Attachment FOIA request

FOIA request

REQUEST submitted by Highcast Network, Inc.

FOIA request

2005-07-14

This document pretains to SAT-LOA-20031119-00336 for Application to Launch and Operate on a Satellite Space Stations filing.

IBFS_SATLOA2003111900336_453085

, [T~S,4200 AURGIENT QFreedom of InformationAct Priority processing required under > provisions of The Freedom of Information Act Records not routinely available Aces ~—3ARK es 2 2zi s Bureau/Office Date Time Limit Expires ——~—— URCGIENT PRIORITY PROCESSING REQUIRED

FOIA SUMMARY inFoRMATION FoR ANNUAL RePoRT To concress When reply is made to the FOIA request, please return this completed form and a copy of the reply AMD—Performance Evaluation and Records Management, Room 1—A838, 445 12th St., SW, Washington, DC 20554 Fom contmo no: p{/flf—jyob Dn-;;};;};;:cmn Offen: Nme o Recuesior Brenuite sssipes to reaie Malk S HHaCFeey —+—B Confaner /9 AmmerecspL) To af conpsereo ay sumeatyorrice [J. are ie records bang reauested mabnained in a Princy Act Spsem of Recoront CJ is ts a request for a irnsert or recordng of a clases meeteg? . . Oue of nepie C Reavest gantes in fut CJ neaest denied i ut CJ meausst partaty granted and partaty ceniec CJ. oner tiecit: Rewiors tor Denae 5 U&G 6520— (fent ermptioaiel en omny g & q @ g @ o «© o & o @ o @ C]. omer (spectti: Sprciy O@ stue: Nme wd thie of persons derving reauass For Use By Office of General Counsel iwTha—AGENOY APPEAL Gue applemian for reviw was tiecs Ome FCG acton requres: 062 anomer bme of FCG deciion Retermce rmoer #CC , Mimeo t CJ]. Reausst grined n fut CJ meqvest cenes in fut CJ. Aeauest siriaty granted ans pariaty denied C]. omer (apecit: Resiors tor Denak 5 USC 8520 iheict mumptimlel. mhich amly) C «n 0 @ 0 & 0 « O & 0 @ 0 CJ. oner Gioecith Specty ) sn Commanionars responsble for cenis

arexvorree commac neen ComPUTATION OF FOIA PROCESSING charces ~Z fi 0?4/5‘__572/ COMMERCIAL USE REQUESTERS (charged for full direct costs of search, review and dupiieationk: CJ]. surch ret mcsuuy Such Cont = Ninee, of tare rry ks 3 dithe Ts anei io seaen costs CJ Aniew ret mcumey nevew s y yoss Tinee mm of6 Mhikee rame ~——maaymefe Faie of femew neview comts Duptiten # x = Cons Nror of hm Ts pe mm auge ta mar pusuication costs ut wey rape Torat * C t EDUcATIONAL AND NoNCOMMERCIAL scieNTIFIC INTITUTION REaUEsTERS; and (m meauestems WHo ARE REPRESENTATIVES OF THE NEWS MEDIA (charged only for duplication of pages over the first 100 pages mon woriet tm 0 is 10 Dupleaten * o o x = Nabe o man ons n nom Re mr mm ns sa% at te frm 100 mm pustication costs Torat > CJ ALL OTHER REQUESTERS (charged only for search time in excess of the first two hours and for duplication of material in excess of the first 100 pat CJ serch ret mesuay s~Wre iim ‘nowan Hwa x & Srweh Cous T Sn amne Yery res to stmen costs ot ie tim s hare goie ot sercier Nee of fes mom provins rom 0 to 10 & x omm Rree o man point n m ho se mp sumtication costs vs‘ ot me fre. 100 man Torat > COMENTS Prame expion ro crargess * Mamm 1 rer. Tme n neem of on rar s cicvant in arte ror segrana, in. 125, 150, 1X% rom a—308 Aoee 002

Hateern & Lev Arrorwers ar ost Bame. O BuxonAneeSm 100 Bux Cnome. 7A 17004 m 610 sise h i) ssssess Buw: MuBHuremdericon July 14, 2005 VIA FACSIMILE an al &0 Managing Director & c Pae\ Attention: FOIA Officer ta Federal Communications Commission 445 12th Street, S.W, Room 1—A835 Washington, D.C. 20554 392 Re: FREEDOM OF INFORMATION ACT REQUEST PEGASUS DEVELOPMENT CORR To whom it may concern: Pursuantto the Freedom of Information Act ("FOIA"), 5 U.S.C. § 522, et seg., and the Commission‘s implementing regulations thereunder, 47 C.ER, § 0.461, Highcast Network, Inc. ("Highcast‘), by its undersigned counsel, hereby requests the right to inspect documents submitted to the Commission by Pegasus Development Corporation ("PDC") on January 31,2005." Specifically, Highcast seeks unredacted copies of the "satellite construction contract and accompanying exhibits between Pegasus and Space Systems/Loral‘, which were submitted in redacted form under cover of the January 31 letter: PDC‘s letter argues that disclosure of the redacted material "could be detrimental to Pegasus . .. and is of value to ts competitors."" At the same time, PDC characterizes the contract and exhibits as "binding" and "non—contingent" and thus argues that the submission is adequate to demonstrate compliance with the first milestone applicable under the FCC‘s revised space station licensing rules. ‘Letter from Tony Lin to Ms. Marlene Dortch, January 31, 2005, re: Submission of Executed Satellite Construction Contract and Request for Confidential Treatment, SAT—LOA— 20031110—00336. "1d. atp. 1. "1d. atp.2.

Federal Communications Commission July 14, 2005 Page 2 Although Highcast at this time takes no position as to PDC‘s actual performance under the FCC‘s due diligence requirements (and indeed cannot know what is included in the redacted text), Highcast notes that Pegasus Communications Corp (of which PDC is a wholly owned subsidiary) and PDC have taken positions that do not easily reconcile with PDC‘ assertion that it currently has a binding, non—contingent contract,. In June 2004 Pegasus filed a voluntary bankruptcy petition for its operating subsidiaries involved in the satellite DTH business, which subsidiaries accounted for substantially all of Pegasus Communications Corp‘s revenues. In August 2004 Pegasus terminated all satellite—related operations when it sold its operating DTH subsidiaries to DIRECTV, On May 18, 2005 Pegasus Communications Corp filed its form 10K Annual Report for the period ending December 31, 2004. That filing, relevant portions of which are attached to this letter, reports, inter alia, the following: + Total purchase commitments for Pegasus and consolidated subsidiaries total just $1,741,000 for 2005 and only $2,864,000 for the three year perio2005—2008 (page42) + In the second quarter of 2004 Pegasus began to expense."costs of acquiring our Ka band satellite licenses, and early stage construction costs related to these licenses" that it has previously capitalized (page 37) and wrote off "all remaining Ka band license development costs." (page F—43) + In the second quarter of 2004 Pegasus established a $3.0 million "allowance" against the performance bond posted for the 87 degree WL orbital location, effectively taking an impairment on that bond (page 37 and page F—43) * The filing makes no reference to any asset that could be identified as a Ka band satellite under construction. With PDC‘s contract so extensively redacted, it is impossible for interested parties to assess PDC‘s actual performance. The publicly disclosed information does not reveal what payments (if any) have been made, what the status of actual construction (if any) is, or the conditions (if any) under which PDC is obligated to make additional payments. The public is entitled to disclosure of sufficient information to

Federal Communications Commission July 14, 2005 Page 3 allow informed commentary on PDC‘s milestone compliance._ PDCmust be required to disclose at least such information as is necessary to determine whether meaningful payments have been—made and are scheduled to be— made, whether. meaningful construction is— actually proceeding, and the conditions under which_PDC can terminate the contract. PDC‘s generalized statements about competitive impact do not meet its burden of proving by a preponderance of evidence that confidential treatmentis warranted." The Commission has held consistently that policy considerations favoring disclosure outweigh those supporting non—disclosure." The International Bureau has permitted. interested parties to review satellite construction contracts to determine whether the licensee has met its milestones on at least four separate occasions.". In doing so, the Bureau has implicily rejected arguments that disclosure of the terms of a satellite contract will result in competitive injury to the contracting parties." In other contexts, including merger proceedings, the Bureau has also permitted interested parties to review contractual documents in order to assess a licensee‘s compliance with anti— trafficking regulations and possible abandonment of licenses." * See, e.., Application of Northeast Communications of Wisconsin., Inc.,15 FCC Red 3289, at 15 (2000) (*Northeast Communications"). ‘see, e.g., Bartholdi Cable Company, Inc. v. FCC, 114 F.3d 274 (D.C. Cir. 1997) (public interest considerations favor openness in Commission licensing proceedings}. ‘See In the Matter of PanAmSat Comporation, FOIA No. 2002—124, DA 02—609 (March 15, 2002); Letter Order, VisionStar, Incorporated. Transfer of Control Application, FOIA Request No. 21—220 (August 8, 2001); n the Matter of GE American Communications,Inc., DA 01—173 (January 25, 2001). "See EchoStar VisionStar Corporation, Reply Regarding Request for Confidential Treatment, SAT—T/C—20001215—00163 (June 28, 2001) (asserting that "[bJoth companieswould be placed at a significant disadvantage ifthe detailed terms of theirvarious negotiations were revealed to the numerous competing service providers, and moreover to the companies fercely competing for Ka—band licenses in the second processing round who stand to benefit competitively from any knowledge of the cost, price, technical and financing information included in these materials"); Letter Order, VisionStar, Incorporated Transfer of Control Application, FOIA Request No. 21—220 (August 8, 2001) (denying request for confidential treatment). ‘See e.. Letter Order, NetSat 28 Company, L.LC., Transfer of Control, FOIA Request No. 21—207 (July 12, 2001); In the Matter of Motorola, Inc. and Teledesic, LLC, DA 01—2231 (September 25, 2001).

Federal Communications Commission: July 14, 2005 Page 4 There is no reason to deviate from the Bureau‘s established conclusions. PDC has made only a general claim that the contract and attachments contain confidential trade secrets and that the release of thosedocuments would cause competitive harm to the contracting parties. Such conclusory and generalized allegations ofharm cannot support confidential treatment." The Bureau has stated repeatedly that a "casual request" for. confidential. treatment will. not be granted."" Moreover, in this case Pegasus‘ own 10k, in spite of exhaustive disclosures of risks, including competitive tisks, says nothing of any future satellite service aspirations. For these reasons, the Commission, respectfully, should expeditiously grant Highcast‘s FOIA request and require PDC to file an unredacted copy of its January 31 submission. Highcast is prepared to pay for the cost of production of these documents pursuantto Section 0.461(b)(2) of the Commission‘s Rules and requests that this cost not exceed $250.00 without prior notification from the Commission. Please contact the undersigned if you have any questions. Very truly yours, HALPERN & LEVY, RC. By: MMK V d‘d& [a(&{ Mark S. Halpern MSH:aw Enclosures ces Tom Tycz, Chief, Satellite Division (via e—mail and regular mail) Andrea Kelly, Chief, Policy Branch (via e—mail and regular mail) Scott Blank Esquire (via e—mail and regular mail) Tony Lin, Esquire (via e—mail and regular mail) sicmemnetccitn nama ‘See Northeast Communications at 15. "®See Letter Order, VisionStar, Incorporated Transfer of Control Application, FOIA Request No. 21—220, at 2 (August 8, 2001); Letter Order, NetSat 28 Company, LLC., Transfer of Control, FOIA Request No. 21—207, at 2 (July 12, 2001); see also 47 C.E.R. §0.450(c)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10—K x aNNUAL Rerorr rursant tosEcrION 13 or 1s@) or t securrries excnanoe Act or i9. Forthfiscal year ended December31,2004 or LmRanstmion rEporT PursuaNt To sEcrIoN 13 or 18@ or t securrrits ExchANGE ACT o 192. Forthe traniionperio fom t Commisson File Number 032383 PEGASUS COMMUNICATIONS CORPORATION (Exactname ofregitanta pecifd i is charl) seimare sn aoronse tstate of incorporation (zns mmployer rdencstication No ) Communications ransgnment comany 200, sns Omea, mm aseee evcive otticen) (tin cosn Registrantstlephone numbe, inclutingare code: (800) 3760022 Secures regitered parsuantto Section 1206)ofthe Act: None Securitiesregitered pursuant t Secton 12(g) of the Act: Class A Common Stock, Par Value S0.01 Indieate by chock mark whethethereastran(1)has Aled allrepotsrequred to befled by Setion13 o13(6)othe Secuis Enchunge Act of 1934 daring thpreceding12 months (ofor such shorter peiodthatthugisrant was requied to fil uch report)and (2) has been subject o such Aling equirementfor thepast 90 days. ¥es[X] No LJ Indicte by check mark ifdiscloare ofdelinguentfiles pursuanto Tem 408 ofRepulation 5—% is not contained herein,and will nobe contained,to the besofth registants knowledge, n dfintiveproxyor information siatement ncorported by reference in Par II ofthe Fomn 10—% orany amendment o this Fomm 10—K. ix) Indicte by check mark whether th regisrant is an acclerted flr(as defined in Rule12b—2 ohe AcYes [XNo J The agaregate market valveafthe veting tock (Class A Common Stock) held by nonaffiates ofhereaistran s ofJn 30,2004,thelat busines day oftherepitrants most recently completed econd fiscal quartr, wasappronimately $30,498.576,based on the closing price of the Class A Comman Stockan such date on the Nasdaq National Market (Reference is madeto the paragraph captioned Calcution of Aggregate Market Valu ofNonaite Shares of Part L tem 5 berein fra sttement ofassumptions upon which thiscalculation is based) Number oshres ofexch classofherepistan‘s common stock outsandingas ofMarch 31,2005: Ciass A Comon Stock, 10.¢1 par value s0,000.s2¢ fexciuting 1,335,200 anaves held ty reguue dateilite Cenmications, inc., an urconsctsouten suceidiney, sns 27.822 enaren‘neld ty consclidaced evoeiciarien) 4 Gomnon acock, to.01 t vaive rasaree tincluaing es varsabie incerent entity vhich ve deterninad that ve ase the prinazybeneticiary o¢)

rem e sevscren FNANCIAL pata tzm thoumsote, excert per stare meuin sooe m aner son roce inentates — (eentates — (nestaces — tneetares — see iese « see tote a co see fote 4. see fete‘s io comsiitices eonmciicates conssiidutes rimscian mccian rimnciat statensncn t cevensen — pesadcass ant coner eperatione fatan +0 men +o ange +o mne + t tren consinutng operations iz uo mom mam satle (ieen) incsme tron consisutro e pee comon atare (0 «n c nn can e snn ssvuciee asoniin snn ho term cave irctotios durrent tooartern ot of persiondavs dame, an sam,aze saus. ons ramen mnd TeralZern aisesncimuet erenastonn neitizatie renterset atoos (2) — i8.0» unine se avc.ane (D For parposesofcompating pe shareamounts,includes cenain prefeiedstockrelted adustments(suchasaccumilated. ccrued and dlemed prefeed stock and redeemableprefered sock dividends, acertion, and gins on redempion ofprefered stock,asappleabl) which increase(dereaseloss rom contnuing operaionsby 57.2 milion,S12.5 milion, (145.7)miion, 531.8 milion, and $4.1 milio in 2004, 2005, 2002, 2001,and 2000, espectvely.In 2002,dbted income rom continuingoperiions per common shre was S1.98,relecting the effect oilatvestock aptions and dilytive convertblepreferred stock. Basic and difured lossftom contining opertions per common share or each oftheather years were thesamesinc allptental common shares wereantidnive ue to ourlos rom cotinuing opentions appleable o common shares and werethrefor excluded fom the compution. (2) For2003,includes lquidtion prference valueafthe 12349 seis preferedstck ofS85.5 millonreportadasalibiliy, us aconied and unpuid dividends of$23.4 milon astocated with hiseries eportd as noncurrent ccrued interes, on tconsolidted blance shct. No csh diidends weredeclied on common stock any year proseted in thtabl. ‘The redutions in revenves, ol assl, ongterm debt and redeemableprfired stock from 2003 to 2004 wereprimariy duet theChapter 11 bankrupteyflingofthe Debtorsand th deconsolidtion ofPegasus Satelite Communications on Jun2 2004.See discusion in em 1 and Notes 1, 2 d 3 to the Consolidaed Finacia Sttement rem 7. manaGemenis piscussion anb anaLysis or FNANCIAL CNDFTION ANb REsuLts or oreraions ‘he fllowingdiscusionoourfinancial conditin and resuts ofapentions shauldbe ead in conjnction with the Consolidated Financial Strements and relted Notes included heren beginningon page F—I >

General As discussd in Nots 1 and 3 to the Consolidred Financil Surement, the Debtors Ale fr Chapter 1 bnkruptey protecton on June 2, 2004,and the Debrordiret broadcast satlite business wa sold to DIRECTV, Inc.on August27, 200¢, Prirto thebankruptey filing ofhe Detron, tdiretbroadeaststelte busines comprited a substatal portion ofow revenves, opernting resuls,and Finnciaposton. Consequenty, ou resuls oopertions havesignfcanty changed. ‘Unde generll accepted accountingpricipe, the finncial potion and resuls ofPegasus Satelite Communications areincluded in our consolidted financialsttements only tirough June2, 2004,and heresuts ofapertionforthe Debtorsdiretbroadcast stefte bsiness for all periods prirto June 2, 2004 are elassfed as discontiued in ou ttements ooperatonsand comproheasive los,(See Criieal Accounting Policis below and Notes 1 and 3 t he Consolidated Financial trements) Oe principul operting business presenty consists ofth provision ofwireessbroadbund Itemet acces,condacted through ndiect subsidaries oPegasus Communications refered o as Pegasus Brodband_In addiion, Pepasus Satlite operated abroadcast elevision Pusiness asdebtorin—possession through s indirct subsidiry Pegusus Broadeat Teevision, In. ‘Pegasus Broadcast Television®) unthe effectve date oft Plan ofRearganzation. Our chiefoperting decsion makerrepularly reviewed th operting resus ofPegasus Broadeast ‘Televiion priot ts deconsoliion on June2, 2004 ‘We alsohold Heenses anintellctal propery, wtha et carying amount of$142.8 milionat December 31, 2004throughcerain subsidaries ofPepasus Communicatons. s discussd in Note 4 o our consolidied inanial sttement, we have restate prio peied finncil statement o correctthaccounting for preferd stock, Specifially we:(1) coreted theprosention in he Decerber31, 2003 bulanc shet ofour Series C conventble prefered stack rom redecmablprfered stockto conventbleprfered stockand addiinal paid in captal, and correted the balance ofthe Seris C convernble prfermedstock and addtonalpaid i captal by removing undeclaed dividends previouly recorded; (2) recorded a charge aguinat income in 2003 and 2002 for dvidends recorded on our subsidirys mandatoriy redeemable prferedstock; 5) restted our computtions of pe common share amount in 2003 and 2002relted t gaine associted withredemptions orofered stock;and () resated in th statements otockbldersequiy for 2005 and 2002 he comveribl prefered stock and addional paid in captal related t (1) above, and the additional paid in captal and accumalated deict related o (2) sbove. Our cashand cash equivalent,as wellas netcash provided by or used n operating, investing., andfinncing activites, were notafectd asa resul othis resutement. \UseofEsimates and Critcal Accounting Polies ‘The prepartion offinansial surements iconformity with accounting princiles generll acceptd n the United States ofAmerca requires that we make cetain estimates anassumption hat affct e reported amounsofrevenies,expensesasses, and labliies. Actual resuls could difer m thoe estmates. Signifcant estmates relate o usefullives and recoverailty oour onglived asses, includingintngible assts consiing of iccnse and itellecual ropentyrigho;valusionallowances associated wth deferrd incometax asses, and valuation of stockbased compensation. ‘Usefil Live and Recovernbility ofLong—Lived Asses. We makesignificant estimatesrelting t he usefillives, fur valuesand recovennbilty ofourlongived asets. Ou primay longlived asetsareinungibleassts consisting of 34 FCC 700 Mz License o provide terestral communications sevices 30

in the 700 MHZ spectrums and ntllctl propery rights sensed from Prsonalzed Medi hat provde us with an exclusivefeld ofuswith respectto Prsonalized Mediaspatet pofalo concerningthdistibutionofsiteiteservice fom specifed orbial locations. The net carying amount of our intangbleassts at December 31 2004 were S1428 milion: ‘We obtined our 700 Mitz Licenes through FCC auctions completed in September 2000 and Fobmary 2001. Their nitl term runs through January 1, 2015 atwhichime they aresubjctto renewal. We amortze our 700 MLHz Liceses over thar interm ofapproximately 14 yearsending January 1,2015. ‘We entered io ow Hiense arrangement with Pesonalized Media on January13,2000. The Personazed Media lcens is being amonized over approximately a 15year perd from January 13,2000 unil December 21, 2014, based on ou stimate ofth lifeofthechnology underiying th patent poalio and the patent aplicatins. n assesing thfir valveand ecovernblityofour icense anintellectl property righs, we must make assumptions reparting etimatedfutrecash fous, whichtypiallyare based on our estimatesandjudgments of expected futueresults. Signifantchanges n estimated cash flows could sgnifcanty affect our esimate ofh flr vlue oou licensesand intellecual property right. Examples ocircumstances whichcould affet our assumptions reparding esimated cash flows fo our 700 Mite Licenses include: 1) unexpecte cotsand egulatory penaltes incurred t meet our obligtiona a 700 MHz icense manager b) FCC actionsthat ouldlimit ourablity t ransferouilize our eensesand ) a dlay in service areas where there s a nee t profect ncurmbent tlevision operatrs from nterference untthey abandon the spectram upon their canverson o digtalopention see em 1 — Risk Factos), The value ofour se with Pesonalized Media culd alsobe affeted by signifcant ongoing tigationproccedings, theoutcome ofwhich we are presenty wnableto predit Since 2000,w and Personlized Media have soughtinjuntivereieand monetary damages against cerain defendant, whichinclude DIRECTV, Inc. forther alleged patent ifingement and unasthorized manaficture, us, sale,ffe o sel, and imporation of products, serices,and syatems that fll witin hescape ofour exclasive licens. Our caims apaint DIRECTV,In. relatingto this patent fiigation were notreleased unde the Glabal Serlement Agreement signed in comection wth th sle ofour dirctbroadeast telvison busines se em 3 — Ligation and Notes 1 and 19 to the Consoliated Financil Sttements) Tntangibeassesalso ncludebrondcast Hcensesalmostal ofwhichhad beendeconsolidated atth Fling Dat. We determined that our broudcastHcenseshad ndefinitlves because, underpasand existing PGC repulations, the lconsescould be routiely renewed with litle cast In accordance wth Satement oFincial Accounting Stindards No 142 "Goodwill and Other Itangible Asset,these inungibleassets withindefiite ives were not ubject o amortization. In connection withan evalution oftherecoverilty ofour iretbroadcast atelite righsand othr iret broadcast stlite asses, we determined thatthecarying amount ofthasset group exceoded theassetgroup‘fir value based on estmated, probablity—weightd, undiscountedcash Ns as oJe 2, 2004 and consequenty recorded an impaismentchargeofanpronimately 5430 milion prirto the dleconsolidation ofthe asset group on June2, 2004, See Discontinued Operations below and Note 3 to the Consolidated FinanciaSatements. Long—ive assts thatae deprecishloramartizable aereviewed foimpairment whenever event orcircumstaces sugpesthecarying amounts may not b recoverble Ourlong—lived assts hatare depreciahl oramanizable primarily consist ofvarious henses,including t 700 Miiz Licenes and th ntlleual ropery lcensed from Personalied Media, and property and equipment Longlived assts hat are not depresisle or amortizable are tesed fr impsirment annuall, or more frequenty ievents or change n cirsumstances indlctethatthaset might be impaired. Our long—ived asststhat a

were notdepreciable or amorible almostall fwhich wer deconsaldaedat June 2 2004,consistd ofbroudeas Teenses and brondeas— related goodwl ¥alation Allowanee for Defered Income Tax Asse, We measure defeed income taxesusing enactedtrtesand us tht we expect will be in efecwhen th underlying asss orlailitessetle. We recrta vluston ilowance agunst ou defered income tax asses balance when it is mae ikly than t that th benefis ofthe nttax asseblance willot be relized, and recorda coresponding charg t income tax expense Htoricll, we have appled a fullvaluatonallowance apanst thedefered income taasstsbalancs hat exist because our pst aperiting loses have not provided us with sffcien evidence that we will reicethebenefit ofthe t ases. Ourailty to recond lesser amount or no amount fora valuation alowance for defered icome t asses will depend on ourabliy o genernte tixable income in the fotre, Thbulanc in thevalustion allowance for defered t assets was appronimately $320 milionand $86 milionat December 31, 2004 and 2003, espectvely. Valuation of Stock Based Compensaion Except wthrespctto paicipationby employees ofthe Debtos, we accountfor stock—based emplayee compensation plans usingth intisic value method under Accounting Prncples Board Opinion No.25 *Accountig for Stack Tssued to Employees" (CAPB 25°anrelied inerpotations, and dicloe,in a table, the pro—forma effec ofusing the fair value method of Sttement ofFinancial Accounting Standards No, 123 "Accountngfo StocBased Compensation® (°FAS 123") We apply thefrvalue method to thpaticipationby emplayees ofhe Debtors in our stclcbased plans. We estmae th flr value ofoptions using a Blick—Schole opionprcing model.Such fur valies could be impactedby changes in our weighed averge assrmptonsfothe riskfreinterest rae,dividend ied, volatlity fctor,andaverage expectd i. The estimatedpro forma effect ousing thfar value method would haveincrease our neloss by5.0 milion, 55. milion and 3.6 milion in 2004,2003 and 2002, respectively In additon to th bove estimates and accounting polies,we believthefollowing accaunting poliies concrring our revenve recognion, program licene rights, and the deconsolidation of Pegasis Satelite Communications are eical o understanding ourresuls ofoperations: Revenves, Principal revenue ofur broadcast elevision business which was deconsoliatedatJan2, 2004, was carned y sllngadverising airime. We recognize hi evenne, net o ageney commissions, when thadvertsing spots wereaied. Program LicenseRighs. Program righs ofourbrondcast elvision business, which was doconslidtedatJine2, 2004, represnted couts incured forthright to browdeas certan eatresand syndicated elovisn programs. Program righs weresatd, on a gros basi, t the lower of amotized cot arestimated reliable valv, The cast ouch program rights and the coresponting labilty wererecorded when th iital program besame availiblefo brodeast under the contact. Generlly, program rights wee amorized over thlife ofhe contrac on astright« lie bsi. Th portion of he coststimatedto be amortzed wthin one year and afe one year wasrefleted in thbalance shecsascurrent and non—currentassetsrespctivly. The gros paymment under these contracts hat were ue wthin one year and afer one year weresimilacly ctassfed as current and non—crrenlailtes,Program rights were evaluated on a quaterly basistodetermine ifrevenses being generted by the programs weresuffcientocoverthe amorization expense oftheprograms. If the reventes wereinsufcien, thasset was doemed to be impaired andthcarying value of heassetwas reduced o henetpresent value o ts fiureexpectedrevenves x

Desonselidtion of Pegasus Stelte Communications. As a resultoftheiJune2, 2004 Chapter11 fling, t opertions of t Debtors became subject tthe jurisdictionofthe Bankruptey Cour and ouraccess o the cash fows ofPgasus Stelte Communications becamerestrictd. Consequenty, under enerally acepted acounting pincipls, thefinncial resus of Pgasus Stelte Communicationsareincluded in our consolidted resuts ony through June2, 2004 Subsequent o une22004, Pegasus Stllte Communicationshas been deconsolidted from our balancesheat, ournepatveinvestment in PegasusSatlite oapproximately 5413 miliois preseted usingthecost method, and we no longer consolidat or record caningo osse rom Pegasus Satelite Communicationsoperationsthat occurafer June 2, 2004. Prior t the deconsoliatin ofPgass Satelte Communications, Pegasas Communications hd invstment n Pegasus Steltes common stock and is 12—3/49 Series mandatoiyredeemableprferedstock (incladig accred dividends) as well as a note receivable from Pegasus Satelit,all owhich were climinte in cansoldtion. Prsuant t the Globa Setlement Agreement, wereeased ourclaims t he note receivable and dividends or othr amount due and wing in respect ofthe mandatary redeemable prefered stak,effective when thsleto DIRECTV, Inc cccured.The Plan ofRearganzation provides that mandatoily redeemable prefered stock wllbe cancelled on theefective date. t December 31, 2004,we auaregated our investment in Pepasus Satlite‘s common stock,as wella thedefemed oss from th relese of ourclaims,inthe 413 million regatve investnent in Pegasus Satelite Since Pegasus Satlfte Communications resutshave been deconsoliatedand we belevetht itisnoproboble that we willb obligate to fund any postpettion loses ofthe Debtors, any adustmentsrefleted in Pegasus Stelite CommunicationsTnancialstatements subsequentto June2, 2004 reatingto threcoverbiity and clusifeationofrecorded asset amount, clasifation of iailtes,oradjustment made for lss contingenciesand othr mattersar noexpectto afecour resuts ofoperations Subsequent o ea—end, on April 15, 2005the Bankmaptcy Courtenteed anorder confiming the Pan ofReorganization.and the Pan of Reorganizaton became efective on May 5,2005,Furthermore, we nolonger expectt haveany nvolverment with the browdcas television business, therthin as may be required pursunt t the Support Services Agreement. We aticipate that ournepative invesment in Pegasus Satelite willbereversed and recognized n our Consoliated Stitement ofOperatonsand Comprehensive Income (Loss) in thesecond quarter 0f2005, and anticpatthat opertions of our broadest eleison business willb reclssfed to dicontiued operaions in this quarte of 2005 Se tem 1 — Proceodings ofPgasas Stelte Under Chapter 11 ohe Bankuptey Gode and Not: 1 o the Consolidted Financal Sutement. As discused in Note1 — FianciaToformationofPegasusStete Communications tothe Consolidated Financial Sttements, we have provided ceain serviesto the Debtrs pursuant o the SuppoSevices Agreementsince Jan2, 2004, We are curentyassessing the appropratleveocoporate and adininisrativesevices equired t support ouopertions fallowing ourinentin o exercise outemiation righunderthe Suppor Services Agreementin hesecond uatero2005 and thetermination ofthSupport Srvices Agreement whichwll oecurnot aterthin 90 days threafr. AllocationofIterst Expenseto Discntinued Operitions. in accordance with Emerging Tsues Tack Forse Issue No87—24, "Allocation of Interesto Discontiued Operations"(°EITF 87—24"), we and Pegasus Satlite Communicatons allocted iteret expense t iscontiued eperations based on a proratecalcalitionof net assesof thdiscontied business o onsolidted net assl, This alloction resultd n iffrentintrest expense amountsfo hediscotinued opentions of Pegasus Communications Corportion and Pogasus Saelite Communicationsductothdifferent amouns ofinterest expenseincrred by each asa resut o he olimintion of inrompany ineret expese. a

Consoliatin ofvaiable inerestenties. Inerpetaion No.46, "Consolidaion ofVaiabl mteres Enites® CEIN 46) was originally issued by he Finncial Accounting Stindards Board (FASB) i Janary 2003 and wasrevsed in December 2003. N 46 clarfes thaplication of AccountingResearch Bulltin No.51, "Consoliated Financial ttement" to cerin entfes in which equiy ivestors do not have the charictersies o a ontrlingFinancial ineest odo nothave suffeient uty atisk forth eniyto finance i ativites without addonal subortinted financial suppor. Effetve March 21, 2004, weadoped theproviions ofFIN 46 and intlly consolidated both PCS Parvers (seeInvestment in Aflate below)and the KB Prime Media Companies(See em 13 — Cerain Relationships and Related Transsctions The consoliatonofKB Prime Media Companiesas a varabl intret entty resuted in a curmlatve efectchange oa 52. milion los or $0.17 cents per sharefor2004, As a reslt ofthedeconsoliation ofPegasus Satlite Communictions, theresus ofoperations ad the balanc shect ofthe KB Prime Metia Companies areno longer included in oufinincialstatementssubsequentto June 2, 2004. Invesment in Afflite, We have a imited parmerstiiterestin Pegasus PCS PartersL—P. (‘Pegasus PCS Parten®), buthave nocontrol overorveice in Pegasis PCS Partreroperations. The genealprtver ofPegasus PCS Pariers is an entty beneficilly controled by Marshall W. Pagon, our Chairman of the Boirdand ChiefExecutive Ofhcer Pegasus PCS Partrescurrentassts consitprivciplly ofenio prfered equty imerets in PegasusCaptal Holdings, LC (*PCH LLC7), and Class B Share oPegasus Communications. PCH LLC ian entty that is alse beneficaly contolld by Marshall W. Ragon. As of December31, 2004 and 2003, PCR LLCs ony assts consised ofdirect and ndiect investments in Clas B shares ofPegasus Communications, an, at December31, 2004,lso an indiectimerest in our Class A shres As previousy discusse, we conslidred Pegasus PCS Paiersefective March 31, 2004 pursuantto FIN 46. Pegasus PCS Parners 140 milion investment in PCH LLC at December31, 2004 and our 120 milionimvestment in PCS Partnersat December 31 2003 areclssfed within equysinc ases ofPCH LLC and Pegasus PCParnerseffetvely conisprinciplly ofdirect and idiretinvesment in theequity ofPegasus Communications. Asa component of equily hese investments are t esd forimpsirment norareany gain orlosse othe relited paterships ecognzed by us.Thefir valie ofPegasis PCS Partersinvestment PCH LLC at December 31,2004 was $13.5 millon. The firvalue ofouinvestmentin Pegasus PCS Parinesat December 31, 2003 was $15.8 milion. Results o Operations "Thefollowing tible prosets theresuls of peritionsfor Pegasus Communications Corportion on a consoliated basis, d includes finncial tesuls of Pegasus Satelite Communications only through June 2,2004: x

your Bndes oecester a1, tin tnousants) 200« acen ces wet revemsces regnaue nroadbant flk s s — regaaue Rroadcine relevision .200 seme ansos corporate and other (prinarily peganue nea mecate) To sa rorat — beondcast. tetevision and other operations in men anveee operating expense reguaue Brondoant sns reguaue mrondoass erevision mc regaaue nea mstate erondcans cerevinion and ouner eperations se man sos Corporate ant deveropment expenses selere anare fratd Gorpornte depreciation and ancrcization wan won selers other eperating expenses mins mm sim rorat cperating expenses s.100 sers tron operssions wo.sas eom ieereeo Interest epence olneo en Glom Anteross incore ara00 se as other noncperatina (erpense) income , net (son aaee revise Hoss betore equity in attiiiaten, dividents on pretersed ateck of aupeidiary incose tmson, Biscontinued operations, and constacive atiece 6t consoiidating versaple snteress enciciee mure use csuees Bpvity in earnings Goseen) o attiatates —— RS wan Olvidends on peeterred stock ot mupeidiary m «m arinn Het lespense) benatic tor incne care an fnn mlew tass betore discontinund cperations and eeutative effect of ecnssiionting vaciaote interest enticies muren ue narm omm tron discontinued cperacions welen genso ousen toss betore cunstative ettect of consoii¢ating veriabte tnteress enticies ue asie amam exmtiative effece of conmsiiuting veriaote Ancerast enticien aazn es 20e (nemo amae mm other conpratensive (tose) income: nreaiized lose on narketable eecorities c & wom reciassiticaston adyusnent tor accomutated veresiized ioen on narietaiie recrics Ancludad in net lomn, inclusive o accumlated incone tax expense of trie in oes ausze es other conprenensive (lose) incone se conprenansive toss seuno sumamw camam "The following tablpresentsafulwelve months ofbroadcasttelevisn inancial esuls in 2004 as refectd in theseporat inanci sutements ofegasus Stelite Communications (se Not 1 to he Consolidted FinancialStremens) as

(in ehounmnde) meeive nonchs endes secenter 31. s00« aoen soee imantites tatevseton net revenves on soune anuses tatevision cperating expenses mm selaes arleze "The following tible presens our toaintrest experse,alocated betwen continuing and discntinued operations in accordance with ENTE 87— m (inthousands) ¥ear endes pecember an, ce« Bees soos roral interest. exponse ima asan sresars teass tncerest expense aitocated to discontinued cperations riase ase, w0 Hncerest expense trom continuing eperations Sre a 20 Comparison ofcantiuing opetion— 2004 vs. 2003 Consoliated orlrevenves in 2004 ftom broadcasand othr operations were S14.2 milion,a derease of517.5 milon, or 55%,fromthe prior year, primarily eflcting the impact of comparingfive monthsofbroadcst elevison netreventesin 2004 vesus twelve months in 2003. Broadeastelevsion neevenves reporte in the separat financilstatements ofPegasusSatlite Communications for the fll tweive months ended December 312004 versus the same periodof2003 icreased 52. milion,or6.5%, pimaly due t revense rom poliica—relted advertsing. On a consoliated bsi,we aso recorded 30.2 milion in netrevenuesin 2004 for Pegasus Broadband, which began commercil epentionin 2004, and reporte $0.2 milion decline in oter corporat evenues vers the priryea, rimanly reflectig a decrease in rentl income from thrd paty enants a our corporte.owned headquartrs. Consolidated operting expensen 2004 for"broudcst eleisin and other operitions* were 516.0 decrease of$15.3 milion, or 49%, from thprioyear, itarily reflctngthmpact of omparig ive months obroadcattlevison operating expenses n 2004 veris welve months in 2002Fothe filltwelve monthsended December21, 2004, broadeast elevison operatig expenses reporid n the separte finicia surements ofPgass Satelit dereased 2.2 milion, or7.2%,from thesame prior erio. lirgelydue toa) 0.3 milion ess programming expense primarilyresulingfrom fover brtr ransations; ) S0.6 milon es intee and news—elted expensesc)a rop of 50:7 milion in deprecation expenseascein equipment became fuly depreciated; and 4) th abserce ofpropramming right asset impaitments in 2004 compared with an expense of$0.7 milionresorded in 2003, The consolidated decrease in broadcast elevsion oporting expense was parialy offiet by 53.8 milion in operting expenses fr Pegasus Broadband in 2004, Pegasus Broadband began commercal opertion in Janvary 2004,and did no incur any operating expenses in 2003 Prio year experses of631 thousand relatedto earlystago explontion ofroadband opportunes wereincluded in corporte and developmentexpense. Coroateand development expenses n 2004 were $10.1 milion,a decrease f59 milion, o 37.0%6. from the pror yea, primariy due to the deconsalidtion of PegasusSatlite Communications. The 2003 perio includes non—Debtor and Pegasus Satlite Communications comorate expensesfor the fillyea, whereas the curret year period only includes non—Debtor and Pegasus Satelite Communications coorate expenses from January 1, 2004 unilheFilingDat and an allocation of 36

corporite expenses atribtabl o non—debtors fom the FilingDate unil December 31, 2004We continue to provide cenain sevice o the Debtos, including management, accouning. rasiry, haman resoures, legal. and payrll srvies, among othrs, ind the Debtors reimburse w atcont forthese services based on a methodology specifc in a Support Sevices Agresment approved bythe Bankptey Cour. The alloction of eorporite expenies atribatable to the Dcbtos from theFilngDate unil December 31 2004 toaled SS2milion asa esltofhe services we provided. We ar currentyassssing the appropite levelocororat and admnistativeservicesrequredto support our operitions in thefutirefollowing our iterionto exerise outemination right under the Suppor Sevices Agreementin the second quarter of 2005,and thtemnination ohe SupportServices Agreement which we expect will ocur not ater than 0 days therefer Oiher operting expensesin 2004 were 523.3 milion,an increasofS10.6 milion,o $3.39%,from the prior year. This ncreas was primarly dueto (1) 53.3 millon ofexpenses in thsecond quartr of2004 relted principlly o etain previously captalize diect ad incremental costs of aequiringou Ka band stelteKeenes, and early stage satelite consricton coss reltedto thse censes (2)the estblisment in the second quater o2004 oa53.0 milion llowanceagainsth performance bond potedfo our87(dearee) wetlongtuds orbta ocaion; G) 53.6 milionof prfesional ees relted to Pegasi Satelitsbankeuptey proceedings S1.9 milion ofwhich was icered the second quarter 072004 prirto the FilingDateand thedeconsolidtion ofPegasus Srelte; 4) 1. milhon onon—Dedtor allocted reentin and severance expenses,pimaiy relted to Pegasus Stelite‘sbankruptey proceadings;($) 5864 hausand o experses in the second quarter of2004 elted to cenin previouly eaptalized direat and inerementl costreated to conain strtegicnitatve;(6)5538 thousand ofirect and ncrementl expense in thsecond quarter f2004 related o the cancelation oa proposed tende offe fr cetain enior dobt secutesand (7) SL4 miion setlementreltedto advisory servies srrundingth sleofPgasus Stelt‘s direct broadcast atelite bsines: Thes ncreases wre parialy offet by leglfosassociated wth patent inftingement liigation that decrased 54. milion to 522 thousad in the tweive months ended December31, 2004 compared o the same period of2003. "Totainterest expense fom contnuingand iscontinged opertions agarcanted $77.9 milin i 2004,a drop of 379.3 milion, or $0.4%, fom 2003 primarly due to h deconsolidtionofPepasus Satlite Communieations,Inerestexpense fom continuing opentions was $3,7 milion in 2004, 50.6 milion ar 13% lowerthan the proryear. See ciscussion of iscontinued opertions below. Dividends on prefered stack ofubsidiny,arising from our 12:3494 Series A mandatary edecmable prfered stock,decreased rom 2008 d o the classifietion ofall dividends arisingafer ouradoption ofFAS 150 on July 1, 200t intrest expense. In th tusive monthsended December 31, 2004,w recoded iereaseo$233.9 milion t the valuaton allowancerecordadagainst the nct defere income taasstbalanc t Dacember 1,2004, The increases tthe valuation allowance were charge o income xesthat offiet income tax benefis provided by netoperatin osss, Th netdefered icome tax asetbalance at December 31, 2004 was $320. milion, afset bya valuation allowance in thsame amount A valuation allwance sufient o reduce the net defered income tasstbalance o rer at December31, 2004 wasnecessry becausit was more likely han not thatthe benefis ofthenet defered income t asse willnot be realized, based on ouhstory ofosses. Th effec of the valuation alowance reduced ouroveral efectiveincome t rate on contiuing apenationsfo thetvelve months ended December31, 2004 t viruallyzero. Pegasus Communicatonsand the Debors have entred in an agreement, approved by theBankeuptey Curt on May5, 2005to ceasefling ta retums on a cnsolidated basisa oJanuary 1, 2004 and to allocare betweenthe Debtorsand the non—Debtos cetain historita atrbutesaising in perids preding the decansolidaion.This agreement alsoprovide thathenon—Debtors willnotake adeduction for the worllesness ofstok n any Dabtoul hedate on which Pegasus Communications nolonge holds any stock in Pegasus Saelie,providethatsuch deduction, ifno aken eaier, may be n any event taken asof December 31, 2005 orany subsoquent date ar

Accordingly s of unuiry 1, 2004 ou finaniasitements no longr refect t ases and Nabiliiesof the Debtos, butinstead relet the excessoftbsis over book basifor ourinvetment n the Doblors Comparison ocontinuingoperations— 2003 vs, 2002 Consoliatd toul revenies in 2003 from broadcast televiionand other operations were 531.6 milion, a drop of$0.8 milon from the prior yea, pimarly eflectinga 2.5% declne in broadeas tlevision revee uc toa derease in revenue from poliica:elatedadvertsing in 2003. Consolidaed operatig expenses in 2003 fo "badest elviion and other perations* were 531.4 milion, down 523 millon or 6.7% fom theprior year.This dectease reflcteda rop in broadcast televiion expenses pimariy due a) a 51.3 milion reducton in film amortiztion, through prio yeaimpaiment chargesb) a 513 millon drop in impaimmentcharges associated Corporateand development expenses in 2003 were S16.0 milion, down 522 milion, or 12.1%,from 2002 primarily due t 519 milion lss developmental—stageactivty n 2003 elted t our Ka band satelte Tcenses Corportedeprecition and amortiztion was $16.0 milion in 2003, a decrease of$22.5 milion, o $89%, from 2002 due t ess amortization on cerain licenes. Oiher perating expensesin 2003 were S12.7 milionup S¢.0 milion,or469. from theprior yeu, primarly due o an increas in compenstion—rlted chrges of36.milion dueto thachievement oerain objectivesreate o cash genertio and signifeanty improving subscriver qulty. Thincrease in incentve compensationand one.timestock awards was prtally ofit by lowerasse writeofls and impuinments which dereased 3.3 milon dueto cetin norecuring expense esorded in 2002 primaiy relted t abandoned developmental prject. To ntres expense from continuing and iscontined opertion aggregited $157.2milion in 2003,an increase of311.8 mition, or . 19%, from 2002 primaiy due to: 1) dividends on our 12:349% preferd stack of569 milion hat were classifed a intrest expens i 2003 due to th stock being classifed as a libilty commencing July1, 2003 upon our adeption on hatdate ofStement of Financial Accounting Standards No150; 2) $18 milion ofinterest on dividends in arears for our12—30% prefeed stock; 3) nc incrementa interet expense of$3.7 milion associaied withour credit agreement, rivcpally due t a ter loan of5300.0 berroved in October 2003 ata weigted average rateof3.0%;and ) net interstof555 milon with espect o ou $100.0milion term loan due 2009 borrowed in August 2003 ata rte of 12.9%; offsetin prtby: 1)inerest of$39 milion wih respectto our 12:1(2% notes die 2005 redeemed in September 2003 thathad oustanding princpal on thedate ofedemption o567.9 milion; 2) a redutionof 527 millon in interestassoiate with interest rate edging financial instruments privaily dueto th exprationofinterest rat swap contract in Murch 2003. 3s

Ater consideringth efect oth alloction of ntret expense to discontinued opertions pursuant o EITF 87—24, interest expenserepoted for continuing openations was $43 milion in 2003, an increase ofS1.3 milion rom 2002. Other non—aperating income in 2003 was 5.1 miliondown $13.. milion ftom 2002Thi delin was primarly ue to lower net gainfom thererement of dbt ($0.5 milion in 2003 compared with S16.6 milion in 2002), artally offitbya nanrecurring 5.3 milion impuirment loss n 2002 reltedto our sole ivestment in the equiy securies ofanother company. "The ierease in equit in carnings oaffintes ftom loss of$4.1 milion in 2002 t earings of 205 thousand in 2003 was primariy due to an assetimpairment recorded by the parinrshi aflatin 2002 hat reduced ourshae the equty ofthpartnership affliateby S4.3 milion. Dividends on prefered stockof subsidiry, rising from our 12 2149 Sries A mandatorly redecmable prfered stock, decreasd fom $17.7 milion in 2002 to 57.milion in 2003 due largly t headaption of FAS 150 n 2003 (andthe resuking classifeation of 869 milion of dividends ater uly 1,2003 as interest xpenso,as welas ess oustandingahares outtanding in 2003 (for example, we recorded 32.5 millon of dividends in 2002 on 773 thousand sharestht wer redesmed in July 2002 and herefredid notaccru any dividends in 2003) We recorded a tix expense of50.2 milln in 2003,consisingentirely ofcurrent se income t expens, versusa bnefit of$21. milion in 202. Affer consideringboh contnuingand iscontnued opertions,nodeferd icome tax beneit o xpense wasrecorded fr 2003 because w were in anetdefere income t asst posiion throuphout the year against whicha fullvaluation allowance was aplied. At December31, 200%, we had a nt deferred income t asseblance of5861 milion, offseby valuation allowance in th same amount,The vauation allowance increased by $4.3 milion durig 2003.This nerease o the valuation allwance complealofic the defered income tax bencfis penerted during theyearand resule in o defered ncome tax expense o beneifo 2003, We beleved that valution alowance sufcient to bring thdefered incomet aste blance t zroat December 312003 wasnecessary becaus, based on our histry oflosss,it was more Hikely thin notthatthbenefis ofth defered income t aset wouldnot be realzed. As discussed above, during 2002, we deermined hat ou sole investmentin th equiy securtes ofanothercompany ha incurred an ther than temporary" declie in market value t zeroand accordingly, charged carving n theamount of3.3 millon for the impnirmentloss realized.In conectionwih therealiation ofthis impairment, w recassifed $3.9 milion, inclusive ofaccumlated income t expense of 5616 thousand, rom other comprehensiv (low) ncome in ecogntion ofthe previousy accumalted unrealized osses. Discontinued Operations Assregate reveniesand pretn los from disconinued operations included in our onsolidtedstatements ofoperations were as follows: tin thowando year rndes Becemver 31, neverses # nsm s mace a em.are protax 1ce« uen asanen cas.on) 30

‘Thsignficant ncrease in the2004 pretx los compared with 2003 primarly wasdueto an appronimate $430 milon impairment charge recorded fordirctbroadcast stelite righsand otherdiect broadcst stliteases, parialy offet bythe deconsolition ofllocated intrest expenseafer June 2, 2004The postive variance in the 2003 pretx losscompared wth 2002, was primariy ue t net gain recognized on the sal ohreebroadeastlevisin sttionin 2003 d thabsece oy resuls o opertion fom business whichceased epertions in 2002. A moredetaled discusion ofthese vaiancsfollws As a resultofthe NRTCS June 2, 2004 purportd emnination otheexclusiverights ofPegasus Satelite Television, o. and cerain ois affiites t distibute DIRECTV servics in specifed rurl terrtorics in thé Unted Sutes effective August31, 2004 (ee Note 1 — Proceotings of Pegasus Satlite Under Chapter 11 ofthe Bankmuptey Code o our Conlidted Financil Sttements), w perforned an analysis oour irect broadeast satelit rightsand therdirect broadcast ateliteaset todetermine whethr any imparment had cccurred. We deternined thatthecarying amount ote aste roup exceeded theasset group‘ estimated,probabiliy—weighted, undiscounted cash flows as oJune 2, 2004Accordingly, Pegasus Stelte Communications reorded an impsirmentcharg oapproximately 430 milon pio to its deconsolidtion fom Pegasus Communications Corpontion.This charge is eportd as part fthe 2004 los from discontiued operationsin our conolidted Arancia sttement. As previouly discussed, weallocated iteresexpens o iscontinaed opertions in accordance with ETTE 87—24 based on a pro rata calcultion ofneasses ofth discontied businessto cansoliatenasses For Pegasus Communications Corponation intrest expns of 5742 millon, 51829 milion, and $142.milion was allocted o discntinued operitions i 2004, 2003 and 2002, respectively.Th drop in 2004 compored with 2003 was primarly dueto the deconsolidation ofPegasusSatelite Communicatins. In 2003, Pegasus Broadcast Tleviioncompleted tsale othree broadcastlovsin tations n o separte ransactons. One sation was locate in Mobile, Alsbama andthother w sations were located in Missisippi, The agpreptesale price was $24.9 milion ocash,and PegasisBroadeast Televisionrecognizeda net gain on th sles of310.3 milion. The aperaionsofthese stations, icludingth net in recognized on thesales, areclassfed asdiscontinued in t sttement ofaperations and comprehensiv loss. Pegasus Satlite Communications eased opertig its Pegasus Expres business n 2002.Accordinly, the operations for this busiess for 2002 were classfedas discontinued in the tatement ofopertionsand comprehensiv oss. Liquidity and CapialResources "The following dicussion o quidiyand captalresources ocuses on our Consoidaed Statement ofCsh Flows. Consequent, he amounts shown fothetwelve months ended Decerber31, 2004 inlude activiyforasas Stelte Communiations only through June2, 2004 Additionally, amount related o cisconinued operations have notben separatly classife in any othe periods presented. We are curenty assessing the approprite levl ofcorporateand adninsrativ servies requied o support our openitionsfollowing ourinent o exercise our terminationighunde the SupportServices Agreement in thsecond quarter of2005 and thermination ofthSuppor Sevices Agreement whichwill occur notlte han 20 diys thereafer. We beleve theulimateresouton ofthe Debros finncial ificulies wllnot affec our abiliy o continee asa goingconcem. Pegasas Communications Cooraton is no dependent on cash ows from the Debtrs, nor do we believetht Pegasus Communicaons Corporation is contingenty labl to eredtos or prefered stockhalders ofthe «

Debtrs. We beieve tht our availileresowrees willbe suffiientto find our operating. imvesting. and inancingrequirementsforalestthe next velve months We had cash and cash equivalets on hand o $292 milion, $35 8 milion and $47.6 milion at December 31,2004, 2003 and 202, respectively. Th changes n cash and cash equivalents, incluting thredution a a resultofthe deconsolidation ofPegssus Sacellte Communications $22.5 milion ocash as oJune 2, 2004 is discussed below n temms ofheamount shown in our Consolidted Sutement of Cash Flows. Net cash used for operatig activitis was S11.2 milion for 2004 compard o net cash provided by openitingactvites of$22.6 milion and $29.7 millonfor 2003 and 2002,respctivel, Theprincipl reasonforthe change between 2004 and 2003 were:a) a eduction o appronimately 102 milion n operating cash ow provided by the diect bradcat steltebusiness 5) the paymentin 2004 of3.6 milion for rerganization items associted with the Chapter 11 bankrupty Aing; )nt cash o$3.0 milon ied in 2004 t colltendizea performance bond postewiththe FCC fr ourKa band satelte licens atthe 87(degrec) west longitude ortitlloction, that wassubsequenty expemsedand ) negatve aperatingcash flow ofappronimately $3 milion i2004 from Pegasus Broadband, which began operationsin 2004; partally offet byc)areductonofapproximately S6S milion n cash intretpaid n 2004; O reduction ofappronimatly 58 milion in 2004 fo cost rlted to DIRECTV hitgation and Pesonalized Media paten infingementItigtion, and ) eduction oapproximately 86 milion in net comporate and development expenses paid due to reibursements by the Deblorsunde the Support Services Agreement. The signifeantreductinsto openating cashlow provided by thediect atlitebusinessand ash intret ayment area iect esofhe Dcbto: Chapter 11 Bunkruptey fling on Jae 2, 2004, anthsubsequent deconslidtion otheoperatingresusfor Pogasus Stete Communications.The primary reason forthchange in cash fows between 2003 and 2002 wasa net ncreae in cash iferstpaid n 2003 of7.8 milion o 119. milion pimarily d to th iming ofnteret payments associted with Pegasus Satlites 11—1/49% notes, fowhich interest was payablesemiannually in Janvary and Jub. These notes were issued in December 2001 with thefist ntrest payment due Jly 2002. Net csh provded by investingactvites was S11.9 milion in 2004, compared with netcashused of$37.2 milion and S186 milion in 2003 and 2003 respectively. The nvesting ativiiesfo2004 pimariy relected cash provided fom n sales ofshoreorm investments o323.4 miion, parialyoffct by:a) 4.4 milonused fordiect broadcaststllitereciver equipment recorded as captal asses; b)54.3 miion used forthJanuary 2004 purchaseofan PCC licensfra brondcast eleviion staton in Gainesvlle, Floridaan c) othr captal expenditures of 53.0 milion Thimveting activities fr 2003 primarily reflt: ) eash usd fonet parchases ofshor.erm invesments of$34.7 mion: 5) ash utlied for direct broadcast satellitreceiverequipmentcapalized of$21.5 milion: and ©)other captal expendtues of$2.8 milion; pataly ofi by ) cash received o S21.6 milion rom sales ofthee brosdcasttelevsion sution. The 2002 peiod primarly consisted of a) eash provide fom netsales ofshoreerm invesmentsofS11.8 milion: ) cash utlized for direct broadcast satelfitereceiver equipment cartalized o$264 milion; and ) othercaptl expenditires of54.6 milon. Capiaexpendituresfor irectbroadeastsatelite eceiver equipment wee signifcantylowe in 2004 compared with 2003 and 2002 becausewe stopped recordng expenditres fr Pegasus Satellte Communications e te Jin2, 2004 deconsolidion Net ash provided byfnancingactiviteswas $15.1 millonand 52.9milion for 2004 and 2003, respecively,compared wth nt cash usedfor financing activites of$84.2 milionfor 2002The pimary financing acivis in the 2004 period were $18.0 milon ofborrowings on a Pesasus Stelte Communicationrevolvingcredit facilty,offic by S2.2 milionofdbtfinancing cots ncurred by Pegasus Steite Communications, purchases of 157,600 sharesafur Class A common stock for S12 «1

wmilion,and $750 thousand ofepayments on term low aciltis.The primaryfinancingactvtsin 2003 were proceeds of5395S miion from new borrowings, pataly offitby expenditresfor: 1) repayment on our term loan ficites of$239.8 millon;2) redemptionofal of the oustandingprincipaloour 12—12% otes due July 2005 of$67.9 milion; 3) debt financing cots ofS17.6 milionincurred wth respectto finincinactiviiesduring the yearand 4) parchases of 702120 shares ofPgasus CommunicaionsClass A common stock for 6S milion. Addionaly, we placed $601 milion as colliteralfoa leter fereditfiiity that was resricted cash to us.The primary expenditiresforfinancing activites for 2002 were: 1) epaymeit ofamaunts outstanding under ou evolving eredit iilty ofS80. millon; 2) aggregiterodemptionsand repurchases prfimed stock f $25.1 million3) agaresat repurchase ooustanding notes of$25.5 milionsand 4) repayment ofother debtof$9.2 milon.The primaryreceipts foivancing activesfo2002 wereprocends of$63.2 milion rom an ierementl term loun fciit. ‘We projctthat our capital ependitiresfor 2005 willb 57.2 milion,inclucingcaptalized subscber acqusiion cossforour Pegasus Broadband busines of 2. milion and investments n propenty and equipment of46 milion: Te fllowing tabledisplays payment for oucontactal obliations oustandingatDecember31, 2004 (n thousand), Itrepresenis contrits and commitments with ntal erms in exeessof one yea,and excludes accounts payableand accred expensesincured during the normal cours ofbusinesthat generlly haveterms ofless thn one yea. Payeente due ty periot easttan Hore than a year 12 veare s veare 5 Yeare Longterm debt, represeting a mortpage payableis shown in thablebased on pricipal amounts outstanding at December31, 2004 Tncluded within purchasecommitnent are $7.8 milionrepresenting a non—cancellkle minmum obligtion under a communicationserv s contactand S1.0 milionfor PegasusBroadband:elted itemet connectviy. Thee is no annual commitnent specfed in the communication servies contract butany unised minimum is due in 200%; consequenty, wextmated annual ryments ofS1 milion based on expected consurptionwith any residualbalance econtedin 2006, We ar negotatingto substantallyreduce thcommunicationservicesprchase commitment through an earier preptyment. We had nocapial ease oblintionsat December 31, 2004 ‘The mortgage paable is secred by ourcorporite headquarirs building in Bla Cymuyd, Pennylvania, and bore iterest t an annualfxed rate0f9.25% through Febniary 25, 200,atwhichpoint thinteresrterese t fixed 8% er annum forth balanc ofthoon‘s emm. Interesi computed on thbasi ofayear consistingof 360 days and theactul numberof days elapied Monthly payments oprincipal and interest arrears werebased on a weny—fiveyear lown amorization schedule through February 25, 2005 and are based on a twenty—yea n amorization schodulethereafter, and al prinipa and unpui ntres is ue and payable on orbeforeFebrary 25, 2010.Theon may be prepaid upon 30 days notice witha repayment peoalty equalt hegreater of 1)1% ofthoutstantingprincipal at t tme of repayment, or b)thpresent valveon the dateofprepaymentofall fiure principal a

and interest paymentsbeginning with hepayment dueon the second month fillowing thpay—offdae,less he current outsanding pricipal balanc of h losn. Ther is no penay for prepayments made withi the last six monthsofth loan. In the event ofa default h iterestrate o unpaid balances becomes 5% highr thin thstted rateof th morigageand we also wauldberesponsible for payment othe lendors enforeement casts plusany prepayment penlty arsing rom accleron of thloan. In cannection with ou wirless broadhand busiess we havefled two pplicationsfor funding under the RUS RuralBroadband Access Loan and Loan Guarantee Program. Thefist aplictonfor S13 milion wasapproved by the RUS in February 2004, bt the execution ofdeintve Joun documenttion was dlayed a a rsul oPegasus Satefte‘sbankrupty proceeding. This s applicaton wasrecenty reapproved and we expect o execute dfiitiveloon docamenation and antcpate ntal fundingin th econd quarter 2005.We r—submited documention for a secondloan application on May 92005 and requestedapproximately 11 milion. RUS loan documents wllhave covenants restricting ourabliy t acces exess ash flows ofegasus Rurl Broadband. Financialintraments hat potntalysubjctus o concenttionsofcreditrisk consist rincipaily ofcashcash equivalent and shor—term investments We maintain ash,cash equivalentand shor.term investments with vaioushigh eredit uie fnancilinsttatons,and apply stringentinvestment puideines regrdingtypes ofsecuriies, erdit rtings, maturiies and concentntion limits n any indvidual securiy. Consequent, we beievethatany reditrigk with respectto cash,cash equivlentand shortferm invesments s imited. At December 31, 204 S41 milionooucash,cash equvalets and shoreerm investments wer concentraed n n invesment portaliconsiting ofmoney marke,highadecomporate bondsand hghrarade tiableauction securiies. A leadingglobalinvestment banking, securs tvacingand brokerige firm managed this imvestmentponfaio As permited by the certiiete ofesignation foour6—112% Series C comverble prefered stock, Pegasus Communications boand oirectors has th discrtioo delar or not to declre any cheduled quarely dividendsfor Seris C.Sinc January 31, 2002thebord ofdirectors has anly delareadividend of100 thousand on thsereswhich was pid withsharesofgisus Communications ClassA common stock. The toral amountofdividends n arrears on Seis C at December 31, 2004 was 534.6 milion, The dividend of32 milion sublect o declaation on Jansary 31, 2005 was not declred.Dividends not declred accmulte i ararsuntl pid. Our ailityto pay divdends on common stock is lmited when thereare prfered dividendarearages At December 31, 2004 we had 5527 milion oagaregat cash,cash equivalents, and short—erm investments. At ts time, we believe that our capitalresources and Kquciyaresufcient to meet our contactal obliations. We may sck tissu new debt andor equty securites, refinince existing prfemed stock outstandin, or secur some other form ffinincing in meeting ourlongerterm needs. Ou financing options and opportuntes willbe impacted by general and industy specifieconomic nd captal market conditions ovewhich we have nocontrol Ourreativly small opeiting business makes us more valnersleto advers economic and industy onditins and limt ouflexblit n planning for, or reating t,changes in ourbusines and thincustrsin which we operte. Our biltyto fund opentionscapal ependitures, preferd stock requirementsand otheractvtis depends on ourablitytogenertecash in the futur. Ourabliy t genertecash depends on the suecess ofour business stategy, prevaling economic condonsregulatoyrsks, compeitive activitesby other parties, equipment strategiestechnologial developments, levels ofbindwidth costsand subscriber aequisiton cot, levels ointeresrtesand financiay busines,and other fictorsthtare beyond ourcontrl. We cannotassure that our business will generatesuicient cash flow from opertions or thataltematvefnancing willbeavalileto us iamountssuffciento fundthe needs previousl specfed. a

As inicted above andpreviously dieloed, we have engaged in transaction fom time t ime that nvolve theparchase, sale, andor exchange oour securites,and may frherdo so in thfture. Such ransactions may be madl in th open market or in privately negotited eranictions and may imvolvecashorthissuance of new securies or securits that we received upon purshase or exchange. The amount and timing osuh tansictions, iany, wll depend on marke condionsand other conside New Accounting Pronouncements In Desember 2004,the FASB isued Sttement ofFinancial Accountng Sandards No. 1S3,"Exchanges ofNonmonetay Assts— An Amentment ofAPB Opinion No. 29" (°FAS 153", effectve fornanmonetry exchanges occuring in fieal peiods beginningaftr Jun 15, 2005, APB Opinion No.29 provided an exception o thebasimeasirement principle (fatr value) foexchangesofsimlar produciveasses. "That exeeption required that some nonmonctry exchanges,although commersially substaniv, berecorded o a caryover bass. FAS 183 eliminates heexception t uivlyefo exchanges ofsimiarproductveasstsandreplacs it with a general exceptonfor exchange transictions that donothave commeria substancethatis, ransactions that are ot expected to reslt n signficant changes in thcash fows of treponing entiy. Thadeption afFAS No. 133 is not expecte o have any impact on ourfinancial candtionorresuts ofopertions. in December 2004theFASB issued SiementofFinancial AccountingSandards No. 23R "Share—Rsed Payment® (°FAS 123R) revision ofFAS 123 thatequires componsation cotrelte o share—based payments o be recognized in he financilsatementsusing fir alue method and eliminates thaltemative t us APB 25% ntrinsivalyemethod ofaccounting that was provided in FAS 123. We will adopt FAS 123R on January 1, 2006 using the modifed version ofprospective apliction, wheruby compenstion expons fr the unvested porion ofpreviously gramed avards an all new avards willbe recognized on orafer the date ofadoptionThe intal adoption ofFAS 123R is expested to have minimalimpoct on our financil condiion and resuls opentionssinc all oour oustanding optionsat December 31, 2004 were full vested primarly asa consequence ofthchange in contrl in 2004,and activity in or employeestack parchaseplan has recenty beenata evel hat wouldnothave a matril mpact (see Noe 18 t he Consoliated Financial Satement). Th faure impact oadaption of EAS 123R cannot be predite atthis ime because t willdepend on leves ofsharebased payments urante ithefature, See Stock Based Compenstion in Not2 t he Consolidted Financial Statement fooucaleuitin of the pro frmadisclosures currenty required by FAS 123; however it mustbenoted that theeare notrepresentativ ofptentl fatureimpacts dueto thdeconsolidaion ofPegasus Stelite Communicationandthignificant chinge in car operaingbsines. In September 2004, the EITF issued Sutement No. 04—08,"The EffectofContingenty Convertble Debt on Dilited Earnings per Share" (ENTF 04080 Contingenty conventble dobtiniamens are genell converible intocomman shresafan isueraftehe common stosk pric has exceaded a predetermined tireshold foa specified perodofime (th"marka price contingency*) ETTE 04—08 requres that shares issuable upon conversin ofcontingenty convertbledebt be inluded icilted arnings per share computation regardessofwhether the marketprice contingency containe ithe dbtinstrment has been met ETTE 04—08 is effctvefoeporing period ending afer Desember 15, 2004 and equires restatement ofprir priod o the extent possible. The adopton ofthisstatement id not havean ffect on our calcultion oeamings per share 1 Apil 2004 he ENTissued Sttement No. 03—06 "Paricipting Securiesand the Two—Class Method Under FASB Stxtement No 128, Earnings Per Stare" (‘EITF 03—067) ETTE 03—06 addreses a number ofquestonsreparting thcomputation ofearnings pe share by companis that have issied securts othethan common stock that contrctually entl the holderto participte i dividends and a

earnings of the company wher,and i it declres dividends on is common stock. The ssue aso provides frther guidance in applying the wo— class method ofclculting earvings pe shre, lrifying what constiatesa paicipatingsecunty and how to apalth two—class method of computing carvings pershare once itisdetermined ht a securty is panicipating, inclucinghow t lloate undisrbuted earnings o sucha securiy. ENTE 0}—0 i ffective frfsal periods beginning after March 31, 2004, The adapton ofthissatement i not have any effct on ourcaleaition of arnings ershare on 74. ouaNTTraTIve AMo quaLrrativ oisc.osures aBour mariker Riskc AtDecember31, 2004, our financialinstriments subject o matket isk were cash equivalens,shottorm investment and a mortgage payable on our comrorate headquartrs. Thesefnancial nsrument had limted exposur o market isk associted with ntrest rtes. As ofDecember 31, 2004, ourcash andcash equivalents of$29.2 milion consited ofhighy lquidinvesments orchased with inital matrites ofthree months o less. Duc t thir shortmaturtes,wedo not beievethere i signficant market is related o ntrest ues for our eash equivalents, and th carying valse ofour cash and eash equivalent approximates fir vlve. At December 31,2004, urshorerm investments witha carring and fair valve of$2. millon incladed avction rate securitesand coporatebonds with inial maturie i excess ofthree months, and wereavailileto find curentopertions.We believethat ourshorttern investmentsar eadly converted in cash with minimal marke isk, We maintain our cash,cash equivalents, and short—term investments with various high redit qualifed financial instruments, and apply stringent investment uideines eparding typesof securives, ereitaings, maturites and concentration limis in any individuasecuriy "The mortgage on our corporat headquarien, witha carying value of58.3 milionatDecember 31, 2004 and an approximate fr value o$8.7 millo, bers interest ata fied annualrate of9.25% though Februry 2005, an 89% per annum thereafr. The mortpage matures n Febriary 2010 Scheduledfutre maturtes othe mortgage ar: $157 thousand in 2005; 517 thousand in 2006 192 thousand in 2007; 5206 thousand in 2008; 5226 thousand n 200%; and 57.3 milion in 2010Because we curreny have no outstanding floatingrate debt a hypothetical market interestrtechange of13% wouldhave no effct on aurresuls ofoperations. However, change n market iteest ies would impact the fair value oour mortgage payabl. Th fir valyeofthe morigage was estimated usinga cah flow valuation mode and available market datafor blitions wthsimilr maturiy dtes. Prioe t June 22004, we werealso exposed t inferest ie riskon llother long—trm debt, prefere stack with specifed redemption daes and interesrtederivatves,all ofwhichwere financil nsruments othe Dbtors. Theseare cassfedas habllitessubjectto compromise on the Debtobalance sheas,havebeen decansolidaed fom our balance sheet as ofune 2, 2004 and arincluded wthin our nopativeinvestment in Pegasis Stelite oapproximately 413 milion t Decermber31, 2004, As ofJun2 2004, we no langerwere expased to markeriskforthese instuments sncetherulimate value became dependent on the outcome ofthe Chapte11 proceedings. See em 1 « Procendings of Pegasus Satelite under Chapte 11 ofthe Bankmuptey Code. rrem srnaNciaL statemENts anp suppuemENTary bara ‘Th information required by thiitem i setfth begining on page F—1. as

rmem o. chaNcrsin anb DisaoreemENTs wrH AccountaNTs oACCOUNTING aND FINANCIAL bisc.osure As previouly ciscloed in our Curent Report on Form 8K dted October25,200¢ and fled with the SEC on October 29,2004, and amended by our Current Report on Form $—1/A fled withthe SEC on Janvary3,2006, ouformer independentregstered public accountingfm, PricewaterhouseCoopersLLP,reigned effetve December 29,2004, Furthermore, as previoulydisclosed in our Current Report on Fom & diated and Ailed with he SEC on Febniary 14,2008, the audit commitof he boartofirectrsofegasus Communications engaged he im ofMarcum & Kliegman, LLP on Febmary14,2005 a he new independentregitered accountnt o auit our fnancial sttements as oand for the yearended December 31, 2004 in connection with thischange i accountan, there were no dsagreements o anyreporible event requirig dsclosure pursuanto em 304 (bof Repulaion S—K. en sa. controts anp procepures 15(e)hatae deigned to ensure that information equired o b disclosd n repots that w filor submitunder the Sccurtes Exchunge Act of 1934 i ecarded,processd, surmarized, and reported wthi thetme periodspcifed in the Sccurtes and Exchange Commissionsrles and forms,and that uch informationi accumalted and communicate o oumanagementincluding our Chie"Executive Oficerand Cher Financil Oeas appropite,to allow timely deisions eparting thequied cisclosures, In designing and valuating thediscosure controls and procedures, wrecanize that any controls and procedures, nmatter how well deigned and operated, can provide only reasonable asurance ofachievingth desired contol objctives. We caried outan evluaion, under th supervision and wih the partiipation ofmanagement, includingour ChiefExeeutve Offcer and Chief Financial Ofcer, of th effectivenes of thedesign and opertion ofour discloare controls and rocedures as ofDecember 31 2004.As discussed more flly in Managements AnnualReport onInternal Control Over Financial Reportingsetoutbelow, management identifeda materil weaknes relatingtoth ffecivenes ofinformation echnology sytems in plae to ensure contrlledbackup ofdata is occurring and recovery capneiy is approprite, and that he related backup and ecovery syatems ae bing manitored and teste. Based olely on the forepoing facsand circumstances, our Chif Exeeutve Offcer and ChiefFinncial Ofieereach concluded that ourdiclosire controls and procedures werenotefectiveas ofDecember 31, 2004 As previouly repored in or Form 10. forth quaterly perid ended September 20, 2004, weidentfed materal weaknessesearer in 2004 in ouidentiieation and aplication ofaccouning principles and poliies eled o our secountngforincome es and equity method investment. These material weaknesses contibuted to retatements ofur Form 10—X fothe year ended December 312003, ind our Forms 10. fothe quarters ended March 31, 2004 and June 30,2004, We took steps to ideny, reciy, and provent therecurrence ofthe ireumstances that resuled in the dfermiation to restte prirprio fnancial satement. As pat ofhi underaking. we incorporated additionl levels ofreview ofth apliction otherelated accountingpricines, and ncreased emphass on reviewing aplicble accounting Htraturerelatingto thappliction ofhe related accountig princiles, in addion, we hired a comorte controlle and we engagod a publi accountingfim toconsulwithregirding our accounting for income taxes. Atthis time, we believe these enhancement to our ystem of intemal contols and our disclosire conraland procedures wereadequateto provide reasonableassurance that the contrl bjective elaed to these weaknesses would be met. (¥) Managements Anmal Reporton Internal Contrl Over Financial Reporing. Our managementis responsblefor sublishing and maintaining effective intemal control over francial 1s

recasus communications corroraTon NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. Impaimens As discused in Note 3,w recorded an im irment chargeof $4256 milion, elated t ourdietbroudcaststlite ight and other direct broadcassatelit assels piot decons on ofthunderyingasse group on June 2, 2004This mpaitmentcharge was classifed withn iscontined opentions in 2004. Included within"other opertingexpenses" arewitoffsandimpsiments losss oflongJived asstsof 37.3 milion, 0.7 milion and $4.0 millon in 2004, 2003 and 2002 espectvely. The 2004 balance primariy cnsiss f:a 53.3 milion witeoff pincipaly comprised ofal remaitingKa band fcensedevelopment osta 53. milionchage to fuly reserve our calteralfor the Ka band leense prformance bond: and 50.9 milionexpenserelatedto writ—off ofcaptalined coutsfor otherstategic intatives.The Ka rlted charges resulted om uncensin futur ecoverability ofhe underlying assets dto ourexi fom thesatlit leviion business The 2002amount primariy relted the wit—ffs ofS2.1 milon of ost for inangibleasst and 51. milion forcetin settoboxes that hid no fourebeneit o us. Included within "propramming expense"ae 5670 housand and 52.0 milion ofimpniment chargesfor 2003 and 2002, espectively, associaed with programmingrighs ofourbroadeas televisin operaons.The far values ofh afected proprammingrighs and te impuimment and amount ofth esses wer based upon thpresent valye ofh expectd cash flows assocated with threlted programmingagreementsthat provide theright. PDring 2002, Pegasus Broadcat Teleisondtermined that ts sle invesment i theequiy securites ofanother company haincured an other than temporry deline in marketvalue to zer. Accortingly, Pegasus BrowdeastTelevision wrote down thecarying amount ofits investmentto zero and charged "othernon—aperting exponse" in thamount of 3.3 millonfor th impairment loss realzed. In connection wit th realization of hiimpaitment, Pegasi Broadcast Teleisonreclassied 53.9 millon, ncluive ofccumalte income x expense of 5616 thousind, from other comprehensive (low) ncomei recaqniion ofthpreviousty accumalated unrealized loies. 14. ncome Taxes Pollowingis summary o ncome taxes for 2004, 2003 and 2002 (in thousonds): state ant 2ocat = current (epense) benetiz f staze — deterred: ¥et cperszing tors carryforvarde eetinguisimens torai staze detersed .. rederas — deterreds net cperscieg To carrytommerte . Extinguisizent of ocner = noral. tederat dererze Het (expense) benetis attribuzable to continutng eperation 5 feons ao Co mos nesne taxes assooiated vith other demm Beterred benetiv tor discontinued operations % > inas peterzed tax ansoctated vith rectassitication of rechized tose on markeranle epvity . — eie Bozal incone tax Cexpense) benetic recorded .. ras

recasus comunications corroration NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continoed) "The amountsshown for 2003 and 2002 reflectceinreclasifeationsresulting from inclding ourdiectbroadeastlevision business within discantined apenations(tee Note 3) Pegasus Communieationsand the Debtorshave enterd nto an aureement on Aprl 14,2008, approved by order ofthe Bankruptey Court entered Mzy 5 2008 (unaudited)toceas lingtax reums on a consolidted basis s ofJanuary 1, 2004 and to allocat between the Debtors and the non—Dcbtorscertain historic x atibtes(primarily rlated to net operaingloss caryfomsands) arsing in periodsprecedingthe deconsolition.This agreement also provids thatth non—Debtors willnot akea deducionfo the worklessnes of stocin any Dobtor unit thedate on which Pegasus Communications no longer holdsany stock in Pegasus Satelit, rovided thatsuch deduction, if not aken earer, may b i any eventtaken as ofDecember21, 2005 oanysubsequent dte. Accordingly, as ofJanuary1,2004 oufinancial sttements no longerrelct tm assets and liilits ofthe Debtos, ut instead refeet the exces of x basis over book basifor ourinvestmentin the Debiors. Pollowing were thedefered incometa asst and Kablites t December 31, 2004 and 2003 (inthousands: 00e sees peteried cax ansecs: Gorrent assece ane rssoiize s i0 06 t9f tow cartytonante . .cc00.0000 m amie Ercess of tax senie over hobesis Xnvestnens in resaase guceitize ansuses Markecaile equity eecuritien . 1000000000 mam Appiicante igh iseld Diocount Coiization roce mm Anorcisabie incanoinne ascere invessaons in reguoue res rasssere neso notes excranges aizze Cupitattzed starccup expenses . . tnpuized aasece — orher cclccll. 4. wee soon «n ie . se anvare peterred cax doabitities Brcers of beok bas over cax bastes nmortisabie incansinie aneecs —— cmem Broperty ant exnizmenc ... can aam sesid en > fien soun diabiittien ccccccccccccccs s cu.en es deterzed tax assete Giabiaizien) snn ¥aivation attonance ... Gisimo oz geterzed tax batance .. ras

Extinicaa cermcation or t citer rinanciat orricer ruRsuANT To 18 US.C. SECTION 1350, AS ADOPTED PURSUANT To SECTION s0s oF THE SARBANES—OXLEY Ac or 20e in connection withth annual report on Form 104 ofrgasus Communications Corpontion (the "Company)fr thyear ended December 31, 2004 asfiled with he Securts and Exchange Cormission on the datehereoh "Repor) 1, Joseph W. Poole, .. Chef Financial Officer ofthe Company,hereby certfes psuantto 18 U.S.C. Setion 1350as adopted pursuantto Section 906 ohe Sitbines—Oiley Act of 2002, that to my knowledg: 1) theReport fully complies wth thequirement ofSetion 13(s)or 15(4ofthe Seurites Exchange Act of1938; and 2) th information contaied in th Report fity presentin allmateialrespcts thefinncial condition and resuls oopertions ofthe Company. A signed original o hiwrtensiatement required by Section 906 has been provided to the Company and willbe rtained by the Company and frmished t he Secures and Exchange Commission or ts staffuponreguest puceds may 28, 2005 Jnt sonepn u. rootes, . doreph i. renier, or Benior vice provident and chiet rinancial otticer End of Filing © 2005 | EDGAR Online, Inc.


Document Created: 2005-09-01 11:54:53
Document Modified: 2005-09-01 11:54:53
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