<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 September 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 Pegasus Communications Management Company
5 Radnor Corporate Center; Suite 454, Radnor, PA 19087
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (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 November 11, 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 September 30, 1996
<TABLE>
<CAPTION>
Page
------
Part I. Financial Information
<S> <C>
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1995 and September 30, 1996 3
Consolidated Statements of Operations
Three months ended September 30, 1995 and 1996 4
Consolidated Statements of Operations
Nine months ended September 30, 1995 and 1996 5
Consolidated Statements of Cash Flows
Nine months ended September 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 6 Exhibits and reports on Form 8-K. 21
Signature 22
</TABLE>
2
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1996
------------------ -----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $11,966,567 $5,617,426
Restricted cash 9,881,198 --
Accounts receivable, less allowance for doubtful
accounts at December 31, 1995 and September 30,
1996, of $238,000 and $256,000, respectively 4,881,687 4,463,687
Program rights 931,664 1,451,077
Inventory 1,100,899 233,629
Deferred taxes 42,440 77,887
Prepaid expenses and other 297,861 1,462,429
----------- ------------
Total current assets 29,102,316 13,306,135
Property and equipment, net 16,263,851 25,765,406
Intangible assets, net 48,025,491 80,780,835
Program rights 1,932,680 2,227,268
Deposits and other 92,325 166,498
----------- ------------
Total assets $95,416,663 $122,246,142
=========== ============
LIABILITIES AND TOTAL EQUITY
Current liabilities:
Notes payable $164,373 $51,666
Current portion of long-term debt 239,934 365,328
Accounts payable 3,136,310 3,858,921
Accrued interest 5,173,745 2,885,166
Accrued expenses 1,868,142 4,575,875
Current portion of program rights payable 1,141,793 1,581,374
----------- ------------
Total current liabilities 11,724,297 13,318,330
----------- ------------
Long-term debt, net 82,234,005 117,025,050
Program rights payable 1,421,399 1,539,915
Deferred taxes 211,902 137,349
----------- ------------
Total liabilities 95,591,603 132,020,644
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 (3,203,594)
Partners' deficit (9,383,036) (14,453,456)
----------- ------------
Total equity (deficiency) (174,940) (9,774,502)
----------- ------------
Total liabilities and equity $95,416,663 $122,246,142
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------------
1995 1996
----------------- -----------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Broadcasting revenue, net of agency commissions $3,355,005 $5,020,614
Barter programming revenue 1,315,140 1,337,643
Basic and satellite service 2,561,551 3,853,157
Premium services 436,671 540,565
Other 193,679 158,164
----------------- -----------------
Total revenues 7,862,046 10,910,143
----------------- -----------------
Operating expenses:
Barter programming expense 1,315,140 1,337,643
Programming 1,247,131 2,198,216
General and administrative 1,107,289 1,540,193
Technical and operations 691,789 838,474
Marketing and selling 764,771 1,518,797
Incentive compensation 87,788 315,625
Management fees 400,241 599,260
Depreciation and amortization 2,291,838 3,553,217
----------------- -----------------
Income (loss) from operations (43,941) (991,282)
Interest expense (2,614,614) (3,354,213)
Interest income 184,362 20,026
Other expenses, net 15,665 (14,952)
----------------- -----------------
Loss before income taxes (2,458,528) (4,340,421)
Provision (benefit) for income taxes 10,000 22,756
----------------- -----------------
Loss before extraordinary items (2,468,528) (4,363,177)
Extraordinary gain (loss) from extinguishment of debt, net 6,931,323 (250,603)
---------------- ----------------
Net loss $4,462,795 ($4,613,780)
================= =================
Loss per share:
Income loss before extraordinary items ($14.56) ($25.67)
Extraordinary (loss) gain 40.89 (1.47)
----------------- -----------------
Net loss $26.33 ($27.14)
================= =================
Weighted average shares outstanding 169,532 170,000
================= =================
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------
1995 1996
----------------- -----------------
(Unaudited)
<S> <C> <C>
Revenues:
Broadcasting revenue, net of agency commissions $9,770,738 $14,347,439
Barter programming revenue 3,635,100 3,820,000
Basic and satellite service 7,362,475 9,964,424
Premium services 1,238,290 1,488,513
Other 421,756 415,808
----------------- -----------------
Total revenues 22,428,359 30,036,184
----------------- -----------------
Operating expenses:
Barter programming expense 3,635,100 3,820,000
Programming 3,883,754 5,862,461
General and administrative 3,001,418 4,037,383
Technical and operations 2,058,427 2,462,164
Marketing and selling 2,818,302 3,893,414
Incentive compensation 443,995 605,390
Management fees 1,187,786 1,695,195
Depreciation and amortization 6,176,056 8,404,652
----------------- -----------------
Income (loss) from operations (776,479) (744,475)
Interest expense (5,953,226) (8,914,918)
Interest income 184,362 171,513
Other expenses, net (68,633) (76,493)
----------------- -----------------
Loss before income taxes (6,613,976) (9,564,373)
Provision (benefit) for income taxes 30,000 (110,000)
----------------- -----------------
Loss before extraordinary items (6,643,976) (9,454,373)
Extraordinary gain (loss) from extinguishment of debt, net 6,931,323 (250,603)
----------------- -----------------
Net loss $287,347 ($9,704,976)
================= =================
Loss per share:
Loss before extraordinary items ($40.47) ($55.61)
Extraordinary (loss) gain 42.22 (1.47)
----------------- -----------------
Net loss $1.75 ($57.09)
================= =================
Weighted average shares outstanding 164,178 170,000
================= =================
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended September 30
--------------------------------
1995 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ 287,347 ($9,704,976)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Extraordinary (gain) loss on
extinguishment of debt, net (6,931,323) 250,603
Depreciation and amortization 6,176,056 8,404,652
Program rights amortization 1,140,261 1,063,439
Accretion on discount of bonds -- 294,066
Bad debt expense 140,309 (92,413)
Deferred income taxes 30,000 (110,000)
Payments of programming rights (1,006,527) (1,319,343)
Change in assets and liabilities, net of acquisitions:
Accounts receivable 194,165 510,413
Inventory (554,492) 867,270
Restricted cash (9,768,877) 9,875,818
Prepaid expenses and other (65,619) (1,164,568)
Accounts payable and accrued expenses (584,785) 3,430,344
Accrued interest 2,151,901 (2,288,579)
Deposits and other 463 (74,173)
----------- -----------
Net cash provided by operating activities (8,791,121) 9,942,553
Cash flows from investing activities:
Acquisitions -- (43,050,514)
Capital expenditures (2,015,042) (2,584,446)
Purchase of intangible assets (1,912,368) (843,210)
Other (1,200) --
----------- -----------
Net cash used for investing activities (3,928,610) (46,478,170)
Cash flows from financing activities:
Proceeds from long-term debt 82,439,688 247,736
Borrowings on revolving credit facility 2,591,335 40,400,000
Proceeds from long-term borrowings
from related parties 13,000 --
Repayments of long-term debt (51,730,178) (8,870,653)
Debt issuance costs (3,640,450) (1,383,670)
Capital lease repayments (159,374) (206,937)
Distribution to parent (12,500,000) --
Proceeds from the issuance of common stock 4,000,000 --
----------- -----------
Net cash provided by financing activities 21,014,021 30,186,476
Net increase (decrease) in cash and cash equivalents 8,294,290 (6,349,141)
Cash and cash equivalents, beginning of period 1,376,224 11,966,567
----------- -----------
Cash and cash equivalents, end of period $9,670,514 $5,617,426
=========== ===========
</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. Prior to October 8, 1996, the
Company was a direct subsidiary of Pegasus Communications Holdings, Inc.
("PCH"). Effective October 8, 1996, the Company became a direct subsidiary
of Pegasus Communications Corporation ("PCC") in conjunction with PCC's
initial public offering of its Class A Common Stock.
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.
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 December 31, 1995 and September 30, 1996, 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 partnership 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).
8
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Long-Term Debt:
<TABLE>
<CAPTION>
Long-term debt consists of the following at:
(in thousands) December 31, September 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 $3,510,480 as of December 31, 1995 and
September 30, 1996, respectively........................................... $81,195 $81,490
Senior seven year revolving credit facility dated August 29, 1996, 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 September
30, 1996)................................................................... -- 31,600
Mortgage payable, due 2000, interest at 8.75% .................................. 518 503
Other........................................................................... 761 3,797
---------------- -----------------
82,474 117,390
Less current maturities......................................................... 240 365
---------------- -----------------
Long-term debt.................................................................. $82,234 $117,025
================ =================
</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 (the "Series A
Notes") and 8,500 shares of Class B Common stock. All of the Series A Notes were
exchanged for the Company's 12.5% Series B Senior Subordinated Notes due 2005
(the "Notes" or the "Series B Notes") which have substantially identical terms.
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.
On August 29, 1996, the Company entered into a $50.0 million seven-year
senior revolving credit facility, which is collateralized by substantially all
of the assets of the Company. On the same date, the Company had drawn $8.8
million to repay all amounts outstanding under the $10.0 million senior
collateralized five-year revolving credit facility and approximately $22.8
million to fund the acquisition of Dom's Tele-Cable, Inc. ("Dom's").
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 in 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.
9
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Commitments and Contingent Liabilities (continued):
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.
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 tangible assets and $7.5 million to goodwill. On
September 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 WTLH, Inc. and the related FCC licenses
and Fox affiliation agreement is approximately $8.1 million of which $2.2
million was allocated to fixed and tangible assets and $5.9 million to various
intangible assets. In addition, the owners of WTLH were granted a warrant to
purchase $1.0 million of PCC's stock at its' initial public offering price. The
warrant expires 120 days after the effective date of the registration
statement relating to PCC's initial public offering.
Effective September 1, 1996, the Company acquired all of the assets of
Dom's for approximately $25.0 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. The aggregate purchase price
of the principal assets of Dom's amounted to $26.4 million of which $4.7 million
was allocated to fixed and tangible assets and $21.7 million to various
intangible assets.
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.
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
(in thousands, except earnings per share) (unaudited)
1995 1996
---- ----
<S> <C> <C>
Net Revenues ....................................... $32,701 $34,761
============== ==============
Operating income (loss) ........................... $1,108 $(320)
============== ==============
Net loss ........................................... $(25) $(11,127)
============== ==============
Net loss per share .............................. $(0.15) $(65.45)
============== ==============
</TABLE>
10
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Other Events:
On November 6, 1996, the Company entered into an agreement with State
Cable TV Corp. to sell substantially all assets of its New Hampshire cable
system for approximately $7.1 million in cash. The Company anticipates
recognizing a gain in the transaction. This transaction is expected to be
completed in the first quarter of 1997.
On October 8, 1996, PCC, the Company's parent, completed an initial
public offering in which it sold 3,000,000 shares of its Class A Common
Stock to the public at a price of $14.00 per share.
8. Other Information (unaudited):
The indenture governing the Series B Notes (the "Indenture") 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
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, WTLH and Dom's, as if such
acquisitions had occurred on October 1, 1995, Adjusted Operating Cash Flow for
the four quarters ended September 30, 1996 would have been approximately $15.0
million.
(in thousands) Twelve Months
Ended
September 30,
1996
-----------------
Net revenues $39,656
Direct operating expenses, excluding incentive
compensation and
management fees 25,829
-----------------
Income from operations before incentive
compensation, management fees and
depreciation and amortization 13,827
Allowable cash portion of incentive
compensation and management fees 1,226
-----------------
Operating cash flow 12,601
Less DBS cash flow, last four quarters (220)
Plus DBS cash flow, last quarter annualized (528)
=================
Adjusted operating cash flow $11,853
=================
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, WTLH, Inc., a subsidiary of PBT,
WTLH License Corp., a wholly-owned subsidiary of WTLH, Inc. and an indirect
subsidiary of the Company, are not guarantors of the Series B Notes
("Non-guarantors"). As the result of PCT-CT, WTLH, Inc. 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):
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheets
(in thousands-unaudited)
As of September 30,1996 Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------- --------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 4,485 $ 432 $ 700 $ 5,617
Restricted cash 0 0 0 0
Accounts receivable, net 4,437 27 4,464
Other current assets 3,051 310 6,564 ($ 6,700) 3,225
----------------------------------------------------------------------------------
Total current assets 11,973 769 7,264 (6,700) 13,306
Property and equipment, net 23,261 2,504 25,765
Intangible assets, net 73,818 3,460 3,503 80,781
Other assets 2,394 2,394
Investment in subsidiaries and affiliates (1,797) 72,556 (70,759) 0
----------------------------------------------------------------------------------
Total assets $ 109,649 $ 6,733 $ 83,323 ($ 77,459) $ 122,246
==================================================================================
Liabilities and total equity:
Current portion of long-term debt $ 290 $ 75 $ 365
Accounts payable 3,436 423 $ 0 3,859
Other current liabilities 7,872 322 $ 900 $ 0 9,094
----------------------------------------------------------------------------------
Total current liabilities 11,598 820 900 $ 0 13,318
Long-term debt 98,199 7,280 81,490 (69,944) 117,025
Other liabilities (2,264) 307 3,635 1,678
----------------------------------------------------------------------------------
Total Liabilities 107,533 8,407 86,025 (69,944) 132,021
Total equity (deficit) 2,116 (1,674) (2,702) (7,515) (9,775)
----------------------------------------------------------------------------------
Total liabilities and equity $ 109,649 $ 6,733 $ 83,323 ($ 77,459) $ 122,246
==================================================================================
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 (7,650) (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):
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Operations
For the Nine Months ended September 30, 1996
(in thousands)
(unaudited) Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------- -------------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
Total revenue $ 27,970 $ 2,141 ($ 75) $ 30,036
Total operating expenses 28,795 1,755 $ 305 (75) 30,780
--------------------------------------------------------------------------
Income (loss) from operations (825) 386 (305) (744)
Interest expense 7,688 322 5,495 (4,590) 8,915
Other 77 (172) (95)
--------------------------------------------------------------------------
Income (loss) before Income
taxes (8,590) 64 (5,628) 4,590 (9,564)
Provision for Income taxes (110) (110)
--------------------------------------------------------------------------
Income (loss) before
extraordinary item (8,480) 64 (5,628) 4,590 (9,454)
Extraordinary loss on
extinguishment of debt (251) (251)
--------------------------------------------------------------------------
Net income (loss) ($ 8,480) $ 64 ($ 5,879) $ 4,590 ($ 9,705)
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Operations
For the Nine Months ended September 30, 1995
(in thousands)
(unaudited) Guarantor Non-guarantor
Subsidiaries Subsidiary Pegasus Eliminations Totals
------------- ------------- -------- ------------- -------
<S> <C> <C> <C> <C> <C>
Total revenue $ 20,572 $ 1,931 ($75) $ 22,428
Total operating expenses 21,686 1,593 (75) 23,204
--------------------------------------------------------------------------
Income (loss) from operations (1,114) 338 (776)
Interest expense 5,953 404 $ 2,471 (2,875) 5,953
Other (13) (102) (115)
--------------------------------------------------------------------------
Income (loss) before income
taxes (7,054) (66) (2,369) 2,875 (6,614)
Provision for income taxes 30 30
--------------------------------------------------------------------------
Income (loss) before
extraordinary item (7,084) (66) (2,369) 2,875 (6,644)
Extraordinary loss on
extinguishment of debt 6,931 6,931
--------------------------------------------------------------------------
Net loss ($ 7,084) ($66) $ 4,562 $ 2,875 $ 287
==========================================================================
</TABLE>
13
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Subsidiary Guarantees (continued):
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Cash Flows
For the Nine Months ended September 30, 1996
(in thousands)
(unaudited) Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ -------------- ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 8,480) $ 64 ($ 5,879) $ 4,590 ($9,705)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary gain on
extinguishment of debt 251 251
Depreciation and amortization 7,613 487 305 8,405
Program rights amortization 1,063 1,063
Change in assets and liabilities
Accounts receivable 533 (23) 510
Accounts payable and accrued expenses 9,599 453 113 (6,735) 3,430
Prepaids and other (1,159) (13) 7 (1,165)
Other 6,672 481 7,153
---------------------------------------------------------------------------
Net cash provided by operating activities 16,092 968 (4,973) (2,145) 9,942
Cash flows from investing activities:
Capital expenditures (1,909) (675) (2,584)
Purchase of intangible assets (812) (9) (22) (843)
Other (42,993) (158) (43,051)
---------------------------------------------------------------------------
Net cash used by investing activities (45,614) (684) (180) (46,478)
Cash flows from financing activities:
Proceeds from long-term debt 40,622 26 40,648
Repayment of long-term debt (9,055) (23) (9,078)
Other (8,876) (506) 5,853 2,145 (1,384)
---------------------------------------------------------------------------
Net cash provided (used) by financing activities 22,691 (503) 5,853 2,145 30,186
Net decrease in cash and cash equivalents (6,831) (219) 700 (6,350)
Cash and cash equivalents, beginning of period 11,316 651 11,967
---------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 4,485 $ 432 $ 700 $ 5,617
===========================================================================
</TABLE>
14
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Subsidiary Guarantees (continued):
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Cash Flows
For the Nine Months ended September 30, 1995
(in thousands)
(unaudited) Guarantor Non-guarantor
Subsidiaries Subsidiary Pegasus Eliminations Totals
-------------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 7,009) ($ 66) $ 4,562 $ 2,800 $ 287
Adjustments to reconcile net loss to
net cash provided by operating activities:
Extraordinary loss on extinguishment
of debt (6,931) (6,931)
Depreciation and amortization 5,652 444 80 6,176
Program rights amortization 1,140 1,140
Change in assets and liabilities
Accounts receivable 189 5 194
Accounts payable and accrued expenses 1,377 190 1,567
Prepaids and other (188) 48 75 (65)
Other (1,490) 10 90 (1,390)
---------------------------------------------------------------------------
Net cash provided by operating activities (7,260) 631 4,732 2,875 978
Cash flows from investing activities:
Capital expenditures (1,909) (106) (2,015)
Purchase of intangible assets 1,487 (73) (3,327) (1,913)
Other (1) (1)
---------------------------------------------------------------------------
Net cash used by investing activities (423) (179) (3,327) (3,929)
Cash flows from financing activities:
Proceeds from long-term debt 4,026 18 81,000 85,044
Repayment of long-term debt (51,705) (184) (51,889)
Other 55,345 (270) (74,110) (2,875) (21,910)
---------------------------------------------------------------------------
Net cash provided (used) by financing activities 7,666 (436) 6,890 (2,875) 11,245
Net increase (decrease) in cash (17) 16 8,295 8,294
Cash and cash equivalents, beginning of period 1,066 310 1,376
---------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,049 $ 326 $ 8,295 $ 9,670
===========================================================================
</TABLE>
15
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company is a diversified media and communications company operating
in three business segments: TV, DBS and Cable. The Company 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, Digital Satellite System ("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, DSS
authorization charges and satellite control fees, each of which is paid on a per
subscriber basis, and DIRECTV royalties which are equal to 5% of program service
revenues. Cable programming expenses typically consist of amounts paid to
program suppliers on a per subscriber basis.
Location Cash Flow is defined as net revenues less location operating
expenses. 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.
Discussion and Analysis of Operating Results
Three months ended September 30, 1996 compared to three months ended September
30, 1995
The Company's net revenues increased by approximately $3.0 million or
39% for the three months ended September 30, 1996 as compared to the same period
in 1995 as a result of (i) a $1.7 million or 37% increase in TV revenues of
which $225,000 or 13% was due to ratings growth which the Company was able to
convert into higher revenues and $1.5 million or 87% resulting from acquisitions
made in the first quarter of 1996, (ii) a $608,000 or 143% increase in revenues
from the increased number of DBS subscribers, (iii) a $482,000 or 48% increase
in Puerto Rico cable revenues due primarily to acquisitions effective September
1, 1996, and (iv) a $228,000 or 13% increase in New England cable revenues due
primarily to rate increases and new combined service packages.
16
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS- (Continued)
The Company's total location operating expenses increased by
approximately $2.3 million or 34% for the three months ended September 30, 1996
as compared to the same period in 1995 as a result of (i) a $1.1 million or 34%
increase in TV operating expenses as the net result of a $22,000 or 1% decrease
in same station direct operating expenses and a $1.1 million increase
attributable to stations acquired in the first quarter of 1996, (ii) a $818,000
or 280% increase in operating expenses generated by the Company's DBS operations
due to an increase in programming costs of $401,000, royalty costs of $42,000,
marketing increases of $246,000, customer support charge increases of $98,000
and other DIRECTV costs such as security, authorization fees and telemetry and
tracking charges totaling $31,000, all generated from the increased number of
DBS subscribers, (iii) a $226,000 or 37% increase in Puerto Rico cable operating
expenses as the net result of a $22,000 or 4% decrease in same system direct
operating expenses and a $248,000 increase attributable to the system acquired
effective September 1, 1996, and (iv) a $124,000 or 14% 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, Location Cash Flow increased by $740,000
or 27% for the three months ended September 30, 1996 as compared to the same
period in 1995 as a result of (i) a $590,000 or 44% increase in TV Location Cash
Flow of which $252,000 or 42% was due to an increase in same station Location
Cash Flow and $341,000 or 58% was due to an increase attributable to stations
acquired in the first quarter of 1996, (ii) a $210,000 decrease in DBS Location
Cash Flow due to increased marketing costs, (iii) a $256,000 or 65% increase in
Puerto Rico cable Location Cash Flow of which $20,000 or 8% was due to an
increase in same system Location Cash Flow and $236,000 or 92% was due to an to
the system acquired effective September 1, 1996, and (iv) a $104,000 or 12%
increase in New England cable Location Cash Flow.
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 $427,000 for the three months ended September 30,1996 as
compared to the same period in 1995 due mainly to the increases in revenues.
Depreciation and amortization expense increased by approximately $1.3
million for the three months ended September 30, 1996 as compared to the same
period in 1995 as the Company increased its fixed and intangible assets as a
result of three completed acquisitions during 1996.
As a result of these factors, income from operations decreased by
approximately $947,000 for the three months ended September 30, 1996 as compared
to the same period in 1995.
Interest expense increased by approximately $740,000 or 28% for the
three months ended September 30, 1996 as compared to the same period in 1995 as
a result of an increase in debt associated with the Company's 1996 acquisitions.
The Company's net loss increased by $9.1 million for the three months
ended September 30, 1996 as compared to the same period in 1995 and was the net
result of a decrease in income from operations of approximately $947,000, an
increase in interest expenses of $740,000, a decrease in extraordinary items of
$7.2 million from extinguishment of debt, an increase in the provision for
income taxes of $13,000 and a decrease in other expenses of approximately
$194,000.
17
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS- (Continued)
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995
The Company's net revenues increased by approximately $7.6 million or
34% for the nine months ended September 30, 1996 as compared to the same period
in 1995 as a result of (i) a $4.8 million or 35% increase in TV revenues of
which $942,000 or 20% was due to ratings growth which the Company was able to
convert into higher revenues and $3.9 million or 80% resulting from acquisitions
made in the first quarter of 1996, (ii) a $1.6 million or 173% increase in
revenues from the increased number of DBS subscribers, (iii) a $521,000 or 17%
increase in Puerto Rico cable revenues due primarily to acquisitions effective
September 1, 1996, and (iv) a $638,000 or 13% 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 $4.7 million or 30% for the nine months ended September 30, 1996
as compared to the same period in 1995 as a result of (i) a $2.7 million or 27%
increase in TV operating expenses as the net result of a $47,000 or 1% decrease
in same station direct operating expenses and a $2.6 million increase
attributable to stations acquired in the first quarter of 1996, (ii) a $1.5
million or 159% increase in operating expenses generated by the Company's DBS
operations due to an increase in programming costs of $857,000, royalty costs of
$87,000, marketing increases of $246,000, customer support charge increases of
$119,000 and other DIRECTV costs such as security, authorization fees and
telemetry and tracking charges totaling $169,000, all generated from the
increased number of DBS subscribers, (iii) a $212,000 or 11% increase in Puerto
Rico cable operating expenses as the net result of a $36,000 or 2% decrease in
same system direct operating expenses and a $248,000 increase attributable to
the system acquired effective September 1, 1996, and (iv) a $313,000 or 12%
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, Location Cash Flow increased by $2.9
million or 42% for the nine months ended September 30, 1996 as compared to the
same period in 1995 as a result of (i) a $2.1 million or 61% increase in TV
Location Cash Flow of which $942,000 or 45% was due to an increase in same
station Location Cash Flow and $1.2 million or 55% was due to an increase
attributable to stations acquired in the first quarter of 1996, (ii) a $191,000
increase in DBS Location Cash Flow, (iii) a $309,000 or 27% increase in Puerto
Rico cable Location Cash Flow of which $73,000 or 24% was due to an increase in
same system Location Cash Flow and $236,000 or 76% was due to the system
acquired effective September 1, 1996, and (iv) a $325,000 or 14% increase in New
England cable Location Cash Flow.
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 $669,000 for the nine months ended September 30,1996 as
compared to the same period in 1995 due mainly to the increases in revenues.
Depreciation and amortization expense increased by approximately $2.2
million for the nine months ended September 30, 1996 as compared to the same
period in 1995 as the Company increased its fixed and intangible assets as a
result of three completed acquisitions during 1996.
As a result of these factors, income from operations increased by
approximately $32,000 for the nine months ended September 30, 1996 as compared
to the same period in 1995.
18
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS- (Continued)
Interest expense increased by approximately $3.0 million or 50% for the
nine months ended September 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 $10.0 million for the nine months
ended September 30, 1996 as compared to the same period in 1995 and was the net
result of an increase in income from operations of approximately $32,000, an
increase in interest expenses of $3.0 million, a decrease in extraordinary items
of $7.2 million from extinguishment of debt, a decrease in the provision for
income taxes of $140,000 and a decrease in other expenses of approximately
$21,000.
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 had $9.9 million in a restricted cash
account at December 31, 1995 that was used to pay interest on the Company's
Notes in January and July 1996. The Company's principal uses of its cash have
been to fund acquisitions, to meet its debt service obligations, to fund
investments in its TV and cable technical facilities and fund investments in
cable and DSS equipment that is rented or leased to subscribers.
During the nine months ended September 30, 1996, net cash provided by
operations was approximately $9.9 million, which together with $12.0 million of
cash on hand and $30.2 million of net cash provided by the Company's financing
activities was used to fund investing activities of $46.5 million. Investment
activities consisted of (i) the acquisitions of PBI and WTLH for approximately
$17.1 million, (ii) the purchase of Dom's for $26.0 million, (iii) the purchase
of the PCT-CT office facility and headend facility for $201,000, (iv) the fiber
upgrade in PCT-CT amounting to $323,000, (iii) the purchase of DSS units used as
rental and lease units amounting to $832,000 and (iv) maintenance and other
capital expenditures and intangibles totaling approximately $2.4 million. As of
September 30, 1996, the Company's cash on hand approximated $5.6 million.
The Company entered into a seven-year, senior collateralized revolving
credit facility (the "Credit Facility") for $50.0 million. The amount of the
Credit Facility will reduce quarterly beginning March 31, 1998. As of September
30, 1996, $31.6 had been drawn to retire the prior credit facility and to fund
the acquisition of Dom's. The Company 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. There
can be no assurance that such financing can be completed on terms satisfactory
to the Company or at all. The Company's ability to incur additional indebtedness
is limited under the terms of the indenture (the "Indenture") and the Credit
Facility. These limitations take the form of certain leverage ratios and are
dependent upon certain measures of profitability. Under terms of the 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 additional equity to fund future expansion and acquisition requirements.
19
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS- (Continued)
Capital Expenditures
The Company expects to incur capital expenditures in the aggregate of
$12.7 million in 1996 and 1997 in comparison to $2.6 million in 1995. With the
exception of the recurring renewal and refurbishment expenditures of
approximately $1.6 million per year, these capital expenditures are
discretionary and nonrecurring in nature. The Company believes that substantial
opportunities exist for it to increase Location Cash Flow through the
implementation of several significant capital improvement projects. In addition
to recurring renewal and refurbishment expenditures, the Company's capital
expenditure plans for 1996 and 1997, currently include (i) TV expenditures of
approximately $6.1 million for broadcast television transmitter, tower and
facility constructions and upgrades, (ii) DBS expenditures of approximately $2.1
million for DSS equipment purchases for lease and rental to the Company's
DIRECTV subscribers and certain subscriber acquisition costs, and (iii) Cable
expenditures of approximately $1.3 million for the interconnection of the Puerto
Rico Cable systems and fiber upgrades in Puerto Rico and New England. Beyond
1997, the Company expects its ongoing capital expenditures to consist primarily
of renewal and refurbishment expenditures totaling approximately $1.6 million
annually. For the nine month period ended September 30, 1996, the Company
incurred $2.6 million in capital expenditures. There can be no assurance that
the Company's capital expenditure plans will not change in the future,
especially if future acquisitions are made.
Other
Under the terms of the Indenture relating to the Company's Series B
Notes, the Company is prohibited from paying dividends prior to July 1, 1998.
The payment of dividends subsequent to July 1, 1998 will be subject to the
satisfaction of certain financial conditions set forth in the Indenture, and
will also be subject to lender consent under the terms of the Credit Facility.
PM&C's ability to incur additional indebtedness is limited under the
terms of the Indenture and the Credit Facility. These limitations take the form
of certain leverage ratios and are dependent upon certain measures of operating
profitability. Under the terms of the Credit Facility, capital expenditures and
business acquisitions that do not meet certain criteria will require lender
consent.
The Company's revenues vary throughout the year. As in typical in the
TV 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.
20
<PAGE>
Part II. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
On September 13, 1996, the Company filed a Form 8-K dated August 29,
1996 reporting under Item 2 the acquisition of cable systems (the "San German
Cable System") serving ten communities contiguous to the Company's Mayaguez,
Puerto Rico cable television system. The San German Cable System was acquired
from Domar, Inc., which received all of the assets relating to the San German
Cable System upon the liquidation of Dom's. The Company acquired the San German
Cable System for approximately $25.0 million in cash and $1.4 million of assumed
liabilities. The Form 8-K contained financial statements relating to this
acquisition. The Form 8-K also reported under Item 5 that the Company had
entered into the Credit Facility and provided a description of the Credit
Facility.
21
<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 November 14, 1996 By /s/ Robert N. Verdecchio
----------------------------------------
Robert N. Verdecchio
Sr. Vice-President and
Chief Financial Officer
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000948590
<NAME> PEGASUS MEDIA
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 5,617,426 5,617,426
<SECURITIES> 0 0
<RECEIVABLES> 4,719,687 4,719,687
<ALLOWANCES> 256,000 256,000
<INVENTORY> 233,629 233,629
<CURRENT-ASSETS> 13,306,135 13,306,135
<PP&E> 47,461,763 47,461,763
<DEPRECIATION> 21,696,357 21,696,357
<TOTAL-ASSETS> 122,246,142 122,246,142
<CURRENT-LIABILITIES> 13,318,330 13,318,330
<BONDS> 81,489,520 81,489,520
<COMMON> 1,700 1,700
0 0
0 0
<OTHER-SE> (9,776,202) (9,776,202)
<TOTAL-LIABILITY-AND-EQUITY> 122,246,142 122,246,142
<SALES> 10,910,143 30,036,184
<TOTAL-REVENUES> 10,910,143 30,036,184
<CGS> 0 0
<TOTAL-COSTS> 11,901,424 30,780,658
<OTHER-EXPENSES> (5,074) (95,020)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,354,213 8,914,918
<INCOME-PRETAX> (4,340,420) (9,564,372)
<INCOME-TAX> 22,756 110,000
<INCOME-CONTINUING> (4,363,176) (9,454,372)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (250,603) (250,603)
<CHANGES> 0 0
<NET-INCOME> (4,613,779) (9,704,975)
<EPS-PRIMARY> (27.14) (57.09)
<EPS-DILUTED> (27.14) (57.09)
</TABLE>
