<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from__________ to __________
Commission File Number 0-21389
PEGASUS COMMUNICATIONS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0374669
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
c/o Pegasus Communications Management Company;
5 Radnor Corporate Center, Suite 454, Radnor, PA 19087
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (888) 438-7488
--------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes_X_ No___
Number of shares of each class of the registrant's common stock outstanding as
of May 8, 1998:
Class A, Common Stock, $0.01 par value 11,295,003
Class B, Common Stock, $0.01 par value 4,581,900
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
Form 10-Q
Table of Contents
For the Quarterly Period Ended March 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Page
Part I. Financial Information ----
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1997 and March 31, 1998 3
Consolidated Statements of Operations
Three months ended March 31, 1997 and 1998 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 16
Part II. Other Information
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
Signature 18
</TABLE>
2
<PAGE>
Pegasus Communications Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------------ ------------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 44,049,097 $ 23,012,116
Restricted cash 1,220,056 2,091,333
Accounts receivable, less allowance for doubtful
accounts of $319,000 and $218,000, respectively 13,819,571 11,953,860
Program rights 2,059,346 1,782,617
Inventory 974,920 1,134,410
Deferred taxes 2,602,453 2,602,453
Prepaid expenses and other 788,669 928,751
------------ ------------
Total current assets 65,514,112 43,505,540
Property and equipment, net 27,686,646 27,545,516
Intangible assets, net 284,774,027 295,001,551
Program rights 2,262,299 1,937,299
Deposits and other 624,629 2,624,629
------------ ------------
Total assets $380,861,713 $370,614,535
============ ============
LIABILITIES AND TOTAL EQUITY
Current liabilities:
Current portion of long-term debt $ 6,357,320 $ 1,948,549
Accounts payable 10,240,615 7,620,193
Accrued interest 8,177,261 7,727,972
Accrued expenses 6,973,297 5,510,865
Amounts due seller -- 2,261,790
Current portion of program rights payable 1,418,581 1,106,673
------------ ------------
Total current liabilities 33,167,074 26,176,042
Long-term debt, net 201,997,811 210,634,091
Program rights payable 1,416,446 1,101,446
Deferred taxes 2,652,454 2,727,454
------------ ------------
Total liabilities 239,233,785 240,639,033
Commitments and contingent liabilities -- --
Minority interest 3,000,000 3,000,000
Series A preferred stock 111,264,424 114,841,277
Common stockholders' equity:
Class A common stock 57,399 57,734
Class B common stock 45,819 45,819
Additional paid-in capital 64,034,687 61,164,680
Deficit (36,774,401) (49,134,008)
------------ ------------
Total common stockholders' equity 27,363,504 12,134,225
------------ ------------
Total liabilities and stockholders' equity $380,861,713 $370,614,535
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Pegasus Communications Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1997 1998
---------- -----------
(unaudited)
<S> <C> <C>
Revenues:
Basic and satellite service $7,791,653 $18,026,471
Premium services 923,365 2,808,766
Broadcasting revenue,
net of agency commissions 5,277,104 5,342,118
Barter programming revenue 1,450,800 1,459,500
Other 359,839 1,146,837
----------- -----------
Total revenues 15,802,761 28,783,692
Operating expenses:
Programming 3,928,419 10,211,256
Barter programming expense 1,450,800 1,459,500
Technical and operations 955,141 1,063,121
Marketing and selling 1,947,647 6,386,799
General and administrative 2,302,044 4,940,123
Incentive compensation 279,851 409,205
Corporate expenses 406,461 685,266
Depreciation and amortization 4,898,331 9,930,584
---------- -----------
Loss from operations (365,933) (6,302,162)
Interest expense (3,154,466) (5,975,738)
Interest income 447,435 345,747
Other expenses, net (28,557) (352,454)
Gain on sale of cable system 4,534,300 --
---------- -----------
Income (loss) before income taxes 1,432,779 (12,284,607)
Provision for income taxes -- 75,000
---------- -----------
Net income (loss) 1,432,779 (12,359,607)
Preferred stock dividends 2,125,000 3,576,853
---------- -----------
Net loss applicable to common shares ($692,221) ($15,936,460)
========== ===========
Basic and diluted earnings per common share:
Net loss ($0.07) ($1.54)
========== ===========
Weighted average shares outstanding 9,554,897 10,332,436
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
Pegasus Communications Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1997 1998
---------- -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,432,779 ($12,359,607)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization 4,898,331 9,930,584
Program rights amortization 376,883 601,129
Accretion on discount of bonds 98,376 98,853
Gain on sale of cable system (4,534,300) --
Bad debt expense 216,492 272,379
Change in assets and liabilities:
Accounts receivable 1,460,467 1,697,397
Inventory 312,601 (159,490)
Prepaid expenses and other (671,393) (140,082)
Accounts payable and accrued expenses (789,672) (3,541,844)
Accrued interest (2,960,407) (449,289)
Capitalized subscriber acquisition costs (1,240,309) --
Amounts due seller -- 2,261,790
Deposits and other (292,976) (2,000,000)
---------- -----------
Net cash used by operating activities (1,693,128) (3,788,180)
---------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired (34,103,080) (7,777,494)
Cash acquired from acquisitions 146,703 --
Capital expenditures (3,357,453) (1,502,066)
Purchase of intangible assets (1,479,302) (1,063,812)
Payments of programming rights (736,738) (626,308)
Proceeds from sale of cable system 7,028,250 --
---------- -----------
Net cash used for investing activities (32,501,620) (10,969,680)
---------- -----------
Cash flows from financing activities:
Repayments of long-term debt (44,081) (5,353,852)
Borrowings on revolving credit facilities 526,250 --
Repayments of revolving credit facilities (30,126,250) --
Restricted cash -- (871,277)
Capital lease repayments (107,643) (53,992)
Proceeds from issuance of Series A preferred stock 100,000,000 --
Underwriting and preferred offering costs (4,187,920) --
---------- -----------
Net cash provided (used) by financing activities 66,060,356 (6,279,121)
---------- -----------
Net increase (decrease) in cash and cash equivalents 31,865,608 (21,036,981)
Cash and cash equivalents, beginning of year 8,582,369 44,049,097
---------- -----------
Cash and cash equivalents, end of period $40,447,977 $23,012,116
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company:
Pegasus Communications Corporation ("Pegasus" or together with its
subsidiaries stated below, the "Company"), is a diversified media and
communications company, incorporated under the laws of the State of Delaware in
May 1996, and is a direct subsidiary of Pegasus Communications Holdings, Inc.
("PCH" or the "Parent"). Pegasus' direct subsidiaries are Pegasus Media &
Communications, Inc. ("PM&C"), Pegasus Development Corporation ("PDC"), Pegasus
Towers, Inc. ("Towers") and Pegasus Communications Management Company ("PCMC").
PM&C is a diversified media and communications company whose
subsidiaries provide direct broadcast satellite television ("DBS") services to
customers in certain rural areas which encompass portions of twenty-seven
states, own and operate cable television ("Cable") systems that provide service
to individual and commercial subscribers in New England and Puerto Rico, own and
operate broadcast television ("TV") stations affiliated with the Fox
Broadcasting Company ("Fox") and operate, pursuant to local marketing
agreements, stations affiliated with United Paramount Network ("UPN") and The WB
Television Network ("WB").
PDC provides capital for various satellite initiatives such as
subscriber acquisitions costs. Towers owns and operates transmitting towers
located in Pennsylvania and Tennessee. PCMC provides certain management and
accounting services for the Company.
In January 1997, Pegasus completed a unit offering (the "Unit
Offering") in which it sold 100,000 shares of 12.75% Series A Cumulative
Exchangeable Preferred Stock (the "Series A Preferred Stock") and warrants to
purchase 193,600 shares of Class A Common Stock at an exercise price of $15 per
share to the public at a price of $1,000 per unit, resulting in net proceeds to
the Company of $95.8 million.
2. Basis of Presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The financial statements include
the accounts of Pegasus and all of its subsidiaries or affiliates. All
intercompany transactions and balances have been eliminated.
The unaudited consolidated financial statements reflect all adjustments
consisting of normal recurring items which are, in the opinion of management,
necessary for a fair presentation, in all material respects, of the financial
position of the Company and the results of its operations and its cash flows for
the interim period.
6
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Common Stock:
<TABLE>
<CAPTION>
<S> <C>
At December 31, 1997 common stock consists of the following:
Pegasus Class A common stock, $0.01 par value; 30.0 million shares
authorized; 5,739,842 issued and outstanding .................... $ 57,399
Pegasus Class B common stock, $0.01 par value; 15.0 million shares
authorized; 4,581,900 issued and outstanding .................... 45,819
--------
Total common stock............................................. $103,218
========
At March 31, 1998 common stock consists of the following:
Pegasus Class A common stock, $0.01 par value; 30.0 million shares
authorized; 5,773,333 issued and outstanding ................... $ 57,734
Pegasus Class B common stock, $0.01 par value; 15.0 million shares
authorized; 4,581,900 issued and outstanding .................... 45,819
--------
Total common stock ............................................. $103,553
========
</TABLE>
The Company's ability to pay dividends on its Common Stock is subject
to certain restrictions (see footnote 4 - Redeemable Preferred Stock and
footnote 5 - Long-Term Debt).
4. Redeemable Preferred Stock:
As a result of the Unit Offering and dividends subsequently declared on
the Series A Preferred Stock, the Company has outstanding approximately 112,215
shares of Series A Preferred Stock with a liquidation preference of $1,000 per
share (the "Liquidation Preference"). Cumulative dividends, at a rate of 12.75%
are payable semi-annually on January 1 and July 1. Dividends may be paid,
occurring on or prior to January 1, 2002, at the option of the Company, either
in cash or by the issuance of additional shares of Series A Preferred Stock.
Subject to certain conditions, the Series A Preferred Stock is exchangeable in
whole, but not in part, at the option of the Company, for Pegasus' 12.75% Senior
Subordinated Exchange Notes due 2007 (the "Exchange Notes"). The Exchange Notes
would contain substantially the same redemption provisions, restrictions and
other terms as the Series A Preferred Stock. Pegasus is required to redeem all
of the Series A Preferred Stock outstanding on January 1, 2007 at a redemption
price equal to the Liquidation Preference thereof, plus accrued dividends.
The carrying amount of the Series A Preferred Stock is periodically
increased by amounts representing dividends not currently declared or paid but
which will be payable under the mandatory redemption features. The increase in
carrying amount is effected by charges against retained earnings, or in the
absence of retained earnings, by charges against paid-in capital.
Under the terms of the Series A Preferred Stock, Pegasus' ability to
pay dividends on its Common Stock is subject to certain restrictions.
At December 31, 1997 and March 31, 1998, 5.0 million shares of Series A
Preferred Stock are authorized and 105,490 and 112,215 shares are issued and
outstanding, respectively.
Basic earnings per share amounts are based on net income after
deducting preferred stock dividend requirements divided by the weighted average
number of Class A and Class B Common shares outstanding during the period.
7
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Redeemable Preferred Stock (continued):
For the three months ended March 31, 1997 and 1998, net loss per common
share was determined by dividing net income (loss), as adjusted by the aggregate
amount of dividends on the Company's Series A Preferred Stock, approximately
$2.1 million and $3.6 million, respectively, by applicable shares outstanding.
5. Long-Term Debt:
<TABLE>
<CAPTION>
Long-term debt consists of the following : December 31, March 31,
1997 1998
---------------- ----------------
<S> <C> <C>
Series B Notes payable by PM&C, due 2005, interest at
12.5%, payable semi-annually in arrears on January 1
and July 1, net of unamortized discount of
$3,018,003 and $2,919,150 as of December 31, 1997
and March 31, 1998, respectively................................ $ 81,981,997 $ 82,080,850
Series A Senior Notes payable by Pegasus, due 2005,
interest at 9.625%, payable semi-annually in arrears on
April 15 and October 15, commencing on April 15, 1998........... 115,000,000 115,000,000
Senior six-year $180.0 million revolving credit facility,
payable by PM&C, interest at the Company's option at
either the bank's base rate plus an applicable margin or
LIBOR plus an applicable margin................................. -- --
Mortgage payable, due 2000, interest at 8.75%....................... 477,664 472,174
Note payable, due 1998, interest at 10%............................. 3,050,000 --
Sellers' notes, various maturities and interest rates............... 7,171,621 14,397,259
Capital leases and other............................................ 673,849 632,357
------------ ------------
208,355,131 212,582,640
Less current maturities............................................. 6,357,320 1,948,549
------------ ------------
Long-term debt...................................................... $201,997,811 $210,634,091
============ ============
</TABLE>
In December 1997, PM&C entered into a $180.0 million six-year senior
revolving credit facility (the "New Credit Facility"), which is collateralized
by substantially all of the assets of PM&C and its subsidiaries. Interest on the
New Credit Facility is, at the Company's option, at either the bank's base rate
plus an applicable margin or LIBOR plus an applicable margin. The New Credit
Facility is subject to certain financial covenants as defined in the loan
agreement, including a debt to adjusted cash flow covenant. The New Credit
Facility will be used to finance future acquisitions and for working capital,
capital expenditures and general corporate purposes. There were no borrowings
outstanding at December 31, 1997 and March 31, 1998.
The Company's indebtedness contain certain financial and operating
covenants, including restrictions on the Company's ability to incur additional
indebtedness, create liens and pay dividends.
8
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Net Loss Per Common Share:
Calculation of Basic and Diluted Earnings Per Common Share:
The following table sets forth the computation of the number of shares
used in the computation of basic and diluted earnings per common share:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1998
------------- -------------
<S> <C> <C>
Net loss applicable to common shares ($692,221) ($15,936,460)
============= =============
Weighted average common shares outstanding 9,554,897 10,332,436
============= =============
</TABLE>
For the three months ended March 31, 1997 and 1998, net loss per common
share was determined by dividing net loss, as adjusted by the aggregate amount
of dividends on the Company's Series A Preferred Stock, approximately $2.1
million and $3.6 million, respectively, by applicable shares outstanding. The
total shares used for the calculation of diluted net loss per common share were
not adjusted for securities that have not been issued as they are antidulitive.
7. Acquisitions:
As of January 7, 1998, the Company acquired, from an independent
DIRECTV(R) ("DIRECTV") provider, the rights to provide DIRECTV programming in
certain rural areas of Minnesota and the related assets in exchange for total
consideration of approximately $1.9 million, which consisted of $1.8 million in
cash and $32,000 in assumed liabilities.
As of March 9, 1998, the Company acquired, from two independent DIRECTV
providers, the rights to provide DIRECTV programming in certain rural areas of
Nebraska and Texas and the related assets in exchange for total consideration of
approximately $15.6 million, which consisted of $5.9 million in cash, $105,000
in assumed liabilities, a $9.4 million note, payable over four years; and
$75,000 in cash and a $150,000 obligation, payable over two years, for
consultancy and non-compete agreements.
The following unaudited summary, prepared on a pro forma basis,
combines the results of operations as if the above DBS territories had been
acquired as of the beginning of the periods presented, after including the
impact of certain adjustments, such as the Company's payments to related
parties, amortization of intangibles, interest expense, preferred stock
dividends and related income tax effects. The pro forma information does not
purport to be indicative of what would have occurred had the acquisitions been
made on those dates or of results which may occur in the future. This pro forma
information does not include any acquisitions that occurred subsequent to March
31, 1998.
9
<PAGE>
PEGASUS COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Acquisitions (continued):
<TABLE>
<CAPTION>
Three Months Ended March 31,
(in thousands, except earnings per share) (unaudited)
1997 1998
---- ----
<S> <C> <C>
Net revenues ....................................... $24,886 $29,928
------- -------
Operating loss ..................................... ($5,375) ($6,453)
------- -------
Net loss ........................................... ($10,793) ($12,511)
Less: Preferred stock dividends ..................... (3,577) (3,577)
------- -------
Net loss applicable to common shares ............ ($14,370) ($16,088)
======= =======
Net loss per common share ........................ ($1.40) ($1.55)
======= =======
</TABLE>
8. Commitments and Contingent Liabilities:
Legal Matters:
From time to time the Company is involved with claims that arise in the
normal course of business. In the opinion of management, the ultimate liability
with respect to these claims will not have a material adverse effect on the
consolidated operations, liquidity, cash flows or financial position of the
Company.
9. Other Events:
In January 1998, the Company entered into an agreement to sell its
remaining New England cable systems for a purchase price of at least $28 million
and not more than $31 million, based on the systems' location cash flow for the
trailing 12 months prior to closing, multiplied by nine. The Company anticipates
this transaction to close in the third quarter of 1998. The Company expects to
report a nonrecurring gain relating to this transaction.
As of April 9, 1998, the Company acquired, from two independent DIRECTV
providers, the rights to provide DIRECTV programming in certain rural areas of
New Mexico and Texas and the related assets in exchange for total consideration
of approximately $14.2 million, which consisted of $13.3 million in cash and
37,304 shares of the Company's Class A Common Stock (amounting to $900,000 at
the time of issuance).
On April 27, 1998, the Company acquired, from Digital Television
Services, Inc. ("DTS"), the rights to provide DIRECTV programming in certain
rural areas of California, Colorado, Georgia, Indiana, Kansas, Kentucky, New
Hampshire, New Mexico, New York, South Carolina and Vermont and the related
assets and liabilities in exchange for total consideration of approximately
$320.8 million, which consisted of approximately 5.5 million shares of the
Company's Class A Common Stock (amounting to $118.8 million at a price of
$21.71 per share) and approximately $202.0 million of assumed net liabilities
(as of March 31, 1998).
10
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) and
information relating to the Company that are based on the beliefs of the
management of the Company, as well as assumptions made by and information
currently available to the Company's management. When used in this Report, the
words "estimate," "project," "believe," "anticipate," "intend," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. For a discussion of such risks, see the information contained in the
section captioned "Risk Factors" (pages 12-21) of Pegasus' Proxy
Statement/Prospectus dated April 14, 1998, filed as part of Pegasus'
Registration Statement in Form S-4, File No. 333-44929 (the "Proxy
Statement/Prospectus"), which section is incorporated by reference herein.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as the date hereof. The Company does not undertake
any obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. Unless otherwise defined, all
defined terms used herein have the same meaning as in the footnotes to the
Consolidated Financial Statements included herein.
General
The Company is a diversified company operating in growing segments of
the media and communications industries: multichannel television and broadcast
television. Pegasus Multichannel Television includes DBS and cable businesses.
As of March 31, 1998, the Company's DBS operations consisted of providing
DIRECTV services to approximately 154,000 subscribers in certain rural areas of
27 states in which the Company holds the exclusive right to provide such
services. Its cable operations consist of systems in New England (Connecticut
and Massachusetts) and Puerto Rico. The Company sold its New Hampshire cable
system effective January 31, 1997. On January 16, 1998, the Company entered into
an agreement to sell its remaining New England cable systems. Pegasus Broadcast
Television owns and operates five TV stations affiliated with Fox and operates
one affiliated with UPN and another affiliated with WB. It has entered into an
agreement to operate two additional TV stations, which will be affiliated with
WB and will commence operations in 1998.
On April 27, 1998, the Company acquired (the "DTS Acquisition") Digital
Television Services, Inc. (DTS). Upon completion of the DTS Acquisition, DTS
became a wholly owned subsidiary of Pegasus. As of March 31, 1998, DTS'
operations consisted of providing DIRECTV services to approximately 144,000
subscribers in certain rural areas of 11 states in which DTS holds the exclusive
right to provide such services.
Multichannel revenues are derived from monthly customer subscriptions,
pay-per-view services, subscriber equipment rentals, home shopping commissions,
advertising time sales and installation charges. Broadcast revenues are derived
from the sale of broadcast airtime to local and national advertisers.
The Company's location operating expenses consist of (i) programming
expenses, (ii) marketing and selling costs, including advertising and promotion
expenses, local sales commissions, and ratings and research expenditures, (iii)
technical and operations costs, (iv) general and administrative expenses, and
(v) expensed subscriber acquisition costs. Multichannel programming expenses
consist of amounts paid to program suppliers, digital satellite system or DSS(R)
("DSS") authorization charges and satellite control fees, each of which is paid
on a per subscriber basis, and DIRECTV royalties which are equal to 5% of DBS
program service revenues. Broadcast programming expenses include the
amortization of long-term program rights purchases, music license costs and
"barter" programming expenses which represent the value of broadcast air time
provided to television program suppliers in lieu of cash.
11
<PAGE>
The Company no longer requires new DBS customers to sign a one-year
programming contract and, as a result, subscriber acquisition costs ("SAC"),
which were being capitalized and amortized over a twelve-month period, are
currently being charged to operations in the period incurred. This change became
effective October 1, 1997. Subscriber acquisition costs charged to operations
are excluded from pre-SAC location operating expenses.
Results of Operations
Three months ended March 31, 1998 compared to three months ended March 31, 1997
The Company's net revenues increased by approximately $13.0 million or
82% for the three months ended March 31, 1998 as compared to the same period in
1997. Multichannel Television net revenues increased $12.9 million or 144% and
Broadcast Television net revenues increased $94,000 or 1%. The net revenues
increased as a result of (i) a $12.5 million or 253% increase in DBS revenues of
which $2.0 million or 16% was due to the increased number of DBS subscribers in
territories owned at the beginning of 1997 and $10.6 million or 84% resulted
from acquisitions made in 1997 and 1998, (ii) a $366,000 or 9% increase in Cable
revenues which was the net result of a $499,000 or 13% increase in same system
revenues due primarily to rate increases and a $133,000 reduction due to the
sale of the Company's New Hampshire cable system effective January 31, 1997,
(iii) a $86,000 or 1% increase in TV revenues which was the net result of a
$230,000 or 3% decrease in same station revenues, primarily as a result of
revenues generated by the Super Bowl in the first quarter of 1997, and a
$316,000 increase due to the two new stations launched on August 1, 1997 and
October 17, 1997, and (iv) a $8,000 increase in Tower rental income.
The Company's total location operating expenses, as described above,
before DBS subscriber acquisition costs increased by approximately $9.7 million
or 95% for the three months ended March 31, 1998 as compared to the same period
in 1997. Multichannel Television pre-SAC location operating expenses increased
$9.0 million or 162% and Broadcast Television location operating expenses
increased $646,000 or 14%. The pre-SAC location operating expenses increased as
a result of (i) a $8.8 million or 255% increase in operating expenses generated
by the Company's DBS operations due to a same territory increase in programming
and other operating costs totaling $1.3 million (resulting from the increased
number of DBS subscribers in territories owned at the beginning of 1997) and a
$7.4 million increase attributable to territories acquired in 1997 and 1998,
(ii) a $268,000 or 13% increase in Cable operating expenses as the net result of
a $334,000 or 16% increase in same system operating expenses due primarily to
increases in programming costs and a $66,000 reduction due to the sale of the
Company's New Hampshire cable system effective January 31, 1997, (iii) a
$649,000 or 14% increase in TV operating expenses as the result of a $106,000 or
2% increase in same station operating expenses and a $543,000 increase
attributable to the two new stations launched on August 1, 1997 and October 17,
1997, and (iv) a $3,000 reduction in Tower administrative expenses.
DBS subscriber acquisition costs, which consist of regional sales
costs, advertising and promotion, and commissions and subsidies, totaled $4.2
million or $283 per gross subscriber addition for the three months ended March
31, 1998.
Incentive compensation, which is calculated from increases in pro forma
Location Cash Flow, increased by approximately $129,000 or 46% for the three
months ended March 31, 1998 as compared to the same period in 1997.
Corporate expenses increased by $279,000 or 69% for the three months
ended March 31, 1998 as compared to the same period in 1997 primarily due to
increased staffing as a result of internal and acquisition related growth,
enhanced public relations activities and additional public reporting
requirements for the Company.
12
<PAGE>
Depreciation and amortization expense increased by approximately $5.0
million or 103% for the three months ended March 31, 1998 as compared to the
same period in 1997 as the Company increased its fixed and intangible asset base
as a result of twenty-five completed acquisitions during 1997 and three
completed acquisitions in the first quarter of 1998.
As a result of these factors, the Company's loss from operations
increased by $5.9 million for the three months ended March 31, 1998 as compared
to the same period in 1997.
Interest expense increased by approximately $2.8 million or 89% for the
three months ended March 31, 1998 as compared to the same period in 1997 as a
result of an increase in debt associated with the Company's acquisitions.
The Company reported a net loss of $12.4 million for the three months
ended March 31, 1998 as compared to net income of approximately $1.4 million for
the same period in 1997. The $13.8 million change was the net result of an
increase in the loss from operations of $5.9 million, an increase in interest
expense of $2.8 million, an increase in the provision for income taxes of
$75,000, an increase in other expenses of approximately $425,000 and a
nonrecurring gain on the sale of the New Hampshire cable system of approximately
$4.5 million during the first quarter of 1997.
The Company's preferred stock dividends, payable by issuing shares of
Series A Preferred Stock, increased $1.5 million for the three months ended
March 31, 1998 as compared to the same period in 1997.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been the net cash
provided by its TV and cable operations, credit available under its credit
facilities and proceeds from public and private offerings. The Company's
principal use of its cash has been to fund acquisitions, to meet debt service
obligations, to fund investment in its TV and cable technical facilities and to
fund DBS subscriber acquisition costs.
Pre-SAC Location Cash Flow increased by $3.3 million or 59% for the
three months ended March 31, 1998 as compared to the same period in 1997.
Multichannel Television Pre-SAC Location Cash Flow increased $3.9 million or
114% and Broadcast Television Location Cash Flow decreased $552,000 or 25%.
Pre-SAC Location Cash Flow increased as a result of (i) a $3.8 million or 250%
increase in DBS Pre-SAC Location Cash Flow of which $657,000 or 17% was due to
an increase in same territory Pre-SAC Location Cash Flow and $3.1 million or 83%
was attributable to territories acquired in 1997 and 1998, (ii) a $98,000 or 5%
increase in Cable Location Cash Flow which was the net result of a $165,000 or
9% increase in same system Location Cash Flow and a $67,000 reduction due to the
sale of the Company's New Hampshire cable system effective January 31, 1997,
(iii) a $563,000 or 26% decrease in TV Location Cash Flow as a result of a
$336,000 or 15% decrease in same station Location Cash Flow, primarily as a
result of the cash flow generated by the Super Bowl in the first quarter of
1997, and a $227,000 decrease attributable to the two new stations launched on
August 1, 1997 and October 17, 1997, and (iv) a $11,000 increase in Tower
Location Cash Flow.
During the three months ended March 31, 1998, $44.0 million of cash on
hand was used to fund operating activities of $3.8 million, investing activities
of $11.0 million and financing activities of $6.3 million. Investing activities
consisted of (i) the acquisition of DBS assets from three independent DIRECTV
providers during the first quarter of 1998 for approximately $7.8 million, (ii)
broadcast television transmitter, tower and facility upgrades totaling
approximately $981,000, (iii) payments of programming rights amounting to
$626,000, and (iv) maintenance and other capital expenditures and intangibles
totaling approximately $1.6 million. Financing activities consisted of the
repayment of approximately $5.4 million of long-term debt and placing $871,000
in restricted cash to collateralize letters of credit. As of March 31, 1998, the
Company's cash on hand approximated $23.0 million.
13
<PAGE>
As defined in the Certificate of Designation, Preferences and Relative,
Participating, Optional and Other Special Rights thereof (the "Certificate of
Designation") governing the Series A Preferred Stock and the indenture governing
the Senior Notes (the "Senior Indenture"), the Company is required to provide
Adjusted Operating Cash Flow data for Pegasus and its Restricted Subsidiaries on
a consolidated basis, where Adjusted Operating Cash Flow is defined as "for the
four most recent fiscal quarters for which internal financial statements are
available, Operating Cash Flow of such Person and its Restricted Subsidiaries,
less DBS Cash Flow (Satellite Segment Operating Cash Flow) for the most recent
four-quarter period, plus DBS Cash Flow for the most recent quarterly period
multiplied by four." Operating Cash Flow is income from operations before income
taxes, depreciation and amortization, interest expense, extraordinary items and
non-cash charges. Although Adjusted Operating Cash Flow is not a measure of
performance under generally accepted accounting principles, the Company believes
that Location Cash Flow, Operating Cash Flow and Adjusted Operating Cash Flow
are accepted within the Company's business segments as generally recognized
measures of performance and are used by analysts who report publicly on the
performance of companies operating in such segments. Restricted Subsidiaries
carries the same meaning as in the Certificate of Designation. Pro forma for the
three completed DBS acquisitions occurring in the first quarter of 1998, as if
such acquisitions occurred on January 1, 1998, Adjusted Operating Cash Flow
would have been approximately $36.7 million, as follows:
<TABLE>
<CAPTION>
Four Quarters
Ended
(in thousands) March 31, 1998
--------------
<S> <C>
Revenues $123,456
Direct operating expenses, excluding depreciation,
Amortization and other non-cash charges 84,188
--------
Income from operations before incentive compensation,
corporate expenses, depreciation, amortization and
other non-cash charges 39,268
Corporate expenses 2,535
--------
Adjusted operating cash flow $ 36,733
========
</TABLE>
The Company is restricted by the Senior Notes Indenture from paying
dividends on the Series A Preferred Stock in cash prior to July 1, 2002.
Additionally, the indenture governing the PM&C Notes (the "PM&C Notes
Indenture") and the New Credit Facility contain certain financial and operating
covenants, including restrictions on PM&C's ability to incur additional
indebtedness, create liens and pay dividends.
Pre-SAC Location Cash Flow is defined as net revenues less location
operating expenses before subscriber acquisition costs. Location Cash Flow is
defined as net revenues less location operating expenses. Although Pre-SAC
Location Cash Flow and Location Cash Flow are not measures of performance under
generally accepted accounting principles, the Company believes that Pre-SAC
Location Cash Flow and Location Cash Flow are accepted within the Company's
business segments as generally recognized measures of performance and are used
by analysts who report publicly on the performance of companies operating in
such segments. Nevertheless, these measures should not be considered in
isolation or as a substitute for income from operations, net income, net cash
provided by operating activities or any other measures for determining the
Company's operating performance or liquidity which is calculated in accordance
with generally accepted accounting principles.
14
<PAGE>
The Company believes that it has adequate resources to meet its working
capital, maintenance capital expenditure and debt service obligations. The
Company engages in discussions with respect to acquisition opportunities in
media and communications businesses on a regular basis. The Company believes
that cash on hand, together with available borrowings under the New Credit
Facility and future indebtedness which may be incurred by the Company and its
subsidiaries will give the Company the ability to fund acquisitions and other
capital requirements in the future. However, there can be no assurance that the
future cash flows of the Company will be sufficient to meet all of the Company's
obligations and commitments.
The Company closely monitors conditions in the capital markets to
identify opportunities for the effective and prudent use of financial leverage.
In financing its future expansion and acquisition requirements, the Company
would expect to avail itself of such opportunities and thereby increase its
indebtedness, which could result in increased debt service requirements. There
can be no assurance that such debt financing can be completed on terms
satisfactory to the Company or at all. The Company may also issue additional
equity to fund its future expansion and acquisition requirements.
Capital Expenditures
The Company's capital expenditures aggregated $9.9 million in 1997. The
Company expects recurring renewal and refurbishment capital expenditures to
total approximately $2.0 million per year. In addition to these maintenance
capital expenditures, the Company's 1998 capital projects include (i) DBS
facility upgrades of approximately $500,000 and (ii) approximately $2.6 million
of TV expenditures for broadcast television transmitter, tower and facility
constructions and upgrades. The Company commenced the programming of two new TV
stations, WPME on August 1, 1997 and WGFL on October 17, 1997 and its plans are
to commence programming of two additional stations in 1998. There can be no
assurance that the Company's capital expenditure plans will not change in the
future.
Effective October 1, 1997, the Company no longer requires new DBS
customers to sign a one-year programming contract and, as a result, subscriber
acquisition costs, which were being capitalized through September 30, 1997 and
amortized over a twelve-month period, will be charged to operations in the
period incurred. The Company's policy is to capitalize subscriber acquisition
costs directly related to new subscribers, such as commissions and equipment
subsidies, who sign a programming contract. These costs are amortized over the
life of the contract. The Company expenses its subscriber acquisition costs when
no new contract is obtained. The Company currently does not require new DBS
customers to sign programming contracts and, as a result, subscriber acquisition
costs are currently being charged to operations in the period incurred.
Other
The Company has reviewed all of its system as to the Year 2000 issue.
The Company has in the past three years replaced or upgraded, or is in the
process of replacing or upgrading, all of its TV traffic systems, cable billing
systems and corporate accounting systems. All of these new systems will be in
place by the third quarter of 1998. The Company relies on outside vendors for
the operation of its DBS satellite control and billing systems, including
DIRECTV, the NRTC and their respective vendors. The Company has established a
policy to ensure that its vendors are currently in compliance with the Year 2000
issue or have a plan in place to be in compliance with the Year 2000 issue by
the first quarter of 1999. Costs to be incurred beyond March 31, 1998 relating
to the Year 2000 issue are not expected to be significant.
On January 16, 1998, the Company entered into an agreement to sell its
remaining New England cable systems to Avalon Cable of New England, LLC for a
purchase price of at least $28 million and not more than $31 million.
15
<PAGE>
On April 27, 1998, the Company acquired DTS for total consideration of
approximately $320.8 million, which consisted of approximately 5.5 million
shares of the Company's Class A Common Stock (amounting to $118.8 million at a
price of $21.71 per share) and approximately $202.0 million of assumed net
liabilities (as of March 31, 1998). Upon completion of the DTS Aquisition, DTS
became a wholly owned subsidiary of Pegasus. As of March 31, 1998, DTS'
operations consisted of providing DIRECTV services to approximately 144,000
subscribers in certain rural areas of 11 states in which DTS holds the exclusive
right to provide such services.
As a holding company, Pegasus' ability to pay dividends is dependent
upon the receipt of dividends from its direct and indirect subsidiaries. Under
the terms of the PM&C Notes Indenture, PM&C is prohibited from paying dividends
prior to July 1, 1998. Under the terms of the New Credit Facility, PM&C is
restricted from paying dividends. In addition, Pegasus' ability to pay dividends
and Pegasus' and its subsidiaries' ability to incur indebtedness are subject to
certain restrictions contained in the Senior Notes Indenture and the Certificate
of Designation governing the Series A Preferred Stock.
PM&C's ability to incur additional indebtedness is limited under the
terms of the PM&C Notes Indenture and the New Credit Facility. These limitations
take the form of certain leverage ratios and are dependent upon certain measures
of operating profitability. Under the terms of the New Credit Facility, capital
expenditures and business acquisitions in excess of certain agreed upon levels
will require lender consent.
The Company's revenues vary throughout the year. As is typical in the
broadcast television industry, the Company's first quarter generally produces
the lowest revenues for the year and the fourth quarter generally produces the
highest revenues for the year. The Company's operating results in any period may
be affected by the incurrence of advertising and promotion expenses that do not
necessarily produce commensurate revenues in the short-term until the impact of
such advertising and promotion is realized in future periods.
The Company believes that inflation has not been a material factor
affecting the Company's business. In general, the Company's revenues and
expenses are impacted to the same extent by inflation. Substantially all of the
Company's indebtedness bears interest at a fixed rate.
The Company has adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share". The Company has
reviewed the provisions of SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", and the implementation of the above standards is not expected to
have any significant impact on its consolidated financial statements.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
16
<PAGE>
Part II. Other Information
Item 5: Other Information
On April 27, 1998, a special meeting of Pegasus' stockholders was held.
At this meeting, votes were cast to approve: (i) the merger agreement relating
to the DTS Acquisition and the transactions contemplated thereby, (ii) the
proposal to amend the Pegasus Restricted Stock Plan to increase the number of
shares of Class A Common Stock that may be issued thereunder from 270,000 to
350,000, (iii) the proposal to amend the Pegasus Communication 1996 Stock Option
Plan to increase the number shares of Class A Common Stock that may be issued
thereunder from 450,000 to 970,000 and to increase the maximum number of shares
of Class A Common Stock that may be issued under options granted to any
executive officer from 275,000 to 550,000, (iv) the proposal to amend the
provision of the Certificate of Designation relating to the Series A Preferred
Stock relating to the incurrence of indebtedness, and (v) the proposal to amend
the definition of a change of control under the Certificate of Designation
relating to the Series A Preferred Stock. All of the proposals were approved by
46,002,740 votes cast in favor of them with the exception of items (ii) and
(iii) above for which 45,999,840 votes were cast in favor and 2,900 votes were
cast against.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1 By-laws of Pegasus Communications Corporation
(As amended and restated effective as of January 1,
1998).
Exhibit 27.1 Financial Data Schedule.
(b) Reports on Form 8-K
On January 12, 1998, Pegasus filed a Current Report on Form 8-K dated
December 10, 1997 reporting under Item 5 the following events: (i) the
completion of DBS acquisitions made during 1997, (ii) information relating to
certain pending DBS Acquisitions, including the DTS Acquisition, (iii) the
entering into the $180.0 million New Credit Facility by PM&C, and (iv) the
entering into a letter of intent to sell Pegasus' New England cable systems. The
Form 8-K includes under Item 7 certain financial statements relating to the
completed and pending DBS acquisitions and pro forma consolidated financial
information giving effect to, among other things, the completed and pending DBS
acquisitions and the sale of the New England cable systems.
On March 3, 1998, Pegasus filed a Current Report on Form 8-K dated
January 16, 1998 reporting under Item 5 that the Company had entered into a
definitive agreement to sell its New England cable systems to Avalon Cable of
New England, LLC. No financial statements were filed with the Form 8-K.
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Pegasus Communications Corporation
Date May 14, 1998 By /s/ Robert N. Verdecchio
------------ --------------------------------
Robert N. Verdecchio
Senior Vice President,
Chief Financial Officer, Assistant
Secretary and Director
(Principal Financial and
Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
Exhibit 3.1 By-laws of Pegasus Communications Corporation (As amended and
restated effective as of January 1, 1998).
Exhibit 27.1 Financial Data Schedule.
<PAGE>
BYLAWS
of
PEGASUS COMMUNICATIONS CORPORATION
(a Delaware corporation)
(As amended and restated effective January 1, 1998)
ARTICLE 1
OFFICES
Section 1.01. Offices. The Corporation may have offices at
such places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.01. Place of Meeting. Meetings of the stockholders
shall be held at such place, within the State of Delaware or elsewhere, as may
be fixed from time to time by the Board of Directors. If no place is so fixed
for a meeting, it shall be held at the Corporation's then principal executive
office.
Section 2.02. Annual Meeting. The annual meeting of
stockholders shall be held, unless the Board of Directors shall fix some other
hour or date therefor, at 10:00 A.M. on the third Tuesday of April in each year,
if not a legal holiday under the laws of Delaware, and, if a legal holiday, then
on the next succeeding secular day not a legal holiday under the laws of
Delaware, at which the stockholders shall elect by plurality vote a Board of
Directors, and transact such other business as may properly be brought before
the meeting.
Section 2.03. Notice of Annual Meetings. Written notice of the
annual meeting stating the place, date and hour of the meeting shall be given to
each stockholder entitled to vote at such meeting not less than 10 days nor more
than 60 days before the date of the meeting.
Section 2.04. List of Stockholders. The officer who has charge
of the stock ledger of the Corporation shall prepare and make, at least 10 days
before every meeting of stockholders, a complete list of stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of
<PAGE>
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be so
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 2.05. Special Meetings. [Amended December 18, 1997]
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute or by the Certificate of Incorporation, may be
called by the Chairman of the Board or the President and shall be called by the
President or Secretary at the request in writing of a majority of the Board of
Directors or of stockholders holding voting stock of the Company with twenty
percent or more of the votes eligible to be cast in the election of directors.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
Section 2.06. Notice of Special Meetings. Written notice of a
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called, shall be given to each stockholder
entitled to vote at such meeting not less than 10 days nor more than 60 days
before the date of the meeting.
Section 2.07. Quorum; Voting. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting. When a quorum is present at any meeting,
except for elections of directors, which shall be decided by plurality vote, the
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before
-2-
<PAGE>
such meeting, unless the question is one upon which by express provision of
statute or of the Certificate of Incorporation, a different vote is required, in
which case such express provision shall govern and control the decision of such
question. Unless otherwise provided in the Certificate of Incorporation, each
stockholder shall at every meeting of stockholders be entitled to one vote in
person or by proxy for each share of the capital stock having voting power held
by such stockholder, but no shares shall be voted pursuant to a proxy more than
three years after the date of the proxy unless the proxy provides for a longer
period.
Section 2.08. Action Without a Meeting. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing setting forth the action so taken shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in the State,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. Every written
consent shall bear the date of signature of each stockholder who signs the
consent and no written consent shall be effective to take the corporate action
referred to therein unless, within sixty days after the earliest dated consent
delivered in the manner required by this Section to the Corporation, written
consents signed by a sufficient number of stockholders to take action are
delivered in the manner required by this Section to the Corporation. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE 3
DIRECTORS
Section 3.01. Number and Term of Office. The number of
directors of the Corporation shall be such number as shall be designated from
time to time by resolution of the Board of Directors and initially shall be two.
The directors shall be elected at the annual meeting of the stockholders, except
as provided in Section 3.02 hereof. Each director elected shall hold office for
a term of one year and shall serve until his successor is elected and qualified
or until his earlier death, resignation or removal. Directors need not be
stockholders.
-3-
<PAGE>
Section 3.02. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and shall qualify, unless sooner displaced. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10 percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
Section 3.03. Resignations. Any director may resign at any
time by giving written notice to the Board of Directors, the Chairman of the
Board, if there is one, the President, or the Secretary. Such resignation shall
take effect at the time of receipt thereof or at any later time specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 3.04. Direction of Management. The business of the
Corporation shall be managed under the direction of its Board of Directors,
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these Bylaws directed or required to be exercised or done by the
stockholders.
Section 3.05. Place of Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 3.06. Annual Meeting. Immediately after each annual
election of directors, the Board of Directors shall meet for the purpose of
organization, election of officers, and the transaction of other business, at
the place where such election of directors was held or, if notice of such
meeting is given, at the place specified in such notice. Notice of such meeting
need not be given. In the absence of a quorum at said meeting, the same may be
held at any other time and place which shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors, or as shall
be specified in a written waiver signed by the directors, if any, not attending
and participating in the meeting.
-4-
<PAGE>
Section 3.07. Regular Meetings. [Amended December 18, 1997]
Regular meetings of the Board of Directors shall be held at least four times in
each fiscal year of the Company and may be held without notice at such time and
place as shall from time to time be determined by the Board.
Section 3.08. Special Meetings. [Amended December 18, 1997]
Special meetings of the Board of Directors may be called by the Chairman of the
Board, if there is one, or the President on 2 days' notice to each director,
either personally (including telephone), or in the manner specified in Section
4.01; special meetings shall be called by the Chairman of the Board, if there is
one, or the President or the Secretary on 10 days' notice given in like manner
to each director on the written request of one-third or more of all the
directors.
Section 3.09. Quorum; Voting. At all meetings of the Board, a
majority of the directors shall constitute a quorum for the transaction of
business; and at all meetings of any committee of the Board, a majority of the
members of such committee shall constitute a quorum for the transaction of
business. The act of a majority of the directors present at any meeting of the
Board of Directors or any committee thereof at which there is a quorum present
shall be the act of the Board of Directors or such committee, as the case may
be, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting of
the Board of Directors or committee thereof, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 3.10. Action Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 3.11. Participation in Meetings. One or more directors
may participate in any meeting of the Board or committee thereof by means of
conference telephone or similar communications equipment by which all persons
participating can hear each other.
Section 3.12. Committees of Directors. The Board of Directors
may, by resolution passed by a majority of the whole Board, designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member
-5-
<PAGE>
at any meeting of the committee. Any such committee, to the extent provided in
the resolution, shall have and may exercise all of the powers and authority of
the Board of Directors and may authorize the seal of the Corporation to be
affixed to all papers which may require it, but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution
providing for the issuance of shares of stock adopted by the Board of Directors,
fix any preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
Bylaws of the Corporation; and, unless the resolution expressly so provides, no
such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors when requested.
Section 3.13. Compensation of Directors. Each director shall
be entitled to receive such compensation, if any, as may from time to time be
fixed by the Board of Directors. Members of special or standing committees may
be allowed like compensation for attending committee meetings. Directors may
also be reimbursed by the Corporation for all reasonable expenses incurred in
traveling to and from the place of each meeting of the Board or of any such
committee or otherwise incurred in the performance of their duties as directors.
No payment referred to herein shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE 4
NOTICES
Section 4.01. Notices. Whenever, under the provisions of law
or of the Certificate of Incorporation or of these Bylaws, notice is required to
be given to any director or stockholder, such requirement shall not be construed
to necessitate personal notice. Such notice may in every instance be effectively
given by depositing a writing in a post office or letter box, in a postpaid,
sealed wrapper, or by dispatching a prepaid telegram, cable, telecopy or telex
or by delivering a writing in a sealed wrapper prepaid to a courier service
guaranteeing delivery within
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<PAGE>
2 business days, in each case addressed to such director or stockholder, at his
address as it appears on the records of the Corporation in the case of a
stockholder and at his business address (unless he shall have filed a written
request with the Secretary that notices be directed to a different address) in
the case of a director. Such notice shall be deemed to be given at the time it
is so dispatched.
Section 4.02. Waiver of Notice. Whenever, under the provisions
of law or of the Certificate of Incorporation or of these Bylaws, notice is
required to be given, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time of the event
for which notice is to be given, shall be deemed equivalent thereto. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE 5
OFFICERS
Section 5.01. Number. The officers of the Corporation shall be
a President, a Secretary and a Treasurer, and may also include a Chairman of the
Board, one or more Vice Presidents, one or more Assistant Secretaries and
Assistant Treasurers, and such other officers as may be elected by the Board of
Directors. Any number of offices may be held by the same person.
Section 5.02. Election and Term of Office. The officers of the
Corporation shall be elected by the Board of Directors. Officers shall hold
office at the pleasure of the Board.
Section 5.03. Removal. Any officer may be removed at any time
by the Board of Directors. Any vacancy occurring in any office of the
Corporation may be filled by the Board of Directors.
Section 5.04. Chairman of the Board. The Chairman of the
Board, if there is one, shall preside at all meetings of the Board of Directors
and shall perform such other duties, if any, as may be specified by the Board
from time to time.
Section 5.05. President. The President shall be the chief
executive officer of the Corporation and shall have overall responsibility for
the management of the business and operations of the Corporation and shall see
that all orders and resolutions of the Board are carried into effect. In the
absence of the Chairman of the Board he shall preside over meetings of the Board
of Directors. In general, he shall perform all duties incident to the office of
President, and such other duties as from time to time may be assigned to him by
the Board.
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<PAGE>
Section 5.06. Vice Presidents. The Vice Presidents shall
perform such duties and have such authority as may be specified in these Bylaws
or by the Board of Directors or the President. In the absence or disability of
the President, the Vice Presidents, in order of seniority established by the
Board of Directors or the President, shall perform the duties and exercise the
powers of the President.
Section 5.07. Secretary. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the stockholders and of the Board
of Directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or the President. He shall have custody of the corporate seal of
the Corporation and he, or an Assistant Secretary, shall have authority to affix
the same to any instrument, and when so affixed it may be attested by his
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature.
Section 5.08. Assistant Secretaries. The Assistant Secretary
or Secretaries shall, in the absence or disability of the Secretary, perform the
duties and exercise the authority of the Secretary and shall perform such other
duties and have such other authority as the Board of Directors or the President
may from time to time prescribe.
Section 5.09. Treasurer. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board of Directors or the President or the Chief Financial Officer, taking
proper vouchers for such disbursements, and shall render to the Board of
Directors when the Board so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation.
Section 5.10. Assistant Treasurers. The Assistant Treasurer or
Treasurers shall, in the absence or disability of the Treasurer, perform the
duties and exercise the authority of the Treasurer and shall perform such other
duties and have such other authority as the Board of Directors may from time to
time prescribe.
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<PAGE>
ARTICLE 6
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6.01. Indemnification. Any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving while a director or officer of
the Corporation at the request of the Corporation as a director, officer,
employee, agent, fiduciary or other representative of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
shall be indemnified by the Corporation against expenses (including attorneys'
fees), judgments, fines, excise taxes and amounts paid in settlement actually
and reasonably incurred by such person in connection with such action, suit or
proceeding to the full extent permissible under Delaware law.
Section 6.02. Advances. Any person claiming indemnification
within the scope of Section 6.01 shall be entitled to advances from the
Corporation for payment of the expenses of defending actions against such person
in the manner and to the full extent permissible under Delaware law.
Section 6.03. Procedure. On the request of any person
requesting indemnification under Section 6.01, the Board of Directors or a
committee thereof shall determine whether such indemnification is permissible or
such determination shall be made by independent legal counsel if the Board or
committee so directs or if the Board or committee is not empowered by statute to
make such determination.
Section 6.04. Other Rights. The indemnification and
advancement of expenses provided by this Article 6 shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any insurance or other agreement, vote of
shareholders or disinterested directors or otherwise, both as to actions in
their official capacity and as to actions in another capacity while holding an
office, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such person.
Section 6.05. Insurance. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee, agent,
fiduciary or other representative of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against any liability
asserted against him and incurred by him in any
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<PAGE>
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of these Bylaws.
Section 6.06. Modification. The duties of the Corporation to
indemnify and to advance expenses to a director or officer provided in this
Article 6 shall be in the nature of a contract between the Corporation and each
such director or officer, and no amendment or repeal of any provision of this
Article 6 shall alter, to the detriment of such director or officer, the right
of such person to the advancement of expenses or indemnification related to a
claim based on an act or failure to act which took place prior to such
amendment, repeal or termination.
ARTICLE 7
CERTIFICATES OF STOCK
Section 7.01. Stock Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate in the form prescribed by
the Board of Directors signed on behalf of the Corporation by the Chairman of
the Board or the President or a Vice President and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, representing the number of shares owned by him in the Corporation.
Any or all signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if such person were such officer,
transfer agent, or registrar at the date of issue.
Section 7.02. Lost Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 7.03. Transfers of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper
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<PAGE>
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 7.04. Fixing Record Date. The Board of Directors of
the Corporation may fix a record date for the purpose of determining the
stockholders entitled to notice of, or to vote at, any meeting of stockholders
or any adjournment thereof, or to consent to corporate action in writing without
a meeting, or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action.
Such record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors and such record date shall not
be (i) in the case of such a meeting of stockholders, more than 60 nor less than
10 days before the date of the meeting of stockholders, or (ii) in the case of
consents in writing without a meeting, more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors, or (iii) in other cases, more than 60 days prior to the payment or
allotment or change, conversion or exchange or other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting unless the Board of
Directors fixes a new record date for the adjourned meeting.
Section 7.05. Registered Stockholders. The Corporation shall
be entitled to recognize the exclusive right of a person registered on its books
as the owner of stock to receive dividends and to vote as such owner, and shall
be entitled to hold liable for calls and assessments a person registered on its
books as the owner of stock, and shall not be bound to recognize any equitable
or other claim to, or interest in, such stock on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE 8
AMENDMENTS
Section 8.01. Amendments. These Bylaws may be altered, amended
or repealed, and new Bylaws may be adopted, by the stockholders or by the Board
of Directors at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting.
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets of Pegasus Communication Corporation as of December
31, 1997 and March 31, 1998 (unaudited) and the related consolidated statements
of operations and cash flows for the three months ended March 31, 1997
(unaudited) and March 31, 1998 (unaudited). This information is qualified in its
entirety by reference to such financial information.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 23,012,116
<SECURITIES> 0
<RECEIVABLES> 12,171,860
<ALLOWANCES> 218,000
<INVENTORY> 1,134,410
<CURRENT-ASSETS> 43,505,540
<PP&E> 53,785,870
<DEPRECIATION> 26,240,354
<TOTAL-ASSETS> 370,614,535
<CURRENT-LIABILITIES> 26,176,042
<BONDS> 82,080,850
114,841,277
3,000,000
<COMMON> 103,553
<OTHER-SE> 12,030,672
<TOTAL-LIABILITY-AND-EQUITY> 370,614,535
<SALES> 28,783,692
<TOTAL-REVENUES> 28,783,692
<CGS> 0
<TOTAL-COSTS> 35,085,854
<OTHER-EXPENSES> 6,707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,975,738
<INCOME-PRETAX> (12,284,607)
<INCOME-TAX> 75,000
<INCOME-CONTINUING> (12,359,607)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,359,607)
<EPS-PRIMARY> (1.54)
<EPS-DILUTED> (1.54)
</TABLE>
