SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 30, 2000 (March 30,
2000)
AMERICAN TOWER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 001-14195 65-0723837
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of Principal Executive Offices) (Zip Code)
(617) 375-7500
(Registrant's telephone number, including area code)
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The attached presents the following:
. American Tower Corporation (the Company) unaudited pro forma condensed
consolidated balance sheet as of December 31, 1999 and the Company's
unaudited proforma condensed consolidated statement of operations for
the year ended December 31, 1999 and notes thereto;
. UNIsite, Inc. and Subsidiaries consolidated financial statements as of
December 31, 1999 and 1998 and for the three-year period ended December
31, 1999; and
. ICG Satellite Services, Inc. and Subsidiary consolidated financial
statements as of and for the eleven-month period ended November 30,
1999.
The term pro forma transactions, as used in the Company's pro forma
condensed consolidated financial statements and notes thereto, is defined as
certain of our major acquisitions and financings and includes the following:
the OmniAmerica merger, the Telecom merger, the UNIsite merger, the ICG
transaction, the AirTouch transaction, the AT&T transaction, our public
offering of common stock and private placement of common stock in February
1999 (February offerings), our notes placement in October 1999 (October notes
placement) and our notes placement in February 2000 (February 2000 notes
placement). The pro forma financial statements do not reflect all of our
consummated or pending acquisitions. The adjustments assume that all pro forma
transactions were consummated on January 1, 1999, in the case of the unaudited
pro forma condensed consolidated statement of operations. The adjustments
assume that the then pending pro forma transactions were consummated as of
December 31, 1999 in the case of the unaudited pro forma condensed
consolidated balance sheet. You should read the pro forma financial statements
in conjunction with the 1999 Annual Report on Form 10-K and our reports on
Form 8-K dated September 17, 1999 and November 15, 1999. Although the AirTouch
transaction and the AT&T transaction do not involve the acquisition of a
business, we have provided pro forma information related to these transactions
as we believe such information is material.
The pro forma financial statements may not reflect our financial condition
or our results of operations had these events actually occurred on the dates
specified. They may also not reflect our financial condition or our results of
operations as a separate, independent company during the periods. Finally,
they may not reflect our future financial condition or results of operations.
(a) Financial Statements
Page Number
-----------
UNIsite, Inc. and Subsidiaries Consolidated Financial F-1
Statements as of December 31, 1999 and 1998 and for the three
year period ended December 31, 1999
ICG Satellite Services, Inc. and Subsidiary Consolidated F-21
Financial Statements as of and for the eleven month period
ended November 30, 1999
(b) Pro forma Financial Information
Unaudited Pro forma Condensed Consolidated Balance Sheet as of 3
December 31, 1999 and Notes Thereto
Unaudited Pro forma Condensed Consolidated Statement of 5
Operations for the Year Ended December 31, 1999 and Notes
thereto
(c) Exhibits
Exhibit 23.1 Independent Accountants' Consent
Exhibit 23.2 Independent Accountants' Consent
2
AMERICAN TOWER CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(in thousands)
Adjustments
for Pro Forma Pro Forma
Historical Transactions(a) as adjusted
---------- --------------- -----------
ASSETS
Cash and cash equivalents.............. $ 25,212 $ 2,287 $ 27,499
Accounts receivable, net............... 58,482 1,908 60,390
Other current assets................... 55,713 2,200 57,913
Notes receivable....................... 118,802 (40,000) 78,802
Property and equipment, net............ 1,092,346 1,092,346
Unallocated purchase price............. 1,385,401 1,385,401
Intangible assets, net................. 1,403,897 1,403,897
Deferred tax asset..................... 114,252 114,252
Deposits and other assets.............. 150,162 (90,490) 59,672
---------- ---------- ----------
Total................................ $3,018,866 $1,261,306 $4,280,172
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities, excluding current
portion of long-term debt............. $ 120,251 $ 32,600 $ 152,851
Deferred income taxes.................. 49,622 49,622
Other long-term liabilities............ 4,057 1,467 5,524
Long-term debt, including current por-
tion, but excluding
convertible notes..................... 138,563 681,649 820,212
Convertible notes, net of discount..... 602,259 450,000 1,052,259
Minority interest...................... 8,653 468 9,121
Stockholders' equity................... 2,145,083 45,500 2,190,583
---------- ---------- ----------
Total................................ $3,018,866 $1,261,306 $4,280,172
========== ========== ==========
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
3
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We have prepared the unaudited pro forma condensed consolidated balance sheet
as of December 31, 1999 to give effect, as of such date, to the AirTouch
transaction, the AT&T transaction, the UNIsite merger and the February 2000
notes placement, the only pro forma transactions not completed by that date. We
will account for the AirTouch and AT&T transactions and the UNIsite merger
under the purchase method of accounting.
(a) The following table sets forth the pro forma balance sheet adjustments as
of December 31, 1999 (in thousands):
Total
Adjustments
February 2000 for
AirTouch AT&T UNIsite Notes Pro Forma
Transaction Transaction Merger(4) Placement Transactions
----------- ----------- --------- ------------- ------------
ASSETS
Cash and cash
equivalents............ $ 2,287 $ 2,287
Accounts receivable,
net.................... 1,908 1,908
Other current assets.... 2,200 2,200
Notes receivable........ (40,000) (40,000)
Unallocated purchase
price(1)............... $845,500 $ 265,000 274,901 1,385,401
Deposits and other
assets................. (100,000) (3,000) 710 $ 11,800 (90,490)
-------- --------- -------- --------- ----------
Total................. $745,500 $ 262,000 $242,006 $ 11,800 $1,261,306
======== ========= ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities,
excluding current
portion of long-term
debt................... $ 5,000 $ 27,600 $ 32,600
Deferred income taxes... 49,622 49,622
Other long-term
liabilities............ 1,467 1,467
Long-term debt,
including current
portion................ $700,000 257,000 162,849 $(438,200) 681,649
Convertible notes....... 450,000 450,000
Minority Interest....... 468 468
Stockholders' equity.... 45,500(2) 45,500
-------- --------- -------- --------- ----------
Total................. $745,500 $ 262,000 $242,006 $ 11,800 $1,261,306
======== ========= ======== ========= ==========
The following table sets forth the purchase prices and related pro forma
financing of the transactions described above (in millions).
Fair Value of
Purchase Price Borrowings Debt Assumed
-------------- ---------- -------------
AirTouch transaction.................... $ 845.5(2) $ 700.0
AT&T transaction........................ 260.0 257.0
UNIsite merger(3)....................... 147.7 107.7 $ 55.1
- --------
(1) Upon completion of our evaluation of the purchase price allocations, we
expect that the average life of the assets should approximate 15 years.
(2) We have issued warrants to purchase an aggregate of 3,000,000 shares of
Class A common stock at $22.00 per share. Such warrants have an estimated
fair value at the date of the agreement of approximately $45.5 million.
(3) Does not give any effect to the tender offer to repurchase the UNIsite
notes.
(4) Gives effect to UNIsite's working capital as of the closing of the
transaction in January 2000.
4
AMERICAN TOWER CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(in thousands, except per share data)
Adjustments for
Pro Forma Pro Forma,
Historical Transactions(a) as adjusted
---------- --------------- -----------
Operating revenues..................... $258,081 $ 118,654 $ 376,735
Operating expenses excluding
depreciation and amortization,
development and corporate general and
administrative expenses............... 155,857 79,391 235,248
Depreciation and amortization.......... 132,539 107,931 240,470
Development expense.................... 1,607 1,607
Corporate general and administrative
expense............................... 9,136 2,800 11,936
-------- --------- ---------
Loss from operations................... (41,058) (71,468) (112,526)
Other (income) expense:
Interest expense..................... 27,492 81,370 108,862
Interest income and other, net....... (19,551) (19,551)
Minority interest in net losses of
subsidiaries........................ 142 142
-------- --------- ---------
Total other expense.................... 8,083 81,370 89,453
-------- --------- ---------
Loss before income taxes and extraordi-
nary loss............................. (49,141) (152,838) (201,979)
(Provision) benefit for income
taxes(b).............................. (214) 60,533 60,319
-------- --------- ---------
Net loss before extraordinary loss..... $(49,355) $ (92,305) (141,660)
======== ========= =========
Basic and diluted net loss per common
share before extraordinary loss....... $ (0.33) N/A $ (0.91)
======== ========= =========
Basic and diluted common shares
outstanding(c)........................ 149,749 5,673 155,422
======== ========= =========
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
5
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 1999 gives effect to the pro forma transactions as if
each of them had occurred on January 1, 1999.
(a) To record the results of operations for the pro forma transactions. We have
adjusted the results of operations to: (1) reverse historical interest expense
associated with the companies or assets included in the pro forma transactions;
and (2) record an increase in net interest expense of $89.8 million for the
year ended December 31, 1999 as a result of the increased debt after giving
effect to the proceeds of the February offerings, the October notes placement
and the February 2000 notes placement. Debt discount is being amortized using
the effective interest method. Debt issuance costs are being amortized on a
straight-line basis over the term of the obligation. Amortization of debt
discount and issuance costs are included within interest expense.
We have also adjusted the results of operations to reverse historical
depreciation and amortization expense of $18.8 million for the year ended
December 31, 1999 and recorded depreciation and amortization expense of $107.9
million for the year ended December 31, 1999 based on estimated allocations of
purchase prices. With respect to unallocated purchase price, we have determined
pro forma depreciation and amortization expense based on an expected average
life of 15 years.
We have not carried forward certain corporate general and administrative
expenses of the prior owners into the pro forma condensed consolidated
financial statements. These costs represent duplicative facilities and
compensation to owners and/or executives we did not retain, including charges
related to the accelerated vesting of stock options and bonuses that were
directly attributable to the purchase transactions. Because we already maintain
our own separate corporate headquarters, which provides services substantially
similar to those represented by these costs, we do not expect them to recur
following the acquisition. After giving effect to an estimated $2.8 million of
incremental costs, we believe that we have existing management capacity
sufficient to provide the services without incurring additional incremental
costs.
6
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the historical results of operations for the pro
forma transactions for the year ended December 31, 1999 (in thousands).
October February 2000
OmniAmerica TeleCom February UNIsite ICG AirTouch AT&T Notes Notes
Merger Merger Offerings Merger Transaction Transaction Transaction Placement Placement
----------- -------- --------- -------- ----------- ----------- ----------- --------- -------------
Operating
revenues........ $12,246 $ 2,029 $ 8,018 $41,756 $51,566(d) $ 3,039(e)
Operating
expenses
excluding
depreciation and
amortization,
and corporate
general and
administrative
expense......... 12,257 549 7,234 32,256 19,400(f) 7,695(f)
Depreciation and
amortization.... 2,372 1,201 4,539 10,719
Corporate general
and
administrative
expense......... 2,882 10,173 8,580 321
------- -------- -------- ------- ------- -------
(Loss) income
from
operations...... (5,265) (9,894) (12,335) (1,540) 32,166 (4,656)
Other (income)
expense:
Interest
expense, net... 746 521 $(1,499) 8,078 802 $(5,616) $ (11,415)
Interest
income......... (14) (1,021)
Other, net...... 816 (106) (4,026) 22
------- -------- ------- -------- ------- ------- ------- ------- ---------
(Loss) income
before income
taxes and
extraordinary
loss............ $(6,813) $(10,309) $ 1,499 $(15,366) $(2,364) $32,166 $(4,656) $ 5,616 $11,415
======= ======== ======= ======== ======= ======= ======= ======= =========
Total
Adjustments
for Pro
Pro Forma Forma
Adjustments Transactions
----------- ------------
Operating
revenues........ $ 118,654
Operating
expenses
excluding
depreciation and
amortization,
and corporate
general and
administrative
expense......... 79,391
Depreciation and
amortization.... $ 89,100 107,931
Corporate general
and
administrative
expense......... (19,156) 2,800
----------- ------------
(Loss) income
from
operations...... (69,944) (71,468)
Other (income)
expense:
Interest
expense, net... 89,753 81,370
Interest
income......... 1,035
Other, net...... 3,294
----------- ------------
(Loss) income
before income
taxes and
extraordinary
loss............ $(164,026) $(152,838)
=========== ============
(b) To record the tax effect of the pro forma adjustments and impact on our
estimated effective tax rate. The actual effective tax rate may be different
once we determine the final purchase price allocations.
(c) Includes shares of Class A common stock issued pursuant to: the OmniAmerica
merger--16.8 million, the TeleCom merger--3.9 million, and the February
offerings--26.2 million.
7
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Includes additional revenues recognized on a straight-line basis in
accordance with terms stipulated in the AirTouch lease agreement (assumes the
leasing of all 2,100 towers). Approximately $3.5 million of existing third-
party lease revenues has not been included.
(e) Includes additional revenues recognized on a straight-line basis in
accordance with terms stipulated in the AT&T and AT&T Wireless Services lease
agreements (assuming the acquisition of all 1,942 towers). Approximately $7.6
million of existing third-party lease revenues has not been included.
(f) The towers involved in each of these acquisitions were operated as part of
the wireless service businesses divisions of AirTouch and AT&T. Accordingly,
separate financial records were not maintained and financial statements were
never prepared for the operation of these towers. In addition to land leases
that we will assume, we have estimated certain operating expenses we would
expect to incur based on our own experience with comparable towers. Such
estimates include expenses related to utilities, repairs and maintenance,
insurance and real estate taxes. These operating expenses are based on
management's best estimate and, as such, the actual expenses may be different
than the estimate presented.
8
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 hereunto duly authorized.
AMERICAN TOWER CORPORATION
(Registrant)
By: /s/ Justin D. Benincasa
---------------------------------
Name: Justin D. Benincasa
Title: Vice President and Corporate
Controller
Date: March 30, 2000
-------------------------
9
INDEPENDENT AUDITORS' REPORT
The Board of Directors
UNIsite, Inc.:
We have audited the accompanying consolidated balance sheets of UNIsite, Inc.
and subsidiaries (the Company) as of December 31, 1998 and 1999, and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' deficit and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 2 to the consolidated financial statements, the Agreement
and Plan of Merger between the Company and American Tower Corporation entered
into on June 28, 1999 was closed on January 13, 1999.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of UNIsite, Inc. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Tampa, Florida
January 14, 2000
F-1
UNISITE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
DECEMBER 31,
-------------------------------------
1998 1999
------------ ------------
ASSETS
Current assets:
Current assets:
Cash and cash equivalents $ 23,795,375 14,554,295
Trade accounts receivable, net 2,399,970 1,968,440
Due from NWI Partnership 759,147 --
Prepaid expenses and other current assets 544,679 1,762,269
------------ ------------
Total current assets 27,499,171 18,285,004
Systems and equipment, net 34,854,873 89,783,106
Debt issuance costs, net 2,701,181 2,311,582
Investment in NWI Partnership 955,305 --
Other assets 238,456 710,722
------------ ------------
$ 66,248,986 111,090,414
============ ============
LIABILITIES AND STOCKHOLDERS DEFICIT
Current liabilities:
Accounts payable $ 5,426,712 19,656,698
Accrued liabilities 1,986,389 2,673,865
Current portion of long-term obligations 687,825 205,655
----------- -----------
Total current liabilities 8,100,926 22,536,218
Long-term obligations, less current portion 188,256 40,000,000
Deferred site revenues, less current portion -- 1,467,667
Subordinated debentures, including accrued interest 41,701,951 48,372,592
Put warrants 4,400,000 4,400,000
----------- -----------
Total liabilities 54,391,133 116,776,477
Redeemable convertible preferred stock at liquidation value,
$1 par value; authorized 233,908 shares; issued and
outstanding 133,569 shares in 1998 and 142,054 shares in 1999 52,997,107 58,844,877
Minority interest -- 468,380
Stockholders deficit:
Common stock, $.01 par value; authorized 1,000,000 shares,
33,964 and 34,201 shares issued and outstanding in 1998
and 1999 339 342
Additional paid-in capital 2,875,517 2,930,103
Accumulated deficit (44,015,110) (67,929,765)
----------- ----------
Total stockholders deficit (41,139,254) (64,999,320)
Commitments, contingencies and related party transactions
----------- ----------
$ 66,248,986 111,090,414
============ ============
See accompanying notes to consolidated financial statements.
F-2
UNISITE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year ended December 31,
------------------------------------------------------------------
1997 1998 1999
---------------- ------------------ -----------------
Revenues:
Rental revenues, net $ 387,242 2,215,895 6,359,112
Service and construction revenues 596,622 2,197,612 1,659,721
--------------- ------------------ -----------------
983,864 4,413,507 8,018,833
Expenses:
Cost of services 16,932 671,652 1,086,197
Direct site expenses 55,538 942,549 4,319,580
Selling, general and administrative 7,542,300 11,453,140 8,580,904
Write-off of tower sites 326,575 594,358 1,828,945
Depreciation and amortization 1,097,067 1,869,869 4,538,622
--------------- ----------------- -----------------
Total costs and expenses 9,038,412 15,531,568 20,354,248
--------------- ----------------- -----------------
Equity in net loss of NWI Partnership 252,308 226,487 --
--------------- ----------------- -----------------
Operating loss (8,306,856) (11,344,548) (12,335,415)
Other:
Interest income 276,816 2,331,060 1,020,905
Interest expense (258,938) (6,319,506) (8,078,222)
Terminated contract settlement -- -- 4,596,466
Aborted financing and merger expenses -- -- (600,035)
Gain on sale of assets 31,075 26,933 --
--------------- ----------------- -----------------
48,953 (3,961,513) (3,060,886)
--------------- ----------------- -----------------
Minority interest in losses of affiliate -- -- 30,120
--------------- ----------------- -----------------
Net loss before extraordinary item (8,257,903) (15,306,061) (15,366,181)
Extraordinary item - loss on early
extinquishment of credit facility -- -- (2,700,704)
---------------- ----------------- -----------------
Net loss (8,257,903) (15,306,061) (18,066,885)
Accretion of dividends on redeemable
convertible preferred stock 1,887,478 3,779,178 5,847,770
--------------- ----------------- ----------------
Net loss attributable to common stock $ (10,145,381) (19,085,239) (23,914,655)
=============== ================= ================
See accompanying notes to consolidated financial statements.
F-3
UNISITE, INC. AND SUBSIDIARIES
Consolidatd Statements of Redeemable Convertible Preferred Stock
and Stockholders Deficit
STOCKHOLDERS DEFICIT
REDEEMABLE ---------------------------------------------------------------------
CONVERTIBLE COMMON STOCK ADDITIONAL TOTAL
PREFERRED ---------------------- PAID-IN ACCUMULATED STOCKHOLDERS
STOCK SHARES AMOUNT CAPITAL DEFICIT DEFICIT
-------------- ---------- --------- ---------- -------------- --------------
Balance as of December 31, 1996 $ 23,969,246 33,889 338 2,540,393 (14,784,490) (12,243,759)
Stock options exercised -- 75 1 25,124 -- 25,125
Proceeds from the issuance of redeemable
convertible preferred stock 20,361,511 -- -- -- -- --
Accretion of dividends on redeemable
convertible preferred stock 1,887,478 -- -- -- (1,887,478) (1,887,478)
Net loss -- -- -- -- (8,257,903) (8,257,903)
--------------- ---------- ------ --------- ----------- ------------
Balance as of December 31, 1997 46,218,235 33,964 339 2,565,517 (24,929,871) (22,364,015)
Proceeds from the issuance of redeemable
convertible preferred stock 2,999,694 -- -- -- -- --
Accretion of dividends on redeemable
convertible preferred stock 3,779,178 -- -- -- (3,779,178) (3,779,178)
Stock based compensation -- -- -- 310,000 -- 310,000
Net loss -- -- -- -- (15,306,061) (15,306,061)
-------------- ---------- ------ -------- ------------ ------------
Balance as of December 31, 1998 52,997,107 33,964 339 2,875,517 (44,015,110) (41,139,254)
Accretion of dividends on redeemable
convertible preferred stock 5,847,770 -- -- -- (5,847,770) (5,847,770)
Stock options exercised -- 237 3 54,586 -- 54,589
Net loss -- -- -- -- (18,066,885) (18,066,885)
-------------- ---------- ------ --------- ----------- ------------
Balance as of December 31, 1999 $ 58,844,877 34,201 342 2,930,103 (67,929,765) (64,999,320)
============== ========== ====== ========= =========== ===========
See accompanying notes to consolidated financial statements.
F-4
UNISITE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1997 1998 1999
-------------- ---------------- -------------
Cash flows from operating activities:
Net loss $ (8,257,903) (15,306,061) (18,066,885)
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity in loss of partnership 252,308 226,487 --
Loss on sale of assets and write-off of tower sites 295,500 594,358 1,828,945
Aborted financing and merger expenses -- -- 600,035
Extraordinary item - loss on early retirement
of credit facility -- -- 2,700,704
Stock based compensation -- 310,000 --
Issuance of preferred stock for services 361,705 -- --
Depreciation and amortization 1,097,067 1,869,869 4,538,622
Noncash interest expense 199,452 6,221,859 7,945,222
Changes in operating assets and liabilities:
Trade accounts receivable (218,207) (2,132,922) 510,266
Due from NWI Partnership 239,334 (604,479) --
Prepaid expenses and other (47,308) (616,464) (1,444,656)
Accounts payable and accrued liabilities 521,315 5,895,705 (183,394)
Deferred revenue and other -- -- 387,974
-------------- -------------- --------------
Net cash used in operating activities (5,556,737) (3,541,648) (1,183,167)
-------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures (513,946) (33,508,630) (49,915,808)
Acquisition of businesses -- -- (9,970,000)
Cash balances assumed in acquisition of NWI -- -- 1,864,574
Proceeds from sale of assets 607,677 -- --
-------------- -------------- --------------
Net cash provided by (used in)
investing activities 93,731 (33,508,630) (58,021,234)
-------------- -------------- --------------
Cash flows from financing activities:
Payment of principal on long-term obligations (155,463) (109,127) (3,908,383)
Issuance of subordinated debentures and put warrants 40,000,000 -- --
Proceeds from issuance of long-term debt -- -- 43,000,000
Payment of debt issuance, financing and merger costs (2,870,541) (150,000) (3,300,739)
Proceeds from issuance of preferred stock 19,999,806 2,999,694 --
Increase in capital expenditure payables -- -- 14,117,854
Proceeds from the exercise of stock options 25,125 -- 54,589
-------------- -------------- --------------
Net cash provided by financing activities 56,998,927 2,740,567 49,963,321
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 51,535,921 (34,309,711) (9,241,080)
Cash and cash equivalents at beginning of the period 6,569,165 58,105,086 23,795,375
-------------- -------------- --------------
Cash and cash equivalents at end of the period $ 58,105,086 23,795,375 14,554,295
============ ============= ==============
Supplemental cash flow information:
Conversion of accounts payable to note payable $ 310,000 -- --
============ ============= ==============
Acquisition of systems and equipment financed
through long-term obligations $ -- 651,000 --
============ ============= ==============
Conversion of preferred dividends to preferred stock $ -- -- 3,928,555
============ ============= ==============
See accompanying notes to consolidated financial statements.
F-5
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
UNIsite, Inc. and subsidiaries (collectively referred to as the
"Company") is an owner and operator of wireless communications towers
in the United States and a provider of antenna space on those towers
to the wireless industry. The Company builds multi-tenant towers
generally under build-to-suit contracts and selectively acquires
towers through a strategic acquisition program. The Company develops
and manages tower networks and leases antenna space to a variety of
wireless service providers, including AT&T Wireless, Bell South
Mobility, Nextel, OmniPoint, Sprint PCS, Sky Tel and Pagenet. The
Company also offers a broad range of development services, including
network design, site acquisition, zoning and other regulatory
approvals, tower construction and antenna installation and proprietary
analysis of radio frequency interference and power density.
As discussed in note 2, on June 28, 1999 the Company entered into an
agreement providing for the merger of the Company with a wholly-owned
subsidiary of American Tower Corporation ("ATC"). This merger occurred
on January 13, 2000.
The Company is currently headquartered in Tampa, Florida.
(B) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of UNIsite, Inc. and all majority owned subsidiaries.
Significant intercompany balances and transactions have been
eliminated in consolidation.
As discussed in note 4, prior to January 4, 1999 the Company owned a
49.9 percent investment in National Wireless Infrastructure, L.P.
("NWI" / the "Partnership"). The Company's investment in NWI was
accounted for under the equity method of accounting. On January 4,
1999, the Company acquired the remaining 50.1 percent interest in NWI.
Accordingly, the financial position and results of operations of NWI
are consolidated in the Company's financial statements subsequent to
January 4, 1999.
F-6
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(C) CASH EQUIVALENTS
Cash equivalents totaled approximately $16,394,000 and $6,236,000 at
December 31, 1998 and 1999, respectively. For purposes of the
consolidated statements of cash flows, the Company considers all
highly liquid debt securities with original maturities of three months
or less at the date of purchase to be cash equivalents. Approximately
$10,000,000 in cash equivalent balances at December 31, 1998 were
restricted, securing a stand-by letter of credit required pursuant to
a customer relationship.
(D) ALLOWANCES FOR UNCOLLECTIBLE ACCOUNTS
Provision for uncollectible accounts receivable are based on the
specific identification method. Allowance for estimated uncollectible
amounts were approximately $54,000 and $1,089,000 at December 31, 1998
and 1999, respectively.
(E) SYSTEMS AND EQUIPMENT
Systems and equipment are stated at cost less accumulated
depreciation. Both external and internal costs of tower sites and
related equipment are capitalized in the undeveloped tower sites
account. Internal costs represent both direct labor costs and an
allocation of specific indirect costs. When a site is placed in
service, the related costs are transferred to the tower sites account
and depreciated over its estimated useful life.
Costs related to the acquisition of potential tower sites are
capitalized in undeveloped tower sites. The feasibility of such sites
are continually evaluated. If a site is determined to not be feasible,
then the accumulated costs are expensed.
Depreciation and amortization is computed using the straight-line
method based upon the following estimated useful lives:
Computer systems 3 years
Software 3 - 5 years
Furniture and equipment 3 - 7 years
Leasehold improvements Term of lease
Tower sites Lesser of 20 years or term of
rental agreement
F-7
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(F) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(G) REVENUE RECOGNITION
Rental revenue is generated from the leasing of tower antenna space to
wireless communication entities. Under certain circumstances, the
Company provides free rent at inception of the lease. In such
circumstances, revenue is recognized on a straight-line basis over the
initial term of the lease. Rental revenue is presented net of any
amounts reimbursed with owners of towers pursuant to contractual
arrangements. Such contractual reimbursements totaled approximately
$1,191,000, $1,129,000, and $1,573,000 during the years ended December
31, 1997, 1998 and 1999, respectively.
Service revenues include radio frequency interference analysis, site
application and management fees. These revenues are recognized in the
period during which the related service is provided. The Company also
builds towers and installs antennas for customers under cost plus
agreed-upon margin arrangements. Construction revenues are recognized
upon completing construction projects.
(H) STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation", which
permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and provide pro forma net
income (loss) and pro forma earnings (loss) per share disclosures for
employee stock option grants made as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the
pro forma net loss disclosure provisions of SFAS No. 123.
F-8
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(I) IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for its long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. During all periods
presented herein the Company is of the opinion that no such impairment
exists.
(J) COMPREHENSIVE INCOME (LOSS)
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income,
effective January 1, 1998. SFAS 130 defines comprehensive income as
the change in equity of an enterprise, except those resulting from
stockholder transactions. During the periods presented herein changes
in the Company's equity structure were limited to the issuance of
common stock, net losses and the accretion of dividends on preferred
stock. Accordingly, comprehensive income (loss) as defined by SFAS 130
was equal to the Company's net loss as reported on its consolidated
statement of operations.
(K) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period to prepare the accompanying
consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(L) RELATED PARTY TRANSACTIONS
During the years ended December 31, 1997, 1998 and 1999, the Company
paid approximately $118,000, $329,000, and $40,112, respectively, to
various related parties for legal and financial consulting services.
In addition, the Company incurred approximately $515,000 during 1999
for tower construction to a related party of American Tower
Corporation.
F-9
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) BUSINESS COMBINATION - AMERICAN TOWER
On June 28, 1999 an Agreement and Plan of Merger (the Agreement) was
entered into by and between the Company and ATC. The Agreement provides for
the conversion of all outstanding common and preferred stock of the Company
for the right to receive a share of a trust to be established before the
effective date of the Merger (the Merger Trust). The merger consideration
will be paid to the Merger Trust and is calculated as follows: (1)
$25,000,000, plus (2) $300,000 multiplied by the number of completed tower
sites owned by the Company as of the date of closing, reduced by
adjustments for (3) certain outstanding indebtedness, and increased /
reduced for (4) an adjustment for working capital. Closing was conditioned
upon various actions by both parties which occurred on January 13, 1999.
ATC has provided the Company with certain interim financing as discussed in
note 6 below.
(3) SYSTEMS AND EQUIPMENT
Systems and equipment are summarized as follows:
DECEMBER 31,
---------------------------
1998 1999
------------- -----------
Tower sites $ 30,587,112 80,089,450
Computer hardware and software 4,018,050 4,394,133
Undeveloped tower sites 3,325,334 13,480,549
Furniture and equipment 333,897 333,403
Leasehold improvements 278,123 278,123
------------- -----------
Total systems and equipment 38,542,516 98,575,658
Less accumulated depreciation
and amortization 3,687,643 8,792,552
------------- -----------
$ 34,854,873 89,783,106
============= ===========
(4) INVESTMENT IN NWI PARTNERSHIP AND ACQUISITION OF BUSINESSES
NWI was formed on May 6, 1996 and was engaged in leasing sites owned by the
United States Postal Service ("USPS") to wireless operators. Through
January 4, 1999, the Company was the general partner and owned a 49.9
percent interest. The Company was obligated to provide services to market,
develop, operate, manage and maintain the sites. Through January 4, 1999,
USPS was the limited partner, and owned a 50.1 percent interest. USPS was
obligated to make certain tower sites available to the Partnership. The
Partnership was capitalized with initial contributions of approximately
$1.6 million from each partner.
F-10
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following condensed statements summarize the financial information of
NWI as of December 31, 1998, and for each of the years in the two-year
period ended December 31, 1998:
Condensed Balance Sheets
1998
-----------------
Cash and other current assets $ 2,027,400
Tower sites, net 2,528,602
-----------------
Total assets $ 4,556,002
=================
Accounts payable and other
liabilities $ 209,809
Deferred revenue 1,674,611
Due to the Company 759,147
Partners' capital 1,912,435
-----------------
Total liabilities and
partners' capital $ 4,556,002
=================
Condensed Statements of Operations
1998 1997
-------------- -------------
Revenues, net $ 284,105 498,287
Operating expenses (873,784) (1,027,259)
Interest, net 84,050 73,458
--------------- -------------
Net loss $ (505,629) (455,514)
=============== =============
Effective January 4, 1999 the Company acquired USPS limited partnership
interest in the Partnership for a nominal amount. The acquisition was
accounted for under the purchase method of accounting and the net assets of
NWI were recorded at their estimated fair values. Negative goodwill of
approximately $957,000 existed at the date of the acquisition, representing
USPS' capital account. This amount was recorded as a reduction of long-term
assets (completed tower sites).
Operations of the partnership are consolidated with that of the Company
subsequent to the date of acquisition (January 4, 1999). In connection with
the acquisition, the Partnership entered into agreements with USPS for
ground leases with respect to Partnership-owned tower sites and for the
exclusive right to market existing and potential antenna sites on USPS
properties. Management believes these agreements are reflected at fair
value amounts.
On September 24, 1999, the Company acquired three-joint ventures from
OmniPoint for a purchase price of approximately $9,970,000. The acquisition
was accounted for under purchase accounting and the purchase price was
allocated to estimated fair value of assets acquired and liabilities
assumed. Goodwill of $276,007 was recorded representing the excess of
purchase price over the fair value of assets and liabilities. Unamortized
goodwill of approximately $273,000 is included in other assets in the
accompanying financial statements.
F-11
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) SUBORDINATED DEBENTURES
On December 17, 1997, the Company consummated a private placement of
$40,000,000 of 13 percent subordinated debentures due 2004. Interest is
payable semiannually beginning on June 15, 2000. The Company has the right
to call a portion of the notes at a premium of 13 percent in the event of a
public offering of the Company's common stock prior to December 15, 1999.
The Company also has the right to call the notes beginning three years
after issuance at a premium of 13 percent in 2000, 6.5 percent in 2001,
3.25 percent in 2002 and none thereafter. Upon a change in control of the
Company, as defined in the debenture agreement, the holders of the
debentures have the right to put the debentures to the Company at a premium
of 1 percent.
The debentures include detachable put warrants which give the warrant
holders the right to purchase 19,864 shares of the Company's common stock
for $.01 per share, exercisable immediately. In the event that the Company
has not consummated a public offering of its common stock which produces
proceeds of at least $50 million within five years of the issue date, a
holder of the warrants has the option, for a period of two years, to
require the Company to purchase the warrants at a price equal to the fair
market value of the shares of common stock which would be issued if the
warrant were exercised.
The warrants were valued at their estimated fair value at date of issue of
$4,400,000. The debentures were recorded at $35,600,000, and the resulting
discount is being accreted as additional interest expense over the term of
the debentures using the effective yield method.
(6) LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
1997 1998
----------- ------------
Promissory note payable to ATC $ -- 40,000,000
Promissory note payable issued
in connection with tower site
purchase, due in monthly
installments 651,000 --
Other notes payable 225,081 205,655
----------- ------------
876,081 40,205,655
Less current installments (687,825) (205,655)
----------- ------------
$ 188,256 40,000,000
=========== ============
F-12
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the ATC business combination discussed in note 2, the
Company has been provided interim financing from ATC in the form of a
promissory note in an amount not to exceed $50,000,000. The merger
agreement provides that the borrowings can be increased to $60,000,000 upon
mutual agreement by the partners to the merger agreement. Interest is
accrued monthly on outstanding borrowings at an interest rate representing
the greater of 5 percent or the minimum applicable federal rate for a
similar note under Section 1274(d) of the Internal Revenue Code.
Outstanding principal balances shall be paid in entirety, with accrued
interest, upon the earlier of June 30, 2000 or any termination of the ATC
merger. In certain circumstances, outstanding principal balances are
payable nine months after termination of the merger agreement. Subsequent
to December 31, 1999, additional note proceeds of $10,000,000 were obtained
in accordance with this agreement.
During 1999, the Company had investigated various financing alternatives to
fund its continued growth whereby the Company closed a senior secured
credit facility with a group of banks and other financial institutions on
March 31, 1999. The credit facility provided for up to $50 million of
borrowing on a revolving basis, with availability subject to a borrowing
base. As a result of the pending ATC business combination, the Company
elected to retire this credit facility commitment. The Company has recorded
as an extraordinary item in its 1999 statement of operations the loss
related to the extinguishment of the credit facility. Additionally, the
Company has reported as a component of other expense during that same
period, approximately $600,000 in costs related to its aborted financing
efforts and merger related costs.
(7) STOCK OPTION PLAN
The Company has a stock option plan (the "Option Plan") pursuant to which
the Company's Board of Directors may grant stock options to officers, key
employees and consultants. The Plan authorizes grants of options to
purchase up to 60,000 shares of authorized but unissued common stock. Stock
options are granted with an exercise price equal or greater than the
estimated fair value of the stock at the date of grant. Fair market value
of each option grant was determined by reference to the relationship
between the value of the common stock and common stock equivalents as
compared to the value of the redeemable convertible preferred stock, both
of which were based on the estimated value of the Company.
Option grants have been classified by the Company into three categories:
founders' performance options, time vested employee options and performance
based employee options. Stock options generally have 10-year terms. Time
vested options become exercisable in up to four annual installments (most
grants have been in three annual installments), beginning one year from the
date of grant, subject to continued employment or engagement as a
consultant. Founders' performance options become vested and exercisable
after ten years from issuance, but vesting is accelerated upon occurrence
of a merger, consolidation or initial public offering based upon formulas
contained in the option agreements. Performance based employee options vest
based upon either the attainment of specified market capitalization
thresholds by the Company, or at the discretion of the Board of Directors
and or the Chief Executive Officer.
F-13
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
With respect to performance based employee options for which no time
vesting criteria exists, a measurement date as defined by APB Opinion No.
25 is not achieved until the underlying performance milestone is met. As of
December 31, 1998, the Company had achieved certain performance milestones
which resulted in the Company recognizing compensation expense in 1998
amounting to approximately $310,000. The Company does not believe that any
further milestones were met during the year ended December 31, 1999 based
on the estimated common stock value from the merger (note 2).
At December 31, 1999, there were 11,974 additional shares available for
grant under the Option Plan although the Plan was terminated as a result of
the merger (note 2). The per share weighted-average fair value of stock
options granted during 1997, 1998 and 1999 was $39.80, $122.32 and $66.18,
respectively, on the date of grant as estimated using the minimum value
option-pricing model with the following weighted-average assumptions:
1997 1998 1999
----------- ------------ ------------
Expected dividend yield 0% 0% 0%
Expected option life 6 years 6 years 6 years
Risk free interest rate 6.0% 5.5% 6.0%
The Company applies APB Opinion No. 25 in accounting for its Option Plan
and, accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements, other than as indicated
above. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, the Company's
net loss would have been increased to the pro forma amounts indicated
below:
1997 1998 1999
----------- ------------ ------------
Net loss:
As reported $(8,257,903) (15,306,061) (18,066,885)
Pro forma (8,912,183) (15,671,179) (18,245,713)
F-14
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock option activity during the periods indicated is as follows:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
------------ ------------
Balance as of December 31, 1996 28,558 $ 198
Granted 15,245 135
Exercised (75) 335
Forfeited (5,555) 279
------------ ------------
Balance as of December 31, 1997 38,173 189
Granted 13,951 425
Exercised -- --
Forfeited (4,649) 247
------------ ------------
Balance at December 31, 1998 47,475 260
Granted 2,702 219
Exercised (237) 230
Forfeited (1,914) 175
------------ ------------
Balance as of December 31, 1999 48,026 $ 261
============ ============
Exercisable and outstanding stock option information as of December 31, 1999,
is summarized as follows:
WEIGHTED-AVERAGE
REMAINING
CONTRACTUAL LIFE OF
EXERCISE SHARES SHARES OUTSTANDING
PRICE OUTSTANDING EXERCISABLE OPTIONS (YEARS)
------------ -------------- --------------- -----------------------
$85 5,820 3,282 7.42
$140 15,158 9,701 6.66
$218-$219 2,267 28 9.35
$220 4,048 475 7.25
$223-$224 10,263 1,771 8.35
$268 8,370 8,370 5.70
$335 2,100 2,100 6.52
-------------- --------------- -----------------------
48,026 25,727 7.32
============== =============== =======================
In connection with the Agreement with ATC (note 2), the Company has provided its
stock option holders with surrender agreements that allow the stock option
holders to receive compensation for the differential between the exercise price
and fair value. All shares under the option plans become exercisable under the
surrender agreements.
F-15
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) REDEEMABLE PREFERRED STOCK
The Company has authorized and issued Class A, Class B and Class C
preferred stock. All classes of preferred stock have liquidation
preferences over the Company's common stock and voting rights which are
equal to the number of shares of common stock into which they are
convertible. Each share of preferred stock is convertible into such number
of shares of common stock as is determined by dividing the liquidation
value (original price plus accumulated and unpaid dividends) of each share
of convertible preferred stock by the conversion price per share at the
time of conversion. The conversion price per share is the original issue
price adjusted for any dilution that may occur from future offerings. The
conversion price exceeded the estimated fair value of common stock at the
date if issuance.
Under certain conditions, each share of preferred stock automatically
converts into fully paid and non-assessable shares of common stock of the
Company (i) at the time of any initial public offering of the Company's
common stock, (ii) on the date on which the Company obtains the consent of
the holders of a majority of the then outstanding shares of preferred stock
or (iii) at such time as fewer than 25 percent of the aggregate number of
shares of convertible preferred stock issued remain outstanding.
At any time after December 17, 2005, the holders of at least 50 percent of
the shares of Class A and Class B preferred stock combined, or the holders
of at least 50 percent of the shares of Class C preferred stock, shall have
the right to require the Company to repurchase all of the shares of
preferred stock then held by that group of holders at the amount paid at
issuance plus any accumulated and unpaid dividends. Payment of any
repurchase pursuant to this agreement shall be by 50 percent cash at the
closing plus a promissory note for 50 percent of the redemption price under
terms of the redemption agreement.
Dividends accrue based on the original issue price and accumulated and
unpaid dividends of the preferred stock. The dividend rate for Class A and
Class B preferred stock is 8.0 percent, and for Class C preferred stock is
8.5 percent. All accumulated and unpaid dividends are payable upon the
earliest to occur of (i) January 15, 2001, (ii) a voluntary or involuntary
liquidation or dissolution of the Company, (iii) a merger or consolidation
of the Company, (iv) the sale of all or substantially all of the assets of
the Company, or (v) the consummation of a public offering of the Company's
common stock. Under certain conditions, no dividends will be paid on the
Class C preferred stock if a public offering of the Company's common stock
is consummated within two years of the issuance of Class C preferred stock.
In January 1996, the Company entered into an agreement with several
institutional and individual investors who committed to purchase 63,433
shares of Class A preferred stock over a period of time at $268 per share.
During 1996, the Company issued 63,433 shares of Class A preferred stock
under this agreement in exchange for cash of $14,912,011 and the conversion
of $2,088,033 of principal and interest outstanding under the Company's 10
percent convertible notes payable.
F-16
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In June 1996, the Company issued 17,102 shares of Class B preferred stock at
$335 per share. Net cash proceeds received under the sale of Class B preferred
stock amounted to $5,729,170. Under certain conditions specified in the
agreement to sell those shares, the Company may repurchase up to 11,878 of the
Class B preferred shares at liquidation value (original price plus accrued
dividends).
During 1997, the Company issued 3,073 shares of Class A preferred stock to an
officer of the Company and 300 shares of Class B preferred stock to a consulting
firm. These shares were issued in exchange for services and, accordingly, the
fair value of the shares was recognized as expense in the accompanying
consolidated statement of operations.
The Company issued 43,184 shares of Class C preferred stock in December 1997 and
in February 1998; 6,477 shares in February 1998 at approximately $463 per share.
Net cash proceeds received under the sale of Class C preferred stock amounted to
$19,999,806 in 1997 and $2,999,694 in 1998.
Total cumulative unpaid dividends on redeemable convertible preferred stock
amounted to $3,127,510, $6,906,688, and $8,825,903 as of December 31, 1997,
1998 and 1999, respectively.
F-17
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) INCOME TAXES
The Company has not recognized any tax benefits for its net operating
losses.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1998
and 1999 are as follows:
1998 1999
------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 11,588,698 16,524,686
Accounts payable and accrued
liabilities, due to tax filing
on cash basis 1,688,519 --
Basis differences related to the
investment in NWI 204,300 368,923
Systems and equipment due to
differences in depreciation and
amortization -- 1,506,910
------------ ------------
Total gross deferred tax assets 13,481,517 18,400,519
Less valuation allowance (11,944,904) (15,863,843)
------------ ------------
Net deferred tax assets 1,536,613 2,536,676
------------ ------------
Deferred tax liability -
Systems and equipment due to
differences in depreciation and
amortization 1,536,613 --
Accounts payable and accrued
liabilities due to tax filing on
cash basis -- 2,536,676
------------ ------------
Net deferred taxes $ -- --
============ ============
The valuation allowance for deferred tax assets increased by $3,065,701,
$4,385,518 and $3,918,939 during the years ended December 31, 1997, 1998
and 1999, respectively, primarily due to increases in net operating loss
carryforwards.
At December 31, 1999, the Company has net operating loss ("NOL")
carryforwards of $48 million which are available to offset future federal
taxable income, if any. Such amounts expire in varying increments through
2019. The potential future use of the Company's NOL's may be limited if the
pending business combination is completed (note 2).
F-18
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) LEASE AGREEMENTS
(A) LESSOR
The Company has leases for the rental of Company-owned tower space
which extend through 2013. Future minimum lease payments to be
received by the Company under such agreements for each of the next
five years is as follows (as of December 31, 1999):
YEAR ENDING AMOUNT
---------------- --------------
2000 $ 8,064,157
2001 8,197,472
2002 7,925,764
2003 7,094,221
2004 6,215,902
Thereafter 52,849,609
---------------- ---------------
Total $ 90,347,125
===============
(B) LESSEE
The Company leases office space and certain office equipment under
operating leases expiring at various dates through 2002. The Company also
leases land on its owned Tower sites under operating leases. Land leases
generally provide for 20-year periods, although select leases extend for
longer periods of time (last expiration date August 2083). Such leases
contain various renewal terms at the option of the Company. Rental expense
under operating leases was approximately $1,109,000, $243,000 and
$2,743,000 during the years ended December 31, 1997, 1998 and 1999.
Future minimum lease payments under noncancelable operating leases,
exclusive of renewal options available to the Company, as of December 31,
1999 (with initial or remaining lease terms in excess of one year) were
as follows:
YEAR ENDING AMOUNT
------------------ -----------------
2000 $ 4,895,758
2001 4,770,258
2002 4,575,978
2003 3,432,313
2004 2,713,801
Thereafter 14,480,953
------------------ -----------------
Total $ 34,869,061
=================
F-19
UNISITE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) CONCENTRATIONS OF RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company performs on-going credit evaluations of its
customers and generally does not require collateral. The Company maintains
reserves for potential credit losses.
Revenues are concentrated among specific customers. Additionally, rental
revenue is generated through the use of systems and equipment either owned
by the Company or managed through a concentrated number of inventory
providers. The following table identifies specific customers where
concentrations of revenue exist.
CUSTOMER REVENUE AS A PERCENT OF
CONSOLIDATED REVENUES
----------------------------------
CUSTOMER 1998 1999
----------------- ----------- ----------
OmniPoint 37% 34%
Nextel 14% 14%
Sprint PCS 18% 14%
AT&T Wireless * 13%
* Revenues from this customer were not significant in 1998
Consolidated revenues during 1997 were concentrated with Nextel, Sprint PCS
and Destineer. Specific percentages of 1997 consolidated revenue are not
presented herein as they are not considered meaningful in light of the
growth in the Company's consolidated revenues during 1998 and 1999.
(12) TERMINATED CONTRACT SETTLEMENT
During 1999, the Company received a $5,000,000 settlement with respect to a
customer's terminated management contract. The settlement amount represents
foregone revenues and the Company is obligated to complete certain
transition services. Management expects the services to be completed in
2000 and a liability has been established representing the estimated cost.
As a result of this transaction, income of $4,596,000 has been recognized
representing the net proceeds of the termination after related costs and
expenses. Revenues under this contract amounted to $452,981, $1,334,917,
and $785,877 for the years ended December 31, 1997, 1998 and 1999.
F-20
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ICG Satellite Services, Inc.:
We have audited the accompanying consolidated balance sheet of ICG Satellite
Services, Inc. and subsidiary (wholly owned by ICG Communications, Inc.) as of
November 30, 1999, and the related consolidated statements of operations and
accumulated deficit, and cash flows for the eleven months then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ICG Satellite
Services, Inc. and subsidiary as of November 30, 1999, and the results of its
operations and its cash flows for the eleven months then ended in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
February 28, 2000
F-21
ICG SATELLITE SERVICES, INC
AND SUBSIDIARY
(Wholly owned by ICG Communications, Inc.)
Consolidated Balance Sheet
November 30,1999
ASSETS
Current assets:
Cash $ 82,244
Receivables:
Trade, net of allowance for doubtful accounts of $962,865 7,268,420
Other 322,535
------------
7,590,955
Inventory 1,530,867
Prepaid expenses and other 400,234
------------
Total current assets 9,604,300
------------
Equipment (note 2) 50,910,328
Less accumulated depreciation (24,608,161)
------------
Net equipment 26,302,167
------------
Other assets:
Goodwill, net 6,221,012
Transmission licenses, net 2,674,536
Deposits 1,853,855
Other 542,443
------------
11,291,846
------------
Total assets $ 47,198,313
============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 1,298,984
Accrued liabilities 1,345,081
Deferred revenue 3,057,781
Due to parent (note 3) 17,289,062
------------
Total current liabilities 22,990,908
Stockholder's equity:
Common stock, $.0001 par value, 100,000,000
shares authorized;
20,000,000 shares issued and outstanding 1,006
Additional paid-in capital 89,410,005
Accumulated deficit (65,203,606)
------------
Total stockholder's equity 24,207,405
------------
Commitments and contingencies (note 5)
Total liabilities and stockholder's equity $ 47,198,313
============
See accompanying notes to consolidated financial statements.
F-22
ICG SATELLITE SERVICES, INC.
AND SUBSIDIARY
(Wholly owned by ICG Communications, Inc.)
Consolidated Statement of Operations
and Accumulated Deficit
Eleven months ended November 30, 1999
Satellite services revenue $ 41,755,660
------------------
Operating costs and expenses:
Operating costs 21,984,502
Selling, general and administrative 10,271,910
Depreciation and amortization 10,719,337
Intercompany expense allocation from Parent (note 3) 321,154
------------------
Total operating costs and expenses 43,296,903
------------------
Operating loss (1,541,243)
------------------
Other expense:
Interest expense to Parent (note 3) (802,193)
Other, net (21,025)
------------------
(823,218)
------------------
Net loss (2,364,461)
Accumulated deficit:
Beginning of period (62,839,145)
------------------
End of period $ (65,203,606)
==================
See accompanying notes to consolidated financial statements.
F-23
ICG SATELLITE SERVICES, INC
AND SUBSIDIARY
(Wholly owned by ICG Communications, Inc.)
Consolidated Statement of Cash Flows
Eleven months ended November 30, 1999
Cash flows from operating activities:
Net loss $ (2,364,461)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation and amortization 10,719,337
Bad debt expense 215,178
Non-cash interest expense to Parent 802,193
Changes in operating assets and liabilities:
Accounts receivable 2,536,411
Inventory (466,380)
Prepaid expenses, deposits and other assets (710,531)
Accounts payable, accrued liabilities and deferred revenue (962,057)
------------
Net cash provided by operating activities 9,769,690
Cash flows from investing activities -
acquisition of equipment and other assets (12,438,300)
------------
Cash flows from financing activities -
advances from Parent, net 2,750,854
------------
Net change in cash and cash at end of the period $ 82,244
============
See accompanying notes to consolidated financial statements.
F-24
ICG SATELLITE SERVICES, INC.
AND SUBSIDIARY
(Wholly owned by ICG Communications, Inc.)
Notes to Consolidated Financial Statements
November 30, 1999
(1) Summary of Significant Accounting Policies
(A) BUSINESS AND BASIS OF PRESENTATION
ICG Satellite Services, Inc. (the Company) is a wholly owned subsidiary
of ICG Communications, Inc. (ICG or the Parent). The Company's
operations are conducted primarily through its wholly-owned subsidiary,
Maritime Telecommunications Network, Inc. (MTN). The Company's principal
business activity is providing satellite voice and data
telecommunications services and equipment to major cruise ship lines, the
U.S. Navy and offshore oil platforms, international long-distance
resellers and foreign internet service-related companies.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting periods. Actual results could differ from those
estimates.
As shown in the accompanying financial statements, the Company has
incurred significant net losses and has an accumulated deficit as of
November 30, 1999. The Company has been economically dependent upon
financial support from the Parent to fund operating activities and
working capital. Effective November 30, 1999, all of the Company's
outstanding common shares were sold to ATC Teleports, Inc. (ATC) for
$98.1 million in cash. The accompanying financial statements do not
include any purchase price adjustments related to the acquisition by ATC.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
(B) INVENTORY
Inventory consists of satellite systems equipment held for sale to third
parties and is recorded at the lower of cost or market, using the first-
in, first-out method.
(C) EQUIPMENT
Equipment is recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets of
four or five years.
F-25
ICG SATELLITE SERVICES, INC.
AND SUBSIDIARY
(Wholly owned by ICG Communications, Inc.)
Notes to Consolidated Financial Statements
November 30, 1999
(D) OTHER ASSETS
Goodwill related to the acquisition is being amortized over a five-year
period. Transmission licenses are being amortized to operations over a
twenty-year period.
(E) REVENUE RECOGNITION
Satellite services revenue is recognized as services are rendered or upon
shipment of equipment.
(F) INCOME TAXES
The Company accounts for deferred income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS 109). Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(G) IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (SFAS 121) which requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. An impairment loss is
recognized when estimated undiscounted future cash flows expected to be
generated by the asset are less than its carrying value. Measurement of
the impairment loss is based on the fair value of the asset, which is
generally determined using valuation techniques such as the discounted
present value of expected future cash flows or independent appraisal.
F-26
ICG SATELLITE SERVICES, INC.
AND SUBSIDIARY
(Wholly owned by ICG Communications, Inc.)
Notes to Consolidated Financial Statements
November 30, 1999
(2) EQUIPMENT
Equipment at November 30, 1999 is comprised of the following:
Satellite and fiber optic equipment $ 38,555,905
Machinery and equipment 9,355,825
Furniture, fixtures and office equipment 2,630,246
Construction in progress 368,352
------------
$ 50,910,328
============
(3) TRANSACTIONS WITH PARENT AND RELATED PARTY
Amounts due to Parent represent advances from ICG and related accrued
interest payable, which bear interest at the prime rate plus 3% (11.5% at
November 30, 1999), and are due on demand.
ICG allocates certain corporate overhead costs, representing primarily
salaries and related benefits for accounting, sales and marketing personnel,
information systems support and executive and legal services to certain of
its divisions and subsidiaries based on revenue and direct operating costs
of the respective entity. The Company does not currently have a formal cost
sharing or allocation agreement with ICG. The costs allocated to the Company
by ICG are not necessarily indicative of the costs that the Company would
have incurred on a separate company basis.
(4) INCOME TAXES
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at November 30, 1999 are
as follows:
Deferred tax assets:
Equipment and intangible assets due to excess purchase price
of assets and differences in depreciation and/or amortization
for financial statement and income tax purposes $ 3,052,580
Accounts receivable, due to allowance for doubtful accounts
for financial statement purposes 385,146
Net operating loss carryforwards 19,149,268
-------------
Gross deferred tax asset 22,586,994
Less valuation allowance (22,586,994)
-------------
Net deferred tax asset $ --
=============
F-27
ICG SATELLITE SERVICES, INC.
AND SUBSIDIARY
(Wholly owned by ICG Communications, Inc.)
Notes to Consolidated Financial Statements
November 30, 1999
A valuation allowance has been provided for the entire amount of the net
deferred tax asset, as management is unable to determine when the Company
will generate future taxable income.
Together the Company and ICG make up an affiliated group of corporations as
defined in Section 1504 of the Internal Revenue Code. The Company has no
current federal income tax expense since losses generated by other
affiliated group members are used to offset the Company's taxable income for
the eleven months ended November 30, 1999.
As of November 30, 1999, the Company has a net operating loss carryforward
totaling approximately $47,873,000 for income tax purposes, which expires in
varying amounts through December 31, 2018. However, due to the provisions of
Section 382 and certain other provisions of the Internal Revenue Code and
Treasury Regulations, the utilization of these carryforwards may be
substantially limited. ATC and ICG have mutually agreed that the net
operating loss carryforward will be retained by ICG.
(5) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases capacity on satellites and office space under
noncancelable operating leases. Lease expense for the eleven months
ended November 30, 1999 was approximately $14,461,000. Estimated future
minimum lease payments for years subsequent to November 30, 1999 are as
follows:
Years ending December 31:
2000 $ 18,074,000
2001 12,788,000
2002 7,554,000
2003 6,086,000
2004 1,566,000
Thereafter 2,764,000
--------------
$ 48,832,000
==============
F-28
ICG SATELLITE SERVICES, INC.
AND SUBSIDIARY
(Wholly owned by ICG Communications, Inc.)
Notes to Consolidated Financial Statements
November 30, 1999
(5) Commitments and Contingencies (continued)
(B)
REGULATORY MATTERS
The Company must obtain and maintain certain Federal Communications
Commission (FCC) authorizations to provide its maritime communications
services. The Company currently provides such services using C-band
radio frequencies, pursuant to an experimental license and a grant of
Special Temporary Authority (STA). The Company's experimental license
has been renewed by the FCC on several occasions. On January 22, 1999,
the Company submitted an application for an additional two-year renewal
of the experimental license, which was due to expire on February 1, 1999.
A Petition to Deny has been filed with respect to the Company's renewal
application. Under the FCC's procedures, the experimental license
remains valid pending FCC action on the renewal application. The STA was
first granted on January 30, 1997 and enables the Company to conduct
operations pursuant to the STA while the Company's application for a
permanent license is pending. The Company has applied for several six-
month extensions of the STA, most recently on January 27, 2000, and the
FCC has verbally granted each of the requested extensions. Although the
Company expects that the FCC will issue a permanent license, there can be
no assurance the Company will be granted a permanent license, that the
experimental license and STA currently being used to provide maritime
services will continue to be renewed for future terms, or that any
license granted by the FCC will not require substantial payments by the
Company.
(6) EMPLOYEE BENEFIT PLAN
The Company participated in ICG's salary reduction savings plan under
Section 401(k) of the Internal Revenue Code for participating employees.
All full-time employees are covered under the plan after meeting minimum
service and age requirements. ICG contributes a matching contribution to
the plan payable in common stock (up to 6% of annual salary). The value
of the shares contributed to the plan was approximately $220,000 during
the eleven months ended November 30, 1999.
F-29