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 March 31, 1998
__ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 0-26102
AMERICAN RADIO SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3196245
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of principal executive offices)
Telephone Number (617)-375-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No __
Class of Common Stock Outstanding at April 30, 1998
- --------------------- -----------------------------
Class A Common Stock 24,786,638 shares
Class B Common Stock 3,473,616 shares
Class C Common Stock 1,295,518 shares
Total 29,555,772 shares
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AMERICAN RADIO SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements Page No.
Condensed Consolidated Balance Sheets
December 31, 1997 and March 31, 1998....................................... 3
Condensed Consolidated Statements of Operations
Three months ended March 31, 1997 and 1998................................. 5
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1998................................. 6
Notes to Condensed Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 28
Item 2. Changes in Securities and Use of Proceeds........................ 28
Item 6. Exhibits and Reports on Form 8-K................................. 29
Signatures....................................................... 31
2
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PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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AMERICAN RADIO SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,643 $ 12,997
Accounts receivable (less allowance for doubtful
accounts of $7,703 in 1997 and $7,846 in 1998,
respectively) 90,468 78,953
Unbilled receivables 3,028
Prepaid expenses and other assets 5,153 8,966
Current portion of investment notes receivable (less valuation
allowance of $6,750 in 1997 and 1998) 2,250 2,250
Deferred income taxes 6,428 6,428
---------- ----------
Total current assets 120,942 112,622
---------- ----------
PROPERTY AND EQUIPMENT--Net 250,189 278,319
---------- ----------
OTHER ASSETS:
Restricted cash 22,141
Investment notes receivable 36,812 27,108
Intangible Assets, net
Goodwill 353,897 351,634
FCC licenses 1,112,273 1,171,196
Other intangible assets 38,884 36,234
Unallocated purchase price, net 108,192 221,532
Deposits and other long-term assets 10,875 8,942
Deferred income taxes 123,273
---------- ----------
Total other assets 1,683,074 1,939,919
---------- ----------
TOTAL $2,054,205 $2,330,860
========== ==========
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See notes to unaudited condensed consolidated financial statements
3
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AMERICAN RADIO SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 450 $ 394
Accounts payable 9,687 7,339
Accrued compensation 3,456 3,667
Accrued expenses 18,956 27,056
Unearned income 1,752 2,557
Accrued interest 14,177 11,416
Income taxes payable -- 125,774
----------- -----------
Total current liabilities 48,478 178,203
----------- -----------
DEFERRED INCOME TAXES 196,028 186,237
----------- -----------
OTHER LONG-TERM LIABILITIES 8,954 8,579
----------- -----------
LONG-TERM DEBT 923,704 1,020,398
----------- -----------
MINORITY INTEREST IN SUBSIDIARIES 626 78,208
----------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
Cumulative Exchangeable Preferred Stock, $0.01 par value;
10,000,000 shares authorized; 2,105,602 shares issued and
outstanding; liquidation preference $100 per share 215,550 215,550
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock; $0.01 par value; 10,000,000 shares authorized:
Convertible Exchangeable Preferred Stock; 137,500 shares issued
and outstanding (represented by 2,750,000 depositary shares);
liquidation preference $1,000 per share 1 1
Class A Common Stock; $.01 par value; 100,000,000 shares authorized;
24,708,096 and 24,746,510 shares issued and outstanding, respectively 247 247
Class B Common Stock; $.01 par value; 15,000,000 shares authorized;
3,508,639 and 3,494,325 shares issued and outstanding, respectively 35 35
Class C Common Stock; $.01 par value; 6,000,000 shares authorized;
1,295,518 shares issued and outstanding 13 13
Additional paid-in capital 671,211 663,036
Unearned compensation (202) (178)
Accumulated deficit (9,982) (19,011)
----------- -----------
Total 661,323 644,143
----------- -----------
Less:
Treasury stock, at cost, 19,019 shares (458) (458)
----------- -----------
Total stockholders' equity 660,865 643,685
----------- -----------
TOTAL $ 2,054,205 $ 2,330,860
=========== ===========
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See notes to unaudited condensed consolidated financial statements
4
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AMERICAN RADIO SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended March 31,
----------------------------
1997 1998
---------- ----------
<S> <C> <C>
NET REVENUES $ 54,237 $ 106,180
--------- ---------
OPERATING EXPENSES:
Operating expenses excluding depreciation and
amortization, net local marketing agreement and
corporate general and administrative expenses 40,884 77,049
Net local marketing agreement expenses 1,932 709
Depreciation and amortization 7,424 23,820
Merger expenses 3,572
Corporate general and administrative 1,777 1,905
--------- ---------
Total expenses 52,017 107,055
--------- ---------
OPERATING INCOME (LOSS) 2,220 (875)
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense (7,504) (19,013)
Interest income 656 1,195
Gains (losses) on sale of assets and other, net 218 261
--------- ---------
Total other income (expense) (6,630) (17,557)
--------- ---------
LOSS FROM OPERATIONS BEFORE
EXTRAORDINARY LOSS AND INCOME TAXES (4,410) (18,432)
INCOME TAX BENEFIT 1,685 9,402
--------- ---------
LOSS BEFORE EXTRAORDINARY LOSS (2,725) (9,030)
EXTRAORDINARY LOSS ON EXTINGUISHMENT
OF DEBT, NET OF INCOME TAX BENEFIT OF
$1,013 IN 1997 (1,639)
--------- ---------
NET LOSS (4,364) (9,030)
PREFERRED STOCK DIVIDENDS (6,198) (8,394)
--------- ---------
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS $ (10,562) $ (17,424)
========= =========
BASIC AND DILUTED PER COMMON SHARE AMOUNTS:
Loss before extraordinary loss $ (.42) $ (.59)
Extraordinary loss (.08)
--------- ---------
Net loss $ (.50) $ (.59)
========= =========
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
21,095 29,533
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements
5
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AMERICAN RADIO SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31,
----------------------------
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING
ACTIVITIES: $ (1,587) $ 10,951
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property, equipment and intangible
assets (7,853) (15,684)
Proceeds from radio station sales 20,403 3,952
Payments for radio station acquisitions (262,863) (42,153)
Payments for tower related acquisitions (71,069)
Issuance of investment notes receivable (624) (6,000)
Repayment of investment note receivable 1,243 2,004
Deposits and other long-term assets 16,417 (4,155)
--------- ---------
Cash used for investing activities (233,277) (133,105)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Credit Agreements and other 276,500 97,000
Repayments under Credit Agreements (230,000)
Repayments of other obligations (274) (235)
Net proceeds from equity offerings and options 160 30,242
Net proceeds from exchangeable preferred stock offering 192,350
Additions to deferred financing costs (5,526)
Distributions to minority interest (105) (105)
Dividends paid (2,406) (8,394)
--------- ---------
Cash provided by financing activities 230,699 118,508
DECREASE IN CASH AND CASH
EQUIVALENTS (4,165) (3,646)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,447 16,643
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,282 $ 12,997
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
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AMERICAN RADIO SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation - The financial statements included herein have been
prepared by American Radio Systems Corporation (American Radio, ARS or the
Company), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the Commission). Although certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, the Company believes that the disclosures are adequate to make
the information presented not misleading and reflect all adjustments
(consisting only of normal recurring adjustments) which 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 consolidated
financial statements for the year ended December 31, 1997 and the notes
thereto included in the Company's Annual Report on Form 10-K (Form 10-K).
Accounting Policies - In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (FAS) No. 130,
"Reporting Comprehensive Income," which became effective for the Company
for periods beginning after December 15, 1997. FAS No. 130 establishes
standards for reporting and displaying comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of general
purpose financial statements. FAS No. 130 requires that a company (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in-capital in
the equity section of the balance sheet. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. The Company has adopted this statement in the first quarter of
1998. Comprehensive income does not differ from net income.
Reclassifications - Certain reclassifications have been made to the 1997
financial statements to conform to the 1998 presentation.
2. Business and Corporate Structure
Tower Subsidiaries: American Tower Systems Corporation (ATS, Tower or Tower
Subsidiary) is a majority owned subsidiary of ARS. American Tower Systems
(Delaware), Inc. (ATSI) is a wholly-owned subsidiary of ATS and one of the
two operating subsidiaries of ATS. American Tower Systems, L.P. (ATSLP), is
an indirect wholly-owned subsidiary of ATS, which conducts all of the
business of ATS other than that conducted by ATSI. ATSI and ATSLP are
collectively referred to as the Operating Subsidiaries.
CBS Merger: In September 1997, American Radio entered into a merger
agreement as amended and restated in December 1997, as amended (the CBS
Merger Agreement) pursuant to which a subsidiary of CBS will be merged (the
CBS Merger) into American Radio. As a consequence of the consummation of
the CBS Merger, all of the shares of ATS owned by ARS will be distributed
to ARS common stockholders and holders of options to acquire ARS Common
Stock or upon conversion of shares of ARS 7% Convertible Exchangeable
Preferred Stock (the Convertible Preferred Stock). As a consequence of the
CBS Merger, ATS will cease to be a subsidiary of, or to be otherwise
affiliated with, American Radio and will operate as an independent publicly
traded company. Pursuant to the provisions of the CBS Merger Agreement, ATS
will enter into an agreement (the ARS-ATS Separation Agreement) with CBS
and ARS providing for, among other things, the orderly separation of ARS
and ATS, the allocation of certain tax liabilities to ATS, certain closing
date adjustments relating to ARS, the lease to ARS by ATS of space on
certain towers previously owned by ARS and transferred to ATS, and certain
indemnification obligations (including with respect to securities law
matters) of ATS.
7
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AMERICAN RADIO SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Business and Corporate Structure - (Continued)
ATS's principal obligation is to reimburse CBS on a "make-whole" (after
tax) basis for the tax liabilities to be incurred by ARS in excess of $20.0
million attributable to the distribution of the Common Stock to the ARS
security holders and certain related transactions. In light of the
significant increase in the trading levels of the ATS Class A Common Stock,
ATS and CBS have agreed that ARS will treat the distribution on its tax
return on a more conservative basis than originally contemplated in order
to avoid the possibility of significant interest and penalties for which
ATS would be responsible.
Assuming the "fair market value" of ARS's stock interest in ATS was equal
to $23.00 per share, the last reported sale price of such stock in the
"when-issued" market on April 30, 1998, the total estimated tax
reimbursement ATS would be required to make would be between approximately
$315.0 and $345.0 million, depending on applicable state tax rates. Such
estimate gives effect to deductions of approximately $93.0 million, based
on such closing price, available to ARS as a consequence of stock option
cancellations contemplated by the CBS Merger. The tax reimbursement would
change by between approximately $20.5 and $22.5 million, again depending on
applicable state tax rates, for each $1.00 change in the "fair market
value" of the ATS Common Stock under the tax reporting position to be
followed. The estimates described above are based on a number of
assumptions and interpretations of various applicable income tax rules and
are subject to change.
ARS has agreed that it will pursue, for the benefit and at the cost of ATS,
a refund claim, attributable to the "make whole" provision, estimated at
approximately $90.0 million, based on the assumed "fair market value" set
forth above. Any such refund claim will, in fact, be based on the actual
amount of tax paid. In light of existing tax law, there can, of course, be
no assurance that any such refund claim will be successful.
ARS and CBS have agreed that in computing the amount of taxable gain that
is recognized by ARS in connection with the distribution of the ATS Common
Stock, ARS shall, subject to certain limitations, if so requested by ATS,
report the amount so realized based on the "fair market value" of such
stock as determined based on an appraisal prepared by a mutually agreed
upon appraiser. Any such appraisal is not, of course, binding on the
Internal Revenue Service or other taxing authorities.
In connection with an inter-corporate taxable transfer of assets entered
into in January 1998 by ATS in contemplation of the separation of ATS and
ARS, a portion of the tax with respect to which ATS is obligated to
indemnify CBS was incurred. Such transfer resulted in an increase in the
tax bases of ATS's assets of approximately $330.0 million. ATS will have
potential depreciation and amortization deductions over the next 15 years
of $22.0 million per year and recorded a deferred tax asset and
corresponding income tax liability of approximately $125.0 million to
reflect these transactions.
The ARS-ATS Separation agreement will provide closing date balance sheet
adjustments based upon the working capital (current assets less defined
liabilities) and specified debt levels of ARS. ATS will benefit from or
bear the cost of such adjustments. ATS's preliminary estimate of such
adjustments is that it will not be required to make a payment of more than
$20.0 million and that, in addition, it will be required to reimburse CBS
for the tax consequences of any such payment which would result in
additional liability to ATS of approximately $13.0 million (assuming a
$20.0 million adjustment) payment under the tax reporting method to be
followed and as to which a refund claim will be filed. Since the amounts of
working capital and debt are dependent upon the uncertainty, among other
things, of recent operating results and cash capital expenditures, as well
as CBS Merger expenses and the interpretation and intent of certain
provisions of the CBS Merger Agreement as to which certain issues between
ATS and CBS exist, ATS is unable to state definitively what payments, if
any, will be owed by ATS or CBS.
8
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AMERICAN RADIO SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Business and Corporate Structure - (Continued)
ATS is actively negotiating a commitment from a major investment banking
firm with respect to a preferred stock financing (the Interim Financing)
which provides for the issuance and sale by ATS of up to $400.0 million of
preferred stock (the Interim Preferred Stock). ATS plans to draw on such
commitment and sell Interim Preferred Stock to finance its obligation to
CBS with respect to tax reimbursement, unless a public offering is
consummated prior to the time the tax reimbursement is due to CBS.
Consummation of the Interim Financing is subject to the negotiation and
execution of a definitive preferred stock purchase agreement (the Interim
Financing Agreement) and satisfaction of the closing conditions to be set
forth therein. ATS intends to redeem the Interim Preferred stock, to the
extent issued, out of the proceeds of a public offering of ATS Class A
Common Stock to be registered under the Securities Act of 1933, as amended
(Securities Act), if, as is likely, the tax reimbursement is due prior to
the consummation of such public offering or, if not, to use such public
offering proceeds directly to reimburse CBS for such tax liability. Any
remaining proceeds are intended to be used to fund any closing date balance
sheet adjustments (or repay bank borrowings incurred for such purpose). Any
public offering would have a dilutive effect on ATS's then existing
stockholders, particularly since the proceeds will be used to satisfy a
liability and not to finance the acquisition of revenue producing property.
Further, any public offering would be subject to market conditions and
other factors. There can be no assurance that any such financing would be
available on terms favorable to ATS.
The CBS Merger has been approved by stockholders of ARS who held sufficient
voting power to approve such action. Consummation of the CBS Merger is
subject to, among other things, the approval by the Federal Communications
Commission (FCC) of the transfer of control of ARS's 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.
The foregoing is a description of the rights and obligations of ARS and ATS
in the event the CBS Merger is consummated. Although the ARS-ATS Separation
Agreement will be effective and operational if the merger of a subsidiary
of ARS into ARS (the Tower Merger) is consummated, in the event the CBS
Merger is not subsequently consummated, ARS and ATS have reserved the right
to alter the terms of that agreement to provide for a sharing of the rights
and obligations in a manner that may be more or less favorable to ATS.
Because ARS and ATS believe that the CBS Merger will be consummated, no
determination has been made of what the rights and obligations of ARS and
ATS should be in the event it were not.
3. Per Share Data - In the fourth quarter of 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128). Prior to the fourth quarter of 1997, the Company computed
income (loss) per common share using the methods outlined in Accounting
Principles Board Opinion No. 15, Earnings Per Share, and its
interpretations.
Basic income (loss) per common share is computed using the weighted average
number of common shares outstanding during each year. Diluted income (loss)
per common share reflects the effect of the Company's outstanding options
(using the treasury stock method), except where such items would be
antidilutive. Shares of redeemable preferred stock convertible into common
stock have been excluded from the diluted computation as they are
anti-dilutive. Had such shares been included, shares for the diluted
computation would have been increased by approximately 3,235,000 in 1997
and 1998. In addition, because such shares are anti-dilutive, no adjustment
has been made to reconcile from income (loss) for the basic computation to
that for the diluted computation. No effect has been given to stock options
in 1997 and 1998 as they are anti-dilutive for that year. Had such options
been included, shares for the diluted computation would have been increased
by 1,067,000 and 1,870,000 in 1997 and 1998, respectively.
9
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AMERICAN RADIO SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 (provision) are recorded in the interim period in which
a change in the estimated annual effective rate is determined.
5. Property and Equipment and Intangible Assets - Property and equipment and
intangible assets included approximately $84.0 million and $56.9 million of
assets related to radio stations held for sale or under exchange agreements
(excluding the CBS Merger Agreement) as of December 31, 1997 and March 31,
1998, respectively. The following summary presents the results of
operations (excluding depreciation and amortization, net local marketing
agreement and corporate general and administrative expenses) relating to
these stations that are included in the accompanying unaudited condensed
consolidated financial statements for each respective period.
In thousands:
Three Months Ended March 31,
----------------------------
1997 1998
------- -------
Net operating revenues............... $ 1,835 $ 2,195
Net operating expenses............... 1,787 2,621
6. ATS Loan Agreement - ATS is in the process of negotiating amended and
restated loan agreements, 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. In connection with the refinancing, ATS 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. See Management's
Discussion and Analysis for a description of the new credit facilities.
7. Acquisitions and Dispositions
General: The following acquisitions have all been accounted for by the
purchase method of accounting, and, accordingly, the operating results of
the acquired entities, to the extent that a local marketing agreement (LMA)
did not exist, have been included in consolidated operating results since
the date of acquisition. The purchase price has been allocated to the
assets acquired, principally intangible assets, and the liabilities assumed
based on their estimated fair values at the dates of acquisition. The
excess of purchase price over the estimated fair value of the net assets
acquired has been recorded as goodwill. The financial statements reflect
the preliminary allocation of certain purchase prices as the appraisals for
certain acquisitions have not yet been finalized. The Company does not
expect the final appraisals will have a material effect on the financial
position, results of operations or liquidity of the Company.
During the first three months of 1998, the Company consummated the
following station and tower related transactions. See the Form 10-K for
additional information on these transactions and transactions during 1997.
10
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AMERICAN RADIO SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Acquisitions and Dispositions - (Continued)
1998 Acquisitions and Dispositions:
Dayton and Kansas City: In January 1998, the Company consummated an
agreement to exchange WXEG-FM, WBTT-FM, WLQT-FM, WMMX-FM, WTUE-FM and
WONE-AM serving Dayton in exchange for WDAF-AM, KOZN-FM (formerly KYYS-FM),
KMXV-FM and KUDL-FM serving Kansas City. The Company began programming and
marketing KYYS-FM and KMXV-FM pursuant to an LMA agreement in September
1997.
Kansas City, Sacramento and St. Louis: In January 1998, the Company
acquired KLOU-FM in St. Louis in exchange for KUDL-FM and WDAF-AM in Kansas
City and approximately $7.0 million. The Company also consummated a related
agreement with the same party, pursuant to which the Company sold KCTC-AM
serving Sacramento for approximately $4.0 million.
Riverside/San Bernardino and Sun City: In March 1998, the Company acquired
KFRG-FM, serving the Riverside/San Bernardino market, and KXFG-FM, serving
Sun City, California, for approximately $60.0 million. The Company began
programming and marketing the stations pursuant to an LMA agreement in
August 1997.
Tower Subsidiary: In January 1998, the Tower Subsidiary consummated an
agreement to acquire 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 Tower Subsidiary Class A
Common Stock valued at $9.00 per share. Gearon is engaged in site
acquisition, development, construction and facility management of wireless
network communication facilities on behalf of its customers and at the time
of acquisition owned or had under construction approximately 40 tower
sites. Following consummation, the Tower Subsidiary granted options to
acquire up to 1,400,000 shares of Class A Common Stock at an exercise price
of $13.00 per share to employees of Gearon.
In January 1998, the Tower Subsidiary consummated the acquisition 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. 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 $5.8 million).
In January 1998, the Tower Subsidiary consummated the acquisition of a
communications site with six towers in Tucson, Arizona for approximately
$12.3 million.
In January 1998, the Tower Subsidiary consummated the acquisition of a
tower near Palm Springs, California for approximately $0.75 million.
In January 1998, the Company transferred to the Tower Subsidiary 14
communications sites currently used by the Company and various third
parties (with an ARS net book value of approximately $4.7 million), and the
Company and the Tower Subsidiary entered into leases or subleases of space
on the
11
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AMERICAN RADIO SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Acquisitions and Dispositions - (Continued)
transferred towers. Two additional communications sites will be transferred
and leases entered into following acquisition by the Company of the sites
from third parties.
In February 1998, the Tower Subsidiary acquired 11 communications tower
sites in northern California for approximately $11.8 million.
The following unaudited pro forma summary for the three months ended March
31, 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:
Three Months Ended Three Months Ended
March 31,1997 March 31, 1998
------------- --------------
Net revenues $102,693 $107,266
Loss before extraordinary loss (14,381) (11,375)
Net loss (16,020) (11,375)
Net loss applicable to common
stockholders (22,218) (19,769)
Basic and diluted net loss per common
share $ (0.75) $ (0.67)
8. Pending Transactions - The Company has numerous pending transactions that
are described in the Form 10-K.
Portland, Sacramento, San Francisco and San Jose: In April 1997, the
Company entered into an asset exchange agreement pursuant to which it will
acquire KINK-FM, serving Portland, Oregon, KUFX-FM (formerly KBRG-FM),
serving Fremont/San Francisco, California, $2.0 million in a promissory
note to ARS due September 30, 1998, or at the time of certain earlier
events, and 150,000 shares of common stock of Latin Communications, Inc.,
in exchange for KBRG-FM (formerly KBAY-FM), serving San Jose, and KRRE-FM
(formerly KSSJ-FM), serving Sacramento. The agreement also provides for the
exchange of KINK-FM for KBRG-FM in the event regulatory approval for the
exchange of KUFXX-FM and KRRE-FM cannot be obtained. The Justice Department
approved the exchange of KRRE-FM for KUFX-FM. Subject to certain
conditions, including the receipt of FCC approval, the transaction is
expected to be consummated in the second quarter of 1998. The Company began
programming and marketing KINK-FM and KUFX-FM pursuant to an LMA agreement
in January 1998.
12
<PAGE>
AMERICAN RADIO SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. Pending Transactions - (Continued)
Portsmouth: In March 1998, entered into an agreement to sell the assets of
WQSO-FM and WZNN-AM serving Rochester, New Hampshire and WERZ-FM and
WMYF-AM, serving Exeter, New Hampshire for approximately $6.0 million.
Subject to the receipt of FCC approval, the transaction is expected to be
consummated in the second quarter of 1998.
Sacramento: In March 1998, the Company entered an asset exchange agreement
pursuant to which the Company's KRAK-FM would exchange FCC frequency
position's with another radio station also located in the Sacramento market
for approximately $4.4 million. Subject to the receipt of FCC approval, the
transaction is expected to be consummated in the third quarter of 1998.
San Jose and Monterey: In March 1997, the Company entered into a merger
agreement pursuant to which the Company will acquire the assets of KEZR-FM
and KLUE-FM serving Monterey, California in exchange for approximately
723,000 shares of Class A Common Stock valued at approximately $20.0
million and $4.0 million in cash. Subject to the receipt of FCC approval
and resolution of the matters raised by the Antitrust Division described
above, the acquisition is expected to be consummated in the second quarter
of 1998.
San Jose: In October 1997, the Company entered into an agreement to sell
KSJO-FM for approximately $30.0 million. Subject to the receipt of FCC
approval, and the expiration or earlier termination of the HSR Act waiting
period, the transaction is expected to be consummated in the second quarter
of 1998.
St. Louis: In September 1997, the Company entered into an agreement to sell
the assets of KFNS-AM serving the St. Louis, Missouri market for
approximately $3.8 million. Subject to the receipt of FCC approval, the
transaction is expected to be consummated in the second quarter of 1998.
Temple: In May 1997, the Company entered into an agreement to acquire radio
station KKIK-FM, licensed to Temple, Texas (in the Austin area) for
approximately $3.7 million. Subject to the approval of the FCC, the
transaction is expected to be consummated in the second quarter of 1998.
West Palm Beach: In July 1997, the Company entered into an agreement to
acquire WTPX-FM for approximately $11.0 million. The Company began
programming and marketing the stations pursuant to an LMA in June 1997. In
October 1997, the Company entered into an agreement to terminate these
agreements. (See Note 9).
In October 1997, the Company entered into an agreement to sell WEAT-AM
serving West Palm Beach, Florida for approximately $1.5 million. Subject to
the receipt of FCC approval, the transaction is expected to be consummated
in the second quarter of 1998.
13
<PAGE>
AMERICAN RADIO SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. Pending Transactions - (Continued)
Tower Subsidiary: In December 1997, the Tower Subsidiary entered into a
merger agreement with American Tower Corporation (ATC) pursuant to which
ATC will merge with and into ATS (the ATC Merger), 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. Consummation of the transaction is subject to, among
other things, the expiration or earlier termination of the HSR Act waiting
period, and is expected to occur in the Spring of 1998.
In January 1998, the Tower Subsidiary entered into an agreement to purchase
the assets relating to a teleport 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.
Consummation of the transaction is expected to occur in the Spring of 1998.
ATS is negotiating certain changes in the ATS/PCS, LLC (formerly
Communications Systems Development, LLC) arrangements, including the
acquisition by ATS of the 58 communications sites in northern California
presently owned by ATS/PCS, LLC in exchange for shares of ATS Class A
Common Stock, arrangements with respect to the development of
communications sites in other locations, a priority return of ATS's
construction advances, an increase in the percentage interest of the other
member in ATS/PCS, LLC, and a management fee to ATS.
ATS is also negotiating an agreement to acquire a company which is in the
process of constructing approximately 40 towers in the Tampa, Florida area,
of which seven are presently operational. The purchase price will be equal
to the 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.
ATS 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 $1.0 million was advanced
through March 31, 1998. The secured note would be payable in the event a
definitive acquisition agreement is not executed or if the acquisition were
not consummated. Subject to the negotiation and execution of a definitive
agreement and 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.
14
<PAGE>
AMERICAN RADIO SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. Subsequent Events - Subsequent to March 31, 1998, the Company consummated
the following transactions:
West Palm Beach - In May 1998, the WTPX-FM termination agreement was
consummated and a third party acquired WTPX-FM from the seller pursuant to
which the Company received the net proceeds of certain investment notes,
subject to the valuation allowance that was recorded as of December 31,
1997.
Tower Subsidiary - In April 1998, ATS entered into an agreement to acquire
a broadcasting tower in the Boston area for 720,000 shares of ATS Class A
Common Stock. Subject to the satisfaction of certain conditions, including
the expiration or earlier termination of the HSR Act waiting period, the
acquisition is expected to be consummated in the second quarter of 1998.
On May 12, 1998, ATS filed a registration statement (No. 333-52481) with
the Commission with respect to an underwritten public offering (the
Offering) of an aggregate of 22,918,499 shares of ATS Class A Common Stock
(including an Underwriter's over-allotment option of 2,083,500 shares) by
ATS and certain selling stockholders. Pursuant to the consummation of the
Offering, ATS will issue and sell approximately 17,400,000 shares of ATS
Class A Common Stock and receive net proceeds estimated (based on an
assumed initial public offering price of $23.00 per share) at approximately
$381.5 million (exclusive of the Underwriter's over-allotment option). ATS
will receive no proceeds from the sale of ATS Class A Common Stock by the
selling stockholders. ATS expects to use such net proceeds to redeem the
Interim Preferred Stock, the net proceeds from the sale of which will be
used principally to reimburse CBS with respect to the taxes payable as a
consequence of the separation of ARS and ATS pursuant to the CBS Merger and
to reduce bank borrowings.
The Offering is subject to various conditions, including prevailing market
conditions, and therefore may change. Further, there can be no assurances
that the Offering will be completed or that, if the Offering is completed,
it will be completed on terms favorable to ATS. The registration statement
relating to these securities has been filed with the Commission but has not
yet become effective. These securities may not be sold nor may offers to
buy be accepted prior to the time the registration statement becomes
effective. This communication shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state. Copies of the Prospectus relating to the Offering may be
obtained from Credit Suisse First Boston, Prospectus Department, 11 Madison
Avenue, New York, New York 10010, (212) 325-2000.
15
<PAGE>
AMERICAN RADIO SYSTEMS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Subsidiary Guarantees
The Company's payment obligations under the 9.00% Senior Subordinated Notes
(9.00% Notes) and the 9.75% Senior Subordinated Notes (9.75% Notes) are
fully and unconditionally guaranteed on a joint and several basis
(collectively, the Subsidiary Guarantees), on a senior basis (in the case
of the 9.75% Notes) and a senior subordinated basis (in the case of the
9.00% Notes) by all of its present and any future Restricted Subsidiaries
(collectively Restricted Guarantors). The Restricted Subsidiaries have also
unconditionally guaranteed, and any future Restricted Subsidiaries will be
required to guarantee, on a joint and several basis (collectively, the
Senior Subsidiary Guarantees), all obligations of the Company under the
1997 Credit Agreement. The Tower Subsidiary has not guaranteed obligations
under the Credit Agreements or either series of the Senior Subordinated
Notes.
The 9.00% Notes and the Subsidiary Guarantees are subordinated to all
Senior Debt (as defined) of the Company including indebtedness under the
1997 Credit Agreement and the Senior Subsidiary Guarantees and 9.75% Notes
related guarantees. The indenture governing each series of the Senior
Subordinated Notes contains limitations on the amount of indebtedness
(including Senior Debt) which the Company may incur.
With the intent that the Subsidiary Guarantees not constitute fraudulent
transfers or conveyances under applicable state or federal law, the
obligation of each guarantor under its Subsidiary Guarantee is also limited
to the maximum amount as will, after giving effect to any rights to
contribution of such guarantor pursuant to any agreement providing for an
equitable contribution among such guarantor and other affiliates of the
Company of payments made by guarantees by such parties, result in the
obligations of such guarantor in respect of such maximum amount not
constituting a fraudulent conveyance.
The following unaudited condensed consolidating financial data illustrates
the composition of the combined guarantors. The Company believes that
separate complete financial statements of the respective guarantors would
not provide additional material information which would be useful in
assessing the financial composition of the guarantors. No single guarantor
has any significant legal restrictions on the ability of investors or
creditors to obtain access to its assets in event of default on the
Subsidiary Guarantee, other than in the case of the 9.00% Notes its
subordination to Senior Debt described above.
Investments in subsidiaries are accounted for by the parent on the equity
method for purposes of the unaudited supplemental consolidating
presentation. Earnings (losses) of subsidiaries are therefore reflected in
the parent's investment accounts and earnings. The principal elimination
entries eliminate investments in subsidiaries and intercompany balances and
transactions.
16
<PAGE>
AMERICAN RADIO SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Subsidiary Guarantees--(Continued)
<TABLE>
<CAPTION>
Unaudited Condensed Consolidating Balance Sheet
March 31, 1998
(Dollars in thousands)
Parent and Guarantor Non-guarantor Consolidated
its Divisions Subsidiaries Subsidiary Eliminations Totals
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,303 $ 1,895 $ 6,799 $ 12,997
Accounts receivable, net 44,460 28,751 5,742 78,953
Unbilled receivables 3,028 3,028
Prepaid expenses and other assets 8,243 1,636 1,337 11,216
Deferred income taxes 4,006 2,359 63 6,428
----------- ----------- ----------- ----------- -----------
Total current assets 61,012 34,641 16,969 112,622
PROPERTY AND EQUIPMENT, NET 75,078 46,414 156,827 278,319
OTHER ASSETS:
Restricted cash
Investment in and advances to subsidiaries 1,344,168 $(1,344,168)
Investment notes receivable 25,498 610 1,000 27,108
Intangible assets - net
Goodwill - net 330,875 20,759 351,634
FCC licenses - net 1,171,196 1,171,196
Other intangible assets - net 26,373 2,204 7,657 36,234
Unallocated purchase price - net 221,532 221,532
Deposits and other long-term assets 3,120 66 5,756 8,942
Deferred income taxes 123,273 123,273
----------- ----------- ----------- ----------- -----------
Total other assets 1,730,034 1,194,835 359,218 (1,344,168) 1,939,919
----------- ----------- ----------- ----------- -----------
TOTAL $ 1,866,124 $ 1,275,890 $ 533,014 $(1,344,168 $ 2,330,860
=========== =========== =========== =========== ===========
17
<PAGE>
<CAPTION>
AMERICAN RADIO SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Subsidiary Guarantees--(Continued)
Unaudited Condensed Consolidating Balance Sheet
March 31, 1998
(Dollars in thousands)
Parent and Guarantor Non-guarantor Consolidated
its Divisions Subsidiaries Subsidiary Eliminations Totals
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 282 $ 112 $ 394
Accounts payable and accrued expenses 27,771 7,560 16,704 52,035
Due to Parent 125,210 (125,210)
Income taxes payable 107,016 18,758 125,774
----------- ----------- ----------- ----------- -----------
Total current liabilities 135,069 26,318 142,026 (125,210) 178,203
NON-CURRENT LIABILITIES
Deferred income taxes 367 185,870 186,237
Other long-term liabilities 8,507 39 33 8,579
Long-term debt 863,361 157,037 1,020,398
----------- ----------- ----------- ----------- -----------
Total non-current liabilities 872,235 185,909 157,070 1,215,214
MINORITY INTEREST IN SUBSIDIARIES (415) 600 78,023 78,208
REDEEMABLE PREFERRED STOCK 215,550 215,550
STOCKHOLDERS' EQUITY:
Preferred stock 1 1
Common stock 295 490 (490) 295
Notes receivable, due from stockholders (49,375) 49,375
Additional paid-in capital 663,036 1,053,602 286,590 (1,340,192) 663,036
Unearned compensation (178) (178)
Retained earnings (accumulated deficit) (19,011) 10,061 (4,387) (5,674) (19,011)
Treasury stock (458) (458)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity 643,685 1,063,663 233,318 (1,296,981) 643,685
----------- ----------- ----------- ----------- -----------
TOTAL $ 1,866,124 $ 1,275,890 $ 533,014 $(1,344,168) $ 2,330,860
=========== =========== =========== =========== ===========
18
<PAGE>
<CAPTION>
AMERICAN RADIO SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Subsidiary Guarantees--(Continued)
Unaudited Condensed Consolidating Statement of Operations
For the Three Months Ended March 31, 1998
(Dollars in thousands)
Parent and Guarantor Non-guarantor Consolidated
its Divisions Subsidiaries Subsidiary Eliminations Totals
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net broadcast revenues $ 53,789 $ 34,804 $ (13) $ 88,580
Tower revenues $ 17,925 (325) 17,600
License fees charged to Parent (4,283) 4,283 0
--------- --------- --------- --------- ---------
Total net revenues 49,506 39,087 17,925 (338) 106,180
Operating expenses excluding
depreciation and amortization, net
local marketing agreement and
corporate general and administrative
expenses 39,664 25,687 11,495 203 77,049
Net local marketing agreement expense 683 26 709
Depreciation and amortization 5,228 12,790 5,802 23,820
Merger expenses 3,572 3,572
Corporate general and administrative 1,905 541 (541) 1,905
--------- --------- --------- --------- ---------
Operating income (loss) (1,546) 584 87 0 (875)
Other income (expense):
Interest expense (16,583) (2,430) (19,013)
Interest income 330 865 1,195
Gains (loss) on sale of assets and other,
net (21) (54) (79) (154)
Equity in income (loss) of subsidiaries (842) 1,257 415
--------- --------- --------- --------- ---------
Income (loss) before income taxes (18,662) 530 (1,557) 1,257 (18,432)
Income tax provision (benefit) 9,632 (260) (30) 9,402
--------- --------- --------- --------- ---------
Net income (loss) $ (9,030) $ 270 $ (1,527) $ 1,257 $ (9,030)
========= ========= ========= ========= =========
19
<PAGE>
<CAPTION>
AMERICAN RADIO SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Subsidiary Guarantees--(Continued)
Unaudited Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 1998
(Dollars in thousands)
Parent and Guarantor Non-guarantor Consolidated
its Divisions Subsidiaries Subsidiary Eliminations Totals
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities $ (7,595) $ 20,284 $ (1,738) $ 10,951
--------- --------- --------- --------- ---------
Investing Activities:
Payments for purchase of property
equipment and intangible assets (2,994) (12,690) (15,684)
Proceeds from asset and radio station sales 3,952 3,952
Repayment of investment notes receivable 4 2,000 2,004
Payments for purchase of tower properties (71,069) (71,069)
Payments for purchase of radio stations (42,153) (42,153)
Repayments for investment notes receivable (6,000) (6,000)
Deposits and other long-term assets (79) (4,076) (4,155)
--------- --------- --------- --------- ---------
Cash flows used for investing activities (41,270) (91,835) (133,105)
--------- --------- --------- --------- ---------
Financing Activities:
Borrowings under the Credit Agreements
and other 30,000 67,000 97,000
Repayments under the Credit Agreements
Repayments under other obligations (208) (27) (235)
Distributions to minority interest (105) (105)
Dividends paid (8,394) (8,394)
Net proceeds from equity offerings and
options 219 30,023 30,242
Investment in and advances to subsidiaries 21,081 (19,966) (1,115) 0
--------- --------- --------- --------- ---------
Cash flows from financing activities 42,698 (19,966) 95,776 118,508
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents (6,167) 318 2,203 (3,646)
Cash and cash equivalents, beginning of period 10,470 1,577 4,596 16,643
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period $ 4,303 $ 1,895 $ 6,799 $ 0 $ 12,997
========= ========= ========= ========= =========
</TABLE>
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This report 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. The Company wishes to caution readers that certain important
factors may have affected and could in the future affect the Company's actual
results and could cause the Company's actual results for subsequent periods to
differ materially from those expressed in any forward-looking statement made by
or on behalf of the Company. These important factors include among others, the
following: (i) any adverse change in the laws, regulations and policies
governing the operation, ownership and acquisition of radio stations, including,
but not limited to, those established by Congress, the Federal Communications
Commission and the Antitrust Division of the U.S. Justice Department; and (ii)
the Company's financial leverage as a result of borrowings under the Company's
credit agreements, which bear interest at variable rates, and the issuance of
the Senior Subordinated Notes could make it vulnerable to an increase in
interest rates or a downturn in the operating performance of its radio stations
or a downturn in economic conditions.
As of March 31, 1998, the Company owned and/or operated approximately 96 radio
stations and approximately 820 communications sites. See the Form 10-K and the
unaudited condensed consolidated financial statements for a description of the
1997 station and tower acquisitions. As of March 31, 1997, the Company owned
and/or operated approximately 71 radio stations and approximately 270
communications sites. During 1997 and 1998, the Tower Subsidiary continued to
increase the number of tower sites and management agreements with several
acquisitions. These transactions have significantly affected operations for the
three months ended March 31, 1998 compared to the three months ended March 31,
1997.
Results of Operations
Three months ended March 31, 1998 and 1997
Net revenues were $106.2 million for the three months ended March 31, 1998
compared to $54.2 million for the same period in 1997, an increase of $52.0
million or 95.9%. This increase was attributable to revenue growth in some of
the Company's existing markets and, to a more substantial extent, the impact of
the EZ Merger in 1997 and radio and tower acquisitions that occurred in the
latter half of 1997 and first quarter of 1998.
Operating expenses excluding net local marketing agreement expenses,
depreciation and amortization and corporate general and administrative expenses
were $77.0 million for the three months ended March 31, 1998 compared to $40.9
million for the same period in 1997, an increase of $36.1 million or 88.3%. This
increase was due to the impact of increased costs associated with the Company's
revenue growth and acquisitions.
Net local marketing agreement expenses were $0.7 million for the three months
ended March 31, 1998 compared to $1.9 million for the same period in 1997, a
decrease of $1.2 million. Local marketing agreement expenses for the three
months ended March 31, 1998 and 1997 are presented net of approximately $0.1
million and $0.7 million, respectively, of revenues earned under such
agreements. The change in the balances for each period are based on the timing
of pending station acquisitions and dispositions.
Depreciation and amortization was $23.8 million and $7.4 million for the three
months ended March 31, 1998 and 1997, respectively, an increase of $16.4
million. This increase was primarily attributable to the impact of increased
expenses associated with the increase in depreciable and amortizable assets
resulting from the 1997 and 1998 acquisitions.
21
<PAGE>
Results of Operations - (continued):
Merger expenses were $3.6 million for the three months ended March 31, 1998 and
result from costs incurred to date in connection with the pending sale of radio
properties to CBS.
Corporate general and administrative expenses increased to $1.9 million for the
three months ended March 31, 1998 from $1.8 million for the same period in 1997,
an increase of $0.1 million or 5.6%. This increase was primarily attributable to
the higher personnel costs associated with supporting the Company's greater
number of stations and tower properties.
Interest expense was $19.0 million for the three months ended March 31, 1998
compared to $7.5 million for the same period in 1997, an increase of $11.5
million or 153.3%. The increase is related to higher borrowing levels under the
Company's credit agreements in 1998 as compared to 1997 which resulted from the
1997 and 1998 acquisitions.
Interest income was $1.2 million for the three months ended March 31, 1998
compared to $0.7 million for the same period in 1997, a increase of $0.5
million. The increase is attributable to higher investable cash balances in 1998
and higher interest income earned on certain station investment and stockholder
notes in 1998 as compared to 1997.
Gains on the sale of assets and other, net was $0.3 million and $0.2 million for
the three months ended March 31, 1998 and 1997, respectively. The gains for both
1998 and 1997 were primarily attributed to the gains on certain asset sales. The
income tax benefit for the three months ended March 31, 1998 was $9.4 million as
compared to a provision of $1.7 million for the same period in 1997. The
effective tax rate for the three months ended March 31, 1998 was approximately
51.0% compared to 38.2% in 1997. The effective rate in 1998 and 1997 is due to
the effect of permanent differences, principally amortization of non-deductible
goodwill. Extraordinary loss for the three months ended March 31, 1997 was $1.6
million, net of a $1.0 million tax benefit. The extraordinary loss was a result
from the write-off of certain deferred financing costs pursuant to the
extinguishment of debt under ARS's previous credit agreement.
Preferred stock dividends for the three months ended March 31, 1998 were $8.4
million compared to $6.2 million for the same period in 1997. The dividends for
the 1998 and 1997 period include $2.4 million of dividends attributable to the
Convertible Exchangeable Preferred Stock issued in late June 1996 and $6.0
million and $3.8 million of dividends attributable to the Cumulative
Exchangeable Preferred Stock issued in late January 1997, respectively.
Net loss applicable to common stockholders for the three months ended March 31,
1998 was $17.4 million compared to $10.6 million for the same period in 1997,
as a result of the factors discussed above.
Broadcast cash flow for the three months ended March 31, 1998 was $29.1 million
compared to $13.4 million for the same period in 1997, a $15.7 million or 117.2
% increase. Broadcast cash flow margins were 27.4% in 1998 compared to 24.6% in
1997.
22
<PAGE>
Liquidity and Capital Resources
The Company's liquidity needs arise from its acquisition-related activities,
debt service, working capital, capital expenditures and dividend payments.
Historically, the Company has met its operational liquidity needs with
internally generated funds and has financed the acquisition of radio
broadcasting properties and tower related properties, including related working
capital needs, with a combination of bank borrowings and proceeds from the sale
of the Company's equity and debt securities. For the three months ended March
31, 1998 cash flows provided by operating activities was $11.0 million, as
compared to cash flows used for operating activities of $1.6 million for the
three months ended March 31, 1997.
Cash flows used for investing activities were $133.1 million for the three
months ended March 31, 1998 as compared to $233.3 million for the three months
ended March 31, 1997. The decrease is attributable to the decreased radio
acquisition activity in 1998 as compared to 1997.
Cash provided by financing activities was $118.5 million for the three months
ended March 31, 1998 as compared to $230.7 million for the three months ended
March 31, 1997. The decrease in 1998 is attributable to the Company's reduced
efforts in raising capital through equity offerings.
CBS Merger: In September 1997, American Radio entered into the CBS Merger
Agreement pursuant to which a subsidiary of CBS will be merged into American
Radio. As a consequence of the consummation of the CBS Merger, all of the shares
of ATS owned by ARS will be distributed to ARS common stockholders and holders
of options to acquire ARS Common Stock or upon conversion of shares of
Convertible Preferred. As a consequence of the CBS Merger, ATS will cease to be
a subsidiary of, or to be otherwise affiliated with, American Radio and will
operate as an independent publicly traded company. Pursuant to the provisions of
the CBS Merger Agreement, ATS will enter into the ARS-ATS Separation Agreement
with CBS and ARS providing for, among other things, the orderly separation of
ARS and ATS, the allocation of certain tax liabilities to ATS, certain closing
date adjustments relating to ARS, the lease to ARS by ATS of space on certain
towers previously owned by ARS and transferred to ATS, and certain
indemnification obligations (including with respect to securities law matters)
of ATS.
ATS's principal obligation is to reimburse CBS on a "make-whole" (after tax)
basis for the tax liabilities in excess of $20.0 million to be incurred by ARS
attributable to the distribution of the Common Stock to the ARS security holders
and certain related transactions. In light of the significant increase in the
trading levels of the Class A Common Stock, ATS and CBS have agreed that ARS
will treat the distribution on its tax return on a more conservative basis than
originally contemplated in order to avoid the possibility of significant
interest and penalties for which ATS would be responsible. Assuming the "fair
market value" of ARS's stock interest in ATS was equal to $23.00 per share, the
last reported sale price of such stock in the when issued market on April 30,
1998, the total estimated tax reimbursement ATS would be required to make would
be between approximately $315.0 and $345.0 million, depending on applicable
state tax rates. Such estimate gives effect to deductions of approximately $93.0
million, based on such closing price, available to ARS as a consequence of stock
option cancellations contemplated by the CBS Merger. The tax reimbursement would
change by between approximately $20.5 and $22.5 million, again depending on
applicable state tax rates, for each $1.00 change in the "fair market value" of
the Common Stock under the tax reporting position to be followed. The estimates
described above are based on a number of assumptions and interpretations of
various applicable income tax rules and are subject to change.
ARS has agreed that it will pursue, for the benefit and at the cost of ATS, a
refund claim, attributable to the "make whole" provision, estimated at
approximately $90.0 million, based on the assumed "fair market value" set forth
above. Any such refund claim will, in fact, be based on the actual amount of tax
paid. In light of existing tax law, there can, of course, be no assurance that
any such refund claim will be successful.
23
<PAGE>
Liquidity and Capital Resources - (continued):
ARS and CBS have agreed that in computing the amount of taxable gain that is
recognized by ARS in connection with the distribution of the Common Stock, ARS
shall, subject to certain limitations, if so requested by ATS, report the amount
so realized based on the "fair market value" of such stock as determined based
on an appraisal prepared by a mutually agreed upon appraiser. Any such appraisal
is not, of course, binding on the Internal Revenue Service or other taxing
authorities.
In connection with an inter-corporate taxable transfer of assets entered into in
January 1998 by ATS in contemplation of the separation of ATS and ARS, a portion
of the tax with respect to which ATS is obligated to indemnify CBS was incurred.
Such transfer resulted in an increase in the tax bases of ATS's assets of
approximately $330.0 million. ATS will have potential depreciation and
amortization deductions over the next 15 years of $22.0 million per year and
recorded a deferred tax asset of approximately $125.0 million to reflect these
transactions.
The ARS-ATS Separation Agreement will provide for closing date balance sheet
adjustments based upon the working capital (current assets less defined
liabilities) and specified debt levels of ARS. ATS will benefit from or bear the
cost of such adjustments. ATS's preliminary estimate of such adjustments is that
it will not be required to make a payment of more than $20.0 million and that,
in addition, it will be required to reimburse CBS for the tax consequences of
any such payment which would result in additional liability to ATS of
approximately $13.0 million assuming a $20.0 million adjustment payment under
the tax reporting method to be followed and as to which a refund claim will be
filed. Since the amounts of working capital and debt are dependent upon the
uncertainty, among other things, of recent operating results and cash capital
expenditures, as well as CBS Merger expenses and the interpretation and intent
of certain provisions of the CBS Merger Agreement as to which certain issues
between ARS and ATS exist, ATS is unable to state definitively what payments, if
any, will be owed by ATS or CBS.
The foregoing is a description of the rights and obligations of ARS and ATS in
the event the CBS Merger is consummated. Although the ARS-ATS Separation
Agreement will be effective and operational if the Tower Merger is consummated,
in the event the CBS Merger is not subsequently consummated, ARS and ATS have
reserved the right to alter the terms of that agreement to provide for a sharing
of the rights and obligations in a manner that may be more or less favorable to
ATS. Because ARS and ATS believe that the CBS Merger will be consummated, no
determination has been made of what the rights and obligations of ARS and ATS
should be in the event it were not.
ATS is actively negotiating a commitment from a major investment banking firm
with respect to a preferred stock financing (the Interim Financing) which
provides for the issuance and sale by ATS of up to $400.0 million of preferred
stock (the Interim Preferred Stock). ATS plans to draw on such commitment and
sell Interim Preferred Stock to finance its obligation to CBS with respect to
tax reimbursement, unless the public offering referred to below is consummated
prior to the time the tax reimbursement is due to CBS. Consummation of the
Interim Financing is subject to the negotiation and execution of a definitive
preferred stock purchase agreement (the Interim Financing Agreement) and
satisfaction of the closing conditions to be set forth therein. ATS intends to
redeem the Interim Preferred stock, to the extent issued, out of the proceeds of
a public offering of Class A Common Stock to be registered under the Securities
Act, if, as is likely, the tax reimbursement is due prior to the consummation of
such public offering or, if not, to use such public offering proceeds directly
to reimburse CBS for such tax liability. Any remaining proceeds are intended to
be used to fund any closing date balance sheet adjustments (or repay bank
borrowings incurred for such purpose). Any public offering would have a dilutive
effect on ATS's then existing stockholders, particularly since the proceeds will
be used to satisfy a liability and not to finance the acquisition of revenue
producing property. Further, any public offering would be subject to market
conditions and other factors. There can be no assurance that any such financing
would be available on terms favorable to ATS.
On May 12, 1998, ATS filed a registration statement (No. 333-52481) with the
Commission with respect to the Offering of an aggregate of 22,918,499 shares of
ATS Class A Common Stock (including an Underwriter's over-allotment option of
2,083,500 shares) by ATS and certain selling stockholders. Pursuant to the
consummation of the Offering, ATS will issue and sell approximately 17,400,000
shares of ATS Class A Common Stock and receive net proceeds estimated (based on
an assumed initial public offering price of $23.00 per share) at approximately
$381.5 million (exclusive of the Underwriter's over-allotment option). ATS will
receive no proceeds from the sale of ATS Class A Common Stock by the selling
stockholders. ATS expects to use such net proceeds to redeem the Interim
Preferred Stock, the net proceeds from the sale of which will be used
principally to reimburse CBS with respect to the taxes payable as a consequence
of the separation of ARS and ATS pursuant to the CBS Merger and to reduce bank
borrowings.
The Offering is subject to various conditions, including prevailing market
conditions, and therefore may change. Further, there can be no assurances that
the Offering will be completed or that, if the Offering is completed, it will be
completed on terms favorable to ATS. The registration statement relating to
these securities has been filed with the Commission but has not yet become
effective. These securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective. This
communication shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such state. Copies of the
Prospectus relating to the Offering may be obtained from Credit Suisse First
Boston, Prospectus Department, 11 Madison Avenue, New York, New York 10010,
(212) 325-2000.
Credit Agreements: In order to finance acquisitions of radio stations, tower
related properties and for general corporate purposes, the Company has borrowed
and expects to continue to borrow under its credit agreements. As of March 31,
1998, the Company had approximately $1,020.8 million of total long-term debt
(including the current portion thereof) outstanding. This included approximately
$690.0 million of borrowings outstanding under ARS's credit agreements and
$325.0 million outstanding under Senior Subordinated Notes. As of March 31,
1998, ATS had approximately $157.1 million of total long-term debt, of which
approximately $155.5 million represented borrowings outstanding under ATS's Loan
Agreement.
24
<PAGE>
Liquidity and Capital Resources - (continued):
In order to facilitate future growth and, in particular, to finance its
construction program, ATS and the Operating Subsidiaries have received
commitments for, and are in the process of negotiating, the New Credit
Facilities with its senior lenders, pursuant to which the existing maximum
borrowing of the Operating Subsidiaries would be increased from $400.0 million
to $900.0 million, subject to compliance with financial ratios, and ATS (the
parent company) would be able to borrow an additional $150.0 million. Borrowings
under such loan agreements would also be available to finance acquisitions. The
New Credit Facilities with ATS would provide for $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 21, 2006. The ATS New Credit Facility would be fully
drawn at closing and would provide for interest rates determined, at the option
of ATS, of either the LIBOR Rate (as to be defined) plus 3.50% or the Base Rate
(as to be defined) plus 2.5%. The New Credit Facilities with the Operating
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 $250.00 million 364-day revolving credit
facility that converts to a term loan facility thereafter. The interest rate
provisions are similar to those in the Loan Agreement, except that the range
over the Base Rate is between 0.00% and 1.250% and the range over the LIBOR Rate
is between 0.750% and 2.250%. Borrowings under the Operating 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 at maturity.
The loans to ATS and the Operating Subsidiaries will be cross-guaranteed and
cross-collateralized by substantially all of the assets of the consolidated
group. The Operating Subsidiaries will be required to pay quarterly commitment
fees equal to 0.375% or 0.250% per annum, depending on their consolidated
financial leverage, on the aggregate unused portion of the aggregate commitment
(other than, until taken down, the 364-day facility on which it is 0.125% until
so taken down). Other proposed provisions of the Operating Subsidiaries' New
Credit Facilities are comparable to the Loan Agreement, although the financial
and other covenants are somewhat more favorable to the Operating Subsidiaries in
certain respects, including an increase of the Total Debt (of the Operating
Subsidiaries) to Annualized Operating Cash flow ratio from 6.1:1 to 6.5:1 and
the inclusion of a Total Debt (of ATS and the Operating Subsidiaries) to
Annualized Operating Cash flow ratio of 8.0:1. The New Credit Facility of ATS
will prohibit the payment of cash dividends and the redemption, purchase or
other acquisition of equity securities, except to the extent of the net proceeds
of the proposed public offering used to redeem the Interim Preferred Stock.
There can, of course, be no assurance that the New Credit Facilities will be
executed on terms satisfactory to ATS. In connection with the refinancing, ATS
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.
A substantial portion of the Company's cash flow from operations is required for
debt service. However, the Company's leverage could make it vulnerable to a
downturn in the operating performance of its radio stations, tower properties or
a downturn in economic conditions. The Company believes that its cash flows from
operations will be sufficient to meet its quarterly dividends, debt service
requirements for interest and scheduled payments of principal under the 1997
Credit Agreements and its other debt obligations. If such cash flow is not
sufficient to meet such debt service requirements, the Company may be required
to sell equity securities, refinance its obligations or dispose of one or more
of its properties in order to make such scheduled payments. There can be no
assurance that the Company would be able to effect any of such transactions on
favorable terms.
25
<PAGE>
Liquidity and Capital Resources - (continued):
The Company's working capital needs fluctuate throughout the year due to
industry-wide seasonality and its broadcast of sporting events at different
times during the year. The Company historically has had sufficient cash from its
operations to meet its working capital needs, apart from needs generated by
newly acquired properties, and believes that it has sufficient financial
resources available to it, including borrowing under the credit agreements, to
finance operations for the foreseeable future.
The Company has entered into numerous station and tower acquisition and related
agreements as described in the Notes to the Unaudited Condensed Consolidated
Financial Statements. The consummation of each of these agreements is subject
to, among other things, FCC approval and in some cases expiration or earlier
termination of the HSR Act waiting period and the negotiation of definitive
agreements. Unless otherwise noted, the Company intends to effect all of the
transactions as soon as the necessary approvals are obtained. The Company
intends to finance the acquisitions with available cash, borrowings under the
credit agreements, and, in certain cases, issuance of equity securities.
ARS and ATS made approximately $2.3 million and $12.7 million, respectively, in
capital expenditures for the three months ended March 31, 1998, principally
related to office consolidations and tower construction. ARS expects capital
expenditures in 1998 to be approximately $26.7 million consisting principally of
office consolidations and ongoing technical improvements. During 1998, ATS
(including ATC and other acquired companies) plans to build or commence
construction of approximately 550 towers (most of which are on a build to suite
basis) at an estimated aggregate cost of approximately $110.0 million, including
a contract presently being negotiated with a wireless service company to provide
more than 200 towers (of which more than 160 will be newly constructed) for an
estimated cost of approximately $32.0 million, although there can be no
assurance that such negotiations will result in a definitive agreement. To the
extent that funds generated from operations, or available cash, are insufficient
to finance non-recurring capital expenditures, the Company would seek to borrow
the necessary funds under the credit agreements.
If additional substantial acquisition or construction opportunities become
available, ATS may require additional financing during 1998. Any such financing
could take the form of an increase in the maximum borrowing levels under the New
Credit Facilities (which would be dependent on the ability to meet certain
leverage ratios), the issuance of debt or senior equity securities (which could
have the effect of increasing its consolidated leverage ratios) or equity
securities (which, in the case of Common Stock or securities convertible into or
exercisable for Common Stock, would have a dilutive effect on the proportionate
ownership of ATS of its then existing common stockholders). There can be no
assurance that any such financing would be available on favorable terms.
Management expects that the consummated acquisitions, the consummation of the
ATC Merger 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 ATS as newly constructed towers will initially decrease overall
liquidity, although, as such sites become more fully operational and achieve
higher utilization, they should generate cash flow, and in the long-term,
increase liquidity.
ATS Stock Purchase Agreement: On January 22, 1998, ATS consummated a 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
26
<PAGE>
Liquidity and Capital Resources - (continued):
London Interbank Rate, 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 notes. The
notes are prepayable at any time at the option of the obligor and will be due
and payable, at the option of the Tower Subsidiary, in the event of certain
defaults as described in the notes.
Year 2000
The Company is aware of the issues associated with the Year 2000 as it relates
to information systems. The Year 2000 is not expected to have a material impact
on the Company's current information systems because its software is either
already Year 2000 compliant or required changes are not expected to be material.
Based on the nature of the Company's business, the Company anticipates it is not
likely to experience material business interruption due to the impact of Year
2000 compliance on its customers and vendors. As a result, the Company does not
anticipate that incremental expenditures to address Year 2000 compliance will be
material to the Company's liquidity, financial position or results of operations
over the next few years.
Inflation
The impact of inflation on the Company's operations has not been significant to
date. However, there can be no assurance that a high rate of inflation in the
future would not have an adverse effect on the Company's operating results.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (FAS) No. 130, "Reporting Comprehensive
Income," which became effective for the Company for periods beginning after
December 15, 1997. FAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general purpose financial statements. FAS No. 130
requires that a company (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of the balance sheet. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. The Company has adopted this statement in the first quarter of 1998.
Comprehensive income does not differ from net income.
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, the Company will adopt this standard for its full year 1998
financial information.
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 of this standard will
not have any effect on reported results of operations or financial position.
27
<PAGE>
PART II. OTHER INFORMATION.
Item 1. - Legal Proceedings.
In the normal course of business, the Company is subject to certain suits and
other matters. Management believes that the eventual resolution of any pending
matters, either individually or in the aggregate, will not have a material
effect on financial position, liquidity or results of operations.
Item 2. - Changes in Securities and Use of Proceeds.
On January 22, 1998, ATS acquired all of the outstanding stock of Gearon & Co.,
Inc. (Gearon) for an aggregate purchase price of $80.0 million. The purchase
price consisted of approximately $32.0 million in cash and assumed liabilities
and the issuance of 5,333,333 shares of ATS Class A Common Stock valued at $9.00
per share or $48.0 million.
On January 22, 1998, ATS sold 8,000,000 shares of Common Stock (1,350,050 Class
A, 4,649,950 of Class B and 2,000,000 of Class C) at a purchase price of $10.00
per share for an aggregate purchase price of $80.0 million. Payment of the
purchase price of 3,062,500 shares was in the form of cash of approximately
$30.6 million and an aggregate of 4,487,500 shares of Class B Common Stock and
450,000 shares of Class A Common Stock were issued in exchange for $49.4 million
of notes due at the earlier of 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 and unpaid interest
on the notes. 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 notes.
All of the shares referred to in the foregoing paragraphs were issued by ATS in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act. Each holder represented that it was acquiring its shares for
investment purposes and not with a view to distribution within the meaning of
the Securities Act. The stock certificates issued to all such holder bore
restrictive legends. No commission or other renumeration will be paid or given
by ATS directly or indirectly in connection with any of the foregoing
transactions.
28
<PAGE>
Item 6. - Exhibits and Reports on Form 8-K.
(a) Exhibits
Listed below are the exhibits which are filed as part of this Form 10-Q
(according to the number assigned to them in Item 601 of Regulation S-K). Each
exhibit marked by a (*) is incorporated by reference to American's Definitive
Proxy filed on February 17, 1998. See Form S-4 Registration Statement of
American Tower Systems Corporation (File No. 333-46025) as declared effective by
the Securities and Exchange Commission on February 17, 1998. Each exhibit marked
by a (+) is incorporated by reference to American Tower Systems Corporation's
Registration Statement on Form S-1 (File No. 333-50111) as declared effective by
the Securities and Exchange Commission on May 8, 1998. Each exhibit marked by a
(++) is incorporated by reference to American Tower Systems Corporation's
Registration Statement on Form S-1 (File No. 333-52481) filed on May 12, 1998.
Exhibit numbers in parenthesis refer to the exhibit number in the applicable
Registration Statement.
<TABLE>
<CAPTION>
Exhibit No. Description of Document Exhibit File No.
----------- ----------------------- ----------------
<S> <C> <C>
2.1 Amendment No. 1 to Agreement and Plan of Merger, dated as of
January 22, 1998, among ATS, American Tower Systems (Delaware),
Inc., a Delaware corporation (formerly known as American
Tower Systems, Inc.) ("ATSI"), Gearon & Co., Inc., a Georgia
corporation, and J. Michael Gearon, Jr......................... Incorporated herein by reference to
Exhibit 2.1 from the Form 8-K filed
on January 23, 1998.
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of
January 22, 1998, among ATS, American Tower Systems (Delaware),
Inc., a Delaware corporation (formerly known as American Tower
Systems, Inc.), Gearon and the Gearon Stockholder.............. (*2.2)
3(i).1 Certificate of Amendment to Restated Certificate of
Incorporation of ATS, as filed with the Secretary of State of
the State of Delaware on April 28, 1998........................ (++3(i).3)
10.1 Assumption Agreement, dated as of January 22, 1998, by and
among ATS, ATSI, American Tower Systems, L.P., a
Delaware limited partnership, Toronto Dominion (Texas), Inc.,
as Administrative Agent and the Banks parties thereto.......... (*10.4)
10.2 American Tower Systems Corporation 1997 Stock Option Plan,
dated as of November 5, 1997, as amended and restated on April
28, 1998 ...................................................... (+10.26)
10.3 American Tower Systems Corporation Stock Purchase Agreement,
dated as of January 8, 1998, by and among ATS and the
Purchasers..................................................... Incorporated herein by reference to
Exhibit 10.2 from the Form 8-K filed
on January 23, 1998.
10.4 Employment Agreement, dated as of January 22, 1998, by and
between ATSI and J. Michael Gearon, Jr......................... (*10.28)
29
<PAGE>
<CAPTION>
Item 6. - Exhibits and Reports on Form 8-K - (Continued)
Exhibit No. Description of Document Exhibit File No.
----------- ----------------------- ----------------
<S> <C> <C>
10.5 Asset Purchase Agreement, dated as of January 23, 1998, by and
among ATSI, Midcontinent Media, Inc., a South Dakota
corporation ("Midcontinent"), Midcontinent Teleport Co., a
South Dakota corporation and a wholly-owned subsidiary of
Midcontinent ("MTC"), Wit Communications, Inc., ("Wit") a
Delaware corporation and a wholly-owned subsidiary of MTC, and
Washington International Teleport, Inc., a Delaware corporation
and a wholly-owned subsidiary of Wit........................... (*10.29)
11 Statement Re Computation of Per Share Earnings................. Filed herewith as Exhibit 11
12 Statement Re Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.......................... Filed herewith as Exhibit 12
27 Financial Data Schedule........................................ Filed herewith as Exhibit 27
</TABLE>
(b) Reports on Form 8-K
1. Form 8-K (Items 5 and 7) on January 9, 1998.
2. Form 8-K (Items 5 and 7) on January 23, 1998.
3. Form 8-K (Items 5 and 7) on February 6, 1998.
4. Form 8-K (Items 5 and 7) on May 1, 1998.
30
<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 RADIO SYSTEMS CORPORATION
Date: May 15, 1998 BY: /s/ Joseph L. Winn
Joseph L. Winn
Treasurer & Chief Financial Officer
(Duly Authorized Officer)
Date: May 15, 1998 BY: /s/ Justin D. Benincasa
Justin D. Benincasa
Vice President & Corporate Controller
(Duly Authorized Officer)
31
<TABLE>
<CAPTION>
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
American Radio Systems Corporation
EXHIBIT 11
In thousands, except per share data
Three Months Three Months
Ended March Ended March
31, 1997 31, 1998
------------ ------------
<S> <C> <C>
BASIC:
NUMERATOR:
Net loss:
Loss before extraordinary loss after
dividends $ (8,923) $(17,424)
Extraordinary loss (1,639)
-------- --------
Net loss applicable to common
stockholders $(10,562) $(17,424)
======== ========
DENOMINATOR:
Weighted average common shares
outstanding $ 21,095 $ 29,533
======== ========
BASIC PER SHARE AMOUNTS:
Loss before extraordinary loss $ (.42) $ (.59)
Extraordinary loss (.08)
-------- --------
Net loss applicable to common
stockholders $ (.50) $ (.59)
======== ========
DILUTED:
NUMERATOR:
Loss before extraordinary loss after
dividends $ (8,923) $(17,424)
Extraordinary loss (1,639)
-------- --------
Net loss applicable to common
stockholders $(10,562) $(17,424)
======== ========
DENOMINATOR:
Weighted average common shares
outstanding 21,095 29,533
Effect of stock options (using treasury stock
method) (2)
Effect of assumed conversion of convertible
preferred stock (1) -------- --------
Shares for diluted computation $ 21,095 $ 29,533
======== ========
DILUTED PER SHARE AMOUNTS:
Loss before extraordinary loss $ (.42) $ (.59)
Extraordinary loss $ (.08)
-------- --------
Net loss applicable to common
stockholders $ (.50) $ (.59)
======== ========
<FN>
(1) The impact of convertible preferred stock has been excluded from the computation as the
effect is anti-dilutive.
(2) In 1997 and 1998, shares issuable upon exercise of outstanding options have been excluded
from the computation as the effect is anti-dilutive.
</FN>
</TABLE>
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
American Radio Systems Corporation
EXHIBIT 12
The following table reflects the computation of the ratio of earnings
to fixed charges and preferred stock dividends for the years indicated. (In
thousands, except ratio data)
Three Months Three Months
Ended March Ended March
31, 1997 31, 1998
------------ ------------
Computation of Earnings:
Loss from continuing operations before
extraordinary loss and income taxes $ (4,410) $(18,432)
Add:
Interest expense (1) 7,504 19,013
Rent expense (2) 494 1,213
-------- --------
Earnings as adjusted 3,588 1,794
======== ========
Computation of Fixed Charges:
Interest expense (1) 7,504 19,013
Rent expense (2) 494 1,213
Preferred dividends (3) 6,198 8,394
-------- --------
Fixed charges 14,196 28,620
======== ========
Ratio of earnings to combined fixed charges and
Preferred Stock Dividends -- --
Deficiency in earnings required to cover combined
fixed charges and Preferred Stock
Dividends 10,608 26,826
- ----------------------
(1) Interest expense includes amortization of deferred financing costs.
(2) The interest element of rent expense is assumed to be 30% of gross
operating rent charges.
(3) Includes dividends on redeemable common and preferred stock.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,997
<SECURITIES> 0
<RECEIVABLES> 78,953
<ALLOWANCES> 7,846
<INVENTORY> 0
<CURRENT-ASSETS> 112,622
<PP&E> 278,319
<DEPRECIATION> 24,273
<TOTAL-ASSETS> 2,330,860
<CURRENT-LIABILITIES> 178,203
<BONDS> 1,020,398
215,550
1
<COMMON> 295
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,330,860
<SALES> 0
<TOTAL-REVENUES> 106,180
<CGS> 0
<TOTAL-COSTS> 77,049
<OTHER-EXPENSES> 30,006
<LOSS-PROVISION> 1,073
<INTEREST-EXPENSE> 19,013
<INCOME-PRETAX> (18,432)
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<EPS-PRIMARY> (.59)
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</TABLE>
