<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996
--------------
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 33-95042
--------
PEGASUS MEDIA & COMMUNICATIONS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2778525
-------- ----------
(State of other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)
c/o BDI Associates, L.P.; 100 Matsonford Road
5 Radnor Corporate Center; Suite 454, Radnor, PA 19087
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (610) 341-1801
--------------
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 April 30, 1996:
Class A, Common Stock, $0.01 par value 161,500
Class B, Common Stock, $0.01 par value 8,500
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
Form 10-Q
Table of Contents
For the Quarterly Period Ended March 31, 1996
Page
----
Part I. Financial Information
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1995 and March 31, 1996 3
Consolidated Statements of Operations
Three months ended March 31, 1995 and 1996 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1995 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. 15
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K. 17
Signature 17
2
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1995 March 31, 1996
----------------- --------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $11,966,567 $ 3,653,859
Restricted cash 9,881,198 4,818,962
Accounts receivable, less allowance for doubtful
accounts at December 31, 1995 and March 31, 1996,
of $238,000 and $291,000, respectively 4,881,687 5,189,643
Program rights 931,664 1,299,340
Inventory 1,100,899 924,193
Deferred taxes 42,440 77,887
Prepaid expenses and other 297,861 507,305
----------- ------------
Total current assets 29,102,316 16,471,189
Property and equipment, net 16,263,851 21,311,174
Intangible assets, net 48,025,491 60,706,045
Program rights 1,932,680 2,023,381
Deposits and other 92,325 92,325
----------- ------------
Total assets $95,416,663 $100,604,114
=========== ============
LIABILITIES AND TOTAL EQUITY
Current liabilities:
Notes payable $164,373 $55,173
Current portion of long-term debt 239,934 262,280
Accounts payable 3,136,310 3,509,724
Accrued interest 5,173,745 2,688,609
Accrued expenses 1,868,142 2,349,967
Current portion of program rights payable 1,141,793 1,835,051
----------- ------------
Total current liabilities 11,724,297 10,700,804
----------- ------------
Long-term debt, net 82,234,005 91,460,486
Program rights payable 1,421,399 1,449,178
Deferred taxes 211,902 77,887
----------- ------------
Total liabilities 95,591,603 103,688,355
Commitments and contingent liabilities -- --
Total equity (deficiency)
Class A common stock 1,615 1,615
Class B common stock 85 85
Additional paid-in capital 7,880,848 7,880,848
Retained earnings (deficit) 1,325,548 (477,423)
Partners' deficit (9,383,036) (10,489,366)
----------- ------------
Total equity (deficiency) (174,940) (3,084,241)
----------- ------------
Total liabilities and equity $95,416,663 $100,604,114
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1995 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Revenues:
Broadcasting revenue, net of agency commissions $2,788,673 $3,886,329
Barter programming revenue 1,004,360 1,074,665
Basic and satellite service 2,236,086 2,864,858
Premium services 389,423 453,650
Other 269,663 121,459
---------- ----------
Total revenues 6,688,205 8,400,961
---------- ----------
Operating expenses:
Barter programming expense 1,004,360 1,074,665
Programming 1,288,940 1,663,967
General and administrative 865,093 1,257,612
Technical and operations 673,861 805,415
Marketing and selling 1,036,899 1,044,250
Incentive compensation 147,414 120,884
Management fees 331,423 452,876
Depreciation and amortization 1,876,374 2,346,161
---------- ----------
Loss from operations (536,159) (364,869)
Interest expense (1,649,910) (2,895,483)
Interest income -- 101,251
Other expenses, net (75,480) (25,075)
---------- ----------
Loss before income taxes (2,261,549) (3,184,176)
Provision (benefit) for income taxes 141,000 (169,462)
---------- ----------
Net loss ($2,402,549) ($3,014,714)
========== ==========
Loss per share:
Net loss ($14.88) ($17.73)
========== ==========
Weighted average shares outstanding 161,500 170,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1995 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,402,549) ($3,014,714)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 1,876,374 2,346,161
Program rights amortization 411,767 344,197
Accretion on discount of bonds -- 97,904
Gain on disposal of fixed assets (1,000) --
Bad debt expense 38,698 65,170
Deferred income taxes 141,000 (169,462)
Payments of programming rights (393,830) (351,174)
Change in assets and liabilities, net of acquisitions:
Accounts receivable 719,064 741,616
Inventory (36,990) 176,706
Restricted cash -- 5,062,236
Prepaid expenses and other 877 4,983
Accounts payable and accrued expenses 218,732 (867,786)
Accrued interest 248,151 (2,485,136)
Deposits and other (6,595) 15,005
---------- ----------
Net cash provided by operating activities 813,699 1,965,706
Cash flows from investing activities:
Acquisitions -- (15,007,329)
Capital expenditures (766,115) (926,719)
Purchase of intangible assets (1,887,529) (270,312)
Other (188,999) (157,500)
---------- ----------
Net cash used for investing activities (2,842,643) (16,361,860)
Cash flows from financing activities:
Proceeds from long-term debt 530,000 106,238
Borrowings on revolving credit facility 2,591,335 6,000,000
Proceeds from long-term borrowings
from related parties 13,000 --
Repayments of long-term debt (12,818) --
Capital lease repayments (38,249) (22,792)
---------- ----------
Net cash provided by financing activities 3,083,268 6,083,446
Net increase (decrease) in cash and cash equivalents 1,054,324 (8,312,708)
Cash and cash equivalents, beginning of period 1,376,224 11,966,567
---------- ----------
Cash and cash equivalents, end of period $2,430,548 $3,653,859
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company:
Pegasus Media & Communications, Inc. ("Pegasus" or together with its
subsidiaries stated below, the "Company"), is a diversified media and
communications company whose subsidiaries consist of Pegasus Broadcast
Television, Inc. ("PBT"), Pegasus Cable Television, Inc. ("PCT"), Pegasus
Broadcast Associates, L.P. ("PBA"), Pegasus Satellite Television, Inc. ("PST")
and MCT Cablevision, Limited Partnership ("MCT"). PBT operates broadcast
television stations affiliated with the Fox Broadcasting Company television
network ("Fox"). PCT, together with its subsidiary, Pegasus Cable Television of
Connecticut, Inc. ("PCT-CT") and MCT operate cable television systems that
provide service to individual and commercial subscribers in New England and
Puerto Rico, respectively. PST provides direct broadcast satellite service to
customers in the New England area. PBA holds a television station license which
simulcasts programming from a station operated by PBT. The Company is a
subsidiary of Pegasus Communications Holdings, Inc. ("PCH").
2. Summary of Significant Accounting Policies:
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 consolidated financial
statements include the accounts of Pegasus, PBT, PCT, PST, PBA and MCT. All
significant intercompany transactions and balances have been eliminated in
consolidation.
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 of financial position and results of
operations for the interim period.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues, expenses, assets and
liabilities and disclosure of contingencies. Actual results could differ from
those estimates.
Inventories:
Inventories consist of equipment held for resale to customers and
installation supplies. Inventories are stated at lower of cost or market on a
first-in, first-out basis.
Revenue:
The Company operates in three industry segments: broadcast television
("TV"), cable television ("Cable") and direct broadcast satellite television
("DBS"). The Company recognizes revenue in its TV operations when advertising
spots are broadcasted. The Company recognizes revenue in its Cable and DBS
operations when video and audio services are provided.
6
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies (continued):
Programming:
The Company obtains a portion of its programming, including presold
advertisements, through its network affiliation agreement with Fox and also
through independent producers. The Company does not make any direct payments for
this programming. For running network programming, the Company receives payments
from Fox. For running independent producers' programming, the Company receives
no direct payments. Instead, the Company retains a portion of the available
advertisement spots to sell on its own account. Barter programming revenue and
the related expense are recognized when the presold advertisements are
broadcasted. These amounts are presented gross as barter programming revenue and
expense in the accompanying consolidated statements of operations.
Cash, Cash Equivalents and Restricted Cash:
Cash and cash equivalents include highly liquid investments purchased
with an initial maturity of three months or less. The Company has cash balances
in excess of the federally insured limits at various banks. At March 31, 1996,
the Company had $4,819,000 held in escrow that may be disbursed from the escrow
only to pay interest on its 12.5% Series B Senior Subordinated Notes due 2005
(the "Series B Notes" or "Notes").
Earning per Share:
Loss per share is calculated based on the retroactive application of
the stock exchange which occurred on July 7, 1995.
3. Common Stock:
At March 31, 1996 and December 31, 1995, common stock consists of the
following:
Pegasus Class A common stock, $0.01 par value;
230,000 shares authorized; 161,500 issued and
outstanding . . . . . . . . . . . . . . . . . . $1,615
. . . . . . . . . .
Pegasus Class B common stock, $0.01 par value;
20,000 shares authorized; 8,500 issued and
outstanding . . . . . . . . . . . . . . . . . . 85
. .
----------
Total common stock . . . . . . . . . . . . . . $1,700
==========
On July 7, 1995, as part of a plan of reorganization, the Company
agreed to exchange 161,500 shares of Class A Common Stock for all of the
existing common stock outstanding of the Company, all outstanding shares of PST
and a 99% limited interest in PBA. The Company also acquired all of the
outstanding interests of MCT for nominal consideration. Additionally, the
Company issued 8,500 shares of Class B Common stock on July 7, 1995 in
connection with the note offering (see footnote 4).
7
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Long-Term Debt:
Long-term debt consists of the following at:
December 31, March 31,
1995 1996
------------ ---------
Series B senior subordinated notes, due 2005,
interest at 12.5%, payable semi-annually in
arrears on January 1, and July 1, net of
unamortized discount of $3,804,546 and
$3,706,642 as of December 31, 1995 and March
31, 1996, respectively....................... $81,195,454 $81,293,358
Senior five year revolving credit facility dated
July 7, 1995, interest at the Company's option
at either the bank's prime rate, plus an
applicable margin or LIBOR, plus an applicable
margin (8.19% at March 31, 1996)............. -- 6,000,000
Mortgage payable, due 2000, interest at 8.75%.... 517,535 512,923
Other............................................ 760,950 3,916,485
----------- -----------
82,473,939 91,722,766
Less current maturities.......................... 239,934 262,280
----------- -----------
Long-term debt................................... $82,234,005 $91,460,486
=========== ===========
On July 7, 1995, the Company sold 85,000 units consisting of
$85,000,000 12.5% Series A Senior Subordinated Notes due 2005 and 8,500 shares
of Class B Common stock. The net proceeds from the sale were used to (i) repay
approximately $38.6 million in loans and other obligations, (ii) repurchase
$26.0 million of notes for approximately $13.0 million resulting in an
extraordinary gain of $10.2 million, net of expenses of $2.8 million, (iii) make
a $12.5 million distribution to PCH, (iv) escrow $9.7 million for the purpose of
paying interest on the Notes, (v) pay $3.3 million in fees and expenses and (vi)
fund proposed acquisitions.
5. Commitments and Contingent Liabilities:
Legal Matters:
The operations of the Company are subject to regulation by the Federal
Communications Commission ("FCC") and other franchising authorities, including
the Connecticut Department of Public Utility Control ("DPUC").
During 1994, the DPUC ordered a reduction in the rates charged by
PCT-CT for its basic cable service tier and equipment charges and refunds for
related overcharges, plus interest, retroactive to September 1, 1993 requiring
PCT-CT to issue refunds totaling $141,000. In December 1994, the Company filed
an appeal with the FCC. In March 1995, the FCC granted a stay of the DPUC's rate
reduction and refund order pending the appeal. The FCC has not ruled on the
appeal and the outcome cannot be predicted with any degree of certainty. The
Company believes it will prevail in its appeal. In the event of an adverse
ruling, the Company expects to make refunds in kind rather than cash.
In 1993, the Massachusetts Community Antenna Television Commission
("MCATC") initiated proceedings to review PCT's rates and charges. The review
process is ongoing and MCATC has not issued any decisions in the proceedings.
8
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Commitments and Contingent Liabilities (continued):
The Company is currently contesting a claim for unpaid premiums on its
workers insurance policy assessed by the state insurance fund of Puerto Rico.
Based upon current information available, the Company's liability related to the
claim is estimated to be less than $200,000.
In the opinion of management, the ultimate liability with respect to
the above claims will not have a material adverse effect on the combined
operations, cash flows or financial position of the Company.
6. Acquisitions:
On January 29, 1996, PCH, the parent of the Company entered into
agreements to acquire Bride Communications, Inc. (BCI) and its wholly owned
subsidiary HMW, Inc., licensee of WPXT, Portland, Maine. WPXT is the Fox
affiliated television station serving the Portland/Auburn market. Upon
completion of the acquisition of BCI and HMW, the BCI shareholders will receive
500 shares of PCH Series B preferred stock and 500 shares of PCH Series C
preferred stock in exchange for 100% of the capital stock of BCI. Consummation
of the acquisitions is subject to FCC consent and other conditions. In addition,
PCH acquired 100% of the outstanding stock of Portland Broadcasting, Inc. (PBI)
in exchange for one share of PCH Series A preferred stock. Immediately after the
exchange, PCH transferred ownership of PBI to the Company. This acquisition was
accounted for using the purchase method and the operating results of PBI have
been included in the Company's results since the date of acquisition. PBI
programs WPXT under a Time Brokerage Agreement with HMW, Inc.
The aggregate purchase price of PBI amounted to $11,410,000, including
the costs of acquisition. The Company recorded $7,490,000 of goodwill in
connection with the acquisition of PBI.
On March 8, 1996, the Company acquired the principal tangible assets of
WTLH, Inc. and certain of its affiliates, except for the FCC license and Fox
affiliation agreement, effective March 1, 1996. Additionally, WTLH License
Corp., an unrestricted subsidiary of the Company, entered into a put/call
agreement regarding the FCC license and Fox affiliation agreement with General
Management Consultants, Inc. ("GMC"), the licensee of WTLH, Tallahassee,
Florida. WTLH is the Fox affiliated television station serving the Tallahassee
market. This acquisition was accounted for using the purchase method and the
operating results of WTLH, Inc. have been included in the Company's results
since the date of acquisition. As a result of entering into the put/call
agreement, the Company recorded $3,050,000 in intangible assets and long term
debt representing the FCC license and Fox affiliation agreement and the related
contingent liability. The Company programs WTLH under a Time Brokerage Agreement
with GMC.
The aggregate purchase price of the principal assets of WTLH, Inc.
amounted to $8,350,000, including the costs of acquisition. The Company recorded
no goodwill in connection with the acquisition of WTLH, Inc.
The following summary, prepared on a pro forma basis, combines the
results of operations as if the above stations had been acquired as of the
beginning of the periods presented, after including the impact of certain
adjustments, such as the Company's reduced commission rate, payments to related
parties, amortization of intangibles, interest expense and related income tax
effects.
1995 1996
---- ----
Net Revenues . . . . . . . . $8,027,000 $9,170,000
============ ============
Operating loss. . . . . . . . $(634,000) $(277,000)
============ ============
Net loss . . . . . . . . . . . $(3,033,000) $(3,482,000)
============ ============
Net loss per share . . . . . $(18.78) $(20.48)
============ ============
9
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Other Events:
On March 21, 1996, the Company entered into a definitive agreement to
acquire all of the assets of Dom's Tele-Cable, Inc. ("Dom's"). Dom's operates
cable systems serving ten communities contiguous to the Company's Mayaguez cable
system.
8. Other Information (unaudited):
As defined in the Indenture governing the Series B Notes, the Company
is required to provide Adjusted Operating Cash Flow 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 (PST 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 management fees and incentive compensation.
The term "Restricted Subsidiaries" has the meaning assigned to it as in the
Indenture. Pro forma for the acquisitions of WPXT and WTLH, Adjusted Operating
Cash Flow would have been approximately $12,173,000.
Twelve Months
Ended
March 31, 1996
--------------
Net revenues $33,762,000
Direct operating expenses, excluding incentive
compensation and management fees 22,127,000
-----------
Income from operations before incentive
compensation, management fees and
depreciation and amortization 11,635,000
Allowable cash portion of incentive
compensation and management fees 1,050,000
-----------
Operating cash flow 10,585,000
Less DBS cash flow, last twelve months (42,000)
Plus DBS cash flow, last quarter annualized 372,000
-----------
Adjusted operating cash flow $10,915,000
===========
9. Subsidiary Guarantees:
The Series B Notes are guaranteed on a full, unconditional, senior
subordinated basis, jointly and severally by each of the wholly-owned direct and
indirect subsidiaries of Pegasus with the exception of PCT-CT (the "Guarantor
Subsidiaries"). PCT-CT, a wholly-owned subsidiary of PCT and an indirect
subsidiary of the Company, is not a guarantor of the Series B Notes
("Non-guarantor"). As the result of PCT-CT not being a guarantor of the Series B
Notes, the following condensed combining financial statements have been
provided. The Company believes separate financial statements and other
disclosures concerning the Guarantor Subsidiaries are not deemed material to
investors.
10
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Subsidiary Guarantees (continued):
Condensed Consolidated Balance Sheets
(in thousands-unaudited)
<TABLE>
<CAPTION>
As of March 31, 1996 Guarantor Non-guarantor
Subsidiaries Subsidiary Pegasus Eliminations Totals
------------ ---------- ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $3,364 $290 $3,654
Restricted cash 0 0 $4,819 4,819
Accounts receivable, net 5,148 42 5,190
Other current assets (4,691) 995 6,934 ($430) 2,808
---------------------------------------------------------------
Total current assets 3,821 1,327 11,753 (430) 16,471
Property and equipment, net 19,083 2,228 21,311
Intangible assets, net 56,503 493 3,710 60,706
Other assets 2,116 2,116
Investment in subsidiaries and affiliates 2,849 72,557 (75,406) 0
---------------------------------------------------------------
Total assets $84,372 $4,048 $88,020 ($75,836) $100,604
===============================================================
Liabilities and total equity:
Current portion of long-term debt $236 $456 ($430) $262
Accounts payable 3,200 310 3,510
Other current liabilities 3,880 358 $2,690 6,928
---------------------------------------------------------------
Total current liabilities 7,316 1,124 2,690 (430) 10,700
Long-term debt 73,664 4,280 81,293 (67,777) 91,460
Other liabilities 1,341 99 88 1,528
---------------------------------------------------------------
Total Liabilities 82,321 5,503 84,071 (68,207) 103,688
Total equity (deficit) 2,051 (1,455) 3,949 (7,629) (3,084)
---------------------------------------------------------------
Total liabilities and equity $84,372 $4,048 $88,020 ($75,836) $100,604
===============================================================
As of December 31, 1995
Assets:
Cash and cash equivalents $2,383 $651 $8,933 $11,967
Restricted cash 0 0 9,881 9,881
Accounts receivable, net 4,823 58 4,881
Other current assets 4,242 444 (1,887) ($426) 2,373
---------------------------------------------------------------
Total current assets 11,448 1,153 16,927 (426) 29,102
Property and equipment, net 14,103 2,161 16,264
Intangible assets, net 43,711 532 3,782 48,025
Other assets 2,022 4 2,026
Investment in subsidiaries and affiliates 2,870 72,533 (75,403) 0
---------------------------------------------------------------
Total assets $74,154 $3,850 $93,242 ($75,829) $95,417
===============================================================
Liabilities and total equity:
Current portion of long-term debt $210 $456 ($426) $240
Accounts payable 2,982 154 3,136
Other current liabilities 2,899 314 $5,135 8,348
---------------------------------------------------------------
Total current liabilities 6,091 924 5,135 (426) 11,724
Long-term debt 64,445 4,352 81,195 (67,758) 82,234
Other liabilities 1,533 13 $88 1,634
---------------------------------------------------------------
Total Liabilities 72,069 5,289 86,418 (68,184) 95,592
Total equity (deficit) 2,085 (1,439) 6,824 (7,645) (175)
---------------------------------------------------------------
Total liabilities and equity $74,154 $3,850 $93,242 ($75,829) $95,417
===============================================================
</TABLE>
11
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Subsidiary Guarantees (continued):
Condensed Consolidated Statements of Operations
For the Three Months ended March 31, 1996
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiary Pegasus Eliminations Totals
------------ ---------- ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Total revenue $7,750 $676 ($25) $8,401
Total operating expenses 8,095 580 $116 (25) 8,766
---------------------------------------------------------------
Income (loss) from operations (345) 96 (116) (365)
Interest expense 2,158 112 2,860 (2,235) 2,895
Other 25 (101) (76)
---------------------------------------------------------------
Income (loss) before income
taxes (2,528) (16) (2,875) 2,235 (3,184)
Provision for income taxes (169) (169)
---------------------------------------------------------------
Net income (loss) ($2,359) ($16) ($2,875) $2,235 ($3,015)
===============================================================
</TABLE>
Condensed Consolidated Statements of Operations
For the Three Months ended March 31, 1995
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiary Pegasus Eliminations Totals
------------ ---------- ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Total revenue $6,080 $633 ($25) $6,688
Total operating expenses 6,730 519 (25) 7,224
---------------------------------------------------------------
Income (loss) from operations (650) 114 (536)
Interest expense 1,650 136 $2,037 (2,173) 1,650
Other 76 76
---------------------------------------------------------------
Income (loss) before income
taxes (2,376) (22) (2,037) 2,173 (2,262)
Provision for income taxes 141 141
---------------------------------------------------------------
Net loss ($2,517) ($22) ($2,037) $2,173 ($2,403)
===============================================================
</TABLE>
12
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Subsidiary Guarantees (continued):
Condensed Consolidated Statements of Cash Flows
For the Three Months ended March 31, 1996
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiary Pegasus Eliminations Totals
------------ ---------- ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($2,359) ($16) ($2,875) $2,235 ($3,015)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary gain on
extinguishment of debt
Depreciation and amortization 2,089 162 95 2,346
Program rights amortization 344 344
Change in assets and liabilities
Accounts receivable 754 13 (25) 742
Accounts payable and accrued expenses 1,252 201 (2,597) (2,210) (3,354)
Prepaids and other 24 (11) 7 20
Other (182) 3 5,062 4,883
-----------------------------------------------------------------
Net cash provided by operating activities 1,922 352 (308) 1,966
Cash flows from investing activities:
Capital expenditures (739) (188) (927)
Purchase of intangible assets (244) (4) (22) (270)
Other (15,007) (158) (15,165)
-----------------------------------------------------------------
Net cash used by investing activities (15,990) (192) (180) (16,362)
Cash flows from financing activities:
Proceeds from long-term debt 6,080 26 6,106
Repayment of long-term debt (15) (8) (23)
Other 51 (539) 488
-----------------------------------------------------------------
Net cash provided (used) by financing activities 6,116 (521) 488 6,083
Net decrease in cash and cash equivalents (7,952) (361) (8,313)
Cash and cash equivalents, beginning of period 11,316 651 11,967
-----------------------------------------------------------------
Cash and cash equivalents, end of period $3,364 $290 $3,654
=================================================================
</TABLE>
13
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Subsidiary Guarantees (continued):
Condensed Consolidated Statements of Cash Flows
For the Three Months ended March 31, 1995
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiary Pegasus Eliminations Totals
------------ ---------- ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($2,517) ($22) ($2,037) $2,173 ($2,403)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 1,728 148 1,876
Program rights amortization 412 412
Change in assets and liabilities
Accounts receivable 680 64 (25) 719
Accounts payable and accrued expenses 588 (10) 2,037 (2,148) 467
Prepaids and other 25 (31) (6)
Other (254) 3 (251)
---------------------------------------------------------------------
Net cash provided by operating activities 662 152 814
Cash flows from investing activities:
Capital expenditures (719) (47) (766)
Purchase of intangible assets (1,818) (70) (1,888)
Other (209) 20 (189)
---------------------------------------------------------------------
Net cash used by investing activities (2,746) (97) (2,843)
Cash flows from financing activities:
Proceeds from long-term debt 3,121 3,121
Repayment of long-term debt 37 (88) (51)
Other 134 (120) 14
---------------------------------------------------------------------
Net cash provided (used) by financing activities 3,292 (208) 3,084
Net increase (decrease) in cash 1,208 (153) 1,055
Cash and cash equivalents, beginning of period 1,066 310 1,376
---------------------------------------------------------------------
Cash and cash equivalents, end of period $2,274 $157 $2,431
=====================================================================
</TABLE>
14
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company operates in three media and communication businesses: TV,
Cable and DBS. The Company's TV operations owns and operates five Fox affiliated
television stations. The principal tangible assets of two of such stations were
acquired in the first quarter of 1996. Its cable operations consist of systems
in New England and Puerto Rico. DBS operations consist of providing DIRECTV
service in certain areas of New England in which the Company holds the exclusive
right to provide such services.
TV revenues are derived from the sale of broadcast air time to local
and national advertisers. Cable revenues are derived from monthly subscriptions,
pay-per-view services, subscriber equipment rentals, home shopping commissions,
advertising time sales and installation charges. DBS revenues are derived from
monthly customer subscriptions, pay-per-view services, gross profit on sales of
the DSS equipment required for reception of DIRECTV (the "Digital Satellite
System" or "DSS") and DSS equipment rentals, leases and installation charges.
The Company's direct 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)
incentive compensation. TV 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 TV program
suppliers in lieu of cash. Cable programming expenses typically consist of
amounts paid to program suppliers on a per subscriber basis. DBS programming
expenses consist of amounts paid to program suppliers and DSS authorization
charges, each of which is paid on a per subscriber basis, DIRECTV royalties and
satellite control fees.
Discussion and Analysis of Operating Results
Three months ended March 31, 1996 compared to Three months ended March 31, 1995
The Company's revenues increased by approximately $1,713,000 for the
three months ended March 31, 1996 as compared to the same period in 1995 as a
result of (i) a $1,114,000 or 28% increase in TV revenues, of which $358,000 or
30% was due to ratings growth that the Company was able to convert into higher
revenues, and $756,000 or 70% was due to acquisitions made since the first of
the year, (ii) a $158,000 or 10% increase in New England cable revenues due
primarily to rate increases implemented in August 1995, (iii) a $16,000 or 2%
increase in Puerto Rico cable revenues due to subscriber increases and (iv) a
$425,000 or 178% increase in revenue from the increased number of DBS
subscribers.
The Company's total direct operating expenses increased by
approximately $950,000 for the three months ended March 31, 1996 as compared to
the same period in 1995 as a result of (i) a $522,000 or 16% increase in TV
operating expenses as the net result of a $40,000 or 1% decrease in same station
direct operating expenses and a $562,000 or 17% increase in direct operating
expenses from acquisitions made since the first of the year, (ii) a $89,000 or
10% increase in New England cable operating expenses due primarily to increases
in programming costs and technical costs associated with various maintenance
projects resulting from severe winter weather, (iii) a $35,000 or 5% increase in
Puerto Rico cable operating expenses due primarily nonrecurring converter
repairs and (iv) a $304,000 or 108% increase in operating expenses generated by
the Company's DBS operations due to an increase in programming costs of
$200,000, royalty costs of $35,000, and other per subscriber DIRECTV costs such
as security, authorization fees and telemetry and tracking charges totaling
$76,000.
15
<PAGE>
As a result of these factors, income from operations before management
fees, depreciation and amortization increased by $763,000 or 46% for the three
months ended March 31, 1996 as compared to the same period in 1995.
Management charges, which are comprised of fees calculated at 5% of net
revenues plus an allocated share of corporate accounting costs, increased by
approximately $121,000 for the three months ended March 31,1996 as compared to
the same period in 1995 due mainly to the increases in revenues.
Depreciation and amortization expense increased by approximately
$470,000 for the three months ended March 31, 1996, as compared to the same
period in 1995, as the Company completed two acquisitions during the first
quarter of 1996.
As a result of these factors, the loss from operations decreased by
approximately $172,000 for the three months ended March 31, 1996 as compared to
the same period in 1995.
Interest expense increased by approximately $1,245,000 for the three
months ended March 31, 1996 as compared to the same period in 1995 as a result
of a combination of an increase in the interest rate to a fixed charge of 12.5%
from the Company's floating rate and an increase in debt associated with the
Company's 1995 note offering and 1996 acquisitions.
The Company's net loss increased by $612,000 for the three months ended
March 31, 1996 as compared to the same period in 1995 and was the net result of
a decrease in loss from operations of approximately 172,000, an increase in
interest expenses of $1,245,000, an increase in interest income of $101,000, a
decrease in the provision for income taxes of $310,000 and a decrease in other
expenses of approximately $50,000.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been the net cash
provided by its TV and Cable operations and credit available under its credit
facilities. Additionally, the Company has $4.8 million in a restricted cash
account that can be used to pay interest on the Company's notes. The Company has
used these funds to meet its debt service obligations, fund investments in its
TV and cable technical facilities, fund investments in cable and DBS customer
premises equipment that is rented or leased to subscribers and fund investments
in exclusive DBS distribution rights.
During the three months ended March 31, 1996, net cash provided by
operations was approximately $2.0 million, which together with $12.0 million of
cash on hand and $6.1 million of net cash provided by the Company's financing
activities was used to fund investing activities of $16.4 million. Investment
activities consisted of (i) the acquisitions of the tangible assets of WPXT and
WTLH for approximately $15.1 million, (ii) the purchase of a Cable office
facility in Connecticut for $135,000, (iii) certain start up costs of the
Company's DBS business totaling $236,000, (iv) the purchase of DSS units used
as rental and lease units amounting to $210,000 and (v) maintenance and other
capital expenditures and intangibles totaling approximately $700,000. As of
March 31, 1996, the Company's cash on hand approximated $3.7 million.
The Company has obtained a five year, senior collateralized revolving
credit facility in the amount of $10 million (the "Credit Facility") from which
$6 million was drawn in connection with the acquisitions of PBI and WTLH, Inc.
in the first quarter of 1996. The remainder of the funds under the Credit
Facility are intended to be used for general corporate purposes.
The Company has obtained a commitment letter from a lender for a $50
million credit facility which could be used to fund the acquisition of Dom's
Tele-Cable, Inc. ("Dom's") and believes that following the acquisitions of
Dom's, WTLH and WPXT it will have adequate resources to meet its working
capital, maintenance capital expenditure and debt service obligations. 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.
16
<PAGE>
Part II. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
On January 29, 1996, the Company's parent, Pegasus Communications
Holdings, Inc. ("PCH") entered into an agreement to acquire all of the
outstanding stock of Bride Communications, Inc. ("BCI"), including its wholly
owned subsidiary HMW, Inc. ("HMW"), licensee of WPXT, Portland, Maine ("Station
WPXT"). On the same date, PCH entered into a time brokerage agreement with HMW,
assigned its rights thereunder to a subsidiary of the Company, and acquired all
the outstanding stock of Portland Broadcasting, Inc. ("PBI") from BCI. PBI owns
all of the operating assets of Station WPXT. This event was reported under Item
2 on a Form 8-K dated January 29, 1996, which was filed with the Securities and
Exchange Commission on February 12, 1996. On April 12, 1996, the Company filed a
Form 8-K/A to provide the required financial statements of under Item 7.
On March 8, 1996, the Company acquired the principal tangible assets of
WTLH, Inc. and certain of its affiliates, channel 49, Tallahassee, Florida
("Station WTLH"). On the same date, PCH entered into a time brokerage agreement
with GMC, licensee of WTLH. This event was reported under Item 2 on a Form 8-K
dated March 8, 1996, which was filed with the Securities and Exchange Commission
on March 22, 1996.
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 Media & Communications, Inc.
Date May 15, 1996 By /s/ Robert N. Verdecchio
------------ --------------------------------
Robert N. Verdecchio
Sr. Vice-President and
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,966,567
<SECURITIES> 0
<RECEIVABLES> 5,172,687
<ALLOWANCES> 291,000
<INVENTORY> 924,193
<CURRENT-ASSETS> 16,471,189
<PP&E> 38,073,776
<DEPRECIATION> 19,262,602
<TOTAL-ASSETS> 100,604,114
<CURRENT-LIABILITIES> 10,700,804
<BONDS> 81,293,358
3,050,000
0
<COMMON> 1,700
<OTHER-SE> 3,082,541
<TOTAL-LIABILITY-AND-EQUITY> 100,604,114
<SALES> 8,400,961
<TOTAL-REVENUES> 8,400,961
<CGS> 0
<TOTAL-COSTS> 8,765,830
<OTHER-EXPENSES> 25,075
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,895,483
<INCOME-PRETAX> (3,184,176)
<INCOME-TAX> (169,462)
<INCOME-CONTINUING> (3,014,714)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,014,714)
<EPS-PRIMARY> (17.73)
<EPS-DILUTED> (17.73)
</TABLE>
