60 1,362 1,302
Depreciation and amortization........................ 57 990 933
Corporate general and administrative expenses........ 230 830 600
Interest expense (income), net....................... -- (36) (36)
Minority interest in net earnings of subsidiary...... -- 185 185
Income tax benefit (provision)....................... 74 (46) (120)
----- ------ ------
Net loss............................................. $(110) $ (480) $ 370
===== ====== ======
Tower cash flow...................................... $ 103 $1,535 $1,432
===== ====== ======
EBITDA............................................... $(127) $ 705 $ 832
===== ====== ======
</TABLE>
33
<PAGE>
As noted above, ATC consummated several acquisitions in 1996, two of which were
of a material size. Except as explained below, substantially all of the
increases indicated in the above table were attributable to the impact of these
communications sites and related business acquisitions that occurred in 1996.
The increase in depreciation and amortization was primarily attributable to the
increase in depreciable and amortizable assets resulting from the 1996
acquisitions.
The increase in corporate general and administrative expenses was primarily
attributable to the higher personnel costs associated with supporting ATC's
greater number of tower properties.
The increase in interest income was attributable to higher investable cash
balances.
The minority interest in net earnings of subsidiary represents the elimination
of the minority stockholder's earnings of consolidated subsidiaries. ATC
purchased its 50.1% interest in ATS Needham in July 1996.
In 1996, ATC recorded a tax provision of approximately $46,000 despite a loss
before taxes of approximately $434,000. This primarily resulted from non-
deductible items, principally amortization of goodwill for which no tax benefit
was recorded. The effective tax rate in 1995 was consistent with the statutory
rate.
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 sales of its equity
securities (including sales prior to the ATC Separation to 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 ATC's
credit arrangements, the Interim Preferred Stock financing activities, and the
sale of Common Stock pursuant to the Stock Purchase Agreement and the July
Offering, somewhat offset by the tax payments to CBS, all as discussed below.
During the nine months ended September 30, 1998, ATC had capital expenditures
of approximately $77.0 million primarily related to construction activities and
completed construction on approximately 270 towers during this period. During
the balance of 1998, ATC built or commenced construction of approximately 230
additional towers (most of which are on a build to suit basis) at a remaining
cost of $50.0 million. The 1999 combined business plans of ATC, OmniAmerica and
TeleCom call for construction of between 1,300 and 1,700 towers at a cost of
between $220.0 million and $325.0 million (exclusive of broadcast towers). The
actual number of towers built may be outside of that range because of more
attractive investment opportunities from acquisitions (in which case it could
be less) or significant new build to suit projects with wireless service
providers (in which case it could be more). Management believes that, upon
consummation of this Offering, ATC will have sufficient funds available to it
to finance current construction plans, pending acquisitions and several
additional major acquisitions and/or construction projects. However, in the
unlikely event that ATC were to negotiate more than a limited number of such
major transactions, it might require additional financing. Any such financing
could take the form of an increase in the maximum borrowing levels under the
Credit Facilities which would be dependent on ATC's ability to meet certain
leverage ratios. Alternatively, ATC could issue debt or senior nonconvertible
equity securities which could have the effect of
34
<PAGE>
increasing its consolidated leverage ratios. More likely, ATC could sell Class
A Common Stock or securities convertible into or exercisable for Class A Common
Stock, which would have a dilutive effect on the proportionate ownership of ATC
by its then existing stockholders. Such financing may not 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 as newly
constructed towers will initially decrease overall liquidity. But, as such
sites become fully operational and achieve higher utilization, they should
generate cash flow, and in the long-term, increase liquidity.
Credit Facilities: In June 1998, ATC and its subsidiaries entered into
definitive agreements with respect to new and increased credit arrangements. In
connection with repayment of borrowings under the prior credit agreement out of
proceeds of borrowings under the 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. As of September 30, 1998, ATC had
approximately $281.6 million of long-term debt, of which $275.0 million was
outstanding in the form of term loans. We have provided more information about
the Credit Facilities under the section entitled "Description of Certain
Indebtedness" on page 70 and in Note 4 of the Notes to the Consolidated
Financial Statements of American Tower on page F-14.
Debt service requires a substantial portion of ATC's cash flow from operations.
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 Credit Facilities. If such cash flow were not sufficient to meet such
debt service requirements, ATC might sell equity securities, refinance its
obligations or dispose of one or more of its properties in order to make such
scheduled payments. ATC may not 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 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 Credit Facilities.
ATC Separation: As part of the ATC Separation, ATC entered into an agreement
with CBS (the "Separation Agreement"). The Separation Agreement requires ATC to
reimburse CBS on a "make-whole" (after-tax) basis for the tax liabilities
incurred by American Radio attributable to the distribution of the Common Stock
owned by American Radio to its securityholders and certain related
transactions, to the extent that the aggregate amount of taxes required to be
paid by American Radio 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 ATC Separation. ATC received an appraisal from an
independent appraisal firm that the "fair market value" of American Radio's
stock interest in ATC was equal to $17.25 per share. Based on such appraisal,
American Radio paid estimated taxes of approximately $212.0 million, for which
ATC reimbursed CBS. 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
American Radio convertible securities; such taxes will be based on the "fair
market value" of the Class A Common Stock at the time of conversion. As of
January 15, 1999, ATC estimates that its reimbursement obligation with respect
to taxes on known conversions is approximately $14.4 million, of which $8.5
million has already been paid. ATC estimates that its remaining reimbursement
obligation with respect to the taxes on convertible securities that have not
been converted would be approximately $14.9 million under the tax reporting
method followed, based on a fair market value of the
35
<PAGE>
Class A Common Stock of $25.625 per share. ATC's obligation for additional
conversions would change by approximately $1.1 million for each $1.00 change in
the fair market value.
The Separation Agreement also provides for closing balance sheet adjustments
based on the working capital, as defined, and debt levels of American Radio as
of June 4, 1998. ATC's preliminary estimate was that such adjustments would not
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 stated above include such estimated tax reimbursement
amount. In February 1999, ATC agreed to pay CBS $50.0 million in settlement of
all amounts due with respect to such adjustments, including interest. As part
of such settlement, ATC also agreed to indemnify CBS and American Radio with
respect to certain tax matters affecting American Radio prior to the CBS
Merger. See "Business--Recent Transactions--ATC Separation" on page 54 for
additional information.
ATC Preferred Stock Financing: On June 4, 1998, ATC issued $300.0 million of
preferred stock (the "Interim Preferred Stock") and used the proceeds to fund
its tax reimbursement obligation to CBS, to pay the commitment and other fees
and expenses of the issue and sale of such stock and to reduce bank borrowings.
As discussed below, ATC redeemed the Interim Preferred Stock on July 9, 1998.
As a result, American Tower 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.
July Offering: On July 8, 1998, American Tower completed a public offering (the
"July Offering") of 27,861,987 shares of Class A Common Stock, $.01 par value
per share (including 2,361,987 shares sold by American Tower 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. American Tower's net proceeds of the offering (after deduction of the
underwriting discount and estimated offering expenses) were approximately
$625.1 million. American Tower 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. ATC invested the balance in
short-term investment grade securities. ATC will continue to use such
investments together with borrowings under the Credit Facilities to fund
acquisitions and construction activities.
Year 2000
American Tower is aware of the issues associated with the Year 2000 as it
relates to information systems and is working to resolve the potential impact.
In December 1998, ATC formally engaged an outside consultant to help it conduct
an extensive review and implement a comprehensive plan to reduce the
probability of operational difficulties due to Year 2000 issues. Although
American Tower has not developed a formal plan to date, management believes
that, with the assistance of an outside consultant, ATC will be able to
resolve, in a timely manner, any material Year 2000 problems.
The components of American Tower's comprehensive plan will include the
following:
. 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
American Tower;
36
<PAGE>
. communication with customers to ensure that their state of readiness
will not result in any operational issues;
. evaluation of American Tower's equipment and assets with respect 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.
Management expects American Tower's comprehensive plan to reduce significantly
its level of uncertainty about the Year 2000 problem and, in particular, about
the Year 2000 readiness of its material external customers and suppliers.
Although ATC has not completed its Year 2000 assessment, it is aware of one
potential area of Year 2000 exposure. The Year 2000 computer issues could
create potential problems for tower owners such as ATC. Computer-controlled
devices, such as those found in automatic monitoring and control systems used
for antenna structure lighting, are vulnerable to Year 2000-related
malfunctions and may fail, which would create a hazard to air navigation. Tower
owners, such as ATC, are responsible for tower lighting in compliance with FCC
and FAA requirements and ATC intends to take the necessary steps to address the
Year 2000 problems. However, ATC may not be entirely successful.
Based on the efforts to date, American Tower presently believes that the Year
2000 issue will not have a material adverse effect on its results of
operations, liquidity or financial condition or operational activities. With
respect to its internal information systems, management believes that the Year
2000 compliance issue will not have a material impact on its internal
information systems as ATC's hardware and software is either Year 2000
compliant or required changes will not generate material costs. The costs
incurred to date in this area have been immaterial. American Tower anticipates
that the estimated future costs of the Year 2000 issue will not be material to
American Tower.
Recent Accounting Pronouncements
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. ATC has not completed its
evaluations of FAS No. 133.
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.
37
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------
June
1997 March 31, 30, September 30, December 31, Total
- ---- --------- ------- ------------- ------------ -------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 1,366 $ 2,015 $ 4,521 $9,606 $17,508
Gross profit(1)......... 324 426 857 862 2,469
Loss before
extraordinary item..... (58) (106) (544) (868) (1,576)
Basic and diluted per
Common Share:(2)
Loss before
extraordinary loss... $ (0.00) $ (0.00) $ (0.01) $(0.02) $ (0.03)
Net loss.............. $ (0.00) $ (0.00) $ (0.01) $(0.04) $ (0.05)
<CAPTION>
Quarters Ended
--------------------------------
June
1998 March 31, 30, September 30,
- ---- --------- ------- -------------
<S> <C> <C> <C> <C> <C>
Net revenues............ $17,925 $23,082 $30,478
Gross profit (loss)(1).. 628 (1,210) (3,457)
Loss before
extraordinary items.... (1,527) (18,417) (5,958)
Basic and diluted per
Common Share:(2)
Loss before
extraordinary
losses............... $ (0.03) $ (0.33) $ (0.06)
Net loss.............. $ (0.03) $ (0.35) $ (0.13)
</TABLE>
- --------
(1) Represents net revenues less operating expenses excluding corporate general
and administrative expenses and tower separation expenses.
(2) Prior to June 4, 1998 (the ATC Separation), basic and diluted loss per
common share information is computed using the 48,732 shares that were
outstanding upon consummation of the ATC Separation.
38
<PAGE>
INDUSTRY OVERVIEW
Communications site owners and operators have benefited in recent years from a
substantial increase in demand for wireless communications services. The
Cellular Telecommunications Industry Association estimates that the number of
subscribers to wireless telephone services was approximately five million in
1990. According to The Strategis Group, a telecommunications marketing research
firm, the number of subscribers to cellular and personal communication services
("PCS") was over 50 million in 1998 and is projected to increase to over 100
million by the year 2001. This demand has prompted the issuance of new wireless
communications licenses and construction of new wireless networks. ATC believes
that the increase in demand for wireless communications is attributable to a
number of factors, including:
. decreasing costs of wireless services,
. the increasing mobility of the U.S. population,
. the growing awareness of the benefits of mobile communications,
. technological advances in communications equipment,
. favorable changes in telecommunications regulations, and
. business and consumer preferences for higher quality voice and data
transmission.
Contributing significantly to the anticipated requirements is the nature of PCS
and enhanced specialized mobile radio ("ESMR"). These higher frequency
technologies have a reduced cell range and thus require a higher density of
towers in the network. Consequently, the anticipated increase in the demand for
these technologies will require more towers to be built. The Personal
Communications Industry Association (of which James S. Eisenstein, an executive
officer of ATC, is a director) estimates that cellular and PCS needs will
require the construction of over 100,000 additional antennae sites over the
next ten years.
ATC believes that as the wireless communications industry has grown it has
become more competitive. As a consequence, many carriers may seek to preserve
capital and speed access to their markets by (i) focusing on activities that
contribute directly to subscriber growth, (ii) outsourcing infrastructure
requirements such as owning, constructing and maintaining towers and/or (iii)
by co-locating transmission facilities. Previously, carriers typically sourced
many of such services in-house, while local non-integrated service contractors
focused on specific segments such as radio frequency engineering, site
acquisition and tower construction. To meet these carrier needs, independent
operators have expanded into a number of associated network and communications
site services. Examples of these are the selection and acquisition of
communications sites (including the resolution of zoning and permitting
issues), the design of wireless and broadcast sites and networks, and the
construction or supervision of construction of towers. Also, in order to
accelerate network deployment or expansion and to generate efficiencies,
carriers are increasingly co-locating transmission infrastructure with that of
other network operators. Regulatory restrictions and the growing interest of
local municipalities in slowing the proliferation of towers in their
communities by requiring that towers accommodate multiple tenants has also
contributed to co-location.
While the wireless communications industry is experiencing rapid growth, the
television broadcasting industry, with strong encouragement from both Congress
and the FCC, is actively planning its strategy for the transition from analog
to digital technology. Local broadcasters will be initiating digital television
("DTV") service at different times. A station may begin DTV service as soon as
it has received its FCC permit and is ready with equipment and other necessary
preparations. The FCC has established a schedule by which broadcasters must
begin DTV service (absent extenuating circumstances that may affect individual
stations). This schedule requires that stations affiliated with the top four
networks (ABC, CBS, FOX and NBC) in the ten largest markets begin service by
May 1, 1999. Stations affiliated with these networks in markets 11-30 must
begin service by November 1, 1999. All commercial stations must begin DTV
service by May 1, 2002, and all noncommercial educational stations must start
by May 1, 2003. At least 25 stations started DTV service in November 1998. ATC
believes that this transition will require a substantial investment in enhanced
broadcast
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infrastructure, including the construction or reengineering of broadcast
towers. ATC expects much of the associated capital requirements will be borne
by the broadcasters. However, management believes that, as with the deployment
of towers for the wireless carriers, speed to market and limited capital
resources will cause certain broadcasters to outsource the construction or
reengineering of their towers in order to accommodate digital technology.
A communications tower's location, height and the loaded capacity at certain
wind speeds determine its desirability to wireless carriers and the number of
antennae that the tower can support. An antenna's height on a tower and such
tower's location determine the line-of-sight of such antenna with the horizon
and, consequently, the distance a signal can be transmitted. Some users, such
as paging companies and specialized mobile radio ("SMR") providers in rural
areas, need higher elevations for broader coverage. Other carriers such as PCS,
ESMR and cellular companies in metropolitan areas usually do not need to place
their equipment at the highest tower point.
A tower can be either self-supporting or supported by guy wires. There are two
types of self-supporting towers: the lattice and the monopole. A lattice tower
is usually tapered from the bottom up and can have three or four legs. A
monopole is a tubular structure that is typically used as a single purpose
tower or in places where there are space constraints or a need to address
aesthetic concerns. Self-supporting towers typically range in height from 50-
200 feet for monopoles and up to 1,000 feet for lattices, while guyed towers
can reach 2,000 feet or more. A typical communications site consists of a
compound enclosing the tower or towers and an equipment shelter (which houses a
variety of transmitting, receiving and switching equipment).
[Graphic Appears Here]
Rooftop or other building top sites are more common in urban downtown areas
where tall buildings are generally available and high traffic density requires
multiple communications sites. One advantage of a rooftop site is that zoning
regulations typically permit installation of antennae. In cases of such
population density, neither height nor extended radius of coverage is as
important. Moreover, the installation of a free-standing
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tower structure in urban areas will often prove to be impossible due to zoning
restrictions and land availability and cost.
The cost of construction of a tower varies both by site location (which will
determine, among other things, the required height of the tower) and type of
tower. Non-broadcast towers (whether on a rooftop or the ground) generally cost
between approximately $150,000 and $200,000. Broadcasting towers generally are
built to bear a greater load. They usually cost between $300,000 and $1.0
million if on an elevated location and between $1.0 million and $3.5 million if
on flat terrain.
The number of tenants that a tower can accommodate varies depending on the
nature of the services provided by such tenants and the height of the tower.
Non-broadcast towers of 200-300 feet that are designed to maximize capacity
generally are capable of housing between five and ten tenants using an
aggregate of between 25 and 50 antennae. Broadcasting towers generally are
capable of housing between ten and 40 tenants using an aggregate of between 50
and 100 antennae.
Annual rental payments vary considerably depending upon several factors,
including: (i) the type of service being provided; (ii) the size of the
transmission line and the number and weight of the antennae on the tower; (iii)
the existing capacity of the tower; (iv) the antenna's placement on, and the
location and height of, the tower; and (v) the competitive environment.
Lease terms vary depending upon the industry user, with television and radio
broadcasters tending to prefer longer term leases (15 to 20 years) than
wireless communications service providers (five to ten years). In either case,
most of such leases contain provisions for multiple renewals at the option of
the tenant. Governmental agencies, because of budgetary restrictions, generally
have one-year leases that tend to renew automatically. Tenants tend to renew
their leases because of the complications associated with moving antennae. For
example, a move by a television or radio broadcaster would necessitate FCC
approval and could entail major dislocations and the uncertainty associated
with building antennae in new coverage areas. In the case of cellular, PCS and
other wireless users, moving one antenna might necessitate moving several
others because of the interlocking grid-like nature of their wireless systems.
In addition, the increasing difficulty of obtaining local zoning approvals, the
increasing environmental concerns of communities and the restrictions imposed
upon owners and operators by the FAA and upon tenants by the FCC tend to reduce
the number of alternatives available to a tower user. Leases generally provide
for annual automatic price increases (escalator provisions) based on specified
estimated cost measures or on increases in the consumer price index. Owners and
operators generally also receive fees for installing customers' equipment and
antennae on the communications site.
Wireless communications towers are owned by a wide range of companies,
including wireless service providers, regional Bell operating companies, long
distance telephone companies, television and radio broadcasting companies,
independent tower operators, utilities and railroads. Despite the increasing
demand for communications sites, the industry remains highly fragmented, with
few independent operators owning a significant percentage of towers. ATC
estimates that no one independent tower owner and operator (one which owns and
operates communications sites principally for other entities) owns more than 5%
of the tower sites in the United States. The pace of consolidation has begun to
accelerate, however, as the larger independent operators continue to acquire
small local or regional operators and purchase communications sites and related
assets from wireless communications carriers. Management believes that a major
factor contributing to such consolidation is the emergence of many major
companies seeking to provide increasingly sophisticated wireless services on a
national basis. This, in turn, creates a need for substantial companies capable
of developing and constructing networks of communications sites and maintaining
and servicing the sophisticated support facilities associated with ongoing
operations. ATC believes that the national and other large wireless service
providers will prefer to deal with a company that can meet the majority of such
providers' needs within a particular market or region, rather than, as in the
past, a large number of individual tower owners, construction companies and
other service providers. See "Risk Factors--Construction of New Towers" on page
10.
Unlike the fragmented nature of the communications site business, customers in
the wireless communications industry and the broadcast industry tend to be
large, well-capitalized national companies.
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BUSINESS
General
American Tower is a leading independent owner and operator of wireless
communications towers in the United States. ATC's strategy is to use that
position to take advantage of the growth opportunities inherent in a rapidly
expanding and highly fragmented communications site industry. ATC has grown in
less than four years to a company that will operate more than 3,200 towers in
44 states and the District of Columbia, giving effect to all pending mergers
and acquisitions.
American Tower achieved its initial growth predominantly through acquisitions.
ATC intends to continue to pursue its strategic acquisitions, including
possible transactions with large wireless service providers seeking to divest
their ownership of towers. More recently, however, ATC has been engaged in a
major construction program. In 1998, American Tower (exclusive of construction
activities of acquired or to be acquired companies prior to acquisition)
constructed or had under construction at year end more than 500 towers at an
aggregate cost of approximately $108.0 million. The 1999 combined business
plans of ATC, OmniAmerica and TeleCom call for construction of between 1,300
and 1,700 towers at a cost of between $220.0 million and $325.0 million
(exclusive of broadcast towers). The actual number of towers built may be
outside of that range because of more attractive investment opportunities from
acquisitions (in which case it could be less) or significant new build to suit
projects with wireless service providers (in which case it could be more).
For the year ended December 31, 1997, giving effect to the ATC Pro Forma
Transactions, ATC had net revenues of $177.2 million and EBITDA of $57.6
million. For the nine months ended September 30, 1998, giving effect to the ATC
Pro Forma Transactions, ATC had net revenues of $158.3 million and EBITDA of
$45.5 million.
ATC's primary business is the leasing of antennae sites on multi-tenant towers
for a diverse range of wireless communications industries, including PCS,
cellular, ESMR, SMR, paging and fixed microwave, as well as radio and
television broadcasters. ATC also offers its customers a broad range of network
development services, including network design, site acquisition, zoning and
other regulatory approvals, tower construction and antennae installation. ATC
intends to expand these services and to capitalize on its relationships with
its wireless customers through construction for them of major tower networks
that ATC will own and operate. ATC is also engaged in the video, voice, data
and Internet transmission business, which it currently conducts in the New York
City to Washington, D.C. corridor and Texas.
ATC operates or is constructing towers in major cities throughout the United
States and has its largest tower clusters in California, Florida and Texas.
ATC has a diversified base of approximately 2,500 customers, no one of which
accounted for more than 10% of its pro forma net revenues from site leasing
activities for the nine months ended September 30, 1998. The five largest
customers accounted for less than 30% of such net revenues. ATC's wide range of
customers includes most of the major wireless service providers in that
industry, including Airtouch, Alltell, AT&T Wireless, Bell Atlantic Mobile,
BellSouth, GTE Mobilnet, Houston Cellular, Metrocall, Mobile Comm, Nextel,
Omnipoint, PacBell, PageNet, PowerTel, PrimeCo PCS, SkyTel, Southwestern Bell,
Sprint PCS and Western Wireless. In addition, most of the major companies in
the radio and television broadcasting industry are ATC's customers, including
ABC, CBS, Chancellor Media, Clear Channel, CNN, Fox and NBC. ATC provides site
acquisition services to most of such wireless service providers, and ATC has
constructed or is constructing towers on a build to suit basis for companies
such as Bell South, Nextel, Omnipoint, PrimeCo, PCS and Southwestern Bell. The
principal users of ATC's video, voice, data and Internet transmission services
are television broadcasters and other video suppliers such as CBS, CNN, Fox and
TCI.
Management estimates that ATC's site leasing activities, which it believes
generate the highest profit margin of its businesses, accounted for 46% of its
pro forma net revenues for the nine months ended September 30, 1998;
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site acquisition activities (including construction for others) accounted for
46%; and the video, voice, data and Internet transmission business accounted
for 8%. However, in light of management's intention to focus on construction
activities, which will increase the number of antennae sites available for
leasing, ATC believes that leasing activities are likely to grow at a more
rapid rate than other aspects of its business. For similar reasons, site
acquisition activities (including construction for others) are expected to
decline as a percentage of net revenues.
ATC derives its revenue from various industry segments. The percentage of ATC's
pro forma net revenues for the nine-month period ended September 30, 1998
derived from the various industry segments (including from its site acquisition
activities) is estimated to be as follows: PCS--40%; paging--15%; cellular--9%;
microwave--7%; governmental agencies and others--5%; radio and television
broadcasting--5%; ESMR--4%; two-way radio--4%; and SMR--3%. The remaining 8% of
such revenues are derived from ATC's video, voice, data and Internet
transmission customers, which are primarily the major television networks, and
other video suppliers. Management believes that the foregoing percentages are
probably not indicative of future contributions to be made by the various
industry segments. Future contributions will probably change because of the
anticipated growth of PCS, cellular and ESMR compared to other wireless
providers. Management's intended focus on build to suit and other tower
construction activities for its own account will also impact relative
contributions. Moreover, PCS's ongoing percentage of net revenues may decline
over time because its anticipated growth in lease revenues will be more than
offset by the decline in ATC's site acquisition and construction activities for
that segment. Currently, PCS accounts for more than two-thirds of ATC's pro
forma site acquisition activities. Accordingly, in comparison to PCS's 40% of
ATC's current pro forma net revenues (including site acquisition and
construction activities), its contribution to such pro forma net revenues from
leasing activities is 18%.
ATC designed its growth strategy to enhance its position as a leading U.S.
provider of communications sites and network development services to the
wireless communications and broadcasting industries. The principal elements of
this strategy are:
. to maximize utilization of antennae sites through targeted sales and
marketing techniques;
. to expand its tower construction activities, principally through build
to suit projects; and
. to pursue strategic acquisitions, designed principally (i) to take
advantage of divestiture opportunities presented by wireless service
providers, (ii) to facilitate entry into new geographic markets and
(iii) to complement the construction program.
ATC believes that as the wireless communications industry has grown it has
become more competitive. As a consequence, many carriers may seek to preserve
capital and speed access to their markets by focusing on activities that
contribute directly to subscriber growth and by outsourcing infrastructure
requirements such as owning, constructing and maintaining towers. ATC also
believes that many carriers are, for similar reasons, increasingly co-locating
transmission facilities with those of others, a trend likely to be accelerated
because of regulatory restrictions and the growing tendency of local
municipalities to require that towers accommodate multiple tenants. Management
also believes that national and other large wireless service providers will
prefer to deal with a company, such as ATC, that can meet the majority of such
providers' needs within a particular market or region, rather than, as in the
past, with a large number of individual tower owners, construction companies
and other service providers. See "Risk Factors--Construction of New Towers" on
page 10 and "--Growth Strategy" on page 44.
Management believes that, in addition to such favorable growth and outsourcing
trends, the communications site industry and ATC will benefit from several
favorable characteristics, including the following:
. a recurring and growing revenue stream based to a significant extent on
long-term leases;
. low tenant "churn" due to the costs and disruption associated with
reconfiguring a wireless network or broadcasting location;
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. a customer base which is diversified by industry, among customers within
each industry and geographical area, and which consists principally of
large, financially responsible national companies;
. favorable absolute and incremental tower cash flow margins due to low
variable operating costs;
. low on-going maintenance capital requirements;
. local government and environmental initiatives to reduce the numbers of
towers thereby requiring carriers to co-locate antennae; and
. the opportunity to consolidate in a highly fragmented industry, thereby
creating the potential for enhanced levels of customer service and
operating efficiency.
Growth Strategy
ATC's objective is to enhance its position as a leading U.S. provider of
communications sites and network development services to the wireless
communications and broadcasting industries. ATC's growth strategy consists of
the following principal elements:
Internal Growth through Sales, Service and Capacity Utilization. Management
believes that a substantial opportunity for profitable growth exists by
maximizing the utilization of existing and future towers. Because the costs of
operating a site are largely fixed, increasing tower utilization significantly
improves site operating margins. Moreover, when a specific tower reaches full
antennae attachment capacity, ATC is often able to construct an additional
tower at the same location, thereby further leveraging its investment in land,
related equipment and certain operating costs, such as taxes, utilities and
telephone service.
ATC intends to use targeted sales and marketing techniques to increase
utilization of both existing and newly constructed towers and to maximize
investment returns on acquired towers with underutilized capacity. Management
believes that the key to the success of this strategy lies in its ability to
develop and consistently deliver a high level of customer service, and to be
widely recognized as a company that makes realistic commitments and then
delivers on them. Since speed to market and reliable network performance are
critical components to the success of wireless service providers, ATC's ability
to assist its customers in meeting these goals will ultimately define its
marketing success and capacity utilization. ATC targets wireless service
providers that are expanding or improving their existing network infrastructure
as well as those deploying new technologies.
Growth by Construction. ATC believes it can achieve attractive investment
returns by constructing new tower clusters in and around markets in which it
already has a presence, along major highways and in targeted new markets,
particularly markets that have not been significantly built out by carriers or
other communications site companies. By working with one or more "anchor"
tenants, ATC will seek to develop an overall master plan for a particular
network by locating new sites in areas identified by its customers as optimal
for their network expansion requirements. ATC generally secures commitments for
leasing prior to commencing construction, thereby minimizing, to some extent,
the risks associated with the investment. See "Risk Factors--Construction of
New Towers" on page 10. In some cases, ATC may invest in the zoning and
permitting of sites (and even the construction of towers) where it has no
anchor tenant, but believes that demand will exist in the near term. ATC will
also pursue strategic acquisitions as a means of filling out or, in certain
cases, initiating, a tower cluster.
Management intends to place a strong emphasis on new tower development for the
foreseeable future because it believes that new tower construction can produce
relatively attractive initial returns. In addition, ATC can design and build
towers to specifications that assure ample future capacity and minimize the
need for future capital expenditures. Management also intends to pursue new
tower construction to service the demand for digital television and for tower
space for radio antennae displaced by digital television requirements. Over
time, management believes that as many as half of its towers will result from
construction, with the vast majority of these designed to serve the wireless
communications industry. For more information regarding ATC's 1999 construction
plans, see "--General" on page 42.
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The ability to obtain, and commit to, large new construction projects will
require significant financial resources. Management believes that its cost of
capital, relative to the cost of capital of its competitors, will be an
important factor in determining the success of its growth by construction
strategy. Based on its previous capital market transactions, management
believes that it has a good reputation in the financial community, including
among banks, investment banking firms, institutional investors and public
investors, and that such reputation will help it attract capital on the
favorable terms necessary to finance its growth. However, funds may not be
available to ATC on such terms.
Growth by Acquisition. ATC has achieved a leading industry position primarily
through acquisitions. ATC intends to continue to target strategic acquisitions
in markets or regions where it already owns towers as well as new markets,
possibly including non-U.S. markets.
Among the potential acquisitions are tower networks owned by major wireless
service providers. These providers may seek to divest their ownership of such
networks for reasons similar to those motivating them to outsource their new
construction requirements. These transactions often involve construction
commitments for the seller's tower needs. The transactions may be substantial,
involving several thousand towers and purchase prices in the hundreds of
millions of dollars. Construction commitments which may attend such
acquisitions may also entail hundreds of millions of dollars of capital
expenditures. ATC has submitted proposals to several wireless service providers
in the past (none of which have resulted in definitive agreements to date) and
intends to continue to pursue such opportunities actively. ATC may not,
necessarily, enter into any such major transaction.
ATC's current activities with respect to possible significant acquisitions
range from the evaluation of properties, to submissions of indications of
interests and first-round bids, to extended negotiations. These opportunities
range in size from several hundred towers to a few with more than a thousand
towers and from purchase prices of tens of millions of dollars to several
hundreds of millions of dollars. Such purchase prices could take the form of
cash, ATC stock or other securities, or a combination thereof. No material
acquisition has reached the legally binding agreement stage other than those
described in this document. See "--Recent Transactions" on page 49. Of course,
ATC cannot predict whether it will enter into any binding agreements with
respect to such acquisitions or, if it does, the terms or timing of any such
material acquisitions. A limited number of such transactions with wireless
service providers seeking to divest ownership of its towers would probably not
require ATC to raise additional equity capital. However, more than a limited
number of such acquisitions would probably require it to raise substantial
capital in the form of the Class A Common Stock or other equity securities,
particularly since they would likely include major build to suit construction
commitments. See "Risk Factors--Acquisition Strategy" on page 11 and "--
Substantial Capital Requirements and High Debt Levels" on page 9.
ATC will attempt to increase revenues and operating margins at acquired
communications sites through expanded sales and marketing efforts, improved
customer service, the elimination of redundant overhead and, in certain
instances, increasing tower capacity. Acquisitions of communications towers and
sites are evaluated using numerous criteria, including potential demand, tower
location, tower height, existing capacity utilization, local competition and
local government restrictions on new tower development.
ATC also intends to pursue, on a selective basis, the acquisition of site
acquisition companies and providers of video, voice and data transmission
services, and may pursue acquisitions related to the communications site
industry, including companies engaged in the tower fabrication business.
Products and Services
. Leasing of Antennae Sites. ATC's primary business is the leasing of antennae
sites on multi-tenanted communications towers to companies in all segments of
the wireless communications and broadcasting industries. Giving effect to
pending acquisitions, ATC will have more than 3,200 towers in 44 states and the
District of Columbia, approximately 600 of which are managed for others,
including approximately 400 rooftop antennae. The foregoing numbers do not
include 86 additional towers and sites associated with a TeleCom joint
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venture with Prime, which ATC may be required to purchase for an additional
$12.5 million. See "--Recent Transactions--Pending Acquisitions--TeleCom
Merger" on page 52.
ATC rents tower space and provides related services for a diverse range of
wireless communications industries, including PCS, cellular, ESMR, SMR, paging,
fixed microwave, as well as radio and television broadcasters. ATC is
geographically diversified with a significant number of towers throughout the
United States. Its largest tower clusters are in California, Florida and Texas.
ATC also owns and operates communications sites or is constructing towers in
cities such as Albuquerque, Atlanta, Austin, Baltimore, Boston, Charlotte,
Dallas, Houston, Jacksonville, Kansas City, Los Angeles, Miami-Ft. Lauderdale,
Minneapolis, Philadelphia, Raleigh, San Antonio, San Diego, San Francisco,
Tucson, Washington, D.C. and West Palm Beach.
ATC's leases, like most of those in the industry, generally vary depending upon
the industry user. Television and radio broadcasters prefer long-term leases
(generally from 15 to 20 years), and wireless communications providers favor
somewhat shorter lease terms (generally from five to ten years), with multiple
renewals at the option of the tenant. However, the leases acquired in the
merger with Old ATC tend to be of shorter duration, generally two years, and
permit earlier termination if ATC were to attempt to impose price increases
relating to escalator provisions. Leases of all lengths tend to be renewed due
to the costs and disruption associated with reconfiguring a wireless network or
broadcast location.
Most of ATC's leases have escalator provisions (annual automatic increases
based on specified estimated cost measures or on increases in the consumer
price index) that permit ATC to keep pace with inflation. While these
provisions are not by themselves intended to be a primary source of growth,
they provide a stable and predictable growth component that is enhanced by
increased tower utilization.
The number of antennae that ATC's towers can accommodate varies depending on
the type of tower (broadcast or non-broadcast), the height of the tower and the
nature of the services provided by such antennae. Broadcasting towers generally
are capable of holding more and larger antennae and serving more tenants than
non-broadcasting towers. Annual rental payments vary considerably depending
upon (i) the type of service being provided; (ii) the size of the transmission
line and the number and weight of the antennae on the tower; (iii) the existing
capacity of the tower; (iv) the antenna's placement on, and the location and
height of, the tower; and (v) the competitive environment. Management believes
that it is not possible to state with any degree of precision the vacancy or
unused capacity of a "typical" tower, group of related towers or all of its
towers for a variety of reasons, including, among others, the variations that
occur depending on the types of antennae placed on the tower, the types of
service being provided by the tower users, the type and location of the tower
or towers, the ability to build other towers so as to configure a network of
related towers, whether any of the users have imposed restrictions on
competitive users, and whether there are any environmental, zoning or other
restrictions on the number or type of users.
Build to Suit Business. Historically, cellular and other wireless service
providers have constructed a majority of their towers for their own use, while
usually outsourcing certain services such as site acquisition and construction
management. More recently, however, service providers have expressed a growing
interest in having independent companies own the towers on which they will
secure space under long-term leases. Management believes this trend is the
result of a need among such providers to preserve capital and to speed access
to their markets by focusing on activities that contribute to subscriber growth
and by outsourcing infrastructure requirements such as owning, constructing and
maintaining towers or by co-locating their transmission infrastructure. ATC has
positioned itself as an attractive choice for this build to suit opportunity.
It has done so by acquiring and developing reputable site acquisition companies
with established client relationships in both site acquisition and construction
management, and by obtaining the financial resources necessary to participate
in the build to suit arena on a substantial scale. Management believes
companies that are able to demonstrate the ability to successfully locate,
acquire and permit sites and finance and construct towers in a timely manner
will be used by a significant number of wireless service providers on an
expanded basis. ATC is currently engaged in build to suit efforts for
BellSouth, Nextel, Omnipoint, PrimeCo PCS and Southwestern Bell. It is also
seeking several major build to suit projects, although no definitive agreements
may result.
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In most cases, well engineered and well located towers built to serve the
specifications of an initial anchor tenant in the wireless communications
sector will attract three or more additional wireless tenants over time,
thereby increasing revenue and enhancing margins. ATC (exclusive of
OmniAmerica) has had only limited experience, to date, with major build to suit
projects and those that it has completed and that are operational have been on
a much smaller scale than those that it is currently building or negotiating or
will seek in the future. Management believes that ATC's favorable results
(occupancy and financial) achieved on completed projects are not representative
of the results likely to be achieved from the larger projects ATC is currently
contemplating and, therefore, has not included information with respect to the
typical vacancy rates or financial results that can be expected to be generated
by such build to suit projects. See "Risk Factors--Construction of New Towers"
on page 10 for a description of certain risks involved in tower construction,
particularly those involving large build to suit projects.
Communications Site Management Business. ATC is a leading manager of
communications sites. These are principally rooftop sites, but also ground
towers, for other owners. A principal aspect of this business is the
development of new sources of revenue for building owners by effectively
managing all aspects of rooftop telecommunications, including two-way radio
systems, microwave, fiber optics, wireless cable and paging and rooftop
infrastructure construction services. ATC will manage approximately 600 towers
(of which approximately 400 will be rooftop towers), giving effect to the
Mergers and other pending acquisitions. Management contracts are generally for
a period of five years and contain automatic five-year renewal periods unless
terminated by either party before renewal or upon an uncured default. Under
these contracts, ATC is responsible for marketing antennae sites on the tower,
reviewing existing and negotiating future license agreements with tenant users,
managing and enforcing those agreements, supervising installation of equipment
by tenants to ensure, among other things, non-interference with other users,
supervising repairs and maintenance to the towers, as well as site billing,
collections and contract administration. In addition, ATC handles all calls as
well as questions regarding the site so that the building management team or
owner is relieved of this responsibility. For such services, ATC is entitled to
a percentage of lease payments, which is higher for new tenants than for
existing tenants. Upon any termination of a contract, unless because of its
default, ATC is generally entitled to its percentage with respect to then
existing tenants so long as they remain tenants.
. Site Acquisition Business/Construction. ATC's site acquisition division has
developed more than 8,000 sites in 48 states and currently has field offices in
13 major cities, including Atlanta, Chicago, Charlotte, Cleveland,
Jacksonville, New Orleans and Seattle. The site selection and acquisition
process begins with the network design. Highway corridors, population centers
and topographical features are identified within the carrier's existing or
proposed network, and drive tests are performed to monitor all PCS, cellular
and ESMR frequencies to locate the systems then operating in that geographic
area and identify where any holes in coverage may exist. Based on this data,
the carrier and ATC develop a "search ring", generally of one-mile radius,
within which the site acquisition department identifies land available either
for purchase or lease. ATC personnel select the most suitable sites, based on
demographics, traffic patterns and signal characteristics. The site is then
submitted to the local zoning/planning board for approval. If the site is
approved, in certain instances ATC will supervise construction of the towers
and other improvements on the communications site. ATC's site acquisition
services are provided on a fixed fee or time and materials basis. Existing
users of ATC's site acquisition business include Airtouch, Alltel, AT&T
Wireless, Ameritech, Bell Atlantic Mobile, BellSouth, GTE Mobilnet, MobileComm,
PageNet, Power Tel, SkyTel, Southwestern Bell, Sprint PCS and Western Wireless.
While ATC will continue to provide site acquisition services to those customers
desiring them, it also intends to actively market its construction and leasing
services as an extension of these services.
Upon the closing of the OmniAmerica Merger, ATC will enter the tower
construction business as an erector. To date, ATC has not itself constructed
towers, but rather managed the construction activities of independent third
parties. OmniAmerica currently builds towers for major wireless carriers. See
"Business--Recent Transactions--Pending Acquisitions--OmniAmerica Merger" on
page 50.
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. Voice, Video, Data and Internet Transmission Business. ATC's voice, video,
data and Internet transmission business is called ATC Teleports. It is operated
in and between New York City and Washington, D.C. and throughout Texas. A
teleport is a hub for transmissions to and from ground based sources and
satellites. A typical teleport facility consists of satellite antennas
(dishes), a 24-hour, 365-day operations center, terrestrial links and other
support facilities. ATC owns a teleport outside of New York City and one
outside of Washington, D.C. It also has a terrestrial system connecting
Washington, D.C., Baltimore, Philadelphia and New York City. The New York
teleport system is located on a 70-acre owned site which is zoned for 29
satellite dishes of which 22 are existing, thereby providing significant
expansion capacity. The Washington teleport is located in northern Virginia,
inside of the Washington Beltway, on 16 acres and has 40 dishes with the
capacity for an additional 20. The terrestrial system between the teleports
consists of fiber and microwave channels. The entire system is used by
television networks, broadcasters, cable programmers, and many of the leading
voice, data and Internet providers. The teleports can access all of the
domestic and major international satellites in their operating regions. The
Texas system consists of a teleport outside of Dallas and a terrestrial system
connecting Dallas, Austin, San Antonio, Houston and Corpus Christi. The system
connects to all major sports and convention venues, broadcasters and other
significant video users in Texas.
Customers
ATC's customers aggregate approximately 2,500 and include many of the major
companies in the wireless communications industry. While none of ATC's
customers accounted for as much as 10% of its pro forma net revenues from site
leasing activities for the nine months ended September 30, 1998, most of the
customers named below account for more than 1% of such revenues, and each is
considered by ATC to be an important customer:
. Cellular and PCS: Airtouch, Alltell, AT&T Wireless, Bell Atlantic
Mobile, BellSouth, GTE Mobilnet, Houston Cellular, Mobile Comm,
Omnipoint, PacBell, PrimeCo PCS, Southwestern Bell Mobile Systems
(operating as Cellular One), and Sprint PCS;
. Paging: Arch, Metrocall, PageMart, PageNet and Pittencrief;
. ESMR: Nextel; and
. Television and Radio Broadcasting: ABC, CBS, Chancellor Media, Clear
Channel, CNN, Fox and NBC.
ATC's site acquisition activities, which afford ATC the opportunity to furnish
additional services such as the construction and leasing of communications
sites, are provided to most of the cellular, PCS and ESMR customers listed
above. ATC has constructed or is constructing towers on a build to suit basis
for companies such as BellSouth, Nextel, Omnipoint, PrimeCo PCS and
Southwestern Bell and is seeking several major build to suit projects, although
no definitive agreements may result.
The principal users of ATC's video, voice, data and Internet transmission
services are television broadcasters and other video suppliers, such as CBS,
CNN, Fox and TCI. Revenues are derived from two sources of approximately equal
significance: (i) contracted, long-term services of a regular, recurring nature
and (ii) nonrecurring services relating to special news or events.
Management Organization
ATC is headquartered in Boston and is organized on a regional basis with each
region being headed by a vice president who reports to the Chief Operating
Officer. Its current regional operations are based in Boston, Atlanta, Chicago,
Houston and the San Francisco Bay area, although additional regional centers
may develop over time. Management believes that its regional operations centers
which are in varying stages of development should ultimately be capable of
responding effectively to the opportunities and customer needs of their
respective defined geographic areas and that these operations centers should
have skilled engineering,
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construction management and marketing personnel. Management also believes that
over time enhanced customer service and greater operating efficiencies can be
achieved by centralizing certain operating functions, including accounting and
lease administration. Such centralization, when achieved, will enable key
information about each site, tower lease and customer to become part of a
centralized database, with communications links to regional operations centers.
In conjunction with its acquisition of various companies, management believes
it has obtained the services of key personnel with skills in areas such as site
acquisition, construction management, tower operations, engineering, marketing,
lease administration and finance. As ATC seeks to expand its size and improve
on the quality and consistency of service delivery, it believes it needs to
complete the staffing of its existing regions and may, in the longer term, need
to supplement its current workforce in certain critical areas, develop new
regional centers and intensify its dedication to customer service. Accordingly,
management is actively recruiting key personnel to complete the staffing of its
regional operations centers and to strengthen and deepen its corporate group.
ATC focuses its efforts on recruiting people from the industry sectors it
serves and in some instances recruiting skilled engineering, marketing and
other personnel from outside the communications site, wireless communications
and broadcasting industries.
History
In early 1995, Steven B. Dodge, the then Chairman of the Board, President and
Chief Executive Officer of American Radio, and other members of its management,
recognized the opportunity in the communications site industry as a consequence
of its ownership and operation of broadcast towers. American Radio formed ATC
to capitalize on this opportunity. American Radio distributed its ATC stock to
its securityholders in connection with its merger with CBS in June 1998.
Recent Transactions
. Consummated Acquisitions.
Since January 1, 1998, ATC has acquired various communications sites and a
major site acquisition business for an estimated purchase price of $926.0
million, including the issuance of 36.3 million shares of Class A Common Stock
valued (at the time of the relevant agreement) at $382.6 million. The most
significant of those acquisitions are described below.
OPM. In January 1998, ATC consummated the acquisition of OPM-USA-INC. ("OPM"),
a company that owned and developed communications towers, and owned
approximately 90 towers at the time of acquisition (the "OPM Transaction"). The
purchase price was variable based on the number of towers developed for
American Tower and the forward cash flow of such towers. In December 1998, it
was fixed at $70.0 million for a total of more than 150 towers and a right of
first refusal granted to American Tower with respect to any towers that the
former owner of OPM develops.
Gearon. In January 1998, ATC consummated the merger with Gearon and ATI (the
"Gearon Transaction"). Gearon was engaged primarily in the site acquisition
business for unaffiliated third parties and also owned or had under
construction 40 tower sites. The merger price of $80.0 million consisted of
5,333,333 shares of Class A Common Stock and the payment of $32.0 million in
cash and assumed liabilities.
ATC Teleport. In May 1998, ATC acquired the assets relating to a teleport
serving the Washington, D.C. area for a purchase price of $30.5 million. The
facility is located in northern Virginia, inside of the Washington Beltway, on
ten acres.
Old ATC Merger. On June 8, 1998, ATC merged with another tower site company
("Old ATC") in a stock-for-stock deal valued at $550.0 million. Former
stockholders of Old ATC received 28.8 million shares of Class A Common Stock,
representing about 35% of the Common Stock after the merger was completed. ATC
also changed its name from "American Tower Systems Corporation" to American
Tower Corporation, the name of the acquired company.
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Old ATC was a leading independent owner and operator of wireless communications
towers and operated 915 towers in 32 states, including 125 towers managed for
third party owners, and had agreed to acquire 35 additional towers in 1998 at
an estimated cost of $17.4 million.
As a condition to consummation of the merger, Messrs. Dodge and Stoner entered
into a voting agreement with ATC and certain of the Old ATC common stockholders
pursuant to which Messrs. Dodge and Stoner agreed to vote in favor of the
election of each of Messrs. Lummis and Mays (or any other nominee of Mr. Lummis
and Clear Channel reasonably acceptable to the ATC Board of Directors) so long
as Mr. Lummis and Clear Channel (or their respective affiliates) hold at least
50% of the shares of Class A Common Stock received by him or it in the merger.
Messrs. Lummis and Mays were elected to the Board of Directors immediately
following the merger.
Chase Manhattan Capital L.P. ("Chase Capital"), which is an affiliate of CEA, a
stockholder of ATC, and Mr. Chavkin, a director of ATC, owned approximately
18.1% of the Old ATC Common Stock as of April 6, 1998 and had a representative
on the Old ATC Board of Directors. See "Principal and Selling Stockholders" on
page 66. Summit Capital of Houston ("Summit Capital") received a $2.25 million
broker's fee from Old ATC upon consummation of the merger. Fred Lummis, the
former President and Chief Executive Officer of Old ATC, and a director of ATC,
is an affiliate of Summit Capital.
Wauka. In October 1998, American Tower 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 were
the acquisition of 166 towers in the Atlanta, Georgia area through the merger
of Wauka Communications, Inc. into ATI and the acquisition by ATI of the assets
of Grid Site Services, Inc. The consideration in those related transactions
(collectively, the "Wauka Transaction") included the issuance of 1,430,881
shares of Class A Common Stock.
. Pending Acquisitions.
OmniAmerica Merger. Pursuant to the OmniAmerica Merger, OmniAmerica will merge
into an ATC subsidiary. Holders of OmniAmerica common stock will receive 1.1
shares of Class A Common Stock for each share of OmniAmerica common stock they
own. Accordingly, ATC expects to issue an aggregate of approximately 17.7
million shares of Class A Common Stock if the OmniAmerica Merger is
consummated, assuming all OmniAmerica stock options are exercised.
Business of OmniAmerica. OmniAmerica is a leading independent owner and
operator of wireless communications and broadcast towers with 223 towers in 24
states, including 12 towers on ten sites managed for third party owners.
OmniAmerica has agreed to acquire up to an additional 27 towers. OmniAmerica's
principal tower clusters are located in Florida, Illinois, Kentucky, New
Mexico, Ohio, Oklahoma, Tennessee and Texas. OmniAmerica is also a leading
builder of wireless communications and broadcast towers, providing a complete
package of design, construction and installation services. OmniAmerica also
manufactures and sells wireless infrastructure components used in the
construction and maintenance of wireless communications transmitting and
receiving facilities. In 1998, OmniAmerica acquired 168 towers (including
rooftops) at an aggregate cost of approximately $117.0 million and, as of early
December 1998, constructed or had under construction approximately 173
telecommunications towers at an aggregate cost of approximately $12.0 million
and three broadcast towers at an aggregate cost of $11.3 million. OmniAmerica
also owns a 33 1/3% equity ownership position in Kline Iron & Steel Co., Inc.,
a diversified steel fabricator that also fabricates broadcasting towers.
OmniAmerica designs, builds, installs, modifies and maintains (collectively,
"wireless infrastructure building and implementation services") land-based
wireless communications transmitting and receiving facilities located in the
U.S. ("wireless communications facilities") primarily for providers of wireless
communications services. As part of OmniAmerica's wireless infrastructure
building and implementation service business, OmniAmerica also provides certain
electrical engineering services, wireless equipment testing services and site
acquisition and evaluation services in connection with the location and
installation of wireless communications facilities.
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OmniAmerica also manufactures and sells a line of fasteners and other mounting
components, waveguide bridge products, square support rail, tower lighting
systems, tower safety products and other hardware products (collectively,
"wireless infrastructure components"). End users utilize these products
primarily in connection with the installation and maintenance of wireless
communications facilities. Finally, OmniAmerica manufactures certain wireless
components on a private label basis for sale to several large wireless
communications equipment vendors who market these products under their own
brand names.
OmniAmerica provides leasing tower space and renders wireless infrastructure
building and implementation services to radio and television broadcasters and
providers of a broad range of wireless communications services, including
paging services, analog and digital cellular telephone services, PCS services,
SMR services, ESMR services and microwave communications services.
OmniAmerica's customers include, among others: (i) Western Wireless, (ii) AT&T
Wireless Services, (iii) Sprint, (iv) PrimeCo PCS, (v) BellSouth Mobility, (vi)
Nextel and (vii) Arch Communications Group, Inc.
OmniAmerica Merger Agreement. The provisions of the merger agreement among ATC,
ATI and OmniAmerica (the "OmniAmerica Merger Agreement") are comparable to
those customary in similar transactions, including without limitation (a)
detailed and substantially identical representations and warranties of ATC and
OmniAmerica that do not survive the closing; (b) covenants as to the interim
conduct of the business of OmniAmerica (including the necessity of approval of
ATC for acquisitions or construction commitments not previously disclosed and
over certain specified amounts); (c) agreements of ATC to indemnify the
officers and directors of OmniAmerica and to maintain officer and director
insurance for their benefit; (d) closing conditions, including receipt of
opinions of counsel as to the effect that, for federal income tax purposes, the
OmniAmerica Merger will constitute a tax-free reorganization; and (e) the
nonsolicitation of employees in the event of termination of the OmniAmerica
Merger Agreement.
It is a condition of OmniAmerica's obligation to consummate the OmniAmerica
Merger that (a) Messrs. Dodge and Stoner shall have entered into a voting
agreement with OmniAmerica and certain of the OmniAmerica stockholders pursuant
to which Messrs. Dodge and Stoner will have agreed to vote in favor of the
election of Mr. Furst (or any other nominee of HMTF/Omni Partners, L.P.
reasonably acceptable to the ATC Board) so long as Hicks, Muse (and certain
affiliates) hold at least 50% of the shares of Class A Common Stock to be
received by an affiliate of Hicks, Muse in the OmniAmerica Merger, and (b) any
such nominee shall have been elected as a director of ATC.
The Boards of Directors of both companies can mutually agree to terminate the
OmniAmerica Merger Agreement at any time. Either company can terminate the
OmniAmerica Merger Agreement if:
. a governmental authority permanently prohibits the merger;
. the terminating party is not in material breach and either (i) the
merger has not been consummated by April 30, 1999 or (ii) the other
party is in material breach of the OmniAmerica Merger Agreement
resulting in its inability to satisfy a merger condition. However,
American Tower may extend this deadline to September 30, 1999 in certain
circumstances if (i) all of the conditions to closing other than those
relating to the HSR Act and FCC approvals have been satisfied and (ii)
the parties waive continued compliance with certain conditions,
including those referring to the absence of a material adverse effect on
the business or financial condition of the other company; or
. the OmniAmerica stockholders do not approve the OmniAmerica Merger by
April 30, 1999 (or September 30, 1999, if extended by American Tower).
OmniAmerica also has the right to terminate the OmniAmerica Merger Agreement if
it approves a Superior Proposal (as defined in the OmniAmerica Merger
Agreement), subject to payment of a termination fee of $12.0 million to ATC.
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The OmniAmerica Merger has been approved by the OmniAmerica stockholders.
Subject to the expiration or earlier termination of the waiting period under
the HSR Act, and the satisfaction of other closing conditions, ATC expects the
OmniAmerica Merger to be closed in the spring of this year. Completion of the
OmniAmerica Merger is not conditioned on closing the TeleCom Merger.
TeleCom Merger. Pursuant to the agreement governing the TeleCom Merger (the
"TeleCom Merger Agreement"), TeleCom and an ATC subsidiary will merge. The
aggregate purchase price to be paid by ATC in the TeleCom Merger (the "TeleCom
Merger Consideration") is $148.8 million less the amount by which TeleCom's
debt at the time of the TeleCom Merger exceeds the sum of (i) $30.0 million and
(ii) the aggregate costs incurred by TeleCom after November 16, 1998 for
acquisitions, new tower construction and other capital expenditures. The
purchase price is payable 60% ($89.3 million, assuming no adjustment) in shares
of Class A Common Stock and 40% ($59.5 million, assuming no such adjustment) in
cash. The cash portion of the purchase price will also be increased or
decreased based on the balance of TeleCom's working capital at the time of the
TeleCom Merger. Working capital will be deemed, for these purposes, to be
increased by the excess of (i) the sum of (x) $30.0 million and (y) the
aggregate costs incurred by TeleCom after November 16, 1998 for acquisitions,
new tower construction and other capital expenditures, over (ii) TeleCom's debt
at the time of the TeleCom Merger.
The number of shares of Class A Common Stock to be delivered is based on a per
share price of $21.25 for the Class A Common Stock. This number is subject to
adjustment depending on its trading levels prior to the TeleCom Merger and the
achievement of certain revenue growth targets for TeleCom. Assuming no such
adjustment, ATC will issue approximately 4.2 million shares upon completion of
the TeleCom Merger.
The TeleCom Merger Agreement provides that in the event the Closing Date Share
Price (as defined in the TeleCom Merger Agreement) is less than $17.75 or more
than $24.75, the number of shares of Class A Common Stock to be delivered will
be increased or decreased, as the case may be, in accordance with a formula set
forth in the TeleCom Merger Agreement.
The TeleCom Merger Agreement also provides for a reduction in the aggregate
number of shares of Class A Common Stock to the extent that TeleCom fails to
achieve certain growth in its Monthly Tower Revenue Run Rate (as defined in the
TeleCom Merger Agreement). In the event the actual Monthly Tower Revenue Run
Rate of TeleCom for the month ended immediately prior to the Closing Date is
less than the "targeted" Monthly Tower Revenue Run Rate, the number of shares
of Class A Common Stock shall be reduced based upon an "enterprise value
shortfall"; provided, however, that in no event shall the number of shares be
reduced by more than 600,000 shares of Class A Common Stock. The "targeted"
Monthly Tower Revenue Run Rates and the formula for determining the "enterprise
value shortfall" are contained in the TeleCom Merger Agreement.
ATC is also obligated to purchase an affiliate of TeleCom (Prime-Telecom
Communications Co. ("Prime")) if the independent owner of 50% of that entity
does not elect to purchase such company. The purchase price for 100% of the
affiliate would be approximately $12.5 million in cash. Prime owns and operates
five towers and manages 88 rooftop sites for others. Such towers and sites are
located in California.
Business of TeleCom. Formed in September 1997, TeleCom is a national owner and
operator of communications sites, primarily serving wireless service providers.
TeleCom owns or co-owns 271 towers and manages an additional 121 sites in 27
states. Its principal tower clusters are located in Texas, Illinois, Ohio and
Virginia. TeleCom provides site leasing/licensing services to the country's
largest commercial cellular operators, paging services and ESMR systems.
TeleCom also serves federal, state and local governments, public safety
operations, TV and FM radio stations and handles private two-way communications
systems for large corporations and small operators. In 1998, TeleCom acquired
27 towers at an aggregate cost of approximately $15.6 million and constructed
or had under construction 43 towers at an aggregate cost of approximately $8.1
million, including capital to be expended in 1999 to complete these projects.
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TeleCom's managed sites consist mainly of building-top and tower sites owned by
third parties, with the manager of the site typically receiving a fee generally
between 20% and 50% of revenues from tenants. TeleCom has approximately 700
customers, and approximately 2,000 tenant licenses.
TeleCom Merger Agreement. The provisions of the TeleCom Merger Agreement are
comparable to those customary in similar transactions, including without
limitation (a) detailed representations and warranties of ATC and TeleCom that
will survive the closing for, in the case of TeleCom, a limited period of time;
(b) covenants as to the interim conduct of the business of TeleCom (including
the necessity of approval of ATC for acquisitions or construction commitments
not previously disclosed to ATC and over certain specified amounts); (c)
agreements of ATC to indemnify, among others, the officers and Management
Committee members of TeleCom and to maintain officer and director insurance for
their benefit; (d) closing conditions, including receipt of customary closing
opinions of counsel; (e) the nonsolicitation of employees in the event of
termination of the TeleCom Merger Agreement; and (f) indemnity escrow
provisions that limit the exposure of the TeleCom members to an aggregate of
$5.0 million, decreasing over time and terminating after two years from
closing. The TeleCom Merger Agreement provides, among other conditions of
consummation, that there shall not have been any event that shall cause a
material adverse change regarding ATC or TeleCom. Consummation of the TeleCom
Merger is also conditioned on the expiration or earlier termination of the HSR
Act waiting period. The TeleCom Merger Agreement also permits the distribution
to its investors of the beneficial interests in RCC without any change in the
TeleCom Merger Consideration.
It is a condition of TeleCom's obligation to consummate the TeleCom Merger that
(i) Messrs. Dodge and Stoner shall have entered into a voting agreement with
TeleCom and certain of the TeleCom investors, pursuant to which Messrs. Dodge
and Stoner will have agreed to vote in favor of the election of Mr. Eisner (or
any other nominee of Cox Telecom Towers, Inc. ("CTT") reasonably acceptable to
the ATC Board) so long as CTT (and its affiliates) hold at least 50% of the
shares of Class A Common Stock to be received by them in the TeleCom Merger,
and (ii) any such nominee shall have been elected as a director of ATC.
The TeleCom Merger Agreement provides for a termination date of September 30,
1999 and that in the event either party terminates because of the intentional
or wilful breach of any covenant or agreement by the other, the terminating
party shall be entitled to a termination fee of $10.0 million.
The TeleCom Merger and Merger Agreement have been approved by the TeleCom
investors. Subject to the expiration or earlier termination of the waiting
period under the HSR Act, and the satisfaction of other closing conditions, ATC
expects the TeleCom Merger to be closed in the spring of this year. Completion
of the TeleCom Merger is not conditioned on closing the OmniAmerica Merger.
. Other Transactions
Other Pending Acquisitions. In June 1998, ATC entered into an agreement to
acquire a company which is in the process of constructing approximately 40
towers in the Tampa, Florida area, of which 20 are presently operational. The
purchase price will be equal to an excess of (i) ten times the "Current Run
Rate Cash Flow" at the time of closing, over (ii) 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. "Current Run Rate Cash Flow" means twelve (12) times the excess of net
revenues over direct operating expenses for the month preceding closing. 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 on a nonrecourse basis and secured by the stock of the seller), of
which approximately $7.1 million had been advanced as of December 31, 1998. The
secured note is payable if the acquisition is 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.
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ATC is negotiating certain changes in the ATC/PCS arrangements, including the
acquisition by ATC of the 58 communications sites in northern California
presently owned by ATC/PCS 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 ATC/PCS, and a management fee to
ATC. Such negotiations may not, however, result in a definitive agreement.
ATC Separation
On June 4, 1998, American Radio consummated the ATC Separation. As a
consequence, all of the Common Stock of American Tower owned by American Radio
was distributed to ARS common stockholders and holders of options to acquire
ARS Common Stock and was or will be distributed upon conversion of shares of
American Radio convertible securities. As a consequence of the ATC Separation,
American Tower ceased to be a subsidiary of, or otherwise affiliated with,
American Radio and commenced operations as an independent publicly traded
company. ATC entered into the Separation Agreement with CBS and American Radio
providing for, among other things, the allocation of certain tax liabilities to
American Tower, certain closing date adjustments relating to American Radio,
the lease to American Radio by American Tower of space on certain towers
previously owned by American Radio and transferred to ATC, and the orderly
separation of American Radio and ATC.
The Separation Agreement required ATC to reimburse CBS on a "make-whole" (after
tax) basis for the tax liabilities incurred by American Radio attributable to
the distribution of the Common Stock owned by American Radio to its security
holders and certain related transactions, to the extent that the aggregate
amount of taxes required to be paid by American Radio 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 ATC Separation. ATC
received an appraisal from an independent appraisal firm that the "fair market
value" of American Radio's stock interest in ATC was equal to $17.25 per share.
Based on such appraisal, American Radio paid estimated taxes of approximately
$212.0 million, for which ATC reimbursed CBS. Such appraisal is not, of course,
binding on the Internal Revenue Service or other taxing authorities. American
Tower financed its tax reimbursement obligations to CBS with the proceeds of
the Interim Preferred Stock. The $212.0 million payment also included estimated
payments for the "make-whole" provisions of the liability associated with the
conversion of the American Radio 7% Convertible Exchangeable Preferred Stock
(the "ARS Convertible Preferred") and the working capital adjustment described
below. Such taxes gave effect to estimated deductions of approximately $85.1
million available to American Radio as a consequence of the cancellation or
exercise of American Radio stock options pursuant to the ATC Separation. 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 ARS
Convertible Preferred; 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. On September 30, 1998, CBS issued
convertible debentures (the "ARS Convertible Debentures") in exchange for the
then outstanding shares of ARS Convertible Preferred. Holders of the ARS
Convertible Debentures are entitled to the same conversion rights as the ARS
Convertible Preferred. As of January 15, 1999, holders of 47% of the ARS
Convertible Preferred and/or ARS Convertible Debentures had converted or
presented for conversion. As of January 15, 1999, ATC estimates that its
reimbursement obligation with respect to taxes on known conversions is
approximately $14.4 million, of which $8.5 million has been paid. ATC estimates
that its remaining reimbursement obligation with respect to the taxes on ARS
Convertible Debentures that have not been converted would be approximately
$14.9 million under the tax reporting method followed. Such estimate is based
on an estimated fair market value of the Class A
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Common Stock of $25.625 per share. ATC's obligation for such conversions would
change by approximately $1.1 million for each $1.00 change in such fair market
value.
American Radio 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
ARS Convertible Debentures 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, any such refund claim may not be successful.
The Separation Agreement also provides for closing balance sheet adjustments
based on the working capital, as defined, and debt levels of American Radio as
of June 4, 1998. ATC's preliminary June 1998 estimate was that such adjustments
would not 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 stated above include such estimated tax reimbursement
amount. In February 1999, ATC agreed to pay CBS $50.0 million in settlement of
all amounts due with respect to such adjustments, including interest. As part
of such settlement, ATC also agreed to indemnify CBS and American Radio with
respect to certain tax matters affecting American Radio prior to the CBS
Merger.
Regulatory Matters
Federal Regulations. Both the FCC and the FAA regulate towers used for wireless
communications and radio and television antennae. Such regulations control the
siting, lighting, marking and maintenance of towers and may, depending on the
characteristics of the tower, require registration of tower facilities and
issuance of determinations of no hazard. Wireless communications devices
operating on towers are separately regulated and independently licensed by the
FCC based upon the regulation of the particular frequency used. In addition,
the FCC also separately licenses and regulates television and radio stations
broadcasting from towers. Depending on the height and location, proposals to
construct new antenna structures or to modify existing antenna structures are
reviewed by the FAA to ensure that the structure will not present a hazard to
aircraft, and such review is a prerequisite to FCC authorization of
communications devices placed on the tower. Tower owners also bear the
responsibility for notifying the FAA of any tower lighting failures. ATC
generally indemnifies its customers against any failure to comply with
applicable standards. Failure to comply with applicable requirements may lead
to civil penalties.
The introduction and development of digital television also may affect ATC and
some of its largest customers. In addition, the need to install additional
antennae required to deliver digital television service may necessitate the
relocation of many currently co-located FM antennae. The need to secure state
and local regulatory approvals for the construction and reconstruction of this
substantial number of antennae and the structures on which they are mounted
presents a potentially significant regulatory obstacle to the communications
site industry. As a result, the FCC has solicited comments on whether, and in
what circumstances, the FCC should preempt state and local zoning and land use
laws and ordinances regulating the placement and construction of communications
sites. There can be no assurance as to whether or when any such federal
preemptive regulations may be promulgated or, if adopted, what form they might
take, whether they would be more or less restrictive than existing state and
local regulations, or whether the constitutionality of such regulation, if
challenged on constitutional grounds, would be upheld.
Local Regulations. Local regulations include city and other local ordinances,
zoning restrictions and restrictive covenants imposed by local authorities.
These regulations vary greatly, but typically require tower owners to obtain
approval from local officials or community standards organizations prior to
tower construction. Local regulations can delay or prevent new tower
construction or site upgrade projects, thereby limiting ATC's ability to
respond to customer demand. In addition, such regulations increase costs
associated with new tower construction. Existing regulatory policies may
adversely affect the timing or cost of new tower
55
<PAGE>
construction and additional regulations may be adopted which increase such
delays or result in additional costs to ATC. Such factors could have a material
adverse effect on ATC's financial condition or results of operations.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, an owner of real estate or a lessee conducting operations thereon
may become liable for the costs of investigation, removal or remediation of
soil and groundwater contaminated by certain hazardous substances or wastes.
Certain of such laws impose cleanup responsibility and liability without regard
to whether the owner or operator of the real estate or operations thereon knew
of or was responsible for the contamination, and whether or not operations at
the property have been discontinued or title to the property has been
transferred. The owner or operator of contaminated real estate also may be
subject to common law claims by third parties based on damages and costs
resulting from off-site migration of the contamination. In connection with its
former and current ownership or operation of its properties, ATC may be
potentially liable for environmental costs such as those discussed above.
ATC believes it is in compliance in all material respects with all applicable
material environmental laws. ATC has not received any written notice from any
governmental authority or third party asserting, and is not otherwise aware of,
any material environmental non-compliance, liability or claim relating to
hazardous substances or wastes or material environmental laws. However, (i)
undetected environmental conditions may exist for which ATC might be liable in
the future and (ii) future regulatory action, as well as compliance with future
environmental laws, may require ATC to incur costs that could have a material
adverse effect on ATC's financial condition and results of operations.
Competition
ATC competes for antennae site customers with wireless carriers that own and
operate their own tower networks and lease tower space to other carriers, site
development companies that acquire space on existing towers for wireless
service providers and manage new tower construction, other national independent
tower companies and traditional local independent tower operators. Wireless
service providers that own and operate their own tower networks generally are
substantially larger and have greater financial and other resources than ATC.
ATC believes that tower location and capacity, price, quality of service and
density within a geographic market historically have been and will continue to
be the most significant competitive factors affecting owners, operators and
managers of communications sites.
ATC competes for acquisitions and new tower construction sites with wireless
service providers, site developers and other independent tower operating
companies. ATC believes that competition for acquisitions and tower
construction sites will increase, causing price increases, and that additional
competitors may enter the tower market, certain of which may have greater
financial and other resources than ATC.
ATC also faces strong competition for build to suit opportunities, principally
from other independent communications site operators and site developers,
certain of which have more extensive experience and offer a broader range of
services (principally in constructing for themselves rather than managing the
construction of others) than ATC can presently offer.
Properties
ATC's interests in its communications sites are comprised of a variety of fee
interests, leasehold interests created by long-term lease agreements, private
easements and easements, licenses or rights-of-way granted by government
entities. In rural areas, a communications site typically consists of a three-
to five-acre tract which supports towers, equipment shelters and guy wires to
stabilize the structure. Less than 2,500 square feet are
56
<PAGE>
required for a self-supporting tower structure of the kind typically used in
metropolitan areas. Land leases generally have twenty (20) to twenty-five (25)
year terms, with three five-year renewals, or are for five-year terms with
automatic renewals unless ATC otherwise specifies. Some land leases provide
"trade-out" arrangements whereby ATC allows the landlord to use tower space in
lieu of paying all or part of the land rent. ATC will have more than 2,000 land
leases, giving effect to the Mergers. Pursuant to the Credit Facilities, the
senior lenders have liens on, among other things, all leases of tower space,
contracts relating to the management of towers for others, cash, accounts
receivable, the stock and inter-company debt of all Restricted Subsidiaries (as
defined in the Credit Facilities), inventory and other personal property,
fixtures, intellectual property, as well as certain fee and leasehold
interests, and the proceeds thereof of ATC and its Restricted Subsidiaries.
Legal Proceedings
ATC is occasionally involved in legal proceedings that arise in the ordinary
course of business. While the outcome of these proceedings cannot be predicted
with certainty, management does not expect any pending matters to have a
material adverse effect on ATC's financial condition or results of operations.
Employees
As of December 31, 1998, ATC employed approximately 450 full time individuals
and considers its employee relations to be satisfactory. Giving effect to the
Mergers, ATC will employ approximately 1,050 full time individuals.
57
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information concerning the executive
officers and directors of ATC:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Steven B. Dodge(1).......... 53 Chairman of the Board, President and Chief
Executive Officer
Alan L. Box................. 47 Executive Vice President and Director
Douglas Wiest............... 46 Chief Operating Officer
Arnold L. Chavkin(1)(2)(3).. 47 Director
James S. Eisenstein......... 40 Executive Vice President--Corporate
Development
J. Michael Gearon, Jr....... 33 Executive Vice President and Director
Fred R. Lummis(2)........... 45 Director
Randall Mays(2)............. 32 Director
Thomas H. Stoner(1)(3)...... 64 Director
Maggie Wilderotter(3)....... 43 Director
Joseph L. Winn.............. 47 Treasurer and Chief Financial Officer
Jack D. Furst............... 39 Director Nominee
Dean H. Eisner.............. 41 Director Nominee
</TABLE>
- --------
(1) Member of the Executive Committee; Mr. Stoner is the Chairman of the
Executive Committee.
(2) Member of the Audit Committee; Mr. Mays is the Chairman of the Audit
Committee.
(3) Member of the Compensation Committee; Mr. Stoner is the Chairman of the
Compensation Committee.
Two independent directors will be elected annually, commencing in 1999, by the
holders of Class A Common Stock, voting as a separate class. All directors hold
office until the annual meeting of the stockholders of ATC next following their
election or until their successors are elected and qualified. Each executive
officer is appointed annually and serves at the discretion of the ATC Board of
Directors (the "ATC Board").
As a condition to the consummation of the OmniAmerica Merger, a nominee of the
principal stockholder of OmniAmerica, Jack D. Furst, Chairman of OmniAmerica
and, since 1989, a Partner of Hicks, Muse, Tate & Furst, Incorporated, an
affiliate of OmniAmerica's principal stockholder ("Hicks, Muse"), will be
elected as a director of ATC. Mr. Furst currently serves as a Director of
Cooperative Computing, Inc., Hedstrom Corp., International Wire Holding
Company, Viasystems, Inc., Home Interiors & Gifts, Inc. and Triton Energy
Limited. As a condition to the consummation of the TeleCom Merger, a nominee of
the principal member of TeleCom, Dean H. Eisner, will be elected as a director
of ATC. Since May 1995 Mr. Eisner has served as Vice President, Business
Development and Planning of Cox Enterprises, Inc., an affiliate of Cox Telecom
Towers, Inc., the principal member of TeleCom. Prior to that he served as
Treasurer of Cox Enterprises, Inc. starting in January 1993, and Managing
Director, International Development, starting in February 1992.
Steven B. Dodge is the Chairman, President and Chief Executive Officer of ATC.
Mr. Dodge was also the Chairman of the Board, President and Chief Executive
Officer of American Radio, a position he occupied since its founding on
November 1, 1993 until consummation of the ATC Separation. Mr. Dodge was the
founder in 1988 of Atlantic Radio, L.P. ("Atlantic") which was one of the
predecessor entities of American Radio. Prior to forming Atlantic, Mr. Dodge
served as Chairman and Chief Executive Officer of American Cablesystems
Corporation ("American Cablesystems"), a cable television company he founded in
1978 and operated as a privately-held company until 1986 when it completed a
public offering in which its stock was priced at $14.50 per share. American
Cablesystems was merged into Continental Cablevision, Inc. in 1988 in a
transaction valued at more than $750.0 million, or $46.50 per share. The
initial public offering of American Radio Class A Common Stock occurred in June
1995 at a price of $16.50 per share. Upon consummation of the ATC
58
<PAGE>
Separation, each share of American Radio Class A Common Stock was exchanged
into $44.00 and one share of Class A Common Stock. Mr. Dodge also serves as a
director of PageMart Wireless, Inc., American Media, Inc. and the National
Association of Broadcasters.
Alan L. Box is an Executive Vice President and a director of ATC. Mr. Box
served as Chief Operating Officer of ATC from June 1997 to March 1998, at which
time he assumed his present role as the Executive Vice President responsible
for the video, voice and data transmission business of ATC. Mr. Box also was an
Executive Vice President and a director of American Radio from April 1997, when
EZ Communications, Inc. ("EZ") merged into American Radio (the "EZ Merger"),
until consummation of the ATC Separation. Prior to the EZ Merger, Mr. Box was
employed by EZ, starting in 1974, as the General Manager of EZ's Washington,
D.C. area radio station. He became Executive Vice President and General Manager
and a director of EZ in 1979, President of EZ in 1985 and Chief Executive
Officer of EZ in 1995. He serves as a director of George Mason Bankshares, Inc.
and George Mason Bank.
Arnold L. Chavkin is a member of the Executive Committee, the Audit Committee
and the Compensation Committee of the ATC Board. Mr. Chavkin was the Chairman
of the Audit Committee of the Board of American Radio from its founding until
consummation of the ATC Separation and of the Audit Committee of ATC from its
organization until November 1998. Mr. Chavkin is a general partner of Chase
Capital Partners ("CCP"), previously known as Chemical Venture Partners
("CVP"), which is a general partner of Chase Equity Associates, L.P. ("CEA"), a
stockholder of ATC, and previously a principal stockholder of American Radio
and of Multi Market Communications, Inc., one of the predecessors of American
Radio. Mr. Chavkin has been a General Partner of CCP and CVP since January 1992
and has served as the President of Chemical Investments, Inc. since March 1991.
Chase Capital, which is an affiliate of CEA, owned approximately 18.1% of Old
ATC; Chase, which is also an affiliate of Chase Capital, is a lender under the
Credit Facilities for the Borrower Subsidiaries with a 5.2% participation. Mr.
Chavkin is also a director of R&B Falcon Drilling Corporation, Wireless One,
Inc. and Patina Oil & Gas Corporation. Prior to joining Chemical Investments,
Inc., Mr. Chavkin was a specialist in investment and merchant banking at
Chemical Bank for six years. For the information with respect to the interests
of an affiliate of Mr. Chavkin, CCP and CEA in ATC, see "Business--Recent
Transactions--Old ATC Merger" on page 49.
James S. Eisenstein is the Executive Vice President--Corporate Development of
ATC. Mr. Eisenstein has overall responsibility for seeking out acquisition and
development opportunities for ATC. Mr. Eisenstein helped form ATC in the summer
of 1995. From 1990 to 1995, he was Chief Operating Officer for Amaturo Group
Ltd., a broadcast company operating 11 radio stations and four broadcasting
towers, several of which were purchased by American Radio. Mr. Eisenstein
serves on the Board of Directors of the Personal Communications Industry
Association, the leading international trade association representing the
wireless communications industry. He has extensive experience in structuring
acquisitions and the operation and management of broadcasting and tower
businesses.
J. Michael Gearon, Jr. was the principal stockholder and Chief Executive
Officer of Gearon, a position he has held since September 1991. As a condition
to consummation of the Gearon Transaction, Mr. Gearon was elected a director of
ATC and President of Gearon Communications, the division of ATC which operates
its site acquisition business. See "Business--Recent Transactions--Consummated
Acquisitions--Gearon" on page 49.
Fred R. Lummis, a member of the Audit Committee of the ATC Board, has served as
Chairman, President and Chief Executive Officer of Advantage Outdoor Company,
L.P. since June 1998 and served as Chairman, Chief Executive Officer and
President of Old ATC from the time of its organization in October 1994 until
June 1998. Mr. Lummis has been the President of Summit Capital, a private
investment firm, since June 1990. Mr. Lummis currently serves on the board of
several private companies and is a trustee of the Baylor College of Medicine.
See "Business--Recent Transactions--Old ATC Merger" on page 49.
Randall Mays, Chairman of the Audit Committee of the ATC Board, has served as
Chief Financial Officer and Executive Vice President of Clear Channel since
February 1997, prior to which he had served as a Vice
59
<PAGE>
President and Treasurer since joining Clear Channel in 1993. Prior to joining
Clear Channel, he was an associate at Goldman, Sachs & Co. Clear Channel was a
principal stockholder of Old ATC with a 31.3% interest. See "Business--Recent
Transactions--Old ATC Merger" on page 49.
Thomas H. Stoner is the Chairman of the Executive Committee and the
Compensation Committee of the ATC Board. Mr. Stoner was the Chairman of the
Executive Committee and the Compensation Committee of the Board of American
Radio since its founding until consummation of the ATC Separation. Mr. Stoner
founded Stoner Broadcasting Systems, Inc. ("Stoner") in 1965. Stoner, which was
one of the predecessors of American Radio, operated radio stations for over 25
years in large, medium and small markets. Mr. Stoner is a director of Gaylord
Container Corporation and a trustee of the Chesapeake Bay Foundation.
Maggie Wilderotter is a member of the Compensation Committee of the ATC Board.
Ms. Wilderotter is the President and Chief Executive Officer of Wink
Communications, a California company that develops technology for adding simple
interactivity and graphics to mass-market consumer electronic products. Before
joining Wink, Ms. Wilderotter was the Executive Vice President of National
Operations for AT&T Wireless Services, Inc., and Chief Executive Officer of
AT&T's Aviation Communications Division. Ms. Wilderotter has also served as
Senior Vice President of McCaw Cellular Communications, Inc. and Regional
President of its California, Arizona, New Mexico, Nevada and Hawaii Region.
Prior to her work in the wireless industry, Ms. Wilderotter spent 12 years with
U.S. Computer Services, Inc./Cable Data, as Senior Vice President and General
Manager. In 1989 she was the recipient of the National Cable Television
Association's Vanguard Award and the Top Women in Cable & Telecommunications
award. Ms. Wilderotter serves on the boards of Airborne Express, Electric
Lightwave, Inc., Gaylord Entertainment, Jacor Communications and the California
Cable Television Association.
Douglas Wiest is the Chief Operating Officer of ATC. Mr. Wiest joined ATC in
February 1998, initially as the Chief Operating Officer of Gearon
Communications, and assumed his current position in March 1998. Prior to
joining ATC, Mr. Wiest was Regional Vice President of Engineering and
Operations for Nextel's southern region. Prior to joining Nextel in 1993, Mr.
Wiest was employed by McCaw Communications where he was engaged in network
systems development for approximately three years and by Pacific Telesis where
he was engaged in strategic planning and operations for approximately eight
years.
Joseph L. Winn is the Chief Financial Officer and Treasurer of ATC. Mr. Winn
was also Treasurer, Chief Financial Officer and a director of American Radio
since its founding until consummation of the ATC Separation. In addition to
serving as Chief Financial Officer of American Radio, Mr. Winn was Co-Chief
Operating Officer responsible for Boston operations until May 1994. Mr. Winn
served as Chief Financial Officer and a director of the general partner of
Atlantic after its organization. He also served as Executive Vice President of
the general partner of Atlantic from its organization until June 1992, and as
its President from June 1992 until the organization of American Radio. Prior to
joining Atlantic, Mr. Winn served as Senior Vice President and Corporate
Controller of American Cablesystems after joining that company in 1983.
Executive Compensation
All of the executive officers of ATC listed below (other than Mr. Eisenstein)
were employees of American Radio (or, in the case of Mr. Box, of EZ prior to
the EZ Merger) since the organization of ATC in 1995 until the ATC Separation.
During that period the highest paid executive officers, other than Mr. Dodge,
who are employees of ATC, were Messrs. Box, Winn and Eisenstein. The
compensation of each of those individuals (other than Mr. Eisenstein) was
principally for acting as an executive officer of American Radio (or, in the
case of Mr. Box, EZ prior to the EZ Merger) and, accordingly, information
provided with respect to their executive compensation represents compensation
paid by American Radio (with the exception of Mr. Eisenstein).
60
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------------------- ------------
Shares
Name and Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options(7) Compensation
------------------ ---- --------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Steven B. Dodge(1)(2)... 1996 $ 297,250(/3/) 50,000 -- 40,000 $ 4,910(/9/)
Chairman of the Board, 1997 $ 502,338(/3/) -- -- 100,000 $ 1,716(/9/)
President and Chief 1998 $ 370,349(/4/) -- -- 3,300,000 $ 5,946(/9/)
Executive Officer
Douglas Wiest(2)........ 1998 $ 211,007(/5/) -- -- 365,001 $ 4,576(/10/)
Chief Operating Officer
J. Michael Gearon,
Jr.(2)................. 1998 $ 176,135(/5/) -- -- 334,451 $ 346(/11/)
Executive Vice President
Joseph L. Winn(1)(2).... 1996 $ 257,250(/3/) 42,500 -- 20,000 $11,456(/9/)
Treasurer and Chief 1997 $ 352,329(/3/) 40,000 -- 35,000 $12,876(/9/)
Financial Officer 1998 $ 298,779(/4/) -- 610,000 $13,210(/9/)
James S. Eisenstein(2).. 1996 $ 169,250(/5/) 19,000 -- 273,119(/8/) $ 8,669(/9/)
Executive Vice 1997 $ 212,367(/5/) -- -- 27,310(/8/) $12,656(/9/)
President-- 1998 $ 207,850(/5/)(/13/) 50,000 -- 150,000 $13,295(/9/)
Corporate Development
Alan L. Box(1)(2)....... 1997 $ 264,400(/6/) -- -- 100,000 $ 1,216(/12/)
Executive Vice 1998 $ 105,417(/5/) -- -- 225,000 $ 174(/11/)
President
</TABLE>
- --------
(1) Represents both annual and long-term compensation paid by American Radio
and American Tower.
(2) The Compensation Committee of ATC approved annual base salaries for 1998
for Mr. Dodge, and each of its other five executive officers, at the
following rates: Mr. Dodge: $250,000; Mr. Box: $50,000; Mr. Eisenstein
$200,000; Mr. Gearon: $200,000; Mr. Wiest: $225,000; and Mr. Winn:
$225,000. Such salaries commenced (in the case of Messrs. Dodge, Winn and
Eisenstein) with the consummation of the ATC Separation on June 4, 1998,
prior to which time such individuals (other than Mr. Eisenstein) were paid
by American Radio at their then present compensation rates.
(3) Includes American Radio's matching 401(k) plan contributions.
(4) Includes American Radio and American Tower matching 401(k) plan
contributions.
(5) Includes American Tower matching 401(k) plan contributions.
(6) Includes $87,500 paid by ATC commencing October 1, 1997.
(7) Except in the case of Mr. Eisenstein, represents for the years 1996 and
1997 options to purchase American Radio Common Stock granted by American
Radio; such options, to the extent they were unexercised at the time of
the ATC Separation, were exchanged for options to purchase shares of
Common Stock on the basis and for the numbers shown on page 63 under "--
Stock Option Information". In the case of Mr. Eisenstein, does not include
options granted in 1996 to purchase 40,000 shares of ARS Common Stock by
American Radio that were similarly exchanged.
(8) Represents options issued in exchange for options to purchase shares of
ATI granted pursuant to the ATI plan that were exchanged as part of the
ATC Separation for options to purchase shares of Class A Common Stock. See
Note (7) above for information with respect to options to purchase ARS
Common Stock that are not reflected in Mr. Eisenstein's 1996 numbers.
(9) Includes group term life insurance, automobile lease and parking expenses
paid by American Radio and American Tower.
(10) Includes group term insurance and automobile expense paid by American
Tower.
(11) Includes group term life insurance paid by American Tower.
(12) Includes group term life insurance paid by American Radio.
(13) Mr. Eisenstein also received a $322,000 demand loan at a fixed interest
rate in August 1998. As of this Offering, such loan remained outstanding
in the principal amount of $322,000.
61
<PAGE>
Director Compensation
The independent directors of ATC have received options to purchase 50,000
shares of Class A Common Stock, which are exercisable in 20% cumulative annual
increments commencing one year from the date of grant and expire at the end of
ten years. The outside directors also receive $2,500 for attending each board
meeting, $1,000 for each committee on which he or she serves, and $3,000 for
each committee on which he or she serves as chairperson.
Stock Option Information
Effective November 5, 1997, ATC instituted the 1997 Stock Option Plan, as
amended and restated (the "Plan"), which is administered by the Compensation
Committee of the ATC Board. The Plan was designed to encourage directors,
consultants and key employees of American Tower and its subsidiaries to
continue their association with ATC by providing opportunities for such persons
to participate in the ownership of ATC and in its future growth through the
granting of stock options, which may be options designed to qualify as
incentive stock options ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or options not intended
to qualify for any special tax treatment under the Code ("NQOs"). The Plan
provides that ATC may not grant options to purchase more than 5,000,000 shares
per year per participant.
The duration of the ISOs and NQOs granted under the Plan may be specified by
the Compensation Committee pursuant to each respective option agreement, but in
no event shall any such option be exercisable after the expiration of ten (10)
years after the date of grant. In the case of any employee who owns (or is
considered under Section 424(d) of the Code as owning) stock possessing more
than ten percent of the total combined voting power of all classes of stock of
ATC, no ISO shall be exercisable after the expiration of five (5) years from
the date such option is granted. The option pool under the Plan consists of an
aggregate of 15,000,000 shares of Common Stock that may consist of shares of
Class A Common Stock, shares of Class B Common Stock or some combination
thereof. The Plan was amended in June 1998 to provide that all future grants of
options under the Plan must be to purchase shares of Class A Common Stock. The
Plan includes options that were converted from the stock option plan of ATI. In
July 1996, ATI adopted a stock option plan and, pursuant thereto, options were
granted to various officers of ATI. In connection with the ATC Separation,
those options to purchase the common stock of ATI were converted into options
to acquire shares of Class A Common Stock under the Plan.
In addition to the 15,000,000 shares authorized under the Plan, options to
purchase an aggregate of 922,344 shares of Class A Common Stock and 1,251,760
shares of Class B Common Stock were outstanding as of December 31, 1998 outside
of the Plan. These options are the result of the exchange of certain American
Radio options that occurred pursuant to the ATC Separation and the assumption
of certain options that occurred pursuant to the merger with Old ATC. Each
unexercised option to purchase shares of American Radio common stock held by
persons who became directors or employees of ATC were exchanged for ATC
options. The American Radio options were exchanged in a manner that preserved
the spread in such American Radio options between the option exercise price and
the fair market value of American Radio common stock and the ratio of the
spread to the exercise price prior to such conversion and, to the extent
applicable, otherwise in conformity with the rules under Section 424(a) of the
Code and the regulations promulgated thereunder.
During the year ended December 31, 1998 the only options granted pursuant to
the Plan to the individuals referred to in "--Executive Compensation" on page
60 were as shown below. All such options (other than that for 1,700,000 shares
of Class B Common Stock granted to Mr. Dodge) are to purchase shares of Class A
Common Stock.
62
<PAGE>
Option Grants in 1998 Individual Grants
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Appreciation for Option
Terms(b)
---------------------------
Percent of
Number of Total Options
Shares of Granted to
Underlying Employees in Exercise
Options Fiscal Price Expiration
Name Granted Year(a) per Share Date 5% 10%
---- ---------- ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven B. Dodge......... 1,700,000 20.3 $ 10.00 1/7/08 $10,691,209 $27,093,622
1,300,000 15.5 21.125 6/21/08 17,275,107 43,778,512
300,000 3.6 23.75 12/01/08 4,480,874 11,355,415
Douglas Wiest........... 240,001 2.9 13.00 1/21/08 1,962,159 4,972,497
125,000 1.5 23.75 12/01/08 1,867,031 4,731,423
J. Michael Gearon, Jr... 234,451 2.8 13.00 1/21/08 1,916,785 4,857,509
100,000 1.2 23.75 12/01/08 1,493,625 3,785,138
Joseph L. Winn.......... 275,000 3.3 10.00 1/7/08 1,729,460 4,382,792
210,000 2.5 21.125 6/21/08 2,790,594 7,071,913
125,000 1.5 23.75 12/01/08 1,867,031 4,731,423
Alan L. Box............. 120,000 1.4 10.00 1/7/08 754,674 1,912,490
80,000 1.0 21.125 6/21/08 1,063,083 2,694,062
25,000 0.3 23.75 12/01/08 373,406 946,285
James S. Eisenstein..... 28,000 0.3 10.00 1/7/08 176,090 446,248
22,000 0.3 21.125 6/21/08 292,348 740,867
100,000 1.2 23.75 12/01/08 1,493,625 3,785,138
</TABLE>
- --------
(a) The total number of options granted to employees of ATC during 1998
pursuant to the Plan was 8,386,697.
(b) The potential realizable value at assumed annual rates of stock price
appreciation for the option term of 5% and 10% would be $16.29 and $25.94
respectively, with respect to the $10.00 per share options, $34.42 and
$54.81, respectively, with respect to the $21.125 per share options and
$21.18 and $33.72 respectively, with respect to the $13.00 per share
options and $38.69 and $61.60, respectively, with respect to the $23.75
per share option. A 5% and 10% per year appreciation in stock price from
$10.00 per share yields appreciation of $6.29 per share and $15.94 per
share, respectively. A 5% and 10% per year appreciation in stock price
from $21.125 per share yields appreciation of $13.29 per share and $33.68
per share, respectively. A 5% and 10% per year appreciation in stock price
from $13.00 per share yields appreciation of $8.18 per share and $20.72
per share, respectively. A 5% and 10% per year appreciation in stock price
from $23.75 per share yields appreciation of $14.94 per share and $37.85
per share, respectively. The actual value realized, if any, will depend on
the excess of the stock price over the exercise price on the date the
option is exercised, so that there is no assurance the value realized by
an executive will be at or near the amounts reflected in this table.
The unexercised options granted pursuant to the Plan (or outstanding with
respect to options granted under the American Radio plan or the ATI plan) to
the individuals referred to in "--Executive Compensation" on page 60 were as
follows:
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1998 December 31, 1998(a)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Steven B. Dodge............ 484,816 3,716,441 $12,248,812 $55,097,654
Douglas Wiest.............. 0 365,001 0 4,700,667
J. Michael Gearon, Jr. .... 0 334,451 0 4,463,509
Joseph L. Winn............. 95,883 740,526 2,371,611 10,613,051
Alan L. Box................ 62,156 473,622 1,292,223 8,335,701
James S. Eisenstein........ 243,922 330,819 6,010,720 5,759,475
</TABLE>
- --------
(a) Based on the closing price of the Class A Common Stock on the NYSE on
December 31, 1998 of $29.56 per share.
63
<PAGE>
All employees of American Radio who became employees of ATC (which includes,
among others, Messrs. Box, Dodge, Eisenstein and Winn) who held options to
purchase American Radio common stock (including Mr. Box: 100,000 shares; Mr.
Dodge: 290,000 shares; Mr. Eisenstein: 40,000 shares; and Mr. Winn: 280,000
shares) were given the opportunity to convert their American Radio options into
ATC options. Such conversion was effectuated upon consummation of the ATC
Separation in a manner designed to preserve the spread in such American Radio
options between the option exercise price and the fair market value of American
Radio common stock and the ratio of the spread to the exercise price prior to
such conversion and, to the extent applicable, otherwise in conformity with the
rules under Section 424(a) of the Code and the regulations promulgated
thereunder. Messrs. Box, Dodge, Eisenstein and Winn exercised their respective
rights to exchange American Radio options for ATC options such that such
individuals hold ATC options as follows (based on a $64 7/8 and $20 7/8 per
share value for the American Radio common stock and Common Stock,
respectively): Mr. Box: 310,778 shares of Class A Common Stock at $8.77 per
share; Mr. Dodge: an aggregate of 901,257 shares of Class B Common Stock at
prices ranging between $3.19 and $10.00 per share; Mr. Eisenstein: 124,311
shares of Class B Common Stock at $7.64 per share; and Mr. Winn: an aggregate
of 405,037 shares of Class B Common Stock and 25,080 shares of Class A Common
Stock at prices ranging between $2.05 and $9.09 per share. See "Principal and
Selling Stockholders" on page 66.
In 1996 Mr. Eisenstein was granted options pursuant to the ATI plan for an
aggregate of 200,000 shares at $5.00 per share. Such options became exercisable
to the extent of 80,000 shares on July 1, 1997 and became exercisable in 20%
cumulative annual increments commencing on July 1, 1998, and expires September
9, 2006. As part of the ATC Separation, the ATI options were exchanged for ATC
options, and Mr. Eisenstein received options to purchase 273,117 shares of
Class A Common Stock at $3.66 per share, of which 163,871 shares are presently
purchasable. An additional ten-year option to purchase 20,000 shares of common
stock of ATI at $7.50 per share was granted to Mr. Eisenstein on January 2,
1997. Pursuant to the ATC Separation, that option was exchanged for an ATC
options to purchase 27,311 of shares of Class A Common Stock at $5.49 per
share, of which 5,462 shares are presently purchasable.
Employment Agreements
J. Michael Gearon, Jr. and Douglas Wiest are the only executive officers that
have employment agreements with ATC. Mr. Gearon entered into his employment
agreement in connection with the closing of the Gearon Transaction. Such
employment agreement is for an initial term ending December 31, 2000 and is
thereafter renewable for successive one year periods. It provides that Mr.
Gearon shall receive an annual base salary of $200,000 and shall be eligible to
participate in ATC's stock option plan and other benefits. Mr. Wiest's
employment agreement provides for a lump sum cash payment of $350,000, or 1.5
times Mr. Wiest's salary, if Mr. Wiest's employment is terminated (except for
cause) within five years of the date of the employment agreement (April 13,
1998). It also provides that under certain circumstance if ATC is sold within
such five year period then Mr. Wiest would be entitled to the accelerated
vesting of any options he held at such time.
Compensation Committee Interlocks and Insider Participation
Mr. Stoner (and certain members of his family) and an affiliate of Mr. Chavkin
purchased Class A Common Stock in the ATC Private Placement. Also Chase, an
entity related to CEA, an affiliate of Mr. Chavkin, has been a lender to ATC
and is a lender under the Credit Facilities. Each of these matters is explained
below under "--Certain Transactions".
Certain Transactions
Chase was a lender with a 6.75% participation under the loan agreement entered
into by ATI and has a 5.2% participation under the Credit Facilities for the
Borrower Subsidiaries. Chase is an affiliate of CCP, the general partner of
CEA; Mr. Chavkin, a director of ATC and formerly a director of American Radio,
is a general partner of CCP. At December 31, 1998, the aggregate principal
amount outstanding under the Credit Facilities of the Borrower Subsidiaries was
approximately $275.0 million. Chase's share of interest and fees paid by ATC
pursuant to its various credit arrangements was $0.2 million and $0.8 million
in 1997 and 1998,
64
<PAGE>
respectively. For information with respect to the interests of Chase Capital,
an affiliate of Mr. Chavkin, in ATC and the Old ATC merger, see "Business--
Recent Transactions--Old ATC Merger" on page 50.
Mr. Eisenstein and ATC are parties to a demand loan agreement pursuant to which
ATC loaned to Mr. Eisenstein $322,000 in August 1998. Such loan remains
outstanding in the principal amount of $322,000. See "--Executive Compensation"
on page 60.
ATC Private Placement. In January 1998, ATC consummated the transactions
contemplated by the Stock Purchase Agreement, dated as of January 8, 1998 (the
"Stock Purchase Agreement"), with certain officers and directors of American
Radio and ATC (or their affiliates or members of their family or family
trusts), pursuant to which those persons purchased shares (the "ATC Private
Placement") of Common Stock at $10.00 per share, as follows: Mr. Dodge:
4,000,000 (Class B); Mr. Box: 450,000 (Class A); Mr. Charlton H. Buckley:
300,000 (Class A); each of Messrs. Eisenstein and Steven J. Moskowitz: 25,000
(Class A); Mr. Arthur Kellar: 400,000 (Class A); Mr. Stoner, his wife and
certain family trusts: 649,950 (Class B); other Stoner family and trust
purchasers: 150,050 (Class A); and Chase Equity Associates: 2,000,000 (Class
C). Messrs. Buckley and Kellar were directors of American Radio, and Mr.
Chavkin, a director of ATC and a former director of American Radio, is an
affiliate of Chase Equity Associates. Mr. Moskowitz serves as a Vice President
of ATC and the General Manager of the Northeast Region.
Payment of the purchase price was in the form of cash in the case of CEA, all
members of Mr. Stoner's family and the family trusts (but not Mr. Stoner and
his wife) and Messrs. Buckley, Eisenstein, Kellar and Moskowitz, and, in the
case of Messrs. Dodge, Box and Stoner (and his wife), in the form of a note
that was paid in full upon consummation of the ATC Separation. The notes bore
interest at the six-month London Interbank Offered Rate, from time to time,
plus 1.5% per annum, and were secured by shares of American Radio 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 were prepayable at any time
at the option of the obligor and were due and payable, at the option of ATC, in
the event of certain defaults set forth therein.
The American Radio Board of Directors appointed a special committee (the
"Special Committee") consisting of three directors (who were not directors of
ATC and who were not a party to the Stock Purchase Agreement) to determine the
fairness to American Radio from a financial point of view of the terms and
conditions of the Stock Purchase Agreement. None of the members of the Special
Committee was a party to the Stock Purchase Agreement. No limitations were
imposed on the activities of the Special Committee by the American Radio Board.
The Special Committee retained Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") to act as its exclusive financial advisor in
connection with the transactions contemplated by the Stock Purchase Agreement.
No limitations were placed on the activities of Merrill Lynch. Merrill Lynch
delivered its written opinion, dated January 8, 1998, to the Special Committee
that, as of such date and based upon and subject to the matters set forth
therein, the purchase price of $10.00 per share to be received by ATC pursuant
to the Stock Purchase Agreement was fair from a financial point of view to
American Radio. Based upon such opinion, and its own evaluation of the terms
and conditions of the ATC Stock Purchase Agreement, the Special Committee
approved the Stock Purchase Agreement as fair to and in the best interests of
American Radio.
Pursuant to an Engagement Letter, dated November 20, 1997, American Radio
agreed to pay Merrill Lynch a fee of $500,000 in consideration for its
services. American Radio has also agreed to reimburse Merrill Lynch for its
expenses, including reasonable fees and expenses of its counsel, and to
indemnify Merrill Lynch for liabilities and expenses arising out of its
engagement and the transactions in connection therewith, including liabilities
under the federal securities laws. ATC is obligated under the Separation
Agreement to reimburse American Radio for all such fees and expenses which
American Radio has incurred to Merrill Lynch and to assume such indemnification
obligation.
Management believes that the above transactions, to the extent they were with
affiliated parties, were on terms, and ATC intends to continue its policy that
all future transactions between it and its officers, directors, principal
stockholders and affiliates will be on terms, not less favorable to ATC than
those which could be obtained from unaffiliated parties.
65
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following information sets forth certain information known to ATC as of
December 31, 1998 with respect to the shares of Common Stock that are
beneficially owned as of such date by (i) each person known by ATC to own more
than 5% of the outstanding Common Stock, (ii) each director of ATC, (iii) each
executive officer of ATC, and (iv) all directors and executive officers of ATC
as a group. The table also sets forth information of a comparable nature giving
effect, in addition to the foregoing, to the consummation of the OmniAmerica
Merger, the TeleCom Merger and this Offering. The number of shares beneficially
owned by each director or executive officer is determined according to the
rules of the Securities and Exchange Commission (the "Commission"), and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual or entity has sole or shared voting power or investment power
and also any shares which the individual or entity has the right to acquire
within sixty days of December 31, 1998 through the exercise of an option,
conversion feature or similar right. Except as noted below, each holder has
sole voting and investment power with respect to all shares of Common Stock
listed as owned by such person or entity. The failure to consummate the
OmniAmerica Merger would increase the percentages of Common Stock by about
12.2% and Total Voting Power by about 7.8%. The failure of the TeleCom Merger
to be consummated would also increase, although not materially, those
percentages.
<TABLE>
<CAPTION>
Pro Forma
Shares of Common Stock Beneficially Owned for the Mergers and
Prior to the Mergers and this Offering this Offering**
------------------------------------------------ ---------------------
Percent of Percent of
Percent Percent Percent of Total Shares Percent of Total
of of Common Voting Being Common Voting
Number Class A Class B Stock Power Offered Stock Power
---------- ------- ------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Directors and Executive
Officers
Steven B. Dodge(1)...... 6,614,460 * 65.65 6.04 33.30 4.28 27.04
Thomas H. Stoner(2)..... 1,398,487 * 15.16 1.29 7.33 * 5.90
Alan L. Box(3).......... 937,084 * -- * * 150,000 * *
Arnold L. Chavkin
(CEA)(4)............... 7,780,708 4.95 -- 7.16 2.56 1,000,000 4.42 1.80
James S. Eisenstein(5).. 279,984 * * * * * *
J. Michael Gearon,
Jr.(6)................. 4,021,328 4.16 -- 3.70 2.15 2.62 1.73
Fred R. Lummis(7)....... 1,496,748 1.54 -- 1.37 * 150,000 * *
Randall Mays (Clear
Channel)(8)............ 9,019,717 9.34 -- 8.30 4.83 5.87 3.89
Douglas Wiest(9)........ 83,557 * -- * * * *
Maggie Wilderotter
(10)................... -- -- -- -- -- -- --
Joseph L. Winn(11)...... 417,826 * 3.85 * 1.90 * 1.53
All executive officers
and directors as a
group (eleven
persons)(12)........... 32,049,899 21.27 82.09 28.96 52.22 19.76 42.14
Director Nominees
Jack D. Furst (13)...... -- -- -- -- -- + +
Dean H. Eisner(14)...... -- -- -- -- -- + +
Five Percent
Stockholders:
Thomas O. Hicks(15)..... -- -- -- -- -- 4.78 3.17
HMTF/Omni Partners, L.P.
(16)................... -- -- -- -- -- 4.76 3.15
Total Shares to be
Sold.................. 1,300,000
=========
</TABLE>
- --------
* Less than 1%.
** Assumes that 16.7 million shares are issued pursuant to the OmniAmerica
Merger and 4.2 million shares are issued pursuant to the TeleCom Merger, and
no adjustment occurs pursuant to the TeleCom Merger as a consequence of the
various adjustments. See "Business--Recent Transactions--TeleCom Merger" on
page 52 for information with respect to such adjustments.
+ For information regarding the pro forma beneficial ownership of Messrs.
Furst and Eisner, see Notes 13 and 14 on page 69.
(1) Mr. Dodge is Chairman of the Board, President and Chief Executive Officer
of ATC. His address is 116 Huntington Avenue, Boston, Massachusetts 02116.
Includes 10,030 shares of Class A Common
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<PAGE>
Stock and 3,567,761 shares of Class B Common Stock owned by Mr. Dodge, an
aggregate of 25,050 shares of Class A Common Stock and 28,065 shares of
Class B Common Stock owned by three trusts for the benefit of Mr. Dodge's
children, 66,720 shares of Class A Common Stock and 2,000,000 shares of
Class B Common Stock owned by a limited liability company, of which Mr.
Dodge is the sole member and 5,000 shares of Class A Common Stock owned by
Mr. Dodge's wife. Mr. Dodge disclaims beneficial ownership in all shares
owned by such trusts and his wife. Does not include an aggregate of 329,423
shares of Class B Common Stock purchasable under ATC options received in
exchange for American Radio options upon consummation of the ATC
Separation; includes an aggregate of 571,834 shares of Class B Common Stock
as to which such exchanged options are exercisable. Does not include
1,360,000 shares of Class B Common Stock purchasable under an option
granted on January 8, 1998 under the Plan and 1,300,000 shares of Class A
Common Stock purchasable under an option granted on June 22, 1998 under the
Plan and 300,000 shares of Class A Common Stock purchasable under an option
granted on December 1, 1998 under the Plan; includes 340,000 shares as to
which the January option is exercisable. Does not include 170 shares of
Class A Common Stock held by Thomas S. Dodge, an adult child of Mr. Dodge,
with respect to which Mr. Dodge disclaims beneficial ownership.
(2) Mr. Stoner is Chairman of the Executive Committee of the ATC Board of
Directors. His address is 116 Huntington Avenue, Boston, Massachusetts
02116. Includes 915,000 shares of Class B Common Stock owned by Mr.
Stoner, 46,311 shares of Class B Common Stock owned by his wife, an
aggregate of 403,460 shares of Class B Common Stock and 22,500 shares of
Class A Common Stock owned by trusts of which he and/or certain other
persons are trustees. Mr. Stoner disclaims beneficial ownership of 221,140
shares of Class B Common Stock and 22,500 shares of Class A Common Stock
owned by such trusts. Does not include 98,975 shares of Class A Common
Stock and 61,454 shares of Class B Common Stock owned by Mr. Stoner's
adult children. Does not include 9,323 shares of Class A Common Stock
purchasable under an ATC Option received in exchange for an American Radio
option upon consummation of the ATC Separation; includes 6,216 shares of
Class A Common Stock as to which such exchanged option is exercisable.
Does not include 20,000 shares of Class A Common Stock purchasable under
an option granted on January 8, 1998 under the Plan and 25,000 shares of
Class A Common Stock purchasable under an option granted on December 1,
1998 under the Plan; includes 5,000 shares as to which the January option
is exercisable.
(3) Mr. Box is a director and an Executive Vice President of ATC. His address
is 116 Huntington Avenue, Boston, Massachusetts 02116. Includes 848,858
shares (150,000 of which are to be offered in this Offering) of Class A
Common Stock owned by Mr. Box, 2,070 shares of Class A Common Stock owned
by two trusts for the benefit of Mr. Box's children and 62,156 shares of
Class A Common Stock purchasable under ATC options received in exchange
for American Radio options upon consummation of the ATC Separation; does
not include 248,622 shares of Class A Common Stock purchasable under such
exchanged options. Does not include 96,000 shares of Class A Common Stock
purchasable under an option granted on January 8, 1998 under the Plan,
80,000 shares of Class A Common Stock purchasable under an option granted
on June 22, 1998 under the Plan and 25,000 shares of Class A Common Stock
purchasable under an option granted on December 1, 1998 under the Plan;
includes 24,000 shares as to which the January option is exercisable.
(4) Mr. Chavkin is a director of ATC. His address is 116 Huntington Avenue,
Boston, Massachusetts 02116. Mr. Chavkin, as a general partner of CCP,
which is the general partner of CEA may be deemed to own beneficially
shares held by CEA and Chase Capital, an affiliate of Mr. Chavkin.
Includes 26,911 shares (3,461 of which are to be offered in this Offering)
of Class A Common Stock and 3,002,008 shares (386,136 of which are to be
offered in this Offering) of Class C Common Stock owned by CEA and
4,740,573 shares (610,403 of which are to be offered in this Offering) of
Class A Common Stock owned by Chase Capital. Mr. Chavkin disclaims such
beneficial ownership of such shares. The address of CCP and CEA is
380 Madison Avenue, 12th Floor, New York, New York 10017. Does not include
9,323 shares of Class A Common Stock purchasable under an ATC Option
received in exchange for an American Radio option upon consummation of the
ATC Separation; includes 6,216 shares of Class A Common Stock as to which
such exchanged option is exercisable. Does not include 20,000 shares of
Class A Common Stock purchasable under an option granted on January 8,
1998 under the Plan and
67
<PAGE>
25,000 shares of Class A Common Stock purchasable under an option granted
on December 1, 1998 under the Plan; includes 5,000 shares as to which the
January option is exercisable.
(5) Mr. Eisenstein is Executive Vice President--Corporate Development of ATC.
His address is 116 Huntington Avenue, Boston, Massachusetts 02116. Does
not include 49,722 shares of Class B Common Stock purchasable under ATC
options received in exchange for American Radio options upon consummation
of the ATC Separation; includes 74,589 shares of Class B Common Stock as
to which such options will be exercisable. Does not include an aggregate
of 125,635 shares of Class A Common Stock purchasable under options that
were issued in exchange for ATI options; includes an aggregate of
174,795 shares of Class A Common Stock as to which such options are
exercisable. Does not include 22,400 shares of Class A Common Stock
purchasable under an option granted on January 8, 1998 under the Plan,
22,000 shares of Class A Common Stock purchasable under an option granted
on June 22, 1998 under the Plan and 100,000 shares of Class A Common
Stock purchasable under an option granted on December 1, 1998 under the
Plan; includes 5,600 shares as to which the January option is
exercisable.
(6) Mr. Gearon is an Executive Vice President and director of ATC. His
address is 116 Huntington Avenue, Boston, Massachusetts 02116. Includes
3,974,437 shares of Class A Common Stock currently owned by Mr. Gearon.
Does not include 400,000 shares of Class A Common Stock held by a trust
for the benefit of Mr. Gearon's children of which J. Michael Gearon, Sr.
is the trustee. Mr. Gearon disclaims beneficial ownership in all shares
owned by such trust. Does not include 187,560 shares of Class A Common
Stock purchasable under an option granted on January 22, 1998 under the
Plan and 100,000 shares of Class A Common Stock purchasable under an
option granted on December 1, 1998 under the Plan; includes 46,891 shares
as to which the January option is exercisable.
(7) Mr. Lummis is a director of ATC. His address is 3411 Richmond Avenue,
Suite 400, Houston, Texas 77046. Includes 69,105 shares of Class A Common
Stock owned by Mr. Lummis, an aggregate of 256,252 shares of Class A
Common Stock owned by trusts of which he is trustee, 674,349 shares
(150,000 of which are to be offered in this Offering) of Class A Common
Stock owned by Summit Capital, an affiliate of Mr. Lummis by reason of
Mr. Lummis's 50% ownership of the common stock of Summit Capital, and
497,042 shares of Class A Common Stock purchasable under an option
originally granted by Old ATC which became an option to purchase Class A
Common Stock pursuant to the merger of Old ATC with ATC. Mr. Lummis
disclaims beneficial ownership in all shares owned by the trusts and
disclaims beneficial ownership of all shares owned by Summit Capital,
except to the extent of his pecuniary interest therein. Does not include
25,000 shares of Class A Common Stock purchasable under an option granted
on June 22, 1998 under the Plan and 25,000 shares of Class A Common Stock
purchasable under an option granted on December 1, 1998 under the Plan.
(8) Mr. Mays, the Chief Financial Officer and an Executive Vice President of
Clear Channel, is a director of ATC. His address is P.O. Box 659512, San
Antonio, Texas 78265-9512. Clear Channel owns all of the shares of Class
A Common Stock shown in the table. Mr. Mays disclaims beneficial
ownership of Clear Channel's ownership of such shares. Does not include
25,000 shares of Class A Common Stock purchasable under an option granted
on June 22, 1998 under the Plan and 25,000 shares of Class A Common Stock
purchasable under an option granted on December 1, 1998 under the Plan.
(9) Mr. Wiest is the Chief Operating Officer of ATC. His address is 116
Huntington Avenue, Boston, Massachusetts 02116. Includes 35,556 shares of
Class A Common Stock owned by Mr. Wiest. Does not include 192,000 shares
of Class A Common Stock purchasable under an option granted on January
22, 1998 under the Plan and 125,000 shares of Class A Common Stock
purchasable under an option granted on December 1, 1998 under the Plan;
includes 48,001 shares as to which the January option is exercisable.
(10) Ms. Wilderotter is a director of ATC. Her address is 116 Huntington
Avenue, Boston, Massachusetts 02116. Does not include 25,000 shares of
Class A Common Stock purchasable under an option granted on June 22, 1998
under the Plan and 25,000 shares of Class A Common Stock purchasable
under an option granted on December 1, 1998 under the Plan.
68
<PAGE>
(11) Mr. Winn is the Treasurer and Chief Financial Officer of ATC. His address
is 116 Huntington Avenue, Boston, Massachusetts 02116. Includes 2,000
shares of Class A Common Stock and 230,657 shares of Class B Common Stock
owned individually by Mr. Winn and 100 shares of Class A Common Stock held
for the benefit of his children. Does not include an aggregate of 81,292
shares of Class B Common Stock and 15,048 shares of Class A Common Stock
purchasable under ATC options received in exchange for American Radio
options upon consummation of the ATC Separation; includes an aggregate of
120,037 shares of Class B Common Stock and 10,032 shares of Class A Common
Stock as to which such options are exercisable. Does not include 220,000
shares of Class A Common Stock purchasable under an option granted on
January 8, 1998 under the Plan, 210,000 shares of Class A Common Stock
purchasable under an option granted on June 22, 1998 under the Plan and
125,000 shares of Class A Common Stock purchasable under an option granted
on December 1, 1998 under the Plan; includes 55,000 shares as to which the
January option is exercisable.
(12) Includes all shares stated to be owned in the preceding notes.
(13) Mr. Furst is the Chairman of the Board of OmniAmerica. If the OmniAmerica
Merger is consummated, Mr. Furst will join the Board of Directors of ATC.
Mr. Furst beneficially owns 17,604 shares of OmniAmerica Common Stock.
Giving effect to the OmniAmerica Merger, Mr. Furst would own 19,364 shares
of Class A Common Stock. His address is 200 Crescent Court, Suite 1600,
Dallas, Texas 75201-6950.
(14) Mr. Eisner is Vice President, Business Development and Planning of Cox
Enterprises, Inc., an affiliate of the principal TeleCom member. If the
TeleCom Merger is consummated, Mr. Eisner will join the Board of Directors
of American Tower. Giving effect to the TeleCom Merger, the OmniAmerica
Merger and this Offering, Cox Enterprises, Inc. would "beneficially" own
2,092,440 shares of Class A Common Stock, representing 1.36% of the Common
Stock and 0.90% of the total voting power of the Common Stock. His address
is 1400 Lake Hearn Drive, N.E., Atlanta, GA 30319. Mr. Eisner does not
directly own any TeleCom equity interests.
(15) Assuming the OmniAmerica Merger is completed, includes (i) 26,853 shares
owned of record by Mr. Hicks, (ii) 3,163 shares owned of record by six
trusts of which Mr. Hicks serves as trustee and (iii) 7,313,692 shares
owned of record by HMTF/Omni Partners, L.P., a limited partnership of
which the sole general partner is HM3/OmniAmerica Partners, LLC, a limited
liability company of which the sole member is HM3 Coinvestors, L.P., a
limited partner of which the sole general partner is Hicks, Muse G.P.
Partners III, L.P., a limited partnership of which the sole general
partner is Hicks, Muse Fund III Incorporated, a corporation of which Mr.
Hicks is the sole director, Chairman of the Board, Chief Executive
Officer, Secretary and sole stockholder. Mr. Hicks expressly disclaims (i)
the existence of any group and (ii) beneficial ownership with respect to
any shares not owned of record by him. Mr. Hicks's address is 200 Crescent
Court, Suite 1600, Dallas, Texas 75201-6950.
(16) The address of HMTF/Omni Partners, L.P. is 200 Crescent Court, Suite 1600,
Dallas, Texas 75201-6950. See footnote 15 above for a description of
beneficial ownership.
69
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The description below summarizes the more important terms of ATC's bank
borrowing arrangements, which we refer to as the "Credit Facilities." Copies of
the legal agreements with the banks have been filed with the Commission as
exhibits to ATC's registration statement for this Offering. You should refer to
those agreements for the complete terms of the Credit Facilities. The
capitalized words used in the description below have specialized meanings
defined in those agreements.
In order to finance acquisitions of communications sites and other related
businesses and the construction of towers and for general corporate purposes,
ATC, ATI and American Tower, L.P. ("ATLP" and, with ATI, the "Borrower
Subsidiaries") have borrowed and expect to continue to borrow under the Credit
Facilities. The Credit Facilities with the Borrower Subsidiaries provide for
$775.0 million credit facilities maturing at the earlier of (a) eight years or
(b) June 30, 2006 consisting of the following: (i) a $125.0 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 revolving credit commitments are required to
be reduced and the term loans are required to be amortized, in both cases,
quarterly, in increasing amounts designed to amortize the loans by maturity,
commencing June 30, 2001. In addition, the loans are required to be repaid (and
the revolving credit commitments reduced) out of the proceeds of asset sales
and sales of equity securities and out of cash flow, all to the extent set
forth in the Credit Facilities. The loans can be voluntarily prepaid at any
time, without penalty, by the Borrower Subsidiaries and, thereafter by ATC (the
parent). The Credit Facility with ATC provides 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 Credit Facility with ATC was fully
drawn at closing, and a term loan of $125.0 million is outstanding under the
Credit Facilities of the Borrower Subsidiaries.
Until interest rates are fixed or capped at ATC's request, all outstanding
amounts under the Credit Facilities of the Borrower Subsidiaries bear interest
at a variable base rate plus a variable margin based on certain of ATC's
financial ratios. Interest rates under the Credit Facilities of the Borrower
Subsidiaries are determined, at the option of ATC, at either the LIBOR Rate
plus 0.75% to 2.25% or the Base Rate plus 0.00% to 1.25%. The spread over the
LIBOR Rate and the Base Rate varies from time to time, depending upon ATC's
financial leverage. The Borrower Subsidiaries pay quarterly commitment fees
equal to (i) 0.250% or 0.375% per annum, in each case depending on their
financial leverage, on the aggregate unused portion of the aggregate
$525.0 million commitment and (ii) 0.125% on the additional $250.0 million
commitment (until such time as ATC elects to make it part of the permanent
commitment). Borrowings may be made under the Credit Facilities by the Borrower
Subsidiaries only so long as they remain in compliance with certain financial
ratios and meet certain other conditions. The Credit Facility of ATC provides
for interest rates determined, at the option of ATC, at either the LIBOR Rate
(as to be defined) plus 3.50% or the Base Rate (as to be defined) plus 2.5%.
Indebtedness may be incurred under the Credit Facilities for acquisitions,
construction and other capital expenditures, working capital and general
corporate purposes. The Credit Facilities of the Borrower Subsidiaries require
the maintenance of the following ratios: (i) Senior Debt to Annualized
Operating Cash Flow of not more than 6.50:1 declining in stages to 3.00:1 by
September 30, 2003 and thereafter; (ii) Total Debt (which includes debt of ATC)
to Annualized Operating Cash Flow of not more than 8.00:1 declining in stages
to 4.00:1 by September 30, 2003 and thereafter; (iii) Annualized Operating Cash
Flow to Fixed Charges ratio of not less than 1.05:1; (iv) Annualized Operating
Cash Flow to Interest Expense of not less than 1.50:1 increasing to 2.50:1 at
December 31, 2003 and thereafter; and (v) Annualized Operating Cash Flow to Pro
Forma Debt Service ratio of not less than 1.10:1 increasing to 1.150:1 at
December 31, 2002 and thereafter. The Total Debt to Annualized Operating Cash
Flow ratio is also contained in the Credit Facility of ATC.
The Credit Facilities contain certain financial and operational covenants and
other restrictions with which ATC and the Restricted Subsidiaries (which
includes the Borrower Subsidiaries) must comply, whether or not there
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<PAGE>
are any borrowings outstanding, including, among other things, restrictions on
acquisitions (of communications site management businesses), additional
indebtedness, capital expenditures and investments in Unrestricted
Subsidiaries, and restrict the ability of ATC and the Restricted Subsidiaries
(which includes the Borrower Subsidiaries) to pay dividends or make other
distributions, and to redeem, purchase or otherwise acquire shares of its
capital stock or other equity interests and prohibit any such dividend,
distribution, redemption, purchase or other acquisition during the existence of
a Default or Event of Default thereunder. See "Description of Capital Stock--
Dividend Restrictions" on page 73. The Credit Facility of ATC prohibits the
repayment of the indebtedness outstanding thereunder without the consent of the
lenders under the Credit Facilities with the Borrower Subsidiaries.
The loans to ATC and the Borrower Subsidiaries are cross-guaranteed and cross-
collateralized by liens on, among other things, all leases of tower space,
contracts relating to the management of towers for others, cash, accounts
receivable, capital stock (or other equity interests) and inter-company debt of
all Restricted Subsidiaries, inventory and other personal property, fixtures,
intellectual property, as well as certain fee and leasehold interests, and the
proceeds thereof of ATC and its Restricted Subsidiaries. Borrowings under the
Credit Facility of ATC are subordinated to the guaranty by ATC of indebtedness
under the Credit Facilities of the Borrower Subsidiaries.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The description below summarizes the more important terms of the capital stock
of ATC. The Restated Certificate of Incorporation, as amended of ATC (the
"Restated Certificate"), contains the definitive terms and you should refer to
it for the complete terms. A copy has been filed with the Commission as part of
ATC's registration statement for this Offering. Certain terms used in this
summary without definition are defined in the Restated Certificate and, unless
otherwise noted, have the same meaning as those terms.
General
The authorized capital stock of American Tower consists of 20,000,000 shares of
Preferred Stock, $.01 par value per share (the "Preferred Stock"), 300,000,000
shares of Class A Common Stock, $.01 par value per share, 50,000,000 shares of
Class B Common Stock, $.01 par value per share, and 10,000,000 shares of
Class C Common Stock, $.01 par value per share. The outstanding shares of
Common Stock as of December 31, 1998 were as follows: Class A Common Stock--
96,620,615; Class B Common Stock--9,001,060; and Class C Common Stock--
3,002,008.
Preferred Stock
The 20,000,000 authorized and unissued shares of Preferred Stock may be issued
with such designations, preferences, limitations and relative rights as the ATC
Board may authorize, including, but not limited to: (i) the distinctive
designation of each series and the number of shares that will constitute such
series; (ii) the voting rights, if any, of shares of such series; (iii) the
dividend rate on the shares of such series, any restriction, limitation or
condition upon the payment of such dividends, whether dividends shall be
cumulative, and the dates on which dividends are payable; (iv) the prices at
which, and the terms and conditions on which, the shares of such series may be
redeemed, if such shares are redeemable; (v) the purchase or sinking fund
provisions, if any, for the purchase or redemption of shares of such series;
(vi) any preferential amount payable upon shares of such series in the event of
the liquidation, dissolution or winding-up of ATC or the distribution of its
assets; and (vii) the price or rates of conversion at which, and the terms and
conditions on which the shares of such series may be converted into other
securities, if such shares are convertible. The issuance of Preferred Stock, or
the issuance of rights to purchase such shares, could discourage an unsolicited
acquisition proposal.
Common Stock
Dividends. Holders of record of shares of Common Stock on the record date fixed
by the ATC Board are entitled to receive such dividends as may be declared by
the ATC Board out of funds legally available for such purpose. No dividends may
be declared or paid in cash or property on any share of any class of Common
Stock, however, unless simultaneously the same dividend is declared or paid on
each share of the other classes of Common Stock, except that in the event of
any such dividend in which shares of stock of any company (including American
Tower or any of its Subsidiaries) are distributed, such shares may differ as to
voting rights to the extent that voting rights now differ among the different
classes of Common Stock. In the case of any dividend payable in shares of
Common Stock, holders of each class of Common Stock are entitled to receive the
same percentage dividend (payable in shares of that class) as the holders of
each other class. See "--Dividend Restrictions" below on page 73.
Voting Rights. Except as otherwise required by law and in the election of
directors, holders of shares of Class A Common Stock and Class B Common Stock
have the exclusive voting rights and will vote as a single class on all matters
submitted to a vote of the stockholders, with each share of Class A Common
Stock entitled to one vote and each share of Class B Common Stock entitled to
ten votes. The holders of the Class A Common Stock, voting as a separate class,
have the right to elect two independent directors. The Class C Common Stock is
nonvoting except as otherwise required by the DGCL.
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<PAGE>
Under the DGCL, the affirmative vote of the holders of a majority of the
outstanding shares of any class of Common Stock is required to approve, among
other things, a change in the designations, preferences and limitations of the
shares of such class of Common Stock. Under the Restated Certificate, the
affirmative vote of the holders of not less than 66 2/3% of the Class A Common
Stock and Class B Common Stock, voting as a single class, is required in order
to amend most of the provisions of the Restated Certificate, including those
relating to the provisions of the various classes of Common Stock,
indemnification of directors, exoneration of directors for certain acts and
such super-majority provision.
The Restated Certificate (i) limits the aggregate voting power of Steven B.
Dodge (and his Controlled Entities as defined therein) to 49.99% of the
aggregate voting power of all shares of capital stock entitled to vote
generally for the election of directors (less the voting power represented by
the shares of Class B Common Stock acquired by the Stoner Purchasers (as
defined therein) pursuant to the Stock Purchase Agreement and owned by them or
any of their Controlled Entities or Family Members (as defined therein) at such
time), (ii) prohibits future issuances of Class B Common Stock (except upon
exercise of then outstanding options and pursuant to stock dividends or stock
splits), (iii) limits transfers of Class B Common Stock to Permitted
Transferees (as defined therein), (iv) provides for automatic conversion of the
Class B Common Stock to Class A Common Stock at such time as the aggregate
voting power of Mr. Dodge (and his Controlled Entities) falls below either (x)
50% of their initial aggregate voting power on June 8, 1998 (approximately
42.6%) or (y) 20% of the aggregate voting power of all shares of Common Stock
at the time outstanding, and (v) requires consent of the holders of a majority
of Class A Common Stock for amendments adversely affecting the Class A Common
Stock.
Conversion Provisions. Shares of Class B Common Stock and, except as
hereinafter noted, Class C Common Stock are convertible, at any time at the
option of the holder, on a share for share basis into shares of Class A Common
Stock. The present owner of Class C Common Stock can convert such stock only in
the event of a Conversion Event (as defined in the Restated Certificate) or
with the consent of the ATC Board. Shares of Class B Common Stock automatically
convert into shares of Class A Common Stock upon any sale, transfer, assignment
or other disposition other than to Permitted Transferees which term includes
certain family members, trusts and other family entities and charitable
organizations and other holders of Class B Common Stock and upon pledges but
not to the pledgee upon foreclosure.
Liquidation Rights. Upon liquidation, dissolution or winding-up of ATC, the
holders of each class of Common Stock are entitled to share ratably (based on
the number of shares held) in all assets available for distribution after
payment in full of creditors and payment in full to any holders of the
Preferred Stock then outstanding of any amount required to be paid under the
terms of the Preferred Stock.
Other Provisions. The holders of Common Stock are not entitled to preemptive or
subscription rights. The shares of Common Stock presently outstanding are
validly issued, fully paid and nonassessable. In any merger, consolidation or
business combination, the consideration to be received per share by holders of
each class of Common Stock must be identical to that received by holders of the
other class of Common Stock, except that in any such transaction in which
shares of Common Stock (or any other company) are distributed, such shares may
differ as to voting rights to the extent that voting rights now differ among
the different classes of Common Stock. No class of Common Stock may be
subdivided, consolidated, reclassified or otherwise changed unless,
concurrently, the other classes of Common Stock are subdivided, consolidated,
reclassified or otherwise changed in the same proportion and in the same
manner.
Dividend Restrictions
ATI is prohibited under the terms of its Credit Facilities from paying cash
dividends or making other distributions on, or making redemptions, purchases or
other acquisitions of, its capital stock (including Preferred Stock) except
that, beginning on April 15, 2002, ATI may, if no Default exists or would be
created thereby under the Credit Facilities, pay cash dividends to the extent
that Restricted Payments do not exceed (i) 50% of Excess Cash Flow for the
preceding calendar year or (ii) 50% of the net proceeds of any debt or equity
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<PAGE>
offering after June 16, 1998. Comparable restrictions are imposed on the
ability of ATLP to make distributions to its partners. Since ATC has no other
significant assets other than its ownership of all of the capital stock of ATI
and the owner of ATLP, its ability to pay dividends to its stockholders in the
foreseeable future is restricted. The Credit Facility of ATC also restricts
cash dividends and other distributions on, and redemptions, purchases or other
acquisitions of, ATC capital stock, except in an amount not in excess of the
net proceeds of any equity offering not used to satisfy its obligations to CBS
under the Separation Agreement with respect to the tax consequences of the
Common Stock distribution or for other permitted purposes (such as investments
in Unrestricted Subsidiaries).
Delaware Business Combination Provisions
Under the DGCL, certain "business combinations" (including the issuance of
equity securities) between a Delaware corporation and any person who owns,
directly or indirectly, 15% or more of the voting power of the corporation's
shares of capital stock (an "Interested Stockholder") must be approved by the
holders of at least 66 2/3% of the voting stock not owned by the Interested
Stockholder if it occurs within three years of the date such person became an
Interested Stockholder, unless prior to such date the ATC Board approved either
the business combination or the transaction which resulted in the stockholder
becoming an Interested Stockholder. The ATC Board approved the transaction (the
ATC Private Placement) pursuant to which Mr. Dodge became an Interested
Stockholder.
Listing of Class A Common Stock
The Class A Common Stock is traded on the NYSE under the symbol "AMT".
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank, 311 West Monroe Street, Chicago, Illinois 60606 (telephone number
(312) 461-4600).
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Assuming consummation of the OmniAmerica Merger, the TeleCom Merger and this
Offering, there will be 153.6 million shares of Common Stock outstanding. All
of such shares, other than 6.9 million shares issued in connection with the
Gearon Transaction and certain other acquisitions and the 8.0 million shares
issued pursuant to the ATC Private Placement, will be freely transferable
without restriction or future registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless held by an "affiliate" (as that term is
defined under the Securities Act) of ATC. Persons who may be deemed to be
affiliates of ATC generally include individuals or entities that directly, or
indirectly through one or more intermediaries, control, are controlled by, or
are under common control with, ATC. Persons who are affiliates of ATC will be
permitted to sell their Common Stock only pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption from
registration under the Securities Act, such as the exemption afforded by Rule
144 thereunder. Stockholders who received unregistered shares of Common Stock,
including pursuant to the Stock Purchase Agreement and the Gearon Transaction,
as well as certain "affiliates" of ATC, have certain demand and "piggy-back"
registration rights with respect to their shares of Common Stock.
In general, under Rule 144 as currently in effect, any person (or persons whose
shares are aggregated) who has beneficially owned restricted shares of Common
Stock for at least one year is entitled to sell, within any three-month period,
a number of such shares which does not exceed the greater of 1% of the then
outstanding shares of Class A Common Stock (1.4 million shares after this
Offering and the Mergers) or the average weekly public trading volume of the
Class A Common Stock during the four calendar weeks preceding the date on which
notice of the sale is filed with the Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about ATC. Any person (or persons
whose shares are aggregated) who has not been an affiliate of ATC at any time
during the three months preceding a sale and who has owned shares of Common
Stock for at least two years is entitled to sell such shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information or notice requirements of Rule 144. In February 1997, the
Commission solicited comments regarding certain proposed amendments to Rule
144, including reducing the aforementioned one- and two-year holding periods.
In addition, persons who received shares of Class A Common Stock pursuant to a
Rule 145 transaction (including the OmniAmerica Merger, the TeleCom Merger, the
ATC Separation and the Old ATC Merger) and who were affiliates of the company
that merged with American Tower (or of American Radio in the case of the ATC
Separation) will be free to sell shares of Class A Common Stock pursuant to the
provisions of Rule 144 without regard to the holding period requirement.
Options to purchase 11.2 million shares of Common Stock will be outstanding
immediately following consummation of the OmniAmerica Merger and the TeleCom
Merger. Shares of Common Stock issued upon exercise of such options are
registered on Form S-8 under the Securities Act and, therefore, freely
transferable under the securities laws.
ATC cannot make any predictions as to the effect, if any, sales of shares of
Common Stock, or the availability of shares for future sale, will have on the
market price of the Class A Common Stock prevailing from time to time.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated February 3, 1999, each underwriter named below has severally,
but not jointly, agreed to purchase from ATC and the selling stockholders the
following respective numbers of shares of Class A Common Stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation......................... 4,234,145
BT Alex. Brown Incorporated.................................... 2,646,341
Lehman Brothers Inc. .......................................... 2,646,341
Morgan Stanley & Co. Incorporated.............................. 2,646,341
Salomon Smith Barney Inc. ..................................... 2,646,341
Bear, Stearns & Co. Inc. ...................................... 2,117,073
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................... 2,117,073
NationsBanc Montgomery Securities LLC.......................... 2,117,073
EVEREN Securities, Inc......................................... 458,808
HCFP Brenner Securities, LLC................................... 458,808
Invemed Associates, Inc........................................ 458,808
Jefferies & Company, Inc....................................... 458,808
Legg Mason Wood Walker, Incorporated........................... 458,808
Sanders Morris Mundy........................................... 458,808
Charles Schwab & Co., Inc...................................... 458,808
Sterne, Agee & Leach, Inc...................................... 458,808
Thomas Weisel Partners LLC..................................... 458,808
----------
Total.......................................................... 25,300,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will be
obligated to purchase all of the shares of Class A Common Stock in the Offering
(other than those shares covered by the over-allotment option described below),
if any are purchased. The underwriting agreement provides that, in the event of
a default by an underwriter, in certain circumstances the purchase commitments
of non-defaulting underwriters may be increased or the underwriting agreement
may be terminated.
ATC has granted to the underwriters an option, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase an
aggregate of up to 1,700,000 additional shares of Class A Common Stock from ATC
at the offering price, less the underwriting discounts and commissions, all as
set forth on the cover page of this Prospectus. The underwriters may exercise
such option only to cover over-allotments in the sale of the shares of the
Class A Common Stock. To the extent that the option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares of the Class A Common
Stock as it was obligated to purchase pursuant to the underwriting agreement.
ATC and the selling stockholders have been advised by the representatives that
the underwriters propose to offer the shares to the public at the public
offering price set forth on the cover page of this Prospectus and, through the
representatives, to selling group members at such price less a concession of
$0.525 per share, and the underwriters and such selling group members may allow
a discount of $0.10 per share on sales to certain other broker dealers. After
the public offering, the public offering price and concession and discount to
dealers may be changed by the representatives.
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The following table summarizes the compensation to be paid to the underwriters
by ATC and the selling stockholders, and the expenses payable by ATC.
<TABLE>
<CAPTION>
Total
-----------------------------
Without With
Per Share Over-allotment Over-allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions
paid by ATC.......................... $0.875 $21,000,000 $22,487,500
Expenses payable by ATC............... $0.031 $ 750,000 $ 750,000
Underwriting Discounts and Commissions
paid by selling stockholders......... $0.875 $ 1,137,500 $ 1,137,500
</TABLE>
ATC, its officers and directors, the selling stockholders and certain other
holders of Common Stock have agreed that, for a period of 120 days after the
date of this Prospectus, they will not publicly offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Securities Act relating to, any
additional shares of its Class A Common Stock, or securities convertible into
or exchangeable or exercisable for any shares of its Class A Common Stock, or
publicly disclose the intention to make any such offer, sale, pledge, disposal
or filing, without the prior written consent of Credit Suisse First Boston
Corporation, except with respect to certain hedging transactions which two such
holders may enter into.
ATC and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities under the Securities Act, or contribute to payments
which the underwriters may be required to make in respect thereof.
Credit Suisse First Boston Corporation has acted as financial advisor to ATC in
connection with the OmniAmerica Merger, for which it expects to receive
customary investment banking fees. Credit Suisse First Boston Corporation was
also a representative of the underwriters in the July Offering and private
placement agent and an investor in the Interim Preferred Stock financing in
June 1998.
The representatives, on behalf of the underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions, penalty
bids and "passive" market making in accordance with Regulation M under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Over-
allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
Class A Common Stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when
shares of the Class A Common Stock originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. In "passive" market making, market makers in the Class A Common
Stock who are underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the Class A Common Stock until the
time, if any, at which a stabilizing bid is made. Such stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the Class A Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the
NYSE or otherwise and, if commenced, may be discontinued at any time.
The Class A Common Stock is traded on the NYSE under the symbol "AMT".
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<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the Class A Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that ATC and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of the Class A Common Stock are
effected. Accordingly, any resale of the Class A Common Stock in Canada must be
made in accordance with applicable securities laws which will vary depending on
the relevant jurisdiction, and which may require resales to be made in
accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Class A
Common Stock.
Representations of Purchasers
Each purchaser of the Class A Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to ATC, the selling stockholders and
the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
each share of Class A Common Stock without the benefit of a prospectus
qualified under such securities laws, (ii) where required by law, that such
purchaser is purchasing as principal and not as agent, and (iii) such purchaser
has reviewed "-- Resale Restrictions" above.
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named herein
and the selling stockholders may be located outside of Canada and, as a result,
it may not be possible for Canadian purchasers to effect service of process
within Canada upon the issuer or such persons. All or a substantial portion of
the assets of the issuer and such persons may be located outside of Canada and,
as a result, it may not be possible to satisfy a judgment against the issuer or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of the Class A Common Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Class A Common Stock acquired by such purchaser pursuant to this Offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from ATC.
Only one such report must be filed in respect of the Class A Common Stock
acquired on the same date and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of Class A Common Stock should consult their own legal and
tax advisors with respect to the tax consequences of an investment in the Class
A Common Stock in their particular circumstances and with respect to the
eligibility of the Class A Common Stock for investment by the purchaser under
relevant Canadian Legislation.
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<PAGE>
VALIDITY OF THE SHARES
The validity of the shares of Class A Common Stock to be sold in this Offering
will be passed upon for ATC by Sullivan & Worcester LLP, Boston,
Massachusetts, and for the Underwriters by Sullivan & Cromwell, New York, New
York. Norman A. Bikales, a member of the firm of Sullivan & Worcester LLP, is
the owner of 9,000 shares of Class A Common Stock and 41,490 shares of Class B
Common Stock and has an option to purchase 20,000 shares of Class A Common
Stock at $10.00 per share. Two associates of Sullivan & Worcester LLP have
options to purchase 12,000 and 8,000 shares, respectively, of Class A Common
Stock at $18.75 per share. Mr. Bikales and/or associates of that firm serve as
secretary or assistant secretaries of ATC and certain of its subsidiaries.
EXPERTS
The following financial statements included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, appearing herein, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing:
(1) The consolidated financial statements and related financial statement
schedules of American Tower Systems Corporation as of December 31, 1997 and
1996, for the years ended December 31, 1997 and 1996 and for the period
July 17, 1995 (Incorporation) to December 31, 1995;
(2) The combined financial statements of Meridian Communications as of
December 31, 1995 and 1996 and for each of the years then ended;
(3) The financial statements of Diablo Communications, Inc. as of
December 31, 1995 and 1996 and for each of the years then ended;
(4) The financial statements of Gearon & Co., Inc. as of December 31,
1997 and 1996 and for each of the years then ended; and
(5) The financial statements of OPM-USA-INC. as of December 31, 1997 and
1996 and for each of the years then ended.
The combined financial statements of net assets of MicroNet, Inc. and
Affiliates sold to ATC as of December 31, 1996 and October 31, 1997 and for
the year ended December 31, 1996, and the ten months ended October 31, 1997,
have been audited by Pressman Ciocca Smith LLP, independent certified public
accountants, as stated in their report appearing in this Prospectus and have
been so included in reliance upon the report of such firm as experts in
accounting and auditing.
The financial statements of Diablo Communications of Southern California, Inc.
for the year ended December 31, 1996 have been audited by Rooney, Ida, Nolt &
Ahern, independent auditors, as stated in their report appearing in this
Prospectus and have been so included in reliance upon the report of such firm
as experts.
The consolidated financial statements of American Tower Corporation and
subsidiaries as of December 31, 1997 and 1996, and for each of the years in
the three year period ended December 31, 1997, have been included elsewhere in
this Registration Statement in reliance upon the report of KPMG LLP,
independent auditors, appearing elsewhere in this Registration Statement, and
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of OmniAmerica and subsidiaries as of
June 30, 1997 and for each of the years in the two-year period ended June 30,
1997 have been included elsewhere in this Registration Statement in reliance
upon the reports of KPMG LLP and Bill Mitts, Inc., independent auditors,
appearing elsewhere in this Registration Statement and upon the authority of
such firms as experts in accounting and auditing.
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<PAGE>
The financial statements of Telecom Towers, L.L.C. at December 31, 1997 and for
the three months then ended, and the financial statements of Telecom Southwest
Towers Limited Partnership, Telecom Towers Mid-Atlantic Limited Partnership,
and Telecom Towers of the West, L.P., at December 31, 1997 and for the year
then ended appearing in this Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and as to the year ended 1997 as related to Telecom Towers Mid-Atlantic
Limited Partnership, is based in part on the report of KPMG LLP, independent
auditors, as set forth in their report, appearing elsewhere herein, on the
financial statements of RCC Consultants, Inc., (not separately presented in
this Prospectus). The financial statements referred to above are included in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing.
The financial statements of Telecom Southwest Towers Limited Partnership,
Telecom Towers Mid-Atlantic Limited Partnership, and Telecom Towers of the
West, L.P., at December 31, 1996, and for each of the two years in the period
ended December 31, 1996 appearing in this Prospectus have been audited by
Gollob, Morgan, Peddy & Co., P.C., independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and as to the year ended 1996 as
related to Telecom Towers Mid-Atlantic Limited Partnership, is based in part on
the report of KPMG LLP, independent auditors, as set forth in their report,
appearing elsewhere herein, on the financial statements of RCC Consultants,
Inc., (not separately presented in this Prospectus). The financial statements
referred to above are included in reliance upon such reports given upon the
authority of such firms as experts in accounting and auditing.
The financial statements of Wauka Communications, Inc. as of December 31, 1997
and for year then ended included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of OmniAmerica, Inc. (formerly Specialty Teleconstructors,
Inc.) for the year ended June 30, 1998, as set forth in their report, which is
included in this Registration Statement and Prospectus of American Tower
Corporation. These financial statements are included in reliance on their
report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
American Tower files annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information on file at the Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies
of those documents, upon payment of a duplicating fee, by writing to the
Commission.
American Tower has filed a Registration Statement on Form S-1 with the
Commission. This Prospectus, which forms a part of the Registration Statement,
does not contain all of the information included in the Registration Statement.
Certain information is omitted and you should refer to the Registration
Statement and its exhibits. With respect to references made in this Prospectus
to any contract or other document of American Tower, such references are not
necessarily complete and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract or document. You may
review a copy of the Registration Statement at the Commission's public
reference room in Washington, D.C., and at the Commission's regional offices in
Chicago, Illinois and New York, New York. Please call the Commission at 1-800-
SEC-0330 for further information on the operation of the public reference
rooms. American Tower's Commission filings and the Registration Statement can
also be reviewed by accessing the Commission's Internet site at
http://www.sec.gov.
80
<PAGE>
DEFINITION CROSS-REFERENCE SHEET
Set forth below is a list of certain defined terms used in this document and
the page on which such terms are defined.
<TABLE>
<CAPTION>
Defined Term Page
- ------------ ----
<S> <C>
After-tax cash flow.............. 8
American Cablesystems............ 58
American Radio................... 8
American Tower................... ii
ARS.............................. 8
ARS Convertible Debentures....... 54
ARS Convertible Preferred........ 54
ATC.............................. ii
ATC Board........................ 58
ATS Needham...................... 8
ATC Private Placement............ 65
ATC Pro Forma Transactions....... 6
ATC Separation................... 30
ATI.............................. 8
Atlantic......................... 58
ATLP............................. 70
Borrower Subsidiaries............ 70
build to suit.................... 2
CBS.............................. 14
CCP.............................. 59
CEA.............................. 59
Change of Control................ 12
Chase............................ 14
Chase Capital.................... 50
Closing Date Share Price......... 52
Code............................. 62
Commission....................... 66
Common Stock..................... 5
Company.......................... ii
Controlled Entities.............. 12
Credit Facilities................ 9
CTT.............................. 53
Current Run Rate Cash Flow....... 53
CVP.............................. 59
DGCL............................. 12
DTV.............................. 39
EBITDA........................... 8
ESMR............................. 39
Event of Default................. 12
Exchange Act..................... 77
EZ............................... 59
EZ Merger........................ 59
FAA.............................. 13
FAS 131.......................... 37
FCC.............................. 12
</TABLE>
<TABLE>
<CAPTION>
Defined Term Page
- ------------ ----
<S> <C>
GAAP.............................. 8
Gearon............................ 12
Gearon Transaction................ 49
Hicks, Muse....................... 58
HSR Act........................... 3
Interested Stockholder............ 74
Interim Preferred Stock........... 36
ISOs.............................. 62
July Offering..................... 36
Mergers........................... 12
Merrill Lynch..................... 65
Monthly Tower Revenue Run Rate.... 52
NQOs.............................. 62
NYSE.............................. 5
Old ATC........................... 49
OmniAmerica....................... 3
OmniAmerica Merger................ 3
OmniAmerica Merger Agreement...... 51
OPM............................... 49
OPM Transaction................... 49
PCS............................... 39
Plan.............................. 62
Preferred Stock................... 72
Prime............................. 52
Restated Certificate.............. 72
RF................................ 13
Restricted Subsidiaries........... 57
Securities Act.................... 75
Separation Agreement.............. 35
SMR............................... 40
Special Committee................. 65
Stock Purchase Agreement.......... 65
Stoner............................ 60
Summit Capital.................... 50
Superior Proposal................. 51
TeleCom........................... 3
TeleCom Merger.................... 3
Tower Cash Flow................... 8
TeleCom Merger Agreement.......... 52
TeleCom Merger Consideration...... 52
Wauka Transaction................. 50
wireless communications
facilities....................... 50
wireless infrastructure building
and implementation services...... 50
wireless infrastructure
components....................... 51
</TABLE>
81
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The information as it relates to the CBS Merger and the ATC Separation included
in Note 1 --"Business and Corporate Structure" and Note 5 -- "Commitments and
Contingencies" of the Notes to the Consolidated Financial Statements to the
audited consolidated financial statements of American Tower Corporation for the
year ended December 31, 1997 included herein (page F-6) is supplemented with
the disclosures contained in Note 2--"Business and Corporate Structure" of the
American Tower Corporation Unaudited Condensed Consolidated Financial
Statements for the quarterly period ended September 30, 1998 included herein
(page F-28) and the supplemental information on page F-35.
<TABLE>
<CAPTION>
Page
----
<S> <C>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
(CURRENTLY AMERICAN TOWER CORPORATION)
Independent Auditors' Report............................................. F-5
Consolidated Balance Sheets as of December 31, 1997 and 1996 ............ F-6
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-7
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996 and the period from July 17, 1995
("Incorporation") to December 31, 1995.................................. F-8
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-9
Notes to Consolidated Financial Statements............................... F-10
Condensed Consolidated Balance Sheet as of September 30, 1998
(unaudited), Condensed Consolidated Statements of Operations for the
nine months ended September 30, 1998 and 1997 (unaudited), Condensed
Consolidated Statements of Stockholder's Equity for the nine months
ended September 30, 1998 (unaudited), Condensed Consolidated Statements
of Cash Flows for the nine months ended September 30, 1998 and 1997
(unaudited), and Notes to Unaudited Condensed Consolidated Financial
Statements (all of the foregoing are excerpted from the Form 10-Q of
American Tower for the nine months ended September 30, 1998 filed with
the Commission on November 16, 1998).................................... F-25
OMNIAMERICA, INC. AND SUBSIDIARIES
Reports of Independent Auditors.......................................... F-36
Consolidated Balance Sheets as of June 30, 1997 and 1998 and September
30, 1998 (unaudited).................................................... F-39
Consolidated Statements of Earnings for the years ended June 30, 1996,
1997 and 1998 and three months ended September 30, 1997 and 1998 (unau-
dited).................................................................. F-40
Consolidated Statement of Stockholders' Equity for the years ended June
30, 1996, 1997 and 1998 and three months ended September 30, 1998 (unau-
dited).................................................................. F-41
Consolidated Statements of Cash Flows for the years ended June 30, 1996,
1997 and 1998 and three months ended September 30, 1997 and 1998 (unau-
dited).................................................................. F-42
Notes to Consolidated Financial Statements............................... F-44
TELECOM TOWERS, L.L.C.
Report of Independent Auditors........................................... F-63
Balance Sheets as of December 31, 1997 and September 30, 1998 (unau-
dited).................................................................. F-64
Statements of Operations for the period from September 30, 1997 (incep-
tion) to December 31, 1997 and nine months ended September 30, 1998 (un-
audited)................................................................ F-65
Statements of Members' Equity for the period from September 30, 1997 (in-
ception) to December 31, 1997 and nine months ended September 30, 1998
(unaudited)............................................................. F-66
Statements of Cash Flows for the period from September 30, 1997 (incep-
tion) to December 31, 1997 and nine months ended September 30, 1998 (un-
audited)................................................................ F-67
Notes to Financial Statements............................................ F-68
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
TELECOM SOUTHWEST TOWERS LIMITED PARTNERSHIP
Reports of Independent Auditors......................................... F-75
Balance Sheets as of December 31, 1996 and 1997 and July 31, 1998 (unau-
dited)................................................................. F-77
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and seven months ended July 31, 1997 and 1998 (unaudited)......... F-78
Statements of Partners' Capital for the years ended December 31, 1995,
1996 and 1997 and seven months ended July 31, 1998 (unaudited)......... F-79
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and seven months ended July 31, 1997 and 1998 (unaudited)......... F-80
Notes to Financial Statements........................................... F-81
TELECOM TOWERS MID-ATLANTIC LIMITED PARTNERSHIP
Reports of Independent Auditors......................................... F-88
Consolidated Balance Sheets as of December 31, 1996 and 1997, and July
31, 1998
(unaudited)............................................................ F-92
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997 and seven months ended July 31, 1997 and 1998 (un-
audited)............................................................... F-93
Consolidated Statements of Partners' Capital for the years ended Decem-
ber 31, 1995, 1996 and 1997 and seven months ended July 31, 1998 (unau-
dited)................................................................. F-94
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and seven months ended July 31, 1997 and 1998 (un-
audited)............................................................... F-95
Notes to Consolidated Financial Statements.............................. F-96
TELECOM TOWERS OF THE WEST, L.P.
Reports of Independent Auditors......................................... F-105
Consolidated Balance Sheets as of December 31, 1996 and 1997, and July
31, 1998
(unaudited)............................................................ F-107
Consolidated Statements of Operations for the period from August 31,
1996 to December 31, 1996 and year ended December 31, 1997 and seven
months ended July 31, 1997 and 1998 (unaudited)........................ F-108
Consolidated Statements of Partners' Capital for the years ended Decem-
ber 31, 1996 and 1997 and seven months ended July 31, 1998 (unau-
dited)................................................................. F-109
Consolidated Statements of Cash Flows for the period from August 31,
1996 to December 31, 1996 and year ended December 31, 1997 and seven
months ended July 31, 1997 and 1998 (unaudited)........................ F-110
Notes to Consolidated Financial Statements.............................. F-111
MICRONET, INC. AND AFFILIATES
Report of Independent Certified Public Accountants...................... F-119
Combined Statements of Net Assets Sold as of December 31, 1996 and
October 31, 1997....................................................... F-120
Combined Statements of Income Derived From Net Assets Sold for the year
ended December 31, 1996 and ten months ended October 31, 1997.......... F-121
Combined Statements of Cash Flows Derived from Net Assets Sold for the
year ended December 31, 1996 and ten months ended October 31, 1997..... F-122
Notes to Combined Financial Statements.................................. F-123
DIABLO COMMUNICATIONS, INC.
Independent Auditors' Report............................................ F-129
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)............................................................ F-130
Statements of Income for the years ended December 31, 1995 and 1996 and
nine months ended September 30, 1996 and 1997 (unaudited).............. F-131
Statements of Stockholders' Equity for the years ended December 31, 1995
and 1996 and nine months ended September 30, 1997 (unaudited).......... F-132
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Statements of Cash Flows for years ended December 31, 1995 and 1996 and
nine months ended September 30, 1996 and 1997 (unaudited)............. F-133
Notes to Financial Statements.......................................... F-134
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
Independent Auditors' Report........................................... F-138
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)........................................................... F-139
Statements of Operations for the period from September 1, 1995
(inception) to December 31, 1995, year ended December 31, 1996, and
nine months ended September 30, 1996 and 1997 (unaudited)............. F-140
Statements of Stockholders' Equity for the period from September 1,
1995 (inception) to December 31, 1995, year ended December 31, 1996
and nine months ended September 30, 1997 (unaudited).................. F-141
Statements of Cash Flows for the period from September 1, 1995
(inception) to December 31, 1995, year ended December 31, 1996 and
nine months ended September 30, 1996 and 1997 (unaudited)............. F-142
Notes to Financial Statements.......................................... F-143
MERIDIAN COMMUNICATIONS
Independent Auditors' Report........................................... F-148
Combined Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited)....................................................... F-149
Combined Statements of Income for the years ended December 31, 1995 and
1996 and six months ended June 30, 1996 and 1997 (unaudited)......... F-150
Combined Statements of Partners' Capital and Stockholder's Equity for
the years ended December 31, 1995 and 1996 and six months ended June
30, 1997 (unaudited)................................................. F-151
Combined Statements of Cash Flows for years ended December 31, 1995 and
1996 and six months ended June 30, 1996 and 1997 (unaudited)......... F-152
Notes to Combined Financial Statements................................. F-153
GEARON & CO., INC.
Independent Auditors' Report........................................... F-158
Balance Sheets as of December 31, 1997 and 1996........................ F-159
Statements of Operations for the years ended December 31, 1997 and
1996................................................................... F-160
Statements of Changes in Stockholders' Equity for the years ended De-
cember 31, 1997 and 1996............................................... F-161
Statements of Cash Flows for the years ended December 31, 1997 and
1996................................................................... F-162
Notes to Financial Statements.......................................... F-163
AMERICAN TOWER CORPORATION AND SUBSIDIARIES (OLD ATC)
Independent Auditors' Report........................................... F-167
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited)................................................... F-168
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997 and three months ended March 31, 1997 and 1998
(unaudited).......................................................... F-169
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997 and three months ended March 31,
1998 (unaudited)..................................................... F-170
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and three months ended March 31, 1997 and 1998
(unaudited).......................................................... F-171
Notes to Consolidated Financial Statements............................. F-172
OPM-USA-INC.
Independent Auditors' Report........................................... F-182
Balance Sheets as of December 31, 1997 and 1996........................ F-183
Statements of Operations for the years ended December 31, 1997 and
1996.................................................................. F-184
Statements of Stockholders' Equity (Deficiency) for the years ended
December 31, 1997 and 1996............................................ F-185
Statements of Cash Flows for the years ended December 31, 1997 and
1996.................................................................. F-186
Notes to Financial Statements.......................................... F-187
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
WAUKA COMMUNICATIONS, INC.
Independent Auditors' Report............................................ F-190
Balance Sheets as of December 31, 1997 and September 30, 1998
(unaudited)............................................................ F-191
Statements of Operations for the year ended December 31, 1997 and nine
months ended September 30, 1997 and 1998 (unaudited)................... F-192
Statements of Shareholder's Equity for the year ended December 31, 1997
and nine months ended September 30, 1998 (unaudited)................... F-193
Statements of Cash Flows for the year ended December 31, 1997 and nine
months ended September 30, 1997 and 1998 (unaudited)................... F-194
Notes to Financial Statements........................................... F-195
</TABLE>
F-4
<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-5
<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-6
<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.......... 251,023 36,204
Minority interest in net earnings of
subsidiaries........................... (193,313) (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-7
<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-8
<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-9
<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. (See
Notes to Unaudited Condensed Consolidated Financial Statements).
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-10
<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-11
<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-12
<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-13
<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 7.4% 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-14
<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-15
<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 is expected to be paid with the proceeds of an
equity offering or external financing if due in 1998, or
F-16
<PAGE>
AMERICAN TOWER SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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-17
<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-18
<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 599,000 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-19
<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-20
<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-21
<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-22
<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 30.0 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-23
<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-24
<PAGE>
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 unaudited condensed consolidated financial statements.
F-25
<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 unaudited condensed consolidated financial statements.
F-26
<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 unaudited condensed consolidated financial statements.
F-27
<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.
F-28
<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.
F-29
<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
F-30
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the issuance 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
F-31
<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.
F-32
<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.
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
F-33
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-34
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
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.
* * * * *
THE FOLLOWING INFORMATION IS PROVIDED TO SUPPLEMENT, AND IS HEREBY MADE A PART
OF, THE NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF
THE FORM 10-Q OF ATC INCLUDED ABOVE FOR EVENTS OCCURRING SUBSEQUENT TO ITS
FILING WITH THE COMMISSION.
Reference is made in general to the information contained elsewhere in this
document, including without limitation that set forth under "Business" on page
42. With respect to certain specific items:
. The information set forth in Note 2 with respect to the Separation
Agreement is amended to reflect the facts that (i) in February 1999, ATC
agreed to pay CBS $50.0 million in settlement of all amounts due with
respect to the closing date balance sheet adjustments, including
interest; as part of such settlement, ATC also agreed to indemnify CBS
and American Radio with respect to certain tax matters affecting American
Radio prior to the CBS Merger; and (ii) as of January 15, 1999, holders
of approximately 47% of the ARS Convertible Preferred and/or ARS
Convertible Preferred Debentures had converted or presented for
conversion. As of January 15, 1999, ATC estimates that its reimbursement
obligations with respect to taxes on known conversions is approximately
$14.4 million, of which $8.5 million has been paid. ATC estimates that
its remaining reimbursement obligation with respect to the taxes on ARS
Convertible Debentures that have not been converted would be
approximately $14.9 million under the tax reporting method followed. Such
estimate is based on an estimated fair market value of the Class A Common
Stock of $25.625 per share. ATC's obligation for such conversions would
change by approximately $1.1 million for each $1.00 change in such fair
market value. See "Business--Recent Transactions--ATC Separation" on page
54.
. The information in Note 7 with respect to long-term debt is amended to
reflect that the aggregate amount available to the Borrower Subsidiaries
under the New Credit Facilities has been reduced from $900.0 million to
$775.0 million as a consequence of the reduction in the term loan
availability from $250.0 million to $125.0 million.
. The TeleCom Merger Agreement referred to in Note 10 under "Pending
Transactions" was amended on December 18, 1998 to reduce the purchase
price from $155.0 million to $148.75 and to permit TeleCom to distribute
its 50% interest in a joint venture ("Prime") to TeleCom's equity owners.
Simultaneously, ATC entered into a put-call agreement providing for the
purchase of a 100% interest in Prime for $12.5 million in the event the
other 50% owner does not purchase the remaining 50% for $6.25 million.
The TeleCom Merger Agreement has also been amended to add an adjustment
provision that would reduce the number of shares of Class A Common Stock
deliverable by ATC if TeleCom does not achieve certain growth in its
Monthly Tower Revenue Run Rate (as defined in the TeleCom Merger
Agreement). See "Business--Recent Transactions--Pending Acquisitions--
TeleCom Merger" on page 52.
. ATC entered into an agreement with the former owner of OPM as a result
of which an aggregate purchase price of $70.0 million was agreed upon
and ATC received a total of 150 towers and an agreement from such former
owner granting ATC a right of first refusal on towers developed by him
in the future.
F-35
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
OmniAmerica, Inc. (formerly Specialty Teleconstructors, Inc.)
We have audited the accompanying consolidated balance sheet of OmniAmerica,
Inc. and subsidiaries (formerly Specialty Teleconstructors, Inc.) as of June
30, 1998, and the related consolidated statements of earnings, stockholders'
equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of OmniAmerica, Inc. and subsidiaries (formerly Specialty Teleconstructors,
Inc.) at June 30, 1998, and the consolidated results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG, LLP
Dallas, Texas
September 16, 1998
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
OmniAmerica, Inc. (formerly Specialty Teleconstructors, Inc.):
We have audited the accompanying consolidated balance sheet of OmniAmerica,
Inc. and subsidiaries (formerly Specialty Teleconstructors, Inc.) as of June
30, 1997, and the related consolidated statements of earnings, stockholders
equity, and cash flows for each of the years in the two year period ended June
30, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
financial statements of Novak & Lackey Construction Co., Inc. (N&L), a wholly
owned subsidiary for the year ended June 30, 1996. Those financial statements
of N&L reflect total revenues constituting 19.24 percent of consolidated total
revenues in 1996. Those financial statements of N&L were audited by other
auditors whose report was furnished to us, and our opinion, insofar as it
relates to the amounts included for N&L, is based solely on the report of the
other auditors.
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 and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of OmniAmerica Inc. and subsidiaries
(formerly Specialty Teleconstructors, Inc.) as of June 30, 1997, and the
results of their operations and their cash flows for each of the years in the
two year period ended June 30, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Albuquerque, New Mexico
August 29, 1997
F-37
<PAGE>
BILL MITTS, INC.
CERTIFIED PUBLIC ACCOUNTANT
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Novak & Lackey Construction Co., Inc.
I have audited the accompanying statements of earnings, changes in
stockholders' equity and cash flows for NOVAK & LACKEY CONSTRUCTION CO., INC.
for the year ended June 30, 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Such standards require that I 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. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion, the financial statements referred to above, present fairly, in
all material respects, the results of operations and cash flows of NOVAK &
LACKEY CONSTRUCTION CO., INC. for the year ended June 30, 1996 in conformity
with generally accepted accounting principles.
/s/ Bill Mitts, Inc.
Oklahoma City, Oklahoma
May 8, 1997
F-38
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------- Sept. 30, 1998
1998 1997 (Unaudited)
------------ ----------- --------------
<S> <C> <C> <C>
ASSETS (Substantially Pledged)
Current assets:
Cash and cash equivalents................................................. $ 4,349,324 $ 989,720 $ 786,073
Available for sale securities............................................. -- 769,850 --
Contracts receivable, less allowance for doubtful accounts of
$390,230, $355,000 and $390,230 in 1998, 1997 and September 30, 1998,
respectively............................................................. 17,349,853 14,740,479 22,611,877
Costs and estimated earnings in excess of billings on uncompleted
contracts (note 3)....................................................... 3,747,671 2,233,289 5,800,903
Components inventory...................................................... 3,430,868 2,664,239 3,572,624
Prepaid income taxes...................................................... 287,849 407,477 --
Other current assets...................................................... 891,148 283,760 1,214,547
------------ ----------- ------------
Total current assets...................................................... 30,056,713 22,088,814 33,986,024
Property and equipment, net (note 4)....................................... 50,847,107 8,429,906 80,524,265
Goodwill, net of amortization of $808,250, $43,383 and $1,927,686 in 1998,
1997 and September 30, 1998, respectively................................. 87,993,151 1,512,555 92,333,055
Investment in unconsolidated subsidiary (note 5)........................... 7,889,650 -- 8,047,011
Other assets, net.......................................................... 2,536,804 331,989 2,333,323
------------ ----------- ------------
$179,323,425 $32,363,264 $217,223,678
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................................... $ 8,802,734 $ 4,021,694 $ 12,555,104
Lines of credit (note 8).................................................. -- 3,387,910 --
Notes payable to stockholder (note 14).................................... 80,000 2,000,000 --
Billings in excess of costs and estimated earnings on uncompleted
contracts (note 3)....................................................... 758,932 597,939 362,408
Accrued expenses.......................................................... 2,171,429 790,975 2,331,180
Current installments of notes and capital leases payable (note 8)......... 474,696 573,798 600,696
Deferred income taxes (note 11)........................................... -- 384,600 --
------------ ----------- ------------
Total current liabilities................................................. 12,287,791 11,756,916 15,849,388
Deferred income taxes (note 11)............................................ 213,378 90,000 214,666
Notes and capital leases payable, excluding current installments (note 8).. 31,631,459 2,012,081 62,912,825
------------ ----------- ------------
Total liabilities......................................................... 44,132,628 13,858,997 78,976,879
------------ ----------- ------------
Stockholders' equity:
Common stock, $.01 par value. Authorized 100,000,000 shares;
issued 15,070,294, 7,876,554 and 15,206,299 shares in 1998, 1997 and at
September 30, 1998, respectively (notes 9, 10 and 15).................... 150,703 78,765 152,063
Additional paid-in capital................................................ 129,131,297 12,015,667 131,931,279
Treasury stock, at cost, 100,000 shares................................... (1,387,500) -- (1,387,500)
Note receivable from officer and director (note 14)....................... (600,000) -- (600,000)
Retained earnings......................................................... 7,896,297 6,409,835 8,150,957
------------ ----------- ------------
Total stockholders' equity................................................ 135,190,797 18,504,267 138,246,799
Commitments and contingencies (notes 6, 13, 15 and 17).....................
------------ ----------- ------------
$179,323,425 $32,363,264 $217,223,678
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
Years Ended June 30, September 30,
------------------------------------- ------------------------
1998 1997
1998 1997 1996 (Unaudited) (Unaudited)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues earned:
Installation services.. $53,038,988 $57,250,485 $28,567,033 $18,561,266 $11,466,225
Component sales........ 8,501,147 8,376,315 4,018,953 3,747,498 1,333,731
Tower leasing.......... 1,258,936 -- -- 2,128,787 --
----------- ----------- ----------- ----------- -----------
Total revenues earned.. 62,799,071 65,626,800 32,585,986 24,437,551 12,799,956
----------- ----------- ----------- ----------- -----------
Cost of revenues earned:
Cost of installation
services.............. 45,684,581 48,298,454 22,571,215 15,492,601 9,309,024
Cost of component
sales................. 5,589,902 5,113,096 3,031,256 3,075,112 973,679
Cost of tower leasing.. 659,281 -- -- 1,463,707 --
----------- ----------- ----------- ----------- -----------
Total cost of revenues
earned................ 51,933,764 53,411,550 25,602,471 20,031,420 10,282,703
----------- ----------- ----------- ----------- -----------
Gross profit on revenues
earned................. 10,865,307 12,215,250 6,983,515 4,406,131 2,517,253
Compensation expense for
cashless option
exercises (note 10).... 719,000 -- -- -- --
Selling, general and
administrative
expenses............... 8,233,490 5,915,808 3,410,546 3,397,483 1,210,376
----------- ----------- ----------- ----------- -----------
Earnings from
operations............ 1,912,817 6,299,442 3,572,969 1,008,648 1,306,877
----------- ----------- ----------- ----------- -----------
Other income (expenses):
Interest income........ 157,015 181,516 275,397 11,560 17,344
Interest expense....... (623,723) (429,615) (82,027) (626,123) (78,695)
Equity in earnings of
unconsolidated
subsidiary............ 219,569 -- -- 157,361 --
Other, net............. 143,434 (20,101) (5,963) 13,214 51,471
----------- ----------- ----------- ----------- -----------
(103,705) (268,200) 187,407 (443,988) (9,880)
----------- ----------- ----------- ----------- -----------
Earnings before income
taxes................. 1,809,112 6,031,242 3,760,376 564,660 1,296,997
Income taxes............ 832,000 343,500 564,800 310,000 508,900
----------- ----------- ----------- ----------- -----------
Net earnings........... $ 977,112 $ 5,687,742 $ 3,195,576 $ 254,660 $ 788,097
=========== =========== =========== =========== ===========
Shares of common stock
used in computing
earnings per share:
Basic.................. 9,274,676 7,110,282 6,872,308 15,065,328 7,891,486
Diluted................ 9,562,121 7,467,990 6,881,173 15,362,774 8,164,386
Net earnings per common
share:
Basic.................. $ .11 $ .80 $ .46 $ .02 $ .10
=========== =========== =========== =========== ===========
Diluted................ $ .10 $ .76 $ .46 $ .02 $ .10
=========== =========== =========== =========== ===========
Pro forma information
(note 12):
Net earnings........... $ 5,687,742 $ 3,195,576
Pro forma adjustment
for 1997 and 1996
income taxes of
acquired entity
previously filing as
an S Corporation...... 2,140,500 891,300
----------- -----------
Pro forma net earnings
after adjustment for
income taxes of
acquired entity........ $ 3,547,242 $ 2,304,276
=========== ===========
Pro forma net earnings
per common share:
Basic.................. $ .50 $ .34
=========== ===========
Diluted................ $ .47 $ .33
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1998, 1997 and 1996
and Three Months Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Note
receivable
from
Common stock Additional officer
------------------- paid-in Treasury and Retained
Shares Amount capital stock director earnings Total
---------- -------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1995................... 6,872,308 $ 68,723 $ 5,344,298 $ -- $ -- $ 2,687,991 $ 8,101,012
Distributions of prior S
Corporation earnings... -- -- -- -- -- (850,750) (850,750)
Net earnings............ -- -- -- -- -- 3,195,576 3,195,576
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at June 30,
1996................... 6,872,308 68,723 5,344,298 -- -- 5,032,817 10,445,838
Issuance of common stock
and warrants to acquire
common stock, net...... 668,985 6,690 3,686,003 -- -- -- 3,692,693
Acquisitions (note 15):
Data Cell Systems,
Inc................... 93,400 934 664,576 -- -- -- 665,510
Paramount Communication
Systems, Inc.......... 186,047 1,860 1,728,324 -- -- -- 1,730,184
Specialty Constructors
Coatings, Inc......... 55,814 558 592,466 -- -- -- 593,024
Distributions of prior S
Corporation earnings... -- -- -- -- -- (4,310,724) (4,310,724)
Net earnings............ -- -- -- -- -- 5,687,742 5,687,742
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at June 30,
1997................... 7,876,554 78,765 12,015,667 -- -- 6,409,835 18,504,267
Issuance of common
stock, net............. 322,892 3,229 2,886,720 -- -- -- 2,889,949
Acquisitions (note 15):
Ellis Tower............ 120,848 1,209 1,796,410 -- -- -- 1,797,619
OmniAmerica............ 6,750,000 67,500 112,432,500 -- -- -- 112,500,000
Purchase of treasury
stock.................. -- -- -- (1,387,500) -- -- (1,387,500)
Return of prior S
Corporation earnings
distribution........... -- -- -- -- -- 509,350 509,350
Note receivable from
officer and director
(note 14).............. -- -- -- -- (600,000) -- (600,000)
Net earnings............ -- -- -- -- -- 977,112 977,112
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at June 30,
1998................... 15,070,294 150,703 129,131,297 (1,387,500) (600,000) 7,896,297 135,190,797
Exercise of stock
options (unaudited).... 54,735 547 313,933 -- -- -- 314,480
Issuance of common
shares to acquire
Teleforce
Communications, LLC
(unaudited)............ 81,270 813 2,486,049 -- -- -- 2,486,862
Net earnings
(unaudited)............ -- -- -- -- -- 254,660 254,660
---------- -------- ------------ ----------- --------- ----------- ------------
Balance at September 30,
1998 (unaudited)....... 15,206,299 $152,063 $131,931,279 $(1,387,500) $(600,000) $ 8,150,957 $138,246,799
========== ======== ============ =========== ========= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30, Three Months Ended September 30,
----------------------------------- ---------------------------------
1998 1997 1996 1998 (Unaudited) 1997 (Unaudited)
----------- ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings.......... $ 977,112 $5,687,742 $3,195,576 $ 254,660 $ 788,097
Adjustments to
reconcile net
earnings to net cash
provided by (used in)
operating activities:
Provision for
uncollectible
receivables.......... 225,000 355,000 -- -- --
Depreciation of
property and
equipment............ 2,282,084 1,496,830 540,083 837,933 415,864
Amortization.......... 799,867 134,185 94,418 1,119,436 48,923
Compensation expense
for cashless option
exercises............ 719,000 -- -- -- --
Equity in earnings of
unconsolidated
subsidiary........... (219,569) -- -- (157,361) --
Gain on sale of
equipment............ -- (10,489) 5,112 -- --
Changes in certain
assets and
liabilities, net of
acquisitions:
Contracts
receivable.......... (1,869,714) (4,636,796) (5,108,595) (4,887,024) 2,806,729
Prepaid income
taxes............... 119,628 (344,726) 290,631 287,849 193,109
Costs and estimated
earnings in excess
of billings on
uncompleted
contracts........... (1,514,382) (945,959) (703,645) (2,053,232) (1,719,735)
Components
inventory........... (680,417) (1,769,594) (433,727) (141,756) (172,564)
Other current
assets.............. (292,647) (172,919) (44,167) (119,918) (140,108)
Trade accounts
payable............. 4,109,132 808,416 2,033,040 3,752,370 (203,840)
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts........... (335,738) 355,359 (61,740) (396,524) (60,786)
Accrued expenses..... 473,530 (444,544) 693,592 159,751 (86,926)
Current income
taxes............... -- (578,200) 577,187 -- 305,076
Deferred income
taxes............... (261,222) (210,300) (286,737) 1,288 (50,786)
----------- ---------- ---------- ----------- -----------
Net cash provided by
(used in) operating
activities......... 4,531,664 (275,995) 791,028 (1,342,528) 2,123,053
----------- ---------- ---------- ----------- -----------
Cash flows from
investing activities:
Purchases of property
and equipment, net... (22,182,316) (3,609,094) (3,252,856) (32,120,235) (153,995)
Acquisition costs
recorded as
goodwill............. (3,499,319) -- -- -- --
Acquisitions, net of
cash acquired........ 1,665,555 (80,263) -- -- --
Cash expended in
acquisitions of
Teleforce
Communications,
LLC.................. -- -- -- (640,000) --
Purchases of other
assets............... (382,450) -- -- -- --
Proceeds from sale of
available for sale
securities........... 769,850 -- -- -- 67,057
Purchases of available
for sale securities,
net.................. -- (473,815) (4,082) -- --
----------- ---------- ---------- ----------- -----------
Net cash used in
investing
activities......... (23,628,680) (4,163,172) (3,256,938) (32,760,235) (86,938)
----------- ---------- ---------- ----------- -----------
Cash flows from
financing activities:
Lines of credit, net.. (3,387,910) 1,255,910 1,362,000 -- (1,957,752)
Borrowings from notes
payable.............. 29,162,211 661,500 888,979 30,496,087 --
Payment of deferred
financing fees....... (1,340,000) -- -- -- --
Principal payments on
notes payable........ (750,480) (783,110) (125,686) (191,055) (279,307)
Borrowings from notes
payable to
stockholder.......... -- 2,000,000 500,000 -- --
Principal payments on
notes payable to
stockholder.......... (1,410,650) (500,000) -- (80,000) (406,000)
Proceeds from sale of
common stock and
warrants to acquire
common stock, net.... 1,570,949 3,692,693 -- 314,480 89,679
Acquisition of treasury
stock................. (1,387,500) -- -- -- --
Distributions of prior
S Corporation
earnings.............. -- (4,310,724) (850,750) -- --
----------- ---------- ---------- ----------- -----------
Net cash provided by
(used in) financing
activities......... 22,456,620 2,016,269 1,774,543 30,539,512 (2,553,380)
----------- ---------- ---------- ----------- -----------
Net increase
(decrease) in cash
and cash
equivalents........ 3,359,604 (2,422,898) (691,367) (3,563,251) (517,265)
Cash and cash
equivalents at
beginning of year..... 989,720 3,412,618 4,103,985 4,349,324 989,720
----------- ---------- ---------- ----------- -----------
Cash and cash
equivalents at end of
year.................. $ 4,349,324 $ 989,720 $3,412,618 $ 786,073 $ 472,455
=========== ========== ========== =========== ===========
</TABLE>
F-42
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental disclosure of cash flow
information:
Interest paid................................ $ 623,723 $ 478,177 $ 108,707
========== ========== ==========
Income taxes paid............................ $1,220,587 $1,318,977 $1,142,009
========== ========== ==========
Acquisition of vehicles in exchange for notes
payable..................................... $1,108,545 $1,208,056 --
========== ========== ==========
Note receivable from stockholder in exchange
for common stock............................ $ 600,000 -- --
========== ========== ==========
Return of prior S Corporation earnings
distribution................................ $ 509,350 -- --
========== ========== ==========
</TABLE>
Acquisitions of net assets of Ellis Tower and OmniAmerica Holdings in exchange
for cash and common stock of the Company in the year ended June 30, 1998 and
Paramount, Data Cell, and Coatings in exchange for cash and common stock of the
Company in the year ended June 30, 1997 and the related fair value of assets
acquired and liabilities assumed at the date of the acquisition were as
follows:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Contracts receivable................................ $ 1,175,989 $1,348,404
Costs and estimated earnings in excess of billings
on uncompleted contracts........................... -- (169,674)
Components inventory................................ 86,212 204,888
Other current assets................................ 314,741 --
Property and equipment.............................. 21,408,424 934,550
Goodwill............................................ 87,069,134 1,593,397
Investment in unconsolidated subsidiary............. 7,670,081 --
Other assets........................................ 482,365 100,066
Trade accounts payable.............................. (671,908) (475,809)
Billings in excess of costs and estimated earnings
on uncompleted contracts........................... (496,731) --
Accrued expenses.................................... (906,924) (6,883)
Notes and capital leases payable.................... -- (459,957)
Common stock issued................................. (114,297,619) (2,988,719)
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
and Three Months Ended September 30, 1998 and 1997 (Unaudited)
(1) Organization, Description of Business and Basis of Presentation
On September 14, 1998, Specialty Teleconstructors, Inc. ("STI"), through a
merger with a wholly-owned subsidiary of STI, changed its name from STI to
OmniAmerica, Inc. ("OmniAmerica" or the "Company") and changed its state of
incorporation from Nevada to Delaware.
The Company is headquartered in Cedar Crest, New Mexico and was formed as a
holding company to combine the operations of its principal operating
subsidiaries, OmniAmerica Towers, Inc., OmniAmerica Development Corporation,
OmniAmerica Holdings Corporation, South Atlantic Tower Corporation, Specialty
Constructors, Inc., Specialty Constructors Coatings, Inc., Specialty
Management, Inc., OmniTower, Ltd., Microwave Tower Service, Inc., Novak &
Lackey Construction Company, Inc., and Specialty Combined Resources, Inc. The
Company is a leading provider of wireless communications and broadcast tower
services to the United States communications industry. The Company's tower
services include owning, leasing, managing and developing multi-use
telecommunications sites for radio and television broadcasting, paging,
cellular, personal communications services and other wireless technologies;
providing wireless infrastructure building and implementation services
primarily for providers of wireless communication services in the United
States; and manufacturing and selling wireless infrastructure components used
in the construction and maintenance of wireless communication transmitting and
receiving facilities. The Company's customers are located throughout the
country.
Effective March 31, 1997, a subsidiary of the Company merged with Novak &
Lackey Construction Co., Inc. ("N&L") and on June 30, 1997, a subsidiary of the
Company merged with Microwave Tower Service, Inc. ("MTS"). Both transactions
were accounted for as pooling of interests business combinations. Accordingly,
the Company's consolidated financial statements prior to these transactions
have been restated to reflect the combined operations (see note 15) for all
periods presented.
The unaudited consolidated interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and accordingly, they do not include all of the information and
disclosures normally required by generally accepted accounting principles for
complete financial statements. The interim financial information reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary to a fair presentation of results for interim
periods. Results for the three month period ended September 30, 1998 are not
necessarily indicative of the results to be expected for a full year.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Investment in a 33 1/3% owned affiliated company is accounted for on the equity
basis of accounting and accordingly, the respective statements of earnings
includes the Company's proportionate share of the affiliate's income since its
date of acquisition during fiscal 1998.
(b) Revenue Recognition
Revenues from installation services are recognized on the percentage-of-
completion method. Contract costs include all direct material and labor costs
and those indirect costs related to contract performance. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined.
F-44
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Costs and estimated earnings in excess of billings on uncompleted contracts
represents revenues recognized in excess of amounts billed. Billings in excess
of costs and estimated earnings on uncompleted contracts represents billings in
excess of revenues recognized.
Revenues from the sale of components are recognized upon shipment to the
customer.
Revenues from tower leasing are recognized ratably as earned over the
respective tower lease terms.
(c) Statements of Cash Flows
For purposes of statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
(d) Available for Sale Securities
Investment securities consist of stocks, municipal bonds and mutual funds. In
accordance with Statement of Financial Accounting Standard (SFAS) No. 115, the
Company's investments are classified as available for sale. Available for sale
securities are recorded at fair value based on the market value as provided by
brokers/dealers. Unrealized holding gains and losses, net of the related tax
effect, are reported as a separate component of stockholders' equity. Realized
gains and losses from the sale of available for sale securities are determined
on a specific identification basis.
A decline in the market value of any available for sale security below cost
that is deemed to be other than temporary results in a reduction in carrying
amount to fair value. The impairment is charged to earnings and a new cost
basis for the security is established. Premiums and discounts are amortized or
accreted over the life of the related security as an adjustment to yield using
the effective interest method. Dividend and interest income are recognized when
earned.
As of June 30, 1997, the cost of the Company's available for sale securities
approximated market value. Such securities were liquidated during 1998.
(e) Components Inventory
Components inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is provided on a straight-line basis over the estimated useful lives
of the assets. Leasehold improvements are amortized on a straight-line basis
over the shorter of the lease term or estimated useful life of the asset.
(g) Business and Credit Concentrations
Customers comprising 10 percent or greater of the Company's revenues earned are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sprint....................................................... 15% -- --
Western Wireless............................................. -- 20% 12%
AT&T......................................................... -- 12% --
</TABLE>
The Company generally does not require collateral from its customers and has
provided adequate provisions for possible credit losses for 1998, 1997 and
1996.
F-45
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(h) Distributions
Distributions to the previous subchapter S Corporation stockholder in 1997 were
made at the discretion of the Board of Directors for payment of income taxes.
In 1998, the excess amount of this distribution over actual income taxes was
returned to the Company.
(i) Goodwill
The excess of purchase price over the fair value of net assets acquired is
amortized on a straight-line basis over the estimated benefit period of
approximately 30 years.
(j) Deferred Financing Costs
Deferred financing costs incurred in connection with the Company's senior
secured revolving credit facility and variable term note is being amortized
over the term of the related debt on a straight-line basis.
(k) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
July 1, 1996. This statement requires that long-lived assets and certain
identifiable intangible assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
(l) Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(m) Advertising Costs
Advertising costs, all of which are non-direct response advertising, are
expensed as incurred. Advertising expense was approximately $153,000, $133,000
and $39,000 during the years ended June 30, 1998, 1997 and 1996, respectively.
(n) Stock Option Plan
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, the Company adopted SFAS
F-46
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
No. 123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants made in fiscal 1996 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(o) Uses of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(p) Earnings Per Share
In 1998, the Company adopted SFAS No. 128, Earnings per Share. In accordance
with this SFAS, basic earnings per common share is computed by dividing net
income applicable to common stock by the weighted average number of common
shares outstanding. Dilutive earnings per share is computed by dividing net
income applicable to common stock by the total of the weighted average number
of common shares outstanding and the additional dilutive effect of stock
options and warrants during the period. The dilutive effect of outstanding
stock options and warrants is computed using the average market price of the
Company's common stock for the period. The earnings per share for 1997 and 1996
have been restated to conform to this change.
The following is the reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for net income and other
related disclosures required by SFAS No. 128:
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Year ended June 30, 1998:
Basic earnings per share:
Income available to common
stockholders....................... $ 977,112 9,274,676 $.11
Effect of dilutive shares:
Options............................. -- 287,445
---------- ---------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $ 977,112 9,562,121 $.10
========== ========= ====
Year ended June 30, 1997:
Basic earnings per share:
Income available to common
stockholders....................... $5,687,742 7,110,282 $.80
Effect of dilutive shares:
Options and warrants................ -- 357,708
---------- ---------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $5,687,742 7,467,990 $.76
========== ========= ====
</TABLE>
F-47
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Proforma earnings per share after
adjustment for income taxes of
acquired entity previously filing as
an
S Corporation:
Basic............................... $3,547,242 7,110,282 $.50
========== ========== ====
Diluted............................. $3,547,242 7,467,990 $.47
========== ========== ====
Year ended June 30, 1996:
Basic earnings per share:
Income available to common
stockholders....................... $3,195,576 6,872,308 $.46
====
Effect of dilutive shares:
Options............................. -- 8,865
---------- ----------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $3,195,576 6,881,173 $.46
========== ========== ====
Proforma earnings per share after
adjustment for income taxes of
acquired entity previously filing as
an
S Corporation:
Basic............................... $2,304,276 6,872,308 $.34
========== ========== ====
Diluted............................. $2,304,276 6,881,173 $.33
========== ========== ====
Quarter ended September 30, 1998
(Unaudited):
Basic earnings per share:
Income available to common
stockholders....................... $ 254,660 15,065,328 $.02
====
Effect of dilutive shares:
Options............................. -- 297,446
---------- ----------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $ 254,660 15,362,774 $.02
========== ========== ====
Quarter ended September 30, 1997
(Unaudited):
Basic earnings per share:
Income available to common
stockholders....................... $ 788,097 7,891,486 $.10
Effect of dilutive shares:
Options............................. -- 272,900
---------- ----------
Dilutive earnings per share:
Income available to common
stockholders plus assumed
conversions........................ $ 788,097 8,164,386 $.10
========== ========== ====
</TABLE>
(q) Financial Instruments
SFAS No. 107, Disclosures About Fair Values of Financial Instruments, requires
the fair value of financial instruments be disclosed. In addition to available
for sale securities carried at fair value, the Company's financial instruments
are contracts receivable, accounts payable, lines of credit and notes payable.
The carrying amounts of these items, because of their nature, approximate fair
value.
F-48
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(r) New Accounting Standards
Effective July 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income and SFAS No. 131, Financial Reporting for Segments of a
Business Enterprise. Under the provisions of SFAS No. 130, there are currently
no items other than net income which would be classified as part of
comprehensive income. Under the provisions of SFAS No. 131, there are no
requirements for interim financial statements in the initial year of
application.
(s) Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
(3) Costs and Estimated Earnings on Uncompleted Contracts
<TABLE>
<CAPTION>
Sept. 30, 1998
1998 1997 (Unaudited)
------------ ------------ --------------
<S> <C> <C> <C>
Costs incurred on uncompleted
contracts....................... $ 23,877,446 $ 16,682,266 $ 19,648,486
Estimated earnings............... 10,033,415 6,321,822 8,934,426
Less billings to date............ (30,922,122) (21,368,738) (23,144,417)
------------ ------------ ------------
$ 2,988,739 $ 1,635,350 $ 5,438,495
============ ============ ============
Included in the accompanying bal-
ance sheets:
Costs and estimated earnings in
excess of billings on uncom-
pleted contracts.............. $ 3,747,671 $ 2,233,289 $ 5,800,903
Billings in excess of costs and
estimated earnings on uncom-
pleted contracts.............. (758,932) (597,939) (362,408)
------------ ------------ ------------
$ 2,988,739 $ 1,635,350 $ 5,438,495
============ ============ ============
</TABLE>
(4) Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
Useful Sept. 30, 1998
lives (years) 1998 1997 (Unaudited)
------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Tower assets............ 30 $34,918,139 $ -- $63,536,131
Land.................... 3,528,681 398,204 3,528,681
Buildings............... 15-40 4,932,786 1,812,275 5,104,439
Vehicles................ 3-7 6,406,562 5,103,442 7,225,203
Furniture and fixtures.. 3-10 1,794,439 1,468,646 2,331,084
Equipment............... 3-10 4,556,502 2,774,246 4,741,286
Leasehold improvements.. 5 156,053 58,827 180,324
----------- ----------- -----------
56,293,162 11,615,640 86,647,148
Less accumulated depre-
ciation................ (5,446,055) (3,185,734) (6,122,883)
----------- ----------- -----------
$50,847,107 $ 8,429,906 $80,524,265
=========== =========== ===========
</TABLE>
F-49
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) Investment in Unconsolidated Subsidiary (unaudited)
As a result of the Company's merger with OmniAmerica Holdings in April 1998
described in note 15 below, the Company holds a 33 1/3% interest in Kline Iron
and Steel Co., Inc. ("Kline"), a company which fabricates structural and tower
steel products, domestically and internationally, and is accounted for under
the equity method. Summarized historical financial information of Kline as of
and for the year ended June 30, 1998 and the three months ended September 30,
1998 (unaudited):
<TABLE>
<CAPTION>
September 30,
1998
1998 (Unaudited)
----------- -------------
<S> <C> <C>
Current Assets..................................... $29,595,156 $24,588,787
Total Assets....................................... 33,448,072 28,609,187
Stockholders' Equity............................... 5,625,935 6,098,005
Revenues........................................... 65,345,299 21,890,000
Net Earnings....................................... 2,389,023 472,000
</TABLE>
(6) Leases
The Company leases its main office building from an executive officer and
leases office space for several regional offices and various equipment and
vehicles from unrelated parties. These leases are operating leases that expire
over the next four years. The main office building lease contains a renewal
option for five years and requires the Company to pay all executory costs such
as maintenance and insurance. Rental expense for operating leases was
approximately $490,000, $365,000 and $218,000 for the years ending June 30,
1998, 1997 and 1996, respectively.
Future minimum lease payments under non-cancelable operating leases at June 30,
1998 are:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1999............................................................. $ 464,857
2000............................................................. 247,931
2001............................................................. 151,263
2002............................................................. 103,482
2003............................................................. 112,816
Thereafter....................................................... 2,554,075
----------
Total minimum lease payments................................. $3,634,424
==========
</TABLE>
(7) Tower Leasing Revenue
The Company receives rental revenue from its tenants for use of its towers.
Certain leases with tenants include renewal options and/or escalation clauses.
Future minimum tower leasing revenues under tower leases in effect at June 30,
1998 are as follows:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1999............................................................. $ 4,341,131
2000............................................................. 3,731,309
2001............................................................. 2,953,908
2002............................................................. 2,356,235
2003............................................................. 1,802,980
Thereafter....................................................... 4,409,387
-----------
$19,594,950
===========
</TABLE>
F-50
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) Notes and Capital Leases Payable
Notes and capital leases payable consist of the following:
<TABLE>
<CAPTION>
Sept. 30, 1998
1998 1997 (Unaudited)
----------- ---------- --------------
<S> <C> <C> <C>
Variable rate term note payable to
Chase Manhattan Bank, interest at
LIBOR plus 2% (7.50% and 7.675% at
September 30, 1998 (unaudited) and
June 30, 1998, respectively) payable
monthly, matures June 30, 2001;
secured by substantially all assets
of the Company...................... $30,000,000 $ -- $60,496,087
Note payable in monthly installments
of $6,675, including interest at
U.S. Treasury Index plus 3.5%
(9.125% at September 30, 1998 and
June 30, 1998) with the balance due
March 2005; secured by a building
and guaranteed by a principal
stockholder of the Company.......... 776,410 784,436 774,035
7.3% capital lease payable in monthly
installments of $56,297 with the
balance due September 2001, secured
by vehicles......................... 697,937 -- 1,786,968
8.5% note payable in monthly
installments of $12,068, including
interest, with the balance due July
1999; secured by vehicles........... 350,177 492,893 322,046
11% note payable in monthly
installments of approximately
$29,795, including interest, with
the balance due at various dates in
2000; secured by vehicles........... -- 835,968 --
Other................................ 281,631 472,582 134,385
----------- ---------- -----------
Total notes and capital leases
payable......................... 32,106,155 2,585,879 63,513,521
Less current installments............ 474,696 573,798 600,696
----------- ---------- -----------
Notes and capital leases payable,
excluding current installments.. $31,631,459 $2,012,081 $62,912,825
=========== ========== ===========
</TABLE>
The aggregate maturities of notes and capital leases payable are as follows:
<TABLE>
<CAPTION>
Year ending June 30
-------------------
<S> <C>
1999............................................................. $ 474,696
2000............................................................. 467,374
2001............................................................. 30,343,948
2002............................................................. 77,377
2003............................................................. 9,100
Thereafter....................................................... 733,660
-----------
$32,106,155
===========
</TABLE>
F-51
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company entered into a bank senior secured revolving credit facility of
$45,000,000 with Chase Manhattan Bank on June 30, 1998. There were no draws
from this credit facility as of June 30, 1998. The credit facility is to be
secured by substantially all the Company's assets, and borrowings are limited
to certain EBITDA ratios along with specific capitalization and interest
ratios. Interest is based on Company directed Eurodollar or ABR variable rate
of interest. The line of credit balance as of June 30, 1997 was repaid in 1998.
(9) Warrants
In connection with its initial public offering in November 1994, the Company
issued 1,000,000 shares of common stock and warrants to acquire 500,000 shares
of common stock. Warrants issued with the Company's common stock were
exercisable for $6.00 per share. Additionally, in connection with the public
offering, the Company issued warrants to the underwriters to purchase 50,000
units, each consisting of two shares of common stock and one warrant to acquire
a share of common stock. The exercise price was 120 percent of the initial
public offering price of $10.125 per unit, or $12.15 per unit. Pursuant to the
warrant agreements, the Company was entitled to redeem all outstanding
warrants, or repurchase those not redeemed at $.05 per share, upon the
Company's common stock market closing price reaching specified levels. These
levels were attained and, on February 20, 1997, the Company filed a
registration statement which included a notice to the warrant holders of record
that the Company intended to redeem all unexercised warrants on March 26, 1997
(the "Redemption Date"). All but 330 of the outstanding warrants, including all
of the underwriter units, were exercised prior to the Redemption Date,
resulting in the issuance of 649,670 shares of the Company's common stock.
Proceeds to the Company, net of issuance costs of approximately $289,000, were
$3,607,000. Following the Redemption Date, the Company redeemed the 330 then
outstanding warrants at $.05 each.
(10) Stock Option Plans
In November 1997, the Company's Board of Directors resolved and the
shareholders approved an Incentive Stock Option Plan (the 1997 Plan) pursuant
to which the Company may grant stock options to officers and key employees. The
1997 Plan may be terminated at any time by the Board of Directors, subject to
shareholder approval. Stock options are granted with an exercise price equal to
the stock's fair market value at the date of grant. All stock options have 10-
year terms and generally vest and become fully exercisable after 3 years from
the date of grant.
In May 1995, the Company's Board of Directors resolved and the shareholders
approved an Incentive Stock Option Plan (the 1995 Plan) pursuant to which the
Company may grant stock options to officers and key employees. The 1995 Plan
may be terminated at any time by the Board of Directors, subject to shareholder
approval. Stock options are granted with an exercise price equal to the stock's
fair market value at the date of grant. All stock options have 10-year terms
and generally vest and become fully exercisable after 3 years from the date of
grant.
In May 1995, the Company's Board of Directors resolved and the shareholders
approved an Outside Directors' Stock Option Plan (Directors Plan) pursuant to
which the Company may grant stock options to non-employee directors of the
Company. The Directors Plan will terminate in May 2004. The Directors Plan
authorizes grants of options to purchase up to 50,000 shares of authorized but
unissued common stock. Stock options are granted with an exercise price equal
to the stock's fair market value at the date of grant. All stock options have
10-year terms and vest and become fully exercisable after 3 years from the date
of grant.
At June 30, 1998, there were 15,000 additional shares available for grant under
the 1997 Plan, 163 additional shares available for grant under the 1995 Plan
and 2,000 additional shares available under the Directors Plan. The per share
weighted-average fair value of stock options granted during 1998, 1997 and 1996
was $12.58,
F-52
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$6.98 and $4.05 on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1998--expected
volatility of 63 percent, expected dividend yield 0 percent, risk-free interest
rate of 5.22 percent, and an expected life of 3 years; 1997--expected
volatility of 82 percent, expected dividend yield 0 percent, risk-free interest
rate of 6.82 percent, and an expected life of 3 years; 1996--expected
volatility of 200 percent, expected dividend yield 0 percent, risk-free
interest rate of 6.14 percent, and an expected life of 3 years.
On July 24, 1998, the Company's Board of Directors resolved and the
shareholders approved an Incentive Stock Option Plan (the 1998 Plan) pursuant
to which the Company may grant stock options to key employees. The effective
date of the 1998 Plan was September 14, 1998 and shall terminate ten years
later. A maximum of 675,000 shares were designated.
The Company applies APB Opinion No. 25 in accounting for its stock option plans
and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ---------- ----------
<S> <C> <C> <C> <C>
Net income....................... As reported $977,112 $5,687,742 $3,195,576
Pro forma $ 95,427 $4,212,742 $3,195,576
Earnings per common share:
Basic.......................... As reported $ .11 $ .80 $ .46
Pro forma $ .01 $ .59 $ .46
Diluted........................ As reported $ .10 $ .76 $ .46
Pro forma $ .01 $ .56 $ .46
</TABLE>
Pro forma net income reflects only options granted in 1998, 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period and compensation cost for options granted prior to July 1, 1995
is not considered.
Stock option activity for all plans during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted-
Number of average
Shares exercise price
--------- --------------
<S> <C> <C>
Balance at June 30, 1995......................... 62,120 $ 3.06
Granted........................................ 261,525 4.39
Exercised...................................... --
Forfeited...................................... --
Expired........................................ --
--------
Balance at June 30, 1996......................... 323,645 4.14
Granted........................................ 337,500 12.96
Exercised...................................... (23,125) 3.71
Forfeited...................................... (4,175) 4.52
Expired........................................ --
--------
Balance at June 30, 1997......................... 633,845 8.85
Granted........................................ 321,700 12.58
Exercised...................................... (239,836) 5.10
Forfeited...................................... (47,933) 6.98
Expired........................................ --
--------
Balance at June 30, 1998......................... 667,776 $12.13
========
</TABLE>
F-53
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables summarize information about fixed stock options
outstanding at June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------
Weighted-average Weighted-
Number remaining average
Range of exercise prices outstanding contractual life exercise price
------------------------ ----------- ---------------- --------------
<S> <C> <C> <C>
$3.0625 to $4.5625............. 54,925 1.00 $4.13
$6 to $9....................... 48,000 1.38 7.13
$10 to $12.50.................. 295,851 2.50 12.07
$13.00 to $15.50............... 269,000 1.77 14.72
-------
667,776 12.13
=======
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
--------------------------
Weighted-
Number average
Range of exercise prices Outstanding exercise price
------------------------ ----------- --------------
<S> <C> <C>
$3.0625 to $4.5625.............................. 54,925 $4.13
$6 to $9........................................ 39,000 6.69
$10 to $12.50................................... 101,001 11.88
$13.00 to $15.50................................ 168,332 14.74
-------
363,258 11.47
=======
</TABLE>
In 1998, approximately 23,500 options were exercised by employees and an
outside director on the cashless method, which resulted in the Company
recognizing a one-time non-cash compensation expense of $719,000.
(11) Income Taxes
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
---------- --------- --------
<S> <C> <C> <C>
Year ended June 30, 1998:
U.S. federal................................ $ 973,000 $(249,000) $724,000
State and local............................. 143,000 (35,000) 108,000
---------- --------- --------
Total..................................... $1,116,000 $(284,000) $832,000
========== ========= ========
Year ended June 30, 1997:
U.S. federal................................ $ 411,500 $(201,800) $209,700
State and local............................. 98,700 35,100 133,800
---------- --------- --------
Total..................................... $ 510,200 $(166,700) $343,500
========== ========= ========
Year ended June 30, 1996:
U.S. federal................................ $ 782,700 $(263,600) $519,100
State and local............................. 68,900 (23,200) 45,700
---------- --------- --------
Total..................................... $ 851,600 $(286,800) $564,800
========== ========= ========
</TABLE>
F-54
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to earnings before income taxes as a
result of the following factors:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ----------- ----------
<S> <C> <C> <C>
Computed "expected" tax.................. $615,000 $ 2,050,600 $1,278,500
Reduction for income taxable to
Subchapter S shareholder (MTS).......... -- (1,895,900) (757,600)
Deferred taxes established in connection
with acquisition of prior Subchapter S
Corporation (MTS)....................... -- 90,000 --
Non-deductible goodwill expense.......... 58,100 -- --
Non-deductible compensation expense for
cashless option exercises............... 38,900 -- --
Non-deductible meals and entertainment... 32,300 -- --
State income taxes, net of federal tax
benefit................................. 90,400 63,100 38,800
Other.................................... (2,700) 35,700 5,100
-------- ----------- ----------
Total.................................... $832,000 $ 343,500 $ 564,800
======== =========== ==========
</TABLE>
The change in the effective tax rate for the three months ended September 30,
1998 results primarily from additional non-deductible goodwill expense.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 30, 1998 and
1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred Tax Liabilities:
Adjustment for conversion from cash basis to accrual
basis tax reporting................................. $(213,200) $(385,700)
Investment in unconsolidated subsidiary.............. (167,600) --
Amortization of goodwill and depreciation for
financial reporting purposes in excess of tax
amounts............................................. (270,300) 21,400
Deferred taxes established in connection with
acquisition of prior Subchapter S Corporation
(MTS)............................................... (90,000) (90,000)
Other................................................ -- (20,300)
--------- ---------
Total deferred tax liability......................... (741,100) (474,600)
--------- ---------
Deferred Tax Assets:
Allowance for doubtful accounts...................... 152,200 --
Start up costs....................................... 244,000 --
Accrued expenses..................................... 65,300 --
Net operating loss................................... 336,800 --
Other................................................ 29,522 --
Less valuation allowance............................. (300,100) --
--------- ---------
Total deferred tax asset............................. 527,722 --
--------- ---------
Net deferred tax liability........................... $(213,378) $(474,600)
========= =========
</TABLE>
A subsidiary of the Company has a net operating loss of $893,000 as of its
acquisition date. This net operating loss is subject to limitation by Internal
Revenue Code Section 382 and the separate return limitation year rules. The net
operating loss will begin to expire in the year 2012. A valuation allowance has
been established against the net deferred tax asset resulting from the net
operating loss due to the limitations imposed on the utilization of the loss.
All of the valuation allowance for deferred tax assets will reduce goodwill
when the tax benefit is recognized in the future.
F-55
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12) Pro Forma Income Taxes
For financial reporting purposes, a pro forma provision for income taxes has
been reflected in the consolidated statements of earnings to present taxes on
the results of operations of MTS for the year ended June 30, 1997 and 1996 on
the basis that is required upon their change in tax status from an S
Corporation to a C Corporation. This amount, $2,140,500 and $891,300 in 1997
and 1996, respectively, are equal to the required Federal and state income tax
provisions that would have been recorded if MTS had not elected S Corporation
status and was subject to and liable for Federal and state income taxes as a C
Corporation prior to its termination of S Corporation status. MTS terminated
its S Corporation status upon merging with a wholly-owned subsidiary of the
Company on June 30, 1997.
(13) Profit-sharing Plans
In November 1996, the Company established a profit sharing plan pursuant to
Section 401(k) of the Internal Revenue Code, whereby participants may
contribute a percentage of compensation, but not in excess of the maximum
allowed under the code. The plan provides for a matching contribution by the
Company, which amounted to approximately $50,800, $9,000 and $-0- for the years
ended June 30, 1998, 1997 and 1996, respectively.
In 1989, MTS, a wholly-owned subsidiary, established a discretionary profit
sharing and money purchase pension plan. The plans cover all non-union
employees who have met certain service requirements. Contributions to the
profit sharing plan are discretionary and determined based on operating results
of MTS. For the money purchase pension plan, MTS was required to contribute 8%
of eligible compensation annually. Effective, October 31, 1997, the plans were
terminated in accordance with the provisions of Employee Retirement Income
Security Act of 1974, and all participants became immediately vested in their
accounts. Contributions were approximately $-0-, $173,000 and $91,000 in 1998,
1997 and 1996, respectively.
(14) Related Party Transactions
(a) Leases
The Company leases its main office building from Michael R. Budagher (a
principal stockholder, an officer and director of the Company).
(b) Budagher's Tower Co. ("BTC")
The Company uses contract labor provided by BTC, a corporation which is wholly-
owned by Michael R. Budagher's brother. The Company incurred $252,933,
$452,338, $92,931, $47,869 and $68,508 for contract labor services provided by
BTC during the years ended June 30, 1998, 1997 and 1996 and the three months
ended September 30, 1998 and 1997, respectively.
(c) Specialty Constructors Coatings, Inc. ("SCC")
The Company uses contract labor services provided by SCC. SCC is a corporation
which was 50 percent owned by Michael R. Budagher until March 31, 1997, when
Mr. Budagher sold his interest in SCC. On June 1, 1997, the Company acquired
SCC (note 15). The Company incurred $606,304 and $401,587 for contract labor
services provided by SCC during the year ended June 30, 1997 and 1996,
respectively.
F-56
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Specialty Manufacturing, Inc. ("SMI")
Prior to August 1997, the Company purchased ground kits from SMI used in
certain construction projects. SMI is owned 50 percent by Michael R. Budagher's
spouse (a stockholder) and 50 percent by Michael R. Budagher's brother (a
stockholder and employee of the Company). The Company purchases from SMI
totaled $3,768, $29,852, $13,285, $-0- and $2,578 during the years ended June
30, 1998, 1997 and 1996 and the three months ended September 30, 1998 and 1997,
respectively. In August 1997, MTS acquired substantially all of the inventory
and manufacturing equipment of SMI for $134,882 in cash and the right to
receive a royalty of $2 for each ground kit sold by MTS through July 31, 2000.
The Company paid royalties to SMI in the amount of $42,348 in 1998.
(e) Change Corporation ("Change")
The Company occasionally purchases computer equipment and software from Change,
which is used for office purposes. Change is owned by Michael R. Budagher's
sister. The Company incurred $36,575, $-0-, $-0-, $3,174 and $-0- in 1998, 1997
and 1996 and the three months ended September 30, 1998 and 1997, respectively,
for such purchases.
(f) Note Receivable from Officer and Director
A 7% recourse note receivable of $600,000 due December 29, 2002 is due from an
officer and director of the Company. Such note was originated for the purchase
of 50,000 shares of the Company's common stock, the source being from unissued
shares of the Company. Such balance is classified in the stockholders' equity
section of the balance sheet.
(g) Notes Payable to Stockholder
The Company had notes payable to stockholder for $80,000 and $2,000,000 as of
June 30, 1998 and 1997, respectively. Such notes payable originated as a
distribution to the previous Subchapter S Corporation stockholder in 1997 for
estimated payment of income taxes. $1,410,650 was paid to this stockholder
during 1998, $509,350 of this balance was returned to the Company for the
difference between the actual income tax liability and the original $2,000,000
distribution, and $80,000 remains for anticipated remaining liability for such
income taxes. The remaining payable is secured by components inventory.
(h) Principal Stockholder Advisory and Financial Services Commitment
The Company has retained Hicks, Muse & Co. Partners ("HMCo") (owner of
approximately 45% of the Company's outstanding common stock) in 1998 to perform
certain advisory, oversight, monitoring and financial services as requested by
the Board of Directors for a period to be the lesser of April 23, 2008 or upon
HMCo owning less than 33 1/3% of the outstanding common stock of the Company.
Such annual fees shall be the greater of $180,000 or .2% of annual consolidated
net sales of the Company for oversight and monitoring services and a 1 1/2% fee
for all future acquisitions, sales, mergers, recapitalization, restructurings
or other similar transactions for which HMCo provides services. During 1998,
approximately $269,000 was paid to HMCo. Such services did not exist in 1997 or
1996.
(i) Kline Tower and Steel ("Kline")
The Company purchases certain structural and tower steel products from Kline.
The Company owns 33 1/3% of the outstanding equity of Kline (note 5). During
the year ended June 30, 1998, approximately $2,569,000 of such products were
purchased from Kline and approximately $100,000 in consulting fees were paid to
Kline.
F-57
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company is obligated to pay Kline this $100,000 consulting fee each year
for the next four fiscal years. Approximately $294,000 included in trade
accounts payable was owed to Kline as of June 30, 1998. The Company did not
hold an ownership interest in Kline during 1997 and 1996.
(j) Wireless Components, Inc.
During the year ended June 30, 1996, the Company purchased $325,000 of
components from Wireless Components, Inc., an entity owned by Thomas Carpenter,
a principal stockholder of the Company.
(15) Acquisitions
On August 26, 1998, the Company acquired three towers for approximately
$2,400,000.
On July 9, 1998, the Company paid $640,000 and issued 81,270 shares of
restricted common stock of the Company at a price of $30.60 per share,
determined by the closing price on or about July 9, 1998, in exchange for
substantially all of the assets and liabilities of Teleforce Communications,
LLC. ("Teleforce"). Teleforce provides site acquisition services for the
wireless communications industry. The transaction was accounted for as a
purchase. Goodwill of approximately $2,750,000 recorded in connection with the
purchase is being amortized over a period of 30 years.
On April 23, 1998, the Company issued 6,750,000 shares of restricted common
stock of the Company at a price of $16.67 per share, determined by the average
closing price on or about February 16, 1998, in connection with the merger of
OmniAmerica Holdings ("OmniAmerica Holdings"). OmniAmerica Holdings owns assets
consisting of real estate, equipment and other physical property used in the
operation of the wireless communications and broadcast transmission tower
leasing business. The source of the shares for the transaction were unissued
shares of the Company. The transaction was accounted for as a purchase.
Accordingly, the results of OmniAmerica Holdings have been included in those of
the Company since the date of the merger. Goodwill of approximately $85,000,000
recorded in connection with the acquisition is being amortized over a period of
30 years. The Company is currently completing the allocation of its purchase
price, including the valuation of identifiable intangible assets. The
refinement of the purchase price allocation within the next year is not
expected to have a material impact on the Company's financial position or
results of operations.
On October 7, 1997, a wholly-owned subsidiary of the Company purchased
substantially all the assets of Ellis Tower Co., Inc. ("Ellis Tower"), in
exchange for $449,405 in cash and 120,848 shares of the Company's common stock
at a price of $14.87 determined by the closing price on or about October 7,
1997. Ellis Tower, located in Ft. Lauderdale, Florida, provides wireless
infrastructure building services. The source of the shares for the transaction
were unissued shares of the Company. The transaction was accounted for as a
purchase. Accordingly, the results of Ellis Tower have been combined with those
of the Company since the date of the purchase. Goodwill of approximately
$1,700,000 recorded in connection with the purchase is being amortized over a
period of 15 years.
On June 30, 1997, the Company issued 2,380,000 shares of restricted common
stock of the Company at a price of $11.625 per share, determined by the closing
price on or about June 8, 1997, pursuant to the merger of MTS with a wholly-
owned subsidiary of the Company. The source of the shares for the transaction
were unissued shares of the Company. MTS, located in Salem, Oregon; Salt Lake
City, Utah; Phoenix, Arizona; Denver, Colorado; and Sacramento, California,
provides wireless infrastructure building services and manufacturing,
distribution and sales of components for wireless infrastructure. The
transaction was accounted for as a pooling of interests. Accordingly, the
Company's consolidated financial statements have been restated to include the
operations of MTS prior to the acquisition for all periods presented.
F-58
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 1, 1997, the Company issued 55,814 shares of restricted common stock of
the Company at a price of $10.625 per share, determined by the closing price on
or about June 1, 1997, in exchange for substantially all the assets and
liabilities of Specialty Constructors Coatings, Inc. ("Coatings"). Coatings was
originally 50 percent owned by Michael R. Budagher, but Mr. Budagher's interest
was sold to the other shareholders on March 1, 1997. The source of the shares
for the transaction were unissued shares of the Company. Coatings, located in
Cedar Crest, New Mexico, provides wireless infrastructure building services,
primarily on water tank facilities. The transaction was accounted for as a
purchase. Accordingly, the results of Coatings' operations have been combined
with those of the Company since the date of acquisition. No goodwill was
recorded in connection with the purchase.
On May 28, 1997, the Company issued 186,047 shares of restricted common stock
of the Company at a price of $9.30 per share, determined by the closing price
on or about March 31, 1997, in exchange for substantially all the assets and
liabilities of Paramount Communication Systems, Inc. ("Paramount"). The source
of the shares for the transaction were unissued shares of the Company.
Paramount, located in Somerdale, New Jersey, provides wireless infrastructure
building services. The transaction was accounted for as a purchase.
Accordingly, the results of Paramount's operations have been combined with
those of the Company since the date of acquisition. Goodwill of approximately
$1,300,000 recorded in connection with the purchase is being amortized over a
period of fifteen years. In connection with the purchase, the Company entered
into a note receivable with the principal stockholder of Paramount. The note,
in the amount of $250,000, is due in three semi-annual installments beginning
May 2000 and one final installment in November 2001. Interest, at 9 percent, is
payable quarterly. Under the terms of the acquisition agreement, the Company is
obligated to loan an additional $250,000 to the stockholder of Paramount. Such
additional loan was not requested by the stockholder in 1998. The note is
secured by 93,024 shares of the Company's common stock.
On May 14, 1997, the Company issued 400,000 shares of restricted common stock
of the Company at a price of $9.25 per share, determined by the closing price
on or about March 31, 1997, pursuant to the merger of N&L with a wholly-owned
subsidiary of the Company. The source of the shares for the transaction were
unissued shares of the Company. N&L, located in Oklahoma City, OK and southern
California, provides general contract services for wireless telecommunications
companies, health care and other commercial customers. The transaction was
accounted for as a pooling of interests. Accordingly, the Company's
consolidated financial statements have been restated to include the operations
of N&L prior to the acquisition for all periods presented.
On October 31, 1996, the Company paid $160,000 and issued 93,400 shares of
restricted common stock of the Company at a price of $7.125 per share,
determined by the closing price on or about October 31, 1996, in exchange for
substantially all the assets and liabilities of Data Cell Systems, Inc. ("Data
Cell"). Data Cell provides wireless infrastructure building services. The
source of the shares for the transaction were unissued shares of the Company.
The transaction was accounted for as a purchase. Accordingly, the results of
Data Cell's operations have been combined with those of the Company since the
date of acquisition. Goodwill of approximately $380,000 recorded in connection
with the purchase is being amortized over a period of five years. Additionally,
pursuant to the purchase agreement, the Company may be required to pay
additional consideration, not to exceed $200,000, based upon the Data Cell
subsidiary achieving specified levels of pre-tax earnings during the three
years immediately following the date of acquisition. Such levels were not
attained in the years ended June 30, 1998 and 1997.
On July 1, 1995, the Company issued 92,308 shares of its restricted common
stock at a price of $2.75 per share, determined by the closing price on or
about July 1, 1995, in exchange for all of the outstanding shares of Specialty
Combined Resources, Inc. (Specialty Combined). The source of the shares for the
transaction are
F-59
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
unissued shares of the Company. Specialty Combined, located in Laguna Hills,
California, provides engineering, design and coordination services of power,
lighting and control systems for communications, health care, petrochem,
institutional and commercial customers. The Company also entered into a
consulting and noncompete agreement with the former principal of Specialty
Combined for a period of thirty-six (36) months from the date of the
acquisition for $75,000. Additionally, the Company entered into an employment
agreement with the former principle of Specialty Combined to provide services
to the Company for a period of thirty-six (36) months from the date of
acquisition. The transaction was accounted for as a pooling of interests.
Accordingly, the Company's consolidated financial statements were restated to
include the operations of Specialty Combined for all periods prior to the
acquisition.
Fiscal years 1998, 1997 and 1996 also include other acquisitions which are
immaterial to the consolidated financial statements of the Company.
Separate results of the combining entities, giving effect to the N&L and MTS
poolings of interests for periods prior to such transactions are as follows for
the years ending June 30:
<TABLE>
<CAPTION>
1997(1) 1996
As restated As restated
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Revenues earned:
OmniAmerica...................................... $32,303,360 $16,758,629
Novak & Lackey................................... 10,303,550 6,270,979
Microwave Tower Service.......................... 23,019,890 9,556,378
----------- -----------
$65,626,800 $32,585,986
=========== ===========
Net earnings (loss):
OmniAmerica...................................... $ (279,257) $ 804,355
Novak & Lackey................................... 390,885 163,016
Microwave Tower Service.......................... 5,576,114 2,228,205
----------- -----------
$ 5,687,742 $ 3,195,576
=========== ===========
Pro forma net earnings (loss) (see note 12)
OmniAmerica...................................... $ (279,257) $ 804,355
Novak & Lackey................................... 390,885 163,016
Microwave Tower Service.......................... 3,435,614 1,336,905
----------- -----------
$ 3,547,242 $ 2,304,276
=========== ===========
</TABLE>
- --------
(1) The Company's results for the twelve months ended June 30, 1997 include
the results of N&L for the period following the consummation of the
merger.
F-60
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following unaudited pro forma financial information presents the combined
results of operations of the Company and OmniAmerica Holdings as if the
acquisitions had occurred as of the beginning of 1998 and 1997, after giving
effect to certain adjustments, including amortization of goodwill, additional
depreciation expense and related income tax effects. The pro forma financial
information does not necessarily reflect the operations that would have
occurred had the Company and the acquired entities constituted a single entity
during such periods nor is it an indication of future performance:
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues earned....................................... $67,437,136 $71,332,114
=========== ===========
Net earnings.......................................... $ 1,163,107 $ 6,424,651
=========== ===========
Earnings per common share:
Basic............................................... $ .08 $ .46
=========== ===========
Diluted............................................. $ .08 $ .45
=========== ===========
Pro forma net earnings(2)............................. $ 4,284,151
===========
Pro forma earnings per common and common equivalent
share(2)
Basic............................................... $ .31
===========
Diluted............................................. $ .30
===========
</TABLE>
- --------
(2) Pro forma net earnings and earnings per common and common equivalent share
are based on pooled results of the Company, giving effect to pro forma
income taxes for pooling with Subchapter S Corporation for the years ended
June 30, 1998 and 1997.
The effects of the Company's acquisition of Teleforce, Ellis Tower and Coatings
prior to the respective date of acquisition are not material to the combined
results of operations of the Company for the years ended June 30, 1998 and 1997
and the three months ended September 30, 1998 and 1997 (unaudited).
F-61
<PAGE>
OMNIAMERICA, INC. AND SUBSIDIARIES
(formerly Specialty Teleconstructors, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(16) Contingencies
The Company is, and from time to time may be, a party to routine legal
proceedings incidental to its business. The outcome of these legal proceedings
is not expected to have a material adverse effect on the Company's business,
results of operations or financial condition, based on the Company's current
understanding of the relevant facts and law. The Company maintains general
liability insurance against risks arising out of the normal course of business.
(17) Events Subsequent to Date of Independent Auditor's Report (unaudited)
On September 29, 1998, pursuant to an asset purchase and sale agreement with
certain wholly-owned subsidiaries of Arch Communications Group, the Company
acquired 70 towers on 68 sites for approximately $20,400,000 financed primarily
with proceeds from the Chase Manhattan senior secured revolving credit
facility.
On November 15, 1998, the Stock Option Sub-Committee of the Board of Directors
approved the grant of 397,400 stock options under the 1998 Plan to certain
outside directors, officers and employees of the Company at the then current
market price of $17.50. The options are to be granted in connection with the
merger with ATI mentioned below.
On November 16, 1998, the Company announced that it had entered into an
Agreement and Plan of Merger with American Tower Company and American Tower,
Inc. ("ATI") pursuant to which the Company will, subject to the receipt of
necessary governmental consents and other customary closing conditions, be
merged with and into ATI. In the event OmniAmerica terminates the merger
agreement because of a Superior Proposal, a termination fee of $12.0 million
must be paid to ATC.
Effective November 18, 1998, the Company amended its senior secured credit
facility with Chase Manhattan Bank to increase the amount of available credit
to $150,000,000 from $75,000,000. All other provisions remain consistent
including mandatory prepayment provisions upon consummation of the merger with
ATI.
F-62
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Members
TeleCom Towers, LLC
We have audited the accompanying balance sheet of TeleCom Towers, LLC as of
December 31, 1997, and the related statements of operations, members' equity,
and cash flows for the period from September 30, 1997 (date of inception) to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TeleCom Towers, LLC at
December 31, 1997, and the results of its operations and its cash flows for the
period from September 30, 1997, to December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-63
<PAGE>
TELECOM TOWERS, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash.............................................. $ 2,722,510 $ 12,238,658
Accounts receivable, net of allowance of $280,049
and $0 in 1998 and 1997, respectively............ 36,680 5,235,912
Prepaid expenses.................................. 20,279 491,936
----------- -------------
Total current assets............................ 2,779,469 17,966,506
Property and equipment, net of accumulated
depreciation of $4,057,566 and $39,869 in 1998 and
1997, respectively................................. 4,953,984 20,594,568
Intangibles, net of accumulated amortization of
$4,825,940 and $119,353 in 1998 and 1997,
respectively....................................... 8,300,815 53,986,909
Escrow deposits, net................................ 1,259,800 430,000
Deferred rent receivable............................ 18,223 418,829
Advance to affiliated entity........................ 350,000 365,559
Notes receivable affiliate.......................... -- 6,250,000
Investment in joint ventures........................ -- 2,811,427
Other assets........................................ 84,225 69,983
----------- -------------
Total assets.................................... $17,746,516 $ 102,893,781
=========== =============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............. $ 172,205 $ 4,649,837
Current portion of long-term debt................. -- 1,675,900
Security deposits................................. 25,020 35,177
Prepaid rents..................................... 29,041 838,458
----------- -------------
Total current liabilities....................... 226,266 7,199,372
Long-term debt, net of current portion.............. 3,900,000 27,946,214
Members' Equity..................................... 13,620,250 67,748,195
----------- -------------
Total liabilities and members' equity........... $17,746,516 $ 102,893,781
=========== =============
</TABLE>
See accompanying notes.
F-64
<PAGE>
TELECOM TOWERS, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
September 30, 1997 to Nine months ended
December 31, 1997 September 30, 1998
--------------------- ------------------
(unaudited)
<S> <C> <C>
Tower revenue.......................... $ 327,549 $ 5,825,048
Direct tower costs..................... 131,749 4,435,815
----------- ------------
Gross profit........................... 195,800 1,389,233
General and administrative............. 1,279,148 3,349,722
Depreciation........................... 39,869 551,774
Amortization........................... 119,353 1,378,678
----------- ------------
Operating loss......................... (1,242,570) (3,890,941)
Interest income........................ 914 --
Interest expense....................... (83,556) (910,899)
Other expense.......................... -- (432,120)
----------- ------------
Net loss............................... $(1,325,212) $ (5,233,960)
=========== ============
</TABLE>
See accompanying notes.
F-65
<PAGE>
TELECOM TOWERS, LLC
STATEMENTS OF MEMBERS' EQUITY
Period from September 30, 1997 to December 31, 1997
and for the period ended September 30, 1998
<TABLE>
<CAPTION>
Total
Accumulated Members'
Units Amount Deficit Equity
------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial capitalization......... 100,000 $ 6,500,000 -- $ 6,500,000
Financing and offering costs... -- (1,378,538) -- (1,378,538)
Member contributions........... -- 9,824,000 -- 9,824,000
Net loss....................... -- -- (1,325,212) (1,325,212)
------- ----------- ----------- -----------
Balance at December 31, 1997... 100,000 14,945,462 (1,325,212) 13,620,250
Member contributions........... -- 53,434,972 -- 53,434,972
Member distributions........... -- (6,788,445) -- (6,788,445)
Limited Partnership
acquisition................... -- 12,715,378 -- 12,715,378
Net loss....................... -- -- (5,233,960) (5,233,960)
------- ----------- ----------- -----------
Balance at September 30, 1998
(unaudited)................... 100,000 $74,307,367 $(6,559,172) $67,748,195
======= =========== =========== ===========
</TABLE>
See accompanying notes.
F-66
<PAGE>
TELECOM TOWERS, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
September 30, 1997 to Nine months ended
December 31, 1997 September 30, 1998
--------------------- ------------------
(unaudited)
<S> <C> <C>
Operating expenses
Net loss............................. $(1,325,212) $ (5,233,960)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation....................... 39,869 551,774
Amortization....................... 119,353 1,378,678
Changes in operating assets and
liabilities:
Accounts receivable.............. (36,680) (5,199,232)
Prepaid expenses................. (20,279) (471,657)
Escrow deposits.................. (1,259,800) 829,800
Due from affiliate............... (350,000) (6,250,000)
Deferred rent receivable......... (18,223) (400,606)
Other assets..................... (84,225) (1,317)
Accounts payable and accrued
expenses........................ 172,205 4,477,632
Security deposits................ 25,020 10,157
Deferred revenue................. 29,041 809,417
----------- ------------
Net cash used in operating
activities.................... (2,708,931) (9,499,314)
Investing activities
Asset acquisitions, net of cash
received............................ (9,083,440) (46,085,073)
Investment in partnerships........... -- (2,811,427)
Rollup of partnerships............... -- (21,631,736)
Purchases of towers, buildings and
equipment........................... (430,581) --
----------- ------------
Net cash used in investing
activities.................... (9,514,021) (70,528,236)
Financing activities
Member contributions................. 16,324,000 53,434,972
Proceeds from notes payable.......... -- 25,722,114
Distributions........................ -- (6,788,445)
Roll-up equity....................... -- 17,172,057
Syndication offering costs
reduction........................... -- 3,000
Financing and offering costs......... (1,378,538) --
----------- ------------
Net cash provided by financing
activities.................... 14,945,462 89,543,698
Net increase in cash................. 2,722,510 9,516,148
Cash at beginning of period.......... -- 2,722,510
----------- ------------
Cash at end of period................ $ 2,722,510 $ 12,238,658
=========== ============
Supplemental cash flow information
Cash paid for interest............... $ 55,704 $ 139,563
=========== ============
Noncash transactions
Seller financed notes................ $ 3,900,000 $ --
=========== ============
</TABLE>
See accompanying notes.
F-67
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and September 30, 1998
(Information as of and for the period ended September 30, 1998 is unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Description of Business
TeleCom Towers, L.L.C. (LLC or the Company) was organized as a limited
liability company in September 1997 under the laws of the State of Delaware to
acquire, operate, manage, and develop a national network of wireless
communications sites, including towers and roof-top units. Sites are located
throughout specific clusters in the United States. Pursuant to the Limited
Liability Company Operating Agreement (the Agreement), the Company issued a
total of 100,000 units of equity interests to effect the formation of the
Company. TeleCom Towers, Inc. (Inc.) was granted a total of 50,100 units (50.1%
contribution percentage) in exchange for the contribution of its general
partnership interests in the following entities, with such contributions given
no value for financial reporting purposes:
<TABLE>
<CAPTION>
General
Partner
Entity Interest
------ --------
<S> <C>
Telecom Towers Mid-Atlantic, LP..................................... 1%
RFM Facilities Management, LP...................................... .01%
RCC Holdings, LP................................................... .01%
Telecom Towers Southwest, LP........................................ 1%
Telecom Towers of the West, LP...................................... 1%
</TABLE>
A total of 49,900 units (49.9% contribution percentage) was issued to Cox
Enterprises, Inc. (Cox) in exchange for a commitment to contribute $43,000,000
in cash. As of December 31, 1997, Cox had made cash contributions of
$16,324,000.
Distributions to members are made in accordance with the members' capital
contribution percentage interest as defined in the Agreement. Profits and
losses are allocated to the members based on the members' contribution
percentage. The liability of each member shall be limited to the amount of
contributions made by such member in accordance with the provisions of the
Agreement.
According to the Agreement, both parties retain the following rights and
obligations: 1) Right of first offer if the other party plans to dispose of any
or all of its equity interest, this right expires five years from the date of
formation; 2) a tag-along right to participate in a sale of the other party's
equity interest to an outside party which represents a majority of the units,
this right expires ten years from the date of formation; 3) in the event of a
sale of shares by a particular member, a drag-along right to require the non-
selling member to sell a proportionate amount of its units, which expires ten
years from the date of formation; 4) certain registration rights; 5) to the
extent that the Company does not meet certain financial goals for 1999, 2000
and 2001, Cox is entitled to receive additional units in each of the years that
the financial goals are not reached by selected limited partnerships, not to
exceed 66% of total ownership; 6) preemptive rights to purchase additional
shares to maintain the respective members' proportionate ownership in the case
of any non-public offering of new units; and 7) subject to certain other
events, put-rights to require the other member to purchase the respective
members' interest at fair market value.
The Company has an 83% interest in AlphaCom Communications, LLC which is
inactive and, accordingly, no profit, loss, or investment has been recorded for
this entity as of December 31, 1997. The Company also invested $54,400 for a
non-controlling interest in Haysville Tower, LLC, a single tower company
located in Kansas, whose operations to date are insignificant. Such investment
is included in other assets.
F-68
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Acquisitions
The Company has acquired, through various transactions, the following tangible
and intangible assets. Intangible assets include non-compete agreements,
management agreements, tenant licenses, and goodwill. The purchase method was
used to account for the acquisitions. The purchase prices were allocated, in
total, as follows:
<TABLE>
<CAPTION>
December 31, September
1997 30, 1998
------------ ------------
<S> <C> <C>
Land.................................................. $ 1,800,000 $ 1,403,846
Buildings............................................. 425,000 2,011,282
Towers................................................ 2,662,000 10,187,129
Equipment............................................. 77,440 1,388,797
Intangibles........................................... 8,019,000 27,595,582
------------ ------------
$ 12,983,440 $ 42,586,636
============ ============
</TABLE>
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 the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Company operates telecommunications transmission sites in various states
and grants credit to its customers in the normal course of business and
normally does not require collateral. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of customers
in the Company's customer base. The Company maintains an allowance for doubtful
accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The financial statements as of September 30, 1998 and for the nine months ended
September 30, 1998 are unaudited. In the opinion of management, such financial
statements reflect all adjustments necessary for a fair presentation of the
results of the respective interim periods. All such adjustments are of a normal
recurring nature.
Significant Accounting Policies
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the nine months ended September 30, 1998, the Company had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is
F-69
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
required to be adopted for the year ended December 31, 1998. SFAS 131 changes
the way public companies report segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial reports to stockholders. The disclosure for
segment information on the financial statements is not expected to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change in accounting principle. When adopting this SOP, entities are not
required to report the pro forma effects of retroactive application. The effect
of adopting SOP 98-5 is not expected to have a material effect on the financial
statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses is recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenue is recognized ratably over time.
Deferred income represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time..
Property and Equipment
Property and equipment are stated at cost. Depreciation of towers is computed
using the double declining balance method. The straight-line method is used for
equipment and buildings. Estimated useful lives are as follows: buildings, 39
years; towers, 20 years; equipment, 7 years.
The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are less
then the carrying amount of those assets. Based on management's estimation
process, no impairment losses were recorded as of December 31, 1997. As of
December 31, 1997 all fixed assets were held for use and the Company does not
plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
agreements, management agreements, tenant licenses, and goodwill. Such assets
are being amortized using the straight-line method over their estimated useful
lives not to exceed fifteen years.
Escrow Deposits
The Company has deposits in escrow with various escrow agents for asset
purchase transactions in progress at December 31, 1997. Depending on the
outcome of the related negotiations, amounts will either be reclassified as
part of the purchase price, expensed as site investigation costs and included
in general and administrative expenses, or reclassified into cash. As such,
certain amounts have been reserved against these escrow amounts.
F-70
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
Financing and Offering Costs
The costs incurred in obtaining member interests in the Company have been
deducted from Members' Equity.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
Income Taxes
No provisions have been made for federal and state taxes on the operations of
the Company. These taxes are the responsibility of the individual members who
are to include their share of the Company's income and deductions in their
respective income tax returns. Certain states do tax limited liability
corporations; however, as a result of related operations, no provision has been
recorded.
2. PROPERTY AND EQUIPMENT
At December 31, 1997 and September 30, 1998, respectively, property, towers,
and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(unaudited)
<S> <C> <C>
Land.............................................. $1,816,333 $ 3,230,815
Buildings......................................... 476,665 2,628,757
Towers............................................ 2,587,490 15,487,923
Equipment......................................... 113,365 2,854,885
Construction-in-progress.......................... -0- 449,754
---------- -----------
4,993,853 24,652,134
Accumulated depreciation.......................... (39,869) (4,057,566)
---------- -----------
Net fixed assets.................................. $4,953,984 $20,594,568
========== ===========
</TABLE>
F-71
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. INTANGIBLE ASSETS
At December 31, 1997 and September 30, 1998, respectively, intangible assets
consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(unaudited)
<S> <C> <C>
Goodwill.......................................... $4,270,000 $34,765,939
Tenant licenses................................... 2,662,627 --
Land leases....................................... 825,000 --
Management Agreements............................. 103,500 --
Non-solicitation.................................. 25,000 --
Non-compete....................................... 154,000 2,459,000
Other intangibles................................. 380,041 21,587,910
---------- -----------
8,420,168 58,812,849
Accumulated amortization.......................... (119,353) (4,825,940)
---------- -----------
Net intangibles................................... $8,300,815 $53,986,909
========== ===========
</TABLE>
These intangibles resulted from acquisitions of towers made by the Company and
costs associated with the initial formation of the Company. Other intangibles
relate to costs associated with investigating site acquisitions and
development. Amortization of such amounts will begin once the sites are
acquired and in operation, unless such acquisitions fail to materialize, at
which point the related costs will be expensed as site investigation costs and
included in general and administrative expenses.
4. LONG-TERM DEBT
The Company financed certain purchases through the issuance of seller financed
notes. The $3,900,000 in notes payable are due in one installment on the sixth
anniversary of the notes, which is September 30, 2003. The interest rate on
each note is 8.5% during the first three years and the greater of 8.5% or
prime, thereafter. Interest is payable quarterly in arrears. The notes are
secured by the assets of the Company.
5. DESCRIPTION OF LEASING ARRANGEMENTS
The Company licenses space for communication systems on its transmission sites
to customers under generally noncancelable agreements requiring payments over
various terms. At December 31, 1997, future minimum license agreement receipts
are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1998............................................................ $1,398,804
1999............................................................ 1,228,289
2000............................................................ 534,618
2001............................................................ 308,052
2002............................................................ 173,898
Thereafter...................................................... 847,900
----------
$4,491,561
==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
As general partner, the Company is a co-borrower of the debt of the limited
partnerships described in Note 1. Such debt in aggregate totaled approximately
$25,830,000 at December 31, 1997 and $24,586,000 at September 30, 1998.
F-72
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company is committed for various ground leases at several transmission
sites. Lease expense for the period from September 30, 1997 to December 31,
1997 and the nine months ended September 30, 1998 (unaudited) was $11,155 and
$195,398, respectively. Future minimum lease payments at December 31, 1997 were
as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1998.............................................................. $ 68,400
1999.............................................................. 66,400
2000.............................................................. 64,983
2001.............................................................. 63,150
2002.............................................................. 59,700
Thereafter........................................................ 458,645
--------
$781,278
========
</TABLE>
7. RELATED PARTIES
Beginning in 1998, the Company, by virtue of its general partner interest in
the related entities, will be entitled to a management fee equal to 8.5% of the
gross monthly revenues of the related entities (see Note 1). The Company will
also be entitled to a 3% acquisition fee to be earned on all capital funds
invested in towers and related real estate and other assets in the
Partnerships. The Company will also be entitled to up to 4% of gross monthly
revenue of the Partnerships for reimbursement of certain general partner
expenses.
The Company was allocated certain corporate expenses for services provided by
TeleCom Towers, Inc. The total amount of such expenses for the period from
September 30, 1997 to December 31, 1997 was approximately $61,000. These
corporate services were not in effect for 1998.
The Company advanced $350,000 to Telecom Towers Mid-Atlantic, LP to assist in
funding one of Mid-Atlantic's subsidiaries. There is no written agreement
concerning repayment of this advance, nor is any interest charged.
8. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company entered into agreements to
purchase four communications towers for a total purchase price of approximately
$925,000. The Company also entered into a joint venture agreement with another
party to form Mid-Pacific Telecommunications Co. for the purpose of
establishing communications site operations in the Dallas/Ft. Worth area, for a
commitment to invest up to $7 million for a 50% interest. The Company also
purchased a 50% share in Castle Rock Tower Co. for a total purchase price of
approximately $270,000. The remaining interests are held by Telecom Southwest
Towers, LP, a related party of the Company.
9. EVENTS SUBSEQUENT TO AUDITORS REPORT
Effective August 3, 1998, the limited partners of Telecom Southwest Towers, LP,
Telecom Towers Mid-Atlantic, LP, and Telecom Towers of the West, LP
(collectively the Partnerships) agreed to a merger of the Partnerships into the
Company which is the general partner of the Partnerships. The limited partners
of the Partnerships received as merger consideration either cash or Class A
Units of the Company in exchange for their interest in each Partnership. The
accompanying unaudited September 30, 1998 statements of operations reflect the
operating results of the Partnerships since the effective date of the merger.
Except for cash acquired, these transactions have been excluded from the
statements of cash flows and have been accounted for using purchase accounting.
F-73
<PAGE>
TELECOM TOWERS, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
The pro forma unaudited results of operations for the nine months ended
September 30, 1998, assuming the purchase of the Partnerships had been
consummated as of January 1, 1998, is as follows:
<TABLE>
<S> <C>
Revenues...................................................... $20,894,172
===========
Net loss...................................................... $(5,953,144)
===========
</TABLE>
In November 1998, the Company entered into an Agreement and Plan of Merger with
American Tower Corporation ("ATC") which, subject to certain conditions
including Hart-Scott-Rodino Act review, and excluding RCC Consultants, Inc., a
subsidiary of the Company, which prior to the consummation of with the merger
will be distributed to certain members of the Company in exchange for units,
will result in the merger of the Company into ATC. The merger is scheduled to
be completed during the first half of 1999. Simultaneous with the closing of
the merger, the Company will record a charge to earnings related to certain
contingent payment obligations to various brokers and finders as a result of
their services in connection with locating and obtaining financing for tower
acquisitions. Such obligations were assumed by the Company from TTI and the
Partnerships. In connection with the discharge of such obligations, a cash
payment would be made or a certain number of units in the Company would be
issued equal to an agreed percentage ownership of the Company. Such payment or
issuance does not change the total consideration paid by ATC to consummate the
merger pursuant to an Amended and Restated Agreement and Plan of Merger, dated
as of December 18, 1998, as amended by an amendment thereto dated as of
December 23, 1998, for aggregate consideration of $148.75 million, subject to
adjustment.
F-74
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Telecom Southwest Towers Limited Partnership
We have audited the accompanying balance sheets of Telecom Southwest Towers
Limited Partnership (a Texas limited partnership) as of December 31, 1996, and
the related statements of income, partners' equity, and cash flows for the year
ended December 31, 1996 and the period from inception (January 5, 1995) to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
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, the financial statements referred to above present fairly in
all material respects, the financial position of Telecom Southwest Towers
Limited Partnership as of December 31, 1996, and the results of its operations
and its cash flows for the year ended December 31, 1996 and the initial period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Gollob, Morgan, Peddy & Co., P.C.
Tyler, Texas
March 18, 1997
F-75
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
Telecom Southwest Towers, LP
We have audited the balance sheet of Telecom Southwest Towers, LP as of
December 31, 1997, and the related statements of operations, partners' capital,
and cash flows for the year ended December 31, 1997. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telecom Southwest Towers, LP
at December 31, 1997, and the results of its operations and its cash flows for
the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-76
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------- July 31,
1996 1997 1998
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $ 208,486 $ 20,821 $ 350,305
Accounts receivable, net of allowance of
$22,445, $15,500, and $0 in 1998, 1997,
and 1996, respectively.................... 55,283 75,080 76,004
Prepaid expenses........................... 4,126 24,496 11,740
Related party receivables.................. -- 11,186 24,133
---------- ---------- ----------
Total current assets..................... 267,895 131,583 462,182
Property and equipment, net of accumulated
depreciation of $1,077,426, $859,782, and
$512,138 in 1998, 1997, and 1996,
respectively................................ 3,455,005 4,131,451 3,954,305
Intangibles, net of accumulated amortization
of $1,160,431, $897,157, and $415,844 in
1998, 1997, and 1996, respectively.......... 2,447,826 4,027,976 3,814,702
Deferred rent receivable..................... -- 36,524 47,952
Escrow deposits.............................. -- 50,200 --
Investment in joint ventures................. 282,840 292,322 304,803
---------- ---------- ----------
Total assets............................. $6,453,566 $8,670,056 $8,583,944
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses...... $ 42,116 $ 36,232 $ 288,902
Current portion of long-term debt.......... 349,375 631,834 833,574
Prepaid rents.............................. 64,904 77,749 142,047
Deposits................................... 1,000 -- --
---------- ---------- ----------
Total current liabilities................ 457,395 745,815 1,264,523
Long-term debt, net of current portion....... 4,446,250 6,823,803 6,373,260
Partners' capital............................ 1,549,921 1,100,438 946,161
---------- ---------- ----------
Total liabilities and partners' capital.. $6,453,566 $8,670,056 $8,583,944
========== ========== ==========
</TABLE>
F-77
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Seven months
Years ended December 31, ended July 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Total revenues.......... $1,184,607 $1,605,978 $2,062,011 $1,152,382 $1,290,318
Direct tower costs...... 221,783 306,553 374,535 195,220 264,606
---------- ---------- ---------- ---------- ----------
Gross profit............ 962,824 1,299,425 1,687,476 957,162 1,025,712
General and
administrative......... 729,009 781,877 463,176 277,704 302,304
Depreciation............ 197,725 308,957 358,477 206,747 217,645
Amortization............ 198,843 222,847 481,314 252,275 263,274
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. (162,753) (14,256) 384,509 220,436 242,489
Other income (expense):
Interest income....... 19,259 13,890 4,259 2,935 99
Interest expense...... (246,770) (424,237) (640,741) (272,714) (396,865)
Gain (loss) on
disposition of
assets............... 132 (3,697) (29,158) -- --
Partnership loss...... (83) (13,337) (5,814) -- --
Miscellaneous income.. -- -- 21,704 -- --
---------- ---------- ---------- ---------- ----------
Loss before
extraordinary item..... (390,215) (441,637) (265,241) (49,343) (154,277)
Extraordinary item--Gain
on early extinguishment
of debt................ 60,000 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss................ $ (330,215) $ (441,637) $ (265,241) $ (49,343) $ (154,277)
========== ========== ========== ========== ==========
</TABLE>
F-78
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited Total
Partner's Partners' Partners'
Equity (1%) Equity (99%) Capital
----------- ------------ ----------
<S> <C> <C> <C>
Balance at January 5, 1995 (inception).... $ -- $ -- $ --
Capital Contributions..................... 1,000 3,000,000 3,001,000
Syndication/Offering costs................ -- (374,732) (374,732)
Distributions-Limited partners............ -- (64,495) (64,495)
Net Loss.................................. (3,302) (326,913) (330,215)
-------- ---------- ----------
Balance, December 31, 1995................ $ (2,302) $2,233,860 $2,231,558
Distributions-Limited partners............ -- (240,000) (240,000)
Net Loss.................................. (4,416) (437,221) (441,637)
-------- ---------- ----------
Balance at December 31, 1996.............. $ (6,718) $1,556,639 $1,549,921
Distributions............................. (4,242) (180,000) (184,242)
Net loss.................................. (2,652) (262,589) (265,241)
-------- ---------- ----------
Balance at December 31, 1997.............. $(13,612) $1,114,050 $1,100,438
Distributions............................. -- -- --
Net loss.................................. (1,543) (152,734) (154,277)
-------- ---------- ----------
Balance at July 31, 1998.................. $(15,155) $ 961,316 $ 946,161
======== ========== ==========
</TABLE>
F-79
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Seven months
Years ended December 31, ended July 31,
--------------------------------- ---------------------
1995 1996 1997 1997 1998
---------- --------- ---------- ---------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss................ $ (330,215) $(441,637) $ (265,241) $ (49,343) $(154,277)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation........... 197,725 308,957 358,477 206,747 217,645
Amortization........... 198,843 222,847 481,314 252,275 263,274
(Gain) loss on
disposition of
assets................ (132) 3,697 29,158 -- --
Gain on early
extinguishment of
debt.................. (60,000) -- -- -- --
Amortize consulting
agreement............. 425,000 425,000 -- -- --
Partnership loss....... 83 13,337 5,814 -- --
Changes in operating
assets and liabilities:
Accounts receivable.... (36,257) (19,026) (30,983) 3,783 (924)
Prepaid expenses....... (4,345) 219 (20,370) 985 12,756
Other assets........... (200) -- (50,000) (50,000) 50,200
Deferred rent
receivable............ -- -- (36,524) -- (11,428)
Accounts payable and
accrued liabilities... 42,419 (303) (5,884) 63,499 252,670
Payable to related
parties............... 4,430 (4,430) -- -- (12,947)
Prepaid rents.......... -- -- 77,749 51,431 64,298
Deferred revenue....... 54,451 10,453 (64,904) -- --
Other liabilities...... -- 1,000 (1,000) -- --
---------- --------- ---------- ---------- ---------
Net cash provided by
operating activities.. 491,802 520,114 477,606 479,377 681,267
Investing activities
Asset acquisitions, net
of cash received....... (3,971,800) -- (2,601,595) (1,877,877) (50,000)
Purchases of property
and equipment.......... (976,705) (562,599) (531,450) (982,341) (40,498)
Contributions to
investments in joint
ventures............... (120,061) (180,000) (40,496) (29,896) (12,481)
Distributions from joint
ventures............... -- 10,000 25,000 -- --
Proceeds from sale of
assets................. 14,132 22,709 7,500 -- --
Payables for acquisition
fees................... 17,720 (17,720) -- -- --
Prepaid consulting
agreement.............. (850,000) -- -- -- --
Non-compete agreement... (875,000) -- -- -- --
Organization,
acquisition and closing
costs.................. (240,500) -- -- -- --
---------- --------- ---------- ---------- ---------
Net cash used in
investing activities.. (7,002,214) (727,610) (3,141,041) (2,890,214) (102,979)
Financing activities
Proceeds from debt...... 4,900,000 -- 2,996,751 2,996,751 --
Payments on debt........ -- (104,375) (336,739) (287,990) (248,804)
Distributions to
partners............... (64,495) (240,000) (184,242) (123,636) --
Accounts receivable from
general partner........ (1,000) 1,000 -- -- --
Financing and
acquisition costs...... (248,348) (2,656) -- -- --
Capital contribution--
general partner........ 1,000 -- -- -- --
Capital contribution--
limited partners....... 3,000,000 -- -- -- --
Syndication/offering
costs.................. (374,732) -- -- -- --
Seller notes............ 2,400,000 -- -- -- --
Liquidation of seller
notes.................. (2,340,000) -- -- -- --
---------- --------- ---------- ---------- ---------
Net cash provided by
financing activities.. 7,272,425 (346,031) 2,475,770 2,585,125 (248,804)
Net increase in cash.... 762,013 (553,527) (187,665) 174,288 329,484
Cash at beginning of
period................. -- 762,013 208,486 208,486 20,821
---------- --------- ---------- ---------- ---------
Cash at end of period... 762,013 $ 208,486 $ 20,821 $ 382,774 $350,305
========== ========= ========== ========== =========
Supplemental cash flow
information
Cash paid for interest.. 245,451 $ 425,556 $ 640,741 $ 272,714 $ 396,865
========== ========= ========== ========== =========
</TABLE>
F-80
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and September 30, 1998
(Information as of and for the period ended September 30, 1998 is unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Description of Business
Telecom Southwest Towers, LP (the Partnership), a Texas limited partnership,
owns and manages telecommunications tower sites in Eastern and Central Texas
and has joint ventures in both Louisiana and Texas, and licenses space on such
towers to customers for a fee. The general partner is TeleCom Towers, L.L.C.,
which has an interest in the Partnership. The Partnership shall continue in
full force and effect until December 31, 2020, unless the Partnership is sooner
dissolved by the occurrence of certain events as specified in the Partnership
Agreement.
The liability of each partner shall be limited to the amount of capital
contributions required to be made by such partner in accordance with the
provisions of the Partnership Agreement. The general partner is responsible for
the liabilities of the Partnership beyond the capital contributed by the
limited partners.
Distributions to partners are made in accordance with the partners' percentage
interests at the time of such distribution until certain capital contributions
are repaid and a cumulative annual return is paid to the partners. Profits and
losses are allocated to the partners based on the partners' percentage
interests as adjusted per the preceding paragraph.
Acquisitions
On January 5, 1995, the Partnership acquired the assets of Rental Towers. The
purchase method was used to account for the acquisition, and the purchase price
was allocated as follows:
<TABLE>
<S> <C>
Property and equipment.......................................... $1,500,000
Goodwill........................................................ 1,471,525
Other........................................................... 3,475
----------
$2,975,000
==========
</TABLE>
In addition to the asset acquisition, $875,000 was paid for a 5-year non-
compete agreement with the previous owner of the towers. A two-year consulting
agreement in the total amount of $850,000, which expired in 1996, was also
entered into with this owner.
The Partnership acquired, through various transactions, the following tangible
and intangible assets during the year 1997. Intangible assets primarily include
goodwill, organization costs, non-compete and consulting agreements, and
acquisition and loan costs. The purchase method was used to account for the
acquisitions. The purchase prices were allocated, in total, as follows:
<TABLE>
<S> <C>
Land.............................................................. $ 151,523
Buildings......................................................... 175,000
Towers............................................................ 429,372
Equipment......................................................... 50,000
Intangibles....................................................... 1,795,703
----------
$2,601,598
==========
</TABLE>
F-81
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Partnership operates telecommunications transmission sites in various
states and grants credit to its customers in the normal course of business and
normally does not require collateral. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of customers
in the Partnership's customer base. The Partnership maintains an allowance for
doubtful accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The financial statements as of July 31, 1998 and for the seven months ended
July 31, 1998 and 1997 are unaudited. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair presentation
of the results of the respective interim periods. All such adjustments are of a
normal recurring nature.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
Significant Accounting Policies
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the seven months ended July 31, 1998, the Partnership had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted for the year ended December 31, 1998. SFAS 131 changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to stockholders. The disclosure for segment information on
the financial statements is not expected to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change
F-82
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
in accounting principle. When adopting this SOP, entities are not required to
report the pro forma effects of retroactive application. The effect of adopting
SOP 98-5 is not expected to have a material effect on the financial statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses is recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenue is recognized ratably over time.
Deferred revenue represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time.
Property and Equipment
Property and equipment are stated at cost. Depreciation of towers is computed
using the double declining balance method. The straight-line method is used for
equipment and buildings. Estimated useful lives are as follows: buildings
thirty-nine years; towers twenty years; equipment seven years.
The Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets.
Based on management's estimation process, no impairment losses were recorded as
of December 31, 1997. As of December 31, 1997, all fixed assets were held for
use and the Partnership does not plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
agreements, organization costs and goodwill. Such assets are being amortized
using the straight line-method over their estimated useful lives not to exceed
fifteen years.
Escrow Deposits
The Partnership has deposits in escrow with various escrow agents for asset
purchase transactions in progress at December 31, 1997. Depending on the
outcome of the related negotiations, amounts will either be reclassified as
part of the purchase price, expensed to general and administrative expenses as
site investigation costs, or reclassified into cash.
Financing Costs
Costs incurred in obtaining debt financing have been capitalized and are being
amortized over the life of the respective loans.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
F-83
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income Taxes
No provision has been made for federal and state income taxes since the
Partnership's profits and losses are reported by the individual partners on
their respective income tax returns.
Syndication/Offering Costs
The costs incurred in offering and issuing the limited partner interests in the
Partnership have been deducted from partners' capital.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996, and
1997, and July 31, 1998, respectively:
<TABLE>
<CAPTION>
December 31,
---------------------- July 31,
1996 1997 1998
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Land.................................... $ 168,165 $ 319,688 $ 319,688
Buildings............................... 369,802 582,596 582,967
Towers.................................. 2,972,840 3,866,771 3,886,908
Equipment, furniture, and fixtures...... 138,257 222,178 242,168
Tower construction-in-progress.......... 318,079 -- --
---------- ---------- ----------
3,967,143 4,991,233 5,031,731
Accumulated depreciation................ (512,138) (859,782) (1,077,426)
---------- ---------- ----------
Property and equipment, net............. $3,455,005 $4,131,451 $3,954,305
========== ========== ==========
</TABLE>
F-84
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996, and 1997, and
July 31, 1998, respectively:
<TABLE>
<CAPTION>
December 31,
---------------------- July 31,
1996 1997 1998
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Goodwill............................... $1,665,791 $3,011,494 $3,061,494
Organization costs..................... 72,437 72,437 72,437
Acquisition and loan costs............. 250,442 516,202 516,202
Non-compete and consulting agreements.. 875,000 1,325,000 1,325,000
---------- ---------- ----------
2,863,670 4,925,133 4,975,133
Accumulated amortization............... (415,844) (897,157) (1,160,431)
---------- ---------- ----------
Net Intangibles........................ $2,447,826 $4,027,976 $3,814,702
========== ========== ==========
</TABLE>
These intangibles resulted from various acquisitions of towers made by the
Partnership. Goodwill is being amortized on a straight-line basis over fifteen
years while organization costs are amortized over five years on a straight-line
basis. Non-compete agreements are being amortized on the straight-line method
over the terms of the agreements, ranging from five to fifteen years.
Acquisition costs are being amortized over fifteen years. Loan costs are being
amortized over the life of the respective loan.
4. LONG-TERM DEBT
The Partnership's General Partner, TeleCom Towers, L.L.C., has entered into a
Master Credit Facility Agreement. The agreement establishes a credit facility
consisting of a line of credit arrangement pursuant to which entities
controlled by the General Partner, including the Partnership, can borrow up to
an aggregate of $28,000,000 from the Line of Credit Commitment for a limited
period of time on a senior secured basis. The notes payable incurred by the
Partnership are provided through a separate, but related, Credit Facility
Agreement with the lender. The agreements provide for a Line of Credit Draw Fee
of 0.75% of advances under the agreements in addition to other fees to be paid
in immediately available funds on the settlement date. The Partnership incurred
approximately $36,750, $0, $160,000, and $0 in such fees during the years ended
December 31, 1995, 1996, and 1997 and the seven months ended July 31, 1998,
respectively. The agreements also contain a provision for a Line of Credit
Facility Fee at the rate of 0.25% per annum on the average unborrowed portion
of the Line of Credit Commitment. These fees are paid on a proportionate basis
by the various entities utilizing the line of credit. The Partnership incurred
$9,353, $7,967, $7,967 and $1,459 in credit facility fees during the years
ended December 31, 1995, 1996, and 1997 and the seven months ended July 31,
1998, respectively.
The notes payable mature in annual installments of 75% of excess cash flows or
in accordance with the Cash Management Agreement between borrower and lender.
Interest is payable quarterly in arrears on the last business day of each
fiscal quarter. The interest rate is equal to the sum of the applicable Rate
Index plus the applicable Rate Margin. The Rate Index will be either the prime
rate or the adjusted LIBO (London Interbank Offered) Rate and the Rate Margin
will be based on the leverage ratio (using borrower's most recently delivered
quarterly financial statements acceptable to lender) of borrower's funded debt
as of the last day of the fiscal quarter to the borrower's operating cash flow.
The notes are secured by all funds, balances or other property of the
Partnership and the general partner. Balances at December 31, 1996 and 1997,
and July 31, 1998, respectively, are as follows:
F-85
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
Interest ---------------------- July 31,
Due date: Rate: 1996 1997 1998
--------- -------- ---------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
June 2002...................... 9.25% $2,730,000 $2,528,247 $2,395,182
September 2002................. 9.25% 633,750 586,914 556,025
October 2002................... 9.25% 641,875 602,360 556,024
December 2002.................. 9.1875% 790,000 741,366 702,853
July 2004...................... 9.25% -- 2,996,750 2,996,750
---------- ---------- ----------
4,795,625 7,455,637 7,206,834
Less current maturities........ (349,375) (631,834) (833,574)
---------- ---------- ----------
Long-term portion.............. $4,446,250 $6,823,803 $6,373,260
========== ========== ==========
</TABLE>
The approximate maturities of the notes payable for the five years subsequent
to December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
1998.............................................................. $ 631,834
1999.............................................................. 1,078,859
2000.............................................................. 1,439,634
2001.............................................................. 1,660,389
2002.............................................................. 1,390,030
Thereafter........................................................ 1,254,891
----------
Total........................................................... $7,455,637
==========
</TABLE>
5. DESCRIPTION OF LEASING ARRANGEMENTS
The Partnership licenses space for communication systems on its towers to
others under noncancellable agreements requiring monthly, quarterly or annual
payments over various terms. Certain agreements contain various options. At
December 31, 1997, future minimum license agreement receipts were as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
December 31, 1998................................................. $1,759,659
December 31, 1999................................................. 1,475,706
December 31, 2000................................................. 1,251,731
December 31, 2001................................................. 980,231
December 31, 2002................................................. 779,865
Thereafter........................................................ 2,099,272
----------
Total........................................................... $8,346,464
==========
</TABLE>
F-86
<PAGE>
TELECOM SOUTHWEST TOWERS, LP
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS
The Partnership is committed to various land leases for tower sites. Land lease
expense for the years ended December 31, 1995, 1996, and 1997, and for the
seven months ended July 31, 1998 was $53,277, $49,282, $105,274, and $66,387,
respectively. At December 31, 1997, future minimum lease payments were as
follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
December 31, 1998................................................... $ 58,295
December 31, 1999................................................... 56,927
December 31, 2000................................................... 52,471
December 31, 2001................................................... 50,671
December 31, 2002................................................... 49,671
Thereafter.......................................................... 167,354
--------
Total............................................................. $435,389
========
</TABLE>
7. RELATED PARTIES
In the normal course of business, the Partnership advances funds to affiliated
parties for certain shared expenses. The affiliated parties repay such amounts
on a regular and timely basis. The Partnership had receivables due from these
affiliates of $0, $11,186, and $24,133 at December 31, 1996, and 1997, and July
31, 1998, respectively.
The Partnership, in accordance with its limited partnership agreement, is
obligated to pay the general partner a management fee equal to 8.5% of the
gross monthly revenues. The management fee expense recognized for the years
ended December 31, 1995, 1996, and 1997, and for the seven months ended July
31, 1998 was $98,452, $137,745, $176,985, and $112,829, respectively. The
Partnership is also obligated to pay a 2.5% acquisition fee on the purchase
price of all acquisitions. The Partnership is also obligated to pay up to 4% of
gross monthly revenue to the general partner for reimbursement of certain
general partner expenses. Acquisition fees are capitalized as incurred by the
Partnership. Acquisition fees capitalized during 1997 were $66,250. Expense
reimbursement fees totaled $47,435, $39,084, $52,657, and $53,096 for the years
ended December 31, 1995, 1996, and 1997, and for the seven months ended July
31, 1998.
8. INVESTMENTS IN JOINT VENTURES
The Partnership is a 50% partner in Shreveport Tower Company, a Louisiana
partnership formed in 1995 to operate a tower in Shreveport, Louisiana. The
Company is also a 50% partner in Castle Rock Tower Company, a Texas partnership
formed to operate towers in Georgetown and Plano, Texas and another tower
currently under construction in Glen Rose, Texas. These investments are
considered joint ventures and are accordingly recorded on the equity method.
Financial information for these investments is not significant.
9. SUBSEQUENT EVENT (unaudited)
Effective August 3, 1998, the limited partners of the Partnership consummated a
merger of the Partnership into TeleCom Towers, L.L.C., which is the general
partner of the Partnership. The limited partners of the Partnership received as
merger consideration either cash or Class A Units of TeleCom Towers, L.L.C. in
exchange for their interest in the Partnership.
F-87
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Telecom Towers Mid-Atlantic, LP
We have audited the accompanying consolidated balance sheet of Telecom Towers
Mid-Atlantic, LP as of December 31, 1996 and the related consolidated
statements of operations, partners' capital, and cash flows for the year ended
December 31, 1996 and the period from inception (June 23, 1995) to December 31,
1995. These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We did not audit the 1996
consolidated financial statements of RCC Consultants, Inc., (a wholly-owned
subsidiary of RCC Holdings, LP which is a 99.99% owned subsidiary of Telecom
Towers Mid-Atlantic, LP), which statements reflect total assets constituting
42% and total revenues constituting 87% of the related 1996 consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
RCC Consultants, Inc., is based solely on the report of the other auditors.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 audit and the report of
other auditors provide a reasonable basis for our opinion.
In our report dated April 2, 1997, we expressed an opinion that the December
31, 1996 financial statements did not fairly present financial position,
results of operations, and cash flows in conformity with generally accepted
accounting principles because Telecom Towers Mid-Atlantic, LP presented wholly-
owned subsidiaries on the equity method. As described in Note 1, the
Partnership has changed its method of accounting for these items and has
restated its December 31, 1996 consolidated financial statements to conform
with generally accepted accounting principles. Accordingly, our present opinion
on the December 31, 1996 consolidated financial statements, as presented
herein, is different from that expressed in our previous report.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Telecom Towers Mid-
Atlantic, LP at December 31, 1996 and the consolidated results of their
operations and their cash flows for the year ended December 31, 1996 and the
initial period ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Gollob, Morgan, Peddy & Co., P.C.
Tyler, Texas
December 11, 1998
F-88
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
RCC Consultants, Inc.:
We have audited the consolidated balance sheet of RCC Consultants, Inc. and
subsidiary as of December 31, 1997, and the related consolidated statements of
operations, stockholder's equity, and cash flows (not presented herein) for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RCC Consultants,
Inc. and subsidiary as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Princeton, New Jersey
March 13, 1998
F-89
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
RCC Consultants, Inc.:
We have audited the consolidated balance sheet of RCC Consultants, Inc. and
subsidiary as of December 31, 1996, and the related consolidated statements of
operations, stockholder's equity, and cash flows (not presented herein) for the
period from May 1, 1996 to December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RCC Consultants,
Inc. and subsidiary as of December 31, 1996, and the results of their
operations and their cash flows for the period from May 1, 1996 to December 31,
1996, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Princeton, New Jersey
December 19, 1997
F-90
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
Telecom Towers Mid-Atlantic, LP
We have audited the accompanying consolidated balance sheet of Telecom Towers
Mid-Atlantic, LP as of December 31, 1997 and the related consolidated
statements of operations, partners' capital, and cash flows for the year ended
December 31, 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the consolidated
financial statements of RCC Consultants, Inc., (a wholly-owned subsidiary of
RCC Holdings, LP which is a 99.99% owned subsidiary of Telecom Towers Mid-
Atlantic, LP), which statements reflect total assets constituting 41% and total
revenues constituting 82% of the related consolidated totals. These statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for RCC Consultants, Inc., is
based solely on the report of the other auditors.
We conducted our audit 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 audit and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Telecom Towers Mid-Atlantic,
LP at December 31, 1997 and the consolidated results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-91
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------- July 31,
1996 1997 1998
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 1,894,748 $ 379,373 $ 275,661
Accounts receivable, net of allowance of
$499,268, $402,800, and $197,566 in
1998, 1997, and 1996, respectively...... 5,282,749 4,907,503 4,813,769
Prepaid expenses......................... 449,436 325,416 329,367
----------- ----------- -----------
Total current assets................... 7,626,933 5,612,292 5,418,797
Property and equipment, net of accumulated
depreciation of $1,318,167, $1,016,569,
and $556,524 in 1998, 1997, and 1996,
respectively.............................. 4,511,998 4,932,525 5,149,490
Intangibles, net of accumulated
amortization of $576,729, $369,970, and
$134,271 in 1998, 1997, and 1996,
respectively.............................. 2,232,525 3,195,642 2,988,883
Affiliate receivable....................... -- -- 109,204
Deferred rent receivable................... -- 67,770 88,387
Other assets............................... 29,862 131,646 126,273
----------- ----------- -----------
Total assets........................... $14,401,318 $13,939,875 $13,881,034
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses.... $ 2,681,222 $ 2,442,119 $ 2,054,672
Current portion of long-term debt........ 198,750 417,077 638,710
Affiliate payable........................ 104,149 386,756 792,953
Short-term notes......................... 1,330,000 -- --
Prepaid rents............................ 199,407 174,508 463,767
Other liabilities........................ 852,000 20,000 --
----------- ----------- -----------
Total current liabilities.............. 5,365,528 3,440,460 3,949,782
Long-term debt, net of current portion..... 3,832,500 6,805,958 6,400,044
Partners' capital.......................... 5,203,290 3,693,457 3,531,208
----------- ----------- -----------
Total liabilities and partners'
capital............................... $14,401,318 $13,939,875 $13,881,034
=========== =========== ===========
</TABLE>
See accompanying notes.
F-92
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Seven months
Year ended December 31, ended July 31,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
-------- ----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Tower revenues........ $111,999 $ 1,770,597 $ 3,406,579 $1,753,784 $2,212,009
Consulting revenues... -- 11,735,000 14,912,000 8,997,000 9,368,000
-------- ----------- ----------- ---------- ----------
Total revenues...... 111,999 13,505,597 18,318,579 10,750,784 11,580,009
Direct tower costs.. 25,728 760,551 1,176,106 395,719 606,750
Direct consulting
costs.............. -- 9,321,000 12,298,000 7,039,000 6,955,000
-------- ----------- ----------- ---------- ----------
Total costs......... 25,728 10,081,551 13,474,106 7,434,719 7,561,750
-------- ----------- ----------- ---------- ----------
Gross profit............ 86,271 3,424,046 4,844,473 3,316,065 4,018,259
General and
administrative......... 24,639 2,861,724 4,622,807 2,788,638 3,195,262
Depreciation............ 33,127 271,576 491,806 268,442 325,466
Amortization............ 28,274 114,818 234,752 115,223 206,760
-------- ----------- ----------- ---------- ----------
Operating income
(loss)................. 231 175,928 (504,892) 143,762 290,771
Interest income......... -- 96,411 813 697 288
Interest expense........ (73,370) (328,878) (518,892) (206,655) (403,308)
Other income (expense).. -- 85,718 (126,797) 19,649 (50,000)
-------- ----------- ----------- ---------- ----------
Net income (loss)....... $(73,139) $ 29,179 $(1,149,768) $ (42,547) $ (162,249)
======== =========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-93
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited Total
Partner's Partners' Partners'
Equity Equity Equity
--------- ---------- ----------
<S> <C> <C> <C>
Balance at June 23, 1995 (inception)......... $ -- $ -- $ --
Capital Contributions........................ 1,000 1,063,000 1,064,000
Syndication/Offering costs................... -- (144,639) (144,639)
Net Loss..................................... (71,288) (1,851) (73,139)
-------- ---------- ----------
Balance, December 31, 1995................... $(70,288) $ 916,510 $ 846,222
Capital Contributions........................ -- 4,937,000 4,937,000
Distributions................................ -- (120,000) (120,000)
Syndication/Offering costs................... -- (489,111) (489,111)
Net Income................................... 291 28,888 29,179
-------- ---------- ----------
Balance at December 31, 1996................. $(69,997) $5,273,287 $5,203,290
Distributions to partners.................... (65) (360,000) (360,065)
Net loss..................................... (11,498) (1,138,270) (1,149,768)
-------- ---------- ----------
Balance at December 31, 1997................. $(81,560) $3,775,017 $3,693,457
Distributions to partners.................... -- -- --
Net loss..................................... (1,622) (160,627) (162,249)
-------- ---------- ----------
Balance at July 31, 1998 (unaudited)......... $(83,182) $3,614,390 $3,531,208
======== ========== ==========
</TABLE>
See accompanying notes.
F-94
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Seven months
Year ended December 31, ended July 31,
------------------------------------ ----------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss............... $ (73,139) $ 29,179 $(1,149,768) $ (42,547) $(162,249)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation.......... 33,127 271,576 491,806 268,442 325,466
Amortization.......... 28,274 114,818 234,752 115,223 206,760
Partnership income.... -- 11,282 -- -- --
Changes in operating
assets and
liabilities:
Accounts receivable... (24,079) (1,239,017) 352,426 (731,205) 93,734
Prepaid expenses...... (3,589) (60,847) 124,020 (48,877) (3,951)
Due from affiliates... -- -- -- (175,742) (109,204)
Deferred rent
receivable........... -- -- (67,770) -- (20,617)
Other assets.......... (1,000) (26,697) (93,949) (111,859) 5,373
Accounts payable and
accrued expenses..... 12,964 1,160,667 (246,938) (296,885) (387,447)
Other liabilities..... -- -- (935,000) (852,000) (20,000)
Prepaid rents......... -- -- 78,101 50,264 288,939
Due to affiliates..... -- 5,713 305,427 277,744 406,197
Deferred income....... 9,006 (273,538) -- -- --
---------- ----------- ----------- ----------- ---------
Net cash provided by
(used in) operating
activities.......... (18,436) (6,864) (906,893) (1,547,442) 623,001
Investing activities
Asset acquisitions, net
of cash received...... (1,300,000) (4,255,000) (1,250,000) (1,284,568) --
Purchases of towers,
buildings and
equipment............. (103,357) (573,970) (871,847) (195,980) (542,432)
Investment in
partnerships.......... -- (3,558,491) -- -- --
Accounts payable for
purchase.............. -- 61,402 -- -- --
Acquisition and closing
costs................. (33,933) (562,461) -- -- --
Proceeds from sale of
assets................ -- -- 11,645 -- --
---------- ----------- ----------- ----------- ---------
Net cash (used in)
investing
activities.......... (1,437,290) (8,888,520) (2,110,202) (1,480,548) (542,432)
Financing activities
Proceeds from notes
payable............... 750,000 5,130,000 3,374,973 2,876,293 --
Payments on notes
payable............... -- (518,750) (1,513,188) (76,250) (184,281)
Payment of short-term
notes................. -- -- -- (1,330,000) --
Capital contribution--
general partner....... 801,000 1,325,100 -- -- --
Capital returned to
general partner....... (800,000) -- -- -- --
Capital contributions--
limited partners...... 1,063,000 4,937,010 -- -- --
Distributions to
partners.............. -- (120,000) (360,065) (240,024) --
Receivables from
related parties....... (42,678) 42,568 -- -- --
Amount payable to
escrow................ 100,000 (100,000) -- -- --
Syndication/offering
costs................. (43,877) (582,148) -- -- --
Effects of exchange
rates................. -- 40,000 -- 21,797 --
Financing costs........ (121,606) (35,761) -- -- --
---------- ----------- ----------- ----------- ---------
Net cash provided by
financing
activities.......... 1,705,839 10,118,019 1,501,720 1,251,816 (184,281)
Net increase (decrease)
in cash............... 250,113 1,222,635 (1,515,375) (1,776,174) (103,712)
Cash at beginning of
period................ -- 672,113 1,894,748 1,894,748 379,373
---------- ----------- ----------- ----------- ---------
Cash at end of period.. $ 250,113 $ 1,894,748 $ 379,373 $ 118,574 $ 275,661
========== =========== =========== =========== =========
Supplemental cash flow
information
Cash paid for
interest.............. $ 73,789 $ 296,881 $ 518,892 $ 206,655 $ 403,308
========== =========== =========== =========== =========
</TABLE>
See accompanying notes.
F-95
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and July 31, 1998
(Information as of and for the period ended July 31, 1998 is unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Description of Business
Telecom Towers Mid-Atlantic, LP (the "Partnership" or "Mid-Atlantic"), is a
South Carolina limited partnership. The general partner is TeleCom Towers,
L.L.C., which owns a one percent (1%) interest in the Partnership. The
Partnership is a general partner in both RFM Facilities Management, LP ("RFM")
and RCC Holdings, LP ("RCC Holdings"). The consolidated financial statements of
the Partnership include the accounts of RFM and RCC Holdings. The Partnership
holds a 99.99% interest in each. RCC Holdings has no operations of its own and
was formed as the holding company for RCC Consultants, Inc. ("RCC"), a wholly-
owned subsidiary of RCC Holdings. RCC provides wireless communications
consulting services to public and private sector communication systems
operators.
The Partnership shall continue in full force and effect until December 31,
2020, unless the Partnership is sooner dissolved by the occurrence of certain
events as specified in the Partnership Agreement.
Mid-Atlantic owns and manages telecommunication tower sites in South Carolina,
Ohio, West Virginia, Kentucky, and Kansas. RFM owns and manages
telecommunications sites in various states. Both entities license space on
towers and roof-top sites to customers for a fee under contracts that extend
for more than one year.
The liability of each partner shall be limited to the amount of capital
contributions required to be made by such partner in accordance with the
provisions of the Partnership agreement. The general partner is responsible for
the liabilities of the Partnership beyond the capital contributed by the
limited partners.
Distributions to partners are made in accordance with the partners' percentage
interest at the time of such distribution until certain capital contributions
are repaid and a cumulative annual return is paid to the partners. Profits and
losses are allocated to the partners based on the partners' percentage interest
as adjusted per the preceding paragraph.
Acquisitions
On June 23, 1995, the Partnership acquired the assets of the Towers Division of
The Communications Group. The purchase method was used to account for the
acquisition, and the purchase price was allocated as follows:
<TABLE>
<S> <C>
Escrowed funds................................................... $ 75,000
Property and equipment........................................... 690,000
Non-compete agreement............................................ 5,000
Goodwill......................................................... 530,000
----------
$1,300,000
==========
</TABLE>
Subsequent to the purchase date, the escrowed funds of $75,000 were released to
the seller and have been classified as goodwill.
F-96
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1996, the Partnership acquired, in three separate transactions, certain
assets of RAM Technologies, Inc., Advantage Communications, Inc., and Tower
Communications, Inc. The purchase method was used to account for the
acquisitions, and the purchase prices were allocated as follows:
<TABLE>
<CAPTION>
Advantage Tower
RAM Communications, Communications,
Technologies Inc. Inc.
------------ --------------- ---------------
<S> <C> <C> <C>
Land........................... $ 7,000 $ -- $ 100,000
Property and equipment......... 1,250,000 102,500 600,000
Goodwill....................... 243,000 72,500 880,000
---------- -------- ----------
$1,500,000 $175,000 $1,580,000
========== ======== ==========
</TABLE>
In addition to the acquisition, a 5-year maintenance and consulting agreement
was entered into with Advantage Communications, Inc. Terms are $1,000 per month
with an annual review of the fee.
The Partnership acquired, through various transactions, the following tangible
and intangible assets during the year 1997. Intangible assets primarily include
goodwill, organization costs, non-compete and consulting agreements, and
acquisition and loan costs. The purchase method was used to account for the
acquisitions. The purchase prices were allocated, in total, as follows:
<TABLE>
<S> <C>
Land.............................................................. $ 50,000
Buildings......................................................... 15,000
Towers............................................................ 170,000
Intangibles....................................................... 1,015,000
----------
$1,250,000
==========
</TABLE>
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 the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Partnership operates telecommunications transmission sites in various
states and grants credit to its customers in the normal course of business and
normally does not require collateral. Concentrations of credit risk with
respect to accounts receivable is limited due to the large number of customers
in the Partnership's customer base. The Partnership maintains an allowance for
doubtful accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The consolidated financial statements as of July 31, 1998 and for the seven
months ended July 31, 1998 and 1997 are unaudited. In the opinion of
management, such financial statements reflect all adjustments necessary for a
fair presentation of the results of the respective interim periods. All such
adjustments are of a normal recurring nature.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
F-97
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant Accounting Policies
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the seven months ended July 31, 1998, the Partnership had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted for the year ended December 31, 1998. SFAS 131 changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to stockholders. The disclosure for segment information on
the financial statements is not expected to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change in accounting principle. When adopting this SOP, entities are not
required to report the pro forma effects of retroactive application. The effect
of adopting SOP 98-5 is not expected to have a material effect on the financial
statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses are recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenues are recognized ratably over time. Consulting revenues are recognized
when services are performed.
Deferred revenue represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time.
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements,
which extend the useful lives of the assets are capitalized and maintenance and
repairs are charged to expense as incurred. The cost and accumulated
depreciation related to asset disposals are removed from the accounts and the
resulting gain or loss is included in the results from operations. Depreciation
of towers is computed using the double declining balance method. The straight-
line method is used for equipment and buildings. Estimated useful lives are as
follows: buildings, 39 years; towers, 20 years; equipment, 7 years.
F-98
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets. Based on management's
estimation process, no impairment losses were recorded as of December 31, 1997.
As of December 31, 1997, all fixed assets were held for use and the Partnership
does not plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
and consulting agreements, organization costs, goodwill, and acquisition and
loan costs. Such assets are being amortized using the straight line method over
their estimated useful lives not to exceed fifteen years.
Financing Costs
Costs incurred in obtaining debt financing have been capitalized and are being
amortized over the lives of the respective loans.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
Income Taxes
No provision has been made for federal and state income taxes since the
Partnership's profits and losses are reported by the individual partners on
their respective income tax returns. RCC is a corporation which provides for
income taxes under the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." As of December 31, 1997, RCC
had federal net operating loss carryforwards of approximately $5,600,000, which
may be subject to annual limitations due to the change in ownership of RCC that
occurred in 1996. A valuation allowance has been established against the
related net deferred tax asset.
Cash
For purposes of the statement of cash flows, cash consists of cash in bank.
Syndication/Offering Costs
The costs incurred in offering and issuing the limited partner interests in the
Partnership have been deducted from partners' capital.
F-99
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. ACCOUNTS RECEIVABLE
Mid-Atlantic and RFM accounts receivable balances as of December 31, 1996, and
1997, and July 31, 1998 (unaudited) were primarily for tower sites licensing
agreements. RCC accounts receivable balances as of December 31, 1996, and 1997,
and July 31, 1998 (unaudited), respectively, consisted primarily of amounts
billed and unbilled to customers under time and material and site type
contracts as follows:
<TABLE>
<CAPTION>
December 31,
---------------------- July 31,
1996 1997 1998
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Billed accounts receivable.............. $3,828,315 $4,002,303 $3,775,037
Unbilled accounts receivable............ 1,652,000 1,308,000 1,538,000
---------- ---------- ----------
5,480,315 5,310,303 5,313,037
Allowance for doubtful accounts......... (197,566) (402,800) (499,268)
---------- ---------- ----------
Net accounts receivable................. $5,282,749 $4,907,503 $4,813,769
========== ========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996, and
1997, and July 31, 1998 (unaudited), respectively:
<TABLE>
<CAPTION>
December 31,
----------------------- July 31,
1996 1997 1998
---------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Land.................................. $ 476,511 $ 528,077 $ 528,078
Buildings............................. 622,447 720,242 721,532
Towers................................ 3,081,895 3,435,975 3,501,107
Equipment, furniture, and fixtures.... 887,669 1,264,800 1,716,940
---------- ----------- -----------
5,068,522 5,949,094 6,467,657
Accumulated depreciation.............. (556,524) (1,016,569) (1,318,167)
---------- ----------- -----------
Property and equipment, net........... $4,511,998 $ 4,932,525 $ 5,149,490
========== =========== ===========
</TABLE>
F-100
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31, 1996, and 1997,
and July 31, 1998 (unaudited), respectively:
<TABLE>
<CAPTION>
December 31,
---------------------- July 31,
1996 1997 1998
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Goodwill............................... $1,919,056 $2,887,727 $2,887,727
Acquisition and loan costs............. 442,740 577,885 577,885
Non-compete and consulting agreements.. 5,000 100,000 100,000
---------- ---------- ----------
2,366,796 3,565,612 3,565,612
Accumulated amortization............... (134,271) (369,970) (576,729)
---------- ---------- ----------
Net Intangibles........................ $2,232,525 $3,195,642 $2,988,883
========== ========== ==========
</TABLE>
These intangibles resulted from various acquisitions of towers made by the
Partnership. Goodwill is being amortized on a straight-line basis over fifteen
years while organization costs are amortized over five years on a straight-line
basis. Non-compete agreements are being amortized on the straight-line method
over the terms of the agreements, ranging from five to fifteen years. Loan
costs are being amortized over the life of the respective loan.
5. LONG-TERM DEBT
The Partnership's General Partner, TeleCom Towers, L.L.C., has entered into a
Master Credit Facility Agreement. The agreement establishes a credit facility
consisting of a line of credit arrangement pursuant to which entities
controlled by the General Partner, including the Partnership, can borrow up to
an aggregate of $28,000,000 from the Line of Credit Commitment for a limited
period of time on a senior secured basis. The notes payable incurred by the
Partnership are provided through a separate, but related, Credit Facility
Agreement with the lender. The agreements provide for a Line of Credit Draw Fee
of 0.75% of advances under the agreements in addition to other fees to be paid
in immediately available funds on the settlement date. The Partnership incurred
approximately $121,000 and $0 in draw fees during the year ended December 31,
1997, and the seven months ended July 31, 1998 (unaudited), respectively. The
agreements also contain a provision for a Line of Credit Facility Fee at the
rate of 0.25% per annum on the average unborrowed portion of the Line of Credit
Commitment. These fees are paid on a proportionate basis by the various
entities utilizing the line of credit. The Partnership incurred $1,917 and
$1,189 in credit facility fees during the year ended December 31, 1997 and the
seven months ended July 31, 1998 (unaudited), respectively.
The notes payable mature in annual installments of 75% of excess cash flows or
in accordance with the Cash Management Agreement between borrower and lender.
Interest is payable quarterly in arrears on the last business day of each
fiscal quarter. The interest rate is equal to the sum of the applicable Rate
Index plus the applicable Rate Margin. The Rate Index will be either the prime
rate or the adjusted LIBO (London Interbank Offered) Rate and the Rate Margin
will be based on the leverage ratio (using borrower's most recently delivered
quarterly financial statements acceptable to lender) of borrower's funded debt
as of the last day of the fiscal quarter to the borrower's operating cash flow.
The notes are secured by all funds, balances or other property of the
Partnership.
RCC has obtained a separate secured line of credit in the amount of $3,000,000.
The line has a term of three years with interest at prime plus 3%. The line is
secured by the domestic accounts receivable of RCC. RCC is subject to an early
termination fee under the agreement whereby the lender is entitled to a
percentage of the total line based on the time of termination.
F-101
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Balances at December 31, 1996, and 1997, and July 31, 1998 (unaudited),
respectively, were as follows:
<TABLE>
<CAPTION>
December 31,
Interest ---------------------- July 31,
Due date: Rate: 1996 1997 1998
--------- ------------- ---------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
April 2000................ Prime plus 3% $ -- $1,112,000 $1,166,000
April 2002................ 9.25% -- 2,400,938 2,247,031
June 2002................. 9.25% 731,250 676,875 641,250
March 2003................ 9.25% 800,000 770,250 721,500
April 2003................ 9.00% 2,500,000 -- --
July 2004................. 9.25% -- 2,262,972 2,262,973
---------- ---------- ----------
4,031,250 7,223,035 7,038,754
Less current maturities... (198,750) (417,077) (638,710)
---------- ---------- ----------
Long-term portion....... $3,832,500 $6,805,958 $6,400,044
========== ========== ==========
</TABLE>
The approximate maturities of the notes payable for the five years subsequent
to December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
1998.............................................................. $ 417,077
1999.............................................................. 767,061
2000.............................................................. 2,262,835
2001.............................................................. 1,415,002
2002.............................................................. 1,363,232
Thereafter........................................................ 997,828
----------
Total........................................................... $7,223,035
==========
</TABLE>
6. DESCRIPTION OF LEASING ARRANGEMENTS
Mid-Atlantic and RFM license space for communication systems on their towers to
customers under noncancellable agreements requiring monthly, quarterly or
annual payments over various terms. Certain of the agreements contain various
options. At December 31, 1997, future minimum license agreement receipts were
as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
December 31, 1998................................................. $2,601,906
December 31, 1999................................................. 1,973,959
December 31, 2000................................................. 1,544,165
December 31, 2001................................................. 1,114,167
December 31, 2002................................................. 521,787
Thereafter........................................................ 506,358
----------
Total........................................................... $8,262,342
==========
</TABLE>
7. COMMITMENTS
Mid-Atlantic and RFM are committed to various land leases for tower sites. RCC
is obligated under operating leases for office space and equipment. Land lease
expense for the years ended December 31, 1996, and 1997, and for the seven
months ended July 31, 1998 (unaudited) was $139,258, $239,697, and $149,262,
respectively.
F-102
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rental expense for the office space and equipment for the years ended December
31, 1996, and 1997, and for the seven months ended July 31, 1998 (unaudited)
totaled approximately $489,000, $891,665, and $525,000, respectively. At
December 31, 1997, future minimum lease payments were as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
December 31, 1998................................................. $ 907,774
December 31, 1999................................................. 825,179
December 31, 2000................................................. 798,752
December 31, 2001................................................. 686,029
December 31, 2002................................................. 520,992
Thereafter........................................................ 771,533
----------
Total........................................................... $4,510,259
==========
</TABLE>
8. RELATED PARTIES
In the normal course of business, the Partnership advances and receives funds
to and from affiliated parties for certain shared expenses. Amounts are repaid
on a regular and timely basis. The Partnership had a payable to these
affiliates at December 31, 1996, 1997, and July 31, 1998 (unaudited) of
$104,149, $36,758, and $792,953, respectively.
The Partnership, in accordance with its limited partnership agreement, is
obligated to pay the general partner a management fee equal to 8.5% of the
gross monthly revenues. The management fee expense recognized for the years
ended December 31, 1995, 1996, and 1997, and for the seven months ended July
31, 1998, was $9,463, $150,319, $269,786, and $188,204, respectively. The
Partnership is also obligated to pay a 3% acquisition fee on all capital funds
invested in towers and related real estate and other assets, as well as up to
4% of gross monthly revenue, to the general partner for reimbursement of
certain general partner expenses. Acquisition fees are capitalized as incurred
by the Partnership. No acquisition fees were incurred or capitalized during
1997. Expense reimbursement fees for the years ended December 31, 1995, 1996,
and 1997, and for the seven months ended July 31, 1998 (unaudited) totaled
$5,510, $27,759, $76,357, and $88,570, respectively.
9. EQUITY PROGRAM DESCRIPTION
In 1996 RCC Holdings and RFM established an equity participation program
("Equity Program") for the employees of RCC. At the time this Equity Program
was established, RCC was wholly owned by RCC Holdings, and RFM was affiliated
with RCC Holdings. The Partnership and TeleCom Towers, Inc., a Texas
corporation ("TTI"), were the general partners of RFM. The objective of the
Equity Program is to reward employees for the success of RCC Holdings and RFM
as if they were owners of the Partnership. The Equity Program generally
provides that each employee will receive a designated percentage (as set forth
in the award agreement) of amounts distributed to TTI from the proceeds of RCC
Holdings and RFM. Employee-participants vest their benefits over a period of
five years of service with RCC, beginning after May 1, 1996; however,
participants will be 100% vested upon death or permanent disability. All
payments are to be made out of the general assets of either RCC Holdings or
RFM.
An event which would trigger the Partnership's obligations under the Equity
Program has not occurred, and no such event is presently anticipated or
contemplated. Therefore, the Partnership has not recorded a charge for the
Equity Program.
F-103
<PAGE>
TELECOM TOWERS MID-ATLANTIC, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. SUBSEQUENT EVENT (unaudited)
Effective August 3, 1998, the limited partners of the Partnership consummated a
merger of the Partnership into TeleCom Towers, L.L.C. which is the general
partner of the Partnership. The limited partners of the Partnership received as
merger consideration either cash or Class A Units of TeleCom Towers, L.L.C. in
exchange for their interest in the Partnership which was then liquidated.
F-104
<PAGE>
INDEPENDENT AUDITORS' REPORT
Telecom Towers of the West
(A Division of TeleCom Towers, Inc.)
We have audited the accompanying balance sheet of Telecom Towers of the West (a
division of TeleCom Towers, Inc.) as of December 31, 1996, and the related
statements of income, divisional equity, and cash flows for the period from
inception (August 1, 1996) to December 31, 1996. These financial statements are
the responsibility of the division's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TeleCom Towers of the West (a
division of TeleCom Towers, Inc.) as of December 31, 1996, and the results of
its operations and its cash flows for the period then ended in conformity with
generally accepted accounting principles.
Gollob, Morgan, Peddy & Co., P.C.
Tyler, Texas
March 18, 1997
F-105
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
Telecom Towers of the West, LP
We have audited the accompanying consolidated balance sheet of Telecom Towers
of the West, LP as of December 31, 1997, and the related statements of
operations, partners' capital, and cash flows for the year ended December 31,
1997. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telecom Towers of the West, LP
at December 31, 1997, and the results of its operations and its cash flows for
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Vienna, Virginia
March 19, 1998
F-106
<PAGE>
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------- July 31,
1996 1997 1998
---------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 202,451 $ 425,791 $ 605,040
Accounts receivable, net of allowance of
$35,195, $15,000, and $0 in 1998, 1997,
and 1996, respectively.................. 8,285 255,975 195,377
Prepaid expenses......................... 9,254 33,073 44,205
---------- ----------- -----------
Total current assets................... 219,990 714,839 844,622
Property and equipment, net of accumulated
depreciation of $1,029,180, $743,916, and
$19,359 in 1998, 1997, and 1996,
respectively.............................. 545,155 4,700,217 4,670,462
Intangibles, net of accumulated
amortization of $1,728,297, $939,261, and
$45,825 in 1998, 1997, and 1996,
respectively.............................. 1,900,339 17,665,725 16,677,854
Investment in joint venture................ -- 1,520,475 1,645,236
Escrow deposits............................ 401,500 550,000 750,000
Advance to Prime Building Top.............. 1,302,000 -- --
Deferred acquisition costs................. 25,814 -- --
Deferred rent receivable................... -- 119,054 199,198
Other assets............................... 4,670 10,877 63,946
---------- ----------- -----------
Total assets........................... $4,399,468 $25,281,187 $24,851,318
========== =========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.... $ 111,119 $ 62,663 $ 460,597
Current portion of long-term debt........ 32,500 204,644 643,576
Other liabilities........................ -- 16,965 --
Due to related entities.................. 33,787 415,717 --
Prepaid rents............................ -- 215,386 --
Deferred income.......................... 12,608 -- 360,756
Advance from TeleCom Towers, Inc......... 1,302,000 -- --
Bridge loan--TeleCom Towers, Inc......... 1,900,000 -- --
---------- ----------- -----------
Total current liabilities.............. 3,392,014 915,375 1,464,929
Long-term debt, net of current portion..... 1,267,500 10,950,632 10,862,950
Partners' capital.......................... (260,046) 13,415,180 12,523,439
---------- ----------- -----------
Total liabilities and partners'
capital............................... $4,399,468 $25,281,187 $24,851,318
========== =========== ===========
</TABLE>
See accompanying notes.
F-107
<PAGE>
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
August 31, 1996 Seven months
(inception) to Year ended ended July 31,
December 31, December 31, ---------------------
1996 1997 1997 1998
--------------- ------------ --------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Total revenues........... $ 141,458 $ 2,168,693 $ 781,190 $1,961,682
Direct tower costs....... 24,958 372,964 85,223 364,032
--------- ----------- --------- ----------
Gross profit............. 116,500 1,795,729 695,967 1,597,650
General and administra-
tive.................... 21,014 561,233 272,949 495,936
Depreciation............. 19,359 320,729 128,915 285,264
Amortization............. 45,825 893,436 194,106 789,036
--------- ----------- --------- ----------
Operating income......... 30,302 20,331 99,997 27,414
Interest income.......... -- 55,065 167,413 15,328
Interest expense......... (154,916) (693,161) (226,031) (611,244)
Partnership share of loss
in joint venture........ -- (531,525) -- (323,239)
--------- ----------- --------- ----------
Net loss................. $(124,614) $(1,149,290) $ 41,379 $ (891,741)
========= =========== ========= ==========
</TABLE>
See accompanying notes.
F-108
<PAGE>
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited Total
Partner's Partners' Partners'
Equity (1%) Equity (99%) Capital
----------- ------------ -----------
<S> <C> <C> <C>
Balance at August 1, 1996 (inception)... $ -- $ -- $ --
Syndication and offering costs.......... -- (135,432) (135,432)
Net loss................................ (124,614) -- (124,614)
--------- ----------- -----------
Balance at December 31, 1996............ $(124,614) $ (135,432) $ (260,046)
Capital contributions................... -- 16,338,000 16,338,000
Syndication and offering costs.......... -- (1,513,484) (1,513,484)
Net loss................................ (11,493) (1,137,797) (1,149,290)
--------- ----------- -----------
Balance at December 31, 1997............ $(136,107) $13,551,287 $13,415,180
Capital contributions................... -- -- --
Syndication and offering costs.......... -- -- --
Net loss................................ (8,917) (882,824) (891,741)
--------- ----------- -----------
Balance at July 31, 1998 (unaudited).... $(145,024) $12,668,463 $12,523,439
========= =========== ===========
</TABLE>
See accompanying notes.
F-109
<PAGE>
TELECOM TOWERS OF THE WEST, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
August 31, 1996 Seven months
(inception) to Year ended ended July 31,
December 31, December 31, -----------------------
1996 1997 1997 1998
--------------- ------------ ------------ ---------
(unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss................. $ (124,614) $(1,149,290) $ 41,379 $(891,741)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation............ 19,359 320,729 128,915 285,264
Amortization............ 45,825 893,436 194,106 789,036
Partnership loss........ -- 531,525 -- 323,239
Changes in operating
assets and liabilities:
Accounts receivable..... (8,285) (307,170) (415,220) 60,598
Prepaid expenses........ (9,254) (30,835) (14,794) (11,132)
Escrow deposits......... (1,500) (148,500) (369,611) (200,000)
Other assets............ (4,670) (6,207) (308,818) (133,213)
Accounts payable and
accrued liabilities.... 7,667 (121,565) 307,561 397,934
Due to related
entities............... 16,734 (2,820,070) (33,787) (415,717)
Prepaid rents........... -- 88,064 495,790 145,370
Other liabilities....... -- 16,965 -- (16,965)
Deferred income......... 12,608 -- -- --
---------- ----------- ------------ ---------
Net cash (used in)
operating activities... (46,130) (2,732,918) 25,521 332,673
Investing activities
Asset acquisitions, net
of cash received........ (2,755,431) (12,851,347) (10,329,590) 198,835
Net assets acquired, net
of cash received........ (5,874,798) -- --
Purchases of property and
equipment............... (526) (2,247,389) (5,094,542) (255,509)
Contributions to
investments in joint
ventures................ (750,000) (1,802,600) (448,000)
Due to related parties... 9,553 -- -- --
Acquisition costs........ (123,221) -- -- --
Deferred acquisition
costs................... (25,814) -- 25,814 --
Acquisition costs
accrued................. 24,187 -- -- --
---------- ----------- ------------ ---------
Net cash used in
investing activities... (2,871,252) (21,723,534) (17,200,318) (504,674)
Financing activities
Proceeds from debt....... 3,200,000 9,871,526 2,966,875 400,000
Payments on debt......... -- (16,250) (16,250) (48,750)
Contributions from
limited partners........ -- 16,338,000 16,085,251 --
Advance to Prime Building
Top..................... (1,302,000) -- (1,302,000) --
Advance from TeleCom
Towers, Inc............. 1,302,000 -- 1,302,000 --
Deferred
syndication/offering
costs................... (135,432) -- -- --
Syndication and offering
costs................... 79,265 (1,513,484) (1,258,310) --
Financing costs.......... (31,500) -- -- --
Due to related parties... 7,500 -- -- --
---------- ----------- ------------ ---------
Net cash provided by
financing activities... 3,119,833 24,679,792 17,777,366 351,250
Net increase in cash..... 202,451 223,340 602,569 179,249
Cash at beginning of
period.................. -- 202,451 202,451 425,791
---------- ----------- ------------ ---------
Cash at end of period.... $ 202,451 $ 425,791 $ 805,020 $ 605,040
========== =========== ============ =========
Supplemental cash flow
information
Cash paid for interest... $ 154,916 $ 693,161 $ 226,031 $ 611,244
========== =========== ============ =========
</TABLE>
See accompanying notes.
F-110
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and July 31, 1998
(Information as of and for the period ended July 31, 1998 is unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Description of Business
TeleCom Towers of the West Limited Partnership (the Partnership), a Texas
limited partnership, operates in the communications industry. The Partnership
operates tower sites in various states, primarily New York, California,
Arkansas and northern Louisiana. The Partnership shall continue in full force
and effect until December 31, 2020, unless the Partnership is sooner dissolved
by the occurrence of certain events as specified in the Partnership Agreement.
Distributions to partners are made in accordance with the partners' percentage
interests at the time of such distribution until certain capital contributions
are repaid and a cumulative annual return is paid to the partners. Profits and
losses are allocated to the partners based on the partners' percentage
interests as adjusted per the preceding paragraph.
The liability of each partner shall be limited to the amount of capital
contributions required to be made by such partner in accordance with the
provisions of the Partnership Agreement. The general partner is responsible for
the liabilities of the Partnership beyond the capital contributed by the
limited partners.
The consolidated financial statements include the accounts of Signal Tower
Company, Inc., (Signal), a wholly-owned subsidiary, acquired in March 1997.
Acquisitions
On August 1, 1996, the Partnership acquired tower assets of TOF, Inc., Travis
Carroll, Inc., and Sedricks, Inc. in a single transaction. The purchase method
was used to account for the acquisition, and the purchase price was allocated
as follows:
<TABLE>
<S> <C>
Property and equipment........................................... $ 659,740
Goodwill and intangibles......................................... 2,096,260
----------
$2,756,000
==========
</TABLE>
As part of the acquisition, $400,000 of the purchase price has been placed in a
contingent escrow account. Pursuant to an agreement with the sellers, if
certain revenue increases are realized within one year of the acquisition date,
the amount in the contingent escrow account will be paid to the sellers. If the
revenue increases are not realized, the amount to be paid to the sellers will
be determined by a formula in the agreement. Any remaining balance would then
be returned to the Partnership.
A one-year maintenance and consulting agreement in the amount of $16,560 was
also entered into with an entity related to the sellers.
The Partnership acquired, through various transactions, the following tangible
and intangible assets during the year 1997. Intangible assets primarily include
goodwill, organization costs, non-compete and consulting agreements, and
acquisition and loan costs. The purchase method was used to account for the
acquisitions. The purchase prices were allocated, in total, as follows:
F-111
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<S> <C>
Land............................................................. $ 526,000
Buildings........................................................ 501,000
Towers........................................................... 2,915,000
Intangibles...................................................... 8,909,347
-----------
$12,851,347
===========
</TABLE>
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 the
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Partnership operates tower transmission sites in various states and grants
credit to its customers in the normal course of business and normally does not
require collateral. Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of customers in the
Partnership's customer base. The Partnership maintains an allowance for
doubtful accounts based upon the expected collectibility of individual accounts
receivable.
Unaudited Interim Statements
The consolidated financial statements as of July 31, 1998 and for the seven
months ended July 31, 1998 and 1997 are unaudited. In the opinion of
management, such financial statements reflect all adjustments necessary for a
fair presentation of the results of the respective interim periods. All such
adjustments are of a normal recurring nature.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
Significant Accounting Policies
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Comprehensive Income",
which is required to be adopted for the year ended December 31, 1998. SFAS 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in the financial statements and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the Statements of Stockholders' Deficit. The
implementation of SFAS 130, "Comprehensive Income", information on the
financial statements is not expected to be material. For all periods presented,
including the seven months ended July 31, 1998, the Partnership had no items of
comprehensive income and, accordingly, the Statement does not apply.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted for the year ended December 31, 1998. SFAS 131 changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected
F-112
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
segment information in interim financial reports to stockholders. The
disclosure for segment information on the financial statements is not expected
to be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities. This Statement of Position (SOP) provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. This SOP applies to all non-governmental entities and is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of this SOP should be reported as the cumulative effect of
a change in accounting principle. When adopting this SOP, entities are not
required to report the pro forma effects of retroactive application. The effect
of adopting SOP 98-5 is not expected to have a material effect on the financial
statements.
Revenue Recognition
Owned site revenue is recognized on a straight-line basis over the initial term
of the license agreement. The excess of rents accrued over amounts
contractually due pursuant to the underlying licenses is recorded as deferred
rent receivable on the accompanying balance sheet. Certain license agreements
provide for reimbursement of electric charges and rent increases tied to
increases in, among other factors, the consumer price index. Managed tower site
revenue is recognized ratably over time.
Deferred revenue represents prepayments of charges by certain customers for
space on the communication towers. The income is recognized as revenue in
subsequent periods ratably over time.
Property and Equipment
Property and equipment are stated at cost. Depreciation of towers is computed
using the double declining balance method. The straight-line method is used for
equipment and buildings. Estimated useful lives are as follows: buildings, 39
years; towers, 20 years; equipment, 7 years.
The Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets. Based on management's
estimation process, no impairment losses were recorded as of December 31, 1997.
As of December 31, 1997, all fixed assets were held for use and the Partnership
does not plan to dispose of any such assets.
Intangible Assets
Intangible assets are stated at cost. Intangible assets consist of non-compete
agreements, organization costs and goodwill. Such assets are being amortized
using the straight line-method over their estimated useful lives not to exceed
fifteen years.
F-113
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Escrow Deposits
The Partnership has deposits in escrow with various escrow agents for asset
purchase transactions in progress at December 31, 1997. Depending on the
outcome of the related negotiations amounts will either be reclassified as part
of the purchase price, expensed to general and administrative expenses as site
investigation costs, or reclassified into cash.
Financing Costs
Costs incurred in obtaining debt financing have been capitalized and are being
amortized over the life of the respective loans.
Operating Expenses
Operating expenses include land lease expense, insurance expense, repairs and
maintenance expense, real estate and personal property taxes, utilities, and
bad debt expense.
Income Taxes
No provision has been made for federal and state income taxes since the
Partnership's profits, losses, deductions and credits are reported by the
individual partners on their respective income tax returns. Signal is a
corporation which provides for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and 1997,
and July 31, 1998 (unaudited), respectively:
<TABLE>
<CAPTION>
December 31,
-------------------- July 31,
1996 1997 1998
-------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Land...................................... $ -- $ 549,399 $ 549,399
Buildings................................. 133,860 643,181 644,825
Towers.................................... 430,128 4,045,323 4,242,346
Equipment, furniture, and fixtures........ 526 206,230 263,072
-------- ---------- ----------
564,514 5,444,133 5,699,642
Accumulated depreciation.................. (19,359) (743,916) (1,029,180)
-------- ---------- ----------
Property and equipment, net............... $545,155 $4,700,217 $4,670,462
======== ========== ==========
</TABLE>
3. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996 and 1997, and
July 31, 1998 (unaudited), respectively:
<TABLE>
<CAPTION>
December 31,
----------------------- July 31,
1996 1997 1998
---------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Goodwill............................. $1,291,443 $16,392,223 $15,991,475
Acquisition and loan costs........... 154,721 1,857,763 1,859,676
Non-compete and consulting agree-
ments............................... -- 355,000 555,000
Ground leases........................ 500,000 -- --
---------- ----------- -----------
1,946,164 18,604,986 18,406,151
Accumulated amortization............. (45,825) (939,261) (1,728,297)
---------- ----------- -----------
Net intangibles...................... $1,900,339 $17,665,725 $16,677,854
========== =========== ===========
</TABLE>
F-114
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
These intangibles result from various acquisitions of towers made by the
Partnership. Goodwill is being amortized on a straight-line basis over fifteen
years while organization costs are amortized over five years on a straight-line
basis. Non-compete agreements are being amortized on the straight-line method
over the terms of the agreements, ranging from five to fifteen years.
Acquisition costs are being amortized over fifteen years. Loan costs are being
amortized over the life of the respective loan.
4. LONG-TERM DEBT
The Partnership's General Partner, TeleCom Towers, L.L.C., has entered into a
Master Credit Facility Agreement. The agreement establishes a credit facility
consisting of a line of credit arrangement pursuant to which entities
controlled by the General Partner, including the Partnership, can borrow up to
an aggregate of $28,000,000 from the Line of Credit Commitment for a limited
period of time on a senior secured basis. The notes payable incurred by the
Partnership are provided through a separate, but related, Credit Facility
Agreement with the lender. The agreements provide for a Line of Credit Draw Fee
of 0.75% of advances under the agreements in addition to other fees to be paid
in immediately available funds on the settlement date. The Partnership incurred
approximately $270,000 in such fees during 1997. The agreements also contain a
provision for a Line of Credit Facility Fee at the rate of one quarter of one
percent (0.25%) per annum on the average unborrowed portion of the Line of
Credit Commitment. These fees are paid on a proportionate basis by the various
entities utilizing the line of credit. The Partnership incurred $7,967 in
credit facility fees during 1997.
The notes payable mature in annual installments of 75% of excess cash flows or
in accordance with the Cash Management Agreement between borrower and lender.
Interest is payable quarterly in arrears on the last business day of each
fiscal quarter. The interest rate is equal to the sum of the applicable Rate
Index plus the applicable Rate Margin. The Rate Index will be either the prime
rate or the adjusted LIBO (London Interbank Offered) Rate and the Rate Margin
will be based on the leverage ratio (using borrower's most recently delivered
quarterly financial statements acceptable to lender) of borrower's funded debt
as of the last day of the fiscal quarter to the borrower's operating cash flow.
The notes are secured by all funds, balances or other property of the
Partnership. Balances at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Interest December 31, July 31,
Due date Rate 1997 1998
-------- -------- ------------ -----------
(unaudited)
<S> <C> <C> <C>
July 2004................................ 9.125% $ 9,871,526 $ 9,871,526
July 2003................................ 9.125% 1,283,750 1,235,000
July 2004................................ 9.1875% -- 400,000
----------- -----------
11,155,276 11,506,526
Less current maturities.................. (204,644) (643,576)
----------- -----------
Long-term portion........................ $10,950,632 $10,862,950
=========== ===========
</TABLE>
The approximate maturities of the notes payable for the five years subsequent
to December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year Amount
---- -----------
<S> <C>
1998......................................................... $ 204,644
1999......................................................... 763,220
2000......................................................... 1,329,921
2001......................................................... 1,958,319
2002......................................................... 2,521,717
Thereafter................................................... 4,377,455
-----------
Total...................................................... $11,155,276
===========
</TABLE>
F-115
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. DESCRIPTION OF LEASING ARRANGEMENTS
The Partnership licenses space for communication systems on its towers to
customers under noncancellable agreements requiring monthly, quarterly or
annual payments over various terms. Some of the agreements contain various
options. At December 31, 1997, future minimum license agreement receipts were
as follows:
<TABLE>
<CAPTION>
Year Amount
---- -----------
<S> <C>
December 31, 1998............................................ $ 2,513,811
December 31, 1999............................................ 2,307,355
December 31, 2000............................................ 1,900,124
December 31, 2001............................................ 1,520,525
December 31, 2002............................................ 929,789
Thereafter................................................... 4,524,635
-----------
Total...................................................... $13,696,239
===========
</TABLE>
F-116
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS
The Partnership is committed to various land leases for tower sites. Land lease
expense for the period from inception (August 1, 1996) through December 31,
1996, the year ended December 31, 1997, and the seven months ended July 31,
1998 (unaudited), was $3,129, $65,449, and $72,266, respectively. At December
31, 1997, future minimum lease payments were as follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
December 31, 1998............................................... $115,223
December 31, 1999............................................... 106,082
December 31, 2000............................................... 96,475
December 31, 2001............................................... 83,914
December 31, 2002............................................... 73,665
Thereafter...................................................... 305,645
--------
Total......................................................... $781,004
========
</TABLE>
7. RELATED PARTIES
In the normal course of business, the Partnership advances funds to affiliated
parties for certain shared expenses. The affiliated parties repay such amounts
on a regular and timely basis. Amounts due (to)/from these related parties at
December 31, 1997 were as follows:
<TABLE>
<S> <C>
TeleCom Towers Mid-Atlantic, LP.............................. $ 788
TeleCom Towers, Inc. ........................................ (408,302)
TeleCom Towers Southwest, LP................................. (8,203)
---------
Due to related entities...................................... $(415,717)
=========
</TABLE>
The Partnership, in accordance with its limited partnership agreement, is
obligated to pay the general partner a management fee equal to 8.5% of the
gross monthly revenues. The management fee expense recognized for the period
from inception (August 1, 1996) through December 31, 1996, the year ended
December 31, 1997, and the seven months ended July 31, 1998 (unaudited) was
$12,024, $127,373, and $166,742, respectively. The Partnership is also
obligated to pay a 3% acquisition fee on all capital funds invested in towers
and related real estate and other assets, as well as up to 4% of gross monthly
revenue, to the general partner for reimbursement of certain general partner
expenses. Acquisition fees are capitalized as incurred by the Partnership.
Acquisition fees capitalized during 1997 were $800,136. Expense reimbursement
fees for the period from inception (August 31, 1996) through December 31, 1996,
the year ended December 31, 1997, and the seven months ended July 31, 1998
(unaudited) totaled $3,625, $69,533, and $78,468, respectively.
8. INVESTMENTS IN JOINT VENTURE
The Partnership is a 50% partner in Prime-Telecom Communications Co., a
California general partnership formed to operate rooftop sites and towers in
the Los Angeles Metropolitan area. This investment is considered a joint
venture and is accordingly accounted for on the equity method.
Summarized financial information of this joint venture from the unaudited
financial statements as of December 31, 1997 and July 31, 1998, are as follows:
F-117
<PAGE>
TELECOM TOWERS OF THE WEST, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Prime Telecom Communications
----------------------------
July 31,
December 31, 1997 1998
----------------- ----------
(unaudited)
<S> <C> <C>
Total Assets............................... $ 3,060,364 $1,427,281
Total Liabilities.......................... 1,071,414 708,670
Partners' Capital.......................... 1,988,950 718,611
Total Revenue.............................. 1,237,039 955,559
Net Loss................................... (1,063,050) (646,478)
Partnership's Share of Loss................ (531,525) (323,239)
</TABLE>
9. SUBSEQUENT EVENT (unaudited)
Effective August 3, 1998, the limited partners of the Partnership consummated a
merger of the Partnership into TeleCom Towers, L.L.C., which is the general
partner of the Partnership. The limited partners of the Partnership received as
merger consideration either cash or Class A Units of TeleCom Towers, L.L.C. in
exchange for their interest in the Partnership.
F-118
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
MicroNet, Inc. and Affiliates and
American Tower Systems, Inc.
We have audited the accompanying combined statements of net assets of MicroNet,
Inc. and affiliates sold to American Tower Systems, Inc. (the "Company") as of
December 31, 1996 and October 31, 1997, and the related combined statements of
income and cash flows derived from those assets for the year ended December 31,
1996, and the ten months ended October 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements 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 combined financial statements present fairly, in all
material respects, the net assets of MicroNet, Inc. and affiliates sold to
American Tower Systems, Inc. as of December 31, 1996 and October 31, 1997, and
the results of operations related to those assets, and cash flows generated
from those assets for the year ended December 31, 1996, and the ten months
ended October 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Company and may not be indicative of the
conditions that would have existed or the results of operations had the net
assets sold been operated as an unaffiliated company. Certain expenses
represent allocations made by the Company's Parent, and, as discussed in Note
A, no provision for income taxes has been made in the combined statements of
income derived from the net assets sold.
Pressman Ciocca Smith LLP
Hatboro, Pennsylvania
February 26, 1998
F-119
<PAGE>
MICRONET, INC. AND AFFILIATES
COMBINED STATEMENTS OF NET ASSETS SOLD
December 31, 1996 and October 31, 1997
<TABLE>
<CAPTION>
December 31, October 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Prepaid expenses.................................. $ 301,942 $ 465,611
------------ ------------
Total Current Assets............................ 301,942 465,611
Property and Equipment.............................. 39,564,758 40,329,382
Less accumulated depreciation..................... (22,486,975) (24,513,888)
------------ ------------
17,077,783 15,815,494
Goodwill, net of amortization....................... 4,120,276 3,691,081
Intangible Assets, net of amortization.............. 902,227 742,047
Other Assets........................................ 183,087 70,354
------------ ------------
$ 22,585,315 $ 20,784,587
============ ============
LIABILITIES AND NET ASSETS TO BE SOLD
Current Liabilities
Customer service prepayments...................... $ 459,638 $ 307,961
------------ ------------
Total Current Liabilities....................... 459,638 307,961
Commitments and Contingencies
Net Assets To Be Sold............................... 22,125,677 20,476,626
------------ ------------
$ 22,585,315 $ 20,784,587
============ ============
</TABLE>
See accompanying notes.
F-120
<PAGE>
MICRONET, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME DERIVED FROM NET ASSETS SOLD
Year Ended December 31, 1996, and Ten Months Ended October 31, 1997
<TABLE>
<CAPTION>
Ten Months
Year Ended Ended
December October 31,
31, 1996 1997
----------- -----------
<S> <C> <C>
Net Revenues.......................................... $15,058,305 $15,103,459
Operating Expenses
Service............................................. 5,955,270 5,670,523
Selling and marketing............................... 488,857 347,475
General and administrative.......................... 3,422,581 2,676,978
Depreciation........................................ 3,199,495 2,034,072
Amortization........................................ 736,025 591,775
----------- -----------
13,802,228 11,320,823
----------- -----------
Operating Income...................................... 1,256,077 3,782,636
Other Income--Net..................................... 42,904 33,681
----------- -----------
Net Income Derived from Net Assets To Be Sold......... 1,298,981 3,816,317
Net Assets To Be Sold, Beginning of Period............ 22,563,349 22,125,677
Distributions To Parent............................... (1,736,653) (5,465,368)
----------- -----------
Net Assets To Be Sold, End of Period.................. $22,125,677 $20,476,626
=========== ===========
</TABLE>
See accompanying notes.
F-121
<PAGE>
MICRONET, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS DERIVED FROM NET ASSETS SOLD
Year Ended December 31, 1996, and Ten Months Ended October 31, 1997
<TABLE>
<CAPTION>
Ten Months
Ended
Year Ended October
December 31,
31, 1996 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income derived from net assets sold.................. $ 1,298,981 $3,816,317
Adjustments to reconcile income derived from net
assets sold to cash provided by operating
activities:
Depreciation and amortization...................... 3,935,520 2,625,847
Loss (gain) on disposal of property and equipment.. (400) 9,062
Write off assets to net realizable value........... 65,313 --
Change in assets and liabilities:
Prepaid expenses................................. (49,781) (163,669)
Other assets..................................... 15,396 112,733
Customer service prepayments..................... 149,642 (151,677)
----------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES................ 5,414,671 6,248,613
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment................... (3,678,418) (783,845)
Increase in intangible assets........................ -- (2,400)
Proceeds from sale of property and equipment......... 400 3,000
----------- ----------
CASH USED FOR INVESTING ACTIVITIES................... (3,678,018) (783,245)
----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS BEFORE
ADJUSTMENT.......................................... 1,736,653 5,465,368
ADJUSTMENT FOR NET ASSETS NOT SOLD................... (1,736,653) (5,465,368)
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... $ -- $ --
=========== ==========
</TABLE>
See accompanying notes.
F-122
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996 and October 31, 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of MicroNet, Inc. and
affiliates (the "Company") is presented to assist in understanding its combined
financial statements. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the combined financial statements.
Basis of Presentation and Combination
The accompanying combined statements of net assets sold to American Tower
Systems, Inc. ("ATS") are intended to present the assets and liabilities of the
Company sold to ATS (the "Net Assets") pursuant to an asset purchase agreement
between ATS and Suburban Cable TV Co. Inc. ("Suburban") and the income and cash
flows derived from such assets and liabilities. MicroNet is a wholly owned
subsidiary of Suburban (the "Company's Parent"), which is a wholly owned
subsidiary of Lenfest Communications, Inc. ("LCI"). As of July 8, 1997, the
Company agreed to sell substantially all of the operating assets of its
communication towers, satellite transmission and microwave video and data
signal transmission businesses to ATS for approximately $70.25 million. The
accompanying combined statements include 128 operating tower sites of the
Company, including 28 tower sites operated by Suburban and other cable TV
operating subsidiaries of LCI. The transaction closed as of October 31, 1997.
The combined financial statements include the accounts of MicroNet, Inc. and
those of all wholly owned subsidiaries, excluding the assets, liabilities and
results of operations of assets not sold to ATS. The combined financial
statements also include the assets, liabilities and results of operations of
the 28 tower sites included in the sale that are operated by Suburban and other
cable TV operating subsidiaries of LCI.
Business Activity and Concentrations of Credit Risk
The Company provides satellite and microwave transmission of video, voice and
data communications and tower site rental throughout the United States. The
Company grants credit to broadcast and cable networks and cellular and paging
companies throughout the nation. Consequently, the Company's ability to collect
the amounts due from customers is affected by economic fluctuations in these
industries.
Use of Estimates
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates, and such
differences could be material to the combined financial statements.
Property and Equipment
Property and equipment are stated at cost. For acquired communication networks
and facilities, the purchase price has been allocated to net assets on the
basis of appraisal reports issued by an independent appraiser. Depreciation is
provided using the accelerated and straight-line methods of depreciation for
financial reporting purposes at rates based on estimated useful lives ranging
from 3 to 33 years.
Expenditures for renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred.
F-123
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Capitalization of Costs
All costs properly attributable to capital items, including that portion of
employees' compensation allocable to installation, engineering, design,
construction and various other capital projects are capitalized.
Goodwill and Intangible Assets
Goodwill and intangible assets acquired in connection with the purchases of
communications networks and facilities have been valued at acquisition cost on
the basis of the allocation of the purchase price on a fair market value basis
to net assets as determined by an independent appraiser. Additions to these
assets are stated at cost. Intangible assets consist of FCC licenses,
organization costs and covenants not to compete. The intangible assets are
being amortized on the straight-line method over their legal or estimated
useful lives to a maximum of forty (40) years. Goodwill represents the cost of
an acquired partnership interest in excess of amounts allocated to specific
assets based on their fair market values. Goodwill is amortized on the
straight-line method over ten years. In accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of ", the Company assesses on
an on-going basis the recoverability of intangible assets based on estimates of
future undiscounted cash flows for the applicable business acquired compared to
net book value. If the future undiscounted cash flow estimate is less than net
book value, net book value is then reduced to the undiscounted cash flow
estimate. The Company also evaluates the amortization periods of intangible
assets to determine whether events or circumstances warrant revised estimates
of useful lives. As of October 31, 1997, management believes that no revisions
to the remaining useful lives or writedowns of deferred charges are required.
Revenue Recognition
The Company bills certain customers in advance; however, revenue is recognized
as services are provided. Credit risk is managed by discontinuing services to
customers who are delinquent.
Income Taxes
The Company, as a participating subsidiary, joins in the filing of a
consolidated Federal tax return with LCI. Current and deferred Federal income
taxes are allocated among LCI and its consolidated subsidiaries based upon the
respective net income (loss) and timing differences of each company. The
Company files separate state tax returns. No provision for income taxes has
been made in the combined financial statements. Deferred tax assets and
liabilities are excluded from net assets sold.
Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
Fair Value of Financial Instruments
The Company believes that the carrying value of all financial instruments is a
reasonable estimate of fair value at December 31, 1996 and October 31, 1997.
NOTE B--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
ATS did not assume any debt of the Company. There is no interest expense paid
reflected in the accompanying financial statements. The Company did not make
any income tax payments to LCI.
In 1996, the Company wrote down $65,313 of property and equipment to net
realizable value. (See Note C).
F-124
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
NOTE C--PROPERTY AND EQUIPMENT
The schedule of property and equipment at December 31, 1996 and October 31,
1997, is as follows:
<TABLE>
<CAPTION>
Estimated
December 31, October 31, Useful Lives
1996 1997 In Years
------------ ------------ ------------
<S> <C> <C> <C>
Land................................ $ 3,027,303 $ 3,027,303
Building and improvements........... 1,799,553 1,814,012 15-33
Computer equipment.................. 291,002 299,976 5
Furniture, fixtures and office
equipment.......................... 616,678 619,028 7
Tower, head-end equipment and
microwave equipment................ 32,289,707 33,025,202 7-15
Land improvements................... 188,195 206,337 7-15
Leasehold improvements.............. 278,430 278,430 5-15
Radio equipment..................... 9,360 9,360 5-7
Test equipment...................... 584,458 588,305 7
Vehicles............................ 480,072 461,429 3-5
------------ ------------
$ 39,564,758 $ 40,329,382
============ ============
</TABLE>
During 1996, the Company recognized an impairment loss in connection with a
failed project to rebuild a tower. The township denied the Company's request to
tear-down and rebuild a larger tower on an existing tower site. Legal and
engineering costs associated with the project in the amount of $65,313,
previously capitalized, were written off. This impairment loss is included in
general and administrative expenses in the 1996 combined statement of income.
NOTE D--GOODWILL
The excess of the purchase price paid over the acquired net assets has been
allocated to goodwill. Accumulated amortization at December 31, 1996 and
October 31, 1997, was $1,030,069 and $1,459,264, respectively.
NOTE E--INTANGIBLE ASSETS
A schedule of intangible assets and accumulated amortization at December 31,
1996 and October 31, 1997, is as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------
Accumulated
Description Amount Amortization Net
----------- ----------- ------------ ---------
<S> <C> <C> <C>
FCC licenses............................ $ 326,163 $ 49,238 $ 276,925
Organization costs and covenants not to
compete................................ 1,201,174 575,872 625,302
----------- --------- ---------
$ 1,527,337 $ 625,110 $ 902,227
=========== ========= =========
<CAPTION>
October 31, 1997
----------------------------------
Accumulated
Description Amount Amortization Net
----------- ----------- ------------ ---------
<S> <C> <C> <C>
FCC licenses............................ $ 326,163 $ 56,033 $ 270,130
Organization costs and covenants not to
compete................................ 1,203,574 731,657 471,917
----------- --------- ---------
$ 1,529,737 $ 787,690 $ 742,047
=========== ========= =========
</TABLE>
F-125
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
NOTE F--LEASES
The Company leases office space from an individual who is a shareholder,
chairman of the board and chief executive officer of LCI. The lease began on
May 24, 1990, and is classified as an operating lease. The initial lease term
assumed by ATS expires October 31, 1998.
Future minimum lease payments under all non-cancelable operating leases with
initial terms of one year or more consisted of the following at October 31,
1997:
<TABLE>
<CAPTION>
Related
Year Ending December 31, Party Other
------------------------ ------- -----------
<S> <C> <C>
1998............................................... $81,874 $ 997,956
1999............................................... -- 833,947
2000............................................... -- 784,922
2001............................................... -- 750,748
2002............................................... -- 548,683
Thereafter.......................................... -- 1,535,365
------- -----------
Total minimum lease payments......................... $81,874 $ 5,451,621
======= ===========
</TABLE>
Rental expense for all operating leases, principally head-end land and building
facilities, amounted to $1,149,855 for the year ended December 31, 1996, and
$982,484 for the ten months ended October 31, 1997. In addition, the Company
made total payments to the related party for office space of $81,874 for the
year ended December 31, 1996, and $68,228 for the ten month period ended
October 31, 1997.
In addition to fixed rentals, certain leases require payment of maintenance and
real estate taxes and contain escalation provisions based on future adjustments
in price indices. It is expected that, in the normal course of business,
expiring leases will be renewed or replaced by leases on other properties;
thus, it is anticipated that future minimum operating lease commitments will
not be less than the annualized amount shown for the ten months ended October
31, 1997.
NOTE G--LESSOR OPERATING LEASES
The Company is the lessor of tower and head-end equipment and microwave
equipment under operating leases expiring in various years through 2005. Rental
income from operating leases amounted to $5,909,260 for the year ended December
31, 1996, and $7,624,515 for the ten months ended October 31, 1997.
Following is a summary of property held for lease at December 31, 1996 and
October 31, 1997:
<TABLE>
<CAPTION>
December 31, October 31,
1996 1997
------------ ------------
<S> <C> <C>
Tower, head-end equipment and microwave
equipment................................. $ 32,289,707 $ 33,025,202
Less accumulated depreciation.............. (20,271,612) (22,049,480)
------------ ------------
$ 12,018,095 $ 10,975,722
============ ============
</TABLE>
F-126
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Minimum future rentals to be received on non-cancelable leases consisted of the
following as of October 31, 1997:
<TABLE>
<CAPTION>
Year Ending October 31,
-----------------------
<S> <C>
1998....................................................... $ 7,778,174
1999....................................................... 5,481,722
2000....................................................... 4,671,884
2001....................................................... 3,327,044
2002....................................................... 831,607
Thereafter.................................................. 299,311
------------
$ 22,389,742
============
</TABLE>
NOTE H--OTHER INCOME
The schedules of other income for the year ended December 31, 1996, and ten
months ended October 31, 1997, are as follows:
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
December 31, October 31,
1996 1997
------------ ----------------
<S> <C> <C>
Interest income.............................. $ 42,504 $ 42,743
Gain (loss) on disposal of property and
equipment................................... 400 (9,062)
-------- --------
$ 42,904 $ 33,681
======== ========
</TABLE>
NOTE I--EMPLOYEE HEALTH BENEFIT PLAN
As a subsidiary of LCI, the Company participates in the Lenfest Group Employee
Health Plan (a trust) in order to provide health insurance for its employees.
This trust is organized under Internal Revenue Code Section 501(c)(9)--
Voluntary Employee Beneficiary Association (VEBA). Benefits are prefunded by
contributions from the Company and all other participating LCI subsidiaries.
Insurance expense is recognized as incurred. The Company does not provide
postretirement benefits to its employees. Therefore, Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions", does not have an impact on the Company's
financial statements.
NOTE J--401(k) PLAN
LCI provides a 401(k) retirement plan to the employees of its subsidiaries. The
Company, as an indirect wholly owned subsidiary, is entitled to participate.
The Company matches the entire amount contributed by an eligible employee up to
5% of their salary, subject to regulatory limitations. For the year ended
December 31, 1996, the Company matched $112,033 of contributions. For the ten
months ended October 31, 1997, the Company matched $90,616.
NOTE K--RELATED PARTY TRANSACTIONS
The Company does business and generates revenue with subsidiaries of Tele-
Communications, Inc. ("TCI"), (a stockholder of LCI, through an indirect,
wholly owned subsidiary). The amount of revenues generated was $1,225,000 for
the year ended December 31, 1996, and $1,477,000 for the ten months ended
October 31, 1997. An additional $69,000 received from TCI was included in
customer service prepayments as of December 31, 1996 and October 31, 1997.
F-127
<PAGE>
MICRONET, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
All services provided to related parties were at standard billing rates.
Certain management services are provided to the Company by Suburban. Such
services include legal, tax, treasury, risk management, benefits administration
and other support services. Included in selling, general and administrative
expenses for the year ended December 31, 1996, and the ten months ended October
31, 1997, were allocated expenses of $108,000 and $90,000, respectively,
related to these services. Allocated expenses are based on Suburban's estimate
of expenses related to the services provided to the Company in relation to
those provided to other affiliates of Suburban. Management believes that these
allocations were made on a reasonable basis. However, the allocations are not
necessarily indicative of the level of expenses that might have been incurred
had the Company contracted directly with third parties. Management has not made
a study or any attempt to obtain quotes from third parties to determine what
the cost of obtaining such services from third parties would have been. The
fees and expenses charged by Suburban are subject to change.
The Company entered into a lease agreement with a principal stockholder of LCI
(See Note F).
F-128
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Diablo
Communications, Inc. (A California
S Corporation):
We have audited the accompanying balance sheets of Diablo Communications, Inc.
(the "Company"), as of December 31, 1995 and 1996, and the related statements
of income, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and
1996, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Francisco, California
November 4, 1997
F-129
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1995 1996 1997
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................. $ 515,896 $ 708,434 $ 554,201
Accounts receivable:
Trade, net of allowance for doubt-
ful accounts of $10,000 at each
date.............................. 292,971 334,926 398,844
Affiliates......................... 440,532 560,813 1,231,952
Prepaid and other current assets..... 242,436 160,678 199,702
----------- ----------- ----------
Total current assets............. 1,491,835 1,764,851 2,384,699
PROPERTY AND EQUIPMENT, net............ 1,720,423 2,952,926 2,992,593
INVESTMENT IN AFFILIATE................ 4,158 10,053 7,757
DEPOSITS AND OTHER ASSETS.............. 224,338 182,984 293,617
----------- ----------- ----------
TOTAL.................................. $ 3,440,754 $ 4,910,814 $5,678,666
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................... $ 191,258 $ 246,579 $ 188,624
Accrued expenses..................... 164,211 232,691 178,000
Deferred revenue..................... 340,556 364,865 250,056
Current portion of long-term debt.... 303,045 420,875 505,129
----------- ----------- ----------
Total current liabilities........ 999,070 1,265,010 1,121,809
----------- ----------- ----------
LONG-TERM DEBT......................... 925,002 1,786,410 1,732,390
----------- ----------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY:
Common stock, no par value,
10,000,000 shares authorized,
202,000 shares issued and outstand-
ing................................. 3,465,242 3,465,242 3,465,242
Accumulated deficit.................. (1,948,560) (1,605,848) (640,775)
----------- ----------- ----------
Total stockholders' equity....... 1,516,682 1,859,394 2,824,467
----------- ----------- ----------
TOTAL.................................. $ 3,440,754 $ 4,910,814 $5,678,666
=========== =========== ==========
</TABLE>
See notes to financial statements.
F-130
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
December 31, September 30,
---------------------- ----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Tower revenues................ $5,925,022 $6,337,292 $4,778,569 $5,878,022
Sublease revenues--related
party........................ 414,000 365,500 253,500 337,940
Management fees--related par-
ty........................... 96,968 97,513 70,531 80,621
Insurance proceeds............ -- 213,000 -- --
---------- ---------- ---------- ----------
Total revenues.............. 6,435,990 7,013,305 5,102,600 6,296,583
---------- ---------- ---------- ----------
OPERATING EXPENSES:
General and administrative.... 1,229,313 1,414,136 1,036,774 968,071
Depreciation and amortiza-
tion......................... 283,023 416,883 359,184 359,856
Rent expense.................. 1,875,527 2,039,302 1,512,615 1,829,720
Technical..................... 1,422,267 1,618,722 1,144,103 1,244,912
Sales and promotional......... 433,443 530,447 393,685 430,846
---------- ---------- ---------- ----------
Total operating expenses.... 5,243,573 6,019,490 4,446,361 4,833,405
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS.......... 1,192,417 993,815 656,239 1,463,178
OTHER INCOME (EXPENSE), NET..... (120,388) (144,257) (90,335) 133,704
---------- ---------- ---------- ----------
NET INCOME...................... $1,072,029 $ 849,558 $ 565,904 $1,596,882
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-131
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------
Outstanding Accumulated
Shares Amount Deficit Total
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994.... 202,000 $3,465,242 $(1,689,475) $ 1,775,767
Cash and noncash
distributions to
stockholders............... (1,331,114) (1,331,114)
Net income.................. 1,072,029 1,072,029
------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995.... 202,000 3,465,242 (1,948,560) 1,516,682
Cash distributions to stock-
holders.................... (506,846) (506,846)
Net income.................. 849,558 849,558
------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1996.... 202,000 3,465,242 (1,605,848) 1,859,394
Cash distributions to stock-
holders (unaudited)........ (631,809) (631,809)
Net income (unaudited)...... -- -- 1,596,882 1,596,882
------- ---------- ----------- -----------
BALANCE, SEPTEMBER 30, 1997
(unaudited).................. 202,000 $3,465,242 $ (640,775) $ 2,824,467
======= ========== =========== ===========
</TABLE>
See notes to financial statements.
F-132
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
December 31, September 30,
----------------------- ----------------------
1995 1996 1996 1997
---------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING AC-
TIVITIES:
Net income................... $1,072,029 $ 849,558 $ 565,904 $1,596,882
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortiza-
tion....................... 283,023 416,883 359,184 359,856
Changes in assets and lia-
bilities:
Accounts receivable--
trade..................... (163,273) (30,000) (213,355) (63,918)
Accounts receivable--Affil-
iates..................... (244,175) (132,236) (74,543) (671,139)
Prepaid and other current
assets.................... (178,370) 81,758 (16,395) (39,024)
Deposits and other assets.. (37,181) 22,778 65,703 (108,337)
Accounts payable and ac-
crued expenses............ 115,175 123,801 (265,136) (112,646)
Deferred revenue........... 67,287 24,309 69,329 (114,809)
---------- ----------- ---------- ----------
Net cash provided by oper-
ating activities......... 914,515 1,356,851 490,691 846,865
---------- ----------- ---------- ----------
CASH FLOW FROM INVESTING
ACTIVITIES--Purchases of
property and equipment....... (948,781) (1,636,705) (1,219,152) (399,523)
---------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING AC-
TIVITIES:
Long-term borrowings........ 500,000 1,250,000 1,250,000 217,075
Repayments of long-term
debt....................... (50,469) (270,762) (192,775) (186,841)
Cash distributions to stock-
holders.................... (880,193) (506,846) (362,171) (631,809)
---------- ----------- ---------- ----------
Net cash provided by (used
in) financing
activities............... (430,662) 472,392 695,054 (601,575)
---------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN
CASH......................... (464,928) 192,538 (33,407) (154,233)
CASH, BEGINNING OF PERIOD..... 980,824 515,896 515,896 708,434
---------- ----------- ---------- ----------
CASH, END OF PERIOD........... $ 515,896 $ 708,434 $ 482,489 $ 554,201
========== =========== ========== ==========
SUPPLEMENTAL INFORMATION:
Cash paid for interest...... $ 92,384 $ 140,970 $ 91,988 $ 90,335
Noncash distribution to
stockholders............... 450,921 -- -- --
</TABLE>
See notes to financial statements.
F-133
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
NOTES TO FINANCIAL STATEMENTS
(Information as of and for the Nine Months Ended September 30, 1996 and 1997 is
Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Corporate Structure--Diablo Communications, Inc. (the "Company")
is engaged in acquiring, developing and operating communications towers, for
use by radio operators as well as other communication related businesses. As of
December 31, 1996, the Company owned and/or operated 81 towers and rooftops
throughout Northern California.
Sale of the Company--On October 9, 1997, substantially all of the Company's
assets were sold to American Tower Systems, Inc. ("ATS"). ATS also assumed the
Company's operating lease agreements and certain of the Company's liabilities
on that date. The sale price was approximately $40,000,000. Subsequent to the
sale, the Company changed its name and will pursue other business opportunities
as Tyris Corporation.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from these estimates.
Unaudited Interim Information--The financial information with respect to the
nine-month periods ended September 30, 1996 and 1997 is unaudited. In the
opinion of management, such information contains all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of such periods. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the full year.
Impairment of Long-Lived Assets--In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of ("FAS 121"). FAS 121 addresses the accounting for the impairment
of long-lived assets, certain intangibles and goodwill when events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted this statement during 1996 and the impact on
the Company's results of operations, liquidity or financial position was not
material.
Property and Equipment--Property and equipment are recorded at cost.
Depreciation is provided using the double-declining method over estimated
useful lives ranging from 3 to 15 years.
Investment in Affiliate--The Company owns a 25% interest in New Loma
Communications, Inc. which is accounted for using the equity method of
accounting.
Revenue Recognition--Tower and sublease revenues are recognized when earned
over the lease terms. Management fee revenues are recognized when earned over
the terms of the management contracts. Deferred revenue represents advance
payments by customers where related revenue is recognized when services are
provided.
S Corporation Election--The accompanying financial statements do not include
any provision for federal or state income taxes since the Company is treated as
a partnership under Subchapter S of the Internal Revenue Code and under similar
state income tax provisions. Accordingly, income or loss is allocated to the
shareholders and included in their tax returns.
Retirement Plan--Employees of the Company are eligible for participation in a
401-K plan managed by the Company, subject to certain minimum age and length-
of-employment requirements. Under the plan, the Company does not match the
participants' contributions.
F-134
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of and for the Nine Months Ended September 30, 1996 and 1997 is
Unaudited)
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1995 1996 1997
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Land and improvements................ $ 674,574 $1,017,949 $1,135,034
Towers............................... 533,175 1,342,178 1,543,206
Technical equipment.................. 387,451 508,212 510,097
Office equipment, furniture, fixtures
and other equipment................. 378,290 478,285 506,172
Construction in progress............. 209,592 473,163 631,241
---------- ---------- ----------
Total.............................. 2,183,082 3,819,787 4,325,750
Less accumulated depreciation and am-
ortization.......................... (462,659) (866,861) (1,333,157)
---------- ---------- ----------
Property and equipment, net.......... $1,720,423 $2,952,926 $2,992,593
========== ========== ==========
</TABLE>
Technical and office equipment include assets under capital leases of $285,749,
$285,749 and $288,698 at September 30, 1997, December 31, 1996 and 1995,
respectively with related accumulated depreciation of $223,980, $199,588 and
$167,065, respectively.
3. LONG-TERM DEBT
Outstanding amounts under the Company's financing arrangements consisted of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1995 1996 1997
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Advances on bank term loan approved up
to $1,500,000, varying interest rates
at 9.44% to 9.85%.................... $1,250,000 $1,250,000
Notes payable to banks at interest
rates of prime plus 1.5%............. $ 858,333 658,333 525,000
Other notes payable to banks.......... 212,107 202,302 419,377
Capital lease obligations............. 157,607 96,650 43,142
---------- ---------- ----------
Total............................... 1,228,047 2,207,285 2,237,519
Less scheduled current maturities..... (303,045) (420,875) (505,129)
---------- ---------- ----------
Long-term debt........................ $ 925,002 $1,786,410 $1,732,390
========== ========== ==========
</TABLE>
In October 1997, the Company's long-term debt was either assumed by ATS or
repaid by the Company with proceeds from the sale of assets to ATS (see Note
1--"Sale of the Company").
4. COMMITMENTS AND CONTINGENCIES
The Company leases various technical and office equipment under capital leases
and certain office space and other real property under noncancelable operating
leases. Future minimum lease payments under these operating and capital leases
are as follows:
F-135
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of and for the Nine Months Ended September 30, 1996 and 1997 is
Unaudited)
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------- --------
<S> <C> <C>
Year ending December 31:
1997................................................ $ 662,260 $ 73,529
1998................................................ 613,607 31,161
1999................................................ 608,642
2000................................................ 567,817
2001................................................ 510,557
Thereafter.......................................... 2,808,872
---------- --------
Total............................................. $5,771,755 104,690
==========
Less interest portion................................... (8,040)
--------
Present value of minimum lease payments................. $ 96,650
========
</TABLE>
5. RELATED PARTY TRANSACTIONS
New Loma Communications, Inc., is a corporation in which the Company owns 25%
of the outstanding capital stock.
Drake Industrial Park, Inc. and Diablo Communications of Southern California,
Inc. are corporations under common ownership as that of the Company.
During the nine months ended September 30, 1996 and 1997 and the years ended
December 31, 1995 and 1996, the Company received income from New Loma
Communications, Inc., as follows:
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
December 31, September 30,
----------------- -----------------
1995 1996 1996 1997
-------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Sublease revenues........................ $414,000 $365,500 $253,500 $337,940
Management services...................... 96,968 97,513 70,531 80,621
-------- -------- -------- --------
Total.................................. $510,968 $463,013 $324,031 $418,561
======== ======== ======== ========
</TABLE>
The Company had the following accounts receivable from affiliates:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1995 1996 1997
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
Diablo Communications of Southern Califor-
nia, Inc................................. $391,872 $517,400 $1,214,622
New Loma Communications................... 48,660 27,859 176
Drake Industrial Park, Inc................ 15,554 17,154
-------- -------- ----------
Total................................... $440,532 $560,813 $1,231,952
======== ======== ==========
</TABLE>
F-136
<PAGE>
DIABLO COMMUNICATIONS, INC.
(A California S Corporation)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of and for the Nine Months Ended September 30, 1996 and 1997 is
Unaudited)
6. SPIN-OFF OF SOUTHERN CALIFORNIA OPERATION--NONCASH DISTRIBUTION TO
STOCKHOLDERS
In order to establish a separate company under which to conduct Southern
California business, on September 1, 1995, all of the Company's Southern
California communication site leases, customer contracts, affiliated
receivables, communication site equipment, vehicles, vehicle obligations,
office lease and contracts, and office equipment were distributed to the
Company's stockholders at net book value according to their pro rata ownership.
The net book value of such distribution was $450,921.
The Company's 1995 statement of income includes a net loss from the Southern
California operations of $318,291 for the eight months ended August 31, 1995.
7. MT. DIABLO COMMUNICATION SITE DAMAGE
On December 12, 1995, a severe wind destroyed the tower at the Company's Mt.
Diablo communication facility. The Company received insurance proceeds
totalling approximately $434,000 in 1996. Of these proceeds, $126,000 was
capitalized in property and equipment, $213,000 was recorded as revenue and
$95,000 was recorded as a reduction of operating expenses.
8. FUTURE LEASE INCOME
The Company has long-term, non-cancelable agreements under operating leases for
license fee income. Future minimum annual lease income at December 31, 1996 is
as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997..................................................... $ 3,263,693
1998..................................................... 2,786,793
1999..................................................... 1,935,638
2000..................................................... 1,493,622
2001..................................................... 964,394
Thereafter............................................... 593,206
-----------
Total.................................................. $11,037,346
===========
</TABLE>
F-137
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Diablo Communications of Southern California, Inc.
We have audited the balance sheets of Diablo Communications of Southern
California, Inc. (a California S Corporation) (the "Company") as of December
31, 1995 and December 31, 1996 and the related statements of operations,
stockholders' equity and cash flows for the period from September 1, 1995
(inception) to December 31, 1995 and for the year ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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 audit of the financial statements
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Diablo Communications of
Southern California, Inc. as of December 31, 1995 and December 31, 1996, and
the results of its operations and its cash flows for the period from September
1, 1995 (inception) to December 31, 1995 and the year ended December 31, 1996
in conformity with generally accepted accounting principles.
As emphasized in Note 9 to the financial statements, during October 1997, the
Company sold substantially all of its assets to an outside party.
Rooney, Ida, Nolt & Ahern
Certified Public Accountants
Oakland, California
February 7, 1997
October 9, 1997 as to note 9
to the financial statements
F-138
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1995 1996 1997
--------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................... $ 204,781 $ 61,043 $ 15,094
Accounts receivable, trade............. 7,591 27,245 12,914
Prepaid expenses....................... 1,272 2,462 24,990
--------- ----------- -----------
Total current assets................. 213,644 90,750 52,998
--------- ----------- -----------
PROPERTY AND EQUIPMENT--net.............. 441,105 1,013,434 1,667,418
--------- ----------- -----------
OTHER ASSETS:
Prepaid expenses--net.................. 2,348 7,970 6,468
Deposits............................... 6,976 10,776 11,146
--------- ----------- -----------
Total other assets................... 9,324 18,746 17,614
--------- ----------- -----------
TOTAL.................................... $ 664,073 $ 1,122,930 $ 1,738,030
========= =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Notes and contracts payable............ $ 283,544 $ 310,522 $ 382,494
Accounts payable....................... 148,438 447,232 1,242,179
Customer fees advanced................. 1,707 12,839 17,426
Accrued liabilities.................... 5,419 16,023 11,634
--------- ----------- -----------
Total current liabilities............ 439,108 786,616 1,653,733
--------- ----------- -----------
LONG-TERM DEBT........................... 21,139 930,617 1,065,417
--------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, no par value, 10,000,000
shares authorized, 1,000,000 issued
and outstanding....................... 450,921 450,921 450,921
Accumulated deficit.................... (247,095) (1,045,224) (1,432,041)
--------- ----------- -----------
Total stockholders' equity
(deficiency)........................ 203,826 (594,303) (981,120)
--------- ----------- -----------
TOTAL.................................... $ 664,073 $ 1,122,930 $ 1,738,030
========= =========== ===========
</TABLE>
See notes to financial statements.
F-139
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
September 1, Nine Months Ended
(Inception) to Year Ended September 30,
December 31, December 31, -----------------------
1995 1996 1996 1997
-------------- ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES............... $ 45,445 $ 408,555 $ 251,733 $ 660,195
OPERATING EXPENSES:
Operating expenses,
excluding depreciation
and amortization and
corporate general and
administrative
expenses................ 49,488 319,011 196,377 402,945
Depreciation and
amortization............ 8,459 29,405 22,123 32,886
Corporate general and
administrative.......... 226,528 776,063 604,853 500,014
--------- ---------- --------- ---------
Total operating
expenses.............. 284,475 1,124,479 823,353 935,845
--------- ---------- --------- ---------
OPERATING LOSS............. (239,030) (715,924) (571,620) (275,650)
--------- ---------- --------- ---------
OTHER INCOME (EXPENSES):
Interest expense......... (8,656) (85,911) (54,096) (113,643)
Interest income.......... 1,391 4,506 3,461 3,276
--------- ---------- --------- ---------
Total other income
(expenses)............ (7,265) (81,405) (50,635) (110,367)
--------- ---------- --------- ---------
LOSS FROM OPERATIONS BEFORE
INCOME TAXES.............. (246,295) (797,329) (622,255) (386,017)
INCOME TAX PROVISION....... 800 800 800 800
--------- ---------- --------- ---------
NET LOSS................... $(247,095) $ (798,129) $(623,055) $(386,817)
========= ========== ========= =========
</TABLE>
See notes to financial statements.
F-140
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Deficit Total
------------ ----------- ---------
<S> <C> <C> <C>
BALANCES, SEPTEMBER 1, 1995 (inception)... $450,921 $ -0- $ 450,921
Net loss................................ (247,095) (247,095)
-------- ----------- ---------
BALANCES, DECEMBER 31, 1995............... 450,921 (247,095) 203,826
Net loss................................ (798,129) (798,129)
-------- ----------- ---------
BALANCES, DECEMBER 31, 1996............... 450,921 (1,045,224) (594,303)
Net loss (unaudited).................... (386,817) (386,817)
-------- ----------- ---------
BALANCES, SEPTEMBER 30, 1997.............. $450,921 $(1,432,041) $(981,120)
======== =========== =========
</TABLE>
See notes to financial statements.
F-141
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
September 1 Nine Months Ended
(Inception) to Year Ended September 30,
December 31, December 31, -----------------------
1995 1996 1996 1997
-------------- ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss.................. $(247,095) $ (798,129) $(623,055) $(386,817)
--------- ---------- --------- ---------
Adjustments to reconcile
net loss to cash used by
operating activities:
Depreciation and
amortization............ 8,459 29,405 21,517 32,886
Changes in assets and
liabilities:
Accounts receivable.... (7,591) (19,654) (23,386) 14,331
Prepaid expenses....... (1,151) (1,190) (4,129) (22,528)
Deposits............... (4,096) (3,800) (3,800) (370)
Accounts payable and
accrued expenses...... 153,857 309,398 119,535 790,558
Customer fees
advanced.............. 1,707 11,132 (1,707) 4,587
--------- ---------- --------- ---------
Total adjustments........ 151,185 325,291 108,030 819,464
--------- ---------- --------- ---------
Cash provided (used) by
operating activities...... (95,910) (472,838) (515,025) 432,647
--------- ---------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Collection on note
receivable.............. 81,310
Purchase of property and
equipment............... (50,449) (599,856) (371,191) (685,368)
Organization costs....... (2,516)
Loan fees................ (7,500) (7,500)
--------- ---------- --------- ---------
Cash provided (used) by
investing activities...... 28,345 (607,356) (378,691) (685,368)
--------- ---------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from debt....... 275,000 1,000,000 750,000 248,751
Repayment of debt........ (2,654) (63,544) (47,523) (41,979)
--------- ---------- --------- ---------
Cash provided by financing
activities................ 272,346 936,456 702,477 206,772
--------- ---------- --------- ---------
INCREASE (DECREASE) IN
CASH...................... 204,781 (143,738) (191,239) (45,949)
CASH, BEGINNING OF PERIOD.. -0- 204,781 204,781 61,043
--------- ---------- --------- ---------
CASH, END OF PERIOD........ $ 204,781 $ 61,043 $ 13,542 $ 15,094
========= ========== ========= =========
</TABLE>
See notes to financial statements.
F-142
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of business:
The Company develops and operates telecommunications sites in Southern
California. The Company has a broad customer base which includes specialized
mobile radio companies, paging companies, cellular telephone providers,
broadcasters, emergency services, various private and governmental two-way
radio users, and other entities with wireless communications needs.
Revenues are generated primarily from individual license agreements which
entitle a customer to use an antenna system or antenna tower space, and to use
on-site space in a climate controlled building for their transmitters,
receivers, and related equipment.
For most of its sites, the Company holds a long-term lease interest. As a
recognized full service site manager, the Company also manages sites for
outside site owners.
Allowances for doubtful accounts:
The Company uses the allowance method for accounting for bad debts. An
allowance for bad debts has not been provided currently since the Company's bad
debt experience indicates that the amount would not be material.
Leases:
Leases meeting certain criteria are treated as capital leases requiring related
assets and lease obligations to be recorded at their present value in the
financial statements. Other leases, not qualifying under these criteria, are
treated as operating leases for which rentals are charged to expense.
S Corporation election:
The Company has elected, by unanimous consent of its stockholders, to have its
income taxed directly to the stockholders. Accordingly, provision for income
taxes, except for an $800 minimum state franchise taxes, has not been made.
Deferred income taxes have not been recorded because such amounts are
immaterial.
Property and equipment:
Property and equipment are recorded at cost and depreciation is computed using
a combination of straight-line and accelerated methods of accounting over
useful lives of 5 to 15 years.
Organization costs and loan fees:
Organization costs and loan fees are amortized using the straight-line method
of accounting over 5 years.
Unaudited interim financial information:
In the opinion of management, the financial statements for the unaudited
periods presented include all adjustments necessary for a fair presentation in
accordance with generally accepted accounting principles, consisting solely of
normal recurring accruals and adjustments. The results of operations and cash
flows for the nine months ended September 30, 1996 and September 30, 1997 are
not necessarily indicative of results which would be expected for a full year.
F-143
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 reported amounts of disclosures. Accordingly, actual results
could differ from those estimates.
Concentration of Credit Risk:
The Company extends credit to customers on an unsecured basis in the normal
course of business. No individual customer is significant to the Company's
customer base. The Company has policies governing the extension of credit and
collection of amounts due from customers.
Recognition of Revenues:
Tower and sublease revenues are recognized when earned over the lease terms.
Management fee revenues are recognized when earned over the terms of the
management contracts.
Corporate general and administrative expenses:
Corporate general and administrative expenses consists of corporate overhead
costs not specifically allocable to any of the Company's direct operating
profit centers.
Impairment of long-lived assets:
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of ", the company assesses on an on-going basis the
recoverability of intangible assets based on estimates of future undiscounted
cash flows for the applicable business acquired compared to net book value. If
the future undiscounted cash flow estimate is less than net book value, net
book value is then reduced to the undiscounted cash flow estimate. The Company
also evaluates the amortization periods of intangible assets to determine
whether events or circumstances warrant revised estimates of useful lives. As
of September 30, 1997, management believes that no revisions to the remaining
useful lives or writedowns of deferred charges are required.
Fair value of financial instruments:
The Company believes that the carrying value of all financial instruments is a
reasonable estimate of fair value as of December 31, 1996 and September 30,
1997.
Retirement plan:
Employees of the Company, through its affiliate Diablo Communications, Inc.,
are eligible for participation in a 401(k) plan, subject to certain minimum age
and length-of-employment requirements. The plan does not provide for any
Company contributions.
Supplemental cash flow information:
For financial statement purposes of the statements of cash flows, the Company
issued capital stock in exchange for $450,921 in net assets, primarily property
and equipment on September 1, 1995.
Cash payments for interest approximated $8,656, $71,256, $50,653 and $116,663
for period September 1, 1995 to December 31, 1995, for the year ended December
31, 1996 and the nine months ended September 30, 1996 and 1997, respectively.
F-144
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Cash payments for income taxes was $800 for the period September 1, 1995 to
December 31, 1995, for the year ended December 31, 1996 and the nine months
ended September 30, 1996 and 1997, respectively.
NOTE 2. COMPANY ORGANIZATION:
In order to establish a separate company under which to conduct business in
Southern California, on September 1, 1995, Diablo Communications, Inc.
distributed all of its Southern California communication site leases, customer
contracts, affiliated receivables, communication site equipment, vehicles,
vehicle obligations, office lease and contracts, and office equipment to its
stockholders according to their pro rata ownership. The stockholders then
contributed these assets in exchange for 1,000,000 shares of capital stock. The
net value of this contribution was $450,921.
NOTE 3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------- September 30,
1995 1996 1997
-------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Land improvements.......................... $ 8,276 $ 48,770 $ 48,770
Towers and wiring.......................... 6,261 31,815 205,269
Equipment.................................. 19,190 26,477 26,477
Office furniture and equipment............. 27,729 27,729 27,729
Computers and software..................... 23,718 24,746 24,746
Vehicles................................... 27,546 27,546 27,546
Construction in progress................... 355,276 880,769 1,392,684
-------- ---------- ----------
Total.................................... 467,996 1,067,852 1,753,221
-------- ---------- ----------
Less accumulated depreciation............ 26,891 54,418 85,803
-------- ---------- ----------
Property and equipment, net.............. $441,105 $1,013,434 $1,667,418
======== ========== ==========
</TABLE>
NOTE 4. RELATED PARTY TRANSACTIONS:
Richard D. Spight and the Mary C. Spight Family Trust are the majority
stockholders of Diablo Communications of Southern California, Inc. and Diablo
Communications, Inc.
At the end of each period, the Company owed the following amounts to Diablo
Communications, Inc:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1995 1996 1997
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
Note payable at 8.68%....................... $275,000 $220,000 $ 183,333
Accounts payable............................ 116,872 297,400 1,214,622
</TABLE>
After the sale of the Company's assets on October 9, 1997, these related note
and accounts payable were paid in full.
Interest expense on this related party note payable was $4,776, $22,424,
$17,335 and $13,290 for the period September 30, 1995 (inception) to December
31, 1995, year ended December 31, 1996 and for the nine month periods ended
September 30, 1996 and September 30, 1997, respectively.
F-145
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5. NOTES PAYABLE:
The Company has taken advances against a bank term loan approved for
$1,500,000. The Company pays interest only on the advances at rates ranging
from 9.44% to 9.85%. The line of credit requires that certain financial
covenants be maintained. The note is secured by a blanket lien on all of the
Company's assets.
During March 1997, the Company entered into an unsecured credit agreement with
American Tower Systems, Inc., that provides the Company with a $650,000
unsecured loan commitment of which $248,751 was outstanding at September 30,
1997. The Company pays interest only on the advances at prime, currently 8.5%.
The note matures at the earlier of consummation of the sale or June 30, 2000.
The Company repaid all advances on both of these notes after the sale of
substantially all its assets.
NOTE 6. LONG-TERM DEBT:
Maturities of long-term debt for the years subsequent to December 31, 1996, are
as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997.......................................................... $ 87,689
1998.......................................................... 204,759
1999.......................................................... 205,199
2000.......................................................... 201,841
2001.......................................................... 200,000
Thereafter..................................................... 116,666
----------
Totals........................................................ $1,016,154
==========
</TABLE>
NOTE 7. COMMITMENTS:
Capital leases:
The future minimum lease payments under capital leases for communications
equipment and certain office equipment in effect at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997............................................................ $ 3,422
1998............................................................ 2,282
-------
Total........................................................... 5,704
Less interest portion........................................... 719
-------
Present value of minimum lease payments......................... 4,985
Less current installments....................................... 2,833
-------
Long-term obligations under capital leases...................... $ 2,152
=======
Cost of equipment under capital leases.......................... $12,946
Less accumulated depreciation to December 31, 1996.............. 7,625
-------
Net............................................................. $ 5,321
=======
Current depreciation expense.................................... $ 2,129
=======
</TABLE>
F-146
<PAGE>
DIABLO COMMUNICATIONS OF SOUTHERN CALIFORNIA, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Operating leases:
At December 31, 1996, the Company was liable for various leases of office space
and other real and personal property which require future minimum annual rental
payments as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997............................... $231,937
1998............................... 211,661
1999............................... 216,298
2000............................... 193,998
2001............................... 62,950
Thereafter.......................... -0-
--------
Total.............................. $916,844
========
</TABLE>
In addition, the Company is liable for various real property leases based on
percentages of gross income ranging from 25% to 70%.
Rental expenses for these operating leases were $35,611, $271,419, $173,407 and
$344,987, for the period September 1, 1995 (inception) to December 31, 1995,
the year ended December 31, 1996 and for the nine month periods ended September
30, 1996 and September 30, 1997, respectively.
NOTE 8. FUTURE LEASE INCOME:
At December 31, 1996, the Company has long-term, non-cancelable agreements
under operating-type leases for license fee income. Future minimum annual lease
income is as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997............................. $ 659,445
1998............................. 585,155
1999............................. 434,161
2000............................. 287,430
2001............................. 193,657
Thereafter........................ -0-
----------
Total............................ $2,159,848
==========
</TABLE>
NOTE 9. SUBSEQUENT EVENT:
On October 9, 1997 the Company, along with Diablo Communications, Inc., a
related company, sold substantially all of its assets to American Tower
Systems, Inc. (ATS) for a combined purchase price of approximately $46.5
million. DCSC's allocable share of the purchase price is approximately $5.4
million. Some of DCSC's liabilities were included in the transaction.
F-147
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors, Stockholders and Partners of
Meridian Communications
Calabasas, California:
We have audited the accompanying combined balance sheets of Meridian
Communications (the "Company") as of December 31, 1995 and 1996, and the
related combined statements of income, partners' capital and stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements 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 combined financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1995 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Long Beach, California
October 31, 1997
F-148
<PAGE>
MERIDIAN COMMUNICATIONS
COMBINED BALANCE SHEETS
December 31, 1995 and 1996 and June 30, 1997
<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1995 1996 1997
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 30,897 $ 63,665 $ 21,168
Accounts receivable:
Trade, net of allowance for doubtful ac-
counts of $1,244 and $10,118 in 1995 and
1996, respectively, and $17,720 (unau-
dited) at June 30, 1997................... 60,961 80,190 103,709
Other accounts receivable (Note 8)......... 19,461 25,889 2,260,295
Prepaid expenses and other current assets.. 79,044 77,108 122,366
---------- ---------- ----------
Total current assets..................... 190,363 246,852 2,507,538
PROPERTY AND EQUIPMENT, Net (Note 2)......... 2,523,929 2,917,751 3,147,692
INTANGIBLES, Net............................. 22,000 141,948 112,292
OTHER ASSETS................................. 1,859 2,259 6,299
---------- ---------- ----------
TOTAL........................................ $2,738,151 $3,308,810 $5,773,821
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL AND
STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Current maturities of long-term loans pay-
able to shareholder and partner (Note 7).. $ 119,121 $ 234,607 $ 477,388
Accounts payable and accrued expenses...... 175,627 182,441 286,803
Security and other deposits................ 128,208 231,154 131,611
---------- ---------- ----------
Total current liabilities................ 422,956 648,202 895,802
---------- ---------- ----------
LONG-TERM LOANS PAYABLE TO SHAREHOLDER AND
PARTNER (Note 7)............................ 553,533 1,012,681 918,808
DEFERRED REVENUE............................. 214,918 279,641 186,413
COMMITMENTS AND CONTINGENCIES (Note 3)
PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY:
Common stock; $1.00 par value; 75,000
shares authorized; 4,000 shares issued and
outstanding............................... 4,000 4,000 4,000
Additional paid-in capital................. 16,632 16,632 16,632
Partners' capital.......................... 631,690 507,245 2,734,202
Retained earnings.......................... 894,422 840,409 1,017,964
---------- ---------- ----------
Total partners' capital and stockholders'
equity.................................. 1,546,744 1,368,286 3,772,798
---------- ---------- ----------
TOTAL........................................ $2,738,151 $3,308,810 $5,773,821
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-149
<PAGE>
MERIDIAN COMMUNICATIONS
COMBINED STATEMENTS OF INCOME
Years Ended December 31, 1995 and 1996 and Six Months Ended June 30, 1996 and
1997
<TABLE>
<CAPTION>
Years Ended
December 31, Six Months Ended June 30,
---------------------- --------------------------
1995 1996 1996 1997
---------- ---------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Site use................. $3,918,420 $4,165,919 $ 2,103,614 $ 2,278,612
Site management.......... 72,337 125,348 51,355 52,178
Repeater service......... 140,945 206,556 67,319 54,087
---------- ---------- ------------ ------------
Total revenues......... 4,131,702 4,497,823 2,222,288 2,384,877
EXPENSES:
Operating expenses,
excluding depreciation
and amortization........ 3,034,285 3,217,369 1,543,333 1,730,211
Depreciation and
amortization............ 303,197 416,369 202,154 210,983
---------- ---------- ------------ ------------
OPERATING INCOME........... 794,220 864,085 476,801 443,683
OTHER INCOME (EXPENSE):
Interest and other income
(expense)............... 5,155 3,581 23,311 (17,741)
Interest expense to
shareholder and
partner (Note 6)........ (36,111) (73,126) (36,712) (61,968)
Gain on sale of business
(Note 8)................ 3,080,563
---------- ---------- ------------ ------------
Total other income (ex-
pense)................ (30,956) (69,545) (13,401) 3,000,854
---------- ---------- ------------ ------------
INCOME BEFORE INCOME TAX-
ES........................ 763,264 794,540 463,400 3,444,537
INCOME TAXES............... 800 800 3,145 2,526
---------- ---------- ------------ ------------
NET INCOME................. $ 762,464 $ 793,740 $ 460,255 $ 3,442,011
========== ========== ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-150
<PAGE>
MERIDAN COMMUNICATIONS
COMBINED STATEMENTS OF PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
Years Ended December 31, 1995 and 1996 and Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
Additional
Common Paid-In Partners' Retained
Stock Capital Capital Earnings Total
------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994................... $4,000 $16,632 $ 630,902 $ 987,093 $ 1,638,627
Net income (loss)....... 855,135 (92,671) 762,464
Cash distributions...... (854,347) (854,347)
------ ------- ----------- ---------- -----------
BALANCE, DECEMBER 31,
1995................... 4,000 16,632 631,690 894,422 1,546,744
Net income (loss)....... 847,753 (54,013) 793,740
Cash distributions...... (972,198) (972,198)
------ ------- ----------- ---------- -----------
BALANCE, DECEMBER 31,
1996................... 4,000 16,632 507,245 840,409 1,368,286
Net income (Unaudited).. 3,264,456 177,555 3,442,011
Cash distributions (Un-
audited)............... (1,037,499) (1,037,499)
------ ------- ----------- ---------- -----------
BALANCE, JUNE 30, 1997
(Unaudited)............ $4,000 $16,632 $ 2,734,202 $1,017,964 $ 3,772,798
====== ======= =========== ========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-151
<PAGE>
MERIDIAN COMMUNICATIONS
COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 and 1996 and Six Months Ended June 30, 1996 and
1997
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
---------------------- ----------------------
1995 1996 1996 1997
---------- ---------- --------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING AC-
TIVITIES:
Net income.................... $ 762,464 $ 793,740 $ 460,255 $ 3,442,011
Adjustments to reconcile net
income to net cash
provided by operating activi-
ties:
Depreciation and amortiza-
tion......................... 303,197 416,369 202,154 210,983
Provision for doubtful ac-
counts....................... (907) 8,874 1,955 7,748
Loss (gain) on disposal of
property and equipment....... 7,315 8,954 (2,922,335)
Changes in operating assets
and liabilities:
Accounts receivable--trade... 45,358 (28,108) (5,500) (31,266)
Accounts receivable--other... 10,136 (6,428) 11,962 15,594
Prepaid expenses and other
current assets.............. (23,359) 1,936 (76,357) (45,258)
Other assets................. (59) (400) (4,200) (4,040)
Accounts payable and accrued
expenses.................... 47,801 (23,185) 255,826 153,552
Security and other depos-
its......................... 9,679 2,946 (400) 457
Deferred revenue............. 28,628 64,723 5,500 (93,228)
---------- ---------- --------- -----------
Net cash provided by operat-
ing activities............. 1,182,938 1,237,782 860,149 734,218
---------- ---------- --------- -----------
CASH FLOWS FROM INVESTING AC-
TIVITIES:
Purchase of property and
equipment.................... (716,932) (857,562) (312,264) (508,699)
Proceeds from sale of property
and equipment................ 42,609 29,175 750,575
Purchase of intangibles....... (122,500)
Receipt of deposits for re-
peater services.............. 130,000
Application of deposits for
repeater services............ (130,000)
---------- ---------- --------- -----------
Net cash provided by (used
in) investing activities... (716,932) (807,453) (283,089) 111,876
---------- ---------- --------- -----------
CASH FLOWS FROM FINANCING AC-
TIVITIES:
Borrowings from shareholder
and partner.................. 400,000 655,000 100,000 219,000
Repayments on loans from
shareholder and partner...... (37,346) (80,366) (26,432) (70,092)
Cash distributions............ (854,347) (972,195) (486,101) (1,037,499)
---------- ---------- --------- -----------
Net cash provided by (used
in) financing activities... (491,693) (397,561) (412,533) (888,591)
---------- ---------- --------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.............. (25,687) 32,768 164,527 (42,497)
CASH AND CASH EQUIVALENTS, BE-
GINNING OF PERIOD............. 56,584 30,897 30,897 63,665
---------- ---------- --------- -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD..................... $ 30,897 $ 63,665 $ 195,424 $ 21,168
========== ========== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--
Cash paid during the period
for:
Interest...................... $ 36,111 $ 72,673 $ 13,087 $ 33,168
Income taxes.................. $ 0 $ 900 $ 900 $ 800
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
-- During December 1996, the Company acquired equipment by incurring accrued
expenses in the amount of $19,191.
-- During February 1997, the Company received a non-trade account receivable
in the amount of $2,250,000 from the sale of a repeater system.
See accompanying notes to combined financial statements.
F-152
<PAGE>
MERIDIAN COMMUNICATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1995 and 1996 and Six Months Ended June 30, 1996 and
1997
(Information Pertaining to the Six Months Ended June 30, 1996 and 1997 is
Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--The combined financial statements include the accounts of Meridian
Sales and Services Company ("MSSC"), a California S corporation, Meridian
Communications North ("MCN"), a general partnership, and Meridian Radio Sites
("MRS"), a general partnership (referred to collectively as Meridian
Communications or the "Company") which share common ownership and management.
All significant intercompany balances and transactions have been eliminated in
combination.
Meridian Communications develops and manages telecommunication antenna site
facilities and repeater (mobile relay) equipment throughout Southern
California.
Cash and Cash Equivalents--Cash and cash equivalents include cash in the bank
as well as short-term investments with an original maturity of three months or
less.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment--Property and equipment are stated at cost less
accumulated depreciation. Major renewals or betterments are capitalized and
depreciated over their estimated useful lives. Repairs and maintenance are
charged to expense in the period incurred.
Depreciation for financial statements purposes is computed using the straight-
line method over the estimated useful lives of the assets. Buildings and
leasehold improvements are depreciated over a period of 20 years, antenna site
equipment over a period of 7 years, and office furniture, equipment, and
automobiles over a period of 5 years.
Intangibles--Intangible assets are primarily comprised of the rights to a site
lease acquired in 1996 and, to a lesser extent, an FCC license. The FCC license
was sold in February 1997 with the sale of the assets used in connection with
the repeater business for $3,000,000 (see Note 8). The site lease rights are
amortized on a straightline basis over the remainder of the lease term of 8
years.
Long-Lived Assets--The Company records impairment losses on long-lived assets
when events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are less
than the carrying amounts of those assets.
Concentration of Credit Risk--The Company performs ongoing credit evaluation of
its customers' financial condition and generally requires a one-month security
deposit from its customers. As of December 31, 1996, the Company had no
significant concentrations of credit risk.
F-153
<PAGE>
MERIDIAN COMMUNICATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Information Pertaining to the Six Months Ended June 30, 1996 and 1997 is
Unaudited)
Revenue Recognition and Deferred Revenue--Revenue is recorded when services are
provided, according to rates set forth in customer contracts. Deferred revenue
is recorded when services are paid in advance of performance.
Income Taxes--The Company is comprised of an S corporation and two partnerships
for federal and state income tax purposes. The stockholders and partners report
any income or loss of the Company directly on their personal tax returns. State
income tax expense is computed using statutory tax rates applicable to S
corporations.
Interim Financial Statements--The accompanying combined balance sheet as of
June 30, 1997 and the combined statements of income, partners' capital and
stockholders' equity, and cashflows for the six months ended June 30, 1997 and
1996 are unaudited. In the opinion of management, such unaudited financial
statements include all adjustments necessary to present fairly the information
set forth therein. These adjustments consist of normal recurring adjustments.
The results of operations for such interim periods are not necessarily
indicative of results for the full year.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------- June 30,
1995 1996 1997
----------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Land.............................. $ 28,839 $ 28,839 $ 28,839
Antenna site equipment............ 2,258,476 2,518,713 2,315,813
Buildings and leasehold improve-
ments............................ 1,767,261 1,793,290 1,793,290
Office furniture, equipment and
automobiles...................... 259,586 247,260 248,342
Construction in progress.......... 195,787 687,006 1,167,466
----------- ---------- -----------
4,509,949 5,275,108 5,553,750
Less accumulated depreciation and
amortization..................... (1,986,020) (2,357,357) (2,406,058)
----------- ---------- -----------
$ 2,523,929 $2,917,751 $ 3,147,692
=========== ========== ===========
</TABLE>
3. LEASE COMMITMENTS
The Company leases office and antenna site facilities under operating lease
agreements through the year 2009. One of the facilities is leased from a
shareholder of MSSC for $28,800 annually. This lease expires December 31, 1997.
The Company is committed to minimum rental payments under leases (exclusive of
real estate taxes, maintenance and other related charges) at December 31, 1996,
as follows:
Years Ended December 31:
<TABLE>
<S> <C>
1997............................................................ $ 512,706
1998............................................................ 495,449
1999............................................................ 441,866
2000............................................................ 319,169
2001............................................................ 275,987
Thereafter...................................................... 2,100,576
----------
$4,145,753
==========
</TABLE>
F-154
<PAGE>
MERIDIAN COMMUNICATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Information Pertaining to the Six Months Ended June 30, 1996 and 1997 is
Unaudited)
Rent expense charged to operations for the years ended December 31, 1995 and
1996 amounted to $629,242 and $727,427, respectively, of which $20,400 and
$28,800, respectively, was paid to the shareholder. Rent expense charged to
operations for the six months ended June 30, 1996 and 1997 amounted to $311,266
and $414,990, respectively, of which $14,400 was paid to the shareholder in
both periods.
4. INCOME TAXES
The Company's provision for income taxes for the years ended December 31, 1995
and 1996 consists of a minimum state liability of $800 for each year which is
assessed to MSSC.
The Company does not pay federal corporate income taxes on its taxable income.
Instead, the stockholders and partners are liable for individual federal and
state income taxes on their respective shares of the Company's taxable income.
The Corporation continues to pay a California surtax of 1.5% of taxable income
or the minimum state tax, whichever is greater.
5. PROFIT SHARING PLAN
MSSC has a profit sharing plan (the "Plan") which covers all employees who have
accumulated a minimum amount of hours of service during a year. MSSC's
contribution to the Plan is determined annually by the Board of Directors.
Provisions for contributions to the profit sharing plan of $22,578 and $21,457,
respectively, were made for the years ended December 31, 1995 and 1996.
Effective July 1, 1997, there will be no additional contributions to the Plan.
Additionally, the Plan will be terminated and all assets distributed to the
participants as defined in the Plan.
6. RELATED PARTY TRANSACTIONS
The Company engages in transactions with a shareholder and partner whereby
working capital funds are loaned to the Company and repaid over terms agreed to
by both parties (see Note 7). Interest expense incurred on these loans amount
to $36,111 and $73,126 for the years ended December 31, 1995 and 1996,
respectively, and $36,712 and $61,968 for the six months ended June 30, 1996
and 1997, respectively.
Certain of the Company's buildings and equipment are regularly repaired and
maintained by Lee's Two-Way Radio, a California corporation owned and
controlled by Norman Kramer, a general partner. Payments to Lee's Two-Way Radio
for the years ended December 31, 1995 and 1996 were $31,369 and $34,765,
respectively.
Payments for administrative services in the amount of $16,194 and $14,466 for
the years ended December 31, 1995 and 1996, respectively, were paid to Norman
Kramer, a general partner.
F-155
<PAGE>
MERIDIAN COMMUNICATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Information Pertaining to the Six Months Ended June 30, 1996 and 1997 is
Unaudited)
7. LONG-TERM LOANS PAYABLE TO SHAREHOLDER AND PARTNER
<TABLE>
<CAPTION>
December 31,
------------------- June 30,
1995 1996 1997
-------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Unsecured loan payable to shareholder in the
original amount of $310,000, payable in sixty
monthly installments of $6,857, including
interest at the rate of 10% per annum. Final
installment is due March 31, 2000............ $272,654 $ 218,440 $ 189,240
Unsecured loan payable to shareholder in the
original amount of $400,000 at December 31,
1995 and increased to $500,000 during 1996,
payable in sixty monthly installments of
$10,624 per month, including interest at the
rate of 10% per annum. Final installment due
August 31, 2001.............................. 400,000 473,848 432,956
Unsecured loan payable to shareholder in the
original amount of $55,000, interest payable
at the rate of 10% per annum, due November
27, 2001..................................... 55,000 55,000
Unsecured loan payable to shareholder in the
original amount of $500,000, interest payable
at the rate of 10% per annum, due December
31, 2001..................................... 500,000 500,000
Unsecured temporary loans payable to share-
holder and partner, at the rate of 10% per
annum, payable upon demand................... 219,000
-------- ---------- ----------
672,654 1,247,288 1,396,196
Less current maturities....................... 119,121 234,607 477,388
-------- ---------- ----------
$553,533 $1,012,681 $ 918,808
======== ========== ==========
</TABLE>
All loans to the shareholder and partner were paid in full following the sale
of the Company's assets and business to ATS (see Note 9).
8. SALE OF THE REPEATER BUSINESS
Effective December 1, 1996, the Company entered into a ten-year agreement with
an unrelated party granting the party the right to manage a repeater system and
granting the party an option to purchase the system. Under the agreement, the
Company received a non-refundable $300,000 option fee in the first quarter of
1997 from the party. In addition, the Company receives repeater service fees
quarterly from the party. As of June 30, 1997, the system is still being
managed by the party and the purchase option has not been exercised.
Effective February 19, 1997, the Company sold a repeater system to an unrelated
party for $3,000,000. As of June 30, 1997, the uncollected portion of the
purchase price, $2,250,000, was included in non-trade accounts receivable. This
amount was received during August 1997.
Effective February 28, 1997, the balance of the repeater business was sold to a
separate buyer for the assumption of certain liabilities regarding the
business.
Revenues for the repeater business which were transferred as a result of these
transactions are $140,945, $206,556 and $54,087 for the years and period ended
December 31, 1995 and 1996, and June 30, 1997, respectively.
F-156
<PAGE>
MERIDIAN COMMUNICATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Information Pertaining to the Six Months Ended June 30, 1996 and 1997 is
Unaudited)
9. SUBSEQUENT EVENT (Unaudited)
Effective July 1, 1997, the Company sold substantially all of its assets and
the business related to these assets to American Tower Systems, Inc. ("ATS").
The combined purchase price was $32,121,638 plus construction adjustments of
$581,042 for the acquisition and construction of certain new sites from June
14, 1996 through the date of the sale. Assets which were not sold to ATS
include cash, accounts receivable, and assets related to the repeater business
which were sold to unrelated buyers (see Note 8).
F-157
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Gearon & Co., Inc.:
We have audited the accompanying balance sheets of Gearon & Co., Inc. (the
"Company") as of December 31, 1997 and 1996, and the related statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1997 and 1996,
and the results of its operations and its cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Atlanta, Georgia
February 27, 1998
F-158
<PAGE>
GEARON & CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 4,285,940 $ 813,182
Accounts receivable--trade, net of allowance for
doubtful accounts of $309,164 and $129,650 in 1997
and 1996, respectively............................ 6,516,370 7,132,363
Unbilled receivables............................... 4,741,198 515,688
Accounts receivable--other......................... 286,751 6,390
Receivable from related party...................... -- 200,000
----------- ----------
Total current assets............................. 15,830,259 8,667,623
PROPERTY AND EQUIPMENT, net.......................... 3,793,881 561,028
OTHER ASSETS......................................... 138,800 27,530
----------- ----------
TOTAL................................................ $19,762,940 $9,256,181
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 2,653,403 $ 27,587
Accrued expenses................................... 239,350 39,693
Accrued merger related expenses.................... 6,225,205
Note payable....................................... 5,000,000
----------- ----------
Total current liabilities........................ 14,117,958 67,280
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000 shares
authorized;
7,500 issued and outstanding in 1996.............. 750
Class A voting common stock, no par value, 10,000
shares authorized, 7,500 issued and outstanding in
1997.............................................. 8
Class B nonvoting common stock, no par value,
1,000,000 shares authorized, 798,335 issued and
outstanding in 1997............................... 798
Additional paid-in capital......................... 5,549,944
Retained earnings.................................. 94,232 9,188,151
----------- ----------
Total stockholder's equity....................... 5,644,982 9,188,901
----------- ----------
TOTAL................................................ $19,762,940 $9,256,181
=========== ==========
</TABLE>
See notes to financial statements.
F-159
<PAGE>
GEARON & CO., INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
REVENUES:
Fees and bonuses................................... $25,052,348 $15,613,655
Pass-through revenues.............................. 4,376,070 5,349,795
Tower rentals...................................... 172,868 53,200
Other.............................................. 328,467 467,785
----------- -----------
Total revenues................................... 29,929,753 21,484,435
OPERATING EXPENSES:
Operating expenses................................. 12,835,263 6,619,029
Tower expenses..................................... 165,887 41,926
Pass-through expenses.............................. 4,376,070 5,349,795
----------- -----------
Total operating expenses......................... 17,377,220 12,010,750
----------- -----------
GROSS PROFIT......................................... 12,552,533 9,473,685
General and administrative expenses.................. 2,496,749 1,394,757
Merger related expenses.............................. 13,796,434
----------- -----------
INCOME (LOSS) FROM OPERATIONS........................ (3,740,650) 8,078,928
OTHER INCOME AND EXPENSES, NET....................... 73,310 94,822
----------- -----------
NET INCOME (LOSS).................................... $(3,667,340) $ 8,173,750
=========== ===========
</TABLE>
See notes to financial statements.
F-160
<PAGE>
GEARON & CO., INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional
Common Class A Class B Paid-in Retained
Stock Voting Nonvoting Capital Earnings Total
------ ------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--January 1,
1996................... $ 750 $-- $-- $ -- $ 8,783,131 $ 8,783,881
Distributions to
shareholder.......... (7,768,730) (7,768,730)
Net income............ 8,173,750 8,173,750
----- ---- ---- ---------- ----------- -----------
BALANCE--December 31,
1996................... 750 9,188,151 9,188,901
Exchange of 7,500
shares of original
common stock for
7,500 shares of Class
A voting stock and
742,500 shares of
Class B nonvoting
common stock......... (750) 8 742
Issuance of 55,835
shares of Class B
nonvoting stock to
certain employees.... 56 5,549,944 5,550,000
Distributions to
shareholder.......... (5,426,579) (5,426,579)
Net loss.............. (3,667,340) (3,667,340)
----- ---- ---- ---------- ----------- -----------
BALANCE--December 31,
1997................... $ -- $ 8 $798 $5,549,944 $ 94,232 $ 5,644,982
===== ==== ==== ========== =========== ===========
</TABLE>
See notes to financial statements.
F-161
<PAGE>
GEARON & CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $(3,667,340) $ 8,173,750
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for doubtful accounts................. 383,167 129,650
Depreciation.................................... 185,670 103,283
Noncash merger related expense.................. 5,550,000
Changes in assets and liabilities;
Decrease (increase) in accounts receivable
trade........................................ 232,826 (3,434,228)
Decrease (increase) in unbilled receivables... (4,225,510) 782,867
Decrease (increase) in accounts receivable
other........................................ (280,361) 20,307
Increase in other assets...................... (111,270) (21,748)
Increase (decrease) in accounts payable....... 1,779,560 (35,463)
Increase (decrease) in accrued expenses....... 199,657 (22,523)
Increase in accrued merger related expense.... 6,225,205
------------ -----------
Net cash provided by operating activities......... 6,271,604 5,695,895
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES;
Acquisition of property and equipment............. (329,998) (134,910)
Construction of towers, net of accounts payable... (2,242,269) (336,242)
------------ -----------
Net cash used in investing activities....... (2,572,267) (471,152)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholder...................... (5,426,579) (7,768,730)
Repayments from (loans to) related party.......... 200,000 (170,000)
Proceeds from note payable........................ 5,000,000
Loan from stockholder............................. 500,000
Repayment to stockholder.......................... (500,000)
------------ -----------
Net cash used in financing activities....... (226,579) (7,938,730)
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ 3,472,758 (2,713,987)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ....... 813,182 3,527,169
------------ -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.............. $ 4,285,940 $ 813,182
============ ===========
</TABLE>
See notes to financial statements.
F-162
<PAGE>
GEARON & CO., INC.
NOTES TO FINANCIAL STATEMENTS
(As of and for the Years Ended December 31, 1997 and 1996)
1. Summary of Significant Accounting Policies
Business and Corporate Structure--Gearon & Co., Inc. (the "Company"), a Georgia
corporation, was incorporated on September 6, 1991 and is engaged in the site
acquisition, development, construction and facility management of wireless
network communication facilities on behalf of its customers. The Company
operates in markets throughout the United States. In addition, as of December
31, 1997, the Company owned and operated 16 communications towers with an
additional 20 towers in varying stages of development. The towers are located
in Georgia, Florida, and Tennessee.
On January 22, 1998, the Company merged into and became a part of American
Tower Systems, Inc. (ATSI) a subsidiary of American Radio Systems Corporation
(ARS), pursuant to an Agreement and Plan of Merger ("the Merger Agreement")
executed on November 21, 1997. Under the Merger Agreement, the holders of the
Company's common stock at the effective date of the merger received a total of
$32,000,000 in cash and liabilities assumed by ATSI and 5,333,333 shares of
ATSI stock with an agreed-upon fair value of $48,000,000.
On December 30, 1997, the Company awarded a total of 55,835 shares of Class B
common stock valued at $5,550,000 (based on the share price paid by ATSI in the
merger) to certain key employees, awarded cash bonuses totaling approximately
$7,667,000 to certain employees, and incurred approximately $580,000 in other
merger related expenses. On January 20, 1998, the Company awarded an additional
503 shares of Class B common stock valued at $50,000 (based on the share price
paid by ATSI in the merger) to a key employee. In addition, on January 20,
1998, accounts receivable of approximately $11,000,000 and two automobiles with
a net book value of $16,247 were distributed to the majority stockholder.
Pursuant to the Merger Agreement, the Company borrowed a total of $10,000,000
from ATSI in two $5,000,000 installments on December 24, 1997 and January 20,
1998, respectively, to fund working capital and merger related expenses. Such
borrowings bore interest at 7.5% and were repaid at closing.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk--The Company extends credit to customers on an
unsecured basis in the normal course of business. Credit risk is limited due to
the financial reputation of the customers comprising the Company's customer
base. The Company has policies governing the extension of credit and collection
of amounts due from customers.
The following represents a summary of fees and bonuses earned from individual
customers in excess of 10% of total fees and bonuses for the year ended:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Customer A........................................... $7,705,000 $4,773,000
Customer B........................................... 5,462,000
Customer C........................................... 5,660,000
</TABLE>
Impairment of Long-Lived Assets--In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets
F-163
<PAGE>
GEARON & CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
and for Long-Lived Assets to be Disposed Of. SFAS 121 addresses the accounting
for the impairment of long-lived assets, certain intangibles and goodwill when
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company adopted this statement during 1996
and the impact on the Company's results of operations, liquidity or financial
position was not material.
Cash and Cash Equivalents--Cash and cash equivalents includes cash on hand,
demand deposits and short-term investments with original maturities of three
months or less.
Property and Equipment--Property and equipment are recorded at cost. Ordinary
repairs and maintenance are expensed as incurred; major replacements and
improvements are capitalized and depreciated over their estimated useful lives.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Leasehold improvements...................................... Life of lease
Furniture and fixtures...................................... 3-7 years
Machinery and equipment..................................... 3-7 years
Communications towers....................................... 15 years
</TABLE>
Construction in Progress--The Company's tower construction expenditures are
recorded as construction in progress until the assets are placed in service.
When the assets are placed in service, they are transferred to the appropriate
property and equipment category and depreciated. The Company also capitalizes
subcontractor and employee labor and overhead costs incurred in connection with
the construction of towers.
Revenue Recognition--Revenues from fees and bonuses are recognized based upon
the completion of certain activities as defined by the respective contracts
with individual customers. Several of the contracts provide for reimbursement
by customers of certain costs in addition to fees earned. Such costs are
recognized on the accrual basis and are reflected as pass-through revenues and
expenses in the statements of operations. Tower and sublease revenues are
recognized when earned over the terms of the related leases.
Income Taxes--At inception, the Company elected to be treated as a Subchapter S
Corporation ("S Corporation") for income tax purposes. Accordingly, no
recognition has been given to income taxes in the financial statements since
the income is reportable on the individual tax return of the stockholders. Two
states in which the Company does business do not recognize S Corporations for
tax purposes and therefore the Company is liable for income taxes in those
states. The amounts paid or accrued for income taxes were not material in
relation to the financial statements.
New Accounting Pronouncement--In June 1997, the Financial Accounting Standards
Board issued SFAS 131, "Disclosure About Segments of an Enterprise and Related
Information" which the Company will adopt in 1998. SFAS 131 redefines how
operating segments are determined and requires disclosure of certain financial
and descriptive information about a company's operating segments. The Company
has not yet completed its analysis of the impact of this statement.
Reclassifications--Certain 1996 amounts have been reclassified to conform to
the 1997 presentation.
F-164
<PAGE>
GEARON & CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Land............................................ $ 82,198 $ --
Leasehold improvements.......................... 73,180 60,902
Furniture and fixtures.......................... 138,111 81,694
Machinery and equipment......................... 564,404 306,705
Communications towers........................... 2,542,922 336,242
Construction in progress........................ 801,060 --
---------- ---------
Property and equipment, at cost................. 4,201,875 785,543
Accumulated depreciation........................ (407,994) (224,515)
---------- ---------
Property and equipment--net..................... 3,793,881 $ 561,028
========== =========
</TABLE>
3. Commitments and Contingencies
Lease Obligations--The Company currently leases office space, office equipment
and land for communications towers under operating leases that expire at
varying dates through 2002. The tower ground leases contain options for the
Company to renew, at its discretion, for five-year periods up to a maximum term
of twenty-five years. The leases require the Company to maintain certain
insurance coverage and provide for maintenance and repairs. Future minimum
lease payments for noncancelable office, equipment and ground leases are as
follows for the periods ending December 31:
<TABLE>
<S> <C>
1998........................................................... 400,794
1999........................................................... 374,501
2000........................................................... 351,755
2001........................................................... 234,971
2002........................................................... 179,705
----------
Total.......................................................... $1,541,726
==========
</TABLE>
Customer Leases--The Company owns communications towers which it leases to
third parties. The leases which are noncancelable and expire at various dates
through 2006, contain options for the lessees to renew, at their discretion,
for 5-year periods up to a maximum term of 25 years.
Future minimum rental receipts expected to be received from customers under
noncancelable leases are as follows for the periods ending December 31:
<TABLE>
<S> <C>
1998........................................................... $ 731,511
1999........................................................... 794,812
2000........................................................... 803,334
2001........................................................... 766,185
2002........................................................... 654,154
Thereafter..................................................... 159,016
----------
Total.......................................................... $3,909,012
==========
</TABLE>
F-165
<PAGE>
GEARON & CO., INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Purchase Commitments--At December 31, 1997, the Company had entered into an
agreement to acquire land for a communications tower for a purchase price of
$100,000. The purchase closed on February 11, 1998. In addition, at December
31, 1997, the Company had a verbal agreement with a customer to purchase seven
communications towers for an aggregate purchase price of approximately
$1,000,000. This purchase is expected to be consummated in March 1998.
Employment Agreement--In August 1997, the Company entered into an employment
agreement with an officer of the Company. The Agreement is for a term of one
year and is renewable for successive one-year terms. The agreement contains
provisions for compensation in the event of termination or a change in control
of the Company. The compensation due to this officer as a result of the merger
discussed in Note 1 has been included in accrued merger related expenses as of
December 31, 1997. In November and December 1997, the Company entered into
employment agreements with two officers of the Company. These agreements are
for a term of two years, renewable for successive two-year terms and contain
provisions for compensation in the event of termination other than for cause.
Legal Matters--The Company is a party to certain legal matters arising in the
ordinary course of business. In the opinion of management, none of these
matters are expected to have a material effect on the financial position,
results of operations, or cash flows of the Company.
4. Retirement Plan
On September 1, 1996, the Company established the Gearon & Co., Inc. Employee
Savings and Retirement Plan (the "Plan"), a 401(k) plan. Employees of the
Company are eligible for participation in the Plan subject to certain minimum
age and length of employment requirements. Plan participants can contribute
from 2% to 15% of their compensation, as defined. The Company matches 25% of
the participants' contributions up to 10% of compensation. The Plan's assets
are invested in equity, bond, balanced, and money market mutual funds. The
Company contributed approximately $79,000 and $24,000 for the years ended
December 31, 1997 and 1996, respectively.
5. Common Stock
Effective October 23, 1997, the Company authorized the issuance of 10,000
shares of Class A common stock and 1,000,000 shares of Class B common stock.
Class A has voting privileges while Class B common stock is nonvoting. On
October 23, 1997, all 7,500 shares of common stock previously outstanding were
exchanged for 7,500 shares of Class A common stock and 742,500 shares of Class
B common stock which were transferred to the original stockholder and a trust
related to the original stockholder.
6. Related Party Transactions
The receivable from a related party totaling $200,000 at December 31, 1996 was
repaid in full in January 1997.
F-166
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Tower Corporation:
We have audited the accompanying consolidated balance sheets of American Tower
Corporation and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Tower
Corporation and subsidiaries as of December 31, 1996 and 1997 and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
KPMG LLP
Houston, Texas
January 23, 1998
F-167
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1996 1997 1998
------------ ------------ -----------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $ 92 $ 996 $ 1,111
Accounts receivable, net of allowance
for doubtful accounts of $104, $175
and $174 respectively................. 816 1,021 1,084
Prepaid expenses and other current
assets................................ 793 719 984
Assets held for sale................... 700 -- --
------- -------- --------
Total current assets.................. 2,401 2,736 3,179
Land.................................... 5,301 6,234 6,239
Rental towers and related fee based as-
sets, net of accumulated depreciation
of $3,984, $8,362 and $9,730, respec-
tively................................. 61,556 112,412 125,788
Other assets, net of accumulated
amortization of $836, $951 and $1,268,
respectively........................... 6,269 7,432 7,785
------- -------- --------
Total assets.......................... $75,527 $128,814 $142,991
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 720 $ 2,810 $ 688
Accrued interest payable............... 598 1,061 4
Deferred revenues and other current
liabilities........................... 978 2,125 3,277
Current portion of long-term debt...... 1,075 1,000 1,000
------- -------- --------
Total current liabilities............. 3,371 6,996 4,969
Long-term debt, less current portion.... 49,771 74,478 90,139
Other liabilities....................... 450 190 184
Deferred income taxes................... 6,337 6,767 6,957
------- -------- --------
Total liabilities..................... 59,929 88,431 102,249
Commitments and contingencies
Redeemable preferred stock $.01 par
value.
Authorized 5,000,000 shares; 22,500
shares issued and outstanding......... 4,000 4,052 4,067
Stockholders' equity:
Common stock, $.01 par value.
Authorized 250,000 shares; 75,331,
149,549 and 149,549 shares issued and
outstanding, respectively............. 1 2 2
Additional paid-in capital............. 12,051 36,426 36,426
Retained earnings (accumulated
deficit).............................. (454) (97) 247
------- -------- --------
Total stockholders' equity............ 11,598 36,331 36,675
------- -------- --------
Total liabilities and stockholders'
equity............................... $75,527 $128,814 $142,991
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-168
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------------------ --------------------
1995 1996 1997 1997 1998
------ ------- ------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Total revenues................ $8,277 $12,366 $20,006 $ 4,581 $ 6,260
Operating expenses:
Direct tower costs........... 1,868 2,849 4,138 856 1,305
Selling, general and
administrative.............. 1,601 2,049 3,183 723 862
Depreciation and
amortization................ 1,908 2,709 4,903 1,027 1,755
------ ------- ------- --------- ---------
Total operating expenses.... 5,377 7,607 12,224 2,606 3,922
------ ------- ------- --------- ---------
Operating income.............. 2,900 4,759 7,782 1,975 2,338
Interest expense.............. 3,068 3,808 5,439 1,285 1,791
Other expenses................ 414 150 514 33 --
------ ------- ------- --------- ---------
Income (loss) before income
taxes and extraordinary
item......................... (582) 801 1,829 657 547
Income tax (expense) benefit.. 217 (303) (801) (288) (188)
------ ------- ------- --------- ---------
Income (loss) before
extraordinary item........... (365) 498 1,028 369 359
Extraordinary loss, net of tax
benefit of $117, $272, and
$371, respectively........... 207 451 619 -- --
------ ------- ------- --------- ---------
Net income (loss)............. (572) 47 409 369 359
Accretion of preferred stock.. -- -- 52 -- 15
------ ------- ------- --------- ---------
Net income (loss) available to
common stockholders.......... $ (572) $ 47 $ 35 $ 369 $ 344
====== ======= ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-169
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock
-------------
Total
Additional Accumulated stockholders'
Shares Value paid-in capital deficit equity
------- ----- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1994................... 67,500 $ 1 $ 7,424 $ 71 $ 7,496
Allocation of redeemable
preferred stock
proceeds to warrants... -- -- 500 -- 500
Net loss................ -- -- -- (572) (572)
------- --- ------- ---- -------
Balances at December 31,
1995................... 67,500 1 7,924 (501) 7,424
Shares of common stock
issued in acquisition.. 6,481 -- 4,127 -- 4,127
Conversion of warrants
to common stock........ 1,350 -- -- -- --
Net income.............. -- -- -- 47 47
------- --- ------- ---- -------
Balances at December 31,
1996................... 75,331 1 12,051 (454) 11,598
Conversion of warrants
to common stock........ 24,265 -- -- -- --
Conversion of warrants
with put feature to
common stock........... 12,462 -- 174 -- 174
Sale of common stock,
net of issuance costs.. 36,049 1 23,201 -- 23,202
Common stock issued in
connection with tower
acquisition............ 1,442 -- 1,000 -- 1,000
Net income.............. -- -- -- 409 409
Accretion of redeemable
preferred stock........ -- -- -- (52) (52)
------- --- ------- ---- -------
Balances at December 31,
1997................... 149,549 $ 2 36,426 (97) 36,331
Net income (unaudited)
....................... -- -- -- 359 359
Accretion of redeemable
preferred stock
(unaudited) ........... -- -- -- (15) (15)
------- --- ------- ---- -------
Balances at March 31,
1998 (unaudited) ...... 149,549 $ 2 $36,426 $247 $36,675
======= === ======= ==== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-170
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31,
------------------------ --------------------
1995 1996 1997 1997 1998
------ ------- ------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............ $ (572) $ 47 $ 409 $ 369 $ 359
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization............... 1,908 2,709 4,903 1,027 1,755
Accretion of debt
discounts.................. 202 808 121 109 111
Deferred income taxes....... (334) 31 430 288 190
Deferred loan costs written-
off........................ 324 -- 990 -- --
Changes in assets and
liabilities:
Increase in accounts
receivable, net............ (203) (218) (205) (709) (63)
(Increase) decrease in
prepaid expenses and other
current assets............. (109) (111) 74 (239) (265)
Increase (decrease) in
accounts payable........... 59 231 2,090 194 (2,122)
Increase (decrease) in
accrued interest payable... 14 59 463 67 (1,057)
Increase (decrease) in
deferred revenues and
other...................... 332 (417) 1,061 143 1,152
------ ------- ------- --------- ---------
Total adjustments.......... 2,193 3,092 9,927 880 (299)
------ ------- ------- --------- ---------
Net cash provided by
operating activities...... 1,621 3,139 10,336 1,249 60
------ ------- ------- --------- ---------
Cash flows from investing
activities:
Payments for purchases of
towers and related assets... (7,351) (14,249) (56,075) (11,795) (15,484)
Proceeds from the sale of
land........................ 24 -- -- -- --
Payments for purchases of
land........................ (500) (1,124) (933) (100) (5)
------ ------- ------- --------- ---------
Net cash used in investing
activities................ (7,827) (15,373) (57,008) (11,895) (15,489)
------ ------- ------- --------- ---------
Cash flows from financing
activities:
Proceeds from borrowings on
long-term debt.............. 4,646 39,850 70,800 11,262 15,544
Proceeds from issuance of
common stock................ -- -- 23,202 -- --
Proceeds from issuance of
preferred stock............. 4,133 367 -- -- --
Payments of long-term debt... (1,680) (28,736) (45,633) -- --
Payments of deferred loan
costs and interest rate
cap......................... (98) (1,060) (793) -- --
------ ------- ------- --------- ---------
Net cash provided by (used
in) financing activities.. 7,001 10,421 47,576 11,262 15,544
------ ------- ------- --------- ---------
Net increase (decrease) in
cash and cash
equivalents............... 795 (1,813) 904 616 115
Cash and cash equivalents at
beginning of period.......... 1,110 1,905 92 92 996
------ ------- ------- --------- ---------
Cash and cash equivalents at
end of period................ $1,905 $ 92 $ 996 $ 708 $ 1,111
====== ======= ======= ========= =========
Supplemental disclosure of
cash flow information--cash
paid during the period for
interest..................... $2,915 $ 2,925 $ 3,902 $ 656 $ 1,919
====== ======= ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-171
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997 and March 31, 1997 and 1998 (unaudited)
(1)Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements reflect the financial
position, results of operations, and cash flows of American Tower Corporation
and its wholly-owned subsidiaries, collectively referred to as ATC or the
Company. All significant intercompany transactions and balances have been
eliminated.
(b) Description of Business
The primary business of the Company is the leasing of antenna and transmitter
space on communication towers to companies using or providing cellular
telephone, paging, microwave and specialized mobile radio services. The Company
currently owns and operates communication tower sites located primarily in the
western, eastern and southern United States.
(c) Interim Financial Information
The unaudited financial statements for the three months ended March 31, 1997
and 1998 are presented for comparative purposes only and have been prepared on
a basis substantially consistent with that of the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments, which are of a normal and recurring nature,
considered necessary for a fair presentation. Operating results for the three-
month periods ended March 31, 1997 and 1998 are not necessarily indicative of
the results that may be expected for a full year.
(d) Cash Equivalents
Cash equivalents consist of short-term investments with an original maturity of
three months or less.
(e) Rental Towers and Related Fee Based Assets
Rental towers and related fee based assets are stated at cost. Depreciation on
rental towers and related fee based assets is calculated on the straight-line
method over the estimated useful lives of the assets which range from 3 to 25
years.
(f) Other Assets
Other assets include licenses and permits which are amortized on a straight-
line basis over their expected period of benefit, 25 years, and a noncompete
agreement with a stockholder which is being amortized on a straight-line basis
over its seven year term. Also included are deferred loan costs associated with
various debt issuances which are amortized over the terms of the related debt
based on the amount of outstanding debt using the interest method.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or the fair value less costs of disposal. Adoption of this
statement did not have a material impact on the Company's financial position,
results of operations, or liquidity.
F-172
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(i) Fair Value of Financial Instruments
SFAS No. 107, Disclosure about Fair Value of Financial Instruments requires the
Company to disclose estimated fair values for its financial instruments. Fair
value estimates are made at discrete points in time based on relevant market
information. These estimates may be subjective in nature and involve
uncertainties and matters of significant judgment and therefore, cannot be
determined with precision.
The Company believes that the carrying amounts of its financial instrument
current assets and current liabilities approximate the fair value of such items
due to their short-term nature. The carrying amount of long-term debt
approximates its fair value because the interest rates approximate market.
(j) Revenue Recognition
Revenues are recognized as tower services are provided. Amounts billed or
received prior to services being performed are deferred until such time as the
revenue is earned.
(k) Stock Option Plan
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-
Based Compensation, which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the provisions
of Accounting Principles Board (APB) Opinion No. 25 and provide pro forma net
income disclosures as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosure requirements of SFAS
No. 123.
(l) Interest Rate Cap Agreements
The Company was party to a financial instrument to reduce its exposure to
fluctuations in interest rates. The purchase price of the interest rate cap
agreements was capitalized and included in prepaid expenses in the accompanying
consolidated balance sheets and amortized over the life of the agreements using
the straight-line method. The interest rate cap agreements expired in December
1997.
(m) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(n) Reclassifications
Certain reclassifications have been made to prior period amounts in order to
conform to the current presentation.
(2)Rental Towers and Related Fee Based Assets
Asset Acquisitions
In December 1995, the Company acquired in a single transaction substantially
all of the tower sites and locations of CSX Realty Development Corporation
(CSX) for $9,750,000 which was funded through cash and
F-173
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
seller financed debt. In addition during 1995, the Company acquired 81 other
tower sites in several unrelated transactions.
In October 1996, the Company acquired in a single transaction substantially all
of the tower sites and locations of Prime Communications Sites Holdings LLC and
its subsidiary (Prime) for approximately $15.3 million which was funded through
borrowings under the Company's credit facility, seller financed debt and the
issuance of common stock of the Company to the seller. In addition, during 1996
the Company acquired four other tower sites in two unrelated transactions.
In July 1997, the Company acquired in a single transaction 32 tower sites for
approximately $11.8 million which was funded through borrowings under the
Company's credit facility. In addition, during 1997 the Company acquired 89
tower sites in several unrelated transactions totaling $25.2 million. The
purchase price for all acquisitions has been allocated to the land, towers and
related fee based assets and licenses and permits based on their respective
estimated fair values.
The following unaudited pro forma information represents the consolidated
results of operations of the Company as if the 1997 acquisitions had occurred
on January 1, 1996, and the 1996 acquisitions had occurred on January 1, 1995
(in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Rental revenue.................................... $10,575 $17,290 $21,578
Operating income.................................. $ 3,737 $ 7,835 $ 9,039
Net loss.......................................... $(1,442) $(2,002) $ (326)
</TABLE>
The pro forma information is not necessarily indicative of operating results
that would have occurred if each acquisition had been consummated as of the
respective dates, nor is it necessarily indicative of future operating results.
The actual results of operations of the acquired assets are included in the
Company's consolidated financial statements only from the date of acquisition.
Tower Disposal
On January 13, 1997, the Company entered into a binding letter agreement with a
related shareholder and director to sell 45 communication towers for a purchase
price of $700,000. The closing of this transaction occurred during March 1997.
At the closing, the Company sold the communication towers to the shareholder in
exchange for a $700,000 reduction in payments owed under the subordinated note
payable to the shareholder issued in October 1994. See note 6 for further
discussion. Due to the agreement, the related assets have been reflected as
assets held for resale on the December 31, 1996 balance sheet.
(3)Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1996 1997 1998
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Prepaid land leases................................... $ 619 $637 $727
Other current assets.................................. 174 82 257
------ ------ ----
$ 793 $719 $984
====== ====== ====
</TABLE>
F-174
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4)Other Assets
Other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1996 1997 1998
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Deferred loan costs, net.............................. $1,009 $ 751 $719
Licenses and permits, net............................. 4,428 5,898 6,289
Noncompete costs, net................................. 623 538 502
Other assets.......................................... 209 245 275
------ ------ ------
$6,269 $7,432 $7,785
====== ====== ======
</TABLE>
(5)Deferred Revenues and Other Current Liabilities
Deferred revenues and other current liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December
31,
----------- March
1996 1997 31,
---- ------ 1998
------ (unaudited)
<S> <C> <C> <C> <C>
Deferred revenues................................ $201 $1,125 $1,799
Deferred compensation contracts.................. 300 150 150
Accrued expenses and other....................... 477 850 1,328
---- ------ ------
$978 $2,125 $3,277
==== ====== ======
</TABLE>
(6)Long-term Debt
On October 11, 1996, the Company entered into a senior credit facility (the
Credit Facility) in connection with the acquisition of the communication towers
from Prime as discussed in note 2. The Credit Facility was extinguished during
1997 in connection with the Company entering into a new Senior Credit
Agreement, discussed in further detail below.
The Credit Facility included a $23 million revolving line of credit, which
included a sub-allotment for letters of credit, and a $37 million term loan
facility. The Company utilized the proceeds of the term loan to (i) repay $21.6
million of principal and interest to its existing senior lenders, (ii) prepay
in full $6.1 million of principal and interest to its senior subordinated
lender, and (iii) to fund $8.6 million of the purchase price for the Prime
acquisition.
The Credit Facility incurred interest at LIBOR plus 275 basis points for
interest periods ranging up to five months; thereafter, the credit facility
incurred interest at LIBOR plus an applicable margin, not to exceed 275 basis
points, based upon a defined leverage ratio, for interest periods of one, three
or six months. The term loan and the revolving Credit Facility required
principal amortization with quarterly payments totaling $5.6 million in 1999.
The Credit Facility contained restrictions on payment of dividends, and set
forth minimum operating cash flows, as defined, to be attained by the Company.
Immediately prior to entering into the Credit Facility in October 1996, the
Company owed its senior lenders $21.5 million under a term loan, revolving line
of credit and acquisition line of credit facilities which had been amended and
extended in December 1995. The outstanding balance of the prior senior
agreement bore interest at LIBOR plus 275 basis points. In conjunction with
entering into the Credit Facility, the Company expensed $451,000, net of taxes,
of deferred loan and other financing costs associated with prior credit
facilities. In conjunction with the amendment of the Company's senior credit
agreement in December 1995, the Company expensed $207,000, net of taxes, of
deferred loan and other financing costs associated with prior credit
facilities. Such deferred loan and other financing costs written off in 1995
have been reflected as extraordinary losses in the consolidated statements of
operations.
F-175
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 30, 1997, the Company entered into a new senior credit agreement (the
Credit Agreement). The Credit Agreement includes a $100 million revolving line
of credit, which includes a sub-allotment for letters of credit and a $25
million term loan facility. In connection with entering into the Credit
Agreement, the Company expensed $619,000, net of taxes, of deferred loan and
other financing costs associated with the prior credit facility. These
deferred loan and other financing costs written off in 1997 have been
reflected as extraordinary loss in the consolidated statements of operations.
Seller Acquisition Financing
In connection with the acquisition of the towers and related sites in October
1996 as more fully discussed in note 2 and above, the Company issued an
aggregate of $2.5 million of subordinated term notes to certain
sellers. Payment terms required (i) a single installment on October 11, 2004
or (ii) immediate payment upon an initial public offering. The subordinated
term notes incurred interest at 11% payable quarterly commencing January 1997.
During 1997 these notes were fully repaid.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------- March 31,
1996 1997 1998
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
Term note payable, due in quarterly payments
beginning in September 1999, interest at a base
rate, as defined................................ $ -- $70,800 $86,350
Term note payable, due in quarterly payments
beginning in January 1999, interest at 8.38%
until May 1997 at which time interest is LIBOR
plus a maximum of 2.75%. Balance repaid during
1997............................................ 39,850 -- --
Seller financing, noninterest-bearing secured
note payable, due in annual installments
commencing December 20, 1996 through December
20, 2000........................................ 6,313 5,313 5,313
Subordinated note payable to shareholder,
interest payable in quarterly installments at
10.5% per annum; payment of principal due in
annual installments beginning November 15, 2001;
original principal reduced by value of stock
warrant (see note 9). Balance repaid during
1997............................................ 3,000 -- --
Subordinated notes payable, interest payable in
quarterly installments at 11.0% per annum;
single installment due October 2004. Balance
repaid during 1997.............................. 2,561 -- --
Noninterest-bearing unsecured note payable,
maturing in 1999................................ 500 500 500
Note payable, due in quarterly installments
commencing January 1, 1995 bearing interest at
10%. Balance repaid during 1997................. 300 -- --
Other............................................ 43 34 34
Discounts associated with noninterest-bearing
obligations..................................... (1,671) (1,169) (1,058)
Discount assigned to stock warrants (see note
9).............................................. (50) -- --
------- ------- -------
Total long-term debt........................... 50,846 75,478 91,139
Less current portion............................. 1,075 1,000 1,000
------- ------- -------
Long-term debt excluding current portion....... $49,771 $74,478 $90,139
======= ======= =======
</TABLE>
The Company was party to a financial instrument in order to reduce its
exposure to fluctuations in interest rates. The agreement provided for the
third parties to make payments to the Company whenever a defined floating
interest rate exceeded 10 percent per annum. No such payments were made in
1995 or 1996. Payments on the interest rate cap agreements were based on the
notional principal amount of the agreements; no funds were actually borrowed
or are to be repaid as of December 31, 1996. The unamortized portion of the
purchase price was approximately $107,000 and $50,000 at December 31, 1995 and
1996, respectively. $5,000,000 under this interest rate cap agreement expired
in 1995 and the remaining $9,000,000 agreement expired in December 1997.
F-176
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The aggregate annual maturities of long-term debt (not reduced for discount
rates on noninterest-bearing obligations) for each of the five years subsequent
to December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1998................................. $ 1,000
1999................................. 2,250
2000................................. 6,457
2001................................. 5,000
2002................................. 8,300
Thereafter........................... 53,640
-------
$76,647
=======
</TABLE>
(7)Federal Income Taxes
Income tax expense for the years ended December 31, 1995, 1996, and 1997
consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ---- ----
<S> <C> <C> <C>
Current.................................................... $ -- $-- $--
Deferred................................................... (217) 303 801
------ ---- ----
$(217) $303 $801
====== ==== ====
</TABLE>
Income tax expense at December 31, 1995, 1996 and 1997 differed from the
amounts computed by applying the U.S. federal income tax rate of 34% to income
before taxes and extraordinary items as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
----- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense (benefit).................. $(198) $272 $622
State taxes................................................ 29 28 30
Adjustment of prior taxes.................................. -- -- 112
Other...................................................... (48) 3 37
----- ---- ----
Total.................................................... $(217) $303 $801
===== ==== ====
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards (NOLs)
of approximately $14,285,000 for U.S. Federal income tax purposes. The NOLs, if
unused, will expire between 2008 and 2012. The portion of the NOLs which
existed prior to October 15, 1994 are subject to annual limitations imposed by
the Internal Revenue Code under Section 382. The current NOL balance is subject
to limitations should a change in ownership occur.
F-177
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996
and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.............................. $3,472 $5,357
Accrued liabilities.......................................... 64 92
Other........................................................ 72 67
------ ------
Net deferred tax assets..................................... 3,608 5,516
------ ------
Deferred tax liability--rental towers and related fee based
assets, principally due to differences in basis for financial
reporting purposes and tax purposes.......................... 9,945 12,283
------ ------
Net deferred tax liability.................................. $6,337 $6,767
====== ======
</TABLE>
There is no valuation allowance at December 31, 1996 and 1997 recorded against
the deferred tax assets. It is the opinion of management that the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies will more likely than not result in the realization of the
deferred tax assets.
(8)Redeemable Preferred Stock
In December 1995, the Company completed a private placement offering to its
existing security holders to sell up to 22,500 newly created shares of Series A
Redeemable Preferred Stock, $0.01 par value (Series A Preferred Stock), at $200
per share. Net proceeds to the Company were approximately $4,500,000.
The shares of Series A Preferred Stock were sold together with 10-year warrants
to purchase a total of 22,500 shares of common stock at a nominal exercise
price. The Company determined the warrants to have an estimated fair value of
$500,000 at the offering date which was recorded as additional paid-in capital
and a reduction of the outstanding Series A Preferred Stock. As of December 31,
1997, all of these warrants had been exercised.
Each share of Series A Preferred Stock has a liquidation preference of $200 per
share. The Company at its option can redeem any or all the outstanding shares
of preferred stock for $200 per share. The Company is required to redeem all
such shares at a price of $200 per share upon the occurrence of (i) a public
offering or (ii) a change of control. The preferred shares have no voting or
dividend rights.
(9)Stockholders' Equity
In conjunction with the acquisition of Bowen-Smith Holdings, Inc., the Company
issued warrants to the senior subordinated debt holder for 12,462 shares of
common stock with an exercise price of $.01 per share. This warrant was
immediately exercisable into common stock of the Company. The Company
determined this warrant to have an estimated market value of $600,000 at the
acquisition date which was recorded as additional paid-in capital and a
reduction of the outstanding principal of the senior subordinated note payable.
The Company recorded accretion of the debt discount of $75,000 and $59,000 for
the years ended December 31, 1995 and 1996, respectively. As discussed further
in note 6, the Company prepaid the senior subordinated debt holder in
connection with the October 1996 amendment and extension of the Company's
senior credit facility. The remaining unamortized debt discount of $450,000 was
included as an extraordinary loss on the consolidated statement of operations
for the year ended December 31, 1996. The senior subordinated warrant holder
could require the Company to purchase the stock warrants beginning in October
2002. The put amount was defined in the warrant agreement with the senior
subordinated lender. At December 31, 1996, the accompanying consolidated
financial statements include an accrual for $174,000 related to the put feature
of the warrants granted to the senior subordinated lender. These warrants were
exercised and the put retired on June 30, 1997.
F-178
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1994, a warrant was also issued to a stockholder for 3,115 shares of
common stock with a nominal exercise price. Due to certain restrictions as to
the exercisability of this warrant, it was determined to have a value of
$75,000. This amount is reduced against the principal amount of the
subordinated note payable to stockholder. The Company recorded accretion of the
debt discount of $12,000 for each of the years ended December 31, 1995 and
1996. This warrant was exercised in 1997 in connection with the retirement of
the subordinated note payable to stockholder.
In June 1997, the Company completed a private placement offering of 36,049
shares of common stock with Clear Channel Communications, Inc. whereby the
Company raised proceeds of $23 million, net of issuance costs of approximately
$2 million.
(10)Stock Option Plan
In 1995, the Company adopted a stock option plan (the Plan) pursuant to which
the Company's Board of Directors may grant stock options to officers and key
employees. The Plan authorizes grants of options to purchase up to 9,231 shares
of common stock. Stock options are granted with an exercise price equal to the
stock's fair market value at the date of grant. All stock options have 10-year
terms and vest and become fully exercisable after a range of 3 to 4 years from
the date of grant.
At December 31, 1997, there were 2,731 additional shares available for grant
under the Plan. The per share weighted-average value of stock options granted
during 1995, 1996, and 1997 was $37, $192, and $233, respectively, on the date
of grant, using the Black Scholes model with the following assumptions: risk-
free interest rate of 5.71% for the 1995 options, 6.58% for the 1996 options,
and 6.50% for the 1997 options, expected life of 8 years, expected volatility
of 0%, and an expected dividend yield of 0%.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
----- ---- ----
<S> <C> <C> <C>
Net income (loss)
As reported................................................ $(572) $ 47 $377
Pro forma.................................................. (579) (231) 73
</TABLE>
At December 31, 1996, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $100-$475, and 3.7 years,
respectively. At December 31, 1997, the range of exercise prices and weighted-
average remaining contractual life of outstanding options was $100--$475, and 7
years, respectively. Stock option activity during the periods indicated is as
follows:
<TABLE>
<CAPTION>
Weighted average
Number of shares exercise price
---------------- ----------------
<S> <C> <C>
Balance at December 31, 1994 -- $--
Granted................................... 1,100 100
----- ----
Balance at December 31, 1995............... 1,100 100
Granted................................... 4,600 475
Forfeited................................. (500) 100
----- ----
Balance at December 31, 1996............... 5,200 432
Granted................................... 1,300 475
Forfeited................................. -- --
----- ----
Balance at December 31, 1997............... 6,500 $440
===== ====
</TABLE>
F-179
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1996 and 1997, the number of options exercisable was 116 and
1,805, respectively, and the weighted-average exercise price of these options
was $100 and $392 per share respectively.
(11)Related Party Transactions and Commitments
Leases
In the ordinary course of business the Company leases land and buildings under
long-term (ranging from one to ten years) operating leases. Total rent expense
relating to land and building leases was approximately $459,000, $665,000,
$1,285,000, $307,000 and $457,000 for the years ending December 31, 1995, 1996
and 1997 and the three months ended March 31, 1997 and 1998, respectively.
Minimum future lease payments for the years ending December 31, are as follows
(in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 1,517
1999................................................................ 1,363
2000................................................................ 1,223
2001................................................................ 1,271
2002................................................................ 829
Thereafter.......................................................... 4,237
-------
Total minimum lease payments...................................... $10,440
=======
</TABLE>
Related Party Transactions
The Company has entered into consulting agreements with three shareholders. The
total management payments under these agreements was $300,000 for each of the
years ended December 31, 1996 and 1997, respectively, and future minimum
payments required by these management agreements are $300,000 and $262,500 for
the years ended December 31, 1998 and 1999, respectively.
The Company was subject to a management agreement, which was terminated during
1997, with a private investment firm which is a significant shareholder of the
Company. The Company paid $127,000 and $342,725 to this investment firm during
the years ended December 31, 1996 and 1997, respectively. The Company's
president and chairman, as well as another director are the principal executive
officers in the private investment firm.
The Company leases land for certain of its tower sites from an entity owned by
a shareholder. During the years ended December 31, 1996 and 1997, rental
expense relating to these land leases totaled $35,000 and $63,000,
respectively. Additionally, prior to 1997, the Company leased its office
facility from the same entity. Annual expense for the office facility
approximated $48,000 per year. The same shareholder is President of a tower
fabrication and construction company. The Company has acquired the majority of
its new towers from this entity, and during the years ended December 31, 1996
and 1997, the Company made payments of $1,710,000 and $3,057,000 respectively,
to this entity.
F-180
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12)Supplemental Disclosure of Noncash Activities
The Company had the following noncash financing and investing activities (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
Notes payable issued for tower acquisitions............. $8,164 2,361 --
Common stock issued for acquisitions.................... -- 4,127 1,000
Reduction of note payable in connection with disposal of
towers................................................. -- -- 700
Put accrual written-off................................. -- -- 174
Notes payable issued for noncompete agreements.......... 160 -- --
Accrued acquisition costs............................... 150 -- --
Accrued debt refinancing costs.......................... 100 -- --
</TABLE>
(13)Merger Agreement
In December 1997, the Company entered into a Merger Agreement with American
Tower Systems Corporation (ATS) which, subject to certain conditions, will
result in the merger of the Company into ATS. The merger is scheduled to be
completed during the first half of 1998.
F-181
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
OPM-USA-INC.
Sarasota, Florida
We have audited the accompanying balance sheets of OPM-USA-INC. (the "Company")
as of December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity (deficiency), and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements 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 financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1996, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
March 2, 1998
F-182
<PAGE>
OPM-USA-INC.
BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 790,267 $ 28,673
Accounts receivable................................. 349,628 --
Prepaid expenses and other current assets........... 268,236 60,830
----------- ----------
Total current assets.............................. 1,408,131 89,503
PROPERTY AND EQUIPMENT, Net........................... 15,333,257 2,694,349
OTHER ASSETS.......................................... 93,776 91,049
----------- ----------
TOTAL................................................. $16,835,164 $2,874,901
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable.................................... $ 2,104,929 $ 708,003
Accrued compensation................................ 177,210 --
Accrued expenses.................................... 189,233 2,384
Deferred revenue.................................... 804,705 18,932
Current maturities of long-term debt................ 1,744 1,587
----------- ----------
Total current liabilities......................... 3,277,821 730,906
----------- ----------
LONG-TERM DEBT........................................ 16,333,310 1,600,853
----------- ----------
COMMITMENTS AND CONTINGENCIES......................... -- --
----------- ----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock: $1.00 par value; 100 shares
authorized; 100 shares issued and outstanding
(including treasury shares)........................ 100 100
Additional paid-in capital.......................... 999,956 999,956
Accumulated deficit................................. (2,276,023) (456,914)
Treasury stock, at cost, 10 shares at December 31,
1997............................................... (1,500,000) --
----------- ----------
Total stockholders' equity (deficiency)........... (2,775,967) 543,142
----------- ----------
TOTAL................................................. $16,835,164 $2,874,901
=========== ==========
</TABLE>
See notes to financial statements.
F-183
<PAGE>
OPM-USA-INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
REVENUES--Tower revenue................................ $ 863,258 $ 60,402
EXPENSES:
Operating expenses, excluding depreciation and amor-
tization............................................ 1,145,699 280,868
Depreciation and amortization........................ 428,499 43,230
General and administrative expenses.................. 488,496 138,967
----------- ---------
OPERATING LOSS......................................... (1,199,436) (402,663)
----------- ---------
OTHER INCOME (EXPENSE):
Interest expense..................................... (635,956) (17,625)
Other income......................................... 16,283 7,621
----------- ---------
Total other expense................................ (619,673) (10,004)
----------- ---------
NET LOSS............................................... $(1,819,109) $(412,667)
=========== =========
</TABLE>
See notes to financial statements.
F-184
<PAGE>
OPM-USA-INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated Treasury
Stock Capital Deficit Stock Total
------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1996................... $100 $ 3,281 $ (44,247) $ -- $ (40,866)
Net loss.............. -- -- (412,667) -- (412,667)
Contributed capital... -- 996,675 -- -- 996,675
---- -------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1996................... 100 999,956 (456,914) -- 543,142
Net loss.............. -- -- (1,819,109) -- (1,819,109)
Acquisition of trea-
sury stock........... -- -- -- (1,500,000) (1,500,000)
---- -------- ----------- ----------- -----------
BALANCE, DECEMBER 31,
1997................... $100 $999,956 $(2,276,023) $(1,500,000) $(2,775,967)
==== ======== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-185
<PAGE>
OPM-USA-INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $ (1,819,109) $ (412,667)
Adjustments to reconcile net loss to net cash pro-
vided by operating activities:
Depreciation and amortization..................... 428,499 43,230
Interest expense added to loan principal.......... 2,400 900
Changes in operating assets and liabilities:
Prepaid expenses and other current assets....... (207,406) (60,830)
Accounts receivable............................. (349,628) --
Loan origination costs.......................... (35,000) (88,167)
Accounts payable and accrued expenses........... 1,760,985 655,049
Deferred revenue................................ 785,773 18,932
------------ -----------
Net cash provided by operating activities......... 566,514 156,447
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES--
Purchase of property and equipment................. (13,034,977) (2,736,879)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions.............................. -- 996,675
Purchase of treasury stock......................... (1,500,000) --
Proceeds from long-term debt....................... 14,731,638 1,602,556
Repayment of long-term debt........................ (1,581) (126)
------------ -----------
Net cash provided by financing activities.......... 13,230,057 2,599,105
------------ -----------
INCREASE IN CASH.................................... 761,594 18,673
CASH, BEGINNING OF YEAR............................. 28,673 10,000
------------ -----------
CASH, END OF YEAR................................... $ 790,267 $ 28,673
============ ===========
</TABLE>
See notes to financial statements.
F-186
<PAGE>
OPM-USA-INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--OPM-USA-INC. (the "Company") develops and manages telecommunication
antenna site facilities in the Southeastern United States.
Sale of Company--In September 1997, the Company's stockholders entered into an
agreement to sell their common stock to American Tower Systems, Inc. ("ATSI")
for a maximum purchase price of $105,000,000. The purchase price is contingent
upon the actual number of towers to be built on sites identified by OPM and the
cash flows generated from those towers. Approximately $21,300,000 was paid at
closing. The sale closed on January 8, 1998. ATSI also agreed to provide
financing on identified sites which are in various stages of receiving site
permits to enable an additional 190 towers to be constructed. The aggregate
amount of this financing is limited to $37,000,000, of which $5,784,156 was
outstanding at December 31, 1997.
Concentration of Credit Risk--The Company performs ongoing credit evaluation of
its customers' financial condition. As of December 31, 1997, there are three
customers which individually comprise approximately 47%, 17% and 16% of the
Company's total revenue.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment--Property and equipment is stated at cost, less
accumulated depreciation. Repairs and maintenance are charged to expense in the
year incurred. Depreciation for financial statement purposes is computed using
the straight-line method over the estimated useful lives of the assets.
Telecommunication towers and antenna site equipment are depreciated over a
period of 15 years, and office furniture, equipment, and automobiles are
depreciated over the useful lives of the assets ranging from 5 to 7 years.
Construction in Progress--The Company's tower construction expenditures are
recorded as construction in progress until the assets are placed in service.
The Company capitalizes subcontractor employee labor and overhead costs
incurred in connection with the construction of towers. As assets are placed in
service, they are transferred to the appropriate property and equipment
category and depreciation commences.
Other Assets--Other assets consist principally of deferred financing costs
which are being amortized over a three-year period. Accumulated amortization
aggregated $35,500 and $3,200 at December 31, 1997 and 1996, respectively.
Long-Lived Assets--The Company records impairment losses on long-lived assets
if events and circumstances indicate that the assets might be impaired.
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. Through December 31, 1997, no impairments
requiring adjustments have occurred.
Revenue Recognition and Deferred Revenue--Tower revenues are recognized as
earned. Deferred revenue is recorded when tower rents are paid in advance of
performance.
Income Taxes--The Company is an S corporation for federal and state income tax
purposes. The stockholders report any income or loss of the Company directly on
their personal tax returns.
F-187
<PAGE>
OPM-USA-INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997 and 1996
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Land.............................................. $ 575,102 $ 110,000
Telecommunication towers and antenna site equip-
ment............................................. 11,525,984 1,559,302
Office furniture, equipment and automobiles....... 326,439 109,893
Construction in progress.......................... 3,342,056 955,243
----------- ----------
Total........................................... 15,769,581 2,734,438
Less accumulated depreciation..................... (436,324) (40,089)
----------- ----------
Property and equipment, net....................... $15,333,257 $2,694,349
=========== ==========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
Lease Obligations--The Company leases office and antenna site facilities under
various operating lease agreements expiring through the year 2016. The Company
is committed to minimum rental payments under leases (exclusive of real estate
taxes, maintenance and other related charges) at December 31, 1997, as follows:
<TABLE>
<CAPTION>
Years Ending December 31:
-------------------------
<S> <C>
1998.......................................................... $ 715,623
1999.......................................................... 737,092
2000.......................................................... 759,205
2001.......................................................... 781,981
2002.......................................................... 805,440
Thereafter.................................................... 14,176,317
-----------
Total......................................................... $17,975,658
===========
</TABLE>
Rent expense charged to operations for the years ended December 31, 1997 and
1996 amounted to $277,600 and $43,500, respectively.
Contract Obligations--The Company has contract obligations for the erection of
tower sites of $4,531,000 at December 31, 1997.
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 financial position, the
results of operations or liquidity.
4. CUSTOMER LEASES
The Company leases space on its tower properties to customers for set periods
of time. Long-term leases typically contain provisions for renewals and
specified rent increases over the lease terms. The Company has minimum lease
commitments from its customers under these leases at December 31, 1997, as
follows:
F-188
<PAGE>
OPM-USA-INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Years Ending December 31:
-------------------------
<S> <C>
1998.......................................................... $ 1,375,980
1999.......................................................... 1,384,847
2000.......................................................... 1,394,065
2001.......................................................... 1,403,636
2002.......................................................... 1,582,977
Thereafter.................................................... 10,171,488
-----------
$17,312,993
===========
</TABLE>
5. RELATED-PARTY TRANSACTIONS
The Corporation has engaged with Atlantic Tower Construction, Inc. ("ATC"), a
corporation 100% owned by the Company's existing stockholder, to construct
certain telecommunication antenna site facilities. Payments to ATC aggregated
$922,700 and $617,000 for the years ended December 31, 1997 and 1996,
respectively.
In January 1998, the Company's stockholder paid bonuses aggregating $600,000 to
certain employees of the Company in connection with the sale of the Company.
Such amounts will be expensed by the Company in 1998.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Unsecured loan payable to stockholder, Owen P.
Mills, in the original amount of $937,786, with
no repayment terms, including interest at the
rate of 8% per annum............................. $ 1,144,249 $ 972,110
Secured loan payable to Suntrust Bank in the
original amount of $575,000. Suntrust Bank has
made available a nonrevolving credit facility in
an amount not to exceed $10,000,000 for sites and
fully constructed antenna towers located thereon.
The loan matures in three years, at which time
the principal balance and accrued interest are
payable in full. The rate of interest accrues on
the outstanding principal balance of the loan
based on a floating rate equal to 3% above the
LIBOR rates...................................... 9,350,500 575,000
Secured loan payable to ATSI for financing con-
struction of antenna towers and sites, including
interest at a rate of 11.5% per annum............ 5,784,156 --
Unsecured mortgage loan payable to
Goodwin/Woodhouse in the original amount of
$25,000; interest payable at the rate of 9.5% per
annum, due November 30, 2006..................... 23,293 24,874
Secured loan payable to Huntington Bank in the
original amount of $30,000, interest accrued at
the rate of 8% per annum, principal and interest
due March 31, 2013............................... 32,856 30,456
----------- ----------
Total............................................. 16,335,054 1,602,440
Less current maturities........................... (1,744) (1,587)
----------- ----------
Long-term debt--net............................... $16,333,310 $1,600,853
=========== ==========
</TABLE>
In connection with the sale of the Company, the loans to the stockholder,
Suntrust Bank and ATS were paid in full (see Note 1).
* * * * * *
F-189
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wauka Communications, Inc.:
We have audited the accompanying consolidated balance sheet of Wauka
Communications, Inc. (a Georgia corporation) and subsidiary as of December 31,
1997 and the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for the year ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wauka Communications, Inc. and
subsidiary as of December 31, 1997 and the results of their operations and
their cash flows for the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
November 25, 1998
F-190
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December September
31, 30,
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................... $ 387,514 $ 196,015
Accounts receivable................................ 148,003 94,383
Due from affiliates (current)...................... 23,416 0
Prepaids and other current assets.................. 47,418 21,990
----------- -----------
Total current assets............................. 606,351 312,388
----------- -----------
PROPERTY AND EQUIPMENT, net (Note 2)................. 10,287,523 16,560,247
INTANGIBLE ASSETS, net of accumulated amortization of
$196,752 and $284,791 in 1997 and 1998, respectively
(Note 2)............................................ 1,170,395 1,152,356
DUE FROM AFFILIATES.................................. 756,735 0
NOTES RECEIVABLE..................................... 0 434,050
OTHER ASSETS......................................... 3,400 4,196
----------- -----------
Total assets..................................... $12,824,404 $18,463,237
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt............... $ 83,964 $ 50,398
Margin loan payable (Note 3)....................... 1,279,270 0
Accounts payable................................... 287,423 215,282
Accrued expenses................................... 374,204 150,964
Deferred revenue................................... 178,729 269,748
Due to affiliates (current)........................ 0 54,162
----------- -----------
Total current liabilities........................ 2,203,590 740,554
----------- -----------
LONG-TERM DEBT, excluding current portion............ 7,083,120 9,497,769
DUE TO SHAREHOLDERS.................................. 2,593,105 2,460,308
DUE TO AFFILIATES.................................... 1,498,928 3,918,918
COMMITMENTS AND CONTINGENCIES (Note 6 and 7)
SHAREHOLDERS' EQUITY (DEFICIT) (Note 5):
Common stock, $1 par value; 1,000 shares
authorized, issued, and outstanding in 1997 and
1998.............................................. 1,000 1,000
Paid-in capital.................................... 800,000 3,600,000
Accumulated deficit................................ (1,355,339) (1,755,312)
----------- -----------
Total shareholders' equity (deficit)............. (554,339) 1,845,688
----------- -----------
Total liabilities and shareholders' equity
(deficit)....................................... $12,824,404 $18,463,237
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-191
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30,
December 31, ----------------------
1997 1997 1998
------------ ---------- ----------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Tower rental............................. $3,031,832 $1,948,299 $3,971,335
Construction income...................... 2,644,059 2,282,435 204,702
Land rental income....................... 166,593 122,804 103,049
Other.................................... 370,718 257,720 194,022
---------- ---------- ----------
Total revenues......................... 6,213,202 4,611,258 4,473,108
---------- ---------- ----------
OPERATING EXPENSES:
Direct................................... 1,695,417 1,153,623 1,870,431
Construction costs....................... 2,378,151 2,022,009 88,083
Corporate, general and administrative.... 1,208,936 806,763 1,169,724
Depreciation and amortization............ 571,310 363,569 860,486
---------- ---------- ----------
Total operating expenses............... 5,853,814 4,345,964 3,988,724
---------- ---------- ----------
OPERATING INCOME........................... 359,388 265,294 484,384
---------- ---------- ----------
OTHER (EXPENSE) INCOME:
Interest expense, net.................... (741,556) (489,682) (897,947)
Other.................................... (131) (7,443) 13,590
---------- ---------- ----------
(741,687) (497,125) (884,357)
---------- ---------- ----------
NET LOSS................................... $ (382,299) $ (231,831) $ (399,973)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-192
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period Ended September 30, 1998 (Unaudited)
and the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Total
Additional Shareholders'
Common Paid-In Accumulated Equity
Stock Capital Deficit (Deficit)
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996....... $1,000 $ 800,000 $ (973,040) $ (172,040)
Net loss......................... 0 0 (382,299) (382,299)
------ ---------- ----------- ----------
BALANCE, DECEMBER 31, 1997....... 1,000 800,000 (1,355,339) (554,339)
Conversion of affiliate payables
to additional paid-in capital
(unaudited)..................... 0 2,800,000 0 2,800,000
Net loss (unaudited)............. 0 0 (399,973) (399,973)
------ ---------- ----------- ----------
BALANCE, SEPTEMBER 30, 1998
(unaudited)..................... $1,000 $3,600,000 $(1,755,312) $1,845,688
====== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-193
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30,
December 31, ------------------------
1997 1997 1998
------------ ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................. $ (382,299) $ (231,831) $ (399,973)
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation and amortization
expense............................ 571,310 363,569 860,486
Gain on disposal of land, property,
and equipment...................... (7,313) (7,313) (16,590)
Changes in assets and liabilities:
Accounts receivable and due from
affiliate.......................... 13,394 (487,347) 77,036
Prepaids and other current
assets........................... (38,049) (58,680) 25,428
Accounts payable and accrued
expenses......................... 482,797 471,494 (295,381)
Deferred revenue.................. 47,120 (89,056) 91,024
----------- ----------- -----------
Total adjustments................. 1,069,259 192,667 742,003
----------- ----------- -----------
Net cash provided by (used in)
operating activities............. 686,960 (39,164) 342,030
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment,
net.................................. (6,853,829) (5,308,801) (7,219,581)
Proceeds from sale of property and
equipment............................ 20,800 20,800 191,000
Additions to other assets and
intangibles.......................... (53,872) (53,872) (70,796)
(Increase) decrease in due from
affiliates........................... (468,054) 288,681 756,735
Issuance of notes receivable.......... 0 0 (434,050)
----------- ----------- -----------
Net cash used in investing
activities....................... (7,354,955) (5,053,192) (6,776,692)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under margin loan...... 192,632 167,492 (1,279,270)
Net borrowings under line of credit... 6,477,250 5,336,313 2,522,750
Payments on long-term debt............ (113,155) (89,625) (141,668)
Advances from (repayments to)
shareholders......................... 223,270 178,748 (132,801)
Advances from (repayments to)
affiliates........................... 255,438 (520,646) 5,274,152
----------- ----------- -----------
Net cash provided by financing
activities....................... 7,035,435 5,072,282 6,243,163
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH......... 367,440 (20,074) (191,499)
CASH, beginning of period............... 20,074 20,074 387,514
----------- ----------- -----------
CASH, end of period..................... $ 387,514 $ 0 $ 196,015
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest................ $ 394,900 $ 296,200 $ 621,000
----------- ----------- -----------
Noncash transfer of property and
equipment to affiliates, net......... $ 458,796 $ 458,796 $ 0
----------- ----------- -----------
Noncash conversion of due to affiliate
to additional paid-in capital........ $ 0 $ 0 $ 2,800,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-194
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION AND NATURE OF OPERATIONS
On June 17, 1996, the shareholders acquired all the assets of Wauka
Communications, Inc. (a Georgia corporation) (the "Company") under the terms of
a stock purchase and sale agreement. The Company is headquartered in Roswell,
Georgia, and owns real property. The acquired assets consisted primarily of
separate tracts of land. The purchase price was approximately $800,000 and was
funded by the shareholders based on their ownership percentage. The transaction
was accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16 and accordingly the purchase price has been allocated to the
assets based on their estimated fair value as of the acquisition dates. The
excess of the cost over the estimated fair value of the net tangible assets
acquired has been allocated to goodwill.
On June 30, 1998, shareholders of the Company contributed their 100% ownership
interest of Grid Towers LLC ("Grid") to the Company. The transaction has been
accounted for in a manner similar to a pooling of interests. Grid owns
communications towers throughout Georgia on which customers lease space for
radio transmitters and antennas. The Company's primary customers are national
and multiregional cellular, personal communication services, specialized mobile
radio, and pager companies; local radio stations; two-way radio users; and VHS
and UHF television stations. As a result of the contribution of interest, Grid
is a wholly owned subsidiary of the Company.
The Company has experienced net losses as a result of management's focus on
acquiring property and towers, obtaining new customer license agreements, and
generally increasing business. The Company plans to continue these efforts in
the coming year. Accordingly, the Company expects that its cost of capital will
have a negative impact on short-term results, but expects a profit in the near
future. During the year ended December 31, 1997, the Company entered into an
agreement for a $9,000,000 line of credit (Note 4) to fund operations and
expand operating base. Additionally, during the year ended December 31, 1997,
the Company received approximately $215,000 in additional funding from its
shareholders (Note 5) and approximately $282,000 in additional funding from
affiliates. In addition, the Company's shareholders currently have no plans to
discontinue financial support of the Company. Based on the above, management
believes sufficient funds will be available to support the Company's operations
throughout fiscal year 1998.
Additionally, effective October 26, 1998, the Company sold substantially all of
its assets and the business related to these assets to American Tower
Corporation (Note 8).
Presentation
The accompanying consolidated financial statements have been prepared on the
accrual basis of accounting. The consolidated financial statements reflect the
assignment of the member's interest in Grid in a manner similar to a pooling of
interest and include the accounts of the company and its wholly owned
subsidiary. All significant intercompany accounts and transactions have been
eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Usage fees, rental income, and management fees are recognized monthly as
earned. Construction income is recognized using the percentage-of-completion
method. All construction projects had been completed and the related revenue
recognized by December 31, 1997. Deferred revenue represents prepayments of
usage fees relating to periods subsequent to December 31, 1997 and September
30, 1998.
F-195
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed at December
31, 1997 and September 30, 1998 using the straight-line method over the
following useful lives:
<TABLE>
<CAPTION>
December September
Lives 31, 1997 30, 1998
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Land................................... $ 579,913 $ 172,000
Buildings and improvements............. 15-30 years 2,324,398 4,016,409
Towers and equipment................... 10 years 7,323,024 13,233,711
Machinery and equipment................ 3-10 years 127,604 304,131
Construction in progress............... 600,818 274,200
----------- -----------
10,955,757 18,000,451
Accumulated depreciation............... (668,234) (1,440,204)
----------- -----------
$10,287,523 $16,560,247
=========== ===========
</TABLE>
Depreciation expense was $468,219 for the year ended December 31, 1997 and
$772,447 for the nine months ended September 30, 1998 (unaudited).
Maintenance and repairs are charged to expense as incurred. Major additions and
improvements of existing facilities are capitalized. For retirements or sales
of property, the Company removes the original cost and the related accumulated
depreciation from the accounts and the resulting gain or loss is reflected in
other income.
Fair Value of Financial Instruments
The fair value of financial instruments classified as current assets or
liabilities, including cash, accounts receivable, and accounts payable,
approximate carrying value due to the short-term maturity of the instruments.
The fair value of short-term and long-term debt amounts approximate carrying
value and are based on their effective interest rates compared to current
market rates.
Income Taxes
The Company utilizes the liability method of accounting for income taxes, as
set forth in Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under the liability method, deferred taxes are
determined based on the difference between the financial and tax bases of
assets and liabilities using enacted tax rates in effect in the year in which
the differences are expected to reverse. The Company does not have any
significant temporary differences to create deferred tax assets or liabilities.
The Company recorded no federal or state income tax benefit for the year ended
December 31, 1997 and the period ended September 30, 1998 (unaudited).
Through June 1998, Grid, as a limited liability company, was treated as a
partnership for income tax purposes. Accordingly, federal income taxes or net
earnings of Grid are payable by its members (unaudited).
At December 31, 1997, the Company had no net operating loss carryforwards
("NOLs") due to nearly all of the net loss incurred by Grid and generated NOLs
of Wauka being carried back to prior years.
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 reported amounts of assets and liabilities and
F-196
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Intangible Assets
Intangible assets at December 31, 1997 and September 30, 1998 consist of the
following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Goodwill.......................................... $ 990,933 $ 990,933
Customer base..................................... 316,320 386,320
Organizational costs.............................. 7,671 7,671
Deferred loan costs............................... 52,223 52,223
---------- ----------
1,367,147 1,437,147
Accumulated amortization.......................... (196,752) (284,791)
---------- ----------
$1,170,395 $1,152,356
========== ==========
</TABLE>
These assets are being amortized on a straight-line basis over the expected
periods to be benefited, 15 years for goodwill, 10 years for customer base, and
5 years for organizational costs. Loan costs associated with the establishment
of the Company's line of credit are amortized over seven years, the term of
agreement. The Company assesses the recoverability of these intangible assets
by determining whether the amortization of the balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired assets. The amount of impairment, if any, is measured based on
projected undiscounted future operating cash flows.
3. MARGIN LOAN PAYABLE
At December 31, 1997, the Company had $1,279,270 outstanding on a margin loan
payable to an investment bank. The outstanding balance is secured by 140,000
shares of NexTel Communications, Inc. stock which is owned by a shareholder of
the Company. The loan bears interest at the investment bank's margin interest
call rate, less .625% (7.125% at December 31, 1997). Interest is payable
monthly. Interest expense recognized on this loan was approximately $83,000 for
the year ended December 31, 1997.
F-197
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT
Long-term debt at December 31, 1997 and September 30, 1998 consists of the
following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Term note payable to an individual bearing interest
at 12%, monthly principal and interest payments of
$9,828, maturing July 1, 2005, secured by a tower
located in Macon, Georgia, and all of the related
customer contracts................................ $ 585,393 $ 548,167
Mortgage note payable to an individual bearing
interest at 10.5%, monthly principal and interest
payments of $1,147, maturing September 1, 2001,
secured by land purchased......................... 41,737 0
Mortgage note payable to an individual bearing
interest at 10.5%, monthly principal and interest
payments of $518, maturing September 1, 2001,
secured by land purchased......................... 19,211 0
Various mortgage notes payable to individuals,
including a related party, bearing interest from
8% to 10.5%, monthly and quarterly principal and
interest payments totaling $900 and $6,000,
respectively, maturing June 1, 1998 through August
1, 2001, secured by land purchased................ 43,493 0
Borrowings under line of credit with a bank,
bearing interest at 9.375%, payable in monthly
installments commencing July 1, 1999, secured by
all assets of the Company as well as an assignment
of license agreements and guarantees of members
and affiliates of the Company..................... 6,477,250 9,000,000
---------- ----------
7,167,084 9,548,167
Less current maturities............................ (83,964) (50,398)
---------- ----------
$7,083,120 $9,497,769
========== ==========
</TABLE>
Interest expense recognized on long-term debt was approximately $395,000 and
the year ended December 31, 1997 and approximately $703,000 for the nine months
ended September 30, 1998 (unaudited).
Aggregate maturities of long-term debt during the years subsequent to December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 83,964
1999.............................................................. 80,620
2000.............................................................. 90,447
2001.............................................................. 92,698
2002.............................................................. 81,253
Thereafter........................................................ 6,738,102
----------
Total........................................................... $7,167,084
==========
</TABLE>
During 1997, the Company entered into a line-of-credit agreement with a bank
for capital expenditure purposes. Interest is fixed at a rate of 9.375% until
May 31, 1999, at which time the rate becomes variable. Interest is payable
monthly. The principal balance will be due in 60 equal monthly installments
commencing on July 1, 1999 through June 1, 2004 and is secured by all assets of
the Company as well as an assignment of license agreements and guarantees of
members and affiliates of the Company. At December 31, 1997, the company had
$2,522,750 availability to borrow under the agreement.
F-198
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. RELATED-PARTY TRANSACTIONS
Due to Shareholders
At December 31, 1997, the Company had advances payable to shareholders totaling
approximately $2,075,000, which are included in due to shareholders on the
accompanying balance sheets. The principal balances accrue interest at 9% and
are due on demand. Accrued interest on these advances payable is approximately
$518,000 at December 31, 1997 and is also included in due to shareholders on
the accompanying balance sheet. Interest expense recognized on these advances
was approximately $189,000 for the year ended December 31, 1997. The
shareholders have agreed to defer collection on these advances and accrued
interest indefinitely until such time that the Company's cash flow enables it
to repay the outstanding balances. The advances payable and related accrued
interest have been classified as long-term liabilities at December 31, 1997.
Grid-Site Services, Inc.
The members of the Company are shareholders in Grid-Site Services, Inc. ("Grid-
Site"), an S corporation. Grid-Site owns several tower sites which the Company
manages. Under a management agreement, the Company remits 70% of the revenues
earned from those sites to Grid-Site. During the year ended December 31, 1997,
the Company remitted approximately $594,000 to Grid-Site. At December 31, 1997,
the Company had amounts due from and due to Grid-Site of approximately $22,000.
These amounts are included in due from affiliates (current) and accounts
payable on the respective accompanying balance sheets.
Grid Properties, LLC
The shareholders of the Company are members in Grid Properties, LLC ("Grid
Properties") a limited liability company. Grid Properties owns the land on
which a number of the Company's towers are located. The Company leases this
land from Grid Properties. During the year ended December 31, 1997, the Company
recognized approximately $158,000 in site rental expense related to these
leases. At December 31, 1997, future minimum payments under these leases
totaled approximately $2,067,000. Management believes that the agreements are
at market rates based on similar transactions entered into with third parties.
Due to Affiliates
At December 31, 1997, the Company had advances payable to various related
parties totaling $1,354,000, which are included in due to affiliates in the
accompanying balance sheets. The principal balances accrue interest at 9% and
are due on demand. Accrued interest on these advances payable is $145,000 at
December 31, 1997 and is also included in due to affiliates on the accompanying
balance sheets. Interest expense recognized on these advances was $103,000 for
the year ended December 31, 1997. The related parties have agreed to defer
collection on these advances and accrued interest indefinitely until such time
that the Company's cash flow enables it to repay the outstanding balances. The
advances payable and related accrued interest have been classified as long-term
liabilities at December 31, 1997.
Transfers of Property, Equipment, and Intangibles Between Affiliates
During the year ended December 31, 1997, the Company transferred approximately
$459,000 worth of land to Grid Properties as partial payment on amounts due to
the Company's members. This property was transferred at the Company's recorded
value; no gain or loss was recognized on the transfer.
At December 31, 1997, the Company had amounts due from Grid Properties of
approximately $757,000 included in due from affiliates on the accompanying
balance sheets.
F-199
<PAGE>
WAUKA COMMUNICATIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. COMMITMENTS AND CONTINGENCIES
The Company leases land for tower sites and corporate office space under
various noncancelable operating leases. Lease and rental costs charged to
expense during the year ended December 31, 1997 were approximately $527,000.
At December 31, 1997, future minimum payments under operating leases were as
follows:
<TABLE>
<S> <C>
1998.............................................................. $ 825,681
1999.............................................................. 818,701
2000.............................................................. 800,662
2001.............................................................. 744,289
2002.............................................................. 605,357
Thereafter........................................................ 3,729,011
----------
Total........................................................... $7,523,701
==========
</TABLE>
7. LEASES
The Company has operating leases on certain parcels of land. Lease terms range
from 1 to 99 years. At December 31, 1997, future minimum revenues under these
leases are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 64,538
1999................................................................ 64,583
2000................................................................ 61,538
2001................................................................ 57,938
2002................................................................ 28,469
Thereafter.......................................................... 58,050
--------
Total............................................................. $335,116
========
</TABLE>
8. SUBSEQUENT EVENTS (Unaudited)
Effective October 26, 1998, the Company sold substantially all of its assets
and the business related to these assets under the terms of an asset purchase
and merger agreement with American Tower Corporation, which included the assets
of Grid Site Services, Inc., an affiliated company. The combined consideration
was approximately $83.0 million.
F-200
<PAGE>
[LOGO OF AMERICAN TOWER CORP. APPEARS HERE]
