Why does this 10-K contain only financial statements and no business or risk discussion?

The filing is a Special Financial Report under Rule 15d-2. Because the company had only just registered its stock on Form S-4 (effective February 17, 1998) and was not yet subject to Section 14 of the Exchange Act, it was required to include only audited financial statements and schedules. Parts I, II and III are omitted, so investors should look to the S-4 prospectus for the full business description and risk factors.

How will ATS shareholders come to own the stock, and what will they receive?

ATS is being separated from ARS through the CBS Merger. Each ARS common stockholder will receive $44.00 in cash plus one share of ATS common stock of the same class (Class A, B or C) held in ARS. The separation is expected in the Spring of 1998, subject to HSR Act clearance and FCC approval of the transfer of ARS radio licenses to CBS.

What financial obligations does ATS take on at separation?

ATS must reimburse ARS for about $153.0 million of an estimated $173.0 million CBS Merger Tax Liability, based on an assumed $16.00 per-share fair value. ARS bears about $20.0 million. The amount rises or falls by about $14.8 million for each $1.00 change in fair value. ATS also assumes ARS lease obligations for its Boston headquarters (about $1.6 million through July 2006) and must address working-capital and debt adjustments under the merger agreement, whose outcome cannot be determined.

How is the company funding its growth and acquisitions?

At year-end 1997, ATS had $90.2 million of debt, almost all under a Loan Agreement with $88.5 million drawn, leaving $32.7 million available. ATS also raised equity: parent contributions totaled $143.1 million in 1997, and in January 1998 insiders bought 8.0 million shares at $10.00 for $80.0 million. Management plans to finance the CBS tax payment through an equity offering or external debt if due in 1998, or through Loan Agreement borrowings if due in 1999, and expects a refinancing to expand capacity to $900 million.

What are the largest pending or recently closed acquisitions that will shape future results?

The largest is the American Tower Corporation merger, which would issue about 30.3 million ATS Class A shares and bring about 775 towers across 31 states, expected to close in Spring 1998. Other items include the OPM acquisition (about 90 towers plus 160 under construction, with a price of up to $105.0 million, of which about $21.3 million was paid at closing), a $30.5 million Washington, D.C. teleport, and the Gearon acquisition (about $80.0 million, closed January 1998). Pro forma 1997 revenue would have been about $44.9 million, versus $17.5 million reported, so reported figures understate the post-acquisition run rate.

AMT 10-K FY1997 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 9, 1998. Cited figures are marked; the original filing is the authoritative source.

American Tower Systems Corporation (ATS), the tower-leasing subsidiary of American Radio Systems Corporation (ARS), filed this Special Financial Report on Form 10-K for fiscal 1997 under Rule 15d-2.

It contains only audited financial statements and schedules, with no Part I-III narrative, because the company had just registered shares on Form S-4 (effective February 17, 1998) and was not yet subject to proxy or annual report delivery requirements. The company was a wholly owned subsidiary of ARS at year-end and is being spun off as part of ARS's merger with a CBS subsidiary, under which ARS holders receive $44.00^a cash plus one ATS share per ARS share. Financially, ATS grew sharply in 1997.

Total operating revenues rose to $17.5 million^b from $2.9 million, driven by tower leasing ($13.0 million) and newly acquired site acquisition and video, voice and data transmission businesses. The company posted a net loss of $2.27 million, including a $0.69 million extraordinary loss on debt extinguishment, versus a $0.48 million loss in 1996. Total assets expanded to $255.4 million from $37.1 million, largely from roughly $184 million in tower acquisitions and goodwill-type unallocated purchase price.

Long-term debt reached $90.1 million^c under a bank Loan Agreement, and stockholder's equity rose to $153.2 million, funded mainly by $143.1 million in parent contributions. Investors should weigh substantial contingent obligations. ATS must reimburse ARS for an estimated $153.0 million of a $173.0 million CBS Merger Tax Liability, which moves about $14.8 million for each $1.00 change in the assumed $16.00 fair value per share.

The company also has pending acquisitions, including American Tower Corporation (about 30.3 million shares to be issued), a Washington, D.C. teleport ($30.5 million), and OPM (up to $105.0 million^d). Management expects a refinancing that would raise borrowing capacity to $900 million, with a roughly $1.4 million extraordinary loss in the second quarter of 1998. Given the pre-spin-off nature of the entity and the heavy acquisition pipeline, the filing is best read as a transition document rather than a view of a stand-alone operating track record.

02—Key points

Key Highlights

Revenue grew about 6x to $17.5 million in 1997 from $2.9 million in 1996, led by tower leasing revenue of $13.0 million and newly acquired site acquisition ($2.1 million) and video, voice and data transmission ($2.1 million) businesses.
Net loss widened to $(2.27) million from $(0.48) million, including a $0.69 million after-tax extraordinary loss from writing off deferred financing fees on the October 1997 Loan Agreement; operating income turned positive at $0.93 million.
Total assets increased to $255.4 million from $37.1 million, driven by $117.6 million of net property and equipment and $108.2 million of unallocated purchase price from roughly 670 wireless sites acquired.
Long-term debt of $90.1 million under a bank Loan Agreement (weighted average rate 7.54%) with $32.7 million of availability; a planned refinancing would increase the facility from $400 million to $900 million.
Estimated CBS Merger Tax Liability of about $173.0 million, of which roughly $153.0 million is payable by ATS. Each $1.00 change in the assumed $16.00 per-share fair value shifts the liability by about $14.8 million.
Significant pending transactions include a merger with American Tower Corporation (about 30.3 million ATS Class A shares), the OPM acquisition (up to $105.0 million), and a Washington, D.C. teleport purchase (about $30.5 million), with closings expected in Q2 1998.
Insider transactions: January 1998 private placement of 8.0 million shares at $10.00 to ARS executives including Chairman Steven B. Dodge (4.0 million shares for $40.0 million), with $49.4 million paid by notes secured by ARS stock.

03—Questions

Frequently Asked Questions

Why does this 10-K contain only financial statements and no business or risk discussion?
The filing is a Special Financial Report under Rule 15d-2. Because the company had only just registered its stock on Form S-4 (effective February 17, 1998) and was not yet subject to Section 14 of the Exchange Act, it was required to include only audited financial statements and schedules. Parts I, II and III are omitted, so investors should look to the S-4 prospectus for the full business description and risk factors.
How will ATS shareholders come to own the stock, and what will they receive?
ATS is being separated from ARS through the CBS Merger. Each ARS common stockholder will receive $44.00 in cash plus one share of ATS common stock of the same class (Class A, B or C) held in ARS. The separation is expected in the Spring of 1998, subject to HSR Act clearance and FCC approval of the transfer of ARS radio licenses to CBS.
What financial obligations does ATS take on at separation?
ATS must reimburse ARS for about $153.0 million of an estimated $173.0 million CBS Merger Tax Liability, based on an assumed $16.00 per-share fair value. ARS bears about $20.0 million. The amount rises or falls by about $14.8 million for each $1.00 change in fair value. ATS also assumes ARS lease obligations for its Boston headquarters (about $1.6 million through July 2006) and must address working-capital and debt adjustments under the merger agreement, whose outcome cannot be determined.
How is the company funding its growth and acquisitions?
At year-end 1997, ATS had $90.2 million of debt, almost all under a Loan Agreement with $88.5 million drawn, leaving $32.7 million available. ATS also raised equity: parent contributions totaled $143.1 million in 1997, and in January 1998 insiders bought 8.0 million shares at $10.00 for $80.0 million. Management plans to finance the CBS tax payment through an equity offering or external debt if due in 1998, or through Loan Agreement borrowings if due in 1999, and expects a refinancing to expand capacity to $900 million.
What are the largest pending or recently closed acquisitions that will shape future results?
The largest is the American Tower Corporation merger, which would issue about 30.3 million ATS Class A shares and bring about 775 towers across 31 states, expected to close in Spring 1998. Other items include the OPM acquisition (about 90 towers plus 160 under construction, with a price of up to $105.0 million, of which about $21.3 million was paid at closing), a $30.5 million Washington, D.C. teleport, and the Gearon acquisition (about $80.0 million, closed January 1998). Pro forma 1997 revenue would have been about $44.9 million, versus $17.5 million reported, so reported figures understate the post-acquisition run rate.

04—Continue

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