<PAGE>
Rule 424(b)(3) of the Securities Act of 1933
Registration Statement 333-50111
PROSPECTUS SUPPLEMENT NO. 11
(TO PROSPECTUS DATED JUNE 4, 1998)
AMERICAN TOWER CORPORATION
This Prospectus Supplement No. 11 supplements the Prospectus dated June 4,
1998 of American Tower Corporation, formerly American Tower Systems Corporation
("ATC" or the "Company"), with respect to the filing on August 16, 1999, of its
Form 10-Q for the fiscal quarter ended June 30, 1999, which is attached hereto.
Any statement contained in the Prospectus as heretofore supplemented shall be
deemed to be modified or superseded to the extent that a statement contained in
the Form 10-Q modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Prospectus.
--------
Prospectus Supplement No. 11, dated August 16, 1999
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
(Mark One):
[X]Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended June 30, 1999.
[_]Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 001-14195
----------------
AMERICAN TOWER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-0723837
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of principal executive offices)
Telephone Number (617) 375-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes X No
<TABLE>
<CAPTION>
Outstanding at
Class of Common Stock August 10, 1999
- --------------------- ------------------
<S> <C>
Class A Common Stock......................................... 144,358,299 shares
Class B Common Stock......................................... 8,841,088 shares
Class C Common Stock......................................... 2,422,804 shares
------------------
Total........................................................ 155,622,191 shares
==================
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
AMERICAN TOWER CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998............................... 1
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 1999 and 1998................. 2
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998........................... 3
Notes to Condensed Consolidated Financial Statements............... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 19
Item 2. Changes in Securities and Use of Proceeds.................... 19
Item 4. Submission of Matters to a Vote of Security Holders.......... 19
Item 6. Exhibits and Reports on Form 8-K............................. 21
Signatures....................................................... 22
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--UNAUDITED
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 353,221 $ 186,175
Accounts receivable, net of allowance for doubtful
accounts of $1,702 and $1,230, respectively......... 38,454 15,506
Prepaid and other current assets..................... 8,573 4,065
Inventories.......................................... 3,634
Cost in excess of billings on uncompleted
contracts........................................... 9,140 1,344
Deferred income taxes................................ 495 495
Due from CBS Corporation............................. 3,659
---------- ----------
Total current assets............................... 417,176 207,585
---------- ----------
PROPERTY AND EQUIPMENT, net........................... 725,846 449,476
GOODWILL AND OTHER INTANGIBLE ASSETS, net............. 1,213,374 718,575
NOTES RECEIVABLE...................................... 13,624 7,585
DEPOSITS AND OTHER LONG-TERM ASSETS................... 17,526 9,406
INVESTMENTS........................................... 14,951 298
DEFERRED INCOME TAXES................................. 116,079 109,418
---------- ----------
TOTAL................................................. $2,518,576 $1,502,343
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................... $ 2,316 $ 1,652
Accounts payable..................................... 8,075 6,696
Accrued expenses..................................... 19,200 11,347
Accrued tower construction costs..................... 23,107 16,099
Accrued interest..................................... 1,209 1,132
Billings in excess of costs on uncompleted
contracts........................................... 8,943 6,610
Accrued separation expenses.......................... 5,058
Due to CBS Corporation............................... 45,127
Accrued acquisition purchase price................... 3,794 21,914
---------- ----------
Total current liabilities.......................... 66,644 115,635
---------- ----------
LONG-TERM DEBT........................................ 281,805 279,477
OTHER LONG-TERM LIABILITIES........................... 2,545 1,429
---------- ----------
Total liabilities.................................. 350,994 396,541
---------- ----------
MINORITY INTEREST IN SUBSIDIARIES..................... 5,649 4,116
---------- ----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CLASS A COMMON STOCK:
$.01 par value, -0- and 336,250 shares issued and
outstanding; at estimated redemption values of -0-
and $29.56 per share, respectively................ 9,940
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock; $0.01 par value; 20,000,000 shares
authorized; no shares issued or outstanding.........
Class A Common Stock; $.01 par value; 500,000,000
shares authorized; 144,398,415 and 96,291,111
shares issued and outstanding, respectively......... 1,444 963
Class B Common Stock; $.01 par value; 50,000,000
shares authorized; 8,878,573 and 9,001,060 shares
issued and outstanding, respectively................ 89 90
Class C Common Stock; $.01 par value; 10,000,000
shares authorized; 2,422,804 and 3,002,008 shares
issued and outstanding, respectively................ 24 30
Additional paid-in capital........................... 2,230,989 1,140,365
Accumulated deficit.................................. (69,085) (49,702)
---------- ----------
Total.............................................. 2,163,461 1,091,746
Less: Treasury stock (76,403 shares at cost)....... (1,528)
---------- ----------
Total stockholders' equity......................... 2,161,933 1,091,746
---------- ----------
TOTAL................................................. $2,518,576 $1,502,343
========== ==========
</TABLE>
See notes to condensed consolidated financial statements
1
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS--UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ------------------
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rental and management................. $31,356 $ 12,078 $ 56,872 $ 21,587
Services.............................. 21,412 7,000 32,238 12,275
Video, voice, data and Internet
transmission......................... 6,385 4,004 12,451 7,146
------- -------- -------- --------
Total revenues...................... 59,153 23,082 101,561 41,008
------- -------- -------- --------
OPERATING EXPENSES:
Operating expenses excluding
depreciation and amortization, tower
separation and corporate general and
administrative expenses:
Rental and management............... 13,899 5,430 25,571 10,330
Services............................ 15,432 6,191 24,685 10,734
Video, voice, data and Internet
transmission....................... 4,519 2,717 8,764 4,769
Depreciation and amortization......... 33,139 9,953 57,808 15,755
Tower separation expense.............. 12,457 12,457
Corporate general and administrative
expense.............................. 2,300 1,084 4,140 1,626
------- -------- -------- --------
Total operating expenses............ 69,289 37,832 120,968 55,671
------- -------- -------- --------
LOSS FROM OPERATIONS.................... (10,136) (14,750) (19,407) (14,663)
------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense...................... (5,538) (7,472) (11,539) (9,902)
Interest income and other, net........ 5,788 966 10,737 1,831
Minority interest in net (earnings)
losses of subsidiaries............... 82 (110) 79 (189)
------- -------- -------- --------
TOTAL OTHER INCOME (EXPENSE)............ 332 (6,616) (723) (8,260)
------- -------- -------- --------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS..................... (9,804) (21,366) (20,130) (22,923)
INCOME TAX (EXPENSE) BENEFIT............ (79) 2,949 747 2,979
------- -------- -------- --------
LOSS BEFORE EXTRAORDINARY LOSS.......... (9,883) (18,417) (19,383) (19,944)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF
DEBT, NET OF INCOME TAX BENEFIT OF
$921................................... (1,382) (1,382)
------- -------- -------- --------
NET LOSS................................ $(9,883) $(19,799) $(19,383) $(21,326)
======= ======== ======== ========
BASIC AND DILUTED NET LOSS PER COMMON
SHARE AMOUNTS--
Loss Before Extraordinary Loss....... $ (.06) $ (.33) $ (.14) $ (.39)
Extraordinary Loss................... (.02) (.03)
------- -------- -------- --------
NET LOSS................................ $ (.06) $ (.35) $ (.14) $ (.42)
======= ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................ 155,604 56,034 143,503 51,409
======= ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES... $ 25,844 $ (8,734)
--------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Payments for purchase of property and equipment and
construction in progress.............................. (111,943) (34,910)
Payments for acquisitions, net of cash acquired........ (162,151) (121,627)
Advances of notes receivable........................... (5,421) (9,100)
Proceeds from notes receivable......................... 24 2,000
Deposits, investments and other long-term assets....... (21,296) (897)
--------- ---------
Cash used for investing activities....................... (300,787) (164,534)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities..................... 205,500
Repayment of notes payable and credit facilities....... (142,185) (117,924)
Net proceeds from equity offerings and stock options... 634,336 380,340
Cash transfers to CBS Corporation...................... (50,000) (221,665)
Contributions from ARS................................. 56,954
Cash transfers to ARS.................................. (51,856)
Distributions to minority interest..................... (162) (210)
Deferred financing costs............................... (18,751)
--------- ---------
Cash provided by financing activities.................... 441,989 232,388
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................ 167,046 59,120
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... 186,175 4,596
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 353,221 $ 63,716
========= =========
CASH PAID FOR INCOME TAXES............................... $ 574 $ 119
========= =========
CASH PAID FOR INTEREST................................... $ 12,493 $ 10,448
========= =========
NON-CASH TRANSACTIONS:
Contribution of property and equipment and other assets
from ARS.............................................. $ 6,488
Issuance of common stock and assumption of options for
acquisitions.......................................... $ 448,037 $ 363,100
Increase in deferred tax assets from corporate
restructuring......................................... $ 135,000
Increase in due to CBS Corporation from estimated
remaining tax liabilities............................. $ 1,121 $ 54,700
Escrow return -- treasury stock........................ $ 1,528
Adjustment to equity for CBS tax liability............. $ 76,960
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--UNAUDITED
1. Basis of Presentation and Accounting Policies
The accompanying condensed consolidated financial statements have been
prepared by American Tower Corporation (the Company or American Tower)
(formerly American Tower Systems Corporation), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). 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. In addition, the Company believes such
information reflects all adjustments (consisting of normal recurring
adjustments) that are necessary for a fair presentation of financial position
and results of operations for such periods. Results of interim periods may not
be indicative of results for the full year. These condensed consolidated
financial statements and related notes should be read in conjunction with the
Company's 1998 Annual Report on Form 10-K and interim report on Form 10Q for
the three month period ended March 31, 1999 filed with the SEC on March 19,
1999 and on May 17, 1999, respectively.
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 condensed consolidated
financial statements and accompanying notes. Actual results may differ from
those estimates, and such differences could be material to the accompanying
condensed consolidated financial statements.
Loss Per Common Share--Basic and diluted income or loss per common share
have been determined in accordance with Statement of Financial Accounting
Standards (FAS) No. 128, "Earnings Per Share," whereby basic income or loss
per common share is computed by dividing net income or loss by the weighted
average number of common shares outstanding during the period. Diluted per
share amounts are computed by adjusting the weighted average number of common
shares for dilutive potential common shares outstanding during the period, if
any. In computing diluted per share amounts, the Company uses the treasury
stock method, whereby unexercised options are assumed to be exercised at the
beginning of the period or at issuance, if later. The assumed proceeds are
then used to purchase common shares at the average market price during the
period. Shares outstanding upon the consummation of the ATC Separation (as
defined below) are assumed to be outstanding for all periods prior to June 4,
1998. Shares issuable upon exercise of options have been excluded from the
computation of diluted income or loss per common share as the effect is anti-
dilutive. Had options been included in the computation, shares for the diluted
computation would have increased by approximately 5.4 and 5.2 million and 4.3
and 4.4 million for the three and six month periods ended June 30, 1999 and
1998, respectively.
Investments--Investments in entities which the Company owns less than 20%
are accounted for using the cost method. Investments in entities which the
Company owns 20% but less than 50% are accounted for using the equity method.
Under the equity method the investment is stated at cost plus the Company's
equity in undistributed net income of the entity since acquisition. The change
in the equity in net income of these entities is recorded in "interest income
and other, net" in the accompanying condensed consolidated statements of
operations.
Tower Separation Expense--Tower separation expense consists of costs
incurred in connection with the separation of the Company from its former
parent and includes legal, accounting, financial advisory and consent
solicitation fees. See note 2 of the condensed consolidated financial
statements.
Recent Accounting Pronouncement--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 establishes accounting and reporting standards for derivative
instruments. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position, and measure
those instruments at fair value. The accounting for changes in the fair value
of a derivative (that is,
4
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--UNAUDITED
gains and losses) will depend on the entity's intended use of the derivative
and its resulting designation (as defined in the Statement). FAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company is currently in the process of evaluating the impact FAS No.
133 will have on the Company and its consolidated financial statements.
Reclassifications--Certain reclassifications have been made to the 1998
condensed consolidated financial statements to conform to the 1999
presentation.
2. ATC Separation
As disclosed in the Company's 1998 Annual Report on Form 10-K, the Company
was formerly a wholly-owned subsidiary of American Radio Systems Corporation
(ARS) until its spin-off from ARS on June 4, 1998 (the ATC Separation). As
part of the ATC Separation, the Company is required to reimburse CBS
Corporation (CBS) for certain tax liabilities incurred by ARS related to the
transaction. As of December 31, 1998 the Company had paid approximately $212.0
million to CBS. The Company is required to make additional payments to CBS
upon the conversion of ARS 7% Convertible Debentures (the ARS Convertible
Debentures) by the holders thereof. The Company estimates that its remaining
reimbursement obligation to CBS with respect to taxes on known conversions is
approximately $6.1 million as of June 30, 1999. The Company estimates that its
reimbursement obligation to CBS with respect to taxes on remaining conversions
at June 30, 1999 would be approximately $14.0 million. Such estimate is based
on an estimated fair market value of the Class A common stock, on July 15,
1999, of $25.00 per share. The Company's obligation for such conversions would
change by approximately $1.0 million for each $1.00 change in such fair market
value. The Company has provided CBS with security of $9.8 million in cash
(which may be replaced at the Company's option with a letter of credit) to
offset against future tax reimbursement. Such deposit, along with the
estimated liability on known ARS Convertible Debenture conversions, is
recorded as "Due from CBS" in the accompanying June 30, 1999 condensed
consolidated balance sheet.
The ATC Separation also provided for closing balance sheet adjustments based
on the working capital, as defined, and debt levels of ARS as of June 4, 1998.
The Company's preliminary estimate was that such adjustments would not exceed
$50.0 million. In February 1999, the Company paid $50.0 million to CBS in
settlement of all amounts due with respect to such adjustments, including
interest. As part of such settlement, the Company also agreed to indemnify CBS
and ARS with respect to certain tax matters affecting ARS prior to the ATC
Separation. See the Company's 1998 Annual Report on Form 10-K for more
detailed discussion related to the ATC Separation.
3. Significant Customers
For the three and six month periods ended June 30, 1999, one customer
accounted for approximately 18% and 16%, respectively, of the Company's
consolidated revenues.
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. Cumulative
adjustments to the Company's estimate are recorded in the interim period in
which a change in the estimated annual effective rate is determined.
5. Stockholders' Equity
Redeemable Common Stock: 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 valued at approximately $18.0 million.
In addition, under a put agreement that was consummated in connection with the
merger, the sellers had the right to require the Company to purchase, at any
time prior to June 5, 1999, any or all shares of Class A common stock received
pursuant to consummation of the merger for a purchase price equal to the then
current market price. On June 5, 1999, the sellers right to require the
Company to purchase shares of
5
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--UNAUDITED
Class A common stock issued in connection with the merger expired. Accordingly
all unsold shares as of that date (383,750) were reclassified from Redeemable
Class A common stock to common stock and additional paid in capital.
Secondary Public Offering: In February 1999, the Company completed a
secondary public offering of 25,700,000 shares of Class A common stock, $.01
par value per share (including 1,700,000 shares sold by the Company pursuant
to the exercise in full of the underwriters' over-allotment option) at $25.00
per share. Certain selling stockholders sold an additional 1,300,000 shares in
the offering. The Company's net proceeds of the offering (after deduction of
the underwriting discount and offering expenses) was approximately $618.0
million. The Company invested the proceeds in short-term investment grade
securities. The Company has and will use such proceeds, together with
borrowings under its existing credit facilities, to fund future acquisitions
and construction activities.
Private Placement: In February 1999, the Company consummated the sale of
500,000 shares of Class A common stock to Credit Suisse First Boston
Corporation at $26.31 per share. In connection with such sale, Credit Suisse
First Boston Corporation was granted certain registration rights. The Company
invested the proceeds of approximately $13.1 million in short-term investment
grade securities. The Company has and will use such proceeds, together with
borrowings under its exisiting credit facilities, to fund future acquisitions
and construction activities.
Other Changes to Stockholders' Equity: See note 6 of the condensed
consolidated financial statements for issuances of common stock in connection
with the Company's acquisitions consummated during the six month period ended
June 30, 1999.
6. Acquisitions
General--The acquisitions consummated during the six month period ended June
30, 1999 have been accounted for using the purchase method of accounting. The
purchase prices related to these acquisitions have been allocated to the net
assets acquired based on their estimated fair value at the date of
acquisition. The excess of purchase price over the estimated fair value of the
net assets acquired has been recorded as goodwill and other intangible assets.
For certain acquisitions, the condensed consolidated financial statements
reflect the preliminary allocation of purchase prices as the appraisals
related to the net 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.
Consummated Transactions
The following provides a general description of the significant transactions
consummated during the six-month period ended June 30, 1999:
Omni Merger--In February 1999, the Company consummated the Agreement and
Plan of Merger, dated as of November 16, 1998 (the Omni Merger) with
OmniAmerica, Inc. (Omni). Omni owned, managed and constructed multi-use
telecommunications sites for radio and television broadcasting, paging,
cellular, PCS and other wireless technologies and offered nationwide, turn-key
tower construction and installation services. Pursuant to the Omni Merger
agreement, Omni stockholders received 1.1 shares of the Company's Class A
common stock for each share of Omni common stock. In the aggregate, the
Company exchanged approximately 16.8 million shares of Class A common stock
for approximately 15.2 million shares of Omni common stock. In addition, the
Company assumed $96.6 million of debt, of which $94.3 million (inclusive of
interest and fees) was paid at closing. The Company also assumed certain Omni
employee stock options which were converted into options to purchase
approximately 1.0 million shares of the Company's Class A common stock. Total
merger consideration was approximately $365.4 million.
6
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--UNAUDITED
TeleCom Merger--In February 1999, the Company consummated the Agreement and
Plan of Merger, dated as of November 16, 1998 (the TeleCom Merger) with
TeleCom Towers, L.L.C. (TeleCom). Total merger consideration of approximately
$146.2 million included the issuance of 3.9 million shares of Class A common
stock and $63.1 million of cash, which included a $5.2 million working capital
adjustment, $3.0 million of which was paid in June of 1999. As part of the
TeleCom Merger, the Company also assumed approximately $48.4 million of debt,
of which $44.2 million (inclusive of interest) was paid at closing and $3.9
million was paid in April 1999.
Comm Site Merger--In June of 1999, the Company consummated the Agreement and
Plan of Merger, dated as of May 13, 1999 (the Comm Site Merger) with Comm Site
International, Inc. (Comm Site). The merger with Comm Site, a company which
specialized in antenna site development and site management, is expected
to expand the Company's presence in the Midwest and Southeast regions of the
United States. Total cash consideration paid by the Company in connection with
the Comm Site Merger was approximately $25.5 million, subject to a closing
balance sheet working capital adjustment which is expected to occur in the
third quarter of 1999.
In addition to the above, the Company also consummated a number of other
tower related asset purchases during the six month period ended June 30, 1999.
Total consideration paid in connection with these transactions was
approximately $71.4 million.
The following unaudited pro forma summary for the six months ended June 30,
1999 and 1998 presents the condensed consolidated results of operations as if
the 1999 acquisitions discussed above had occurred as of January 1, 1998 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, 1998 or of results which may occur in
the future.
In thousands, except per share data:
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Revenues........................................ $120,029 $ 84,282
Loss before extraordinary item.................. $(23,998) $(32,087)
Net loss........................................ $(23,998) $(33,469)
Basic and diluted net loss per common share..... $ (0.16) $ (0.47)
</TABLE>
Since July 1, 1999, the Company has acquired and made investments in several
communication sites and businesses for an aggregate preliminary purchase price
of approximately $104.3 million.
Pending Transactions
The following provides a general description of significant transactions
that are expected to be consummated in the fourth quarter of 1999 and into the
year 2000.
AirTouch Communications Inc.--In August of 1999, the Company signed a
definitive agreement with AirTouch Communications, Inc. (AirTouch), a unit of
Vodafone AirTouch PLC, to acquire the rights to approximately 2,100
communications towers through a master sublease agreement. In addition, the
Company will enter into an exclusive three-year Build-to-Suit agreement that
is expected to produce approximately 400- 500 new communications towers. Total
consideration to be paid by the Company in connection with this transaction
includes approximately $800.0 million in cash, plus a five year warrant to
purchase 3 million shares of the Company's Class A common stock at $22 per
share. The cash portion of the consideration to be paid in connection with
this transaction is expected to come from a combination of current available
funds, additional borrowings under its credit facilities or proceeds from the
sale of the Company's securities. The transaction is expected to close
incrementally, beginning in the first quarter of 2000, subject to certain
conditions.
7
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--UNAUDITED
ICG Satellite Services Merger--In August of 1999, the Company entered into a
Stock Purchase Agreement with ICG Satellite Services, Inc. (ICGSS) to acquire
a teleport facility and global maritime telecommunications network. Presently,
ICGSS services voice, data Internet and compressed video via satellite to
major cruise lines, the U.S. Military, internet-related companies, and
international telecommunication customers. Total cash consideration to be paid
by the Company in connection with this merger is approximately $100.0 million.
The transaction is expected to close in the fourth quarter of 1999.
UniSite Merger--In June of 1999, the Company entered into an Agreement and
Plan of Merger (the UniSite Merger) with UniSite, Inc. (UniSite). UniSite,
whose primary focus has been tower site management, has recently expanded its
scope of services to include site ownership and development. Presently,
UniSite owns approximately 400 towers and has an exclusive Build-to-Suit
agreement with a major wireless communications carrier. Pursuant to the
UniSite Merger agreement, UniSite preferred and common stockholders will
receive an aggregate of approximately $165.0 million in cash, subject to
working capital and completed tower closing adjustments. In addition, the
Company will also assume approximately $40.0 million in debt. Consummation of
the merger is expected to occur on the earlier of (a) January 31, 2000, or (b)
UniSite owning and operating 600 wireless communication towers, subject to
certain conditions including, the expiration or early termination of the
waiting period under the Hart-Scot-Rodino Antitrust Improvement Act of 1976,
as amended.
In addition to AirTouch, ICGSS and UniSite, the Company is party to various
agreements relating to the acquisition of assets from third parties for an
estimated aggregate cost of approximately $213.0 million. Such transactions
are subject to the satisfaction of customary closing conditions, which are
expected to be met in the last two quarters of 1999 or the first quarter of
2000.
7. Business Segments
The Company operates in three business segments; rental and management (RM),
services (Services), and video, voice, data and Internet transmission (VVDI).
The RM segment primarily provides for leasing and subleasing of antennae sites
on multi-tenant towers for a diverse range of wireless communication
industries, including personal communication services, paging, cellular,
enhanced specialized mobile radio, specialized mobile radio and fixed
microwave, as well as radio and television broadcasters. The Services segment
offers a broad range of network development services, including network
design, site acquisition and construction, zoning and other regulatory
approvals, component part sales, tower construction and antennae installation.
The VVDI segment offers transmission services in the New York City to
Washington, D.C. corridor and in Texas.
The accounting policies applied in compiling segment information below are
similar to those described in the Company's 1998 Annual Report filed on Form
10-K and interim report for the three months ended March 31, 1999 filed on
Form 10-Q. In evaluating financial performance, management focuses on
Operating Profit (Loss), which excludes depreciation and amortization, tower
separation and corporate general and administrative expenses. This measure of
Operating Profit (Loss) is also before interest income and other, net,
interest expense, minority interest in net (earnings) losses of subsidiaries
and income taxes.
The Company's reportable segments are strategic business units that offer
different services. They are managed separately because each segment requires
different resources, skill sets and marketing strategies. All segments operate
exclusively in the United States. In addition, all reported segment revenues
are generated from external customers, as intersegment revenues are
insignificant.
Summarized financial information concerning the Company's reportable
segments as of and for the three and six months ended June 30, 1999 and 1998,
are shown in the following table. The "Other" column below represents amounts
excluded from specific segments such as extraordinary losses, income taxes,
corporate general and administrative expense, tower separation expense,
depreciation and amortization and interest. In addition, "Other" also includes
corporate assets such as cash and cash equivalents, tangible and intangible
assets, and income tax accounts which have not been allocated to specific
segments (in thousands).
8
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended June 30, RM Services VVDI Other Total
- ----------------------------- ---------- -------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
1999
Revenues..................... $ 31,356 $ 21,412 $ 6,385 $ $ 59,153
Operating Profit (Loss)...... $ 17,457 $ 5,980 $ 1,866 $(35,186) $ (9,883)
Assets....................... $1,383,770 $497,429 $77,733 $559,644 $2,518,576
1998
Revenues..................... $ 12,078 $ 7,000 $ 4,004 $ $ 23,082
Operating Profit (Loss)...... $ 6,648 $ 809 $ 1,287 $(28,543) $ (19,799)
Assets....................... $ 754,649 $104,833 $46,025 $232,194 $1,137,701
<CAPTION>
Six Months Ended June 30, RM Services VVDI Other Total
- ----------------------------- ---------- -------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
1999
Revenues..................... $ 56,872 $ 32,238 $12,451 $ $ 101,561
Operating Profit (Loss)...... $ 31,301 $ 7,553 $ 3,687 $(61,924) $ (19,383)
Assets....................... $1,383,770 $497,429 $77,733 $559,644 $2,518,576
1998
Revenues..................... $ 21,587 $ 12,275 $ 7,146 $ $ 41,008
Operating Profit (Loss)...... $ 11,257 $ 1,541 $ 2,377 $(36,501) $ (21,326)
Assets....................... $ 754,649 $104,833 $46,025 $232,194 $1,137,701
</TABLE>
9
<PAGE>
ITEM 2. 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 the Company's results and could cause
the Company's actual results to differ materially from those expressed in any
forward-looking statement. Such factors include:
. the outcome of our growth strategy,
. future results of operations,
. liquidity and capital expenditures,
. construction and acquisition activities,
. debt levels and the ability to obtain financing and service debt,
. competitive conditions and regulatory developments in the communications
site and wireless carrier industries,
. projected growth of the wireless communications and wireless carrier
industries, and
. general economic conditions.
As the Company was a wholly-owned subsidiary of ARS through June 4, 1998,
the condensed consolidated financial statements for the three and six months
ended June 30, 1998 may not reflect the results of operations or financial
position of the Company had it been an independent public company during such
periods. Because of the Company'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.
The Company is a leading independent owner, operator and developer of
wireless communications towers in the United States. From January 1, 1999
through June 30, 1999, the Company acquired various communications sites and
businesses for an aggregate estimated purchase price of approximately $608.5
million, including the issuance of approximately 20.7 million shares of Class
A common stock. Management expects that acquisitions consummated to date will
have a material impact on future revenues, expenses and results from
operations.
Results of Operations
As of June 30, 1999, the Company owned and/or operated approximately 3,600
communications sites, as compared to approximately 1,800 communications sites
as of June 30, 1998. The acquisitions consummated in 1999 and 1998 have
significantly affected operations for the three and six months ended June 30,
1999, as compared to the three and six months ended June 30, 1998. See the
notes to the condensed consolidated financial statements for a description of
the acquisitions consummated in 1999 and the Company's Annual Report on Form
10-K for acquisitions consummated in 1998 and prior.
10
<PAGE>
Three months ended June 30, 1999 and 1998 (Dollars in thousands)--Unaudited
<TABLE>
<CAPTION>
Three Months Ended Amount of Percentage
------------------- ---------- ----------
Increase Increase
June 30, (Decrease) (Decrease)
------------------- ---------- ----------
1999 1998
--------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental and management.......... $ 31,356 $ 12,078 $19,278 160 %
Services....................... 21,412 7,000 14,412 206 %
Video, voice, data and Internet
transmission.................. 6,385 4,004 2,381 59 %
-------- --------- -------
Total revenues................... 59,153 23,082 36,071 156 %
-------- --------- -------
Operating Expenses:
Rental and management.......... 13,899 5,430 8,469 156 %
Services....................... 15,432 6,191 9,241 149 %
Video, voice, data and Internet
transmission.................. 4,519 2,717 1,802 66 %
-------- --------- -------
Total operating expenses
excluding depreciation and
amortization, tower
separation, and corporate
general and administrative
expenses...................... 33,850 14,338 19,512 136 %
-------- --------- -------
Depreciation and amortization.. 33,139 9,953 23,186 233 %
Tower separation expense....... 12,457 (12,457) (100)%
Corporate general and adminis-
trative expense............... 2,300 1,084 1,216 112 %
Interest expense................. (5,538) (7,472) (1,934) (26)%
Interest income and other, net... 5,788 966 4,822 499 %
Minority interest in net losses
(earnings) of subsidiaries...... 82 (110) (192) (175)%
Income tax (expense) benefit..... (79) 2,949 (3,028) (103)%
Extraordinary loss on
extinguishment of debt.......... (1,382) (1,382) (100)%
-------- --------- -------
Net loss......................... $ (9,883) $ (19,799) $(9,916) (50)%
======== ========= =======
</TABLE>
Rental and Management Revenue
Rental and management revenue for the three months ended June 30, 1999, was
$31.4 million, an increase of $19.3 million from the three months ended June
30, 1998. The majority of the increase, $15.0 million, is attributable to
revenue generated from acquisitions consummated and/or towers constructed
subsequent to June 30, 1998. The remaining factor contributing to the
additional revenue is an increase in comparable tower revenue of $4.3 million
in the second quarter of 1999 for towers that existed in the second quarter of
1998.
Services Revenue
Services revenue for the three months ended June 30, 1999, was $21.4
million, an increase of $14.4 million from revenues for the three months ended
June 30, 1998. The primary reason for the increase is due to the $16.6 million
of revenue earned in the second quarter of 1999 as a result of the Omni
Merger. The increase from the Omni Merger is offset by a decrease in revenues
generated from the Company's existing services business of approximately $2.2
million. This decrease is a direct result of the Company's shift in focus on
site acquisition, development and construction of towers for its own use
("Build-to-Suit") from its previous focus on development and construction of
towers for sale to third parties. The Company expects to continue its focus on
Build-to-Suit activity in the foreseeable future, thus resulting in a
continuing decline in revenues applicable to this portion of the Services
business.
Video, Voice, Data and Internet Transmission Revenue
Video, voice, data and Internet transmission (VVDI) revenue for the three
months ended June 30, 1999, was $6.4 million, an increase of $2.4 million from
revenues for the three months ended June 30, 1998. The primary
11
<PAGE>
reason for the increase is attributed to approximately $1.8 million of
revenues earned during the current period as a result of the acquisition of
Washington International Teleport which closed in the second quarter of 1998.
The remaining component of the increase, $0.6 million, is due to growth in the
overall VVDI business which existed at June 30, 1998.
Rental and Management, Services and VVDI Expenses
Rental and management, Services and VVDI expenses for the three months ended
June 30, 1999, were $13.9 million, $15.4 million and $4.5 million,
respectively, an increase of $8.5 million, $9.2 million and $1.8 million,
respectively, from the three months ended June 30, 1998. The primary reasons
for the increase in these expenses are essentially the same as those discussed
above under each respective revenue segment.
Depreciation and Amortization
Depreciation and amortization for the three months ended June 30, 1999, was
$33.1 million, an increase of $23.2 million from the three months ended June
30, 1998. A component of the increase is attributable to an increase in
depreciation expense of $8.5 million. This is a direct result of the Company's
purchase, construction and/or acquisition of approximately $416.2 million of
property and equipment from July 1, 1998 to June 30, 1999. The remaining
component of the increase is attributable to an increase in amortization of
$14.7 million, resulting from the Company's recording and amortizing of
approximately $601.5 million of goodwill and other intangible assets related
to acquisitions consummated from July 1, 1998 to June 30, 1999.
Tower Separation Expense
The Company completed its separation from ARS in the second quarter of 1998,
and no additional expenditures related to the separation were incurred in the
three month period ended June 30, 1999. See note 1 of the condensed
consolidated financial statements for a description of tower separation
expense.
Corporate General and Administrative Expense
Corporate general and administrative expense for the three months ended June
30, 1999, was $2.3 million, an increase of $1.2 million from the three months
ended June 30, 1998. The majority of the increase is a result of higher
personnel and marketing costs associated with supporting the Company's
expanding revenue base and growth strategy. Other factors contributing to the
increase include higher costs associated with enhancing the Company's
information technology infrastructure and overall increases in other
administrative expenses.
Interest Expense
Interest expense for the three months ended June 30, 1999, was $5.5 million,
a decrease of $1.9 million from the three months ended June 30, 1998. The net
decrease is attributable to approximately $3.1 million of interest incurred in
1998 on outstanding redeemable preferred stock which was redeemed prior to
1999, offset by an increase in the amount of interest incurred on the
Company's outstanding debt obligations of approximately $1.2 million.
Interest Income and Other, Net
Interest income and other, net for the three months ended June 30, 1999, was
$5.8 million, an increase of $4.8 million from the three months ended June 30,
1998. The increase is primarily related to interest earned on invested cash
proceeds received from the issuance of the Company's common stock.
Income Tax (Expense) Benefit
The income tax expense for the three months ended June 30, 1999 was $0.08
million, a decrease of $3.0 million from the income tax benefit recorded for
the three months ended June 30, 1998. The decrease in the
12
<PAGE>
tax benefit is due to an increase in nondeductible permanent items
(principally goodwill amortization). The increase in nondeductible permanent
items has occurred as a result of the consummation of several mergers and
acquisitions in 1999 and the latter part of 1998.
Extraordinary Loss on Extinguishment of Debt
The Company incurred an extraordinary loss in 1998 due to the write-off of
deferred financing costs in connection with the refinancing of its previous
credit facility. There have been no transactions which qualify for treatment
as extraordinary items during the three month period ended June 30, 1999.
Six months ended June 30, 1999 and 1998 (Dollars in thousands)--Unaudited
<TABLE>
<CAPTION>
Six Months Ended Amount of Percentage
------------------ ---------- ----------
Increase Increase
June 30, (Decrease) (Decrease)
------------------ ---------- ----------
1999 1998
-------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental and management........... $ 56,872 $ 21,587 $35,285 163 %
Services........................ 32,238 12,275 19,963 163 %
Video, voice, data and Internet
transmission................... 12,451 7,146 5,305 74 %
-------- -------- -------
Total revenues.................... 101,561 41,008 60,553 148 %
-------- -------- -------
Operating Expenses:
Rental and management........... 25,571 10,330 15,241 148 %
Services........................ 24,685 10,734 13,951 130 %
Video, voice, data and Internet
transmission................... 8,764 4,769 3,995 84 %
-------- -------- -------
Total operating expenses excluding
depreciation and amortization,
tower separation, and corporate
general and administrative
expenses....................... 59,020 25,833 33,187 128 %
-------- -------- -------
Depreciation and amortization... 57,808 15,755 42,053 267 %
Tower separation expense........ 12,457 (12,457) (100)%
Corporate general and adminis-
trative expense................ 4,140 1,626 2,514 155 %
Interest expense.................. (11,539) (9,902) 1,637 17 %
Interest income and other, net.... 10,737 1,831 8,906 486 %
Minority interest in net losses
(earnings) of subsidiaries....... 79 (189) (268) (142)%
Income tax benefit................ 747 2,979 (2,232) (75)%
Extraordinary loss on
extinguishment of debt........... (1,382) (1,382) (100)%
-------- -------- -------
Net loss.......................... $(19,383) $(21,326) $(1,943) (9) %
======== ======== =======
</TABLE>
Rental and Management Revenue
Rental and management revenue for the six months ended June 30, 1999, was
$56.9 million, an increase of $35.3 million from the six months ended June 30,
1998. The majority of the increase, $24.7 million, is attributable to revenue
generated from acquisitions consummated and/or towers constructed subsequent
to June 30, 1998. The remaining factor contributing to the additional revenue
is an increase in comparable tower revenue of $10.6 million in the six month
period ended June 30, 1999 for towers that existed in the six month period
ended June 30, 1998.
13
<PAGE>
Services Revenue
Services revenue for the six months ended June 30, 1999, was $32.2 million,
an increase of $19.9 million from revenues for the six months ended June 30,
1998. The primary reason for the increase is due to the $23.1 million of
revenue earned in 1999 as a result of the Omni Merger. The increase from the
Omni Merger is offset by a decrease in revenues generated from the Company's
existing services business of approximately $3.2 million. This decrease is a
direct result of the Company's shift in focus on Build-to-Suit activities from
its previous focus on development and construction of towers for sale to
outside customers. The Company expects to continue its focus on Build-to-Suit
activity in the foreseeable future, thus resulting in a continuing decline in
revenues applicable to this portion of the Services business.
Video, Voice, Data and Internet Transmission Revenue
VVDI revenue for the six months ended June 30, 1999, was $12.5 million, an
increase of $5.3 million from revenues for the six months ended June 30, 1998.
The primary reason for the increase is attributed to approximately $4.2
million of revenues earned during the six month period June 30, 1999 as a
result of the acquisition of Washington International Teleport which closed in
the second quarter of 1998. The remaining component of the increase, $1.1
million, is due to growth in the overall VVDI business existing at June 30,
1998.
Rental and Management, Services and VVDI Expenses
Rental and management, Services and VVDI expenses for the six months ended
June 30, 1999, were $25.6 million, $24.7 million and $8.8 million,
respectively, an increase of $15.2 million, $14.0 million and $4.0 million,
respectively, from the six months ended June 30, 1998. The primary reasons for
the increase in these expenses are essentially the same as those discussed
above under each respective revenue segment.
Depreciation and Amortization
Depreciation and amortization for the six months ended June 30, 1999, was
$57.8 million, an increase of $42.1 million from the six months ended June 30,
1998. A component of the increase is attributable to an increase in
depreciation expense of $14.7 million. This is a direct result of the
Company's purchase, construction and/or acquisition of approximately $416.2
million of property and equipment from July 1, 1998 to June 30, 1999. The
remaining component of the increase is attributable to an increase in
amortization of $27.4 million, resulting from the Company's recording and
amortizing of approximately $601.5 millon of goodwill and other intangible
assets related to acquisitions consummated from July 1, 1998 to June 30, 1999.
Tower Separation Expense
The Company completed its separation from ARS in the second quarter of 1998,
and no additional expenditures related to the separation were incurred in the
six month period ended June 30, 1999. See note 1 of the condensed consolidated
financial statements for a description of tower separation expense.
Corporate General and Administrative Expense
Corporate general and administrative expense for the six months ended June
30, 1999, was $4.1 million, an increase of $2.5 million from the six months
ended June 30, 1998. The majority of the increase is a result of higher
personnel and marketing costs associated with supporting the Company's
expanding revenue base and growth strategy. Other factors contributing to the
increase include higher costs associated with enhancing the Company's
information technology infrastructure and overall increases in other
administrative expenses.
14
<PAGE>
Interest Expense
Interest expense for the six months ended June 30, 1999, was $11.5 million,
an increase of $1.6 million from the six months ended June 30, 1998. The net
increase is attributable to an increase in the amount of interest incurred on
the Company's outstanding debt obligations of approximately $4.7 million
offset by a decrease of approximately $3.1 million related to interest
incurred in 1998 on outstanding redeemable preferred stock which was redeemed
prior to 1999.
Interest Income and Other, Net
Interest income and other, net for the six months ended June 30, 1999, was
$10.7 million, an increase of $8.9 million from the six months ended June 30,
1998. The increase is primarily related to interest earned on invested cash
proceeds received from the issuance of the Company's common stock.
Income Tax (Expense) Benefit
The income tax benefit for the six months ended June 30, 1999 was $0.7
million, a decrease of $2.2 million from the six months ended June 30, 1998.
The decrease in the tax benefit is due to an increase in nondeductible
permanent items (principally goodwill amortization). The increase in
nondeductible permanent items has arisen as a result of the consummation of
several mergers and acquisitions in 1999 and the latter part of 1998.
Extraordinary Loss on Extinguishment of Debt
The Company incurred an extraordinary loss in 1998 due to the write-off of
deferred financing costs in connection with the refinancing of its previous
credit facility. There have been no transactions which qualify for treatment
as extraordinary items during the six month period ended June 30, 1999.
Liquidity and Capital Resources
The Company's liquidity needs arise from its acquisition-related activities,
debt service, working capital and capital expenditures associated principally
with its construction program. As of June 30, 1999, the Company maintained
approximately $353.2 million in cash and cash equivalents, working capital of
approximately $350.5 million, and had approximately $500.0 million available
under its credit facilities. Historically, the Company has met its operational
liquidity needs with internally generated funds and has financed the
acquisition of tower related properties and its construction program with a
combination of capital funds from sales of its equity securities and bank
borrowings.
For the six months ended June 30, 1999, cash flows provided by operating
activities were $25.8 million, as compared to cash flows used for operating
activities of $8.7 million for the six months ended June 30, 1998. The change
is primarily attributable to the favorable cash flow generated from
consummated acquisitions in 1999 and the latter part of 1998.
For the six months ended June 30, 1999, cash flows used for investing
activities were $300.8 million as compared to $164.5 million for the six
months ended June 30, 1998. The increase in 1999 is primarily due to an
increase in property and equipment expenditures of approximately $77.0 million
coupled with the increase in cash expended for mergers and acquisitions (which
includes escrow deposits and equity investments) of approximately $59.0
million.
For the six months ended June 30, 1999, cash flows provided by financing
activities were $442.0 million as compared to $232.4 million for the six
months ended June 30, 1998. The net increase in 1999 is due principally to
cash flow provided from the sale of the Company's common stock in 1999, offset
by decreases in borrowings under the Company's credit facilities. In addition,
during the six month period ended June 30, 1999 the Company decreased the
amounts transferred to ARS and CBS by approximately $224.0 million.
15
<PAGE>
For the six months ended June 30, 1999, the Company had capital
expenditures, exclusive of fixed assets acquired through acquisitions, of
approximately $112.0 million primarily related to construction activities,
including the completion of approximately 445 towers. The Company's 1999
business plan calls for construction of between 1,000 and 1,200 towers at a
cost of between $180.0 million and $228.0 million (exclusive of broadcast
towers). Assuming the increase of its credit facilities as described below,
management believes that the Company will have sufficient funds available to
finance current construction plans, pending acquisitions and several
additional major acquisitions and/or construction projects. However, in the
event that the Company were to negotiate any additional major transactions, it
might require additional financing either through incurring additional debt or
the sale of equity securities. Such financing or sale of securities 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 the
Company as newly constructed towers will initially decrease overall liquidity.
But, as such sites become fully operational and achieve higher utilization,
they should generate positive cash flow, and, in the long-term, increase
liquidity.
Credit Facilities: As of June 30, 1999, the Company had approximately $284.1
million of long-term debt, of which $275.0 million was outstanding in the form
of term loans and revolving credit facilities. Debt service requires a
substantial portion of the Company's cash flow from operations. Accordingly,
the Company's leverage could make it vulnerable to a downturn in the operating
performance of its tower properties or in economic conditions. The Company
believes that its cash flows from operations will be sufficient to meet its
debt service requirements for interest and scheduled payments of principal
under its existing credit facilities. If such cash flow were not sufficient to
meet such debt service requirements, the Company might sell equity securities,
refinance its obligations or dispose of one or more of its properties in order
to make such scheduled payments. The Company may not be able to effect any of
such transactions on favorable terms. The Company believes that is has
sufficient financial resources available to it, including borrowings under its
credit facilities, to finance operations for the foreseeable future. The
Company is in the process of negotiating an increase in the aggregate maximum
borrowings under its credit facility from $925 million to $1.5 billion,
subject, in either case, to compliance with certain financial ratios. While
the Company believes such negotiations will be successful, the Company does
not know what, if any, changes (including without limitations interest rate
increases or other adverse provisions) the lenders may require in connection
with such borrowing limit increase.
Secondary Public Offering: In February 1999, the Company completed a
secondary public offering of 25,700,000 shares of Class A common stock, $.01
par value per share (including 1,700,000 shares sold by the Company pursuant
to the exercise in full of the underwriters over-allotment option) at $25.00
per share. Certain selling stockholders sold an additional 1,300,000 shares in
the offering. The Company's net proceeds of the offering (after deduction of
the underwriting discount and estimated offering expenses) were approximately
$618.0 million. The Company invested the proceeds in short-term investment
grade securities. The Company has and will use such investments together with
borrowings under its credit facilities to fund future acquisitions and
construction activities.
Private Placement: In February 1999, the Company consummated the sale of
500,000 shares of Class A common stock to Credit Suisse First Boston
Corporation at $26.31 per share. In connection with such sale, Credit Suisse
First Boston Corporation was granted certain registration rights. The Company
invested the proceeds of approximately $13.1 million in short-term investment
grade securities. The Company has and will use such investments, together with
borrowings under its credit facilities, to fund future acquisitions and
construction activities.
ATC Separation: As of June 30, 1999, the Company is still obligated under
the ATC Separation agreement for certain tax liabilities to CBS Corporation.
See note 2 of the condensed consolidated financial statements.
16
<PAGE>
Year 2000
The Company is aware of the issues associated with the year 2000 as it
relates to information systems and is currently working to resolve the
potential impact to the Company's operations. The year 2000 issue results from
the fact that many computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without
consideration of the impact of the upcoming change in century.
In December 1998, the Company engaged outside consultants to help it conduct
an extensive review and implement a comprehensive plan to reduce the
probability of operational difficulties due to year 2000 issues. The
comprehensive plan consists of the following phases: (1) awareness phase--
identification of the problem and designing a structure to support the year
2000 efforts; (2) definition of critical processes and systems--a process to
identify those activities critical to the Company and focus the efforts of
year 2000 activities; (3) assessment phase--inventory the Company's systems,
software and equipment, assessing whether they are year 2000 compliant,
prioritizing those systems, software and equipment not compliant and
developing action plans for remediation and or replacement of non-complaint
systems, software and equipment; (4) renovation phase--converting, replacing
or retiring non-compliant systems, software and equipment; (5) validation
phase--testing converted or replaced systems; (6) implementation phase--place
converted or replaced systems into operations; and (7) contingency planning
phase--building a backup plan to be used in the event that the renovation plan
cannot be accomplished. This phase will also include business continuity and
disaster recovery planning for possible year 2000 induced failures on core
business processes. The Company's plan considers both its primary information
systems (financial systems software, network software and equipment, personal
computers, etc.) and other technology and software dependent upon embedded
systems (tower equipment, telephone systems, security systems, etc.).
The Company has completed phases 1, 2 and 3 and is in the process of
completing the remaining four phases for both its primary information systems
and its other systems and equipment with embedded software. These phases are
expected to be completed in the fourth quarter of 1999.
Through June 30, 1999, the Company has not incurred significant costs
related to developing and implementing its year 2000 comprehensive plan. The
remaining costs necessary to complete full implementation of the plan is
estimated to be between $0.3 million and $1.3 million.
Although there can be no assurance that the Company will successfully
complete implementation of its year 2000 comprehensive plan, the project is
currently progressing in accordance with timetables established by the
Company. Although failure to complete implementation on a timely basis may
have material adverse financial and operational impacts on the Company, the
Company believes such failure is not reasonably likely. The possible effects
of unsuccessful implementation of the comprehensive plan include the
following: (i) a temporary inability to process transactions, (ii) a temporary
inability to order supplies or materials, (iii) a temporary inability to
timely process orders and billings, and (iv) a temporary inability to deliver
quality products and services to customers.
The Company's business is dependent upon the systems of various third
parties. With regard to these vendors, the Company is in the process of
assessing their year 2000 readiness based upon communications with each such
vendor. The assessment is expected to be ongoing throughout the third and
fourth quarters of 1999. The Company believes that a material financial or
business risk could occur if the financial institutions serving the Company or
the Company's utility providers have year 2000 induced failures. The Company
understands that these institutions and providers are cognizant of the year
2000 issues and are actively working to solve any problems that may arise.
The Company believes that its most reasonably likely worst case result
relating to year 2000 would be the failure of certain of its systems with
embedded software, or failure of third party systems on which the Company's
systems rely. Failure of systems or equipment with embedded software within
the Company's VVDI
17
<PAGE>
segment could result in temporary disruption to that aspect of the Company's
operations. Although there can be no assurance that these failures would not
have an adverse effect on the Company's business, the Company believes the
effect of such failure would not be material to its business. If the VVDI
operations were inoperable for a one week period due to year 2000 failures,
the estimated lost revenue would be approximately $0.5 million.
Within its rental and management business segment, 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 the Company, are responsible for tower lighting in
compliance with Federal Communications Commission and the Federal Aviation
Administration requirements and the Company intends to take the necessary
steps to address the year 2000 issues; however, the Company may not be
entirely successful.
Currently there are no contingency plans for the potential problems noted
above with the third party vendors, embedded software and lighting systems;
however, the Company has implemented a contingency planning phase for those or
other matters as part of its year 2000 plan. The contingency planning phase is
estimated to be completed in the fourth quarter of 1999.
Recent Accounting Pronouncement
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 establishes
accounting and reporting standards for derivative instruments. It requires
that an entity recognize all derivatives as either assets or liabilities in
the statement of financial position, and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative (that is,
gains and losses) will depend on the entity's intended use of the derivative
and its resulting designation (as defined in the Statement). FAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company is currently in the process of evaluating the impact FAS No.
133 will have on the Company and its consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company maintains a portion of its cash and cash equivalents in short-
term financial instruments which are subject to interest rate risks. Due to
the relatively short duration of such instruments, fluctuations in interest
rates should not materially affect the Company's financial condition or
results of operations.
The Company is exposed to market risk from changes in interest rates on
long-term debt obligations that impact the fair value of these obligations.
The Company attempts to reduce these risks by utilizing derivative financial
instruments, namely interest rate caps and swaps, pursuant to Company
policies. All derivative financial instruments are for purposes other than
trading.
During June of 1999, the Company sold two interest rate swaps with aggregate
notional amounts of $24.9 million (expiring in January 2001 and June 2003) and
received total proceeds of $0.3 million which included a net gain of
approximately $0.2 million. Such gain will be recognized as income on a
straight line basis over the remaining life of each respective instrument.
The Company's potential loss in future earnings over the next twelve months
as a result of a 10% increase in interest rates related to its long term debt
obligations (using a weighted average interest rate of 8% at June 30, 1999)
would be approximately $2.2 million.
Except as discussed above, for the six months ended June 30, 1999, the
Company has not incurred any material changes with respect to the interest
rates, long-term debt and interest rate caps and swaps disclosed under this
section in its Annual Report on Form 10-K. Accordingly, refer to Item 7A in
the Company's Annual Report on Form 10-K for a more detailed discussion.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1.--Legal Proceedings.
The Company periodically becomes involved in various claims and lawsuits
that are incidental to its business. In the opinion of management, after
consultation with counsel, 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 its operations or liquidity.
Item 2.--Changes in Securities and Use of Proceeds.
Changes in Securities--The Board of Directors and the stockholders of the
Company approved an amendment (the "Second Charter Amendment") to the Restated
Certificate of Incorporation (the "Restated Certificate") to amend the
provision of the Restated Certificate that requires an 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 (as defined in the
Restated Certificate) falls below either (a) 50% of their initial aggregate
voting power on June 8, 1998, which was approximately 42.6%, or (b) 20% of the
aggregate voting power of all shares of common stock at the time outstanding.
As a consequence of the Second Charter Amendment, the automatic conversion
will occur only if the aggregate voting power of Mr. Dodge and his Controlled
Entities and Mr. Thomas Stoner and his Controlled Entities falls below the
applicable threshold. The amended provision was added to the Restated
Certificate in connection with the merger of the Company with Old ATC in June
1998 (the "Old ATC Merger"). At the time of approval of the Second Charter
Amendment, Mr. Dodge and his Controlled Entities owned "beneficially" within
the meaning of the Restated Certificate approximately 28.5% (34.7% with Mr.
Stoner and his Controlled Entities) of the aggregate voting power of all
shares of common stock outstanding. Substantially all of the decline in Mr.
Dodge's voting percentage was due to issuances of additional shares of Class A
common stock by the Company and not sales by Mr. Dodge. Since the adoption of
the original provision, the Company has issued more than 78.1 million shares
of Class A common stock. During that period, Mr. Dodge did not sell any
shares, although he did make certain charitable gifts of Class B common stock.
Recent Sales of Unregistered Securities--Pursuant to the Stock Purchase
Agreement, dated as of February 4, 1999, by and between the Company and Credit
Suisse First Boston Corporation (CSFB), the Company consummated an equity
financing involving the issuance of 500,000 shares of Class A common stock, at
$26.31 per share, the closing price of the Class A common stock on the New
York Stock Exchange on February 4, 1999.
Such shares referred to in the foregoing paragraph were issued by the
Company in reliance on the exemption from registration provided by Section
4(2) of the Securities Act. CSFB represented that it was acquiring the shares
for investment purposes and not with a view to distribution within the meaning
of the Securities Act. The stock certificate issued to CSFB bore a restrictive
legend. No underwriting discounts or commissions were paid by the Company in
connection with the foregoing transaction.
Item 4.--Submission of Matters to a Vote of Security Holders.
The 1999 Annual Meeting of Stockholders was held on Wednesday, May 26, 1999,
to consider and act upon the following matters. The results of the stockholder
voting were as follows:
19
<PAGE>
1. To elect ten Directors, including two independent directors to be
elected by the holders of Class A common stock, voting separately as a
class, for the ensuing year or until their successors are elected and
qualified;
<TABLE>
<CAPTION>
Votes Cast Votes
For Withheld
----------- --------
<S> <C> <C>
Steven B. Dodge...................................... 215,642,325 121,925
Alan L. Box.......................................... 215,589,434 174,816
Arnold L. Chavkin.................................... 215,643,875 120,375
Dean H. Eisner....................................... 215,641,519 122,731
Jack D. Furst........................................ 215,721,275 42,975
J. Michael Gearon, Jr. .............................. 215,644,075 120,175
Fred R. Lummis*...................................... 131,838,145 120,175
Randall Mays......................................... 215,644,075 120,175
Thomas H. Stoner..................................... 215,643,075 121,175
Maggie Wilderotter*.................................. 131,899,568 58,752
</TABLE>
*In accordance with the Company's Restated Certificate of
Incorporation, the holders of Class A common stock, exclusive of all
other stockholders, are entitled to elect two of the Company's
independent directors. Mr. Lummus and Ms. Wilderotter were nominated as
the independent directors and elected by the holders of the Class A
common stock.
2. To approve the Company's 1997 Stock Option Plan, as amended, pursuant to
which options to purchase Class A common stock of the Company may be
granted up to an aggregate of 15,000,000 shares;
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld
--------- ------------- --------------
<S> <C> <C>
198,025,794 16,739,179 999,277
3. To approve and adopt an amendment to the Company's Restated Certificate
of Incorporation, that increased the authorized number of shares of
common stock, par value $.01 per share;
<CAPTION>
Votes For Votes Against Votes Withheld
--------- ------------- --------------
<S> <C> <C>
205,991,346 9,587,078 185,826
</TABLE>
4. To approve and adopt an amendment to the Company's Restated Certificate
of Incorporation, that amended the provision that requires an automatic
conversion of the Class B common stock to Class A common stock if the
aggregate voting power of Mr. Dodge and his Controlled Entities (as
defined in the Restated Certificate) falls below a certain percentage;
<TABLE>
<CAPTION>
Votes Votes Broker
Votes For Against Withheld Non-Votes
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Class A........................ 72,135,082 45,428,864 816,597 13,577,777
Class B........................ 83,805,930
</TABLE>
5. To ratify the selection by the Board of Directors of the Company's
independent auditors for 1999;
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld
--------- ------------- --------------
<S> <C> <C>
215,712,498 22,169 29,583
</TABLE>
20
<PAGE>
Item 6.--Exhibits and Reports on Form 8-K.
(a) Exhibits.
Listed below are the exhibits that are filed as part of this Form 10-Q
(according to the number assigned to them in Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Exhibit No. Description of Document Exhibit File No.
----------- ----------------------- ----------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of June 28, Incorporated by reference to
1999, by and among American Tower Corporation, ATI Exhibit 2.1 to from ATC's
Merger Corporation, and UniSite, Inc., a Delaware Current Report on Form 8-K
corporation......................................... July 16, 1999
3(i) Restated Certificate of Incorporation, as amended,
as filed with the Secretary of State of the State Filed herewith as Exhibit
of Delaware on June 4, 1999......................... 3(i)
10.1 Agreement to Sublease, dated as of August 6, 1999,
by and between AirTouch Communications, Inc., the
other parties named therein as Sublessors, American Filed herewith as Exhibit
Tower Corporation and American Tower, L.P........... 10.1
10.2 Stock Purchase Agreement between ATC Teleports, Inc.
and ICG Holdings, Inc. and ICG Satellite Services, Filed herewith as Exhibit
Inc., dated as of August 11, 1999................... 10.2
27 Financial Data Schedule.............................. Filed herewith as Exhibit 27
99.1 Press Release dated as of August 8, 1999............. Filed herewith as Exhibit
99.1
</TABLE>
(b) Reports on Form 8-K.
None.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
American Tower Corporation
By: /s/ Joseph L. Winn
Date: August 16, 1999 -----------------------------------
------------------
Joseph L. Winn
Treasurer & Chief Financial Officer
(Duly Authorized Officer)
By: /s/ Justin D. Benincasa
Date: August 16, 1999 -----------------------------------
------------------
Justin D. Benincasa
Vice President & Corporate
Controller
(Duly Authorized Officer)
22
