<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1996
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from__________ to __________
Commission File Number 33-95042
----------
PEGASUS MEDIA & COMMUNICATIONS, INC.
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2778525
-------- ----------
(State of other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)
c/o 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
----------------
Securities registered pursuant to section 12(b) of the Act: None
--------
Securities registered pursuant to section 12(g) of the Act: None
--------
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___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ X ]
Number of shares of each class of the Registrant's common stock outstanding as
of March 21, 1997:
Class A, Common Stock, $0.01 par value 161,500
Class B, Common Stock, $0.01 par value 8,500
The Registrant meets the conditions set forth in General Instruction (J)(1)(a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
PART I
Item 1: Business
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 expression 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
Pegasus Media & Communications, Inc. ("Pegasus", or together with its
subsidiaries, the "Company") is a diversified media and communications company
which operates in two media segments: multichannel television and broadcast
television. Pegasus Multichannel provides direct broadcast satellite ("DBS")
service and cable television ("Cable") service to 53,000 subscribers in four
states and Puerto Rico in franchise areas that include 610,000 households and
79,000 businesses. Pegasus Broadcast owns and operates five television stations
affiliated with the Fox Broadcasting Company ("Fox") and has entered into
agreements to operate two additional television stations in two of these markets
in 1997. The Company has grown through the acquisition and operation of media
and communications properties characterized by clearly identifiable "franchises"
and significant operating leverage, which enables increases in revenues to be
converted into disproportionately greater increases in Location Cash Flow.
Pegasus was incorporated under the laws of the State of Delaware in
December 1993. 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 connection with PCC's 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.
The Company's operating strategy is to generate consistent revenue
growth and to convert this revenue growth into disproportionately greater
increases in Location Cash Flow. The Company seeks to achieve revenue growth (i)
in DBS by identifying market segments in which DIRECTV programming will have
strong appeal, developing marketing and promotion campaigns to increase consumer
awareness of and demand for DIRECTV programming within those market segments and
building distribution networks consisting of consumer electronics and satellite
equipment dealers, programming sales agents and the Company's own direct sales
force, (ii) in Cable by increasing the number of its subscribers and revenue per
subscriber through improvements in signal reception, the quality and quantity of
its programming, line extensions and rate increases, and (iii) in TV by
attracting a dominant share of the viewing of underserved demographic groups it
believes to be attractive to advertisers and by developing aggressive sales
forces capable of "overselling" its stations' share of those audiences. The
Company seeks to convert increases in revenues into disproportionately greater
increases in Location Cash Flow through the use of incentive plans, which reward
employees in proportion to annual increases in Location Cash Flow, coupled with
rigorous budgeting and strict cost controls.
The Company's acquisition strategy is to identify media and
communications businesses in which significant increases in Location Cash Flow
may be realized and where the ratio of required investment to potential Location
Cash Flow is low. The Company seeks to acquire new television and cable
properties at attractive prices for which the Company can improve its operating
results.
1
<PAGE>
Recent Transactions
Completed Acquisitions
Since January 1, 1996, the Company has acquired the following media and
communications properties:
Television Station WPXT. The Company acquired WPXT, the Fox-affiliated
television station serving the Portland, Maine Designated Market Area ("DMA")
(the "Portland Acquisition").
Television Station WTLH. The Company acquired WTLH, the Fox-affiliated
television station serving the Tallahassee, Florida DMA (the "Tallahassee
Acquisition").
Television Station WWLA. The Company acquired a local marketing agreement
("LMA") with the holder of a construction permit for WWLA, a new television
station authorized to operate UHF channel 35 in the Portland, Maine DMA (the
"Portland LMA"). Under the Portland LMA, the Company will lease facilities
and provide programming to WWLA. Construction of WWLA is expected to be
completed in 1997.
Cable Acquisition. In August 1996, the Company acquired substantially all of
the assets of the San German Cable System (the "Cable Acquisition"), serving
ten communities contiguous to the Company's Mayaguez Cable system.
Recent Sale
New Hampshire Cable Sale. In January 1997, the Company sold its New
Hampshire Cable systems (the "New Hampshire Cable Sale"). The New Hampshire
Cable Sale resulted in net proceeds to the Company of approximately $7.1
million.
Other
PCC, the parent of Pegasus, consummated the initial public offering of
its Class A Common Stock on October 8, 1996 pursuant to an underwritten
offering.
Purchasers of the Notes in the Company's 1995 Notes offering held all
of the Company's Class B Common Stock. 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.
Employees
As of December 31, 1996, the Company had 268 full-time and 34 part-time
employees. The Company is not a party to any collective bargaining agreement and
considers its relations with its employees to be good.
Item 2: Properties
The Company's TV stations own and lease studio, tower, transmitter and
antenna facilities and the Company's cable systems own and lease studio,
parking, storage, headend, tower, earth station and office facilities in the
localities in which they operate. The Company leases office space in
Marlborough, Massachusetts for its DBS operations. The television transmitter
and antenna sites are generally located so as to provide optimum market
coverage. The cable headend and tower sites are located at strategic points
within the cable system franchise area to support the distribution system. The
Company believes that its facilities are in good operating condition and are
satisfactory for their present and intended uses. The following table contains
certain information describing the general character of the Company's
properties:
<PAGE>
<TABLE>
<CAPTION>
Location and Type of Property Owned or Approximate Size Expiration of Lease
Leased or Renewal Options
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
TV Stations
- ---------------------------------------------------------------------------------------------------------
Jackson, MS (transmitting equipment) Leased 1,125 foot tower 2/28/04
- ---------------------------------------------------------------------------------------------------------
Jackson, MS Lease/ 5,600 sq.ft. building N/A
(television station and transmitter building) Purchase (1) 900 sq. ft. building
- ---------------------------------------------------------------------------------------------------------
West Mountain, PA (tower & transmitter) Leased 9.6 acres 1/31/00
- ---------------------------------------------------------------------------------------------------------
916 Oak Street Leased 8,600 sq.ft. 4/30/00
Scranton, PA (television station)
- ---------------------------------------------------------------------------------------------------------
Bald Eagle Mtn, PA (transmitting equip.) Leased 400 sq.ft. tower 9/30/07
- ---------------------------------------------------------------------------------------------------------
1201 East Main Street, Chattanooga, TN Owned 16,240 sq.ft. building N/A
(present television station) on 3.17 acres
- ---------------------------------------------------------------------------------------------------------
2320 Congress Street Leased 8,000 sq.ft. 12/31/97
Portland, ME (television station)
- ---------------------------------------------------------------------------------------------------------
Gray, ME (tower site) Owned 18.6 acres N/A
- ---------------------------------------------------------------------------------------------------------
1203 Governor's Square Leased 5,012 sq.ft. 9/30/97
Tallahassee, FL (television station)
- ---------------------------------------------------------------------------------------------------------
Leon County, FL Leased (2) 30 acres 2/28/98
- ---------------------------------------------------------------------------------------------------------
Nickleville, GA (tower) Owned 22.5 acres N/A
- ---------------------------------------------------------------------------------------------------------
Cable Systems
- ---------------------------------------------------------------------------------------------------------
Winchester, CT (headend) Owned 15.22 acres N/A
- ---------------------------------------------------------------------------------------------------------
140 Willow Street, Winsted, CT (office) Owned 1,900 sq. ft. N/A
- ---------------------------------------------------------------------------------------------------------
Charlton, MA (office, headend site) Leased 38,223 sq.ft. 5/9/99
- ---------------------------------------------------------------------------------------------------------
Hinsdale, MA (headend site) Leased 30,590 sq.ft. 2/1/04
- ---------------------------------------------------------------------------------------------------------
Lanesboro, MA (headend site) Leased 62,500 sq.ft. 4/13/97
- ---------------------------------------------------------------------------------------------------------
West Stockbridge, MA (headend site) Leased 1.59 acres 4/4/05
- ---------------------------------------------------------------------------------------------------------
Route # 2, Puerto Rico (office) Leased 2,520 sq. ft. building 8/30/98
- ---------------------------------------------------------------------------------------------------------
Mayaguez, Puerto Rico (headend) Leased 530 sq. ft. building 8/30/98
- ---------------------------------------------------------------------------------------------------------
Mayaguez, Puerto Rico (warehouse) Leased 1,750 sq. ft. area monthly
- ---------------------------------------------------------------------------------------------------------
San German, Puerto Rico (headend site) Owned 1,200 sq.ft. N/A
- ---------------------------------------------------------------------------------------------------------
San German, Puerto Rico (tower & transmitter) Owned 60 foot tower; 192 N/A
sq.meters
- ---------------------------------------------------------------------------------------------------------
San German, Puerto Rico (office) Leased 2,928 sq.ft. 2/1/01
- ---------------------------------------------------------------------------------------------------------
Anasco, Puerto Rico (office) Leased 500 sq.ft 2/28/99
- ---------------------------------------------------------------------------------------------------------
Anasco, Puerto Rico (headend site) Leased 1,200 sq.meters monthly
- ---------------------------------------------------------------------------------------------------------
Anasco, Puerto Rico (headend) Owned 59 foot tower N/A
- ---------------------------------------------------------------------------------------------------------
Guanica, Puerto Rico (headend site) Leased 121 sq.meters 2/28/04
- ---------------------------------------------------------------------------------------------------------
Cabo Rojo, Puerto Rico (headend site) Leased 121 sq.meters 11/10/04
- ---------------------------------------------------------------------------------------------------------
Hormigueros, Puerto Rico (warehouse) Leased 2,000 sq.ft. monthly
- ---------------------------------------------------------------------------------------------------------
DBS Systems
- ---------------------------------------------------------------------------------------------------------
Marlborough, MA (office) Leased 1,310 sq.ft. 7/31/99
- ---------------------------------------------------------------------------------------------------------
Charlton, MA (warehouse) Leased 1,750 sq. ft. area monthly
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company entered into a Lease/Purchase agreement in July 1993 which
calls for 60 monthly payments of $4,500 at the end of which the property is
conveyed to the Company.
(2) The Company holds an option to purchase this site for $150,000.
3
<PAGE>
Item 3: Legal Proceedings
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 the respect to these claims will not have a material adverse effect on the
consolidated operations, cash flows or financial position of the Company.
Item 4: Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5: Market for Registrant's Common Equity and Related Shareholder Matters
None of Pegasus' equity securities are publicly traded. Pegasus did not
sell any equity securities that would be required to be reported in accordance
with Regulation S-K Item 701 of the Securities Act of 1933, as amended.
4
<PAGE>
Item 6: Selected Historical Consolidated Financial Data
(Dollars in thousands, except earnings per share)
The selected historical consolidated financial data for the years ended
December 31, 1992 through 1996 have been derived from the Company's audited
Consolidated Financial Statements for such periods. The information should be
read in conjunction with the Consolidated Financial Statements and the notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are included elsewhere herein.
Income Statement Data :
<TABLE>
<CAPTION>
1992 1993 (1) 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues:
Multichannel Television
DBS ........................ $ -- $ -- $ 174 $ 1,469 $ 4,213
Cable ...................... 5,279 9,133 10,148 10,606 13,496
TV ........................... -- 10,308 17,808 19,973 28,488
--------- --------- --------- --------- ---------
Total net revenues ........ 5,279 19,441 28,130 32,048 46,197
--------- --------- --------- --------- ---------
Location operating expenses:
Multichannel Television
DBS ........................ -- -- 210 1,379 3,811
Cable ...................... 2,669 4,655 5,546 5,791 7,192
TV ........................... -- 7,564 12,380 13,980 18,775
Incentive compensation (2) ..... 36 192 432 527 935
Management fees ................ 468 1,261 1,499 1,770 2,045
Depreciation and amortization .. 2,506 5,906 6,877 8,674 10,493
--------- --------- --------- --------- ---------
Income (loss) from operations .. (400) (137) 1,186 (73) 2,946
Interest expense ............... 1,237 4,380 5,951 8,795 12,438
Interest income ................ -- -- -- (370) (232)
Other expense, net ............. 21 220 65 44 136
Provision (benefit) for taxes .. -- -- 140 30 (120)
Extraordinary gain (loss) from
extinguishment of debt ....... -- -- (633) 10,210 (251)
--------- --------- --------- --------- ---------
Net income (loss) .............. $ (1,658) $ (4,737) $ (5,603) $ 1,638 $ (9,527)
========= ========= ========= ========= =========
Income (loss) per share:
Loss before extraordinary item $ (10.27) $ (29.33) $ (30.77) $ (51.73) $ (54.57)
Extraordinary item ........... -- -- (3.92) 61.62 (1.47)
--------- --------- --------- --------- ---------
Net income (loss) per share .. $ (10.27) $ (29.33) $ (34.69) $ 9.89 $ (56.04)
========= ========= ========= ========= =========
Weighted average shares
outstanding .................. 161,500 161,500 161,500 165,692 170,000
========= ========= ========= ========= =========
Other Data:
Location Cash Flow (3) ......... $ 2,610 $ 7,222 $ 9,994 $ 10,898 $ 16,419
Operating Cash Flow (3) ........ 2,106 5,769 8,063 8,773 14,374
Capital expenditures ........... 629 818 1,173 2,571 6,243
Balance Sheet Data:
Cash and cash equivalents ...... $ 926 $ 1,498 $ 1,376 $ 11,967 $ 8,417
Working capital (deficiency) ... (55) (3,853) (22,881) 17,378 479
Total assets ................... 17,165 76,185 75,051 95,417 126,228
Total debt (including current) . 15,045 72,127 61,349 82,638 115,511
Total liabilities .............. 16,131 78,669 68,118 95,592 135,825
Total equity (deficit) (4) ..... 1,034 (2,484) 6,933 (175) (9,596)
</TABLE>
(see footnotes on the following page)
5
<PAGE>
Notes to Selected Historical Consolidated Financial Data
(1) The Company's operations began in 1991. The 1993 data include the
results of the Mayaguez, Puerto Rico Cable system from March 1, 1993
and WOLF/WWLF/WILF, WDSI and WDBD from May 1, 1993.
(2) Incentive compensation represents compensation expenses which are
calculated in proportion to annual increases in Location Cash Flow.
(3) Location Cash Flow is defined as net revenues less location operating
expenses. Location operating expenses consist of programming, barter
programming, general and administrative, technical and operations,
marketing and selling expenses. Operating Cash Flow is defined as
income (loss) from operations plus (i) depreciation and amortization
and (ii) non-cash incentive compensation. The difference between
Location Cash Flow and Operating Cash Flow is that Operating Cash Flow
includes cash incentive compensation and management fees. Although
Operating Cash Flow and Location Cash Flow are not measures of
performance under generally accepted accounting principles, the Company
believes that Location Cash Flow and Operating Cash Flow are accepted
within the Company's business segments as generally recognized measures
of performance and are used by analysts who report publicly on the
performance of companies operating in such segments. 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.
(4) The Company has not paid any cash dividends and does not anticipate
paying cash dividends in the foreseeable future. Payment of cash
dividends on the Company's Common Stock are restricted by the terms of
the Company's Series B Notes.
6
<PAGE>
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and related notes which are included elsewhere herein. This
Report contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein.
General
The Company is a diversified media and communications company operating
in two business segments: multichannel television and broadcast television. 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. The Company acquired an additional Puerto Rico cable system effective
September 1, 1996.
Results of Operations
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 television 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 consist of amounts paid to program
suppliers on a per subscriber basis.
Year ended December 31, 1996 compared to year ended December 31, 1995
The Company's net revenues increased by approximately $14.1 million or
44% for the year ended December 31, 1996 as compared to the same period in 1995
as a result of (i) a $8.5 million or 43% increase in TV revenues of which $1.5
million or 17% was due to ratings growth which the Company was able to convert
into higher revenues and $7.0 million or 83% was the result of acquisitions made
in the first quarter of 1996, (ii) a $2.7 million or 187% increase in DBS
revenues due to the increased number of DBS subscribers, (iii) a $2.0 million or
51% increase in Puerto Rico Cable revenues due primarily to acquisitions
effective September 1, 1996, and (iv) a $864,000 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 $8.6 million or 41% for the year ended December 31, 1996 as
compared to the same period in 1995 as a result of (i) a $4.8 million or 34%
increase in TV operating expenses as the net result of a $115,000 or 1% decrease
in same station direct operating expenses and a $4.9 million increase
attributable to stations acquired in the first quarter of 1996, (ii) a $2.4
million or 176% increase in operating expenses generated by the Company's DBS
operations due to an increase in programming costs of $1.4 million, royalty
costs of $138,000, marketing expenses of $455,000, customer support charges of
$199,000 and other DIRECTV costs such as security, authorization fees and
telemetry and tracking charges totaling $237,000, all generated from the
increased number of DBS subscribers, (iii) a $912,000 or 37% increase in Puerto
Rico Cable operating expenses as the net result of a $64,000 or 3% decrease in
same system direct operating expenses and a $976,000 increase attributable to
the system acquired effective September 1, 1996, and (iv) a $489,000 or 15%
increase in New England Cable operating expenses due primarily to increases in
programming costs associated with the new combined service
7
<PAGE>
packages.
As a result of these factors, Location Cash Flow increased by $5.5
million or 51% for the year ended December 31, 1996 as compared to the same
period in 1995 as a result of (i) a $3.7 million or 62% increase in TV Location
Cash Flow of which $1.6 million or 42% was due to an increase in same station
Location Cash Flow and $2.1 million or 58% was due to an increase attributable
to stations acquired in the first quarter of 1996, (ii) a $312,000 increase in
DBS Location Cash Flow, (iii) a $1.1 million or 72% increase in Puerto Rico
Cable Location Cash Flow of which $126,000 or 11% was due to an increase in same
system Location Cash Flow and $988,000 or 89% was due to the system acquired
effective September 1, 1996, and (iv) a $375,000 or 11% increase in New England
Cable Location Cash Flow.
As a result of these factors, incentive compensation which is
calculated from increases in Location Cash Flow increased by approximately
$407,000 or 77% for the year ended December 31, 1996 as compared to the same
period in 1995 due mainly to the increases in revenues.
Management charges, which are comprised of fees calculated at 5% of net
revenues plus an allocated share of corporate accounting costs, increased by
$275,000 or 16% for the year ended December 31, 1996 as compared to the same
period in 1995 primarily due to the initiation of public reporting requirements
for the Company.
Depreciation and amortization expense increased by approximately $1.8
million or 21% for the year ended December 31, 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 $3.0 million for the year ended December 31, 1996 as compared to
the same period in 1995.
Interest expense, net of interest income, increased by approximately
$3.8 million or 45% for the year ended December 31, 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, but having other less favorable terms.
The Company reported a net loss of approximately $9.5 million for the
year ended December 31, 1996 as compared to net income of approximately $1.6
million for the same period in 1995. The $11.1 million change was the net result
of an increase in income from operations of approximately $3.0 million, an
increase in net interest expense of $3.8 million, a decrease in extraordinary
items of $10.5 million from extinguishment of debt, a decrease in the provision
for income taxes of $150,000 and an increase in other expenses of approximately
$92,000.
Year ended December 31, 1995 compared to year ended December 31, 1994
The Company's net revenues increased by approximately $3.9 million for
the year ended December 31, 1995 as compared to the same period in 1994 as a
result of (i) a $2.2 million or 12% increase in TV revenues due to ratings
growth and improved economic conditions within the Company's markets, which the
Company was able to convert into higher revenues, (ii) a $293,000 or 5% increase
in New England Cable revenues due to an increase in the number of subscribers
and rate increases in August and September 1995, (iii) a $165,000 or 4% increase
in Puerto Rico Cable revenues due primarily to a 6% rate increase implemented in
March 1995, and (iv) $1.3 million of revenue from DBS operations which commenced
in the fourth quarter of 1994.
The Company's total location operating expenses increased by
approximately $3.0 million for the year ended December 31, 1995 as compared to
the same period in 1994 as a result of (i) a $1.6 million or 13% increase in TV
operating expenses primarily due to increases in programming, sales and
promotion expenses, (ii) a $115,000 or 4% increase in New England Cable
operating expenses due primarily to increases in programming costs, (iii) a
$130,000 or 6% increase in Puerto Rico Cable operating expenses due primarily to
an increase in programming costs for existing channels, but also increases in
the number of Spanish language channels offered by the system, and (iv) $1.2
million of operating expenses generated by the Company's DBS
8
<PAGE>
operations which commenced in the fourth quarter of 1994.
As a result of these factors, Location Cash Flow increased by $904,000
or 9% for the year ended December 31, 1995 as compared to the same period in
1994.
Management charges increased by approximately $271,000 for the year
ended December 31, 1995 as compared to the same period in 1994 due to an
increase in revenues and a change in the method used to calculate management
charges for the TV stations from 15% of operating cash flow to 5% of net
revenues.
Depreciation and amortization expense increased by approximately $1.8
million for the year ended December 31, 1995 as compared to the same period in
1994 primarily as a result of the amortization of the Company's DBS rights and
deferred financing costs.
As a result of these factors, the loss from operations increased by
approximately $1.3 million for the year ended December 31, 1995 as compared to
the same period in 1994.
Interest expense, net of interest income, increased by approximately
$2.5 million for the year ended December 31, 1995 as compared to the same period
in 1994 as a result of an increase in the average interest rate applicable to
the Company's debt and an increase in the amount of debt outstanding both
resulting primarily from the Company's note offering completed in July 1995.
The Company's net income increased by $7.2 million for the year ended
December 31, 1995 as compared to the same period in 1994 as a net result of an
increase in the loss from operations of approximately $1.3 million, an increase
in net interest expense of $2.5 million, a decrease in income taxes of $100,000,
a decrease in other expenses of approximately $21,000 and an increase in
extraordinary items of $10.8 million for the reasons described in "Liquidity and
Capital Resources."
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 to fund investments in
Cable and DBS customer premises equipment that is rented or leased to
subscribers.
During the year ended December 31, 1996, net cash provided by
operations was approximately $8.6 million, which together with $12.0 million of
cash on hand at the beginning of the year and $38.9 million of net cash provided
by the Company's financing activities was used to fund investing activities of
$51.0 million. Investment activities consisted of (i) the Portland Acquisition
and the Tallahassee Acquisition for approximately $14.8 million, (ii) the Cable
Acquisition for approximately $26.0 million, (iii) the purchase of the Pegasus
Cable Television of Connecticut, Inc. ("PCT-CT") office facility and headend
facility for $201,000, (iv) the fiber upgrade in the PCT-CT Cable system
amounting to $323,000, (v) the purchase of DSS units used as rental and lease
units amounting to $832,000, (vi) payments of programming rights amounting to
$1.8 million, and (vii) maintenance and other capital expenditures and
intangibles totaling approximately $7.1 million. As of December 31, 1996, the
Company's cash on hand approximated $8.4 million.
During 1995, net cash provided by operations was approximately $6.1
million, which together with $1.4 million of cash on hand and $10.9 million of
net cash provided by the Company's financing activities, was used to fund a
$12.5 million distribution to PCH and to fund investment activities totaling
$6.4 million. Investment activities consisted of (i) the final payment of the
deferred purchase price for the Company's DBS rights of approximately $1.9
million, (ii) the purchase of a new WDSI studio and office facility for
$520,000, (iii) the purchase of a LIBOR cap for $300,000, (iv) the purchase of
DSS units used as rental and lease units for $157,000, (v) payments of
programming rights amounting to $1.2 million, and (vi) maintenance and other
capital expenditures totaling approximately $2.3 million.
During 1994, net cash provided by operations amounted to $4.0 million,
which together with cash on hand and borrowings of $35.0 million was used to
fund capital expenditures of $1.2 million, to pay a portion of the deferred
purchase price of the DBS rights for $943,000, to repay debt totaling $34.0
million, to fund debt issuance costs of $1.6 million and to pay programming
rights of $1.3 million.
9
<PAGE>
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.
The Company's ability to incur additional indebtedness is limited under
the terms of the indenture relating to its Series B Notes (the "Indenture") and
its credit facility (the "New Credit Facility"). These limitations take the form
of certain leverage ratios and are dependent upon certain measures of
profitability. Under terms of the New Credit Facility, capital expenditures and
business acquisitions that do not meet certain criteria will require lender
consent.
The Company is highly leveraged. As of December 31, 1996 the Company
has indebtedness of $115.5 million, total stockholders' (deficiency) of $9.6
million and, assuming certain conditions are met, $20.4 million available under
the New Credit Facility. For the year ended December 31, 1996 the Company's
earnings were inadequate to cover its combined fixed charges by approximately
$9.4 million. The ability of the Company to repay its existing indebtedness will
depend upon future operating performance, which is subject to the success of the
Company's business strategy, prevailing economic conditions, regulatory matters,
levels of interest rates and financial, business and other factors, many of
which are beyond the Company's control.
The Company completed the $85.0 million Notes offering on July 7, 1995.
The Notes were issued pursuant to an Indenture between the Company and First
Union National Bank, as trustee. The Indenture restricts the Company's ability
to engage in certain types of transactions including debt incurrence, payment of
dividends, investments in unrestricted subsidiaries and affiliate transactions.
During July 1995, the Company entered into a credit facility in the
amount of $10.0 million (the "Old Credit Facility") from which $6.0 million was
drawn in connection with the Portland and Tallahassee Acquisitions in the first
quarter of 1996 and $2.8 million was drawn to fund deposits in connection with
the Cable Acquisition. The Old Credit Facility was retired in August 1996 from
borrowings under the New Credit Facility.
The New Credit Facility is a seven-year, senior collateralized
revolving credit facility for $50.0 million. The amount of the New Credit
Facility will reduce quarterly beginning March 31, 1998. As of December 31,
1996, $29.6 million had been drawn under the New Credit Facility in connection
with the retirement of the Old Credit Facility and the consummation of the Cable
Acquisition. The New Credit Facility is intended to be used for general
corporate purposes and to fund possible future acquisitions. Borrowings under
the New Credit Facility are subject to among other things, the Company's ratio
of total funded debt to adjusted operating cash flow.
The Company believes that it has adequate resources to meet its working
capital, maintenance capital expenditure and debt service obligations. The
Company believes that the available borrowings under the New Credit Facility and
future indebtedness which may be incurred by the Company and its subsidiaries
will give the Company the ability to fund acquisitions and other capital
requirements in the future. However, there can be no assurance that the future
cash flows of the Company will be sufficient to meet all of the Company's
obligations and commitments.
Capital Expenditures
The Company's capital expenditures aggregated $6.3 million in 1996 as
compared to $2.6 million in 1995. The increase was primarily due to $3.1 million
of nonrecurring expenditures relating to TV transmitter upgrades and Cable
interconnections and fiber upgrades. 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 to $7.5
million of TV expenditures for broadcast television transmitter, tower and
facility constructions and upgrades. There can be no assurance that the
Company's capital expenditure plans will not change in the future.
10
<PAGE>
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 New Credit
Facility.
The Company's ability to incur additional indebtedness is limited under the
terms of the Indenture and the New Credit Facility. These limitations take the
form of certain leverage ratios and are dependent upon certain measures of
operating profitability. Under the terms of the New 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.
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 8: Financial Statements and Supplementary Data
The information required by this Item is set forth on pages F-1 through
F-23.
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
The Registrant meets the conditions set forth in General Instruction
(J)(1)(a) and (b) of Form 10-K and is therefore filing this Form with the
reduced disclosure format. As such, the entire Part III is omitted.
11
<PAGE>
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The financial statements filed as part of this report are listed on the Index to
Financial Statements on page F-1.
(2) Financial Statement Schedules Page
Report of Coopers & Lybrand L.L.P. S-1
Schedule II - Valuation and Qualifying Accounts S-2
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
(3) Exhibits
Exhibit
Number Description of Document
- ------ -----------------------
2.1 Asset Purchase Agreement, dated March 21, 1996, among Dominica
Padilla Acosta, Maria Del Carmen Padilla Lopez, Dom's
Tele-Cable, Inc. and Pegasus Communications Holdings, Inc.
relating to the acquisition of Dom's Tele-Cable, Inc. (which
is incorporated herein by reference to Exhibit 2.1 of the Form
10-K for the year ended December 31, 1995 of Pegasus Media &
Communications, Inc.).
2.2 Amendment No. 1 to Exhibit 2.1 (which is incorporated by
reference to Exhibit 2 to Pegasus Media & Communications,
Inc.'s Form 8-K dated August 29,1996).
2.3 Joinder Agreement dated as of May 31, 1996 by and among
Pegasus Communications Holdings, Inc., Dominica Padilla Acosta
(aka Dominick Padilla), Maria Del Carmen Padilla Lopez and
Domar (which is incorporated by reference to Exhibit 5 to
Pegasus Media & Communications, Inc.'s Form 8-K dated August
29, 1996).
2.4 Asset Purchase Agreement dated as of November 6, 1996 between
State Cable TV Corp. and Pegasus Cable Television, Inc. (which
is incorporated by reference to Exhibit 2.12 to Pegasus
Communications Corporation's Registration Statement on Form
S-1 (File No. 333-18739)).
3.1* Amended and Restated Certificate of Incorporation of Pegasus
Media & Communications, Inc.
3.2 By-Laws of Pegasus Media & Communications, Inc. (which is
incorporated by reference to Exhibit 3.2 to Pegasus Media &
Communications, Inc.'s Registration Statement on Form S-1
(File No. 33-95042).
4.1 Indenture, dated as of July 7, 1995, by and among Pegasus
Media & Communications, Inc., the Guarantors (as this term is
defined in the Indenture), and First Fidelity Bank, National
Association, as Trustee, relating to the 12 1/2 % Series B
Senior Subordinated Notes due 2005 (including the form of
Notes and Subsidiary Guarantee) (which is incorporated herein
by reference to Exhibit 4.1 to Pegasus Media & Communications,
Inc.'s Registration Statement on Form S-4 (File No.
33-95042)).
4.2 Form of Notes (included in Exhibit 4.1 above).
4.3 Form of Subsidiary Guarantee (included in Exhibit 4.1 above).
12
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.1 Station Affiliation Agreement, dated March 30, 1992, between
Fox Broadcasting Company and D. & K. Broadcast Properties L.P.
relating to television station WDBD (which is incorporated
herein by reference to Exhibit 10.5 to Pegasus Media &
Communications, Inc.'s Registration Statement on Form S-4
(File No. 33-95042)).
10.2 Agreement and Amendment to Station Affiliation Agreement,
dated as of June 11, 1993, between Fox Broadcasting Company
and Donatelli & Klein Broadcast relating to television station
WDBD (which is incorporated herein by reference to Exhibit
10.6 to Pegasus Media & Communications, Inc.'s Registration
Statement on Form S-4 (File No. 33-95042)).
10.3 Station Affiliation Agreement, dated March 30, 1992, between
Fox Broadcast Company and Scranton TV Partners Ltd. relating
to television station WOLF (which is incorporated herein by
reference to Exhibit 10.8 to Pegasus Media & Communications,
Inc.'s Registration Statement on Form S-4 (File No.
33-95042)).
10.4 Agreement and Amendment to Station Affiliation Agreement,
dated June 11, 1993, between Fox Broadcasting Company and
Scranton TV Partners, Ltd. relating to television station WOLF
(which is incorporated herein by reference to Exhibit 10.9 to
Pegasus Media & Communications, Inc.'s Registration Statement
on Form S-4 (File No. 33-95042)).
10.5 Amendment to Fox Broadcasting Company Station Affiliation
Agreement Regarding Network Nonduplication Protection, dated
December 2, 1993, between Fox Broadcasting Company and Pegasus
Broadcast Television, L.P. relating to television stations
WOLF, WWLF, and WILF (which is incorporated herein by
reference to Exhibit 10.10 to Pegasus Media & Communications,
Inc.'s Registration Statement on Form S-4 (File No.
33-95042)).
10.6 Consent to Assignment, dated May 1, 1993, between Fox
Broadcasting Company and Pegasus Broadcast Television, L.P.
relating to television station WOLF (which is incorporated
herein by reference to Exhibit 10.11 to Pegasus Media &
Communications, Inc.'s Registration Statement on Form S-4
(File No. 33-95042)).
10.7 Station Affiliation Agreement, dated March 30, 1992, between
Fox Broadcasting Company and WDSI Ltd. relating to television
station WDSI (which is incorporated herein by reference to
Exhibit 10.12 to Pegasus Media & Communications, Inc.'s
Registration Statement on Form S-4 (File No. 33-95042)).
10.8 Agreement and Amendment to Station Affiliation Agreement,
dated June 11, 1993, between Fox Broadcasting Company and
Pegasus Broadcast Television, L.P. relating to television
station WDSI (which is incorporated herein by reference to
Exhibit 10.13 to Pegasus Media & Communications, Inc.'s
Registration Statement on Form S-4 (File No. 33-95042)).
10.9 Franchise Agreement for Mayaguez, Puerto Rico (which is
incorporated herein by reference to Exhibit 10.14 to Pegasus
Media & Communications, Inc.'s Registration Statement on Form
S-4 (File No. 33-95042)).
10.10 NRTC/Member Agreement for Marketing and Distribution of DBS
Services, dated June 24, 1993, between the National Rural
Telecommunications Cooperative and Pegasus Cable Associates,
Ltd. (which is incorporated herein by reference to Exhibit
10.28 to Pegasus Media & Communications, Inc.'s Registration
Statement on Form S-4 (File No. 33-95042)).
10.11 Amendment to NRTC/Member Agreement for Marketing and
Distribution of DBS Services, dated June 24, 1993, between the
National Rural Telecommunications Cooperative and Pegasus
Cable Associates, Ltd. (which is incorporated herein by
reference to Exhibit 10.29 to Pegasus Media & Communications,
Inc.'s Registration Statement on Form S-4 (File No.
33-95042)).
10.12 DIRECTV Sign-Up Agreement, dated May 3, 1995, between DIRECTV,
Inc. and Pegasus Satellite Television, Inc. (which is
incorporated herein by reference to Exhibit 10.30 to Pegasus
Media & Communications, Inc.'s Registration Statement on Form
S-4 (File No. 33-95042)).
10.13 New Credit Facility (which is incorporated by reference to
Exhibit 10.27 to Pegasus Communications Corporation's
Registration Statement on Form S-1 (File No. 333-05057)).
13
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
10.14 Stock Purchase Agreement dated January 25, 1996, among Pegasus
Communications Holdings, Inc., Portland Broadcasting, Inc.,
HMW, Inc., Bride Communications, Inc., John W. Bride, John H.
Bride and Christopher McHenry Bride, as amended (the "Stock
Purchase Agreement") (which is incorporated herein by
reference to Exhibit A to Exhibit 2.1 to Pegasus Media &
Communications, Inc.'s Form 8-K dated January 29, 1996).
10.15 Amendment to the Stock Purchase Agreement (which is
incorporated herein by reference to Exhibit 2 to Pegasus Media
& Communications, Inc.'s Form 8-K dated January 29, 1996).
24.1* Powers of Attorney (included in Signatures and Powers of
Attorney).
27.1* Financial Data Schedule.
- ------
* Filed herewith.
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the quarter ended
December 31, 1996.
14
<PAGE>
SIGNATURES AND POWERS OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Marshall W. Pagon
--------------------------------------------
Marshall W. Pagon, President and Chief
Executive Officer
Date: March 26, 1997
----------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Marshall W. Pagon, Robert N. Verdecchio
and Ted S. Lodge and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this Annual Report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or each of the, of their or his
substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ Marshall W. Pagon
--------------------------------------------
Marshall W. Pagon, President and Chief
Executive Officer
(Principal Executive Officer)
Date: March 26, 1997
----------------
By: /s/ Robert N. Verdecchio
--------------------------------------------
Robert N. Verdecchio, Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 26, 1997
----------------
By: /s/ Donald W. Weber
--------------------------------------------
Donald W. Weber, Director
Date: March 26, 1997
----------------
By: /s/ James J. McEntee, III
--------------------------------------------
James J. McEntee, III, Director
Date: March 26, 1997
----------------
By: /s/ Mary C. Metzger
--------------------------------------------
Mary C. Metzger, Director
Date: March 26, 1997
----------------
15
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Coopers & Lybrand L.L.P. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 F-3
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996 F-4
Consolidated Statements of Changes in Total Equity for the years ended December 31, 1994,
1995 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Pegasus Media & Communications, Inc.
We have audited the accompanying consolidated balance sheets of Pegasus Media &
Communications, Inc. as of December 31, 1995 and 1996, and the related
consolidated statements of operations, changes in total equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pegasus Media &
Communications, Inc. as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 21, 1997
F-2
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1996
------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,966,567 $ 8,416,778
Restricted cash 9,881,198 --
Accounts receivable, less allowance for doubtful
accounts of $238,000 and $243,000, respectively 4,881,687 6,030,697
Program rights 931,664 1,289,437
Inventory 1,100,899 697,957
Deferred taxes 42,440 1,290,397
Prepaid expenses and other 297,861 717,664
------------- -------------
Total current assets 29,102,316 18,442,930
Property and equipment, net 16,263,851 23,823,489
Intangible assets, net 48,025,491 82,500,306
Program rights 1,932,680 1,294,985
Deposits and other 92,325 166,498
------------- -------------
Total assets $ 95,416,663 $ 126,228,208
============= =============
LIABILITIES AND EQUITY
Current liabilities:
Notes payable $ 164,373 $ 48,610
Current portion of long-term debt 239,934 306,975
Accounts payable 3,136,310 6,111,411
Accrued interest 5,173,745 5,592,083
Accrued expenses 1,868,142 5,303,652
Current portion of program rights payable 1,141,793 601,205
------------- -------------
Total current liabilities 11,724,297 17,963,936
Long-term debt, net 82,234,005 115,155,610
Program rights payable 1,421,399 1,365,284
Deferred taxes 211,902 1,339,859
------------- -------------
Total liabilities 95,591,603 135,824,689
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 (17,479,029)
Partners' deficit (9,383,036) --
------------- -------------
Total (deficiency) (174,940) (9,596,481)
------------- -------------
Total liabilities and equity (deficiency) $ 95,416,663 $ 126,228,208
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Broadcasting revenue,
net of agency commissions $ 13,204,148 $ 14,862,734 $ 21,813,409
Barter programming revenue 4,604,200 5,110,662 6,337,220
Basic and satellite service 8,455,815 10,002,579 15,231,257
Premium services 1,502,929 1,652,419 2,093,230
Other 363,069 420,320 721,584
------------ ------------ ------------
Total revenues 28,130,161 32,048,714 46,196,700
------------ ------------ ------------
Operating expenses:
Barter programming expense 4,604,200 5,110,662 6,337,220
Programming 4,094,688 5,475,623 9,061,532
General and administrative 3,289,532 3,885,473 5,690,637
Technical and operations 2,774,776 2,750,521 3,320,765
Marketing and selling 3,372,482 3,928,074 5,367,656
Incentive compensation 432,066 527,663 934,770
Management fees 1,499,392 1,770,183 2,045,582
Depreciation and amortization 6,877,253 8,673,845 10,492,849
------------ ------------ ------------
Income (loss) from operations 1,185,772 (73,330) 2,945,689
Interest expense (5,950,535) (8,794,676) (12,438,366)
Interest income -- 370,300 232,361
Other expenses, net (65,369) (44,488) (136,035)
Loss before income taxes and ------------ ------------ ------------
extraordinary items (4,830,132) (8,542,194) (9,396,351)
Provision (benefit) for income taxes 139,462 30,000 (120,000)
------------ ------------ ------------
Loss before extraordinary items (4,969,594) (8,572,194) (9,276,351)
Extraordinary gain (loss) from
extinquishment of debt, net (633,267) 10,210,580 (250,603)
============ ============ ============
Net income (loss) ($ 5,602,861) $ 1,638,386 ($ 9,526,954)
============ ============ ============
Income (loss) per share:
Loss before extraordinary items ($ 30.77) ($ 51.73) ($ 54.57)
Extraordinary (loss) gain (3.92) 61.62 (1.47)
============ ============ ============
Net income (loss) ($ 34.69) $ 9.89 ($ 56.04)
============ ============ ============
Weighted average shares outstanding 161,500 165,692 170,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Changes in Total Equity (Deficiency)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------
Class A Class B
-------------------------------------------------
Number Par Number Par
of Shares Value of Shares Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Balances at January 1, 1994
Net loss
Incorporation of partnerships 444 $444
Redemption of minority interest
LP interests contribution
Conversion of term loans 50 50
-------------------------------------------------
Balances at December 31, 1994 494 494
Net income (loss)
Distributions to Partners
Distributions to Parent
Exchange of common stock 161,006 1,121
Issuance of Class B common stock 8,500 $85
-------------------------------------------------
Balances at December 31, 1995 161,500 1,615 8,500 85
Net loss
Contribution by Partners
Conversions of partnerships
-------------------------------------------------
Balances at December 31, 1996 161,500 $1,615 8,500 $85
=================================================
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Additional Retained Partners' Total
Paid-In Earnings Capital Equity
Capital (Deficit) (Deficit) (Deficiency)
------- --------- --------- ------------
<S> <C> <C> <C> <C>
Balances at January 1, 1994 ($2,483,756) ($2,483,756)
Net loss ($769,580) (4,833,281) (5,602,861)
Incorporation of partnerships (3,255,780) 3,228,038 (27,298)
Redemption of minority interest ($49,490) (49,490)
LP interests contribution 1,335,000 (1,335,000) -
Conversion of term loans 15,096,544 15,096,594
---------------------------------------------------------------------
Balances at December 31, 1994 16,382,054 (4,025,360) (5,423,999) 6,933,189
Net income (loss) 5,350,908 (3,712,522) 1,638,386
Distributions to Partners (246,515) (246,515)
Distributions to Parent (12,500,000) (12,500,000)
Exchange of common stock (1,121) -
Issuance of Class B common stock 3,999,915 4,000,000
---------------------------------------------------------------------
Balances at December 31, 1995 7,880,848 1,325,548 (9,383,036) (174,940)
Net loss (4,351,099) (5,175,855) (9,526,954)
Contribution by Partners 105,413 105,413
Conversions of partnerships (14,453,478) 14,453,478
---------------------------------------------------------------------
Balances at December 31, 1996 $7,880,848 ($17,479,029) ($9,596,481)
=====================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
Pegasus Media & Communications, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 5,602,861) $ 1,638,386 ($ 9,526,954)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Extraordinary (gain) loss on
extinguishment of debt, net 633,267 (10,210,580) 250,603
Depreciation and amortization 6,877,253 8,673,845 10,492,849
Program rights amortization 1,193,559 1,263,190 1,514,122
Accretion on discount of bonds -- 195,454 392,324
Gain on disposal of fixed assets 30,524 -- --
Bad debt expense 200,039 146,147 335,856
Deferred income taxes 139,462 30,000 (120,000)
Change in assets and liabilities:
Accounts receivable (1,359,758) (814,862) (1,504,597)
Inventory (711,581) (389,318) 402,942
Prepaid expenses and other (244,025) 504,755 (419,803)
Accounts payable and accrued expenses 751,864 (118,013) 6,410,611
Accrued interest 2,048,569 5,173,745 418,338
Deposits and other 39,633 5,843 (74,173)
------------ ------------ ------------
Net cash provided by operating activities 3,995,945 6,098,592 8,572,118
Cash flows from investing activities:
Acquisitions -- -- (41,200,514)
Capital expenditures (1,173,031) (2,570,985) (6,242,598)
Purchase of intangible assets (943,238) (2,334,656) (1,758,727)
Payments of programming rights (1,310,294) (1,233,777) (1,830,903)
Other (53,648) (250,000) --
------------ ------------ ------------
Net cash used for investing activities (3,480,211) (6,389,418) (51,032,742)
Cash flows from financing activities:
Proceeds from long-term debt 35,000,000 81,455,919 --
Repayments of long-term debt (33,959,965) (48,063,692) (103,639)
Borrowings on revolving credit facility -- 2,591,335 41,400,000
Repayments of revolving credit facility -- (2,591,335) (11,800,000)
Proceeds from borrowings from related parties 18,000 -- --
Restricted cash -- (9,881,198) 9,881,198
Debt issuance costs (1,552,539) (3,974,454) (304,237)
Capital lease repayments (142,781) (155,406) (267,900)
Contributions by Partners -- -- 105,413
Distributions to Parent -- (12,500,000) --
Proceeds from issuance of common stock -- 4,000,000 --
------------ ------------ ------------
Net cash provided by (used in) financing activities (637,285) 10,881,169 38,910,835
Net increase (decrease) in cash and cash equivalents (121,551) 10,590,343 (3,549,789)
Cash and cash equivalents, beginning of year 1,497,775 1,376,224 11,966,567
============ ============ ============
Cash and cash equivalents, end of year $ 1,376,224 $ 11,966,567 $ 8,416,778
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-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 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")
service 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.
On October 31, 1994, the limited partnerships, which owned and operated
PCH's broadcast television, New England cable and satellite operations,
restructured and transferred their assets to the Company. This reorganization
has been accounted for as if a pooling of interests had occurred.
2. Summary of Significant Accounting Policies:
Basis of Presentation:
The financial statements include the accounts of Pegasus and all of its
subsidiaries or affiliates. All intercompany transactions and balances have been
eliminated.
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. 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 lower of cost or market on a
first-in, first-out basis.
F-7
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies (continued):
Property and Equipment:
Property and equipment are stated at cost. The cost and related
accumulated depreciation of assets sold, retired, or otherwise disposed of are
removed from the respective accounts, and any resulting gains or losses are
included in the statement of operations. For cable television systems, initial
subscriber installation costs, including material, labor and overhead costs of
the hookup, are capitalized as part of the distribution facilities. The costs of
disconnection and reconnection are charged to expense. Satellite equipment that
is leased to customers is stated at cost.
Depreciation is computed for financial reporting purposes using the
straight-line method based upon the following lives:
Reception and distribution facilities................ 7 to 11 years
Transmitter equipment................................ 5 to 10 years
Equipment, furniture and fixtures.................... 5 to 10 years
Building and improvements............................ 12 to 39 years
Vehicles............................................. 3 to 5 years
Intangible Assets:
Intangible assets are stated at cost and amortized by the straight-line
method. Costs of successful franchise applications are capitalized and amortized
over the lives of the related franchise agreements, while unsuccessful franchise
applications and abandoned franchises are charged to expense. Financing costs
incurred in obtaining long-term financing are amortized over the term of the
applicable loan. Goodwill, broadcast licenses, network affiliation agreements
and other intangible assets ("Intangible Assets") are reviewed periodically for
impairment or whenever events or circumstances provide evidence that suggest
that the carrying amounts may not be recoverable. The Company assesses the
recoverability of its Intangible Assets by determining whether the amortization
of the respective Intangible Asset balance can be recovered through projected
undiscounted future cash flows.
Amortization of Intangible Assets is computed using the straight-line
method based upon the following lives:
Broadcast licenses................................... 40 years
Network affiliation agreements....................... 40 years
Goodwill............................................. 40 years
Other intangibles.................................... 2 to 14 years
Revenue:
The Company operates in two industry segments: multichannel television
(DBS and Cable) and broadcast television (TV). The Company recognizes revenue in
its TV operations when advertising spots are broadcasted. The Company recognizes
revenue in its DBS and Cable operations when video and audio services are
provided.
F-8
<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, which totaled approximately $71,000, $215,000 and $73,000 in 1994,
1995 and 1996, respectively. For running independent producers' programming, the
Company received no direct payments. Instead, the Company retains a portion of
the available advertisement spots to sell on its own account. Barter programming
revenue and the related expense are recognized when the presold advertisements
are broadcasted.
Advertising Costs:
Advertising costs are charged to operations in the year incurred and
totaled $525,000, $613,000 and $975,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
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.
Restricted Cash:
The Company had restricted cash, including interest earned, held in
escrow of $9.9 million at December 31, 1995. These funds were disbursed from the
escrow to pay interest on its Series B Senior Subordinated Notes due 2005 (the
"Series B Notes") in 1996.
Program Rights:
The Company enters into agreements to show motion pictures and
syndicated programs on television. In accordance with the Statements of
Financial Accounting Standards No. 63, "Financial Reporting by Broadcasters"
("SFAS No. 63"), only the right and associated liabilities for those films and
programs currently available for showing are recorded. These rights are recorded
at the lower of unamortized cost or estimated net realizable value and are
amortized on the straight-line method over the license period which approximates
amortization based on the estimated number of showings during the contract
period. Amortization of $1.2 million, $1.3 million and $1.5 million is included
in programming expenses for the years ended December 31, 1994, 1995 and 1996,
respectively. The obligations arising from the acquisition of film rights are
recorded at the gross amount. Payments for the contracts are made pursuant to
the contractual terms over periods which are generally shorter than the license
periods.
The Company has entered into agreements totaling $1.7 million as of
December 31, 1996, which are not yet available for showing at December 31, 1996,
and accordingly, are not recorded by the Company.
At December 31, 1996, the Company has commitments for future program
rights of approximately $1.3 million, $815,000, $363,000 and $18,000 in 1997,
1998, 1999 and 2000, respectively.
F-9
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Summary of Significant Accounting Policies (continued):
Income Taxes:
On October 31, 1994, in conjunction with the incorporation of certain
entities, the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") were adopted. Prior to such date,
the above entities operated as partnerships for federal and state income tax
purposes and, therefore, no provision for income taxes was necessary. MCT is
treated as a partnership for federal and state income tax purposes, but taxed as
a corporation for Puerto Rico income tax purposes. The adoption of SFAS No. 109
did not have a material impact on the Company's financial position or results of
operations. For the year ended December 31, 1994, income and deferred taxes are
based on the Company's operations from November 1, 1994 through December 31,
1994, excluding (i) MCT, which for Puerto Rico income tax purposes is taxed as a
corporation for the 12 month period ended December 31, 1994, and (ii) PBA, which
is a limited partnership.
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. Property and Equipment:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
---------------- ---------------
<S> <C> <C>
Land........................................... $219,459 $822,298
Reception and distribution facilities.......... 22,839,470 29,140,040
Transmitter equipment.......................... 7,284,661 11,450,339
Building and improvements...................... 1,470,951 1,467,956
Equipment, furniture and fixtures.............. 1,058,369 1,199,563
Vehicles....................................... 571,456 765,689
Other equipment................................ 989,368 2,265,925
---------------- ---------------
34,433,734 47,111,810
Accumulated depreciation....................... (18,169,883) (23,288,321)
---------------- ---------------
Net property and equipment..................... $16,263,851 $23,823,489
================ ===============
</TABLE>
Depreciation expense amounted to $3,968,644, $4,066,087, and $5,123,912
for the years ended December 31, 1994, 1995 and 1996, respectively.
F-10
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Intangibles:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
---------------- ---------------
<S> <C> <C>
Goodwill....................................... $28,490,035 $28,490,035
Franchise costs................................ 13,254,985 35,972,374
Broadcast licenses............................. 3,124,461 12,168,683
Network affiliation agreements................. 1,236,641 2,761,641
Deferred financing costs....................... 3,974,454 4,020,665
DBS rights..................................... 4,832,160 4,832,160
Non-compete agreement.......................... - 2,700,000
Organization and other costs................... 3,843,653 7,452,955
---------------- ---------------
58,756,389 98,398,513
Accumulated amortization....................... (10,730,898) (15,898,207)
---------------- ---------------
Net intangible assets.......................... $48,025,491 $82,500,306
================ ===============
</TABLE>
Amortization expense amounted to $2,908,609, $4,607,758 and $5,368,937
for the years ended December 31, 1994, 1995 and 1996, respectively.
5. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
----------------- ----------------
<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 $3,804,546 and $3,412,222 as of
December 31, 1995 and 1996, respectively......... $81,195,454 $81,587,778
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 (8.375% at December 31, 1996... - 29,600,000
Mortgage payable, due 2000, interest at
8.75%............................................ 517,535 498,468
Note payable, due 1998, interest at
10.0%............................................ - 3,050,000
Capital leases and other............................. 760,950 726,339
----------------- ----------------
82,473,939 115,462,585
Less current maturities.............................. 239,934 306,975
----------------- ----------------
Long-term debt....................................... $82,234,005 $115,155,610
================= ================
</TABLE>
F-11
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Long-Term Debt (continued):
In October 1994, the Company repaid the outstanding balances under its
senior and junior term loan agreements with a portion of the proceeds from a
$20.0 million term note agreement ("senior note") and $15.0 million subordinated
term loan agreement ("subordinated loan") from various banking institutions. The
senior note and subordinated loan were scheduled to mature on December 31, 2001
and September 30, 2003, respectively. Amounts were subsequently repaid as
described below, which resulted in an extraordinary loss of $633,267.
In July 1995, the Company sold 85,000 units consisting of $85.0 million
in aggregate amount 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 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) to fund proposed acquisitions.
In November 1995, the Company exchanged its Series B Notes for the
Series A Notes. The Series B Notes have substantially the same terms and
provisions as the Series A Notes. There was no gain or loss recorded with this
transaction.
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 contain
certain financial and operating covenants, including restrictions on the Company
to incur additional indebtedness, create liens and to pay dividends. The Company
is in compliance with all its financial and operating covenants.
The fair value of the Company's Series B Notes approximates $91.8
million as of December 31, 1996. This amount is approximately $10.2 million
higher than the carrying amount reported on the balance sheet at December 31,
1996. Fair value is estimated based on the quoted market price for the same or
similar instruments.
In conjunction with the acquisition of the WTLH Tallahassee, Florida
FCC license and Fox affiliation agreement (see Footnote 12), the Company
incurred indebtedness of $3.1 million. The fair market value of the note payable
approximates the carrying amount.
In August 1996, the Company entered into a $50.0 million seven-year
senior revolving credit facility, which is collateralized by substantially all
of the Company's assets. 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 $22.8 million to fund the acquisition of
Dom's Tele-Cable, Inc. ("Dom's"). Deferred financing fees relating to the $10.0
million revolving credit facility were written off, resulting in an
extraordinary loss of $250,603 on the refinancing transaction. The $50.0 million
revolving credit facility is subject to certain financial covenants as defined
in the loan agreement, including a debt to adjusted cash flow covenant. The fair
market value of the revolving credit facility approximates the carrying
amount.
At December 31, 1996, maturities of long-term debt and capital leases
are as follows:
1997 $306,975
1998 3,283,016
1999 212,321
2000 59,816
2001 39,050
Thereafter 111,561,407
================
$115,462,585
================
F-12
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Leases:
The Company leases certain studios, towers, utility pole attachments,
occupancy of underground conduits and headend sites under operating leases. The
Company also leases office space, vehicles and various types of equipment
through separate operating lease agreements. The operating leases expire at
various dates through 2007. Rent expense for the years ended December 31, 1994,
1995 and 1996 was $464,477, $503,118 and $685,674, respectively.
The Company leases equipment under long-term leases and has the option
to purchase the equipment for a nominal cost at the termination of the leases.
The related obligations are included in long-term debt. Property and equipment
at December 31 include the following amounts for leases that have been
capitalized:
1995 1996
---- ----
Equipment, furniture and fixtures...... $334,715 $174,637
Vehicles............................... 196,064 446,372
---------- ------------
530,779 621,009
Accumulated depreciation............... (166,144) (216,575)
---------- ------------
Total.................................. $364,635 $404,434
========== ============
Future minimum lease payments on noncancellable operating and capital
leases at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
----------------- -----------------
<S> <C> <C>
1997.......................................... $463,000 $202,000
1998.......................................... 259,000 125,000
1999.......................................... 221,000 66,000
2000.......................................... 156,000 42,000
2001.......................................... 75,000 12,000
Thereafter.................................... 102,000 -
----------------- -----------------
Total minimum payments........................ $1,276,000 447,000
=================
Less: amount representing interest........... 73,000
-----------------
Present value of net minimum lease payments
including current maturities of $170,000 $374,000
=================
</TABLE>
7. 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' compensation 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.
F-13
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Commitments and Contingent Liabilities (continued):
Legal Matters (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 consolidated operations, cash flows or financial position of the
Company.
8. Income Taxes:
The following is a summary of the components of income taxes from
operations:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Federal - deferred........................... $104,644 $23,000 $(169,000)
State and local.............................. 34,818 7,000 49,000
-------------- -------------- ---------------
Provision (benefit) for income taxes...... $139,462 $30,000 $(120,000)
============== ============== ===============
</TABLE>
The deferred income tax assets and liabilities recorded in the
consolidated balance sheets at December 31, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Assets:
Receivables.................................................. $42,440 47,887
Excess of tax basis over book basis from tax gain
recognized upon incorporation of subsidiaries............ 1,751,053 1,890,025
Loss carryforwards.......................................... 9,478,069 14,197,578
Other........................................................ 806,312 870,305
------------- --------------
Total deferred tax assets.............................. 12,077,874 17,005,795
Liabilities:
Excess of book basis over tax basis of property, plant
and equipment............................................ (1,015,611) (1,754,621)
Excess of book basis over tax basis of amortizable
intangible assets....................................... (4,277,512) (4,616,997)
------------- ---------------
Total deferred tax liabilities.......................... (5,293,123) (6,371,618)
------------- ---------------
Net deferred tax assets...................................... 6,784,751 10,634,177
Valuation allowance........................................ (6,954,213) (10,683,639)
------------- ---------------
Net deferred tax liabilities................................ $(169,462) $(49,462)
============= ===============
</TABLE>
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized due to the expiration of
the Company's net operating loss carryforwards and portions of other deferred
tax assets related to prior acquisitions. The valuation allowance increased
primarily as the result of net operating loss carryforwards generated during
1996 which may not be utilized.
At December 31, 1996, the Company has net operating loss carryforwards
of approximately $41.8 million which are available to offset future taxable
income and expire through 2012.
F-14
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
8. Income Taxes (continued):
A reconciliation of the Federal statutory rate to the effective tax
rate is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
U.S. statutory federal income tax rate.......... (34.00)% (34.00)% (34.00)%
Net operating loss attributable to the
partnerships..................................... 29.55 - -
Foreign net operating income (loss)............. (18.14) (27.09) (5.90)
State net operating loss....................... (.96) - -
Valuation allowance............................. 25.70 61.46 38.66
Other............................................ .72 - -
------------- ------------- --------------
Effective tax rate.............................. 2.87% 0.37% (1.24)%
============= ============= ==============
</TABLE>
9. Related Party Transactions:
The Company pays management fees to various related parties. The
management fees are calculated based upon five percent of the Company's net
revenue and are for certain administrative and accounting services, billing and
programming services, and the reimbursement of expenses incurred therewith. For
the years ended December 31, 1994, 1995 and 1996, the fees and expenses were
$1,499,392, $1,770,183 and $2,045,582, respectively.
Other related party transaction balances at December 31, 1995 and 1996
are as follows:
1995 1996
---- ----
Accounts payable and accrued expenses.............. $888,042 $4,533,725
Notes payable...................................... 105,413 -
In 1996, PCC repaid $3.0 million on the Company's credit facility (see
Footnote 5). Additionally, PCC paid $1.5 million of accrued management fees on
the Company's behalf. Both payments were made from the proceeds from PCC's
Initial Public Offering.
The related party note payable consists of one demand note payable to
an affiliate, bearing interest at prime plus two percent, payable monthly in
arrears. The demand note payable was cancelled at the beginning of 1996. The
effective interest rate was 10.25% at December 31, 1995. Total interest expense
on the affiliated debt was $11,858 for the year ended December 31, 1995.
F-15
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Supplemental Cash Flow Information:
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1994 1995 1996
------------- -------------- ------------
<S> <C> <C> <C>
Capital contribution and
related reduction of debt......... $15,069,173
Barter revenue and related expense... 4,604,200 $5,110,662 $6,337,220
Acquisition of program rights and
assumption of related program
payable.............................. 1,797,866 1,335,275 1,140,072
Acquisition of plant under capital
leases............................... 168,960 121,373 312,578
Redemption of minority interests
and related receivable............... 49,490 246,515 -
Interest converted to principal...... 867,715 - -
Execution of license agreement
option............................... - - 3,050,000
</TABLE>
For the years ended December 31, 1994, 1995 and 1996 the Company paid
cash for interest in the amount of $3.6 million, $12.0 million and $12.0
million, respectively. The Company paid no income taxes for the years ended
December 31, 1994, 1995 and 1996.
11. Common Stock:
At December 31, 1995 and 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 5).
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.
F-16
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Acquisitions:
In January 1996, PCH, the parent of the Company, acquired all of the
outstanding stock of Portland Broadcasting, Inc. ("PBI"), which owns the
tangible assets of WPXT, Portland, Maine. PCH immediately transferred ownership
of PBI to the Company. The aggregate purchase price of PBI was approximately
$11.7 million of which $1.5 million was allocated to fixed and tangible assets
and $10.2 million to intangible assets. In June 1996, PCH acquired the FCC
license of WPXT for aggregate consideration of $3.0 million. PCH immediately
transferred the ownership of the license to the Company.
Effective March 1, 1996, the Company acquired the principal tangible
assets of WTLH, Inc., Tallahassee, Florida and certain of its affiliates for
approximately $5.0 million, except for the FCC license and Fox affiliation
agreement. Additionally, the Company entered into a put/call agreement regarding
the FCC license and Fox affiliation agreement with the licensee of WTLH. In
August 1996, the Company exercised its rights and recorded $3.1 million in
intangible assets and long term debt.
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, PCH granted the sellers of WTLH a warrant to
purchase $1.0 million of stock of one of its subsidiaries at $14.00 per share.
The warrant expired in February 1997.
Effective August 29, 1996, the Company acquired all of the assets of
Dom's for approximately $25.0 million in cash and $1.0 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 $26.0 million of which $4.7 million
was allocated to fixed and tangible assets and $21.3 million to various
intangible assets.
In accordance with the Purchase Method of accounting, the purchase
price has been allocated to the underlying assets and liabilities based on their
respective fair values at the date of the acquisition. Such allocations have
been based on preliminary estimates which may be revised at a later date.
The following unaudited summary, prepared on a pro forma basis,
combines the results of operations as if the above stations and cable system 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 pro forma information does not purport to be
indicative of what would have occurred had the acquisitions been made on those
dates or of results which may occur in the future. This pro forma does not
include the New Hampshire Cable Sale, which did not occur as of December 31,
1996 (see Footnote 13).
(unaudited)
(in thousands, except earnings per share) Year Ended December 31,
-----------------------
1995 1996
--------- --------
Net revenues ................................. $45,158 $50,921
========= ========
Operating income (loss)....................... $1,832 $3,398
========= ========
Net loss before extraordinary item............ $(10,644) $(10,650)
========= ========
Net loss per share before extraordinary item.. $ (64.24) $(62.65)
========= ========
F-17
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Subsequent Events:
On January 31, 1997, the Company sold substantially all assets of its
New Hampshire cable system to State Cable TV Corp. for approximately $7.1
million in cash. The Company anticipates recognizing a gain in the transaction.
14. Industry Segments:
The Company operates in two industry segments: multichannel television
(DBS and Cable) and broadcast television (TV). TV consists of five Fox
affiliated television stations, of which one also simulcasts its signal in
Hazelton and Williamsport, Pennsylvania. Cable and DBS consists of cable
television services and direct broadcast satellite services/equipment,
respectively. Information regarding the Company's business segments in 1994,
1995, and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
TV Multichannel Television Consolidated
-- ----------------------- ------------
DBS Cable
--- -----
<S> <C> <C> <C> <C>
1994
Revenues $ 17,808 $ 174 $ 10,148 $ 28,130
Operating income (loss) 2,057 (103) (769) 1,186
Identifiable assets 36,078 4,438 34,535 75,051
Incentive compensation 327 - 105 432
Management fees 860 5 634 1,499
Depreciation & amortization 2,184 61 4,632 6,877
Capital expenditures 411 57 704 1,173
1995
Revenues $ 19,973 $ 1,469 $ 10,606 $ 32,049
Operating income (loss) 1,942 (772) (1,243) (73)
Identifiable assets 45,806 6,922 42,689 95,417
Incentive compensation 415 9 104 528
Management fees 1,046 135 590 1,770
Depreciation & amortization 2,591 719 5,364 8,674
Capital expenditures 1,403 216 953 2,571
1996
Revenues $ 28,488 $ 4,213 $ 13,496 $ 46,197
Operating income (loss) 3,671 (798) 73 2,946
Identifiable assets 61,796 8,530 55,902 126,228
Incentive compensation 692 95 148 935
Management fees 1,096 230 720 2,046
Depreciation & amortization 4,162 873 5,458 10,493
Capital expenditures 2,300 859 3,084 6,243
</TABLE>
F-18
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Other Information (unaudited):
As defined in the Indenture governing the Series B Notes, the Company
is required to provide Adjusted Operating Cash Flow for Pegasus and its
Restricted Subsidiaries, on a consolidated basis, where Adjusted Operating Cash
Flow is defined as, "for the four most recent fiscal quarters for which internal
financial statements are available, Operating Cash Flow of such person and its
Restricted Subsidiaries less DBS Cash Flow (PST Operating Cash Flow) for the
most recent four-quarter period plus DBS Cash Flow for the most recent quarterly
period, multiplied by four." Operating Cash Flow is income from operations
before income taxes, depreciation and amortization, interest expense,
extraordinary items and non-cash management fees and incentive compensation.
Restricted Subsidiaries carries the same meaning as in the Indenture. Pro forma
for the acquisitions of WPXT, WTLH and Dom's, Adjusted Operating Cash Flow would
have been approximately $17.6 million.
Year Ended
December 31, 1996
--------------------
Net revenues $46,197,000
Direct operating expenses, excluding incentive
compensation and management fees 29,778,000
------------
Income from operations before incentive
compensation, management fees and
depreciation and amortization 16,419,000
Allowable cash portion of incentive
compensation and management fees 1,100,000
------------
Operating cash flow 15,319,000
Less DBS cash flow, last twelve months (402,000)
Plus DBS cash flow, last quarter annualized 687,000
------------
Adjusted operating cash flow $15,604,000
============
16. 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., WLTH, Inc.,
Pegasus Anasco Holdings, Inc. and PCT-CT, a wholly-owned subsidiary of PCT and
an indirect subsidiary of the Company, 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.
F-19
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
16. Subsidiary Guarantees (unaudited - continued):
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
As of December 31, 1996 Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ ------------ ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 6,171 $ 807 $ 1,439 $ 8,417
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
========= ========= ========= ========= =========
As of December 31, 1995
Assets:
Cash and cash equivalents $ 2,383 $ 651 $ 8,933 $ 11,967
Restricted cash 9,881 9,881
Accounts receivable, net 4,823 58 4,881
Other current assets 4,242 444 (1,887) ($ 426) 2,373
--------- --------- --------- --------- ---------
Total current assets 11,448 1,153 16,927 (426) 29,102
Property and equipment, net 14,103 2,161 16,264
Intangible assets, net 43,711 532 3,782 48,025
Other assets 2,022 4 2,026
Investment in subsidiaries and affiliates 2,870 72,533 (75,403) 0
--------- --------- --------- --------- ---------
Total assets $ 74,154 $ 3,850 $ 93,242 ($ 75,829) $ 95,417
========= ========= ========= ========= =========
Liabilities and total equity:
Current portion of long-term debt $ 210 $ 456 ($ 426) $ 240
Accounts payable 2,982 154 3,136
Other current liabilities 2,899 314 $ 5,135 8,348
--------- --------- --------- --------- ---------
Total current liabilities 6,091 924 5,135 (426) 11,724
Long-term debt 64,445 4,352 81,195 (67,758) 82,234
Other liabilities 1,533 13 88 1,634
--------- --------- --------- --------- ---------
Total liabilities 72,069 5,289 86,418 (68,184) 95,592
Total equity (deficit) 2,085 (1,439) 6,824 (7,645) (175)
--------- --------- --------- --------- ---------
Total liabilities and equity $ 74,154 $ 3,850 $ 93,242 ($ 75,829) $ 95,417
========= ========= ========= ========= =========
</TABLE>
F-20
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
16. Subsidiary Guarantees (unaudited - continued):
Condensed Consolidated Statements of Operations
For the Year ended December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ ------------ ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Total revenue $43,394 $2,903 ($100) $46,197
Total operating expenses 40,231 2,711 $409 (100) 43,251
------------------------------------------------------------------------------------
Income (loss) from operations 3,163 192 (409) 2,946
Interest expense 11,468 330 7,435 (6,795) 12,438
Other 215 (311) (96)
------------------------------------------------------------------------------------
Income (loss) before income
taxes (8,520) (138) (7,533) 6,795 (9,396)
Provision for income taxes (120) (120)
------------------------------------------------------------------------------------
Income (loss) before
extraordinary item (8,400) (138) (7,533) 6,795 (9,276)
Extraordinary loss on
extinguishment of debt (251) (251)
------------------------------------------------------------------------------------
Net income (loss) ($8,400) ($138) ($7,784) $6,795 ($9,527)
====================================================================================
</TABLE>
Condensed Consolidated Statements of Operations
For the Year ended December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiary Pegasus Eliminations Totals
------------ ---------- ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Total revenue $29,560 $2,589 ($100) $32,049
Total operating expenses 29,508 2,186 $528 (100) 32,122
------------------------------------------------------------------------------------
Income (loss) from operations 52 403 (528) (73)
Interest expense 6,904 278 5,331 (3,718) 8,795
Other 40 (2) (364) (326)
------------------------------------------------------------------------------------
Income (loss) before income
taxes (6,892) 127 (5,495) 3,718 (8,542)
Provision for income taxes 30 30
------------------------------------------------------------------------------------
Income (loss) before
extraordinary item (6,892) 127 (5,525) 3,718 (8,572)
Extraordinary gain on
extinguishment of debt 10,210 10,210
------------------------------------------------------------------------------------
Net income (loss) ($6,892) $127 $4,685 $3,718 $1,638
====================================================================================
</TABLE>
F-21
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
16. Subsidiary Guarantees (unaudited - continued):
Condensed Consolidated Statements of Cash Flows
For the Year ended December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations Totals
------------ ------------ ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($8,400) ($138) ($7,784) $6,795 ($9,527)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary gain on
extinguishment of debt 251 251
Depreciation and amortization 9,479 709 305 10,493
Program rights amortization 1,514 1,514
Change in assets and liabilities:
Accounts receivable (1,968) 63 400 (1,505)
Accounts payable and accrued expenses 13,247 499 (222) (6,695) 6,829
Prepaids and other (299) (195) (494)
Other 373 298 340 1,011
----------------------------------------------------------------------------
Net cash provided (used) by operating activities 13,946 1,236 (7,110) 500 8,572
Cash flows from investing activities:
Acquisitions (41,201) (41,201)
Capital expenditures (5,343) (900) (6,243)
Purchase of intangible assets (1,304) (70) (384) (1,758)
Other (1,831) (1,831)
----------------------------------------------------------------------------
Net cash used by investing activities (49,679) (970) (384) (51,033)
Cash flows from financing activities:
Proceeds from long-term debt 500 41,400 (500) 41,400
Repayment of long-term debt (334) (38) (11,800) (12,172)
Other 39,855 (572) (29,600) 9,683
----------------------------------------------------------------------------
Net cash provided (used) by financing activities 39,521 (110) (500) 38,911
Net increase (decrease) in cash and cash equivalents 3,788 156 (7,494) (3,550)
Cash and cash equivalents, beginning of period 2,383 651 8,933 11,967
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $6,171 $807 $1,439 $8,417
============================================================================
</TABLE>
F-22
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
16. Subsidiary Guarantees (unaudited - continued):
Condensed Consolidated Statements of Cash Flows
For the Year ended December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiary Pegasus Eliminations Totals
------------ ---------- ------- ------------ ------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($6,892) $127 $4,685 $3,718 $1,638
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary loss on extinguishment
of debt (10,210) (10,210)
Depreciation and amortization 7,512 644 518 8,674
Program rights amortization 1,263 1,263
Change in assets and liabilities
Accounts receivable (790) 75 (100) (815)
Accounts payable and accrued expenses 3,585 (47) 5,135 (3,618) 5,055
Prepaids and other 419 87 171 (166) 511
Other (48) 31 (17)
----------------------------------------------------------------------------
Net cash provided (used) by operating activities 5,049 886 330 (166) 6,099
Cash flows from investing activities:
Capital expenditures (2,421) (150) (2,571)
Purchase of intangible assets (2,262) (73) (2,335)
Other (1,504) 21 (1,483)
----------------------------------------------------------------------------
Net cash used by investing activities (6,187) (202) (6,389)
Cash flows from financing activities:
Proceeds from long-term debt 3,029 18 81,000 84,047
Repayment of long-term debt (219) (166) (50,591) 166 (50,810)
Other (355) (195) (21,806) (22,356)
----------------------------------------------------------------------------
Net cash provided (used) by financing activities 2,455 (343) 8,603 166 10,881
Net increase in cash 1,317 341 8,933 10,591
Cash and cash equivalents, beginning of period 1,066 310 1,376
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $2,383 $651 $8,933 $11,967
============================================================================
</TABLE>
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Pegasus Media &
Communications, Inc. is included on page F-2 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule included on page S-2 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
presented therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 21, 1997
S-1
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years
Ended December 31, 1994, 1995 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Description Balance at Additions Additions Balance at
Beginning of Charged To Charged To End of
Period Expenses Other Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Allowance for Uncollectible
Accounts Receivable
Year 1994 $ 308 $ 200 $ - $ 160 (a) $ 348
Year 1995 $ 348 $ 151 $ - $ 261 (a) $ 238
Year 1996 $ 238 $ 336 $ - $ 331 (a) $ 243
Valuation Allowance for
Deferred Tax Assets
Year 1994 $ 0 $ 1,756 $ - $ - $ 1,756
Year 1995 $ 1,756 $ 8,675 $ - $ 3,477 $ 6,954
Year 1996 $ 6,954 $ 7,032 $ - $ 3,302 $ 10,684
</TABLE>
(a) Amounts written off, net of recoveries.
S-2
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
Index to Exhibits
Exhibit
Number Description of Document
------ -----------------------
3.1 Amended and Restated Certificate of Incorporation of Pegasus
Media & Communications, Inc.
27.1 Financial Data Schedule
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PEGASUS MEDIA & COMMUNICATIONS, INC.
PEGASUS MEDIA COMMUNICATIONS, INC., a corporation organized
and existing under and by virtue of the Delaware General Corporation Law (the
"Company"),
DOES HEREBY CERTIFY:
1. The name of the Corporation is Pegasus Media &
Communications, Inc. The date of filing of its
original Certificate of Incorporation with the
Secretary of State was December 29, 1993.
2. This Amended and Restated Certificate of Incorporation
restates and integrates and further amends the
Amended and Restated Certificate of Incorporation of
the Corporation by deleting Article Eighth in its
entirety.
3. The text of the Certificate of Incorporation is amended
hereby to read as herein set forth in full:
"FIRST: The name of the Corporation is
PEGASUS MEDIA & COMMUNICATIONS, INC.
SECOND: The address of the Corporation's registered
office in the State of Delaware is 103 Springer Building, 3411
Silverside Road, Wilmington, Delaware 19810. The name of the
Corporation's registered agent at such address is Organization
Services, Inc., in the County of New Castle.
THIRD: The purpose of the Corporation is to act as a
holding company and to engage in any lawful act of activity for which
corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is Two Hundred Fifty Thousand
(250,000) shares, par value $.01 per share, of which 230,000 shares are
designated Class A Common Stock and of which 20,000 shares are
designated Class B Common Stock. The Class A Common Stock shall have
ten (10) votes for each share, and the Class B Common Stock shall have
one (1) vote for each share.
<PAGE>
FIFTH: The name and mailing address of the
incorporator is as follows:
Name Mailing Address
---- ---------------
Marshall W. Pagon 103 Springer Building
3411 Silverside Road
Wilmington, DE 19810
SIXTH: In furtherance and not in limitation of the
general powers conferred by the laws of the State of Delaware, the
Board of Directors is expressly authorized to make, alter or repeal the
By-Laws of the Corporation, except as specifically otherwise provided
therein.
SEVENTH: A director of the Corporation shall have no
personal liability to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director except to the extent
that Section 102(b)(7) (or any successor provision) of the Delaware
General Corporation Law, as amended from time to time, expressly
provides that the liability of a director may not be eliminated or
limited."
4. This Restated Certificate of Incorporation was duly
adopted by the written consent of the sole stockholder
in accordance with applicable provisions of Sections
228, 242, and 245 of the Delaware General Corporation
Law.
IN WITNESS WHEREOF, the Company has caused this Certificate to
be signed by Ted S. Lodge, its Senior Vice President and attested by Howard E.
Verlin, its Secretary, as of this 21st day of January, 1997.
/s/ Ted S. Lodge
--------------------------
Ted S. Lodge
Senior Vice President
ATTEST:
/s/ Howard E. Verlin
- ------------------------
Howard E. Verlin
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT OF PEGASUS MEDIA & COMMUNICATIONS, INC. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000948590
<NAME> PEGASUS MEDIA AND COMMUNICATIONS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 8,416,778
<SECURITIES> 0
<RECEIVABLES> 6,273,697
<ALLOWANCES> 243,000
<INVENTORY> 697,957
<CURRENT-ASSETS> 18,442,930
<PP&E> 47,111,810
<DEPRECIATION> 23,288,321
<TOTAL-ASSETS> 126,228,208
<CURRENT-LIABILITIES> 17,963,936
<BONDS> 81,587,778
0
0
<COMMON> 1,700
<OTHER-SE> (9,598,181)
<TOTAL-LIABILITY-AND-EQUITY> 126,228,208
<SALES> 46,196,700
<TOTAL-REVENUES> 46,196,700
<CGS> 0
<TOTAL-COSTS> 43,251,011
<OTHER-EXPENSES> (96,326)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,438,366
<INCOME-PRETAX> (9,396,351)
<INCOME-TAX> 120,000
<INCOME-CONTINUING> (9,276,351)
<DISCONTINUED> 0
<EXTRAORDINARY> (250,603)
<CHANGES> 0
<NET-INCOME> (9,526,954)
<EPS-PRIMARY> (56.04)
<EPS-DILUTED> (56.04)
</TABLE>
