<PAGE> 1
Filed Pursuant to Rule 424(b)(4)
Registration No. 333-03348
1,700,000 SHARES
(AMERICAN TELECASTING, INC. LOGO)
CLASS A COMMON STOCK
------------------
All of the shares of Class A Common Stock (the "Common Stock") offered
hereby are being sold by American Telecasting, Inc. ("ATI"). The Common Stock is
quoted on The Nasdaq Stock Market (National Market) under the symbol "ATEL." On
May 20, 1996, the last reported sale price for the Common Stock was $13 1/8 per
share. See "Price Range of Common Stock."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $12.625 $.69 $11.935
- ------------------------------------------------------------------------------------------------
Total(2)........................................ $21,462,500 $1,173,000 $20,289,500
================================================================================================
</TABLE>
(1) Before deducting expenses of the offering payable by the Company estimated
at $300,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
255,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $24,681,875,
$1,348,950 and $23,332,925, respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about May 24,
1996.
ALEX. BROWN & SONS DILLON, READ & CO. INC.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS MAY 21, 1996.
<PAGE> 2
[MAP]
Reflects operational systems and target markets as of April 15, 1996.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET (NATIONAL MARKET), IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ STOCK MARKET (NATIONAL MARKET), IN ACCORDANCE WITH RULE
10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED ("THE EXCHANGE
ACT"). SEE "UNDERWRITING."
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<PAGE> 3
AVAILABLE INFORMATION
ATI has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
for the registration of the securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules to the Registration Statement as permitted
by the rules and regulations of the Commission. For further information with
respect to ATI and the securities offered hereby, reference is made to the
Registration Statement, including the exhibits thereto, and the financial
statements and notes incorporated by reference herein. Statements made in this
Prospectus concerning the contents of any document referred to herein are not
necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
ATI is subject to the informational requirements of the Exchange Act and in
accordance therewith, files reports and other information with the Commission.
Such reports, proxy statements and other information filed by ATI with the
Commission may be inspected at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at
its regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can be obtained from the
public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed by ATI with the Commission pursuant
to the requirements of the Exchange Act and are hereby incorporated herein by
reference and made a part of this Prospectus:
<TABLE>
<S> <C>
(i) ATI's Annual Report on Form 10-K for the fiscal year ended December 31, 1995;
(ii) ATI's Proxy Statement for its 1996 Annual Meeting of Stockholders;
(iii) ATI's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996;
(iv) ATI's Current Report on Form 8-K dated May 10, 1995;
(v) ATI's Current Report on Form 8-K dated December 28, 1995;
(vi) ATI's Current Report on Form 8-K dated January 5, 1996;
(vii) ATI's Current Report on Form 8-K dated January 22, 1996; and
(viii) ATI's Current Report on Form 8-K dated April 1, 1996.
</TABLE>
All reports and other documents filed with the Commission by ATI pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering made by this
Prospectus shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the date of filing of such documents. Any statement
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified, replaced, or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
ATI will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into this Prospectus). Requests should be directed to: American
Telecasting, Inc., 5575 Tech Center Drive, Suite 300, Colorado Springs, Colorado
80919; Attention: Chief Financial Officer; telephone number: (719) 260-5533.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus or
incorporated by reference herein. Unless otherwise indicated, all information
contained in this Prospectus assumes that the Underwriters' over-allotment
option is not exercised. ATI operates its wireless cable systems through its
subsidiaries. As used herein, "ATI" refers solely to American Telecasting, Inc.
and the "Company" refers to American Telecasting, Inc. and its subsidiaries
collectively.
THE COMPANY
The Company is a leading operator of wireless cable television systems.
Management believes that the Company is the largest wireless cable company in
the United States as measured by number of subscribers. As of March 31, 1996,
the Company provided subscription television service to approximately 174,900
subscribers through 38 operational systems located in 19 states. In addition to
its operational systems, the Company has significant channel interests in 18
other markets where it expects to construct wireless cable systems in the
future, assuming, among other factors, the availability of financing as
discussed herein. As of March 31, 1996, the Company had approximately 11.1
million Estimated Households in Service Area (as defined herein) in its
operational or target markets, although some of these households will be
"shadowed" and unable to receive the Company's service due to certain
characteristics of the particular market, such as transmitter height and
transmission power, terrain and foliage ("Line-of-Sight Constraints"). The
percentage of Estimated Households in Service Area that may be shadowed due to
Line-of-Sight Constraints generally ranges from 10 to 50% depending upon the
market.
Wireless cable systems use microwave frequencies authorized by the Federal
Communications Commission (the "FCC") to broadcast from a single transmission
site to a receiving antenna at each customer's location. Wireless cable
technology provides a relatively low cost medium to transmit video entertainment
and information services to customers in single family homes, multiple dwelling
unit properties and commercial properties. Unlike traditional franchise cable
systems, wireless cable systems do not require extensive coaxial cable networks,
amplifiers and related equipment. As a result, capital costs and
transmission-related operating costs are substantially less than those of a
typical franchise cable system. Due to this comparative economic advantage, the
Company generally has been able to charge 20 to 30% less than its franchise
cable competitors. The Company expects to maintain its cost and pricing
advantage despite the deployment of other emerging technologies, such as fiber
optic systems and direct broadcast satellite transmission, by existing and new
competitors in the subscription television industry.
The Company differentiates itself from its franchise cable competitors both
by utilizing its lower cost structure to offer customers lower prices and by
emphasizing its strong commitment to customer service. The Company focuses
primarily on developing wireless cable systems in mid-sized markets where
terrain and other conditions are conducive to economical delivery of wireless
cable services. The Company targets value-conscious customers in both cabled and
uncabled areas with its programming, which includes ESPN, CNN, USA Network,
Nickelodeon, Discovery, regional sports channels, MTV, local broadcast channels
and other "basic" channels. The Company also offers Home Box Office, Showtime
and The Disney Channel as "premium" channels, as well as selected pay-per-view
services.
During 1996, the Company intends to focus on managing its existing systems
through more efficient and cost-effective methods, planning for the
implementation of a digital technology strategy in select markets, and
developing strategic alliances. During the remainder of this year, the Company
intends to continue the growth and launch of certain of its analog wireless
cable systems that management believes can achieve stable customer bases with a
favorable balance of customer growth, subscriber capital investment, and
expenses. Other systems operated by the Company will
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<PAGE> 5
not be managed for customer growth, but rather for optimal cash flow from
existing customers. In these systems, the Company intends to focus its marketing
efforts on new commercial and multiple dwelling unit customers.
ATI was incorporated in Delaware in December 1988 and has its principal
executive office at 5575 Tech Center Drive, Suite 300, Colorado Springs,
Colorado 80919. ATI's telephone number is (719) 260-5533.
RECENT DEVELOPMENTS
Operating Results. The number of subscribers to the Company's wireless
cable service increased from 106,500 to 173,700 in 1995. Approximately 37% of
this growth was due to systems acquired during the year and approximately 63%
resulted from internal growth. During 1995, the Company acquired eight operating
wireless cable systems and completed construction and commenced operation of
systems in Ft. Collins and Greeley, Colorado; Yuba City, California; and
Lincoln, Nebraska. As of March 31, 1996, the Company provided subscription
television service to approximately 174,900 subscribers.
Financing Activities. In August 1995, the Company completed an offering of
units (the "1995 Units Offering") consisting of its 14 1/2% Senior Discount
Notes due 2005 (the "2005 Notes"), which have an aggregate principal balance at
stated maturity of $201.7 million, and 201,700 warrants (the "1995 Warrants") to
purchase an aggregate of 943,956 shares of Common Stock at an exercise price of
$12.65 per share. The 1995 Units Offering resulted in net proceeds to the
Company of approximately $94.9 million.
Separate Offering By Existing Shareholders. In February 1996, the Company
filed a registration statement (the "Shelf Registration Statement") with the
Commission covering the sale of up to 640,019 shares of its previously issued
Common Stock by certain existing stockholders (the "Selling Shareholders"). The
Shelf Registration Statement was declared effective in April 1996. The Company
intends to keep the Shelf Registration Statement effective for 180 days from the
date of effectiveness. The shares of Common Stock being registered pursuant to
the Shelf Registration Statement were issued by the Company to the Selling
Shareholders in connection with certain capital raising activities prior to the
Company's IPO (as defined herein), the provision of financial advisory services
prior to the IPO or acquisitions by the Company of other wireless cable
companies. None of the Selling Shareholders is an officer or director of the
Company or an owner of more than 5% of the Company's Common Stock.
Acquisitions. Since May 1993, the Company has acquired 22 operational
wireless cable systems and wireless cable channel rights in 17 additional
markets. On January 30, 1995, the Company acquired an operating wireless cable
system in Medford, Oregon (the "Medford Acquisition"), which served
approximately 900 subscribers as of the date of acquisition. On March 7, 1995,
the Company acquired an operating wireless cable system in Sheridan, Wyoming
(the "Sheridan Acquisition"), which served approximately 600 subscribers as of
the date of acquisition. On May 10, 1995, the Company completed the acquisition
of a 65% ownership interest in Fresno MMDS Associates (the "Fresno
Partnership"), a partnership that operates wireless cable systems in each of
Fresno, Visalia and Merced, California (the "FWCTI Acquisition"). The systems
acquired in the FWCTI Acquisition collectively served approximately 14,200
subscribers as of the date of acquisition. On July 14, 1995, the Company
acquired an operating wireless cable system in Redding, California, which served
approximately 200 subscribers as of June 30, 1995. On September 15, 1995, the
Company acquired (the "Superchannels Acquisition") 58% of the outstanding common
stock of Superchannels of Las Vegas, Inc. ("Superchannels"). Superchannels
operates a wireless cable system in Las Vegas, Nevada, which served
approximately 4,300 subscribers as of the date of acquisition. On November 30,
1995, the Company acquired an operating wireless cable system serving Rapid
City, South Dakota (the "Rapid City Acquisition"), which served approximately
4,500 subscribers as of the date of acquisition. Except for the Pending
Acquisition (as defined herein), as
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of the date of this Prospectus, the Company has no written agreements,
arrangements or understandings to acquire any material wireless cable businesses
or assets, although the Company continuously pursues opportunities to acquire
businesses and channel rights that are consistent with the Company's business
plan. The Company currently has a non-binding letter of intent to acquire
certain wireless cable assets in a new market (the "Pending Acquisition") with a
purchase price of approximately $5.2 million, subject to certain contingencies,
such as FCC approvals, the satisfactory completion of due diligence, and other
customary conditions to closing, which may or may not be satisfied. There can be
no assurance that a definitive agreement will be reached or that the Pending
Acquisition will be consummated.
RBOC Investments. A significant recent development in the wireless cable
industry has been the investment by regional Bell operating companies ("RBOCs")
in wireless cable companies. For example, during 1995, Bell Atlantic and NYNEX
invested $100.0 million in CAI Wireless Systems, Inc. ("CAI") and Pacific
Telesis ("PacTel") acquired both Cross Country Wireless, Inc. ("Cross Country")
and Wireless Holdings, Inc. ("Wireless Holdings") for aggregate purchase prices
of approximately $175.0 million each. See "Industry -- RBOC Investments." The
Company is pursuing opportunities to enter into strategic relationships with
RBOCs or other providers of telecommunications services. Such relationships
could involve, among other things, joint ventures, sales or exchanges of stock
or assets, or loans to or investments in the Company by strategic partners. As
of the date of this Prospectus, the Company has not reached any agreements or
understandings with respect to such relationships, and there can be no assurance
that any such agreements or understandings will be reached.
BTA Auction. The Company participated in the FCC's recent auction of the
rights to apply for and obtain available Multipoint Distribution Service ("MDS")
licenses in 493 designated basic trading areas ("BTAs") throughout the United
States. The winning bidder in each BTA obtained the exclusive right to apply for
available MDS licenses in that BTA and will receive the channel authorizations
as long as its station proposals comply with the FCC's interference requirements
and other rules. However, in order to provide wireless cable service in these
markets, the BTA winner must secure the right to use a site for a transmission
facility and also may need to obtain the consent of other parties for the
acceptance of interference from its proposed stations. The Company was the
winning bidder in 59 BTAs and is in the process of determining in which of these
BTAs it will file applications for MDS licenses. Once filed, the FCC must
approve the applications before the MDS authorizations will be issued. Competing
applications cannot be filed but the FCC will consider petitions to deny the
auction winners' applications. There can be no assurance that the FCC will
approve the Company's applications, and the Company cannot reasonably predict
when such approvals will be given, or, even if granted, whether the Company will
ultimately have access to a sufficient number of channels to have a viable
system in each BTA for which it was the winning bidder. In BTAs with respect to
which the Company determines not to file applications, the Company is required
to file statements of intention indicating its future plans for those BTAs.
Regardless of whether the Company initially applies for additional MDS
authorizations in any of its BTAs, as long as the Company continues to hold the
BTA rights, other entities seeking new licenses or certain modifications to
existing licenses within the Company's BTAs must seek approval from the Company,
as the BTA owner. Similarly, to the extent the Company wishes to obtain new
licenses or certain modifications to its existing licenses in markets in which
it was not the BTA winner, it will be required to negotiate with the BTA owner
for approval of such licenses or modifications. See "Risk Factors -- Regulation"
and "The Company -- Markets."
Recent Legislation. On February 8, 1996, the Telecommunications Act of
1996 (the "1996 Act") was enacted. Among other things, the 1996 Act eliminates
the cable/telephone cross-ownership restriction, allowing a telephone company
the option of providing video programming within its telephone service area over
a cable system or other video delivery system. Conversely, cable companies are
now permitted to provide telephone services. As a result of these developments,
the Company may experience increased competition from telephone companies, which
have
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significantly greater financial and other resources than the Company. See "The
Company -- Competition."
THE OFFERING
Common Stock offered by the
Company............................. 1,700,000 shares
Common Stock to be outstanding after
the offering........................ 18,362,114 shares(1)
Use of proceeds..................... Net proceeds of the offering are
expected to be used to fund payments to
the FCC in connection with the recent
BTA auctions, to finance construction
and operation of wireless cable systems,
to finance possible future acquisitions
of wireless cable systems and channel
interests, and for working capital.
Nasdaq National Market symbol....... ATEL
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(1) Excludes 2,599,840 shares of Common Stock issuable upon the exercise of
options and warrants outstanding as of April 15, 1996. See "Description of
Capital Stock."
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE, SYSTEM AND SUBSCRIBER DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------ THREE MONTHS ENDED
PRO MARCH 31,
FORMA ------------------
1991 1992 1993(1) 1994(2) 1995(3) 1995(4) 1995 1996
------- ------- ------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenues.................... $ 883 $ 3,534 $ 7,178 $ 21,629 $ 47,501 $ 52,979 $ 9,444 $ 15,423
Costs and expenses:
Operating expenses.............. 703 2,563 4,524 12,712 25,063 27,393 4,753 8,574
Marketing, general and
administrative
expenses...................... 1,164 1,729 2,937 13,902 28,828 30,673 5,224 7,310
Depreciation and amortization... 355 1,158 2,563 12,032 29,276 32,029 5,613 9,958
------- ------- ------- -------- -------- -------- ------- --------
Loss before interest and taxes.... (1,339) (1,916) (2,846) (17,017) (35,666) (37,116) (6,146) (10,419)
Interest expense and other, net... (95) (258) (1,665) (7,271) (22,300) (30,022) (3,630) (8,435)
------- ------- ------- -------- -------- -------- ------- --------
Loss before income tax benefit.... $(1,434) $(2,174) $(4,511) $(24,288) $(57,966) $(67,138) $(9,776) $(18,854)
======= ======= ======= ======== ======== ======== ======= ========
Net loss(5)....................... $(1,434) $(2,174) $(4,511) $(15,478) $(66,635) $(64,266) $(7,109) $(18,749)
======= ======= ======= ======== ======== ======== ======= ========
Net loss per share(6)............. $ (0.46) $ (1.07) $ (4.17) $ (3.94) $ (0.47) $ (1.13)
======= ======== ======== ======== ======= ========
Weighted average shares
outstanding(6).................. 9,831 14,445 15,977 16,321 15,250 16,586
======= ======== ======== ======== ======= ========
OPERATING AND OTHER DATA:
Earnings (loss) before interest,
income taxes, depreciation and
amortization(7)................. $ (984) $ (758) $ (283) $ (4,985) $ (6,390) $ (5,087) $ (533) $ (461)
Capital expenditures(8)........... 3,148 4,959 7,669 35,465 49,342 -- 8,965 8,648
Number of operational systems (at
end of period).................. 3 3 10 26 38 38 28 38
Number of subscribers (at end of
period)......................... 6,100 15,300 31,400 106,500 173,700 173,700 119,100 174,900
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
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ACTUAL AS ADJUSTED(9)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...................................... $ 17,196 $ 37,308
Intangible assets, net................................................................. 173,980 173,858
Total assets........................................................................... 310,624 330,614
Long-term obligations (net of current portion and deferred income taxes)............... 231,159 231,159
Stockholders' equity................................................................... 37,699 57,689
</TABLE>
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(1) Includes the results of operations of the Billings, Denver and South
Bend/Elkhart systems from their respective acquisition dates.
(2) Includes the results of operations of the Bend, FEN/WEN Group (as defined
herein), Oklahoma City, Wichita and Lakeland systems from their respective
acquisition dates.
(3) Includes the results of operations of the Medford, Sheridan, Redding, Las
Vegas and Rapid City systems and FWCTI from their respective acquisition
dates.
(4) Gives effect to the 1995 Units Offering, certain amendments (the "2004
Notes Amendments") to the Company's Senior Discount Notes due 2004 (the
"2004 Notes") which were effected in August 1995, and the acquisitions of
the Medford, Sheridan, Redding, Las Vegas and Rapid City systems and FWCTI,
as if all such events had occurred on January 1, 1995.
(5) Net loss for 1995 and for the three months ended March 31, 1995 reflect the
cumulative effect of the change in accounting for installation costs
effected January 1, 1995 (income, net of income taxes, of $602,000 or $0.04
per share) and the net loss for 1995 also reflects an extraordinary charge
on early retirement of debt recognized during the quarter ended September
30, 1995 (charge of $11.5 million or $0.72 per share). Pro forma net loss
for 1995 excludes the effect of the extraordinary charge.
(6) Net loss per share and weighted average shares outstanding for the years
ended December 31, 1993 and 1994 give effect to the conversion in January
1994 of all outstanding shares of ATI's Series A Convertible Preferred
Stock into 2,014,098 shares of Common Stock as if such event had occurred
as of the beginning of the respective periods.
(7) Earnings (loss) before interest, taxes, depreciation and amortization is a
commonly used measure of performance within the wireless cable industry and
is the basis for many of the Company's financial covenants. However, it
does not purport to represent cash used by operating activities and should
not be considered in isolation or as a substitute for measures of
performance in accordance with generally accepted accounting principles.
(8) Represents purchases of property and equipment. Pro forma information for
capital expenditures is not available.
(9) Adjusted to give effect to the sale of 1,700,000 shares of Common Stock
offered by the Company hereby.
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RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, the following factors should be considered carefully in
evaluating an investment in the shares of Common Stock offered by this
Prospectus.
Cash Flow Required to Service Substantial Indebtedness. The Company is
highly leveraged. As of March 31, 1996, the Company had $266.9 million of
outstanding indebtedness and stockholders' equity of $37.7 million. The
indentures (the "Indentures") relating to the 2004 Notes and the 2005 Notes
(collectively, the "Notes") may permit the Company to incur additional
indebtedness in the future, subject to certain limitations. Subject to the terms
of the Indentures, certain indebtedness of ATI's subsidiaries may be secured by
the assets of ATI and its subsidiaries. The Company has one revolving credit
facility (the "Credit Facility") under which maximum potential borrowings
currently aggregate $8.5 million, although no amounts are currently available
for borrowing under such Credit Facility. As of March 31, 1996, $8.5 million was
outstanding under the Credit Facility. Outstanding borrowings under the Credit
Facility bear interest at the bank's prime rate plus 2.25% (10.50% at March 31,
1996).
Since inception, the Company's cash flow from operations has been
insufficient to cover its fixed charges. There can be no assurance that ATI will
be able to generate sufficient cash flow in the future to cover required
interest and principal payments associated with its outstanding indebtedness.
Commencing December 15, 1999, cash interest on the 2004 Notes will be payable at
the rate of 14.5% per annum (approximately $28.5 million per annum). In
addition, the interest rate on the 2004 Notes will be increased by 1.0% if the
Company does not, by November 10, 1996, issue equity securities or debt
subordinated in right of payment to the 2004 Notes valued at $50.0 million or
more ($26.0 million upon completion of this offering and $22.8 million if the
Underwriters' over-allotment option is exercised). Commencing February 15, 2001,
cash interest on the 2005 Notes will be payable at the rate of 14.5% per annum
(approximately $29.2 million per annum). The full principal amount of the 2004
Notes, which is approximately $196.9 million, will become due on June 15, 2004.
The full principal amount of the 2005 Notes, which is approximately $201.7
million, will become due on August 15, 2005. Many factors, some of which will be
beyond ATI's control, will affect its cash flow from operations and, thereby,
its ability to service its indebtedness. If ATI were to be unable to meet
interest and principal payments on its outstanding indebtedness in the future,
it may, depending upon the circumstances which then exist, find it necessary to
seek additional equity or debt financing, refinance its existing indebtedness or
sell assets to raise funds to repay its indebtedness. Any such actions may
require the approval of existing and future lenders to ATI or its subsidiaries
or be limited by the terms of the instruments relating to their indebtedness,
including the Indentures. There can be no assurance that sufficient equity or
debt financing would be available or, if such financing were available, that it
would be on terms acceptable to ATI. In addition, there can be no assurance that
ATI would be able to refinance its existing indebtedness or that sufficient
funds could be raised through asset sales. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Potential Acceleration of Credit Facility Indebtedness. As of March 31,
1996, the Company was not in compliance with certain covenants of the Credit
Facility relating to its maintenance of specified minimum subscriber numbers,
annualized operating cash flow to pro forma debt service, funded indebtedness to
annualized operating cash flow, funded indebtedness per subscriber, and trailing
fixed charge coverage ratios. The Company has not been able to obtain a waiver
of such violations. As a result, the lender has the ability, at any time, to
exercise its rights and remedies under the Credit Facility, including but not
limited to, acceleration of all amounts outstanding under the Credit Facility.
Accordingly, all amounts outstanding under the Credit Facility have been
classified as a current liability in the Company's Consolidated Financial
Statements. The Company expects that it will continue to be in violation of
these covenants throughout 1996. Acceleration of amounts outstanding under the
Credit Facility would constitute an event of default under the Indentures, which
could, under certain circumstances, provide holders of the Notes the ability to
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exercise their rights and remedies under the Indentures, including but not
limited to, acceleration of all amounts outstanding under the Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Credit Facility is secured by FWCTI's 65% partnership interest in the
Fresno Partnership, and by the assets of the Fresno Partnership, which consist
primarily of wireless cable systems in Fresno, Visalia and Merced, California.
The Company currently has sufficient cash to be able to repay all amounts
outstanding under the Credit Facility ($8.5 million as of March 31, 1996) if
such repayment were to become necessary. The Company does not currently have
sufficient cash to be able to repay all amounts outstanding under the Notes.
Thus, if the Notes were to be accelerated, the Company would be required to seek
additional financing, refinance the Notes, or sell assets to raise funds to
repay the Notes. There can be no assurance that sufficient additional financing
would be available on terms acceptable to the Company, or at all. In addition,
there can be no assurance that the Company would be able to refinance the Notes
or that sufficient funds could be raised through asset sales.
The Company does not expect that it will be able to expand the Fresno,
Visalia and Merced systems without additional bank borrowings. Due to the status
of the Credit Facility, among other factors, there can be no assurance that such
additional borrowings will become available. However, management does not expect
that its inability to expand the Fresno, Visalia and Merced systems will have a
material adverse effect on the financial position and results of operations of
the Company as a whole.
History of Losses and Negative Operating Cash Flow. The Company has
incurred negative cash flow from operations, as well as operating and net
losses, in each year since its inception in 1988. As of March 31, 1996, the
Company had an accumulated deficit of approximately $110.7 million. Losses
incurred since inception are attributable primarily to start-up costs, interest
expense and depreciation of assets required to develop wireless cable systems in
various markets. The Company expects to incur additional operating and net
losses in the foreseeable future, depending upon its rate of growth and future
acquisitions. There can be no assurance that the Company will ever generate
sufficient operating revenues to achieve or sustain positive cash flow from
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Significant Future Capital Needs. The development of wireless cable systems
requires substantial investment on an ongoing basis to finance capital
expenditures and other expenses necessary to achieve subscriber growth.
Following completion of this offering, management expects that the Company will
require at least $17.0 million of additional debt or equity financing before the
end of 1996 to cover ongoing operating losses and to achieve its targeted
subscriber levels in its operating systems and target markets for 1996. Without
additional equity or debt financing during 1996, the Company may be required to
curtail its operations and expansion plans. Additional debt or equity financing
also may be required to fund future acquisitions of wireless cable companies,
wireless cable systems or channel interests, to convert existing systems to
digital operation, and to develop systems in additional markets. As a result of
certain covenants in the Indentures, the Company's additional borrowing capacity
(other than debt which may be issued to a strategic investor that is
subordinated to the Notes) was limited to approximately $1.2 million as of April
30, 1996. Accordingly, the Company's ability to finance ongoing working capital
and system expansion requirements from borrowings under existing or future
credit facilities is currently limited by the terms of the Indentures, and may
also be limited by the current status of the Credit Facility and the Company's
inability to generate sufficient earnings to cover its fixed charges. As a
result, the Company's current financing requirements can be met only through
equity financing or subordinated debt provided by a strategic investor, and not
through other sources of debt financing. See "-- Cash Flow Required to Service
Substantial Indebtedness," "-- Potential Acceleration of Credit Facility
Indebtedness," and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." There can be no
assurance that the Company will be able to obtain additional debt or equity
capital on satisfactory terms, or at all, to
11
<PAGE> 12
meet its future financing needs. The Company's future capital requirements will
depend upon a number of factors, including marketing expenses, staffing levels,
and subscriber growth and turnover, as well as other factors that are not within
the Company's control, such as competitive conditions, programming costs and
capital costs. The lack of available additional capital could have a significant
negative effect on the Company's growth rate and its ability to compete
successfully in the subscription television industry. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Possible Non-Consummation of Strategic Relationships. The Company is
pursuing opportunities to enter into strategic relationships with RBOCs or other
providers of telecommunications services. As of the date of this Prospectus, the
Company has not reached any agreements or understandings with respect to such
relationships, and there can be no assurance that any such agreements or
understandings will ever be reached. If any agreements or understandings are
reached, consummation of such strategic relationships likely will require the
consent of holders of the Notes.
Limited Operating History; Early Stage Company. The Company first began
providing subscription television service in December 1989. Prospective
investors, therefore, have limited historical financial information about the
Company upon which to base an evaluation of the Company's performance and an
investment in the Common Stock. In addition, prospective investors should be
aware of the difficulties encountered by enterprises in early stages of
development, especially in view of the intense competition that is
characteristic of the subscription television industry. Given the Company's
limited operating history, there can be no assurance that it will be able to
develop a sufficiently large subscriber base to achieve or sustain positive cash
flow from operations and to compete successfully in the subscription television
industry.
Prohibition on Subsidiaries Transferring Funds to ATI. The Credit Facility
contains covenants prohibiting certain of ATI's subsidiaries from transferring
funds in the form of cash dividends, loans or advances to ATI. ATI's ability to
use operating cash flow from one system to support development of other systems
and to pay ATI's administrative expenses is limited by such covenants. In
addition, the Indentures prohibit ATI from declaring cash dividends, among other
things. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Competition and New Technologies. The cable television industry is a highly
competitive business. Wireless cable systems typically compete with both
franchise cable companies (locally authorized providers of subscription
television service that use coaxial cable, fiber optic or other continuous
network distribution media to deliver programming) and satellite delivery
systems, although recent regulatory changes and technological developments have
encouraged new competitors, such as telephone companies, to enter the
subscription television business. Many of the Company's existing or potential
competitors have substantially greater name recognition and financial, technical
and human resources than the Company and may be better equipped to develop and
operate systems providing subscription television service. While the Company
believes that its ability to charge lower prices provides a competitive
advantage, aggressive price competition by any existing or new company in the
subscription television industry would have a material adverse effect on the
Company's results of operations and financial condition. Subscription television
providers also compete with conventional television stations and video rental
stores, among others. In addition, within each market, the Company initially
must compete with others to acquire, from the limited number of channel licenses
issued, a minimum number of channels needed to establish a viable system.
New and advanced technologies for the subscription television industry,
such as digital compression, fiber optic networks, direct broadcast satellite
transmission and 28 GHz microwave transmission, are in various stages of
development. These technologies are being developed and supported by entities,
such as franchise cable companies and regional telephone companies, that have
significantly greater financial and other resources than the Company. When
deployed, these new technologies could have a material adverse effect on the
demand for wireless cable service.
12
<PAGE> 13
There can be no assurance that the Company will be able to compete successfully
with existing competitors or new entrants in the market for subscription
television services.
Regulation. The right to broadcast on wireless cable frequencies is heavily
regulated by the FCC. In each metropolitan statistical area, the FCC has
authorized only up to 33 channels for transmission of wireless cable
programming. Up to 13 channels typically can be owned by commercial operators
for full-time usage without programming restrictions. The remaining 20 channels
typically are authorized for educational purposes, although excess capacity can
be leased by wireless cable operators, subject to certain programming
restrictions. Licenses for both commercial and educational channels are granted
based upon applications filed with the FCC. FCC approval also is required for
assignment of existing licenses or transfer of control of license holders.
Recently, the FCC conducted an auction of the rights to apply for and obtain
available MDS licenses in 493 designated BTAs. While the Company was the winning
bidder in 59 BTAs, it did not win the BTA rights in all of its operational or
target markets. To the extent that the Company wishes to obtain new licenses or
certain modifications to its existing licenses in these BTAs, it will be
required to negotiate with the BTA owner for approval of such licenses or
modifications. See "The Company -- Markets." The requirement for approval of new
licenses and certain license modifications by the FCC, as well as the BTA owner
in BTAs not owned by the Company, could delay or impede the Company's ability to
launch new systems and/or expand the capacity of its existing systems. FCC
licenses are limited in duration and subject to renewal procedures. While
current FCC rules are intended to promote development of a competitive cable
television industry, the rules and regulations affecting the cable industry
could change, and any future changes in FCC rules, regulations, policies or
procedures could have a negative impact on the industry as a whole and the
Company in particular.
The Communications Act of 1934 (the "Communications Act") provides that
certain types of FCC licenses shall not be held directly by corporations of
which non-U.S. citizens or entities ("Aliens") own of record or vote more than
20% of the capital stock. In situations in which such an FCC licensee is
directly or indirectly controlled by another corporation, Aliens may own of
record or vote no more than 25% of the controlling corporation's capital stock.
The Company's Restated Certificate of Incorporation requires that all of its
officers and directors be U.S. citizens and empowers the Board of Directors to
redeem the Company's outstanding capital stock to the extent necessary to
prevent the loss or secure the reinstatement of any license or franchise from
any governmental agency if a situation arises whereby more than the permitted
number of outstanding shares of capital stock of the Company are owned or voted
by Aliens. Moreover, the Restated Certificate of Incorporation provides that, in
such a situation, no transfers of shares may be made to Aliens and the shares
which caused the Company to exceed the statutory limit may neither be voted,
receive dividends nor be entitled to any other rights, until transferred to U.S.
citizens.
On February 8, 1996, the 1996 Act became law. Among other things, the 1996
Act eliminates the cable/telephone cross-ownership restriction, allowing a
telephone company the option of providing video programming within its telephone
service area over a cable system or other video delivery system. Conversely,
cable companies are now permitted to provide telephone services. The 1996 Act
also limits and, in some cases, eliminates FCC regulation of cable rates
established by the Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Cable Act"), depending upon the size of the cable system and
whether the system is subject to effective competition and the nature of the
rate. The 1996 Act also provides cable operators with greater flexibility to
offer lower rates to certain of their customers and, consequently, the ability
to provide discounts to subscribers served, or potentially served, by the
Company. The 1996 Act vests the FCC with exclusive jurisdiction over the
provision of DBS service and preempts the authority of local authorities to
impose certain taxes on such service. Because the FCC has not yet promulgated
rules implementing many of the provisions of the 1996 Act, management is unable
to predict at this time the impact of the 1996 Act on the Company in particular
or the wireless cable industry as a whole. See "Industry -- Legislation."
13
<PAGE> 14
Wireless cable operators are subject to regulation by the Federal Aviation
Administration with respect to construction of transmission towers and to
certain local zoning regulations affecting construction of towers and other
facilities. There also may be restrictions imposed by local authorities,
neighborhood associations and other similar organizations limiting the use of
certain types of reception equipment used by the Company.
Legislation has recently been introduced in several states that would
authorize state and local authorities to impose taxes on providers of video
programming, including wireless cable operators, based upon their gross
receipts. Because the nature of any such legislation if enacted, is unknown, the
Company cannot predict what impact such legislation would have upon its results
of operations and financial condition.
Future changes in the foregoing regulations, or any other regulations
applicable to the Company, could have a material adverse effect on the Company's
results of operations and financial condition.
Dependence Upon Program Material and Channel Lease Agreements. The Company
has fixed-term contracts with various program suppliers, such as ESPN, HBO and
Showtime. These contracts generally cover a period of two years and are
typically renewable upon expiration. Although the Company has no reason to
believe that these contracts will be terminated or will not be renewed upon
expiration, if the contracts are not renewed for any reason, the Company will be
required to seek program material from other sources. While recent legislation
requires that vertically integrated multiple cable system operators sell
programming to their competitors on fair and reasonable terms, that legislation
is the subject of various legal challenges. If the legislation were to be found
unconstitutional or were superseded by legislation adopting less restrictive
requirements for programmers, programmers might raise their prices or make their
programs unavailable to the Company.
The Company is also dependent on long-term leases with third parties for
the majority of its wireless cable channels. Under FCC rules, the term of
certain of the leases cannot exceed the term of the license granted by the FCC
to the lessor (typically ten years). While many of the Company's leases provide
for automatic renewals, or require the parties to negotiate renewals in good
faith upon expiration, there can be no assurance that these leases will be
renewed or extended beyond their current terms or on terms satisfactory to the
Company. Similarly, the failure by these lessors to comply with the terms of
their FCC authorizations or the FCC's rules could result in the termination or
forfeiture of their authorizations or denial of their renewal by the FCC. Such
terminations, forfeitures or denials of renewal by the FCC or failure to obtain
renewal of channel lease agreements would result in the Company's having to
reduce the amount of programming it offers.
Difficulties and Uncertainties of a New Industry. While wireless cable
television is not a new technology, it is a new industry with a short operating
history. Potential investors should be aware of the difficulties and
uncertainties that are normally associated with new industries, such as lack of
consumer acceptance, difficulty in obtaining financing, increasing competition,
advances in technology and changes in laws and regulations. There can be no
assurance that the wireless cable industry will develop and survive as a viable
industry.
Management of Growth. The Company has experienced rapid growth in its
number of employees, the scope of its operating and financial systems, and the
geographic area of its operations. This growth has increased the operating
complexity of the Company, and has increased the level of responsibility for
both existing and new management personnel. In managing this growth, the Company
will be required to continue to improve its operating and financial systems and
to expand, train and manage its employee base. There can be no assurance that
the Company will be able to improve its operating and financial systems to keep
pace with its expected growth or to attract and retain a sufficient number of
qualified employees to meet the Company's needs during its growth.
14
<PAGE> 15
Physical Limitations of Wireless Cable Transmission. In order to be
effective, wireless cable transmission requires a clear "line-of-sight" between
the microwave transmitter located on the operator's transmission antenna and the
antenna located on a subscriber's home or building. A portion of the homes
within a wireless cable operator's broadcast signal area may be unable to
receive wireless cable service due to signal obstructions such as hills, tall
buildings and dense foliage. Certain of these signal blockages can be
ameliorated by increasing transmission power and using engineering techniques
such as pre-amplifiers, beam benders and signal repeaters, which increase the
cost per subscriber. Franchise cable operators do not have line-of-sight
concerns and, therefore, may have a competitive advantage over wireless cable
operators in those areas where the reception of wireless cable signals is
difficult or impractical.
Minority Interests in Certain Subsidiaries. ATI is a holding company that
conducts most, and may in the future conduct all, of its business through its
subsidiaries. ATI's subsidiaries include non-operating subsidiaries that hold
channel interests, subsidiaries that operate systems, and subsidiaries that do
both. Certain of ATI's subsidiaries are not wholly-owned. Although ATI has a
sufficient interest in each of its subsidiaries to be able to exercise control
over them, ATI may owe a fiduciary duty to the holders of various minority
interests in its subsidiaries, and may be required to deal with such
subsidiaries on terms no less favorable to such subsidiaries than could be
obtained from unaffiliated third parties.
Control by Existing Stockholder. As of February 14, 1996, Donald R.
DePriest, Chairman of the Board of the Company, controlled directly or
indirectly 29.6% of the total outstanding Common Stock (including the 14.0%
which was held of record by MCT Investors, L.P.). Following completion of this
offering, Mr. DePriest will control, directly or indirectly, 26.8% of the total
outstanding Common Stock (26.5% if the Underwriters' over-allotment option is
exercised in full). Thus, Mr. DePriest will continue to hold a substantial
ownership interest in ATI and may be in a position to significantly influence
the election of ATI's directors and otherwise control the business and affairs
of the Company.
Anti-Takeover Provisions. ATI's Restated Certificate of Incorporation, the
Delaware General Corporation Law, the Indentures and the Credit Facility contain
provisions that might diminish the likelihood that a potential acquiror would
make an offer for the Common Stock, impede a transaction favorable to the
interests of stockholders or make it difficult to effect a change in control of
ATI and replace incumbent management. The existence of these provisions may have
a negative effect on the market price of the Common Stock. See "Description of
Capital Stock -- Certain Charter Provisions and Delaware Law."
Possible Volatility of Price of the Common Stock. The market price of the
Common Stock has been, and may continue to be, subject to wide fluctuations in
response to quarterly variations in the Company's results of operations, changes
in estimates by analysts, conditions in the wireless cable industry or general
market or economic conditions. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. These fluctuations have had a
substantial effect on the market prices for many emerging growth companies and
are often unrelated to the operating performance of the specific companies. Such
market fluctuations could adversely affect the price of the Common Stock.
Dilution. At March 31, 1996, the deficit in net tangible book value per
share of the Common Stock was $8.18. After giving effect to the sale by the
Company of 1,700,000 shares offered hereby, the deficit in net tangible book
value per share as of March 31, 1996, as adjusted, would have been $6.33.
Accordingly, purchasers of the Common Stock offered hereby will experience
immediate dilution in net tangible book value of $18.96 per share. See
"Dilution."
15
<PAGE> 16
Shares Eligible for Future Sale. The sale, or availability for sale, of
substantial amounts of Common Stock in the public market in connection with or
subsequent to this offering could adversely affect the prevailing market price
of the Common Stock and could impair the Company's ability to raise additional
capital through the sale of its securities. As of April 15, 1996, 16,662,114
shares of Common Stock were outstanding. Of such 16,662,114 shares, 6,209,996
shares (including 640,019 shares that are subject to the Shelf Registration
Statement) are freely tradeable by persons other than affiliates of the Company
without restriction or further registration under the Securities Act. The
remainder of the outstanding shares of Common Stock (other than certain shares
issued in connection with the Company's employee benefit plans) are currently
considered "restricted" or "control" securities within the meaning of Rule 144
under the Securities Act, and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including the exemption contained in Rule 144. The 1,700,000 shares of Common
Stock offered hereby will be freely tradeable without restriction under the
Securities Act. In addition, as of April 15, 1996, there were outstanding
options and warrants to purchase 2,599,840 shares. Of such options and warrants,
options and warrants to purchase 1,281,884 shares of Common Stock currently are
exercisable and, assuming exercise of those options and warrants, 63,284 shares
would be restricted or control securities. The Company, its officers, directors
and certain stockholders are subject to agreements that restrict the sale of
their shares for a period of 90 days from the date of this Prospectus without
the prior written consent of Alex. Brown & Sons Incorporated. Holders of 61,284
options and warrants and holders of 9,648,873 shares of restricted and control
Common Stock (excluding shares offered by the Selling Shareholders pursuant to
the Shelf Registration Statement) have been granted registration rights with
respect to such Common Stock or the Common Stock issuable upon the exercise of
such options and warrants. See "Description of Capital Stock -- Shares Eligible
for Future Sale; Registration Rights."
Reliance on Existing Management Team. The Company is dependent upon the
efforts and abilities of its existing management team. The loss of one or more
members of the Company's management team at any one time could have a material
adverse effect upon the Company. The Company currently has employment agreements
with Robert D. Hostetler, its President and Chief Executive Officer, and David
K. Sentman, its Senior Vice President and Chief Financial Officer. The Company
does not maintain any key man life insurance with respect to any of its
executive officers or key employees. The Company's success in expanding its
operations will depend upon its ability to attract and retain qualified
employees to develop and operate its wireless cable systems.
Dividend Policy. ATI has never declared or paid any cash dividends on the
Common Stock and does not expect to declare any such dividends in the
foreseeable future. Payment of any future dividends will depend upon earnings
and capital requirements of the Company, the Company's debt facilities and other
factors the Board of Directors considers appropriate. ATI currently intends to
retain earnings, if any, to support continuing growth and expansion. ATI's
ability to declare cash dividends on the Common Stock is affected by certain
covenants in the Indentures. The ability of ATI's subsidiaries to declare
dividends and transfer funds in the form of cash dividends, loans or advances to
ATI is restricted by the Credit Facility. See "Dividend Policy."
16
<PAGE> 17
USE OF PROCEEDS
The net proceeds of the offering are estimated to be $20.0 million ($23.0
million if the Underwriters' over-allotment option is exercised in full) after
deducting underwriting discounts and commissions and estimated expenses of the
offering. Of the net proceeds, the Company expects to use (i) approximately $8.0
million to fund payments to the FCC in connection with the recent BTA auctions
(see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources") and (ii) approximately $5.2
million in connection with the Pending Acquisition, assuming that such
acquisition is consummated. The remainder of the net proceeds are expected to be
used to finance additional construction and operation of wireless cable systems
and for working capital. In the event that the Pending Acquisition is not
completed, the proceeds thereby made available are expected to be used to
finance possible future acquisitions of wireless cable systems or channel
interests and for working capital. Pending such uses, the Company intends to
invest the net proceeds in short-term investment grade interest-bearing
securities. Except for the Pending Acquisition, as of the date of this
Prospectus, the Company has no written agreements, arrangements or
understandings to acquire any material wireless cable businesses or assets,
although the Company continuously pursues opportunities to acquire businesses
and channel rights that are consistent with the Company's business plan. See
"The Company -- Acquisitions."
PRICE RANGE OF COMMON STOCK
The Common Stock began trading on the Nasdaq National Market on December
10, 1993 under the symbol "ATEL." The following table sets forth the high and
low closing sale prices of the Common Stock for the periods indicated, as
reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994
First Quarter............................................................... $27 $18
Second Quarter.............................................................. 24 1/2 16 1/4
Third Quarter............................................................... 16 1/4 12 1/4
Fourth Quarter.............................................................. 15 9 3/4
1995
First Quarter............................................................... $17 3/4 $ 9 1/4
Second Quarter.............................................................. 16 1/2 11 3/4
Third Quarter............................................................... 13 3/4 9 1/2
Fourth Quarter.............................................................. 15 12
1996
First Quarter............................................................... $17 $13 3/4
Second Quarter (through May 20, 1996)....................................... 16 13
</TABLE>
17
<PAGE> 18
DIVIDEND POLICY
ATI has never declared or paid any cash dividends on the Common Stock and
does not expect to declare any such dividends in the foreseeable future. Payment
of any future dividends will depend upon earnings and capital requirements of
the Company, the Company's debt facilities and other factors the Board of
Directors considers appropriate. ATI currently intends to retain earnings, if
any, to support continuing growth and expansion. ATI's ability to declare cash
dividends on the Common Stock is affected by certain covenants in the
Indentures. The ability of ATI's subsidiaries to declare dividends and transfer
funds in the form of cash dividends, loans or advances to ATI is restricted by
the Credit Facility.
DILUTION
The deficit in net tangible book value of the Common Stock at March 31,
1996, was $136.3 million or $8.18 per share. The deficit in net book value per
share represents the amount of total tangible assets of the Company reduced by
the amount of total liabilities and divided by the number of shares of Common
Stock outstanding. After giving effect to the sale of the Common Stock offered
hereby, the adjusted pro forma deficit in net tangible book value of the Company
as of March 31, 1996 would have been approximately $116.2 million or $6.33 per
share (representing an immediate increase in net tangible book value to the
existing stockholders of $1.85 per share). This would result in an immediate
dilution in the net tangible book value of $18.96 per share to purchasers of the
Common Stock offered hereby. Dilution in net tangible book value represents the
difference between the price per share paid by purchasers of Common Stock in
this offering and the pro forma deficit in net tangible book value as of March
31, 1996.
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<PAGE> 19
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of March 31, 1996 and (ii) the capitalization of the Company as of March 31,
1996, as adjusted to give effect to the sale of 1,700,000 shares of Common Stock
offered hereby. This table should be read in conjunction with the Company's
Consolidated Financial Statements incorporated by reference herein.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
Cash and cash equivalents............................................ $ 17,196 $ 37,308
========= =========
Current portion of long-term obligations............................. $ 10,714 $ 10,714
========= =========
Debt, capital lease and other long-term obligations (excluding
current portion):
2004 Notes......................................................... $ 121,302 $ 121,302
2005 Notes......................................................... 104,084 104,084
Notes payable...................................................... 4,424 4,424
Capital lease obligations.......................................... 1,349 1,349
--------- ---------
Total long-term obligations, net of current portion........ 231,159 231,159
Stockholders' equity:
Preferred Stock, par value $.01 per share; 3,000,000 shares
authorized; no shares issued and outstanding.................... -- --
Class A Common Stock, par value $.01 per share; 30,000,000 shares
authorized; 16,662,114 shares outstanding; and 18,362,114 shares
outstanding, as adjusted(1)..................................... 167 184
Class B Common Stock, par value $.01 per share; 10,000,000 shares
authorized; no shares issued and outstanding.................... -- --
Additional paid-in capital......................................... 138,073 158,046
Warrants outstanding(2)............................................ 10,130 10,130
Accumulated deficit................................................ (110,671) (110,671)
--------- ---------
Total stockholders' equity................................. 37,699 57,689
--------- ---------
Total capitalization............................. $ 268,858 $ 288,848
========= =========
</TABLE>
- ---------------
(1) Does not include (i) options to purchase 1,525,000 shares of Common Stock
reserved under an employee stock option plan pursuant to which options to
purchase 679,600 shares of Common Stock were outstanding as of April 15,
1996 with a weighted average exercise price of $9.43 per share or (ii)
outstanding warrants to purchase 1,920,240 shares of Common Stock with a
weighted average price of $12.40 per share. See "Description of Capital
Stock."
(2) Reflects the $5.5 million ascribed to the warrants issued in connection
with the 2005 Notes and the $4.6 million ascribed to the warrants related
to the 2004 Notes.
19
<PAGE> 20
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE, SYSTEM AND SUBSCRIBER DATA)
The selected consolidated financial data as of and for each period in the
five-year period ended December 31, 1995 have been derived from, and are
qualified by reference to, the Company's Consolidated Financial Statements which
have been audited by Arthur Andersen LLP, independent public accountants. These
data should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes thereto for each of the three years in the period
ended December 31, 1995 incorporated by reference herein, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The selected consolidated financial data
with respect to the three months ended March 31, 1995 and 1996 are unaudited;
however, in the opinion of management, such data reflect all adjustments
(consisting only of normal recurring adjustments) necessary to fairly present
the data for such interim periods. Operating results for interim periods are not
necessarily indicative of the results that may be expected for a full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- -------------------
1991 1992 1993(1) 1994(2) 1995(3) 1995 1996
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenues............................... $ 883 $ 3,534 $ 7,178 $ 21,629 $ 47,501 $ 9,444 $ 15,423
Costs and expenses:
Operating expenses......................... 703 2,563 4,524 12,712 25,063 4,753 8,574
Marketing, general and administrative
expenses................................. 1,164 1,729 2,937 13,902 28,828 5,224 7,310
Depreciation and amortization.............. 355 1,158 2,563 12,032 29,276 5,613 9,958
------- ------- -------- -------- -------- -------- --------
Loss before interest and taxes............... (1,339) (1,916) (2,846) (17,017) (35,666) (6,146) (10,419)
Interest expense and other, net.............. (95) (258) (1,665) (7,271) (22,300) (3,630) (8,435)
------- ------- -------- -------- -------- -------- --------
Loss before income tax
benefit.................................... $(1,434) $(2,174) $ (4,511) $(24,288) $(57,966) $ (9,776) $(18,854)
======= ======= ======== ======== ======== ======== ========
Net loss(4).................................. $(1,434) $(2,174) $ (4,511) $(15,478) $(66,635) $ (7,109) $(18,749)
======= ======= ======== ======== ======== ======== ========
Net loss per share(5)........................ $ (0.46) $ (1.07) $ (4.17) $ (0.47) $ (1.13)
======== ======== ======== ======== ========
Weighted average shares outstanding(5)....... 9,831 14,445 15,977 15,250 16,586
======== ======== ======== ======== ========
OPERATING AND OTHER DATA:
Earnings (loss) before interest, income
taxes, depreciation and amortization(6).... $ (984) $ (758) $ (283) $ (4,985) $ (6,390) $ (533) $ (461)
Number of operational systems (at end of
period).................................... 3 3 10 26 38 28 38
Number of subscribers (at end of period)..... 6,100 15,300 31,400 106,500 173,700 119,100 174,900
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................ $ 949 $ 81 $ 36,377 $ 33,331 $ 32,514 $ 25,439 $ 17,196
Intangible assets, net....................... 1,074 1,678 46,273 118,397 166,194 123,481 173,980
Total assets................................. 7,029 11,275 101,653 226,920 317,049 231,814 310,624
Long-term obligations (net of current portion
and deferred income taxes)................. 1,609 3,871 11,641 117,761 225,512 127,771 231,159
Stockholders' equity......................... 4,172 2,903 79,056 93,843 53,736 86,806 37,699
</TABLE>
- ---------------
(1) Includes the results of operations of the Billings, Denver and South
Bend/Elkhart systems from their respective acquisition dates.
(2) Includes the results of operations of the Bend, FEN/WEN Group, Oklahoma
City, Wichita and Lakeland systems from their respective acquisition dates.
(3) Includes the results of operations of the Medford, Sheridan, Redding, Las
Vegas and Rapid City systems and FWCTI from their respective acquisition
dates.
(4) Net loss for 1995 and for the three months ended March 31, 1995 reflect the
cumulative effect of the change in accounting for installation costs
effected January 1, 1995 (income, net of income taxes, of $602,000 or $0.04
per share) and the net loss for 1995 also reflects an extraordinary charge
on early retirement of debt recognized during the quarter ended September
30, 1995 (charge of $11.5 million or $0.72 per share).
(5) Net loss per share and weighted average shares outstanding for the years
ended December 31, 1993 and 1994 give effect to the conversion in January
1994 of all outstanding shares of ATI's Series A Convertible Preferred Stock
into 2,014,098 shares of Common Stock as if such event had occurred as of
the beginning of the respective periods.
(6) Earnings (loss) before interest, taxes, depreciation and amortization is a
commonly used measure of performance within the wireless cable industry and
is the basis for many of the Company's financial covenants. However, it does
not purport to represent cash used by operating activities and should not be
considered in isolation or as a substitute for measures of performance in
accordance with generally accepted accounting principles.
20
<PAGE> 21
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1995 gives effect to: (i) the 1995
acquisitions of the Medford, Sheridan, Redding, Las Vegas and Rapid City systems
(the "1995 Acquisitions") and FWCTI; (ii) the 2004 Notes Amendments made in
conjunction with the 1995 Units Offering; and (iii) the 1995 Units Offering, as
if each had occurred on January 1, 1995.
Each of the acquisitions described above has been accounted for by the
purchase method. In each case, the purchase price has been allocated on a
preliminary basis to the assets acquired based on the estimated fair values of
such assets. The purchased assets consist primarily of property and equipment
and various wireless cable channel license rights.
This information should be read in conjunction with the notes included
herewith and the Company's Consolidated Financial Statements and the Fresno
Wireless Cable Television, Inc. and Subsidiary Consolidated Financial Statements
incorporated by reference herein. The unaudited pro forma condensed combined
financial statements do not purport to represent what the Company's results of
operations would have been had such transactions and events occurred on the date
specified, or to project the Company's results of operations or financial
position for any future period or date. The pro forma adjustments are based upon
available information and certain adjustments that management believes are
reasonable. In the opinion of management, all adjustments have been made that
are necessary to present fairly the pro forma data.
21
<PAGE> 22
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL FOR THE YEAR ENDED
DECEMBER 31, 1995
-------------------------------------
1995 PRO FORMA PRO FORMA,
ATI ACQUISITIONS(A) FWCTI(B) ADJUSTMENTS AS ADJUSTED
-------- --------------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues....................... $ 47,501 $ 3,026 $2,452 $ -- $ 52,979
Costs and expenses:
Operating.................... 25,063 1,326 1,004 -- 27,393
Marketing and general and
administrative............ 28,828 1,296 549 -- 30,673
Depreciation and
amortization.............. 29,276 1,103 840 810(C) 32,029
-------- ------- ------ --------- ---------
Total costs and
expenses........... 83,167 3,725 2,393 810 90,095
-------- ------- ------ --------- ---------
Income (loss) from
operations................... (35,666) (699) 59 (810) (37,116)
Interest and other expenses,
net.......................... (22,300) (188) (247) (7,287)(D) (30,022)
-------- ------- ------ --------- ---------
Loss before taxes.............. (57,966) (887) (188) (8,097) (67,138)
Income tax benefit............. 2,270 -- -- -- 2,270
-------- ------- ------ --------- ---------
Net loss before extraordinary
charge and cumulative effect
of accounting change......... (55,696) (887) (188) (8,097) (64,868)
Extraordinary charge on early
retirement of debt........... (11,541) -- -- 11,541(E) --
Cumulative effect of accounting
change....................... 602 -- -- -- 602
-------- ------- ------ --------- ---------
Net loss....................... $(66,635) $ (887) $ (188) $ 3,444 $ (64,266)
======== ======= ====== ========= =========
Net loss per share............. $ (4.17) $ (3.94)
======== =========
Shares used in computing net
loss per share............... 15,977 16,321(F)
======== =========
</TABLE>
- ---------------
(A) Reflects the results of operations of the Medford system (acquired in
January 1995), the Sheridan system (acquired in March 1995), the Redding
system (acquired in July 1995), the Las Vegas system (acquired in September
1995), and the Rapid City system (acquired in November 1995), until their
respective acquisition dates.
(B) Reflects the results of operations of FWCTI (acquired in May 1995) until
its acquisition date.
(C) Reflects incremental depreciation and amortization of approximately
$358,000 related to the 1995 Acquisitions and $452,000 related to the FWCTI
Acquisition.
(D) Reflects additional interest expense on the 2005 Notes issued in the 1995
Units Offering and on the 2004 Notes as a result of the 2004 Notes
Amendments, amortization of related debt financing costs, and amortization
of debt discount ascribed to the warrants issued in conjunction with the
2004 Notes (the "1994 Warrants") and the 1995 Warrants, net of interest
income on net proceeds (at 4.0%), less historical interest expense
associated with the Company's credit facilities repaid with a portion of
the proceeds of the 1995 Units Offering; additional interest expense of
$123,000 associated with indebtedness incurred in the 1995 Acquisitions and
$256,000 associated with the FWCTI Acquisition; less an aggregate of
$22,000 relating to management fees incurred by the Medford, Sheridan and
Redding systems.
(E) Reflects the elimination of the extraordinary charge incurred by the
Company in connection with the 2005 Notes issued in the 1995 Units
Offering. The Company recognized an $11.5 million extraordinary charge to
write-off unamortized deferred financing costs associated with the 2004
Notes (approximately $4.2 million) and the Company's Eastern and Upper
Midwest Facilities (aggregate of approximately $2.2 million), as well as
unamortized debt discount for amounts ascribed to the 1994 Warrants
(approximately $5.1 million).
(F) Includes the effect of shares of Common Stock issued in the FWCTI
Acquisition as if it had occurred as of the beginning of the period.
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All statements contained herein that are not historical facts, including
but not limited to, statements regarding anticipated future capital
requirements, the Company's future development plans, the Company's ability to
obtain additional debt, equity or other financing, and the Company's ability to
generate cash from system operations or sales of assets, are based on current
expectations. These statements are forward looking in nature and involve a
number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause actual results to differ materially are the
following: the availability of sufficient capital to finance the Company's
business plan on terms satisfactory to the Company; competitive factors, such as
the introduction of new technologies and competitors into the subscription
television business; pricing pressures which could affect demand for the
Company's service; changes in labor, equipment and capital costs; future
acquisitions or strategic partnerships; general business and economic
conditions; and the other risk factors described herein and in the Company's
reports filed from time to time with the Commission. The Company wishes to
caution readers not to place undue reliance on any such forward looking
statements, which statements are made pursuant to the Private Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
OVERVIEW
The Company was formed in 1988 to develop wireless cable systems and, as of
March 31, 1996, operated 38 such systems. The Company also holds significant
channel rights in 18 other markets where it expects to construct and operate
wireless cable systems in the future, assuming, among other factors, the
availability of financing as discussed herein.
The Company's systems have begun operating with as few as 14 channels
(including local off-air channels) and have subsequently expanded over time to
their current channel offerings. For future system launches, the Company expects
to have a minimum of approximately 20 wireless cable channels available for
transmission prior to commencement of operations. The Company expects to
continue to expand its channel offerings in many of its markets as additional
channels become available.
The Company's systems generate negative operating cash flow until the
subscriber base becomes sufficiently large for incremental revenues, net of
incremental costs, to offset fixed costs, other than depreciation and other
non-cash expenses. For operational systems, certain costs, such as programming
costs, generally increase in proportion to the number of subscribers, while
other costs, such as tower rental and related maintenance costs, remain constant
or increase at proportionately lower levels. Accordingly, systems with larger
subscriber bases generally produce larger operating margins. For the year ended
December 31, 1995, 21 of the Company's 38 systems that were operational during
such period generated positive operating cash flow. For the three months ended
March 31, 1996, 28 of the Company's 38 systems that were operational during such
period generated positive operating cash flow. When marketing expenses (which
are expensed in the period incurred) are excluded, 27 of the Company's 38
systems that were operational during the year ended December 31, 1995 generated
positive operating cash flow for such period. For the three months ended March
31, 1996, 31 of the Company's 38 systems that were operational during such
period generated positive operating cash flow when marketing expenses are
excluded.
As the Company continues to develop systems, the operating cash flow from
systems with positive results is expected to be partially or completely offset
by operating losses from systems with negative results and from development
costs associated with establishing systems in new markets, until such time as
the Company has a sufficiently large subscriber base to absorb operating and
development costs. Historically, the Company has generated operating and net
losses and can be expected to do so for at least the foreseeable future as it
continues to develop additional operating systems. Such losses may increase as
operations in additional systems are commenced or acquired.
23
<PAGE> 24
There can be no assurance that the Company will be able to achieve or sustain
net income in the future. Operating cash flow is a commonly used measure of
performance in the wireless cable industry and is the basis for many of the
Company's financial covenants. However, operating cash flow does not purport to
represent cash used by operating activities and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with generally accepted accounting principles.
The Company leases the channels used to transmit its programming from FCC
license holders. Typically, these leases provide for payments based upon the
number of subscribers, subject in many cases to certain minimums, as more fully
discussed in the Notes to the Company's Consolidated Financial Statements
incorporated by reference herein. Total channel lease payments approximated 4%
of total revenues during each of the year ended December 31, 1995 and the three
months ended March 31, 1996. Total programming expenses approximated 30% of
total revenues during these same periods. Such expenses vary from system to
system depending upon the number of channels offered and pay channel
penetration. Marketing costs are expensed in the period incurred. As a result,
operating results in any period are negatively affected by expenditures for
marketing and promotion. Since the Company's monthly services are billed in
advance, accounts receivable are relatively small.
Effective January 1, 1995, the Company capitalizes all installation costs
(labor, subcontractor costs and supplies). This change in accounting method was
effected to better match installation costs with related subscriber service
revenues. Such capitalized installation costs are amortized over three years.
Subscriber equipment is depreciated over seven years and headend equipment is
generally depreciated over ten years. Equipment purchased and awaiting
installation into subscriber premises is classified as part of property and
equipment in the Company's Consolidated Financial Statements.
During 1996, the Company intends to focus on managing its existing systems
through more efficient and cost-effective methods, planning for the
implementation of a digital technology strategy in select markets, and
developing strategic alliances. During the remainder of this year, the Company
intends to continue the growth and launch of certain of its analog wireless
cable systems that management believes can achieve stable customer bases with a
favorable balance of customer growth, subscriber capital investment, and
expenses. Other systems operated by the Company will not be managed for customer
growth, but rather for optimal cash flow from existing customers. In these
systems, the Company intends to focus its marketing efforts on new commercial
and multiple dwelling unit customers.
Management believes that period-to-period comparisons of the Company's
financial results to date are not necessarily meaningful and should not be
relied upon as an indication of future performance due to the Company's
historically high growth rate and the number of system launches and acquisitions
during the periods presented.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995
Service revenues increased $5.9 million, or 64.2%, during the three months
ended March 31, 1996 to $15.1 million, as compared to $9.2 million during the
same period of 1995. This increase resulted primarily from the addition of new
subscribers. Subscriber increases resulted primarily from the 1995 acquisitions
of the Medford, Sheridan, Fresno, Visalia, Merced, Redding, Las Vegas and Rapid
City systems and the completion of construction and commencement of operation of
systems in Ft. Collins, Greeley, Yuba City, and Lincoln. Service price increases
contributed only a small portion of the aggregate increase in service revenues.
The number of subscribers to the Company's wireless cable systems increased to
174,900 at March 31, 1996 compared to 173,700 at December 31, 1995 (119,100 and
106,500 at March 31, 1995 and December 31, 1994, respectively).
On a "same system" basis (comparing systems that were operational for all
of each of the three-month periods ended March 31, 1995 and 1996), service
revenues increased $2.7 million, or 29.3%,
24
<PAGE> 25
to $11.8 million, as compared to $9.1 million for the three-month period ended
March 31, 1995. Same systems during this period totaled 26 systems (i.e., all of
the Company's systems except those 12 systems listed above which were either
acquired or launched during 1995). The average number of subscribers in these
systems increased approximately 26.8% during the three months ended March 31,
1996, as compared to the same period of 1995.
Installation revenues for the three months ended March 31, 1996 totaled
$368,000, compared to $275,000 during the same period of 1995. The increase in
installation revenues of $93,000, or 33.8%, was primarily the net result of more
subscriber installations. Installation rates vary widely by system based upon
competitive conditions. The Company occasionally reduces installation charges as
part of selected promotional campaigns.
Operating expenses, principally programming, site costs and other direct
expenses, aggregated $8.6 million (or 55.6% of total revenues) during the three
months ended March 31, 1996, compared to $4.8 million (or 50.3% of total
revenues) during the same period of 1995. The increase of $3.8 million was
primarily the result of additional systems and subscribers as well as increased
programming costs for additions to channel line-ups and increased pay-per-view
offerings in various systems.
Marketing and selling expenses totaled $2.3 million (or 14.9% of total
revenues) during the three months ended March 31, 1996, compared to $1.7 million
(or 17.9% of total revenues) during the same period of 1995. The increase in
such expenses of $613,000 resulted from the addition of new systems. During the
three-month period ended March 31, 1996, general and administrative expenses
totaled $5.0 million (or 32.5% of total revenues), a $1.5 million increase over
the same period of 1995 ($3.5 million or 37.5% of total revenues). This increase
also resulted from the addition of new systems.
The Company's loss from operations was $10.4 million during the three-month
period ended March 31, 1996 compared to $6.1 million during the same period of
1995. The increase in the loss from operations of $4.3 million resulted
primarily from increased depreciation and amortization expense. Depreciation and
amortization expense (principally depreciation of property and equipment and
amortization of deferred license and leased license acquisition costs, goodwill
and covenants not-to-compete) increased $4.3 million due to increases in
deferred license costs, goodwill and subscriber equipment resulting from the
acquisition and addition of new systems and the addition of equipment installed
in new subscribers' homes.
Interest expense increased $4.8 million during the quarter ended March 31,
1996 to $8.8 million, as compared to $4.0 million during the same period of
1995. The increase in interest expense primarily resulted from noncash interest
charges associated with the 2005 Notes issued in connection with the 1995 Units
Offering and the 2004 Notes issued in connection with the Company's June 1994
units offering (the "1994 Units Offering"). Interest expense associated with the
2004 Notes also increased due to the increase in the related interest rate from
12.5% to 14.5%, as described below in "Liquidity and Capital Resources." The
loss before interest, taxes, depreciation and amortization totaled $461,000 for
the three months ended March 31, 1996, as compared to $533,000 during the same
period of 1995.
Fiscal Year 1995 Compared to Fiscal Year 1994
Service revenues increased $25.5 million, or 122.5%, during the year ended
December 31, 1995 to $46.2 million, as compared to $20.7 million during the
prior year. This increase resulted primarily from the addition of new
subscribers. Subscriber increases resulted not only from the 1994 acquisitions
of the Bend, FEN/WEN Group, Oklahoma City, Wichita and Lakeland systems, the
1995 acquisitions of the Medford, Sheridan, Fresno, Visalia, Merced, Redding,
Las Vegas and Rapid City systems, and the completion of construction and
commencement of operation of systems in Columbus, Youngstown, Jacksonville,
Lansing and Monterey during 1994 and Ft. Collins, Greeley, Yuba City, and
Lincoln during 1995, but also from increased marketing and promotional efforts
in all
25
<PAGE> 26
markets. Service price increases contributed only a small portion of the
aggregate increase in service revenues. The number of subscribers to the
Company's wireless cable systems increased to approximately 173,700 at December
31, 1995 compared to approximately 106,500 at December 31, 1994.
On a "same system" basis (comparing systems that were operational for all
of each of the years ended December 31, 1994 and 1995), service revenues
increased $8.0 million, or 57.5%, to $21.9 million for the year ended December
31, 1995, as compared to $13.9 million for the year ended December 31, 1994.
This increase resulted primarily from the addition of new subscribers. Same
systems during this period consisted of the Company's Colorado Springs, Orlando,
Ft. Myers, Billings, Toledo, Daytona Beach, Michiana, Denver, Little Rock and
Louisville systems. The number of subscribers in these systems increased
approximately 40.7% during the year ended December 31, 1995.
Installation revenues for the year ended December 31, 1995 totaled $1.3
million, compared to $871,000 during 1994. The increase in installation revenues
of $441,000, or 50.6%, was primarily the net result of more subscriber
installations in each system, less the effect of lower per-subscriber
installation charges in certain systems. Installation rates vary widely by
system based on competitive conditions.
Operating expenses (principally programming, site costs and other direct
expenses) aggregated $25.1 million (or 52.8% of total revenues) during the year
ended December 31, 1995, as compared to $12.7 million (or 58.8% of total
revenues) during the prior year. The increase of $12.4 million was primarily the
result of additional systems and subscribers as well as increased programming
costs from additions to channel line-ups in various systems. Beginning in 1995,
the Company capitalizes all subscriber installation costs. Previously, the
Company expensed an amount equal to installation revenues and capitalized
installation costs in excess of installation revenues. This change in accounting
method was effected to better match installation costs with related subscriber
service revenues. Operating expenses for the year ended December 31, 1994
include installation costs which were expensed of approximately $871,000.
Marketing and selling expenses totaled $9.6 million (or 20.3% of total
revenues) during the year ended December 31, 1995, compared to $4.5 million (or
20.7% of total revenues) during 1994. The increase in such expenses of $5.1
million resulted primarily from the addition of new systems, intensified sales
and marketing efforts (including the introduction of the WANTVSM brand name in
certain of the Company's systems), and from increased media spending. During
1995, general and administrative expenses totaled $19.2 million (or 40.4% of
total revenues), a $9.8 million increase over the prior year (43.6% of total
revenues). This increase resulted not only from the addition of new systems and
increased corporate and regional overhead expenses, but also from the
recognition of severance costs totaling $711,000 and lease termination costs of
$420,000 related to the relocation of the Company's corporate headquarters to
larger office space in Colorado Springs.
The Company's loss from operations was $35.7 million during the year ended
December 31, 1995 compared to $17.0 million during 1994. The increase in the
loss from operations of $18.7 million resulted from increased depreciation and
amortization expense, as well as from the increases in marketing and general and
administrative expenses described above. Depreciation and amortization expense
(principally depreciation of property and equipment and amortization of deferred
license and leased license acquisition costs, goodwill and covenants
not-to-compete) increased $17.2 million due to increases in deferred license
costs, goodwill and subscriber equipment resulting from the acquisition and
addition of new systems and the addition of equipment installed in new
subscribers' homes. Approximately $644,000 of the increase in depreciation and
amortization expenses was attributable to the change in accounting for
installation costs previously described.
Interest expense increased $15.2 million during 1995 to $24.5 million, as
compared to $9.3 million during the prior year. The increase in interest expense
primarily resulted from noncash
26
<PAGE> 27
interest charges associated with the 2005 Notes and the 2004 Notes, and
additional borrowings under, and higher interest rates associated with, the
Company's various revolving credit facilities. The Company's loss before
interest, taxes, depreciation and amortization totaled $6.4 million for the year
ended December 31, 1995, as compared to $5.0 million during 1994 (a pro forma
amount of $4.1 million assuming the change in accounting method was applied
retroactively). The increase in the loss before interest, taxes, depreciation
and amortization of $1.4 million primarily resulted from proportionately larger
start-up losses of the Company's systems that commenced operation during 1994,
pre-opening costs and start-up losses of the Company's systems that commenced
operations during 1995, increased marketing expenses, and increased corporate
overhead related to significant system development and market expansion
activities. Such increases were partially offset by improved operating results
from growth in the Company's other systems. The Medford, Sheridan, Redding,
Fresno, Visalia, Merced, Las Vegas and Rapid City systems acquired during 1995
generated, in the aggregate, earnings before interest, taxes, depreciation and
amortization of $1.3 million. Excluding these acquisitions, the Company's loss
before interest, taxes, depreciation and amortization for the year ended
December 31, 1995 approximated $7.7 million.
Fiscal Year 1994 Compared to Fiscal Year 1993
Service revenues increased $13.9 million, or 204%, during the year ended
December 31, 1994 to $20.7 million, as compared to $6.8 million during 1993.
This increase resulted principally from the addition of new subscribers. Service
price increases contributed only a small portion of the aggregate increase in
service revenues. Subscriber increases resulted not only from the 1993
acquisitions of the Billings, South Bend/Elkhart and Denver systems, the 1994
acquisitions of the Bend, FEN/WEN Group, Oklahoma City, Wichita and Lakeland
systems, and the completion of construction and commencement of operation of
systems in Daytona Beach, Little Rock, Louisville, Columbus, Youngstown,
Jacksonville, Lansing and Monterey, but also from increased marketing and
promotional efforts in all markets. The number of subscribers to the Company's
wireless cable systems increased from 31,400 at December 31, 1993 to 106,500 at
December 31, 1994. Of the increase in the number of subscribers of 75,100,
42,300 was attributable to systems acquired during 1994 and 32,800 resulted from
internal growth. On a same system basis, i.e., comparing systems that were
operational for all of each of the years ended December 31, 1994 and 1993
(Colorado Springs, Orlando and Ft. Myers), service revenues increased $2.7
million, or 43%, as compared to the year ended December 31, 1993. The average
number of subscribers in these systems increased approximately 37% during 1994
as compared to 1993.
Installation revenues for the year ended December 31, 1994 totaled
$871,000, as compared to $344,000 for the year ended December 31, 1993. The
increase in installation revenues of $527,000, or 153%, was primarily the net
result of more subscriber installations in each system, less the effect of lower
per-subscriber installation charges in certain systems. Installation rates vary
widely by system based upon local market conditions.
Operating expenses (principally programming, site costs and other direct
expenses) were $12.7 million during the year ended December 31, 1994, as
compared to $4.5 million during 1993. The increase of $8.2 million, or 181%, was
primarily the result of additional systems and subscribers, as well as increased
programming costs for additions to channel line-ups in various systems. On a
same system basis, operating expenses increased $1.3 million, or 36%, to $4.9
million as compared to $3.6 million in 1993.
Marketing and selling expenses totaled $4.5 million during the year ended
December 31, 1994, compared to $860,000 during 1993. The increase in such
expenses of $3.6 million resulted principally from the addition of new systems,
intensified sales efforts, the costs associated with market awareness campaigns
conducted during the second half of 1994 in the majority of the Company's
markets, and to a lesser extent, from the continued increased use of
door-to-door selling techniques. During 1994, general and administrative
expenses totaled $9.4 million, a $7.3 million, or 354%, increase over 1993
general and administrative expenses of $2.1 million. This increase was
27
<PAGE> 28
primarily the result of the addition of new systems and increased corporate and
regional office overhead expenses. The increased corporate and regional overhead
expenses reflect expenses incurred in connection with the opening and staffing
of four regional offices in Columbus, Denver, Lincoln and Orlando, as well as
expenses incurred to support the development and construction of additional
systems. Recruitment and relocation expenses incurred during 1994 in connection
with the activities described above approximated $537,000.
The Company's loss from operations was $17.0 million for the year ended
December 31, 1994, compared to $2.8 million for the year ended December 31,
1993. The increase in the loss from operations of $14.2 million principally
resulted from increased depreciation and amortization expense, as well as the
increases in marketing and general and administrative expenses described above.
Depreciation and amortization expense increased $9.5 million to $12.0 million
for the year ended December 31, 1994. This increase was primarily the result of
increases in deferred license costs and goodwill resulting from the acquisition
and addition of new systems and the addition of equipment installed in new
subscribers' homes. Also, to a lesser extent, depreciation and amortization
expense increased due to the addition of channels in existing systems.
Interest expense increased $7.6 million during the year ended December 31,
1994 to $9.3 million, as compared to $1.8 million during 1993. The increase in
interest expense principally resulted from noncash interest charges associated
with the 2004 Notes issued in the 1994 Units Offering and additional borrowings
under, and higher interest rates associated with, the Company's various
revolving credit facilities. Interest income increased $2.0 million to $2.1
million for the year ended December 31, 1994 as a result of investment of the
proceeds of the Company's initial public offering (the "IPO") and the 1994 Units
Offering. The loss before interest, taxes, depreciation and amortization totaled
$5.0 million during the year ended December 31, 1994, as compared to $283,000
during 1993. The increase in the loss before interest, taxes, depreciation and
amortization of $4.7 million primarily resulted from additional start-up losses
of the Company's systems that commenced operation during 1994 (net of improved
operating results from growth in previously operational systems), pre-opening
costs of the Company's systems launched during 1994, increased marketing
expenses related to customer additions, and increased corporate overhead related
to significant system development and market expansion activities. The Bend
system, the seven systems acquired from Family Entertainment Network, Inc. and
Wireless Entertainment Network, Inc. (the "FEN/WEN Group"), and the Oklahoma
City, Wichita and Lakeland systems acquired during 1994 generated earnings
before interest, taxes, depreciation and amortization of $1.8 million. Excluding
these acquisitions, the Company's loss before interest, taxes, depreciation and
amortization for the year ended December 31, 1994 approximated $6.8 million. The
income tax benefit of $8.8 million recognized during 1994 resulted from the
deferred tax asset relating to the operating losses generated during the period.
Management has determined that such deferred tax asset is realizable as an
offset to deferred income tax liabilities recorded in connection with the
Company's December 1993 acquisition of a wireless cable system and channel
rights in various markets from 11 separate affiliated wireless cable companies
(collectively the "Choice TV Group") and the acquisition of the Lakeland system
in September 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require substantial amounts of capital for (i) the
installation of equipment in new subscribers' homes, (ii) the construction of
additional transmission and headend facilities and related equipment purchases,
(iii) the funding of start-up losses and other working capital requirements,
(iv) the acquisition of additional wireless cable channel rights and systems,
and (v) investments in, and maintenance of, vehicles and administrative offices.
The Company's capital expenditures, exclusive of acquisitions of wireless cable
systems and additions to deferred license and leased license acquisition costs,
were approximately $7.7 million, $35.5 million, and $49.3 million during the
years ended December 31, 1993, 1994 and 1995, respectively. For the three months
ended March 31, 1995 and 1996, the Company's capital expenditures were
approximately
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<PAGE> 29
$9.0 million and $8.6 million, respectively. Such expenditures were primarily
for the construction and expansion of the Company's wireless cable systems and
the installation of equipment in new subscribers' homes.
As of March 31, 1996, the Company had significant channel interests in 18
markets where it expects to construct wireless cable systems in the future,
assuming, among other factors, that sufficient financing is available. Of these
18 markets, the Company expects to launch a minimum of four wireless cable
systems by the end of fiscal year 1996, although there can be no assurance that
it will be successful in launching these systems within the expected timeframe
or at all. The Company expects to incur significant capital expenditures in
connection with construction and development of these systems, as well as
expansion of existing markets and acquisition activities. There can be no
assurance that the Company's current development plans will not be altered to
respond to specific market opportunities, channel availability, competitive
factors, or other industry developments, or that its capital requirements will
not increase as a result of future acquisitions.
The Company was involved in the recently completed bidding process for
wireless cable channel authorizations in certain BTAs. See "Industry -- FCC
Auctions of MDS Licenses." The Company was the highest bidder in 59 markets. In
the aggregate, the Company's bids in these markets totaled approximately $10.1
million. Of such amount, approximately $2.1 million has been paid in the form of
upfront fees paid prior to commencement of the auction and a downpayment with
respect to each BTA for which the Company was the highest bidder, which was paid
in April 1996. The remaining amount (approximately $8.0 million) is due upon the
FCC's notification to the Company of the issuance of each BTA license, which the
Company expects will occur before the end of 1996.
The Company has experienced negative cash flow from operations in each year
since its formation, and although certain of the Company's more mature systems
currently generate positive cash flow from operations, the Company expects to
continue to experience negative consolidated cash flow from operations due to
operating costs associated with system development, expansion and acquisition
activities. Until sufficient cash flow is generated from operations, the Company
will be required to utilize its current capital resources or external sources of
funding to satisfy its working capital and capital expenditure needs.
Historically, the Company's ability to generate positive operating cash
flow in certain of its markets has enabled it to obtain bank financing at the
system level to finance subscriber growth. Currently, the Company has one credit
facility (the Credit Facility) under which maximum potential borrowings
aggregate $8.5 million. No amounts are currently available for borrowing under
the Credit Facility, which provides for borrowings for the Company's Fresno,
Visalia, and Merced systems. As of March 31, 1996, the Company was not in
compliance with certain covenants of the Credit Facility relating to its
maintenance of specified minimum subscriber numbers, annualized operating cash
flow to pro forma debt service, funded indebtedness to annualized operating cash
flow, funded indebtedness per subscriber, and trailing fixed charge coverage
ratios. The Company has not been able to obtain a waiver of such violations. As
a result, the lender has the ability, at any time, to exercise its rights and
remedies under the Credit Facility, including but not limited to, acceleration
of all amounts due under the Credit Facility. Accordingly, all amounts
outstanding under the Credit Facility have been classified as a current
liability in the Company's Consolidated Financial Statements. The Company
expects that it will continue to be in violation of these covenants throughout
1996.
All amounts outstanding under the Company's Eastern and Upper Midwest
Facilities, totaling $29.8 million, were repaid with proceeds from the Company's
1995 Units Offering. Both the Eastern Facility and the Upper Midwest Facility
were retired as of January 29, 1996.
The Company also has funded a substantial portion of its capital
expenditures and other working capital requirements through the public sale of
debt and common equity and, in prior years, the sale of privately-placed
preferred stock. On August 10, 1995, ATI consummated the 1995 Units Offering,
resulting in net proceeds to the Company of approximately $94.9 million. On June
23,
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<PAGE> 30
1994, ATI consummated the 1994 Units Offering, resulting in net proceeds to the
Company of approximately $95.7 million. The interest rate on the 2004 Notes will
be increased by 1.0% if the Company does not, by November 10, 1996, issue equity
securities or debt subordinated in right of payment to the 2004 Notes valued at
$50.0 million or more ($26.0 million upon completion of this offering and $22.8
million if the Underwriters' over-allotment option is exercised). On December
10, 1993, ATI completed its initial public offering of 3,000,000 shares of its
Common Stock, which resulted in net proceeds to the Company of approximately
$49.2 million. In January 1994, the underwriters of the IPO exercised their
over-allotment option to purchase an additional 172,500 shares of Common Stock,
resulting in net proceeds to the Company of approximately $2.9 million.
Future system expansion requirements of the Fresno, Visalia, and Merced
systems are expected to be financed from additional cash contributions or
advances from ATI or, if additional amounts become available under the Credit
Facility, from bank borrowings. The Company does not expect that it will be able
to expand the Fresno, Visalia and Merced systems without additional bank
borrowings. System expansion requirements during 1996 for the Company's other
operating wireless cable systems and its markets to be launched are expected to
be financed from existing cash and investment balances, additional equity or
other financing, borrowings under future credit facilities, and cash generated
from system operations. While the Company has been able to arrange satisfactory
bank debt facilities to date, there can be no assurance that sufficient debt
financing will continue to be available in the future, or that it will be
available on terms acceptable to the Company.
Following completion of this offering, management expects that at least
$17.0 million of additional equity, debt or other financing will be required
before the end of 1996 to fund the Company's projected needs for working capital
(including debt service), as well as its capital expenditure requirements for
its existing systems and markets to be launched during 1996. Without additional
equity or debt financing, the Company may be required to curtail its operations
and expansion plans. Management plans to meet its cash needs in 1996 through a
combination of equity or subordinated debt financing, and from cash generated
from operations. There can be no assurance that additional debt, equity or other
financing will be available on terms acceptable to the Company, or at all. As
appropriate opportunities become available, the Company also may sell or lease
certain channel rights from its portfolio, subject to certain restrictions
described below. In addition, the Company may finance future development of
wireless cable systems, future acquisitions of wireless cable systems and
channel rights, and future general corporate activities, through additional
equity or debt financings, joint ventures or other arrangements. There can be no
assurance that such financing will be available on terms acceptable to the
Company, or at all.
The Indentures contain a number of covenants and other provisions that
impose certain financial and operating constraints on the Company as long as any
2004 Notes or 2005 Notes remain outstanding. These covenants include limitations
on consolidated debt, limitations on certain payments, investments and
distributions, and limitations on liens and certain asset sales. As a result of
such limitations, the Company's additional borrowing capacity as of April 30,
1996 approximated $1.2 million. Accordingly, the Company's ability to finance
ongoing working capital and system expansion requirements from borrowings under
existing or future credit facilities is currently limited. The Credit Facility
also contains a number of restrictive covenants, including a restriction on the
ability of certain of ATI's subsidiaries to pay dividends or make loans to ATI.
Financing of Acquisitions
During 1995, the Company acquired wireless cable systems in Medford, Oregon
(from Cardiff Communications Partners III), Sheridan, Wyoming (from Cardiff
Communications Partners I), Redding, California (from Cardiff Communications
Partners IV), and Rapid City, South Dakota (from Rapid Choice TV, Inc.). Also
during 1995, the Company acquired FWCTI and a 58% ownership interest in
Superchannels. FWCTI is the 65% general partner of the Fresno Partnership, which
owns wireless cable systems and frequency rights in the Fresno, Visalia and
Merced, California markets. Superchannels operates a wireless cable system in
the Las Vegas, Nevada market.
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<PAGE> 31
The aggregate purchase price for all of these acquisitions of approximately
$46.7 million was paid through a combination of cash ($16.5 million), notes
($3.8 million), shares of Common Stock (approximately 964,000 shares valued at
approximately $15.2 million), and assumption of certain liabilities
(approximately $11.2 million). In addition, the Company recognized a deferred
income tax liability of approximately $6.3 million for the excess of the value
allocated to certain of the assets acquired over their related tax basis. In
February 1996, $2.5 million of the notes issued in connection with the
Superchannels Acquisition were converted into 162,854 shares of Common Stock.
Also during 1995, the Company acquired wireless cable channel rights in
various markets for aggregate consideration of $7.0 million. Such consideration
has been, or will be, paid through a combination of cash totaling $6.3 million
and Common Stock valued at $653,000.
Cash consideration paid in connection with the above acquisitions of
wireless cable systems and channel rights was funded from existing cash and
investment balances.
The Company continues to explore opportunities to acquire additional
wireless cable television businesses or assets that are consistent with the
Company's business plan. Except for the Pending Acquisition, as of the date of
this Prospectus, the Company has no written agreements, arrangements or
understandings to acquire any material wireless cable businesses or assets.
However, any such future acquisitions may require additional equity and other
financing. See "The Company -- Acquisitions."
INCOME TAX MATTERS
ATI and its subsidiaries file a consolidated federal tax return. The
Company has had no state or federal income tax expense since inception. As of
December 31, 1995, the Company had approximately $108.2 million in net operating
loss carryforwards for tax purposes, expiring through 2010. Section 382 of the
Internal Revenue Code limits the amount of loss carryforwards that a company can
use to offset future income upon the occurrence of certain changes in ownership.
The Company does not currently anticipate that these limitations will affect the
Company's utilization of its net operating loss carryforwards.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which requires impairment losses to be recognized for long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows are not sufficient to recover the assets' carrying
amount. The impairment loss is measured by comparing the fair value of the asset
to its carrying amount. The Company adopted SFAS No. 121 in the first quarter of
1996. Implementation of the new accounting pronouncement did not have a material
impact on the Company's financial position or results of operations.
The Company follows the guidelines established by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employees' stock options. In October 1995,
the FASB issued SFAS No. 123, "Accounting and Disclosure of Stock-Based
Compensation," which established an alternative method of expense recognition
for stock-based compensation awards to employees based on fair values. The
Company is currently evaluating the provisions of SFAS No. 123 and has not yet
determined whether it will adopt the statement for expense recognition purposes.
INFLATION
Inflation has not affected the Company's operations significantly during
the past three years. The Company believes that its ability to increase charges
for services in future periods will depend primarily on competitive pressures.
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<PAGE> 32
INDUSTRY
OVERVIEW
Wireless cable technology provides a relatively low cost medium to transmit
video entertainment and information services to customers in single family
homes, multiple dwelling unit properties and commercial properties. Wireless
cable systems use microwave frequencies authorized by the FCC to provide
multiple channel television programming similar to that offered by franchise
cable systems. Wireless cable systems transmit microwave signals over the air
from a transmission tower to an antenna installed at each subscriber's home.
Unlike traditional franchise cable systems, wireless cable systems do not
require extensive coaxial cable networks, amplifiers and related equipment. As a
result, capital costs and transmission-related operating costs are substantially
less than those of a typical franchise cable system. Due to this comparative
economic advantage, the Company generally has been able to charge 20 to 30% less
than its franchise cable competitors. The Company expects to maintain its cost
and pricing advantage despite the deployment of other emerging technologies,
such as fiber optic systems and direct broadcast satellite transmission, by
existing and new competitors in the subscription television industry.
FCC AUCTIONS OF MDS LICENSES
Until recently, the FCC accepted applications for new MDS stations on a
filing window basis, with selection among more than one acceptable MDS
application for a particular authorization filed on the same day determined via
lottery. However, as a result of recent legislation authorizing the FCC to
utilize competitive bidding (auctions) in the awarding of initial licenses or
construction permits for certain services, the FCC replaced the lottery
procedures with auctions for the awarding of new MDS authorizations among
competing applicants. Applications for new MDS stations filed before July 26,
1993 will be subject to lotteries rather than auctions.
Between November 13, 1995 and March 28, 1996, all available MDS
authorizations were auctioned on the basis of BTAs, with one such authorization
available per BTA. The winning bidder in each BTA has the right to apply to
operate one or more MDS stations within the BTA, provided that all incumbent MDS
and ITFS licensees and applicants, as well as adjacent BTA authorization
holders, are protected from interference. By May 10, 1996, the winning bidder in
each BTA must either file an application for at least one MDS channel in such
BTA or file a statement of intent demonstrating that it is technically unable to
apply and outlining its plans to develop the BTA. Applications for channel
authorizations by BTA owners are not subject to competing applications but may
be subject to petitions to deny. A BTA licensee has a five-year build-out period
within which to expand or initiate new service within its BTA. It may sell,
trade or otherwise alienate all or part of its rights in the BTA and may also
partition its BTA along geopolitical boundaries and contract with eligible
parties to allow them to apply for MDS authorizations within the partitioned
area, and conversely, acquire such rights from other BTA licensees. The license
term for each station authorized under these BTA procedures is ten years. With
regard to commercial ITFS channels, only the BTA license holder may apply for
available authorizations within the BTA.
Prior to commencement of the BTA auctions, bidders were required to make
upfront payments, based upon the number of BTAs for which they intended to bid
and the population and amount of usable MDS spectrum within each such BTA. By
April 5, 1996, each winning bidder was required to supplement its upfront
payment to an amount generally equal to 20% of its winning bid. When the BTA
license is ready to be issued, the FCC will advise the winning bidder, who
generally then must make full payment of the balance of the bid amount. Upon
such payment, the BTA authorization will be issued. The FCC will impose monetary
penalties on winning bidders that default or are found to be disqualified.
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<PAGE> 33
LEGISLATION
On February 8, 1996, the 1996 Act became law. Among other things, the 1996
Act eliminates the cable/telephone cross-ownership restriction, allowing a
telephone company the option of providing video programming within its telephone
service area over a cable system or other video delivery system. Conversely,
cable companies are now permitted to provide telephone services. The 1996 Act
also limits and, in some cases, eliminates FCC regulation of cable rates
established by the 1992 Cable Act, depending upon the size of the cable system
and whether the system is subject to effective competition and the nature of the
rate. Specifically, regulation of upper tier rates is scheduled to end March 31,
1999. Moreover, small cable operators and systems subject to effective
competition are now exempt from rate regulation. The 1996 Act also provides
cable operators with greater flexibility to offer lower rates to certain of
their customers and, consequently, the ability to provide discounts to
subscribers served, or potentially served, by the Company. The 1996 Act vests
the FCC with exclusive jurisdiction over the provision of DBS service and
preempts the authority of local authorities to impose certain taxes on such
service. Because the FCC has not yet promulgated rules implementing many of the
provisions of the 1996 Act, management is unable to predict at this time the
impact of the 1996 Act on the Company in particular or the wireless cable
industry as a whole.
Wireless cable systems are subject to certain local zoning regulations
affecting the construction of towers, reception antennas and other facilities,
as well as restrictions imposed by private covenants. The 1996 Act has directed
the FCC to preempt regulations and restrictions that impair the installation of
wireless cable reception equipment and the FCC recently commenced proceedings to
adopt implementing rules. The Company is unable to predict the extent, if any,
to which the FCC's pending proceeding will result in relief to the Company.
Legislation has recently been introduced in several states that would
authorize state and local authorities to impose taxes on providers of video
programming, including wireless cable operators, based upon their gross
receipts. Because the nature of any such legislation, if enacted, is unknown,
the Company cannot predict what impact such legislation would have upon its
operations.
RBOC INVESTMENTS
During 1995, two RBOCs, Bell Atlantic and NYNEX, invested $100.0 million in
CAI, an owner and operator of wireless cable systems in large urban markets
which are primarily located in Bell Atlantic's and NYNEX's areas of operations.
This investment was in the form of debt, preferred equity and warrants to
purchase common stock of CAI. Bell Atlantic and NYNEX announced that their
investment will allow them to enter the market for consumer video services more
quickly than by completing an overbuild of their current installed networks.
In July 1995, PacTel, an RBOC based in San Francisco, acquired Cross
Country, an operator of wireless cable systems located primarily in California,
for consideration of approximately $175.0 million. Such consideration consisted
of (i) approximately $120.0 million in PacTel common stock and (ii)
approximately $55.0 million in assumed indebtedness. PacTel announced that its
acquisition of Cross Country would complement its video strategy and allow
PacTel to enter the market for consumer video services on an expedited basis.
In December 1995, PacTel acquired 100% of the outstanding stock of Wireless
Holdings in exchange for PacTel stock worth approximately $120.0 million and
$55.0 million in cash. Wireless Holdings holds licenses and rights to provide
wireless video service in the San Francisco Bay area, San Diego, and
Victorville, California; Seattle and Spokane, Washington; Tampa, Florida; and
Greenville, South Carolina. PacTel announced that the acquisition would give
TELE-TV (a joint venture of PacTel, NYNEX and Bell Atlantic), the leverage it
needs to attract the right partners for developing quality new services.
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<PAGE> 34
The Company is pursuing opportunities to enter into strategic relationships
with RBOCs or other providers of telecommunications services. Such relationships
could involve, among other things, joint ventures, sales or exchanges of stock
or assets, or loans to, or investments in, the Company by strategic partners. As
of the date of this Prospectus, the Company has not reached any agreements or
understandings with respect to such relationships, and there can be no assurance
that any such agreements or understandings will be reached.
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<PAGE> 35
THE COMPANY
All statements contained herein that are not historical facts, including
but not limited to, statements regarding the Company's plans for future
development and operation of its wireless cable systems, are based on current
expectations. These statements are forward looking in nature and involve a
number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause actual results to differ materially are the
following: the availability of sufficient capital to finance the Company's
business plan on terms satisfactory to the Company; competitive factors, such as
the introduction of new technologies and competitors into the subscription
television business; pricing pressures which could affect demand for the
Company's service; changes in labor, equipment and capital costs; the
availability of digital compression technology and equipment at reasonable
prices; the Company's ability to incorporate digital compression technology into
its systems in a cost efficient manner; future acquisitions or strategic
partnerships; general business and economic conditions; and the other risk
factors described herein and in the Company's reports filed from time to time
with the Commission. The Company wishes to caution readers not to place undue
reliance on any such forward looking statements, which statements are made
pursuant to the Private Securities Litigation Reform Act of 1995, and as such,
speak only as of the date made.
The Company is a leading operator of wireless cable television systems.
Management believes that the Company is the largest wireless cable company in
the United States as measured by number of subscribers. As of March 31, 1996,
the Company provided subscription television service to approximately 174,900
subscribers through 38 operational systems located in 19 states. In addition to
its operational systems, the Company has significant channel interests in 18
other markets where it expects to construct wireless cable systems in the
future, assuming, among other factors, that sufficient financing is available.
As of March 31, 1996, the Company had approximately 11.1 million Estimated
Households in Service Area in its operational or target markets, although some
of these households will be "shadowed" and unable to receive the Company's
service due to Line-of-Sight Constraints. The percentage of Estimated Households
in Service Area that may be shadowed due to Line-of-Sight Constraints generally
ranges from 10 to 50% depending upon the market.
ATI was incorporated in Delaware in December 1988 and has its principal
executive office at 5575 Tech Center Drive, Suite 300, Colorado Springs,
Colorado 80919. ATI's telephone number is (719) 260-5533.
BUSINESS STRATEGY
Historically, the Company's business strategy has focused on being the
leading multi-system wireless cable operator by:
- developing systems in mid-sized markets where terrain and other
conditions are well suited to wireless cable service;
- identifying and marketing to a value-conscious customer base;
- keeping a low cost structure to provide customers popular programming at
affordable prices;
- maintaining a strong commitment to system performance and customer
service;
- managing its subscriber growth to maximize operating cash flow and return
on investment at relatively low subscriber levels;
- developing regional "clusters" of systems to realize economies of scale
and operating efficiencies; and
- maintaining the flexibility to adapt to new technologies such as digital
compression and interactive services.
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<PAGE> 36
To date, the Company has attempted to exploit the cost advantage that
wireless cable has over other subscription television technologies by offering
programming packages appealing to a value-conscious customer base at prices that
are generally 20 to 30% lower than those charged by its franchise cable
competitors. The Company has targeted value-conscious customers in both cabled
and uncabled areas with its programming, which includes ESPN, CNN, USA Network,
Nickelodeon, Discovery, regional sports channels, MTV, local broadcast channels
and other "basic" channels. The Company typically also offers Home Box Office,
Showtime and The Disney Channel as "premium" channels and selected pay-per-view
services.
During 1996, the Company intends to focus on managing its existing systems
through more efficient and cost-effective methods, planning for the
implementation of a digital technology strategy in select markets, and
developing strategic alliances. During the remainder of this year, the Company
intends to continue the growth and launch of certain of its analog wireless
cable systems that management believes can achieve stable customer bases with a
favorable balance of customer growth, subscriber capital investment, and
expenses. Other systems operated by the Company will not be managed for customer
growth, but rather for optimal cash flow from existing customers. In these
systems, the Company intends to focus its marketing efforts on new commercial
and multiple dwelling unit customers.
The Company expects that certain of its markets that have a larger number
of households will be able to convert to digital compression technology when
such technology becomes economically available. Management believes that digital
compression may provide wireless cable systems with superior products based upon
a higher number of channels, better signal coverage, digital quality audio and
video signals, and incremental digital products and services. The Company is
involved in the testing and development of digital compression technology in
wireless cable systems which could permit the expansion of channel capacity and
provide for interactive services. See "-- Competition -- New and Competing
Technologies -- Fiber Optic Systems, Digital Compression and Interactive
Services." Subject to the FCC's adopting rules governing the transmission of
digital signals, the Company expects the wireless cable industry (as well as the
franchise cable industry) to have commercial access to digital compression
technology in less than two years. There can be no assurance that the Company
will be successful in incorporating digital compression technology into its
systems.
The Company is pursuing strategic alliances that could provide the Company
with the opportunity to expand the scope of its services and target markets and
to acquire additional capital to fund this expansion as well as current
operations. One or more strategic partnerships could not only help fund the
implementation of digital technologies, but may provide the Company with access
to other, incremental communications services such as telephony, data
transmission and Internet access that may enhance the competitiveness of the
Company's products. There can be no assurance that the Company will be
successful in entering into one or more strategic alliances or that the possible
benefits of any such strategic alliances will be achieved.
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<PAGE> 37
MARKETS
The Company operates under a decentralized management structure in order to
maximize the Company's local presence in each market. Each of the Company's
operational systems or system clusters is managed by a general manager who
reports directly to a regional manager. General managers are responsible for the
day-to-day operations of their respective systems. Each operating system is
staffed with experienced customer service and sales representatives and service
technicians. Most non-executive employees of the Company have incentive
compensation programs that are tied to service quality levels and sales goals.
Pricing and programming decisions are made at the local level, subject to review
by the Company's executive management in Colorado Springs. Each operating system
typically offers 15 to 25 basic cable channels, one to three premium channels,
and one or two pay-per-view channels. Pay-per-view programming is offered only
on an event-by-event basis in certain of the Company's markets.
The following table sets forth, by region, certain information relating to
the Company's operational and target markets as of March 31, 1996:
<TABLE>
<CAPTION>
ESTIMATED
TOTAL OPERATIONAL HOUSEHOLDS
REGION MARKETS MARKETS IN SERVICE AREA SUBSCRIBERS
- ------ ------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Rocky Mountain................................ 11 9 2,125,000 64,500
Southeast..................................... 8 5 1,942,000 35,300
Western....................................... 17 9 3,370,000 31,200
Upper Midwest................................. 13 9 1,178,000 20,100
Midwest....................................... 7 6 2,477,000 23,800
-- -- ---------- -------
56 38 11,092,000 174,900
== == ========== =======
</TABLE>
Information regarding the Company's operating systems and other markets as
of December 31, 1995 is presented in the following table. "Estimated Households
in Service Area" represents the approximate number of households within the
Company's broadcast signal area according to household estimates provided by
Equifax National Decision Information Service ("Equifax") using a broadcast
signal radius of 35 miles to conform to the FCC's recent enlargement of the MDS
circular protected service area to a 35 mile radius, subject to certain downward
adjustments for overlapping service areas. The Equifax household estimates are
based upon engineering specifications provided by the Company for its
transmission facilities. Some of these households will be "shadowed" and
therefore unable to receive the Company's service due to Line-of-Sight
Constraints. The percentage of Estimated Households in Service Area that the
Company estimates may be shadowed due to Line-of-Sight Constraints generally
ranges from 10 to 50% depending upon the market.
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WIRELESS CABLE CHANNELS
<TABLE>
<CAPTION>
TOTAL EXPECTED
LEASED CHANNELS CHANNELS
ESTIMATED OWNED SUBJECT TO (INCLUDING
HOUSEHOLDS IN OR LEASED PENDING FCC OFF-AIR
SERVICE AREA FCC CHANNELS APPLICATIONS(1) TOTAL CHANNELS)(2)
------------- ------------ --------------- ----- --------------
<S> <C> <C> <C> <C> <C>
ROCKY MOUNTAIN REGION
Denver, CO............................. 801,000 28 -- 28 36
Oklahoma City, OK...................... 381,000 28 1 29 38
Little Rock, AR........................ 240,000 31 -- 31 37
Wichita, KS............................ 210,000* 29 -- 29 32
Colorado Springs, CO................... 184,000* 28 4 32 37
Greeley, CO............................ 102,000* 24 3 27 35
Fort Collins, CO....................... 75,000* 20 8 28 36
Billings, MT........................... 53,000 28 4 32 35
Pueblo, CO............................. 53,000* 4 24 28 33
Alamosa, CO............................ 14,000* -- 20 20 20
Sheridan, WY(3)........................ 12,000 15 12 27 30
----------
Regional Total....................... 2,125,000
----------
SOUTHEAST REGION
Orlando, FL............................ 536,000* 27 -- 27 33
Lakeland, FL........................... 393,000* 27 6 33 41
Jacksonville, FL....................... 376,000* 13 4 17 24
Daytona Beach, FL...................... 197,000* 11 5 16 24
Ft. Myers, FL.......................... 168,000* 19 8 27 32
Bradenton, FL.......................... 151,000 5 8 13 17
Naples, FL............................. 85,000 10 12 22 23
Sebring, FL............................ 36,000 1 20 21 25
----------
Regional Total....................... 1,942,000
----------
WESTERN REGION
Seattle, WA............................ 818,000 13 -- 13 18
Portland, OR........................... 652,000* 25 2 27 33
Las Vegas, NV(3)....................... 368,000* 23 4 27 39
Fresno, CA(3).......................... 274,000 25 -- 25 39
Salem, OR.............................. 188,000* 22 -- 22 27
Monterey/Salinas, CA................... 167,000* 18 8 26 33
Eugene, OR............................. 137,000* 22 -- 22 27
Visalia, CA(3)......................... 125,000* 19 12 31 42
Santa Barbara, CA...................... 103,000 4 10 14 15
Anchorage, AK.......................... 102,000 16 16 32 39
Yuba City, CA(3)....................... 94,000* 27 -- 27 38
Medford, OR(3)......................... 90,000* 24 8 32 32
Redding, CA(3)......................... 70,000* 23 4 27 32
Merced, CA(3).......................... 60,000* 23 8 31 36
Bend, OR............................... 44,000 20 12 32 36
Wenatchee, WA.......................... 42,000* 11 12 23 28
Maui, HI............................... 36,000* 19 7 26 32
----------
Regional Total....................... 3,370,000
----------
UPPER MIDWEST REGION
Omaha, NE.............................. 272,000* 7 16 23 35
Green Bay, WI.......................... 210,000* 12 9 21 27
Sheboygan, WI.......................... 191,000* 11 16 27 31
Lincoln, NE............................ 115,000* 30 -- 30 37
Fargo, ND.............................. 84,000* 31 -- 31 36
Sioux Falls, SD........................ 75,000 18 -- 18 21
St. James, MN(4)....................... 53,000* 15 -- 15 23
Rapid City, SD(3)...................... 46,000 30 -- 30 35
Grand Island, NE....................... 45,000* 31 -- 31 40
Tecumseh, NE........................... 25,000* 16 4 20 20
Windom, MN............................. 24,000* 11 -- 11 15
Geneva, NE............................. 24,000* 8 -- 8 15
Yankton, SD............................ 14,000 11 -- 11 16
----------
Regional Total....................... 1,178,000
----------
MIDWEST REGION
Columbus, OH........................... 578,000* 19 9 28 33
Louisville, KY......................... 431,000 15 4 19 29
Youngstown, OH......................... 430,000* 30 -- 30 34
Toledo, OH............................. 351,000 12 20 32 40
South Bend/Elkhart, IN................. 288,000* 26 4 30 35
Lansing, MI............................ 221,000* 14 16 30 36
Jackson, MI............................ 178,000* 16 12 28 32
----------
Regional Total....................... 2,477,000
----------
Total.......................... 11,092,000
==========
</TABLE>
38
<PAGE> 39
- ---------------
* Indicates markets with respect to which the Company was the highest bidder
for the BTA rights. In certain cases, two or more of the Company's existing
or target markets may be contained within a single BTA.
(1) Applications for wireless cable authorizations are subject to approval by
the FCC. The entities with which the Company has entered into leasing
agreements have filed a series of applications for wireless cable channels.
In many cases, the Company's applicant is the sole applicant. Due to the
qualifications of the Company's applicants, relative to competing filings,
the Company expects that most of these applications will be approved by the
FCC. However, there can be no assurance that these FCC applications will be
approved.
(2) Represents total expected wireless channels (including channels not yet in
service) plus local off-air broadcast channels which are generally
available in the Company's broadcast signal area and which the Company does
not expect to rebroadcast over its wireless cable channels.
(3) Consists of channels acquired in 1995.
(4) These assets were sold effective April 1, 1996 for nominal consideration.
The St. James system's results of operations, assets and number of
subscribers were not material. An immaterial gain will be recognized in
conjunction with such sale.
The Company participated in the FCC's recent auction of the rights to apply
for and obtain available MDS licenses in 493 designated BTAs throughout the
United States. The winning bidder in each BTA obtained the exclusive right to
apply for available MDS licenses in that BTA and will receive the channel
authorizations as long as its station proposals comply with the FCC's
interference requirements and other rules. The Company was the winning bidder in
59 BTAs, and is in the process of determining in which of these BTAs it will
file applications for MDS licenses. Once filed, the FCC must approve the
applications before the MDS authorizations will be issued. Competing
applications cannot be filed, but the FCC will consider petitions to deny the
auction winners' applications. There can be no assurance that the FCC will
approve the Company's applications, and the Company cannot reasonably predict
when such approvals will be given, or, even if granted, whether the Company will
ultimately have access to a sufficient number of channels to have a viable
system in each BTA for which it was the winning bidder. Regardless of whether
the Company initially applies for additional MDS authorizations in any of its
BTAs, as long as the Company continues to hold the BTA rights, other entities
seeking new licenses or certain modifications to existing licenses within the
Company's BTAs must seek approval from the Company, as the BTA owner. Similarly,
to the extent the Company wishes to obtain new licenses or certain modifications
to its existing licenses in markets in which it does not own the BTA rights, it
will be required to negotiate with the BTA owner for approval of such licenses
or modifications.
In addition to the channel interests detailed above, the Company holds
channel rights in a number of other U.S. markets. The Company may seek
additional channel rights in these markets or sell or exchange the channel
rights it already holds.
39
<PAGE> 40
ACQUISITIONS
Since May 1993, the Company has acquired 22 operational wireless cable
systems and wireless cable channel rights in 17 additional markets. The
following table summarizes the Company's completed acquisitions of wireless
cable businesses since May 1993.
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
ESTIMATED SUBSCRIBERS
HOUSEHOLDS AS OF DATE APPROXIMATE
IN OF AGGREGATE DATE OF
SELLER MARKET(S) SERVICE AREA ACQUISITION CONSIDERATION(1) COMPLETION
------ --------- ------------ ----------- -------------------------- ----------
<S> <C> <C> <C> <C> <C>
TV-3 Joint Venture Billings, MT 53,000 1,400 $2,475,000 stock plus 5/93
liabilities of $235,000
Choice TV Group South Bend/Elkhart, IN; 2,541,000 1,500 $27,530,000 stock, 12/93
Rockford, IL; Jackson, MI; $2,978,000 cash and
Lincoln, NE; Columbus, OH; notes(1) plus liabilities
Portland, OR; Anchorage, AK; of $262,000
Monterey, Santa Barbara, CA;
Lansing, MI
TV Communications Denver, CO 801,000 3,100 $6,026,000 cash and notes 12/93
Network, Inc. plus liabilities of
$50,000
Central Vision, Inc. Bend, OR 44,000 2,200 $2,109,000 stock(2) and 4/94
$1,967,000 cash(1)
Family Entertainment Green Bay, Sheboygan, WI; 720,000 12,300 $11,660,000 stock, 4/94
Network/Wireless Grand Island, Geneva, NE; $9,676,000 cash plus
Entertainment Fargo, ND; Sioux Falls, liabilities of $159,000
Network Yankton, SD; St. James,
Windom, MN
Multimedia Oklahoma City, OK; Wichita, 591,000 16,900 $35,112,000 cash 8/94
Cablevision, Inc. KS
People's Cable, Inc. Lakeland, FL 393,000 10,900(3) $13,200,000 cash(4), 9/94
$5,933,000 stock, plus
liabilities of $660,000
Cardiff Medford, OR 90,000 900 $2,033,000 cash and 1/95
Communications notes(1)
Partners III
Cardiff Sheridan, WY 12,000 600 $1,369,000 cash and 3/95
Communications notes(1)
Partners I
Fresno Wireless Cable Fresno, Merced, Visalia, CA 459,000 14,200 $15,186,000 stock plus 5/95
Television, Inc. liabilities of
approximately $9,530,000
Cardiff Redding, CA 70,000 200 $2,597,000 cash and 7/95
Communications notes(1)
Partners IV
Merrill Revocable Las Vegas, NV 368,000 4,300 $9,000,000 cash and notes 9/95
Trust plus liabilities of
approximately $1,176,000
Rapid Choice TV, Inc. Rapid City, SD 46,000 4,500 $5,151,000 cash plus 11/95
liabilities of
approximately $483,000
--------- ------
Total 6,188,000 73,000
========= ======
</TABLE>
- ---------------
(1) Includes payments for non-competition agreements.
(2) Net of certain post-closing adjustments aggregating approximately $67,000.
(3) Includes approximately 2,600 subscribers of a franchise cable system
acquired from People's Cable, Inc.
(4) Includes $6.6 million paid at closing as merger consideration, $1.2 million
used to repay certain notes due to stockholders, $4.9 million used to repay
bank indebtedness, and approximately $500,000 paid immediately subsequent
to closing to pay certain liabilities assumed at closing. Excludes
contingent consideration of up to $2.5 million.
40
<PAGE> 41
In addition to the acquisitions of wireless cable businesses described
above, during 1995 the Company completed acquisitions of wireless cable channel
rights in various markets. Certain FCC approvals, which have not yet been
obtained, will be required for the transfer of certain FCC authorizations to the
Company included among the channel rights acquired in these acquisitions. The
Company has paid or agreed to pay $7.0 million for channel rights acquired in
1995 (including $1.1 million which is payable upon the FCC' s consent to the
assignment of certain of the licenses acquired).
Except for the Pending Acquisition, as of the date of this Prospectus, the
Company has no written agreements, arrangements or understandings to acquire any
material wireless cable businesses or assets. However, the Company continues to
explore and pursue opportunities to acquire additional wireless cable television
businesses or channel rights that are consistent with the Company's business
plan. The Company has a non-binding letter of intent to acquire certain wireless
cable assets in a new market (the Pending Acquisition) with a purchase price of
approximately $5.2 million, subject to certain contingencies, such as FCC
approvals, the satisfactory completion of due diligence, and other customary
conditions to closing, which may or may not be satisfied. There can be no
assurance that a definitive agreement will be reached with respect to the
Pending Acquisition, that such acquisition will be consummated, or that the
Company will be successful in completing any other such transactions.
COMPETITION
The subscription television industry is highly competitive. Wireless cable
systems typically compete with both franchise cable systems and satellite
delivery systems, although recent regulatory changes and technological
developments have encouraged new competitors, such as telephone companies, to
enter the subscription television business. See "-- New and Competing
Technologies" and "-- Telephone Company Competition." Many of the Company's
existing or potential competitors have substantially greater name recognition
and financial, technical and human resources than the Company and may be better
equipped to develop and operate systems providing subscription television
service. The Company seeks to differentiate itself from its competitors through
lower priced, streamlined pricing plans, service guarantees, high-quality
customer service and system performance, and local community involvement and
support.
Franchise Cable Systems
Currently, the Company's predominant competitors are franchise cable
companies that own local franchises to operate their systems in the Company's
markets. Generally, franchise cable operators do not compete with one another
because their respective service areas do not overlap. In most instances, the
franchise cable operators with which the Company competes serve more subscribers
on both a local and national level. Franchise cable companies typically offer a
larger selection of programming than the Company. However, the Company strives
to offer the most widely demanded programming choices combined with high-quality
customer service.
Satellite Systems
During 1994, DIRECTV, which is substantially owned by GM-Hughes
Electronics, began using new high-powered satellites to distribute high capacity
programming to smaller (as small as 18 inches in diameter) television receive
only antennas ("direct broadcast satellite" or "DBS"). Other companies also have
begun providing, or have announced plans to provide, DBS services. DBS services
are capable of delivering over 100 channels of digital programming but do not
deliver local programming. The recently enacted 1996 Act provides the FCC
exclusive jurisdiction over DBS and precludes city or county taxation of DBS
programming revenues. The cost of constructing and launching the satellites used
to distribute DBS programming is substantial. DBS reception equipment for a
single television set currently costs approximately $650 per customer, plus
installation fees, service charges and off-air antenna installation, where
applicable. Each additional, indepen-
41
<PAGE> 42
dent outlet requires a separate descrambling device at additional cost to the
subscriber of approximately $700. Management expects these prices to decrease as
additional companies begin to manufacture DBS reception equipment. However,
because of the relative cost of DBS satellites and reception equipment, and
limitations on the availability of local programming to DBS subscribers, the
Company believes that wireless cable systems will continue to enjoy a
comparative cost and local programming advantage over these satellite systems.
"Backyard dish" or television receive only ("TVRO") antenna distributors
offer customers access via satellite to programming similar to that offered by
franchise cable and wireless cable operators. The primary advantages of wireless
cable systems over TVRO systems are lower equipment costs and broader
availability of local programming. TVRO systems, on the other hand, enjoy the
advantage of access to a wider variety of satellite programming and serve areas
not served by franchise or wireless cable systems. A conventional TVRO antenna
system costs approximately $1,000 to $3,000 per subscriber, depending on the
features of the system, and subscribers are charged monthly fees for access to
certain programming. TVRO systems typically cannot receive local off-air
broadcast channels.
New and Competing Technologies
Several technologies are under development that may significantly affect
the subscription television industry and result in new competitors, such as
telephone companies, entering the subscription television market. At this time,
the Company cannot predict the competitive impact of these new technologies and
competitors on the wireless cable industry. However, the Company expects that
wireless cable operators, including the Company, will be able to expand their
programming capacity and introduce new services through the use of digital
technology, where applicable, while continuing to maintain a cost advantage over
other providers of subscription television service.
Fiber Optic Systems, Digital Compression and Interactive
Services. Franchise cable systems historically have been the principal
providers of subscription television service. Franchise cable operators
generally have constructed their networks using coaxial cable to deliver service
to customers and typically offer more total programming channels at higher
prices than wireless systems. Historically, the maximum number of programming
channels offered by franchise cable systems has been limited by the current
analog transmission and coaxial cable technologies. A number of new technologies
are under various stages of development to increase the channel capacity of
these systems. These new developments include the rebuilding of franchise cable
infrastructures with fiber optic networks and the use of digital compression
techniques to compress more programming signals onto existing coaxial cable or
other networks. Several franchise cable companies also are experimenting with
interactive technology that permits a subscriber to transmit data from the
subscriber's set-top device back to the operator's transmission facility.
The channel capacity of wireless cable systems also is expected to be
expandable through the application of digital compression technology. In June
1994, six leading companies in the wireless cable industry (including the
Company, Andrew Corporation, California Amplifier, EMCEE Broadcast Products,
Microwave Filter Company, Inc. and Zenith Electronics Corporation) announced the
formation of a new research and development alliance to develop digital
technologies for "over-the-air" delivery of hundreds of channels of digital
video programming and other services. The "Wireless Cable Digital Alliance" is
developing wireless digital technologies that will enable consumers to receive
from 100 to 200 channels, including near video-on-demand pay-per-view movie
offerings. The Company expects that digital technology will enable wireless
cable systems to transmit high definition television signals. Subject to the
FCC's adopting rules governing the transmission of digital signals, the Company
expects the wireless industry (as well as the franchise cable industry) to have
commercial access to digital compression technology in less than two years. The
Company has tested this technology in its Colorado Springs, Orlando and Lakeland
systems
42
<PAGE> 43
pursuant to "experimental" licenses from the FCC. Test results confirm
compression ratios for wireless cable signals of approximately 3:1 to 6:1 or
more.
On July 13, 1995, the Company, along with other wireless cable operators,
educators and industry groups, filed a Petition for Declaratory Ruling with the
FCC. If the Petition is granted, MDS and ITFS facilities will be allowed to
implement digital transmission pursuant to their existing station authorizations
without the need for prior revision of the FCC's rules. The Petition is
currently pending before the FCC.
Wireless cable systems are currently technically capable of offering
selected interactive services by transmitting data from the subscriber's
location back to the headend facility using "response channels" licensed to
wireless operators by the FCC. Potential applications for interactive technology
include, for example, automated pay-per-view service and home shopping
activities.
Telephone Company Competition. Prior to the enactment of the 1996 Act, the
Communications Act generally prohibited a telephone company from providing video
programming within its telephone service area. However, in 1992, the FCC adopted
rules allowing such companies to provide audio/video services over their
telephone lines ("video dialtone service") subject to FCC regulation, including
the requirement that such facilities be open to multiple service providers. As a
result, a number of local telephone companies began experimenting with
technology capable of providing video dialtone service. Several large telephone
companies announced plans to either (i) enhance their existing distribution
plant to offer video dialtone service, (ii) construct new distribution plants in
conjunction with a local franchise cable operator to offer video dialtone
service, (iii) acquire or merge with existing franchise cable systems outside of
the telephone company's franchise area, or (iv) invest in existing wireless
cable companies. By operation of the 1996 Act, all video dialtone rules were
repealed, although systems authorized under those rules may continue operation.
The 1996 Act eliminates the "cable/telco" prohibition, permitting telephone
companies to provide video programming within their service areas, as franchise
cable operators or otherwise. It directs the FCC to adopt new rules governing
"open video systems," by which telephone companies may provide video programming
as long as they do not discriminate among video programmers or require
discriminatory rates, terms or conditions, and as long as they do not program
more than one-third of their activated channels if demand exceeds channel
capacity. Such open video systems also will be subject to certain cable
regulations, including must-carry, sports exclusivity, network non-duplication
syndicated exclusivity and public access via "PEG" channels. Franchising
authorities will not be allowed to charge the operator of such a system a
franchise fee, but may impose a fee based upon gross revenues, up to the rate at
which fees are imposed on a cable operator in the franchise area.
The 1996 Act also allows telephone companies to become cable franchisees
within their telephone service areas. However, the new law generally prohibits a
telephone company from (a) acquiring a cable system within its telephone service
area, (b) acquiring more than a 10.0% financial interest in, or management
position with, such a cable operator, or (c) entering into a joint venture or
partnership with such an operator. Conversely, the 1996 Act generally prohibits
a cable company from (x) acquiring a telephone company within its service area,
(y) acquiring more than a 10.0% financial interest in, or management position
with, such a telephone company, or (z) entering into a joint venture or
partnership with such a telephone company.
As a result of these developments, the Company may experience increased
competition from telephone companies, which have significantly greater financial
and other resources than the Company.
43
<PAGE> 44
Other Microwave Systems. In 1993, the FCC proposed to reallocate radio
frequencies in the 28 GHz range of the electro-magnetic spectrum to be used for
"cellular" subscription television services ("Local Multipoint Distribution
Service" or "LMDS"). As proposed by the FCC, the new rules would allow for the
entry into each market of at least two new wireless video program distributors
with access to more than 49 channels each. Because 28 GHz systems have
relatively short broadcasting ranges, multiple cellular transmission sites are
required. The Company expects that, to cover the same geographic area, these
systems will require an initial capital investment substantially greater than
the Company's single transmitter site systems. Further, the Company believes
that application of 28 GHz technology is best suited to high density urban
areas. On July 28, 1995, the FCC issued a Notice of Proposed Rulemaking
announcing that it had proposed to divide the 28 GHz band for use by LMDS and
fixed and mobile satellite service licensees and that LMDS authorizations will
be subject to auctions. Another pending rulemaking is considering whether
cellular subscription television services should be assigned to the 40-41 GHz
band which has become available for commercial services. Due to current
technological limitations and the aforementioned FCC issues, management believes
that cellular subscription television services will be commercially unavailable
in the Company's markets for at least two years.
44
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
The following statements with respect to the Company's capital stock are
subject to the detailed provisions of the Company's Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation"), and Amended and
Restated Bylaws (the "Bylaws"). These statements do not purport to be complete
and are qualified in their entirety by reference to the terms of the Restated
Certificate of Incorporation and the Bylaws, each of which is incorporated by
reference into this Prospectus.
GENERAL
The authorized capital stock of ATI currently consists of 43,000,000
shares, of which 30,000,000 shares are Common Stock, par value $0.01 per share,
10,000,000 shares are Class B Common Stock, par value $0.01 per share (the
"Class B Common Stock") and 3,000,000 shares are preferred stock, par value
$0.01 per share (the "Preferred Stock").
As of April 15, 1996, there were 16,662,114 shares of Common Stock
outstanding and held of record by approximately 316 stockholders, no shares of
Class B Common Stock outstanding and no shares of Preferred Stock outstanding.
Upon completion of this offering, 18,362,114 shares of Common Stock will be
outstanding (18,617,114 assuming the Underwriters' over-allotment option is
exercised in full). In addition, as of April 15, 1996, warrants to purchase an
aggregate of 1,920,240 shares of Common Stock (with a weighted average exercise
price of $12.40 per share) were outstanding. Of the outstanding warrants,
976,284 are currently exercisable and 943,956 will become exercisable on August
10, 1996. A total of 1,525,000 shares of Common Stock are reserved for issuance
to officers and key employees of the Company under the American Telecasting,
Inc. 1990 Stock Option Program, as amended (the "Stock Option Plan"). As of
April 15, 1996, options to acquire 679,600 shares of Common Stock (with a
weighted average exercise price of $9.43 per share) were outstanding, 305,600 of
which were vested.
COMMON STOCK
The issued and outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. Subject to the right of holders of Preferred Stock, if
any, the holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may from time to time determine. The shares of
Common Stock are neither redeemable nor convertible, and the holders thereof
have no preemptive or subscription rights to purchase any securities of ATI.
Upon liquidation, dissolution or winding up of ATI, the holders of Common Stock
are entitled to receive, pro rata, the assets of ATI that are legally available
for distribution, after payment of all debts and other liabilities and subject
to the prior rights of any holders of Preferred Stock then outstanding. Each
outstanding share of Common Stock is entitled to one vote on all matters
submitted to a vote of stockholders. There is no cumulative voting in the
election of directors.
The Class B Common Stock is identical in all respects to the Common Stock
except that the holders of Class B Common Stock, if any, are not entitled to
vote on any matters submitted to the stockholders for approval, except as
otherwise provided or required by law.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
As of April 15, 1996, 16,662,114 shares of Common Stock were outstanding
and no shares of Class B Common Stock were outstanding. Of such 16,662,114
shares of Common Stock, 6,209,996 shares (including 640,019 shares that are
subject to the Shelf Registration Statement) are freely tradeable without
restriction or further registration under the Securities Act, unless acquired by
"affiliates" (as defined in Rule 144 of the Securities Act), in which case such
shares are subject to the resale limitations of Rule 144. The remainder of the
outstanding shares of Common Stock (other than certain shares issued in
connection with the Company's employee benefit plans) are currently considered
"restricted" or "control" securities within the meaning of the Securities Act
and may not
45
<PAGE> 46
be resold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemption provided by
Rule 144. The 1,700,000 shares of Common Stock offered hereby will be freely
tradeable without restriction or further registration under the Securities Act.
In addition to the shares referred to above which are freely tradeable
without restriction or further registration under the Securities Act, the
Company has registered under the Securities Act an aggregate of 1,125,000 shares
reserved for issuance under the Stock Option Plan and intends to register an
additional 400,000 recently reserved for issuance under the Stock Option Plan,
thus permitting the resale of such shares upon the exercise of options granted
under the plan by non-affiliates in the public market without restriction under
the Securities Act, subject to vesting requirements of the Company.
The Company, its officers, directors and certain stockholders have agreed
not to offer, sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock, for
a period of 90 days from the date of this Prospectus without the prior consent
of Alex. Brown & Sons Incorporated.
Pursuant to a series of registration rights agreements (the "Registration
Rights Agreements"), certain stockholders of the Company are entitled to rights
with respect to the registration under the Securities Act of approximately
9,648,873 shares of outstanding Common Stock (excluding shares offered by the
Selling Shareholders pursuant to the Shelf Registration Statement). While the
precise terms of the Registration Rights Agreements vary, the stockholders who
are party to such agreements generally have a combination of demand and
piggyback registration rights.
ATI can make no prediction as to the effect, if any, that sales of shares
of its Common Stock, or the availability of shares for future sale, will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market, or the perception that
such sales could occur, could depress the prevailing market price for the Common
Stock. Such sales also may make it more difficult for ATI to sell equity
securities or equity-related securities in the future at a time and price that
it deems appropriate.
PREFERRED STOCK
ATI's Restated Certificate of Incorporation authorizes the Board of
Directors to issue the Preferred Stock in classes or series and to establish the
designations, preferences, qualifications, limitations, or restrictions of any
class or series with respect to the rate and nature of dividends, the price and
terms and conditions on which shares may be redeemed, the terms and conditions
for conversion or exchange into any other class or series of the stock, voting
rights and other terms. ATI may issue, without approval of the holders of Common
Stock, Preferred Stock which has voting, dividend or liquidation rights superior
to the Common Stock and which may adversely affect the rights of holders of
Common Stock. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, make it more difficult for a third party to
gain control of ATI.
CERTAIN CHARTER PROVISIONS AND DELAWARE LAW
ATI's Restated Certificate of Incorporation contains a provision requiring
the affirmative vote of the holders of at least 66 2/3% of the voting power of
all the shares of capital stock of ATI to remove any director or the entire
Board of Directors from office at any time, with or without cause, except as
otherwise provided. Also, ATI's Restated Certificate of Incorporation grants the
Board of Directors the power to adopt, amend, alter, change and repeal the
Bylaws of ATI. The affirmative vote of the holders of at least 66 2/3% of the
voting power of all the shares of ATI's capital stock is required for the
stockholders of ATI to adopt, alter, change or repeal the Bylaws of ATI.
Section 203 of the Delaware General Corporation Law ("Section 203")
prohibits certain Delaware corporations from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
46
<PAGE> 47
stockholder unless (i) prior to the date of the business combination, the
transaction is approved by the board of directors of the corporation, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock or (iii) on or after the consummation date, the
business combination is approved by the board of directors and by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder. "Business combinations" include mergers,
assets sales and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. A Delaware corporation may "opt out" of
application of Section 203 through a provision in its certificate of
incorporation or bylaws. ATI has not "opted out" of application of Section 203.
These provisions might diminish the likelihood that a potential acquiror
would make an offer for the Common Stock, impede a transaction favorable to the
interests of stockholders, or make it difficult to effect a change in control of
ATI and replace incumbent management. As a result, the existence of these
provisions may have a negative effect on the market price of the Common Stock.
FOREIGN OWNERSHIP PROVISIONS
The Communications Act provides that certain types of FCC licenses shall
not be held directly by corporations of which Aliens own of record or vote more
than 20% of the capital stock. In situations in which such an FCC licensee is
directly or indirectly controlled by another corporation, Aliens may own of
record or vote no more than 25% of the controlling corporation's capital stock.
ATI's Restated Certificate of Incorporation requires that all of its officers
and directors be U.S. citizens and empowers the Board of Directors to redeem
ATI's outstanding capital stock to the extent necessary to prevent the loss or
secure the reinstatement of any license or franchise from any governmental
agency if a situation arises whereby more than the permitted number of
outstanding shares of capital stock of ATI are owned or voted by Aliens.
Moreover, the Restated Certificate of Incorporation provides that, in such a
situation, no transfers of shares may be made to Aliens and the shares which
caused ATI to exceed the statutory limit may neither be voted, receive dividends
nor be entitled to any other rights, until transferred to U.S. citizens.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina.
47
<PAGE> 48
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
through their representatives, Alex. Brown & Sons Incorporated and Dillon, Read
& Co. Inc. (collectively, the "Representatives"), have severally agreed to
purchase from the Company the following respective numbers of shares of Common
Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated.................................................. 512,500
Dillon, Read & Co. Inc........................................................... 512,500
Bear, Stearns & Co. Inc. ........................................................ 50,000
A.G. Edwards & Sons, Inc. ....................................................... 50,000
Gerard Klauer Mattison & Co., L.L.C. ............................................ 50,000
Hambrecht & Quist LLC............................................................ 50,000
Lehman Brothers Inc. ............................................................ 50,000
Montgomery Securities............................................................ 50,000
Morgan Stanley & Co., Incorporated............................................... 50,000
Oppenheimer & Co., Inc. ......................................................... 50,000
Robertson, Stephens & Company LLC................................................ 50,000
Schroder Wertheim & Co. Incorporated............................................. 50,000
Arnhold and S. Bleichroeder, Inc. ............................................... 25,000
George K. Baum & Company......................................................... 25,000
Dain Bosworth Incorporated....................................................... 25,000
Everen Securities, Inc. ......................................................... 25,000
Needham & Company, Inc. ......................................................... 25,000
Pennsylvania Merchant Group Ltd. ................................................ 25,000
Scott & Stringfellow, Inc. ...................................................... 25,000
---------
Total............................................................................ 1,700,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
48
<PAGE> 49
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $.40 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $.10 per share to certain other dealers. After the offering,
the offering price and other selling terms may be changed by the Representatives
of the Underwriters.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 255,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 1,700,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 1,700,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Company and the Underwriters with respect to certain liabilities,
including liabilities under the Securities Act.
The Company, its officers, directors and certain stockholders have agreed
not to offer, sell or otherwise dispose of any Common Stock or any securities
convertible into or exchangeable or exercisable for Common Stock, for a period
of 90 days after the date of this Prospectus without the prior consent of Alex.
Brown & Sons Incorporated.
One or more of the Underwriters currently act as market makers for the
Common Stock and may engage in "passive market making" in such securities on the
Nasdaq National Market in accordance with Rule 10b-6A under the Exchange Act.
Rule 10b-6A permits, upon the satisfaction of certain conditions, underwriters
participating in a distribution that are also Nasdaq market makers in the
security being distributed to engage in limited market making transactions
during the period when Rule 10b-6A under the Exchange Act would otherwise
prohibit such activity. Rule 10b-6A prohibits underwriters engaged in passive
market making generally from entering a bid or effecting a purchase at a price
that exceeds the highest bid for those securities displayed on the Nasdaq
National Market by a market maker that is not participating in the distribution.
Under Rule 10b-6A, each underwriter engaged in passive market making is subject
to a daily net purchase limitation equal to 30% of such entity's average daily
trading volume during the two full consecutive calendar months immediately
preceding the date of the filing of the registration statement under the
Securities Act pertaining to the security to be distributed.
The Underwriters and their respective affiliates may engage in transactions
with, and perform services for, the Company or one or more of its affiliates in
the ordinary course of business. In addition, the Company has retained Dillon,
Read & Co. Inc. to provide certain financial advisory services and has agreed to
pay it customary advisory fees in connection therewith.
49
<PAGE> 50
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by McDermott, Will & Emery, Washington, D.C. Certain legal matters
relative to the offering will be passed upon for the Underwriters by Piper &
Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The audited consolidated financial statements of the Company incorporated
by reference in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated by reference herein in reliance on the authority
of said firm as experts in giving said reports.
The audited consolidated financial statements of Fresno Wireless Cable
Television, Inc. and Subsidiary incorporated by reference in this Prospectus
have been audited by McGladrey & Pullen, LLP, independent auditors, as indicated
in their reports with respect thereto, and are incorporated by reference herein
in reliance upon the authority of said firm as experts in giving said reports.
50
<PAGE> 51
[WIRELESS CABLE DIAGRAM]
<PAGE> 52
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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Information
by Reference........................ 3
Prospectus Summary.................... 4
Risk Factors.......................... 10
Use of Proceeds....................... 17
Price Range of Common Stock........... 17
Dividend Policy....................... 18
Dilution.............................. 18
Capitalization........................ 19
Selected Financial and Operating
Data................................ 20
Pro Forma Condensed Combined Financial
Statements.......................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Industry.............................. 32
The Company........................... 35
Description of Capital Stock.......... 45
Underwriting.......................... 48
Legal Matters......................... 50
Experts............................... 50
</TABLE>
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- ------------------------------------------------------
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- ------------------------------------------------------
1,700,000 SHARES
LOGO
CLASS A
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
ALEX. BROWN & SONS
INCORPORATED
DILLON, READ & CO. INC.
May 21, 1996
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