<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1997
---------------
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 or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
c/o Pegasus Communications Management Company
5 Radnor Corporate Center; Suite 454, Radnor, PA 19087
- - ------------------------------------------------ -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (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 May 9, 1997:
Class A, Common Stock, $0.01 par value 161,500
Class B, Common Stock, $0.01 par value 8,500
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
Form 10-Q
Table of Contents
For the Quarterly Period Ended March 31, 1997
<TABLE>
<CAPTION>
Page
----
Part I. Financial Information
<S> <C> <C> <C>
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 1996 and March 31, 1997 3
Consolidated Statements of Operations
Three months ended March 31, 1996 and 1997 4
Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 18
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K 19
Signature 20
</TABLE>
2
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------------ ------------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $8,416,778 $11,446,901
Accounts receivable, less allowance for doubtful
accounts of $243,000 and $263,000, respectively 6,030,697 6,339,589
Program rights 1,289,437 1,287,688
Inventory 697,957 432,149
Deferred taxes 1,290,397 1,290,397
Prepaid expenses and other 717,664 581,375
------------------ -----------------
Total current assets 18,442,930 21,378,099
Property and equipment, net 23,823,489 24,334,932
Intangible assets, net 82,500,306 80,905,147
Program rights 1,294,985 920,016
Deposits and other 166,498 199,404
------------------ -----------------
Total assets $126,228,208 $127,737,598
================== =================
LIABILITIES AND EQUITY
Current liabilities:
Notes payable $48,610 $46,220
Current portion of long-term debt 306,975 3,336,975
Accounts payable 6,111,411 4,711,963
Accrued interest 5,592,083 2,631,676
Accrued expenses 5,303,652 9,583,934
Current portion of program rights payable 601,205 640,975
------------------ -----------------
Total current liabilities 17,963,936 20,951,743
Long-term debt, net 115,155,610 82,516,446
Program rights payable 1,365,284 588,941
Deferred taxes 1,339,859 1,339,859
------------------ -----------------
Total liabilities 135,824,689 105,396,989
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 38,007,098
Accumulated deficit (17,479,029) (15,668,189)
------------------ -----------------
Total equity (deficiency) (9,596,481) 22,340,609
------------------ -----------------
Total liabilities and equity (deficiency) $126,228,208 $127,737,598
================== =================
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1997
------------------- -------------------
(unaudited)
<S> <C> <C>
Revenues:
Broadcasting revenue,
net of agency commissions $3,886,329 $5,277,104
Barter programming revenue 1,074,665 1,450,800
Basic and satellite service 2,864,858 4,795,883
Premium services 453,650 565,472
Other 121,459 213,484
------------------- ------------------
Total revenues 8,400,961 12,302,743
------------------- ------------------
Operating expenses:
Barter programming expense 1,074,665 1,450,800
Programming 1,663,967 2,452,985
General and administrative 1,257,612 1,806,231
Technical and operations 805,415 966,795
Marketing and selling 1,044,250 1,450,425
Incentive compensation 120,884 254,875
Management fees 452,876 376,254
Depreciation and amortization 2,346,161 3,180,902
------------------- ------------------
Income (loss) from operations (364,869) 363,476
Interest expense (2,895,483) (3,152,964)
Interest income 101,251 44,137
Other income (expenses), net (25,075) 21,891
Gain on sale of cable system - 4,534,300
------------------- ------------------
Income (loss) before income taxes (3,184,176) 1,810,840
Provision (benefit) for income taxes (169,462) -
=================== ==================
Net income (loss) ($3,014,714) $1,810,840
=================== ==================
Income (loss) per share:
Net income (loss) ($17.73) $10.65
=================== ==================
Weighted average shares outstanding 170,000 170,000
=================== ==================
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1997
----------- ------------
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) ($3,014,714) $1,810,840
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation and amortization 2,346,161 3,180,902
Program rights amortization 344,197 376,883
Accretion on discount of bonds 97,904 98,376
Gain on sale of cable system - (4,534,300)
Bad debt expense 65,170 96,892
Deferred income taxes (169,462) -
Change in assets and liabilities:
Accounts receivable 741,616 (405,784)
Inventory 176,706 265,808
Prepaid expenses and other 4,983 136,289
Accounts payable and accrued expenses (867,786) 2,880,834
Accrued interest (2,485,136) (2,960,407)
Deposits and other 15,005 (32,906)
------------- ----------
Net cash provided (used) by operating activities (2,745,356) 913,427
Cash flows from investing activities:
Acquisitions (15,007,329) -
Capital expenditures (926,719) (3,299,209)
Purchase of intangible assets (270,312) (1,262,782)
Payments of programming rights (351,174) (736,738)
Proceeds from sale of cable system - 7,028,250
Other (157,500) -
------------- ----------
Net cash provided by (used for) investing activities (16,713,034) 1,729,521
Cash flows from financing activities:
Proceeds from long-term debt 106,238 -
Repayments of long-term debt - (36,081)
Borrowings on revolving credit facilities 6,000,000 526,250
Repayments of revolving credit facilities - (30,126,250)
Contributions by Parent - 30,126,250
Restricted cash 5,062,236 -
Capital lease repayments (22,792) (102,994)
------------- ----------
Net cash provided by financing activities 11,145,682 387,175
Net increase (decrease) in cash and cash equivalents (8,312,708) 3,030,123
Cash and cash equivalents, beginning of year 11,966,567 8,416,778
------------- ----------
Cash and cash equivalents, end of period $3,653,859 $11,446,901
============= ==========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company:
Pegasus Media & Communications, Inc. ("Pegasus" or together with its
subsidiaries stated below, the "Company"), is a diversified media and
communications company whose subsidiaries consist of Pegasus Broadcast
Television, Inc. ("PBT"), Pegasus Cable Television, Inc. ("PCT"), Pegasus
Broadcast Associates, L.P. ("PBA"), Pegasus Satellite Television, Inc. ("PST")
and MCT Cablevision, L.P. ("MCT"). PBT operates broadcast television ("TV")
stations affiliated with the Fox Broadcasting Company television network
("Fox"). PCT, together with its subsidiary, Pegasus Cable Television of
Connecticut, Inc. ("PCT-CT") and MCT operate cable television ("Cable") systems
that provide service to individual and commercial subscribers in New England and
Puerto Rico, respectively. PST provides direct broadcast satellite ("DBS")
services to customers in the New England area. PBA holds a television station
license which simulcasts programming from a station operated by PBT.
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") as a
result of PCC's initial public offering (the "Initial Public Offering") of its
Class A Common Stock. On December 30, 1996, as a result of a registered exchange
offer made to holders of Pegasus' Class B Common Stock, Pegasus became a
wholly-owned subsidiary of PCC.
On October 8, 1996, in conjunction with the Initial Public Offering,
the limited partnerships which owned and operated the Company's Puerto Rico
cable operations and owned one of its broadcast licenses, restructured. This
reorganization has been accounted for as if a pooling of interests had occurred.
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 financial statements include
the accounts of Pegasus and all its subsidiaries. All intercompany transactions
and balances have been eliminated.
The unaudited consolidated financial statements reflect all adjustments
consisting of normal recurring items which are, in the opinion of management,
necessary for a fair presentation, in all material respects, of the financial
position of the Company and the results of its operations and its cash flows for
the interim period.
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 the disclosure of contingencies. Actual results could differ
from those estimates. Significant estimates relate to barter transactions and
the useful lives and recoverability of intangible assets.
Inventories:
Inventories consist of equipment held for resale to customers and
installation supplies. Inventories are stated at the lower of cost or market on
a first-in, first-out basis.
6
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies (continued):
Revenue:
The Company operates in two industry segments: multichannel television
(DBS and Cable) and broadcast television (TV). The Company recognizes revenue in
its multichannel operations when video and audio services are provided. The
Company recognizes revenue in its TV operations when advertising spots are
broadcast.
Programming:
The Company obtains a portion of its programming, including presold
advertisements, through its network affiliation agreement with Fox and also
through independent producers. The Company does not make any direct payments for
this programming. For running network programming, the Company receives payments
from Fox. For running independent producers' programming, the Company receives
no direct payments. Instead, the Company retains a portion of the available
advertisement spots to sell on its own account. Barter programming revenue and
the related expense are recognized when the presold advertisements are
broadcast. These amounts are presented gross as barter programming revenue and
expense in the accompanying consolidated statements of operations.
Advertising Costs:
Advertising costs are charged to operations in the period incurred.
Cash and Cash Equivalents:
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.
Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base, and
their dispersion across different businesses and geographic regions.
3. Common Stock:
On July 7, 1995, as part of a plan of reorganization, Pegasus agreed to
exchange 161,500 shares of its Class A Common Stock for all of its outstanding
common stock, 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, Pegasus issued 8,500 shares of its
Class B Common Stock on July 7, 1995 in connection with the Note Offering (see
Note 4).
On December 30, 1996, the Company, through a registered exchange offer,
exchanged all of the Pegasus Class B Common Stock for 191,775 shares in the
aggregate of PCC's Class A Common Stock.
Under the terms of the Series B Notes, Pegasus' ability to pay
dividends on the Company's common stock is subject to certain restrictions.
7
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Common Stock (continued):
At December 31, 1996 and March 31, 1997 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
=========
4. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
----------------- ----------------
<S> <C> <C>
Series B Notes payable by Pegasus, due 2005,
interest at 12.5%, payable semi-annually in
arrears on January 1 and July 1, net of
unamortized discount of $3,412,222 and
$3,313,846 as of December 31, 1996 and
March 31, 1997, respectively................... $81,587,778 $81,686,154
Senior seven year revolving credit facility,
interest at the Company's option at either
the banks prime rate, plus an applicable
margin or LIBOR, plus an applicable margin
(8.6875% at March 31, 1997).................... 29,600,000 -
Mortgage payable, due 2000, interest at
8.75%.......................................... 498,468 493,436
Note payable, due 1998, interest at
10.0%.......................................... 3,050,000 3,050,000
Capital leases and other........................... 726,339 623,831
-------------- -------------
115,462,585 85,853,421
Less current maturities............................ 306,975 3,336,975
-------------- -------------
Long-term debt....................................... $115,155,610 $82,516,446
============== =============
</TABLE>
In July 1995, the Company sold 85,000 units consisting of $85.0 million
in aggregate of 12.5% Series A Senior Subordinated Notes due 2005 (the "Series A
Notes" and, together with the Series B Notes, the "Notes") and 8,500 shares of
the Company's Class B Common Stock (the "Note Offering"). The Class B Stock was
subsequently exchanged for PCC Class A Common Stock (see Note 3). In November
1995, the Company exchanged its Series A Notes for the Series B Notes. The
Series B Notes have substantially the same terms and provisions as the Series A
Notes. The Series B Notes are guaranteed on a full, unconditional, senior
subordinated basis, jointly and severally by a majority of the wholly owned
direct and indirect subsidiaries of Pegasus. The Company's indebtedness contains
certain financial and operating covenants, including restrictions on the Company
to incur additional indebtedness, create liens and to pay dividends.
In August 1996, the Company entered into a $50.0 million seven-year
senior revolving credit facility (the "Credit Facility"), which is
collateralized by substantially all of the Company's assets. Outstanding
balances under the Credit Facility were repaid by PCC, the Company's parent. The
Credit Facility is subject to certain financial covenants as defined in the loan
agreement, including a debt to adjusted cash flow covenant.
8
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Commitments and Contingent Liabilities:
Legal Matters:
From time to time the Company is involved with claims that arise in the
normal course of business. In the opinion of management, the ultimate liability
with respect to these claims will not have a material adverse effect on the
consolidated operations, cash flows or financial position of the Company.
6. Disposition:
Effective January 31, 1997, the Company sold substantially all the
assets of its New Hampshire cable system to State Cable TV Corp. for
approximately $7.0 million in cash. The Company recognized a gain on the
transaction of approximately $4.5 million.
The following unaudited summary, prepared on a pro forma basis,
combines the results of operations as if the above cable system had been sold 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 pro forma information does not purport to be indicative of what
would have occurred had the disposition been made on those dates or of results
which may occur in the future.
<TABLE>
<CAPTION>
(unaudited)
----------
(in thousands, except earnings per share) Three Months Ended March 31,
----------------------------
1996 1997
---- ----
<S> <C> <C>
Net revenues..................................... $10,249 $12,170
============= =============
Operating income (loss)......................... ($208) $349
============= =============
Net income (loss)................................ ($3,746) $1,796
============= =============
Net income (loss) per share.................... ($22.04) $10.56
============= =============
</TABLE>
7. Other Events:
On January 27, 1997, PCC, the Company's parent, completed a unit
offering in which it sold 100,000 shares of its 12 3/4% Series A Cumulative
Exchangeable Preferred Stock and Warrants to purchase 193,600 shares of its
Class A Common Stock at a price of $15 per share, to the public at a price of
$1,000 per unit. A portion of the proceeds from the unit offering were used to
repay all outstanding indebtedness under the Credit Facility.
8. Other Information (unaudited):
As defined in the indenture governing the Series B Notes (the
"Indenture"), the Company is required to provide Adjusted Operating Cash Flow
data for Pegasus and its Restricted Subsidiaries, on a consolidated basis, where
Adjusted Operating Cash Flow is defined as, "for the four most recent fiscal
quarters for which internal financial statements are available, Operating Cash
Flow of such Person and its Restricted Subsidiaries less DBS Cash Flow
(Satellite Segment Operating Cash Flow) for the most recent four-quarter period
plus DBS Cash Flow for the most recent quarterly period, multiplied by four."
Operating Cash Flow is income from operations before income taxes, depreciation
and amortization, interest expense, extraordinary items and non-cash management
fees and incentive compensation. Restricted Subsidiaries carries the same
meaning as in the Indenture. Pro forma for the disposition of the New Hampshire
cable system, as if such disposition had occurred on January 1, 1997, Adjusted
Operating Cash Flow would have been approximately $17.1 million.
9
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Other Information (unaudited - continued):
<TABLE>
<CAPTION>
Four Quarters
Ended
March 31, 1997
--------------------
<S> <C>
Net revenues $50,098,000
Direct operating expenses, excluding incentive
compensation and management fees 32,059,000
-------------------
Income from operations before incentive
compensation, management fees and
depreciation and amortization 18,039,000
Allowable cash portion of incentive
compensation and management fees 1,100,000
-------------------
Operating cash flow 16,939,000
Less DBS cash flow, last four quarters (421,000)
Plus DBS cash flow, last quarter annualized 448,000
===================
Adjusted operating cash flow $16,966,000
===================
</TABLE>
9. Subsidiary Guarantees (unaudited):
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 certain subsidiaries as
described below (the "Guarantor Subsidiaries"). WTLH License Corp., WTLH, Inc.,
Pegasus Anasco Holdings, Inc. and PCT-CT, indirect subsidiaries of Pegasus, are
not guarantors of the Series B Notes ("Non-guarantor Subsidiaries"). As the
result of these subsidiaries 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.
10
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
9. Subsidiary Guarantees (unaudited - continued):
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
As of March 31, 1997 Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ ------------- ------- ------------ ------
Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $8,762 $1,277 $1,408 $11,447
Accounts receivable, net 6,345 (5) 6,340
Other current assets 3,524 67 3,591
---------------------------------------------------------------------------------
Total current assets 18,631 1,339 1,408 21,378
Property and equipment, net 21,684 2,651 24,335
Intangible assets, net 73,224 3,115 4,566 80,905
Other assets 1,053 67 1,120
Investment in subsidiaries and affiliates 91,756 ($91,756) 0
=================================================================================
Total assets $114,592 $7,105 $97,797 ($91,756) $127,738
=================================================================================
Liabilities and total equity:
Current portion of long-term debt $218 $3,119 $3,337
Accounts payable 3,862 850 4,712
Other current liabilities 12,680 223 ($12,797) $12,797 12,903
---------------------------------------------------------------------------------
Total current liabilities 16,760 4,192 (12,797) 12,797 20,952
Long-term debt 100,954 4,429 81,686 (104,553) 82,516
Other liabilities 1,378 307 245 1,930
---------------------------------------------------------------------------------
Total liabilities 119,092 8,928 69,134 (91,756) 105,398
Total equity (deficit) (4,500) (1,823) 28,663 22,340
=================================================================================
Total liabilities and equity $114,592 $7,105 $97,797 ($91,756) $127,738
=================================================================================
As of December 31, 1996
Assets:
Cash and cash equivalents $6,171 $807 $1,439 $8,417
Restricted cash
Accounts receivable, net 6,036 (5) 6,031
Other current assets 3,673 639 ($317) 3,995
---------------------------------------------------------------------------------
Total current assets 15,880 1,441 1,439 (317) 18,443
Property and equipment, net 21,293 2,530 23,823
Intangible assets, net 75,463 3,176 3,861 82,500
Other assets 1,462 1,462
Investment in subsidiaries and affiliates 68,297 (68,297) 0
=================================================================================
Total assets $114,098 $7,147 $73,597 ($68,614) $126,228
=================================================================================
Liabilities and total equity:
Current portion of long-term debt $224 $83 $307
Accounts payable 5,681 598 $149 ($317) 6,111
Other current liabilities 11,128 369 (8,769) 8,818 11,546
---------------------------------------------------------------------------------
Total current liabilities 17,033 1,050 (8,620) 8,501 17,964
Long-term debt 103,018 7,665 81,588 (77,115) 115,156
Other liabilities 2,237 307 161 2,705
---------------------------------------------------------------------------------
Total liabilities 122,288 9,022 73,129 (68,614) 135,825
Total equity (deficit) (8,190) (1,875) 468 (9,597)
=================================================================================
Total liabilities and equity $114,098 $7,147 $73,597 ($68,614) $126,228
=================================================================================
</TABLE>
11
<PAGE>
9. Subsidiary Guarantees (unaudited - continued):
Condensed Consolidated Statements of Operations
For the Three Months ended March 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ ------------- ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Total revenue $11,589 $738 ($25) $12,302
Total operating expenses 11,180 684 $100 (25) 11,939
---------------------------------------------------------------------------------
Income (loss) from operations 409 54 (100) 363
Interest expense 3,880 2 1,822 (2,551) 3,153
Other (4,610) 9 (4,601)
---------------------------------------------------------------------------------
Income (loss) before income
taxes 1,139 52 (1,931) 2,551 1,811
Provision for income taxes
---------------------------------------------------------------------------------
Net income (loss) $1,139 $52 ($1,931) $2,551 $1,811
=================================================================================
</TABLE>
Condensed Consolidated Statements of Operations
For the Three Months ended March 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Total
------------ ------------- ------- ------------ -----
<S> <C> <C> <C> <C> <C>
Total revenue $7,750 $676 ($25) $8,401
Total operating expenses 8,095 580 $116 (25) 8,766
--------------------------------------------------------------------------------
Income (loss) from operations (345) 96 (116) (365)
Interest expense 2,158 112 2,860 (2,235) 2,895
Other 25 (101) (76)
--------------------------------------------------------------------------------
Income (loss) before income
taxes (2,528) (16) (2,875) 2,235 (3,184)
Provision for income taxes (169) (169)
--------------------------------------------------------------------------------
Net income (loss) ($2,359) ($16) ($2,875) $2,235 ($3,015)
================================================================================
</TABLE>
12
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
9. Subsidiary Guarantees (unaudited - continued):
Condensed Consolidated Statements of Cash Flows
For the Three Months ended March 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ ------------ ------- ------------ ------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income (loss) $1,139 $52 ($1,931) $2,551 $1,811
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,840 241 100 3,181
Program rights amortization 377 377
Change in assets and liabilities:
Accounts receivable (381) (25) (406)
Accounts payable and accrued expenses 2,490 106 (149) (2,526) (79)
Prepaids and other (402) 572 (67) 103
Other (6,894) 2,821 (4,073)
-------------------------------------------------------------------------
Net cash provided (used) by operating activities (831) 971 774 914
Cash flows from investing activities:
Capital expenditures (3,018) (281) (3,299)
Purchase of intangible assets (438) (20) (805) (1,263)
Other 6,291 6,291
-------------------------------------------------------------------------
Net cash provided (used) by investing activities 2,835 (301) (805) 1,729
Cash flows from financing activities:
Proceeds from debt 526 526
Repayment of debt 61 (200) (30,126) (30,265)
Other 526 29,600 30,126
-------------------------------------------------------------------------
Net cash provided (used) by financing activities 587 (200) 387
Net increase (decrease) in cash and cash equivalents 2,591 470 (31) 3,030
Cash and cash equivalents, beginning of year 6,171 807 1,439 8,417
=========================================================================
Cash and cash equivalents, end of period $8,762 $1,277 $1,408 $11,447
=========================================================================
</TABLE>
13
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
9. Subsidiary Guarantees (unaudited - continued):
Condensed Consolidated Statements of Cash Flows
For the Three Months ended March 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ ------------- -------- ------------ ------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income (loss) ($2,359) ($16) ($2,875) $2,235 ($3,015)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,089 162 95 2,346
Program rights amortization 344 344
Change in assets and liabilities:
Accounts receivable 754 13 (25) 742
Accounts payable and accrued expenses 1,252 201 (2,597) (2,210) (3,354)
Prepaids and other 24 (11) 7 20
Other 169 3 172
--------------------------------------------------------------------------
Net cash provided (used) by operating activities 2,273 352 (5,370) (2,745)
Cash flows from investing activities:
Capital expenditures (739) (188) (927)
Purchase of intangible assets (244) (4) (22) (270)
Other (15,358) (158) (15,516)
--------------------------------------------------------------------------
Net cash used by investing activities (16,341) (192) (180) (16,713)
Cash flows from financing activities:
Proceeds from debt 6,080 26 6,106
Repayment of debt (15) (8) (23)
Other 51 (539) 5,550 5,062
--------------------------------------------------------------------------
Net cash provided (used) by financing activities 6,116 (521) 5,550 11,145
Net increase in cash (7,952) (361) (8,313)
Cash and cash equivalents, beginning of year 11,316 651 11,967
--------------------------------------------------------------------------
Cash and cash equivalents, end of period $3,364 $290 $3,654
==========================================================================
</TABLE>
14
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) and
information relating to the Company that are based on the beliefs of the
management of the Company, as well as assumptions made by and information
currently available to the Company's management. When used in this Report, the
words "estimate," "project," "believe," "anticipate," "intend," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as the date hereof. The Company
does not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
General
The Company is a diversified media and communications company operating
in two business segments: multichannel television and broadcast television.
Pegasus Multichannel Television includes DBS and cable businesses. DBS
operations consist of providing DIRECTV(R) ("DIRECTV") services in certain rural
areas of New England (Connecticut, Massachusetts and New Hampshire) in which the
Company holds the exclusive right to provide such services. Its cable operations
consist of systems in New England (Connecticut and Massachusetts) and Puerto
Rico. The Company sold its New Hampshire cable system effective January 31,
1997. Pegasus Broadcast Television owns and operates five TV stations affiliated
with FOX and has entered into agreements to operate two additional TV stations
which will be affiliated with UPN.
Multichannel revenues are derived from monthly customer subscriptions,
pay-per-view services, subscriber equipment rentals, home shopping commissions,
advertising time sales and installation charges. TV revenues are derived from
the sale of broadcast air time to local and national advertisers.
The Company's location operating expenses consist of (i) programming
expenses, (ii) marketing and selling costs, including advertising and promotion
expenses, local sales commissions, and ratings and research expenditures, (iii)
technical and operations costs, and (iv) general and administrative expenses.
Multichannel 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 DBS program
service revenues. 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 television program
suppliers in lieu of cash.
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 a generally
recognized measure of performance and is used by analysts who report publicly on
the performance of companies operating in such segments. Nevertheless, this
measure 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.
15
<PAGE>
Results of Operations
Three months ended March 31, 1997 compared to three months ended March 31, 1996
The Company's net revenues increased by approximately $3.9 million or
46% for the three months ended March 31, 1997 as compared to the same period in
1996. Multichannel Television net revenues increased $2.1 million or 63% and
Broadcast Television net revenues increased $1.8 million or 35%. The net
revenues increased as a result of (i) a $817,000 or 123% increase in DBS
revenues mainly due to the increased number of DBS subscribers, (ii) a $1.4
million or 143% increase in Puerto Rico cable revenues due primarily to an
acquisition effective September 1, 1996, (iii) a $109,000 or 6% decrease in New
England cable revenues, which was the net result of a $125,000 increase due
primarily to rate increases and new combined service packages and a $234,000
reduction due to the sale of the Company's New Hampshire cable system effective
January 31, 1997, (iv) a $1.8 million or 35% increase in TV revenues of which
$922,000 or 52% was due to ratings growth which the Company was able to convert
into higher revenues and $845,000 or 48% was the result of acquisitions made in
the first quarter of 1996.
The Company's total location operating expenses increased by
approximately $2.3 million or 39% for the three months ended March 31, 1997 as
compared to the same period in 1996. Multichannel Television location operating
expenses increased $1.4 million or 64% and Broadcast Television location
operating expenses increased $913,000 or 25%. The location operating expenses
increased as a result of (i) a $790,000 or 136% increase in operating expenses
generated by the Company's DBS operations due to an increase in programming
costs of $368,000, royalty costs of $39,000, marketing increases of $126,000,
customer support charge increases of $203,000 and other DIRECTV costs such as
security, authorization fees and telemetry and tracking charges totaling
$54,000, all generated from the increased number of DBS subscribers, (ii) a
$645,000 or 100% increase in Puerto Rico cable operating expenses as the net
result of a $37,000 or 6% decrease in same system direct operating expenses and
a $682,000 increase attributable to the system acquired effective September 1,
1996, (iii) a $67,000 or 7% decrease in New England cable operating expenses
which was the net result of a $71,000 increase due primarily to increases in
programming costs associated with the new combined service packages and a
$138,000 reduction due to the sale of the Company's New Hampshire cable system
effective January 31, 1997, and (iv) a $913,000 or 25% increase in TV operating
expenses as the net result of a $41,000 or 2% decrease in same station direct
operating expenses and a $954,000 increase attributable to stations acquired in
the first quarter of 1996.
As a result of these factors, Location Cash Flow increased by $1.6
million or 63% for the three months ended March 31, 1997 as compared to the same
period in 1996. Multichannel Television Location Cash Flow increased $767,000 or
62% and Broadcast Television Location Cash Flow increased $854,000 or 65%.
Location Cash Flow increased as a result of (i) a $27,000 or 32% increase in DBS
Location Cash Flow, (ii) a $782,000 or 223% increase in Puerto Rico cable
Location Cash Flow of which $58,000 or 7% was due to an increase in same system
Location Cash Flow and $724,000 or 93% was due to the system acquired effective
September 1, 1996, (iii) a $42,000 or 5% decrease in New England cable Location
Cash Flow which was the net result of a $54,000 increase in same territory
Location Cash Flow and a $96,000 reduction due to the sale of the Company's New
Hampshire cable system effective January 31, 1997, and (iv) a $854,000 or 65%
increase in TV Location Cash Flow of which $614,000 or 72% was due to an
increase in same station Location Cash Flow and $240,000 or 28% was due to an
increase attributable to stations acquired in the first quarter of 1996.
Incentive compensation which is calculated from increases in Location
Cash Flow, increased by approximately $134,000 or 111% for the three months
ended March 31, 1997 as compared to the same period in 1996 due mainly to the
increases in revenues.
Management charges decreased by $77,000 or 17% for the three months
ended March 31, 1997 as compared to the same period in 1996.
Depreciation and amortization expense increased by approximately
$835,000 or 36% for the three months ended March 31, 1997 as compared to the
same period in 1996 as the Company increased its fixed and intangible assets as
a result of three completed acquisitions during 1996.
16
<PAGE>
As a result of these factors, the Company reported income from
operations of approximately $364,000 for the three months ended March 31, 1997
as compared to a loss from operations of approximately $365,000 for the same
period in 1996.
Interest expense increased by approximately $257,000 or 9% for the
three months ended March 31, 1997 as compared to the same period in 1996 as a
result of an increase in debt associated with the Company's acquisitions.
The Company reported net income of $1.8 million for the three months
ended March 31, 1997 as compared to a net loss of approximately $3.0 million for
the same period in 1996. The $4.8 million change was the net result of an
increase in income from operations of approximately $728,000, an increase in
interest expense of $257,000, an increase in the provision for income taxes of
$169,000, an increase in other expenses of approximately $10,000 and a gain on
the sale of the New Hampshire cable system of approximately $4.5 million.
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. 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 multichannel customer
premises equipment.
During the three months ended March 31, 1997, net cash provided by
operations was $913,000, which together with $8.4 million of cash on hand, $7.0
million of proceeds from the sale of the New Hampshire cable system and $387,000
of net cash provided by the Company's financing activities was used to fund
other investing activities of approximately $5.3 million. Investing activities,
net of the proceeds from the sale of the New Hampshire cable system, consisted
of (i) broadcast television transmitter, tower and facility constructions and
upgrades totaling approximately $2.0 million, (ii) the interconnection of the
Puerto Rico cable systems amounting to $305,000, (iii) DBS subscriber
acquisition costs, which are being amortized over a twelve month period, of
$383,000, (iv) payments of programming rights amounting to $737,000, and (v)
maintenance and other capital expenditures and intangibles totaling
approximately $1.9 million. As of March 31, 1997, the Company's cash on hand
approximated $11.4 million.
The Company believes that it has adequate resources to meet its working
capital, maintenance capital expenditure and debt service obligations. The
Company believes that cash on hand together with available borrowings under the
Credit Facility and future indebtedness which may be incurred by the Company and
its subsidiaries will give the Company the ability to fund acquisitions and
other capital requirements in the future. However, there can be no assurance
that the future cash flows of the Company will be sufficient to meet all of the
Company's obligations and commitments.
The Company closely monitors conditions in the capital markets to
identify opportunities for the effective and prudent use of financial leverage.
In financing its future expansion and acquisition requirements, the Company
would expect to avail itself of such opportunities and thereby increase its
indebtedness which could result in increased debt service requirements. There
can be no assurance that such debt financing can be completed on terms
satisfactory to the Company or at all. The Company may also issue additional
equity to fund its future expansion and acquisition requirements.
Capital Expenditures
The Company's capital expenditures aggregated $6.2 million in 1996. The
Company expects recurring renewal and refurbishment capital expenditures to
total approximately $2.0 million per year. In addition to these maintenance
capital expenditures, the Company's 1997 capital projects include (i) DBS
expenditures of approximately $230 per new subscriber, (ii) cable expenditures
of approximately $1.0 million for the completion of the interconnection of the
Puerto Rico cable systems and fiber upgrades in Puerto Rico and New England, and
(iii) approximately $6.5 million to $7.5 million of TV expenditures for
broadcast television transmitter, tower and facility constructions and upgrades.
For the three month period ended March
17
<PAGE>
31, 1997, the Company incurred $3.3 million in capital expenditures. There can
be no assurance that the Company's capital expenditure plans will not change in
the future.
Other
Under the terms of the Indenture, PM&C 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.
The Company'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 is typical in the
broadcast television industry, the Company's first quarter generally produces
the lowest revenues for the year, and the fourth quarter generally produces the
highest revenues for the year. The Company's operating results in any period may
be affected by the incurrence of advertising and promotion expenses that do not
necessarily produce commensurate revenues in the short-term until the impact of
such advertising and promotion is realized in future periods.
The Company believes that inflation has not been a material factor
affecting the Company's business. In general, the Company's revenues and
expenses are impacted to the same extent by inflation. Substantially all of the
Company's indebtedness bear interest at a fixed rate.
The Company has reviewed the provisions of Statements of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," and SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
implementation of the above standards did not have any impact on the Company.
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." This Statement establishes standards for computing
and presenting earnings per share (EPS) and applies to entities with publicly
held common stock or potential common stock. This Statement is effective for
financial statements issued for periods ending after December 15, 1997, earlier
application is not permitted. This Statement requires restatement of all
prior-period EPS data presented. The Company is currently evaluating the impact,
if any, adoption of SFAS No. 128 will have on its financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
18
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the quarter
ended March 31, 1997.
19
<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 May 14, 1997 By /s/ Robert N. Verdecchio
-----------------------------------------------
Robert N. Verdecchio
Senior Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,446,901
<SECURITIES> 0
<RECEIVABLES> 6,602,589
<ALLOWANCES> 263,000
<INVENTORY> 432,149
<CURRENT-ASSETS> 21,378,099
<PP&E> 44,221,579
<DEPRECIATION> 19,886,647
<TOTAL-ASSETS> 127,737,598
<CURRENT-LIABILITIES> 20,951,743
<BONDS> 81,686,154
0
0
<COMMON> 1,700
<OTHER-SE> 22,338,909
<TOTAL-LIABILITY-AND-EQUITY> 127,737,598
<SALES> 12,302,743
<TOTAL-REVENUES> 12,302,743
<CGS> 0
<TOTAL-COSTS> 11,939,267
<OTHER-EXPENSES> (4,600,328)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,152,964
<INCOME-PRETAX> 1,810,840
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,810,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,810,840
<EPS-PRIMARY> 10.65
<EPS-DILUTED> 10.65
</TABLE>
