<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 June 30, 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 July 25, 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 June 30, 1996
Page
Part I. Financial Information
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1995 and June 30, 1996 3
Consolidated Statements of Operations
Three months ended June 30, 1995 and 1996 4
Consolidated Statements of Operations
Six months ended June 30, 1995 and 1996 5
Consolidated Statements of Cash Flows
Six months ended June 30, 1995 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations. 16
Part II. Other Information
Item 4 Submission of matters to a vote of Security - Holders. 20
Item 6 Exhibits and Reports on Form 8-K. 20
Signature 21
2
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
----------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,966,567 $ 3,166,869
Restricted cash 9,881,198 4,869,114
Accounts receivable, less allowance for doubtful
accounts at December 31, 1995 and June 30, 1996,
of $238,000 and $223,000, respectively 4,881,687 6,816,812
Program rights 931,664 1,194,954
Inventory 1,100,899 460,395
Deferred taxes 42,440 77,887
Prepaid expenses and other 297,861 435,207
------------- -------------
Total current assets 29,102,316 17,021,238
Property and equipment, net 16,263,851 24,204,262
Intangible assets, net 48,025,491 60,756,280
Program rights 1,932,680 1,777,760
Deposits and other 92,325 156,556
------------- -------------
Total assets $ 95,416,663 $ 103,916,096
============= =============
LIABILITIES AND TOTAL EQUITY
Current liabilities:
Notes payable $ 164,373 $ 53,893
Current portion of long-term debt 239,934 308,671
Accounts payable 3,136,310 3,673,397
Accrued interest 5,173,745 5,312,500
Accrued expenses 1,868,142 2,832,997
Current portion of program rights payable 1,141,793 1,356,325
------------- -------------
Total current liabilities 11,724,297 13,537,783
------------- -------------
Long-term debt, net 82,234,005 94,263,050
Program rights payable 1,421,399 1,161,393
Deferred taxes 211,902 114,593
------------- -------------
Total liabilities 95,591,603 109,076,819
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 (834,139)
Partners' deficit (9,383,036) (12,209,132)
------------- -------------
Total equity (deficiency) (174,940) (5,160,723)
------------- -------------
Total liabilities and equity $ 95,416,663 $ 103,916,096
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------
1995 1996
--------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Broadcasting revenue, net of agency commissions $ 3,627,060 $ 5,440,496
Barter programming revenue 1,315,600 1,407,692
Basic and satellite service 2,564,838 3,246,409
Premium services 412,196 494,298
Other (41,586) 136,185
------------ ------------
Total revenues 7,878,108 10,725,080
------------ ------------
Operating expenses:
Barter programming expense 1,315,600 1,407,692
Programming 1,347,683 2,000,278
General and administrative 1,029,036 1,239,578
Technical and operations 692,777 818,275
Marketing and selling 1,016,632 1,330,367
Incentive compensation 208,793 168,881
Management fees 456,122 643,059
Depreciation and amortization 2,007,844 2,505,274
------------ ------------
Income (loss) from operations (196,379) 611,676
Interest expense (1,688,702) (2,665,222)
Interest income 50,236
Other expenses, net (8,818) (36,466)
------------ ------------
Loss before income taxes (1,893,899) (2,039,776)
Provision (benefit) for income taxes (121,000) 36,706
------------ ------------
Net loss ($ 1,772,899) ($ 2,076,482)
============ ============
Loss per share:
Net loss ($ 10.98) ($ 12.21)
============ ============
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 Operations
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------
1995 1996
---------------- -------------
(Unaudited)
<S> <C> <C>
Revenues:
Broadcasting revenue, net of agency commissions $ 6,415,733 $ 9,326,825
Barter programming revenue 2,319,960 2,482,357
Basic and satellite service 4,800,924 6,111,267
Premium services 801,619 947,948
Other 228,077 257,644
------------ ------------
Total revenues 14,566,313 19,126,041
------------ ------------
Operating expenses:
Barter programming expense 2,319,960 2,482,357
Programming 2,636,623 3,664,245
General and administrative 1,894,129 2,497,190
Technical and operations 1,366,638 1,623,690
Marketing and selling 2,053,531 2,374,617
Incentive compensation 356,207 289,765
Management fees 787,545 1,095,935
Depreciation and amortization 3,884,218 4,851,435
------------ ------------
Income (loss) from operations (732,538) 246,807
Interest expense (3,338,612) (5,560,705)
Interest income -- 151,487
Other expenses, net (84,298) (61,541)
------------ ------------
Loss before income taxes (4,155,448) (5,223,952)
Provision (benefit) for income taxes 20,000 (132,756)
------------ ------------
Net loss ($ 4,175,448) ($ 5,091,196)
============ ============
Loss per share:
Net loss ($ 25.85) ($ 29.95)
============ ============
Weighted average shares outstanding 161,500 170,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1995 1996
---------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($4,175,448) ($5,091,196)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 3,884,218 4,851,435
Program rights amortization 662,542 760,929
Accretion on discount of bonds - 195,926
Bad debt expense 91,470 130,713
Deferred income taxes 20,000 (132,756)
Payments of programming rights (605,078) (607,085)
Change in assets and liabilities, net of acquisitions:
Accounts receivable 455,935 (1,804,412)
Inventory (326,382) 640,504
Restricted cash - 5,012,084
Prepaid expenses and other 8,103 (137,346)
Accounts payable and accrued expenses 827,960 (978,574)
Accrued interest 10,736 138,755
Deposits and other 2,281 (64,231)
----------- ----------
Net cash provided by operating activities 856,337 2,914,746
Cash flows from investing activities:
Acquisitions - (17,107,329)
Capital expenditures (1,530,847) (2,728,232)
Purchase of intangible assets (1,890,254) (573,239)
Other (926) (157,500)
----------- ----------
Net cash used for investing activities (3,422,027) (20,566,300)
Cash flows from financing activities:
Proceeds from long-term debt 562,752 247,736
Borrowings on revolving credit facility 2,591,335 8,800,000
Proceeds from long-term borrowings
from related parties 13,000 -
Repayments of long-term debt (22,150) (37,283)
Debt issuance costs (313,253) -
Capital lease repayments (117,858) (158,597)
----------- ----------
Net cash provided by financing activities 2,713,826 8,851,856
Net increase (decrease) in cash and cash equivalents 148,136 (8,799,698)
Cash and cash equivalents, beginning of period 1,376,224 11,966,567
----------- ----------
Cash and cash equivalents, end of period $1,524,360 $3,166,869
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
6
<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 direct subsidiaries consist of Pegasus Broadcast
Television, Inc. ("PBT"), Pegasus Satellite Television, Inc. ("PST") and Pegasus
Cable Television, Inc. ("PCT"). PBT, together with its subsidiaries, operates
broadcast television stations affiliated with the Fox Broadcasting Company
television network ("Fox"). PST provides direct broadcast satellite service to
customers in the New England area. PCT, together with its subsidiaries, operate
cable television systems that provide service to individual and commercial
subscribers in New England and Puerto Rico. 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 and their
subsidiaries. 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"), direct broadcast satellite television ("DBS") and cable television
("Cable"). The Company recognizes revenue in its TV operations when advertising
spots are broadcast. The Company recognizes revenue in its DBS and Cable
operations when video and audio services are provided.
7
<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 for 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 June 30, 1996,
the Company had $4.9 million 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 June 30, 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 Pegasus Broadcast Associates ("PBA"). The Company
also acquired all of the outstanding interests of Mayaguez Cable Television
("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).
8
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Long-Term Debt:
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
(in thousands) December 31, June 30,
1995 1996
---------------- -----------------
<S> <C> <C>
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 $3,608,620 as of December
31, 1995 and June 30, 1996, respectively ............................. $81,195 $81,391
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
(8.25% at June 30, 1996).............................................. - 8,800
Mortgage payable, due 2000, interest at 8.75%.............................. 518 509
Other...................................................................... 761 3,872
------------ ------------
82,474 94,572
Less current maturities.................................................... 240 309
------------ ------------
Long-term debt............................................................. $82,234 $94,263
============ ============
</TABLE>
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
Pegasus Cable Television - Connecticut ("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.
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.
From time to time the Company is also involved with claims that arise
in the normal course of business. 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.
9
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Acquisitions:
On January 29, 1996, PCH acquired 100% of the outstanding stock of
Portland Broadcasting, Inc. ("PBI"), a wholly owned subsidiary of Bride
Communications, Inc. ("BCI") which owns the tangible assets of WPXT, Portland,
Maine. PCH immediately transferred ownership of PBI to the Company. The
aggregate purchase price of PBI amounted to $11.7 million of which $4.2 million
was allocated to fixed and intangible assets and $7.5 million to goodwill. On
June 20, 1996, PCH acquired the FCC license and Fox Affiliation Agreement of
WPXT for aggregate consideration of $3.0 million.
Effective March 1, 1996, the Company acquired the principal tangible
assets of WTLH, Inc. and certain of its affiliates for approximately $5.0
million in cash, except for the FCC license and Fox affiliation agreement.
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. As a result of entering into the put/call agreement,
the Company recorded $3.1 million in intangible assets and long term debt
representing the FCC license and Fox affiliation agreement and the related
contingent liability. The aggregate purchase price of the principal assets of
WTLH, Inc. amounted to $8.4 million of which $2.2 million was allocated to fixed
and intangible assets and $5.9 million to various intangible assets. The Company
programs WTLH under a Time Brokerage Agreement with GMC.
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. The proforma information does not purport to be indicative of what
would have occurred had the acquisitions been made of those dates or of results
which may occur in the future.
Six Months Ended
-----------------------
(in thousands, except earnings per share) (unaudited)
1995 1996
---- ----
Net Revenues ............................ $15,905 $19,895
============= ============
Operating income (loss) ................. $(831) $335
============= ============
Net loss ................................ $(4,805) $(5,522)
============= ============
Net loss per share ...................... $(29.75) $(32.48)
============= ============
7. Other Events:
On March 21, 1996, PCH entered into a definitive agreement to acquire
all of the assets of Dom's Tele-Cable, Inc. ("Dom's") for approximately $25
million in cash and $1.4 million in assumed liabilities. Dom's operates cable
systems serving ten communities contiguous to the Company's Mayaguez, Puerto
Rico cable system.
In July 1996, the Company entered into a letter of intent to sell
certain assets of its New England cable system for approximately $7.1 million in
cash. The Company anticipates recognizing a gain in the transaction.
10
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Other Information (unaudited):
The Indenture governing the Series B Notes requires the Company to
provide information concerning 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.
Restricted Subsidiaries carries the same meaning as in the Indenture. Pro forma
for the acquisitions of WPXT and WTLH, as if such acquisitions had occurred on
July 1, 1995, Adjusted Operating Cash Flow for the four quarters ended June 30,
1996 would have been approximately $13.6 million.
(in thousands) Four Quarters
Ended
June 30, 1996
-----------------
Net revenues $36,608
Direct operating expenses, excluding incentive
compensation and management fees 23,521
-----------------
Income from operations before incentive
compensation, management fees and
depreciation and amortization 13,087
Allowable cash portion of incentive
compensation and management fees 1,144
-----------------
Operating cash flow 11,943
Less DBS cash flow, last four quarters (489)
Plus DBS cash flow, last quarter annualized 876
=================
Adjusted operating cash flow $12,330
=================
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 and WTLH License
Corp. (the "Guarantor Subsidiaries"). PCT-CT, a wholly-owned subsidiary of PCT
and an indirect subsidiary of the Company, and WTLH License Corp., a
wholly-owned subsidiary of PBT and an indirect subsidiary of the Company, are
not guarantors of the Series B Notes ("Non-guarantors"). As the result of PCT-CT
and WTLH License Corp. not being guarantors 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.
11
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Subsidiary Guarantees (continued):
Condensed Consolidated Balance Sheets
(in thousands-unaudited)
As of June 30, 1996
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ ------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $2,454 $264 $449 $3,167
Restricted cash 0 0 4,869 4,869
Accounts receivable, net 6,791 26 6,817
Other current assets (4,727) 205 6,465 $225 2,168
-------------------------------------------------------------------------
Total current assets 4,518 495 11,783 225 17,021
Property and equipment, net 21,765 2,439 24,204
Intangible assets, net 53,639 3,502 3,615 60,756
Other assets 1,935 1,935
Investment in subsidiaries and affiliates (1,797) 72,556 (70,759) 0
-------------------------------------------------------------------------
Total assets $80,060 $6,436 $87,954 ($70,534) $103,916
=========================================================================
Liabilities and total equity:
Current portion of long-term debt $227 $82 $309
Accounts payable 3,254 194 $225 3,673
Other current liabilities 3,931 257 $5,368 9,556
-------------------------------------------------------------------------
Total current liabilities 7,412 533 5,368 225 13,538
Long-term debt 68,951 7,393 81,391 (63,472) 94,263
Other liabilities (2,630) 307 3,599 1,276
-------------------------------------------------------------------------
Total Liabilities 73,733 8,233 90,358 (63,247) 109,077
Total equity (deficit) 6,327 (1,797) (2,404) (7,287) (5,161)
-------------------------------------------------------------------------
Total liabilities and equity $80,060 $6,436 $87,954 ($70,534) $103,916
=========================================================================
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>
12
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Subsidiary Guarantees (continued):
Condensed Consolidated Statements of Operations
For the Six Months ended June 30, 1996
(in thousands)
<TABLE>
<CAPTION>
(unaudited) Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ ------------- ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Total revenue $ 17,776 $ 1,400 ($ 50) $ 19,126
Total operating expenses 17,504 1,235 $ 190 (50) 18,879
-------------------------------------------------------------------------------------
Income (loss) from operations 272 165 (190) 247
Interest expense 4,660 224 5,495 (4,818) 5,561
Other 14 (104) (90)
-------------------------------------------------------------------------------------
Income (loss) before income
taxes (4,402) (59) (5,581) 4,818 (5,224)
Provision for income taxes (133) (133)
-------------------------------------------------------------------------------------
Net income (loss) ($4,269) ($ 59) ($ 5,581) $ 4,818 ($ 5,091)
=====================================================================================
</TABLE>
Condensed Consolidated Statements of Operations
For the Six Months ended June 30, 1995
(in thousands)
<TABLE>
<CAPTION>
(unaudited) Guarantor Non-guarantor
Subsidiaries Subsidiary Pegasus Eliminations Totals
------------ ------------- ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Total revenue $ 13,345 $ 1,271 ($ 50) $14,566
Total operating expenses 14,291 1,057 (50) 15,298
-------------------------------------------------------------------------------------
Income (loss) from operations (946) 214 (732)
Interest expense 3,339 274 $ 1,844 (2,118) 3,339
Other 84 84
-------------------------------------------------------------------------------------
Income (loss) before income
taxes (4,369) (60) (1,844) 2,118 (4,155)
Provision for income taxes 20 20
-------------------------------------------------------------------------------------
Net loss ($ 4,389) ($ 60) ($ 1,844) $ 2,118 ($ 4,175)
=====================================================================================
</TABLE>
13
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Subsidiary Guarantees (continued):
Condensed Consolidated Statements of Cash Flows
For the Six Months ended June 30, 1996
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ ------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($4,269) ($59) ($5,581) $4,818 ($5,091)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary gain on
extinguishment of debt
Depreciation and amortization 4,337 324 190 4,851
Program rights amortization 761 761
Change in assets and liabilities
Accounts receivable (1,818) 14 (1,804)
Accounts payable and accrued expenses 5,747 64 (55) (6,735) (979)
Prepaids and other (113) (31) 7 (137)
Other 302 5,012 5,314
------------------------------------------------------------------------
Net cash provided by operating activities 4,947 312 (427) (1,917) 2,915
Cash flows from investing activities:
Capital expenditures (2,237) (491) (2,728)
Purchase of intangible assets (544) (7) (22) (573)
Other (17,108) (158) (17,266)
------------------------------------------------------------------------
Net cash used by investing activities (19,889) (498) (180) (20,567)
Cash flows from financing activities:
Proceeds from long-term debt 9,022 26 9,048
Repayment of long-term debt (180) (16) (196)
Other (2,762) (211) 1,056 1,917
------------------------------------------------------------------------
Net cash provided (used) by financing activities 6,080 (201) 1,056 1,917 8,852
Net decrease in cash and cash equivalents (8,862) (387) 449 (8,800)
Cash and cash equivalents, beginning of period 11,316 651 11,967
------------------------------------------------------------------------
Cash and cash equivalents, end of period $2,454 $264 $449 $3,167
========================================================================
</TABLE>
14
<PAGE>
9. Subsidiary Guarantees (continued):
Condensed Consolidated Statements of Cash Flows
For the Six Months ended June 30, 1996
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ ------------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($4,339) ($60) ($1,844) $2,068 ($4,175)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 3,588 296 3,884
Program rights amortization 663 663
Change in assets and liabilities
Accounts receivable 384 72 456
Accounts payable and accrued expenses 790 48 838
Prepaids and other (137) 71 74 8
Other (677) 6 (147) (818)
------------------------------------------------------------------------
Net cash provided by operating activities 272 433 (1,991) 2,142 856
Cash flows from investing activities:
Capital expenditures (1,144) (100) (287) (1,531)
Purchase of intangible assets (1,818) (72) (1,890)
Other (1) (1)
------------------------------------------------------------------------
Net cash used by investing activities (2,963) (172) (287) (3,422)
Cash flows from financing activities:
Proceeds from long-term debt 545 18 563
Repayment of long-term debt 144 (166) (22)
Other 2,269 (232) 2,278 (2,142) 2,173
------------------------------------------------------------------------
Net cash provided (used) by financing activities 2,958 (380) 2,278 (2,142) 2,714
Net increase (decrease) in cash 267 (119) 148
Cash and cash equivalents, beginning of period 1,066 310 1,376
------------------------------------------------------------------------
Cash and cash equivalents, end of period $1,333 $191 $1,524
</TABLE>
15
<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,
DBS and Cable. 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. 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. Its cable operations consist of
systems in New England and Puerto Rico.
TV revenues are derived from the sale of broadcast air time to local
and national advertisers. 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. Cable revenues are
derived from monthly subscriptions, pay-per-view services, subscriber equipment
rentals, home shopping commissions, advertising time sales and installation
charges.
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 and (iv) general and administrative expenses. 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. 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. Cable programming expenses
typically consist of amounts paid to program suppliers on a per subscriber
basis.
Discussion and Analysis of Operating Results
Three months ended June 30, 1996 compared to three months ended June 30, 1995
The Company's net revenues increased by approximately $2,847,000 or 36%
for the three months ended June 30, 1996 as compared to the same period in 1995
as a result of (i) a $1,957,000 or 40% increase in TV revenues of which $389,000
or 20% was due to ratings growth which the Company was able to convert into
higher revenues and $1,568,000 or 80% resulting from acquisitions made in the
first quarter 1996, (ii) a $615,000 or 213% increase in revenues from the
increased number of DBS subscribers, (iii) a $23,000 or 2% increase in Puerto
Rico cable revenues due primarily to a rate increase in April and (iv) a
$252,000 or 16% increase in New England cable revenues due primarily to rate
increases and new combined service packages.
The Company's total location operating expenses increased by
approximately $1,394,000 or 26% for the three months ended June 30, 1996 as
compared to the same period in 1995 as a result of (i) a $995,000 or 28%
increase in TV operating expenses as the net result of a $34,000 or 1% decrease
in same station direct operating expenses and a $1,029,000 increase attributable
to stations acquired in the first quarter 1996, (ii) a $338,000 or 98% increase
in operating expenses generated by the Company's DBS operations due to an
increase in programming costs of $254,000, royalty costs of $22,000, and other
DIRECTV costs such as security, authorization fees and telemetry and tracking
charges totaling $62,000, (iii) a $48,000 or 8% decrease in Puerto Rico cable
operating expenses due primarily to reduced contractor and converter repairs
work that was brought "in house" and (iv) a $109,000 or 13% increase in New
England cable operating expenses due primarily to increases in programming costs
associated with the new combined service packages.
16
<PAGE>
As a result of these factors, income from operations before management
fees, depreciation and amortization and incentive compensation ("Location Cash
Flow") increased by $1,453,000 or 59% for the three months ended June 30, 1996
as compared to the same period in 1995 as a result of (i) a $962,000 or 71%
increase in TV Location Cash Flow of which $423,000 or 44% was due to an
increase in same station Location Cash Flow and $539,000 or 56% was due to an
increase attributable to stations acquired in the first quarter 1996, (ii) a
$277,000 increase in DBS Location Cash Flow, (iii) a $71,000 or 18% decrease in
Puerto Rico cable Location Cash Flow and (iv) a $143,000 or 18% increase in New
England cable Location Cash Flow. Although Location Cash Flow is not a measure
of performance under generally accepted accounting principles, the Company
believes that Location Cash Flow is accepted within the Company's business
segments as generally recognized measures of performance and are used by
analysts who report publicly on 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 measure for determining the Company's
operating performance or liquidity which is calculated in accordance with
generally accepted accounting principles.
Management charges, which are comprised of fees calculated at 5% of net
revenues plus an allocated share of corporate accounting costs, and incentive
compensation which is calculated from increases in Location Cash Flow increased
by approximately $148,000 for the three months ended June 30,1996 as compared to
the same period in 1995 due mainly to the increases in revenues.
Depreciation and amortization expense increased by approximately
$497,000 for the three months ended June 30,1996 as compared to the same period
in 1995 as the Company increased its fixed and intangible assets as a result of
two completed acquisitions during the first quarter of 1996.
As a result of these factors, income from operations increased by
approximately $808,000 for the three months ended June 30, 1996 as compared to
the same period in 1995.
Interest expense increased by approximately $977,000 or 58% for the
three months ended June 30, 1996 as compared to the same period in 1995 as a
result of a combination of the Company's issuance of Notes on July 7, 1995 and
an increase in debt associated with the Company's 1996 acquisitions. A portion
of the proceeds from the issuance of the Notes was used to retire floating debt
on which the effective interest rate was lower than the 12.5% interest rate
under the Notes.
The Company's net loss increased by $267,000 for the three months ended
June 30, 1996 as compared to the same period in 1995 and was the net result of
an increase in income from operations of approximately $808,000, an increase in
interest expenses of $977,000, an increase in interest income of $50,000, an
increase in the provision for income taxes of $121,000 and a increase in other
expenses of approximately $27,000.
Six months ended June 30, 1996 compared to six months ended June 30, 1995
The Company's net revenues increased by approximately $4,560,000 or 31%
for the six months ended June 30, 1996 as compared to the same period in 1995 as
a result of (i) a $3,071,000 or 35% increase in TV revenues of which $717,000 or
23% was due to ratings growth which the Company was able to convert into higher
revenues and $2,354,000 or 77% resulting from acquisitions made in the first
quarter 1996, (ii) a $1,040,000 or 197% increase in revenues from the increased
number of DBS subscribers, (iii) a $39,000 or 2% increase in Puerto Rico cable
revenues due primarily to a rate increase in April and (iv) a $410,000 or 13%
increase in New England cable revenues due primarily to rate increases and new
combined service packages.
17
<PAGE>
The Company's total location operating expenses increased by
approximately $2,371,000 or 23% for the six months ended June 30, 1996 as
compared to the same period in 1995 as a result of (i) a $1,557,000 or 23%
increase in TV operating expenses as the net result of a $20,000 or 1% decrease
in same station direct operating expenses and a $1,577,000 increase attributable
to stations acquired in the first quarter 1996, (ii) a $639,000 or 103% increase
in operating expenses generated by the Company's DBS operations due to an
increase in programming costs of $456,000, royalty costs of $45,000, and other
DIRECTV costs such as security, authorization fees and telemetry and tracking
charges totaling $138,000, (iii) a $14,000 or 1% decrease in Puerto Rico cable
operating expenses due primarily to reduced contractor and converter repairs
work that was brought "in house" and (iv) a $189,000 or 11% increase in New
England cable operating expenses due primarily to increases in programming costs
associated with the new combined service packages.
As a result of these factors, income from operations before management
fees, depreciation and amortization and incentive compensation ("Location Cash
Flow") increased by $2,189,000 or 51% for the six months ended June 30, 1996 as
compared to the same period in 1995 as a result of (i) a $1,514,000 or 71%
increase in TV Location Cash Flow of which $736,000 or 49% was due to an
increase in same station Location Cash Flow and $778,000 or 51% was due to an
increase attributable to stations acquired in the first quarter 1996, (ii) a
$401,000 increase in DBS Location Cash Flow, (iii) a $53,000 or 7% decrease in
Puerto Rico cable Location Cash Flow and (iv) a $221,000 or 15% increase in New
England cable Location Cash Flow. Although Location Cash Flow is not a measure
of performance under generally accepted accounting principles, the Company
believes that Location Cash Flow is accepted within the Company's business
segments as generally recognized measures of performance and are used by
analysts who report publicly on 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 measure for determining the Company's
operating performance or liquidity which is calculated in accordance with
generally accepted accounting principles.
Management charges, which are comprised of fees calculated at 5% of net
revenues plus an allocated share of corporate accounting costs, and incentive
compensation which is calculated from increases in Location Cash Flow increased
by approximately $242,000 for the six months ended June 30,1996 as compared to
the same period in 1995 due mainly to the increases in revenues.
Depreciation and amortization expense increased by approximately
$967,000 for the six months ended June 30,1996 as compared to the same period in
1995 as the Company increased its fixed and intangible assets as a result of two
completed acquisitions during the first quarter of 1996.
As a result of these factors, income from operations increased by
approximately $979,000 for the six months ended June 30, 1996 as compared to the
same period in 1995.
Interest expense increased by approximately $2,222,000 or 67% for the
six months ended June 30, 1996 as compared to the same period in 1995 as a
result of a combination of the Company's issuance of Notes on July 7, 1995 and
an increase in debt associated with the Company's 1996 acquisitions. A portion
of the proceeds from the issuance of the Notes was used to retire floating debt
on which the effective interest rate was lower than the 12.5% interest rate
under the Notes.
The Company's net loss increased by $879,000 for the six months ended
June 30, 1996 as compared to the same period in 1995 and was the net result of a
increase in income from operations of approximately $979,000, an increase in
interest expenses of $2,222,000, an increase in interest income of $151,000, an
decrease in the provision for income taxes of $189,000 and a decrease in other
expenses of approximately $24,000.
18
<PAGE>
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 had $4.9 million in a restricted cash
account that was used to pay interest on the Company's Notes in July 1996. The
Company has used these funds to meet its debt service obligations, fund
investments in its TV and cable technical facilities and fund investments in
cable and DBS customer premises equipment that is rented or leased to
subscribers.
During the six months ended June 30, 1996, net cash provided by
operations was approximately $2.9 million, which together with $12.0 million of
cash on hand and $8.9 million of net cash provided by the Company's financing
activities was used to fund investing activities of $20.1 million. Investment
activities consisted of (i) the acquisitions of PBI and WTLH for approximately
$17.1 million, (ii) the purchase of a PCT-CT office facility for $135,000, (iii)
the purchase of DSS units used as rental and lease units amounting to $562,000
and (iv) maintenance and other capital expenditures and intangibles totaling
approximately $2.3 million. As of June 30, 1996, the Company's cash on hand
approximated $3.2 million.
The Company has a 5 year, senior collateralized revolving credit
facility in the amount of $10 million (the "Credit Facility") from which $8.8
million was drawn in connection with the acquisitions of PBI and WTLH, Inc. in
the first half 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 ("New 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.
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. The
Company's ability to incur additional indebtedness is limited under the terms of
the Indenture and the New Credit Facility. These limitations take the form of
certain leverage ratios and are dependent upon certain measures of
profitability. Under terms of the New Credit Facility, capital expenditures and
business acquisitions that do not meet certain criteria will require lender
consent. The Company or its parent may also issue equity to fund future
expansion and acquisition requirements.
Other
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, the impact of such
advertising and promotion may or may not be 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 bear interest at a fixed rate.
The Company has reviewed the provisions of Statements of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in debt and
Equity securities," and No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and believes that future
implementation of the above standards will not have a material impact on the
Company.
19
<PAGE>
Part II. Other Information.
Item 4. Submission of matters to a Vote of Security Holders.
The 1996 Annual Meeting of Stockholders was held on May 9,
1996. At the meeting, Marshall W. Pagon and Donald W. Weber, who constituted the
Company's only directors, were reelected to the Board of Directors to serve
until the next annual meeting and until their successors have been elected and
qualified. Of the 1,615,000 votes cast at the election, all of these votes were
cast in favor of the reelection of Messrs. Pagon and Weber. No other matters
were submitted to the vote of the Stockholders.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.1 Franchise Agreement granted to Dom's to build and operate cable
television systems for the municipalities of Cabo Rojo, San German, Lajas,
Hormigueros, Guanica, Sabana Grande and Maricao (which is incorporated herein by
reference to Exhibit 2 to the Company's Form 8-K dated March 21, 1996).
10.2 Franchise Agreement granted to Dom's to build and operate cable
television systems for the municipalities of Anasco, Rincon and Las Marias
(which is incorporated herein by reference to Exhibit 3 to the Company's Form
8-K dated March 21, 1996).
27 Financial Data Schedule
(b) Reports on Form 8-K
On March 22, 1996, the Company filed a Form 8-K dated March 8,
1996 reporting under Item 2 the acquisition of the principal tangible assets of
WTLH, channel 49, Tallahassee, Florida. On May 11, 1996, the Company filed
Amendment No. 1 to the Form 8-K dated March 8, 1996 to provide certain financial
statements that were omitted from Item 7(a) and 7(b) of the original Form 8-K.
On March 21, 1996, the Company's parent, PCH, entered into a
definitive agreement to acquire substantially all of the assets of Dom's
Tele-Cable, Inc. ("Dom's") for approximately $26 million in cash and assumed
liabilities. PCH intends to assign the assets to two subsidiaries of the
Company. This event was reported under Item 5 on a Form 8-K dated March 21,
1996, which was filed with the Securities and Exchange Commission on May 2,
1996.
20
<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 Media & Communications, Inc.
Date August 13, 1996 By /s/ Robert N. Verdecchio
----------------- ------------------------------
Robert N. Verdecchio
Sr. Vice-President and
Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,166,869
<SECURITIES> 0
<RECEIVABLES> 7,039,812
<ALLOWANCES> 223,000
<INVENTORY> 460,395
<CURRENT-ASSETS> 17,021,238
<PP&E> 44,616,065
<DEPRECIATION> 20,411,803
<TOTAL-ASSETS> 103,916,096
<CURRENT-LIABILITIES> 13,537,783
<BONDS> 81,391,380
3,050,000
0
<COMMON> 1,700
<OTHER-SE> (5,159,023)
<TOTAL-LIABILITY-AND-EQUITY> 103,916,096
<SALES> 19,126,041
<TOTAL-REVENUES> 19,126,041
<CGS> 0
<TOTAL-COSTS> 18,879,234
<OTHER-EXPENSES> (89,946)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,560,705
<INCOME-PRETAX> (5,223,952)
<INCOME-TAX> (132,756)
<INCOME-CONTINUING> (5,091,196)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,091,196)
<EPS-PRIMARY> (29.95)
<EPS-DILUTED> (29.95)
</TABLE>
