<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from__________ to __________
Commission File Number 33-95042
--------
PEGASUS MEDIA & COMMUNICATIONS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2778525
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
c/o Pegasus Communications Management Company;
5 Radnor Corporate Center; Suite 454, Radnor, PA 19087
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (888) 438-7488
--------------
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No___
Number of shares of each class of the registrant's common stock outstanding as
of April 30, 1998:
Class A, Common Stock, $0.01 par value 161,500
Class B, Common Stock, $0.01 par value 8,500
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
Form 10-Q
Table of Contents
For the Quarterly Period Ended March 31, 1998
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Financial Information
Item 1 Combined Financial Statements
Combined Balance Sheets
December 31, 1997 and March 31, 1998 3
Combined Statements of Operations
Three months ended March 31, 1997 and 1998 4
Combined Statements of Cash Flows
Three months ended March 31, 1997 and 1998 5
Notes to Combined Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 19
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K 20
Signature 21
</TABLE>
2
<PAGE>
Pegasus Media & Communications, Inc.
Combined Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------------ ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $17,010,315 $13,160,533
Restricted cash - 600,000
Accounts receivable, less allowance for doubtful
accounts of $319,000 and $218,000, respectively 13,074,636 11,112,124
Program rights 2,059,346 1,782,617
Inventory 974,920 1,134,410
Deferred taxes 2,602,453 2,602,453
Prepaid expenses and other 767,482 906,463
-------------- -------------
Total current assets 36,489,152 31,298,600
Property and equipment, net 27,382,713 27,223,873
Intangible assets, net 272,164,370 282,332,631
Program rights 2,262,299 1,937,299
Deposits and other 624,629 2,624,629
-------------- -------------
Total assets $338,923,163 $345,417,032
============== =============
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $6,328,463 $1,943,549
Accounts payable 11,297,108 11,556,786
Accrued interest 6,025,004 2,984,666
Accrued expenses 11,134,589 10,905,627
Amounts due seller - 2,261,790
Current portion of program rights payable 1,418,581 1,106,673
-------------- -------------
Total current liabilities 36,203,745 30,759,091
Long-term debt, net 86,979,613 95,617,207
Advances from affiliates 9,845,583 15,536,574
Program rights payable 1,416,446 1,101,446
Deferred taxes 2,652,454 2,727,454
-------------- -------------
Total liabilities 137,097,841 145,741,772
Commitments and contingent liabilities - -
Minority interest 3,000,000 3,000,000
Common stockholder's equity:
Class A common stock 1,615 1,615
Class B common stock 85 85
Additional paid-in capital 227,221,423 234,621,423
Accumulated deficit (28,397,801) (37,947,863)
-------------- -------------
Total stockholder's equity 198,825,322 196,675,260
-------------- -------------
Total liabilities and stockholder's equity $338,923,163 $345,417,032
============== =============
</TABLE>
See accompanying notes to combined financial statements
3
<PAGE>
Pegasus Media & Communications, Inc.
Combined Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
1997 1998
--------------- ---------------
(unaudited)
<S> <C> <C>
Revenues:
Broadcasting revenue,
net of agency commissions $5,277,104 $5,342,118
Barter programming revenue 1,450,800 1,459,500
Basic and satellite service 4,767,472 18,026,471
Premium services 565,472 2,808,766
Other 213,484 1,100,481
------------- -----------
Total revenues 12,274,332 28,737,336
Operating expenses:
Barter programming expense 1,450,800 1,459,500
Programming 2,424,574 10,211,256
General and administrative 1,806,231 4,935,632
Technical and operations 966,795 1,074,775
Marketing and selling 1,450,425 6,386,799
Incentive compensation 254,875 409,205
Corporate expenses 376,254 667,305
Depreciation and amortization 3,180,902 9,651,078
------------- -----------
Income (loss) from operations 363,476 (6,058,214)
Interest expense (3,152,964) (3,383,810)
Interest income 44,137 74,534
Other income (expenses), net 21,891 (107,572)
Gain on sale of cable system 4,534,300 -
------------- -----------
Income (loss) before income taxes 1,810,840 (9,475,062)
Provision for income taxes - 75,000
============= ===========
Net income (loss) $1,810,840 ($9,550,062)
============= ===========
Basic and diluted earnings per share:
Net income (loss) $10.65 ($56.18)
============= ===========
Weighted average shares outstanding 170,000 170,000
============= ===========
</TABLE>
See accompanying notes to combined financial statements
4
<PAGE>
Pegasus Media & Communications, Inc.
Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,810,840 ($9,550,062)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation and amortization 3,180,902 9,651,078
Program rights amortization 376,883 601,129
Accretion on discount of bonds 98,376 98,853
Gain on sale of cable system (4,534,300) -
Bad debt expense 96,892 272,379
Change in assets and liabilities:
Accounts receivable (405,784) 1,794,198
Inventory 265,808 (159,490)
Prepaid expenses and other 136,289 (138,981)
Accounts payable and accrued expenses 2,880,834 (135,455)
Accrued interest (2,960,407) (3,040,338)
Capitalized subscriber acquisition costs (382,867) -
Amounts due seller - 2,261,790
Deposits and other (32,906) (2,000,000)
----------- -----------
Net cash provided (used) by operating activities 530,560 (344,899)
----------- -----------
Cash flows from investing activities:
Acquisitions - (7,777,494)
Capital expenditures (3,299,209) (1,468,350)
Purchase of intangible assets (879,915) (741,049)
Payments of programming rights (736,738) (626,308)
Proceeds from sale of cable system 7,028,250 -
----------- -----------
Net cash provided (used) by investing activities 2,112,388 (10,613,201)
----------- -----------
Cash flows from financing activities:
Repayments of long-term debt (36,081) (5,329,852)
Borrowings on revolving credit facilities 526,250 -
Repayments of revolving credit facilities (30,126,250) -
Contributions by Parent 30,126,250 7,400,000
Net proceeds from borrowings from affiliates - 5,690,991
Restricted cash - (600,000)
Capital lease repayments (102,994) (52,821)
----------- -----------
Net cash provided by financing activities 387,175 7,108,318
----------- -----------
Net increase (decrease) in cash and cash equivalents 3,030,123 (3,849,782)
Cash and cash equivalents, beginning of year 8,416,778 17,010,315
----------- -----------
Cash and cash equivalents, end of period $11,446,901 $13,160,533
=========== ===========
</TABLE>
See accompanying notes to combined financial statements
5
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. The Company:
Pegasus Media & Communications, Inc. ("Pegasus", or together with its
subsidiaries stated below, the "Company"), is a diversified media and
communications company whose direct subsidiaries consist of Pegasus Broadcast
Television, Inc. ("PBT"), Pegasus Cable Television, Inc. ("PCT") and PST
Holdings, Inc. ("PSTH"). PBT, together with its subsidiaries, own and operate
broadcast television ("TV") stations affiliated with the Fox Broadcasting
Company ("Fox") and operate, pursuant to local marketing agreements, stations
affiliated with United Paramount Network ("UPN") and The WB Television Network
("WB"). PCT, together with its subsidiaries, own and operate cable television
("Cable") systems that provide service to individual and commercial subscribers
in New England and Puerto Rico. PSTH, together with its subsidiaries, provide
direct broadcast satellite television ("DBS") services to customers in certain
rural areas which encompass portions of twenty-seven states.
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.
In July 1997, the Company transferred the stock of Pegasus Satellite
Television, Inc. ("PST"), which provided DBS services to customers in the New
England area, to a newly formed subsidiary of the Company, PSTH. PSTH
transferred the PST stock to Pegasus Satellite Holdings, Inc. ("PSH"), a
subsidiary of PCC, in exchange for $27.8 million of preferred equity in PSH (the
"PST/PSH Exchange").
In October 1997, the Company acquired the assets of PSH (the
"Subsidiaries Combination"), which assets consisted of the stock of its
subsidiaries that hold the rights to all of the Company's DBS territories. As a
result of the Subsidiaries Combination, the Company is the direct or indirect
parent of all of PCC's subsidiaries that operate the TV, DBS and cable
businesses.
2. Basis of Presentation:
The accompanying unaudited combined financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The accompanying combined
financial statements include the accounts of Pegasus and all of its subsidiaries
or affiliates and the accounts of Pegasus Development Corporation ("PDC"). All
intercompany transactions and balances have been eliminated.
The unaudited combined financial statements reflect all adjustments
consisting of normal recurring items which are, in the opinion of management,
necessary for a fair presentation, in all material respects, of the financial
position of the Company and the results of its operations and its cash flows for
the interim period.
PDC, a subsidiary of PCC, provides capital for various satellite
initiatives such as subscriber acquisition costs. The accounts of PDC have been
included in the accompanying combined financial statements since subscriber
acquisition costs are an integral part of the DBS operations and their inclusion
is necessary for a fair presentation of the financial position of the Company
and the results of its operations and its cash flows.
6
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
3. Common Stock:
<TABLE>
<S> <C>
At December 31, 1997 and March 31, 1998 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
===========
</TABLE>
The Company's ability to pay dividends on its Common Stock is subject
to certain restrictions (see footnote 4 - Long-Term Debt).
4. Long-Term Debt:
<TABLE>
<CAPTION>
December 31, March 31,
Long-term debt consists of the following : 1997 1998
---------------- ----------------
<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 $3,018,003
and $2,919,150 as of December 31, 1997 and March 31,
1998, respectively............................................ $81,981,997 $82,080,850
Senior six-year $180.0 million revolving credit facility,
payable by Pegasus, interest at the Company's option at
either the bank's base rate plus an applicable margin or
LIBOR plus an applicable margin............................... - -
Mortgage payable, due 2000, interest at 8.75%..................... 477,664 472,174
Note payable, due 1998, interest at 10%........................... 3,050,000 -
Sellers' notes, various maturities and interest rates............. 7,171,621 14,397,259
Capital leases and other.......................................... 626,794 610,473
------------- -------------
93,308,076 97,560,756
Less current maturities........................................... 6,328,463 1,943,549
------------- -------------
Long-term debt.................................................... $86,979,613 $95,617,207
============= =============
</TABLE>
In December 1997, the Company entered into a $180.0 million six-year
senior revolving credit facility (the "New Credit Facility"), which is
collateralized by substantially all of the assets of Pegasus and its
subsidiaries. Interest on the New Credit Facility is, at the Company's option,
at either the bank's base rate plus an applicable margin or LIBOR plus an
applicable margin. The New Credit Facility is subject to certain financial
covenants as defined in the loan agreement, including a debt to adjusted cash
flow covenant. The New Credit Facility will be used to finance future
acquisitions and for working capital, capital expenditures and general corporate
purposes. There were no borrowings outstanding under the New Credit Facility at
December 31, 1997 and March 31, 1998.
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.
7
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
5. Net Income (Loss) Per Share:
Calculation of Basic and Diluted Earnings Per Share:
The following table sets forth the computation of the number of shares
used in the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1998
------------- --------------
<S> <C> <C>
Net income (loss) $1,810,840 ($9,550,062)
============= ==============
Weighted average shares outstanding 170,000 170,000
============= ==============
</TABLE>
For the three months ended March 31, 1997 and 1998, net income (loss) per
share was determined by dividing net income (loss) by applicable shares
outstanding. The total shares used for the calculation of basic and diluted net
income (loss) per share were the same as there are no securities that have not
been issued.
6. Acquisitions:
As of January 7, 1998, the Company acquired, from an independent
DIRECTV(R) ("DIRECTV") provider, the rights to provide DIRECTV programming in
certain rural areas of Minnesota and the related assets in exchange for total
consideration of approximately $1.9 million, which consisted of $1.8 million in
cash and $32,000 in assumed liabilities.
As of March 9, 1998, the Company acquired, from two independent DIRECTV
providers, the rights to provide DIRECTV programming in certain rural areas of
Nebraska and Texas and the related assets in exchange for total consideration of
approximately $15.6 million, which consisted of $5.9 million in cash, $105,000
in assumed liabilities, a $9.4 million note, payable over four years; and
$75,000 in cash and a $150,000 obligation, payable over two years, for
consultancy and non-compete agreements.
The following unaudited summary, prepared on a pro forma basis,
combines the results of operations as if the above DBS territories had been
acquired as of the beginning of the periods presented, after including the
impact of certain adjustments, such as the Company's 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 information does not include any
acquisitions that occurred subsequent to March 31, 1998.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
(in thousands, except earnings per share) (unaudited)
1997 1998
---- ----
<S> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . $24,981 $29,748
------------ ------------
Operating loss . . . . . . . . . . . . . . . . . . ($5,386) ($6,209)
------------ -------------
Net loss before extraordinary item . . . . . . . . . ($11,155) ($9,701)
------------ -------------
Net loss per share . . . . . . . . . . . . . . . . ($65.62) ($57.06)
============ =============
</TABLE>
8
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued
7. Commitments and Contingent Liabilities:
Legal Matters:
From time to time the Company is involved with claims that arise in the
normal course of business. In the opinion of management, the ultimate liability
with respect to these claims will not have a material adverse effect on the
combined operations, liquidity, cash flows or financial position of the Company.
8. Other Events:
In January 1998, the Company entered into an agreement to sell its
remaining New England cable systems for a purchase price of at least $28 million
and not more than $31 million, based on the systems' location cash flow for the
trailing 12 months prior to closing, multiplied by nine. The Company anticipates
this transaction to close in the third quarter of 1998. The Company expects to
report a nonrecurring gain relating to this transaction.
As of April 9, 1998, the Company acquired, from two independent DIRECTV
providers, the rights to provide DIRECTV programming in certain rural areas of
New Mexico and Texas and the related assets in exchange for total consideration
of approximately $14.2 million, which consisted of $13.3 million in cash and
37,304 shares of PCC's Class A Common Stock (amounting to $900,000 at the time
of issuance).
9. Subsidiary Guarantees:
The Series B Notes are guaranteed on a full, unconditional, senior
subordinated basis, jointly and severally by each of the wholly owned direct and
indirect subsidiaries of Pegasus with the exception of certain subsidiaries as
described below (the "Guarantor Subsidiaries"). WTLH License Corp., WTLH, Inc.,
Pegasus Anasco Holdings, Inc. and PCT-CT, all of which are direct or indirect
subsidiaries of Pegasus, are not guarantors of the Series B Notes
("Non-guarantor Subsidiaries"). As the result of these subsidiaries not being
guarantors of the Series B Notes, the following condensed combining financial
statements have been provided. The Company believes separate financial
statements and other disclosures concerning the Guarantor Subsidiaries are not
deemed material to investors.
9
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
9. Subsidiary Guarantees (continued):
Condensed Combined Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
As of March 31, 1998 Subsidiaries Subsidiaries Pegasus Eliminations
------------ ------------ ------- ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $9,413 $2,871 ($24)
Accounts receivable, net 11,132 (20)
Other current assets 6,333 93
--------------------------------------------------------------------------------
Total current assets 26,878 2,944 (24)
Property and equipment, net 24,917 2,277
Intangible assets, net 274,904 3,170 4,259
Other assets 2,070 66
Investment in subsidiaries and affiliates 271,333 ($271,333)
--------------------------------------------------------------------------------
Total assets $328,769 $8,391 $275,634 ($271,333)
================================================================================
Liabilities and total equity:
Current portion of long-term debt $1,914 $30
Accounts payable 10,020 1,537
Other current liabilities 17,118 140 ($16,758) $16,758
--------------------------------------------------------------------------------
Total current liabilities 29,052 1,707 (16,758) 16,758
Long-term debt 297,198 4,429 82,081 (288,091)
Other liabilities 14,986 3,989 369
--------------------------------------------------------------------------------
Total liabilities 341,236 10,125 65,692 (271,333)
Minority interest 3,000
Total equity (deficit) (15,467) (1,734) 209,942
--------------------------------------------------------------------------------
Total liabilities and equity $328,769 $8,391 $275,634 ($271,333)
================================================================================
As of December 31, 1997 Assets:
Cash and cash equivalents $9,170 $2,511 $5,329
Accounts receivable, net 13,074 1
Other current assets 6,340 64
--------------------------------------------------------------------------------
Total current assets 28,584 2,576 5,329
Property and equipment, net 25,159 2,224
Intangible assets, net 263,039 3,416 5,709
Other assets 2,396 66
Investment in subsidiaries and affiliates 270,212 ($270,212)
--------------------------------------------------------------------------------
Total assets $319,178 $8,216 $281,316 ($270,212)
================================================================================
Liabilities and total equity:
Current portion of long-term debt $3,244 $3,084
Accounts payable 9,983 1,314
Other current liabilities 17,749 831 ($14,102) $14,102
--------------------------------------------------------------------------------
Total current liabilities 30,976 5,229 (14,102) 14,102
Long-term debt 284,883 4,429 81,982 (284,314)
Other liabilities 13,061 307 546
--------------------------------------------------------------------------------
Total liabilities 328,920 9,965 68,426 (270,212)
Minority interest 3,000
Total equity (deficit) (12,742) (1,749) 212,890
--------------------------------------------------------------------------------
Total liabilities and equity $319,178 $8,216 $281,316 ($270,212)
================================================================================
</TABLE>
<PAGE>
[RESTUBBED TABLE]
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
9. Subsidiary Guarantees (continued):
Condensed Combined Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
Pegasus
As of March 31, 1998 Pegasus Development
Subtotal Corporation Eliminations Totals
Assets: -------- ----------- ------------ ------
<S> <C> <C> <C> <C>
Cash and cash equivalents $12,260 $901 $13,161
Accounts receivable, net 11,112 11,112
Other current assets 6,426 600 7,026
------------------------------------------------------------------
Total current assets 29,798 1,501 31,299
Property and equipment, net 27,194 30 27,224
Intangible assets, net 282,333 282,333
Other assets 2,136 2,425 4,561
Investment in subsidiaries and affiliates
------------------------------------------------------------------
Total assets $341,461 $3,956 $345,417
==================================================================
Liabilities and total equity:
Current portion of long-term debt $1,944 $1,944
Accounts payable 11,557 11,557
Other current liabilities 17,258 17,258
------------------------------------------------------------------
Total current liabilities 30,759 30,759
Long-term debt 95,617 95,617
Other liabilities 19,344 $22 19,366
------------------------------------------------------------------
Total liabilities 145,720 22 145,742
Minority interest 3,000 3,000
Total equity (deficit) 192,741 3,934 196,675
------------------------------------------------------------------
Total liabilities and equity $341,461 $3,956 $345,417
==================================================================
As of December 31, 1997 Assets:
Cash and cash equivalents $17,010 $17,010
Accounts receivable, net 13,075 13,075
Other current assets 6,404 6,404
------------------------------------------------------------------
Total current assets 36,489 36,489
Property and equipment, net 27,383 27,383
Intangible assets, net 272,164 272,164
Other assets 2,462 $425 2,887
Investment in subsidiaries and affiliates
------------------------------------------------------------------
Total assets $338,498 $425 $338,923
==================================================================
Liabilities and total equity:
Current portion of long-term debt $6,328 $6,328
Accounts payable 11,297 11,297
Other current liabilities 18,580 ($1) 18,579
------------------------------------------------------------------
Total current liabilities 36,205 (1) 36,204
Long-term debt 86,980 86,980
Other liabilities 13,914 13,914
------------------------------------------------------------------
Total liabilities 137,099 (1) 137,098
Minority interest 3,000 3,000
Total equity (deficit) 198,399 426 198,825
------------------------------------------------------------------
Total liabilities and equity $338,498 $425 $338,923
==================================================================
</TABLE>
10
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
9. Subsidiary Guarantees (continued):
Condensed Combined Statements of Operations
For the Three Months ended March 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations
------------- ------------- ------- ------------
<S> <C> <C> <C> <C>
Total revenue $27,936 $826 ($25)
Total operating expenses 30,065 740 $144 (25)
--------------------------------------------------------------------------
Income (loss) from operations (2,129) 86 (144)
Interest expense 3,093 49 2,805 (2,563)
Other 13 (1)
--------------------------------------------------------------------------
Income (loss) before income
taxes (5,235) 37 (2,948) 2,563
Provision for income taxes 75
--------------------------------------------------------------------------
Net income (loss) ($5,310) $37 ($2,948) $2,563
==========================================================================
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Pegasus
Pegasus Development
Subtotal Corporation Eliminations Totals
-------- ----------- ------------ ------
<S> <C> <C> <C> <C>
Total revenue $28,737 $328 ($328) $28,737
Total operating expenses 30,924 4,199 (328) 34,795
-------------------------------------------------------------------
Income (loss) from operations (2,187) (3,871) (6,058)
Interest expense 3,384 3,384
Other 12 21 33
-------------------------------------------------------------------
Income (loss) before income
taxes (5,583) (3,892) (9,475)
Provision for income taxes 75 75
-------------------------------------------------------------------
Net income (loss) ($5,658) ($3,892) ($9,550)
===================================================================
</TABLE>
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
9. Subsidiary Guarantees (continued):
Condensed Combined Statements of Operations
For the Three Months ended March 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations
------------ ------------- ------- ------------
<S> <C> <C> <C> <C>
Total revenue $11,561 $738 ($25)
Total operating expenses 11,152 684 $100 (25)
------------------------------------------------------------------------
Income (loss) from operations 409 54 (100)
Interest expense 3,880 2 1,822 (2,551)
Other (4,610) 9
------------------------------------------------------------------------
Income (loss) before income
taxes 1,139 52 (1,931) 2,551
Provision for income taxes
------------------------------------------------------------------------
Net income (loss) $1,139 $52 ($1,931) $2,551
========================================================================
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Pegasus
Pegasus Development
Subtotal Corporation Eliminations Totals
-------- ----------- ------------ ------
<S> <C> <C> <C> <C>
Total revenue $12,274 $12,274
Total operating expenses 11,911 11,911
---------------------------------------------------------------------
Income (loss) from operations 363 363
Interest expense 3,153 3,153
Other (4,601) (4,601)
---------------------------------------------------------------------
Income (loss) before income
taxes 1,811 1,811
Provision for income taxes
---------------------------------------------------------------------
Net income (loss) $1,811 $1,811
=====================================================================
</TABLE>
11
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
9. Subsidiary Guarantees (continued):
Condensed Combined Statements of Cash Flows
For the Three Months ended March 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations
------------ ------------- ------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($5,310) $37 ($2,948) $2,563
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 9,256 251 144
Program rights amortization 601
Change in assets and liabilities:
Accounts receivable 1,794
Accounts payable and accrued expenses 2,118 (468) (2,563)
Prepaids and other (131) (8)
Other 2,745 178 (2,734)
----------------------------------------------------------------
Net cash provided (used) by operating activities 11,073 (10) (5,538)
Cash flows from investing activities:
Acquisitions (7,778)
Capital expenditures (1,205) (233)
Purchase of intangible assets (716) (25)
Other (811) 185
----------------------------------------------------------------
Net cash provided (used) by investing activities (10,510) (258) 185
Cash flows from financing activities:
Proceeds from debt
Repayment of debt (2,329) (3,054)
Other 2,009 3,682
----------------------------------------------------------------
Net cash provided (used) by financing activities (320) 628
Net increase (decrease) in cash and cash equivalents 243 360 (5,353)
Cash and cash equivalents, beginning of year 9,170 2,511 5,329
----------------------------------------------------------------
Cash and cash equivalents, end of period $9,413 $2,871 ($24)
================================================================
</TABLE>
<PAGE>
[TABLE RESTUBED]
<TABLE>
<CAPTION>
Pegasus
Pegasus Development
Subtotal Corporation Eliminations Totals
-------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($5,658) ($3,892) ($9,550)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 9,651 9,651
Program rights amortization 601 601
Change in assets and liabilities:
Accounts receivable 1,794 1,794
Accounts payable and accrued expenses (913) (913)
Prepaids and other (139) (2,000) (2,139)
Other 189 23 212
----------------------------------------------------------
Net cash provided (used) by operating activities 5,525 (5,869) (344)
Cash flows from investing activities:
Acquisitions (7,778) (7,778)
Capital expenditures (1,438) (30) (1,468)
Purchase of intangible assets (741) (741)
Other (626) (626)
----------------------------------------------------------
Net cash provided (used) by investing activities (10,583) (30) (10,613)
Cash flows from financing activities:
Proceeds from debt
Repayment of debt (5,383) (5,383)
Other 5,691 6,800 12,491
----------------------------------------------------------
Net cash provided (used) by financing activities 308 6,800 7,108
Net increase (decrease) in cash and cash equivalents (4,750) 901 (3,849)
Cash and cash equivalents, beginning of year 17,010 17,010
----------------------------------------------------------
Cash and cash equivalents, end of period $12,260 $901 $13,161
==========================================================
</TABLE>
12
<PAGE>
PEGASUS MEDIA & COMMUNICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - (continued)
9. Subsidiary Guarantees (continued):
Condensed Combined Statements of Cash Flows
For the Three Months ended March 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Guarantor Non-guarantor
Subsidiaries Subsidiaries Pegasus Eliminations
------------ ------------- -------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,139 $52 ($1,931) $2,551
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 2,840 241 100
Program rights amortization 377
Change in assets and liabilities:
Accounts receivable (381) (25)
Accounts payable and accrued expenses 2,490 106 (149) (2,526)
Prepaids and other (402) 572 (67)
Other (7,277) 2,821
---------------------------------------------------------------
Net cash provided (used) by operating activities (1,214) 971 774
Cash flows from investing activities:
Acquisitions
Capital expenditures (3,018) (281)
Purchase of intangible assets (55) (20) (805)
Other 6,291
---------------------------------------------------------------
Net cash provided (used) by investing activities 3,218 (301) (805)
Cash flows from financing activities:
Proceeds from debt 526
Repayment of debt 61 (200) (30,126)
Other 526 29,600
---------------------------------------------------------------
Net cash provided (used) by financing activities 587 (200)
Net increase (decrease) in cash and cash equivalents 2,591 470 (31)
Cash and cash equivalents, beginning of year 6,171 807 1,439
---------------------------------------------------------------
Cash and cash equivalents, end of period $8,762 $1,277 $1,408
===============================================================
</TABLE>
<PAGE>
[RESTUBED TABLE]
<TABLE>
<CAPTION>
Pegasus
Pegasus Development
Subtotal Corporation Eliminations Totals
-------- ----------- ------------ ------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,811 $1,811
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 3,181 3,181
Program rights amortization 377 377
Change in assets and liabilities:
Accounts receivable (406) (406)
Accounts payable and accrued expenses (79) (79)
Prepaids and other 103 103
Other (4,456) (4,456)
-----------------------------------------------------------
Net cash provided (used) by operating activities 531 531
Cash flows from investing activities:
Acquisitions
Capital expenditures (3,299) (3,299)
Purchase of intangible assets (880) (880)
Other 6,291 6,291
-----------------------------------------------------------
Net cash provided (used) by investing activities 2,112 2,112
Cash flows from financing activities:
Proceeds from debt 526 526
Repayment of debt (30,265) (30,265)
Other 30,126 30,126
-----------------------------------------------------------
Net cash provided (used) by financing activities 387 387
Net increase (decrease) in cash and cash equivalents 3,030 3,030
Cash and cash equivalents, beginning of year 8,417 8,417
-----------------------------------------------------------
Cash and cash equivalents, end of period $11,447 $11,447
===========================================================
</TABLE>
13
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
This Report contains certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) and
information relating to the Company that are based on the beliefs of the
management of the Company, as well as assumptions made by and information
currently available to the Company's management. When used in this Report, the
words "estimate," "project," "believe," "anticipate," "intend," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. For a discussion of such risks, see the information contained in the
section captioned "Risk Factors" (pages 12-21) of PCC's Proxy
Statement/Prospectus dated April 14, 1998, filed as part of PCC's Registration
Statement in Form S-4, File No. 333-44929 (the "Proxy Statement/Prospectus"),
which section is incorporated by reference herein. 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. Unless otherwise defined, all defined terms used herein
have the same meaning as in the footnotes to the Combined Financial Statements
included herein.
General
The Company is a diversified company operating in growing segments of
the media and communications industries: multichannel television and broadcast
television. Pegasus Multichannel Television includes DBS and cable businesses.
As of March 31, 1998, the Company's DBS operations consisted of providing
DIRECTV services to approximately 154,000 subscribers in certain rural areas of
27 states in which the Company holds the exclusive right to provide such
services. Its cable operations consist of systems in New England (Connecticut
and Massachusetts) and Puerto Rico. The Company sold its New Hampshire cable
system effective January 31, 1997. On January 16, 1998, the Company entered into
an agreement to sell its remaining New England cable systems. Pegasus Broadcast
Television owns and operates five TV stations affiliated with Fox and operates
one affiliated with UPN and another affiliated with WB. It has entered into an
agreement to operate an additional TV station, which will be affiliated with WB
and will commence operations in 1998.
Multichannel revenues are derived from monthly customer subscriptions,
pay-per-view services, subscriber equipment rentals, home shopping commissions,
advertising time sales and installation charges. Broadcast revenues are derived
from the sale of broadcast airtime to local and national advertisers.
The Company's location operating expenses consist of (i) programming
expenses, (ii) marketing and selling costs, including advertising and promotion
expenses, local sales commissions, and ratings and research expenditures, (iii)
technical and operations costs, (iv) general and administrative expenses, and
(v) expensed subscriber acquisition costs. Multichannel programming expenses
consist of amounts paid to program suppliers, DSS authorization charges and
satellite control fees, each of which is paid on a per subscriber basis, and
DIRECTV royalties which are equal to 5% of DBS program service revenues.
Broadcast 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.
The Company no longer requires new DBS customers to sign a one-year
programming contract and, as a result, subscriber acquisition costs ("SAC"),
which were being capitalized and amortized over a twelve-month period, are
currently being charged to operations in the period incurred. This change became
effective October 1, 1997. Subscriber acquisition costs charged to operations
are excluded from pre-SAC location operating expenses.
14
<PAGE>
Results of Operations
Three months ended March 31, 1998 compared to three months ended March 31, 1997
The Company's net revenues increased by approximately $16.5 million or
134% for the three months ended March 31, 1998 as compared to the same period in
1997. Multichannel Television net revenues increased $16.4 million or 299% and
Broadcast Television net revenues increased $85,000 or 1%. The net revenues
increased as a result of (i) a $16.0 million or 1103% increase in DBS revenues
of which $661,000 or 4% was due to the increased number of DBS subscribers in
territories owned at the beginning of 1997 and $15.4 million or 96% resulted
from acquisitions made in 1997 and 1998, (ii) a $366,000 or 9% increase in Cable
revenues which was the net result of a $499,000 or 13% increase in same system
revenues due primarily to rate increases and a $133,000 reduction due to the
sale of the Company's New Hampshire cable system effective January 31, 1997, and
(iii) a $85,000 or 1% increase in TV revenues which was the net result of a
$231,000 or 3% decrease in same station revenues, primarily as a result of
revenues generated by the Super Bowl in the first quarter of 1997, and a
$316,000 increase due to the two new stations launched on August 1, 1997 and
October 17, 1997.
The Company's total location operating expenses, as described above,
before DBS subscriber acquisition costs increased by approximately $11.9 million
or 150% for the three months ended March 31, 1998 as compared to the same period
in 1997. Multichannel Television pre-SAC location operating expenses increased
$11.3 million or 339% and Broadcast Television location operating expenses
increased $648,000 or 14%. The pre-SAC location operating expenses increased as
a result of (i) a $11.0 million or 926% increase in operating expenses generated
by the Company's DBS operations due to a same territory increase in programming
and other operating costs totaling $163,000 (resulting from the increased number
of DBS subscribers in territories owned at the beginning of 1997) and a $10.8
million increase attributable to territories acquired in 1997 and 1998, (ii) a
$268,000 or 13% increase in Cable operating expenses as the net result of a
$334,000 or 16% increase in same system operating expenses due primarily to
increases in programming costs and a $66,000 reduction due to the sale of the
Company's New Hampshire cable system effective January 31, 1997, and (iii) a
$648,000 or 14% increase in TV operating expenses as the result of a $105,000 or
2% increase in same station operating expenses and a $543,000 increase
attributable to the two new stations launched on August 1, 1997 and October 17,
1997.
DBS subscriber acquisition costs, which consist of regional sales
costs, advertising and promotion, and commissions and subsidies, totaled $4.2
million or $283 per gross subscriber addition for the three months ended March
31, 1998.
Incentive compensation, which is calculated from increases in pro forma
Location Cash Flow, increased by approximately $154,000 or 60% for the three
months ended March 31, 1998 as compared to the same period in 1997.
Corporate expenses increased by $291,000 or 77% for the three months
ended March 31, 1998 as compared to the same period in 1997 primarily due to
increased staffing as a result of internal and acquisition related growth,
enhanced public relations activities and additional public reporting
requirements for the Company.
Depreciation and amortization expense increased by approximately $6.5
million or 203% for the three months ended March 31, 1998 as compared to the
same period in 1997 as the Company increased its fixed and intangible asset base
as a result of the Subsidiaries Combination and four completed acquisitions
during 1997, and three completed acquisitions in the first quarter of 1998.
As a result of these factors, the Company reported a loss from
operations of $6.1 million for the three months ended March 31, 1998 as compared
to income from operations of $364,000 for the same period in 1997.
15
<PAGE>
Interest expense increased by approximately $231,000 or 7% for the
three months ended March 31, 1998 as compared to the same period in 1997 as a
result of an increase in debt associated with the Company's acquisitions.
The Company reported a net loss of $9.6 million for the three months
ended March 31, 1998 as compared to a net income of approximately $1.8 million
for the same period in 1997. The $11.4 million change was the net result of an
increase in the loss from operations of $6.4 million, an increase in interest
expense of $231,000, an increase in the provision for income taxes of $75,000,
an increase in other expenses of approximately $99,000 and a nonrecurring gain
on the sale of the New Hampshire cable system of approximately $4.5 million
during the first quarter of 1997.
Liquidity and Capital Resources
The Company's primary sources of liquidity have been the net cash
provided by its TV and cable operations, credit available under its credit
facilities and proceeds from public and private offerings. The Company's
principal use of its cash has been to fund acquisitions, to meet debt service
obligations, to fund investment in its TV and cable technical facilities and to
fund DBS subscriber acquisition costs.
Pre-SAC Location Cash Flow increased by $4.5 million or 105% for the
three months ended March 31, 1998 as compared to the same period in 1997.
Multichannel Television Pre-SAC Location Cash Flow increased $5.1 million or
237% and Broadcast Television Location Cash Flow decreased $563,000 or 26%.
Pre-SAC Location Cash Flow increased as a result of (i) a $5.0 million or 1903%
increase in DBS Pre-SAC Location Cash Flow of which $498,000 or 10% was due to
an increase in same territory Pre-SAC Location Cash Flow and $4.5 million or 90%
was attributable to territories acquired in 1997 and 1998, (ii) a $98,000 or 5%
increase in Cable Location Cash Flow which was the net result of a $165,000 or
9% increase in same system Location Cash Flow and a $67,000 reduction due to the
sale of the Company's New Hampshire cable system effective January 31, 1997, and
(iii) a $563,000 or 26% decrease in TV Location Cash Flow as a result of a
$336,000 or 15% decrease in same station Location Cash Flow, primarily as a
result of the cash flow generated by the Super Bowl in the first quarter of
1997, and a $227,000 decrease attributable to the two new stations launched on
August 1, 1997 and October 17, 1997.
During the three months ended March 31, 1998, net cash provided by
financing activities was approximately $7.1 million, which together with $17.0
million of cash on hand was used to fund operating activities of $345,000 and
investing activities of $10.6 million. Financing activities consisted of $7.4
million of contributions by PCC, $5.7 million of borrowings from affiliates,
repayment of approximately $5.4 million of long term debt and placing $600,000
in restricted cash to collateralize letters of credit. Investing activities
consisted of (i) the acquisition of DBS assets from three independent DIRECTV
providers during the first quarter of 1998 for approximately $7.8 million, (ii)
broadcast television transmitter, tower and facility uprades totaling
approximately $981,000, (iii) payments of programming rights amounting to
$626,000, and (iv) maintenance and other capital expenditures and intangibles
totaling approximately $1.2 million. As of March 31, 1998, the Company's cash on
hand approximated $13.2 million.
16
<PAGE>
As defined in the Indenture governing the Series B Notes, the Company
is required to provide Adjusted Operating Cash Flow data for Pegasus and its
Restricted Subsidiaries, on a combined basis, where Adjusted Operating Cash Flow
is defined as "for the four most recent fiscal quarters for which internal
financial statements are available, Operating Cash Flow of such Person and its
Restricted Subsidiaries, less DBS Cash Flow (Satellite Segment Operating Cash
Flow) for the most recent four-quarter period, plus DBS Cash Flow for the most
recent quarterly period multiplied by four." Operating Cash Flow is income from
operations before income taxes, depreciation and amortization, interest expense,
extraordinary items and non-cash charges. Although Adjusted Operating Cash Flow
is not a measure of performance under generally accepted accounting principles,
the Company believes that Location Cash Flow, Operating Cash Flow and Adjusted
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. Restricted
Subsidiaries carries the same meaning as in the Indenture. Pro forma for the
three completed DBS acquisitions occurring in the first quarter of 1998, as if
such acquisitions occurred on January 1, 1998, Adjusted Operating Cash Flow
would have been approximately $37.2 million, as follows:
<TABLE>
<CAPTION>
<S> <C>
Four Quarters
Ended
(in thousands) March 31,1998
-------------
Revenues $123,117
Direct operating expenses, excluding depreciation,
amortization and other non-cash charges 84,031
-------------
Income from operations before incentive compensation,
corporate expenses, depreciation, amortization and
other non-cash charges 39,086
Corporate expenses 1,910
-------------
Adjusted operating cash flow $37,176
==============
</TABLE>
The Indenture and the New Credit Facility contain certain financial and
operating covenants, including restrictions on the Company's ability to incur
additional indebtedness, create liens and to pay dividends.
Pre-SAC Location Cash Flow is defined as net revenues less location
operating expenses before subscriber acquisition costs. Location Cash Flow is
defined as net revenues less location operating expenses. Although Pre-SAC
Location Cash Flow and Location Cash Flow are not measures of performance under
generally accepted accounting principles, the Company believes that Pre-SAC
Location Cash Flow and Location 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 measures for determining the
Company's operating performance or liquidity which is calculated in accordance
with generally accepted accounting principles.
17
<PAGE>
The Company believes that it has adequate resources to meet its working
capital, maintenance capital expenditure and debt service obligations. The
Company engages in discussions with respect to acquisition opportunities in
media and communications on a regular basis. The Company believes that cash on
hand, together with 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.
The Company closely monitors conditions in the capital markets to
identify opportunities for the effective and prudent use of financial leverage.
In financing its future expansion and acquisition requirements, the Company
would expect to avail itself of such opportunities and thereby increase its
indebtedness, which could result in increased debt service requirements. There
can be no assurance that such debt financing can be completed on terms
satisfactory to the Company or at all. The Company may also issue additional
equity to fund its future expansion and acquisition requirements.
Capital Expenditures
The Company's capital expenditures aggregated $9.4 million in 1997. 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 1998 capital projects include (i) DBS
facility upgrades of approximately $500,000 and (ii) approximately $2.6 million
of TV expenditures for broadcast television transmitter, tower and facility
constructions and upgrades. The Company commenced the programming of two new TV
stations, WPME on August 1, 1997 and WGFL on October 17, 1997 and its plans are
to commence programming of an additional station in 1998. There can be no
assurance that the Company's capital expenditure plans will not change in the
future.
Effective October 1, 1997, the Company no longer requires new DBS
customers to sign a one-year programming contract and, as a result, subscriber
acquisition costs, which were being capitalized through September 30, 1997 and
amortized over a twelve-month period, will be charged to operations in the
period incurred. The Company's policy is to capitalize subscriber acquisition
costs directly related to new subscribers, such as commission and equipment
subsidies, who sign a programming contract. These costs are amortized over the
life of the contract. The Company expenses its subscriber acquisition costs when
no new contract is obtained. The Company currently does not require new DBS
customers to sign programming contracts and, as a result, subscriber acquisition
costs are currently being charged to operations in the period incurred.
Other
The Company has reviewed all of its system as to the Year 2000 issue.
The Company has in the past three years replaced or upgraded, or is in the
process of replacing or upgrading, all of its TV traffic systems, cable billing
systems and corporate accounting systems. All of these new systems will be in
place by the third quarter of 1998. The Company relies on outside vendors for
the operation of its DBS satellite control and billing systems, including
DIRECTV, the NRTC and their respective vendors. The Company has established a
policy to ensure that its vendors are currently in compliance with the Year 2000
issue or have a plan in place to be in compliance with the Year 2000 issue by
the first quarter of 1999. Costs to be incurred beyond March 31, 1998 relating
to the Year 2000 issue are not expected to be significant.
On January 16, 1998, the Company entered into an agreement to sell its
remaining New England cable systems to Avalon Cable of New England, LLC for a
purchase price of at least $28 million and not more than $31 million.
18
<PAGE>
PM&C'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 in excess of certain agreed upon levels
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 bears interest at a fixed rate.
The Company has adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share". The Company has
reviewed the provisions of SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", and the implementation of the above standards is not expected to
have any significant impact on its combined financial statements.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
19
<PAGE>
Part II. Other Information
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule.
(b) Reports on Form 8-K
On March 3, 1998, Pegasus filed a Current Report on Form 8-K dated
January 16, 1998 reporting under Item 5 that the Company had entered into a
definitive agreement to sell its New England cable systems to Avalon Cable of
New England, LLC. No financial statements were filed with the Form 8-K.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Pegasus Media & Communications, Inc.
Date May 14, 1998 By /s/ Robert N. Verdecchio
------------- -----------------------------------------------
Robert N. Verdecchio
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the combined
balance sheets of Pegasus Media & Communication, Inc. as of December 31, 1997
and March 31, 1998 (unaudited) and the related combined statements of operations
and cash flows for the three months ended March 31, 1997 (unaudited) and March
31, 1998 (unaudited). This information is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 13,160,533
<SECURITIES> 0
<RECEIVABLES> 11,330,124
<ALLOWANCES> 218,000
<INVENTORY> 0
<CURRENT-ASSETS> 31,298,600
<PP&E> 53,003,469
<DEPRECIATION> 25,779,596
<TOTAL-ASSETS> 345,417,032
<CURRENT-LIABILITIES> 30,759,091
<BONDS> 82,080,850
0
3,000,000
<COMMON> 1,700
<OTHER-SE> 196,673,560
<TOTAL-LIABILITY-AND-EQUITY> 345,417,032
<SALES> 28,737,336
<TOTAL-REVENUES> 28,737,336
<CGS> 0
<TOTAL-COSTS> 34,795,550
<OTHER-EXPENSES> 33,038
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,383,810
<INCOME-PRETAX> (9,475,062)
<INCOME-TAX> 75,000
<INCOME-CONTINUING> (9,550,062)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,550,062)
<EPS-PRIMARY> (56.18)
<EPS-DILUTED> (56.18)
</TABLE>
