<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _________ to _________
Commission file number 1-11588
Saga Communications, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 38-3042953
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
73 Kercheval Avenue
Grosse Pointe Farms, Michigan 48236
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(Address of principal executive offices) (Zip Code)
(313) 886-7070
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(Registrant's telephone number, including area code)
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 .
----- -----
The number of shares of the registrant's Class A Common Stock, $.01 par value,
and Class B Common Stock, $.01 par value, outstanding as of October 31, 1996 was
7,088,426 and 966,808, respectively.
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INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- September 30,
1996 and December 31, 1995 3
Condensed consolidated statements of income --Three
and nine months ended September 30, 1996 and 1995 5
Condensed consolidated statements of cash flows -
Nine months ended September 30, 1996 and 1995 6
Notes to unaudited condensed consolidated financial
statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
Saga Communications, Inc.
<TABLE>
Condensed Consolidated Balance Sheets
(dollars in thousands)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 3,493 $ 3,221
Accounts receivable, net 10,452 8,888
Prepaid expenses 1,014 980
Other current assets 1,066 1,053
Lease receivable 650 --
-------------------------
Total current assets 16,675 14,142
Property and equipment 62,293 56,553
Less accumulated depreciation (32,511) (30,150)
-------------------------
Net property and equipment 29,782 26,403
Other assets:
Excess of cost over fair value of
assets acquired, net 20,211 20,704
Broadcast licenses, net 21,078 8,814
Other intangibles, net 7,332 4,881
-------------------------
Total other assets 48,621 34,399
-------------------------
$ 95,078 $ 74,944
=========================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
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Saga Communications, Inc.
<TABLE>
Condensed Consolidated Balance Sheets
(dollars in thousands)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,353 $ 903
Other current liabilities 4,492 4,520
Current portion of long-term debt 735 5,137
-------------------------
Total current liabilities 6,580 10,560
Deferred income taxes 3,190 2,687
Long-term debt 53,044 32,131
Broadcast program rights 512 684
STOCKHOLDERS' EQUITY:
Common stock 81 64
Additional paid-in capital 35,864 35,526
Note receivable from principal stockholder (773) (748)
Accumulated deficit (3,420) (5,960)
-------------------------
Total stockholders' equity 31,752 28,882
-------------------------
$ 95,078 $ 74,944
=========================
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to unaudited condensed consolidated financial statements.
4
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Saga Communications, Inc.
<TABLE>
Condensed Consolidated Statements of Income
(in thousands except per share data)
Unaudited
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------
1996 1995 1996 1995
-----------------------------------------------
<S> <C> <C> <C> <C>
Net operating revenue $15,021 $12,839 $39,979 $37,146
Operating expenses:
Programming and technical 3,583 2,894 9,399 8,335
Selling 3,750 3,236 10,766 10,592
Station general and administrative 2,223 1,717 6,007 5,394
Corporate general and administrative 994 736 2,634 2,002
Depreciation and amortization 1,450 1,653 4,022 4,926
-----------------------------------------------
12,000 10,236 32,828 31,249
-----------------------------------------------
Operating profit 3,021 2,603 7,151 5,897
Other expenses:
Interest expense 1,154 880 2,667 2,571
Loss (gain) on the sale of assets (3) (217) 17 (217)
-----------------------------------------------
Income before income tax 1,870 1,940 4,467 3,543
Income tax provision 800 805 1,910 1,570
-----------------------------------------------
Net income $ 1,070 $ 1,135 $ 2,557 $ 1,973
===============================================
Net earnings per common and equivalent
share (primary and fully diluted) $ .13 $ .14 $ .31 $ .24
===============================================
Shares used in computing earnings
per share (Note 3) 8,207 8,137 8,187 8,121
===============================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
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Saga Communications, Inc.
<TABLE>
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
Unaudited
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash provided by operating activities $ 5,968 $ 6,940
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,285) (1,905)
Increase in intangibles and other assets (4,118) (24)
Proceeds from sale of property and equipment 20 20
Acquisition of stations (16,982) --
------------------------
Net cash used in investing activities (22,365) (1,909)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 19,384 --
Payments on long-term debt (2,874) (3,491)
Net proceeds from exercise of stock options 159 41
Net proceeds (costs) from common stock offering -- (122)
------------------------
Net cash provided by (used in) financing activities 16,669 (3,572)
------------------------
Net increase in cash and temporary investments 272 1,459
Cash and temporary investments, beginning of period 3,221 2,295
------------------------
Cash and temporary investments, end of period $ 3,493 $ 3,754
========================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Saga
Communications, Inc. Annual Report (Form 10-K) for the year ended December 31,
1995.
2. INCOME TAXES
The Company's effective tax rate is higher than the statutory rate as a result
of certain non-deductible depreciation and amortization expenses and the
inclusion of state taxes in the income tax amount.
3. STOCK SPLIT
On April 30, 1996 the Company consummated a five-for-four split of its Class A
and Class B Common Stock, resulting in additional shares being issued of
1,417,263 and 193,361, respectively, for holders of record on April 17, 1996.
All share and per share information in the accompanying financial statements has
been restated retroactively to reflect the split.
4. COMMITMENTS
On June 17, 1996 the Company entered into an agreement (the "Credit Agreement")
with The First National Bank of Boston; The Bank of New York; Fleet Bank, N.A.;
Mellon Bank, N.A.; and Union Bank of California, N.A. (collectively, the
"Lenders"), to refinance the Company's financing facilities with two facilities
(the "Facilities"): a $54,000,000 senior secured term loan (the "Term Loan") and
a $56,000,000 senior secured reducing revolving/term loan facility (the
"Revolving Loan"). The Facilities mature June 30, 2003. The Company's
indebtedness under the Facilities is secured by a first priority lien on
substantially all the assets of the Company and its subsidiaries, by a pledge of
its subsidiaries' stock and by a guarantee of its subsidiaries.
The Term Loan was used to refinance the Company's existing bank indebtedness,
and to principally finance the acquisition of WNAX AM/FM and WPOR AM/FM (see
note 5). The Revolving Loan has a total commitment of $56,000,000, of which
$51,000,000 may be used for permitted acquisitions and related transaction
expenses, and $5,000,000 may be used
7
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
4. COMMITMENTS (CONTINUED)
for working capital needs and stand-by letters of credit. On June 30, 1998 the
Revolving Loan will convert to a five year term loan. The outstanding amount of
the Term Loan is required to be reduced quarterly in amounts ranging from 2.5%
to 5% of the initial commitment and the outstanding amount of the Revolving Loan
will be required to be reduced quarterly commencing in 1997 in amounts ranging
from 1.25% to 5% of the initial commitment. In addition, commencing March 30,
1997, the Facilities will be further reduced by specified percentages of Excess
Cash Flow (as defined in the Credit Agreement) based on leverage ratios.
Interest rates under the Facilities are payable, at the Company's option, at
alternatives equal to LIBOR plus 1.125% to 1.75% or the prime rate plus 0% to
.5%. The spread over LIBOR and the prime rate vary from time to time, depending
upon the Company's financial leverage. The Company also pays quarterly
commitment fees equal to 1/2% per annum on the aggregate unused portion of the
Revolving Loan.
The Credit Agreement contains a number of financial covenants which, among other
things, require the Company to maintain specified financial ratios and impose
certain limitations on the Company with respect to investments, additional
indebtedness, dividends, distributions, guarantees, liens and encumbrances.
On July 1, 1996 the Company entered into an agreement to purchase two AM and two
FM radio stations in Springfield, Illinois for approximately $6,000,000. The
transaction is subject to the final approval of the Federal Communications
Commission. The Company began operating the radio stations under the terms of a
local market agreement on July 1, 1996, which will remain in effect until such
time as the Company concludes its pending acquisition of the stations.
On July 31, 1996 the Company signed a letter of intent to purchase an FM radio
station in Des Moines, Iowa for approximately $2,700,000. The transaction is
subject to the completion of a definitive purchase agreement and the final
approval of the Federal Communications Commission. The Company began operating
the radio station under the terms of a local market agreement on August 1, 1996,
which will remain in effect until such time as the Company concludes its pending
acquisition of the station.
On August 29, 1996 the Company signed a letter of intent to purchase an FM radio
station in Des Moines, Iowa for approximately $3,200,000. The transaction is
subject to the completion of a definitive purchase agreement and the final
approval of the Federal Communications Commission.
8
<PAGE> 9
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
5. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
STATION ACQUISITIONS
The Company acquired two radio stations (WNAX AM/FM) in Yankton, South Dakota on
June 11, 1996 and two radio stations (WPOR AM/FM) in Portland, Maine on June 18,
1996. The purchase price of these acquisitions was approximately $7,000,000 and
$10,000,000, respectively. The acquisitions have been accounted for as
purchases, and accordingly, the total costs were allocated to the acquired
assets and assumed liabilities based on their estimated fair values as of the
acquisition dates. The excess of consideration paid over the estimated fair
value of net assets acquired has been recorded as broadcast licenses. The
condensed consolidated statement of income includes the operating results of the
acquired businesses from their respective dates of acquisition.
<TABLE>
The following unaudited pro forma results of operations of the Company for the
nine months ended September 30, 1996 and 1995 assume the acquisitions occurred
as of the beginning of the respective periods, after giving effect to certain
adjustments, including depreciation, amortization of intangible assets,
increased interest expense on acquisition debt and related income tax effects.
The pro forma results have been prepared for comparative purposes only and do
not purport to indicate the results of operations which would actually have
occurred had the combination been in effect on the dates indicated, or which may
occur in the future.
<CAPTION>
Nine Months Ended
September 30,
1996 1995
----------------------
<S> <C> <C>
Pro Forma Results of Operations for Acquisitions
(dollars in thousands except per share data):
Net operating revenue $42,519 $41,175
Net income $ 2,601 $ 2,046
======================
Net income per common and equivalent
share (primary and fully diluted) $.32 $.25
======================
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
- ---------------------
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto of Saga
Communications, Inc. and its subsidiaries contained elsewhere herein.
In June, 1996 the Company acquired the assets of two radio stations in
Yankton, South Dakota and two radio stations in Portland, Maine. In July, 1996
the Company entered into an agreement to purchase four radio stations in
Springfield, Illinois, and signed a letter of intent to purchase an FM radio
station in Des Moines, Iowa. In August, 1996 the Company signed a letter of
intent to purchase another FM radio station in Des Moines, Iowa.
GENERAL
The Company's financial results are dependent on a number of factors, the
most significant of which is the ability to generate advertising revenue through
rates charged to advertisers. The rates a station is able to charge are, in
large part, based on a station's ability to attract audiences in the demographic
groups targeted by its advertisers, as measured principally by quarterly reports
by independent national rating services. Various other factors affect the rate a
station can charge, including the general strength of the local and national
economies, population growth, ability to provide popular programming, local
market competition, relative efficiency of radio and/or broadcasting compared to
other advertising media, signal strength and government regulation and policies.
The primary operating expenses involved in owning and operating radio stations
are employee salaries, depreciation and amortization, programming expenses,
solicitation of advertising, and promotion expenses. In addition to these
expenses, owning and operating television stations involve the cost of acquiring
certain syndicated programming.
During the years ended December 31, 1995 and 1994 and the nine months
ended September 30, 1996 and 1995, none of the Company's operating locations
represented more than 15% of the Company's station operating income (i.e., net
operating revenue less station operating expense), other than the Columbus and
Milwaukee stations. For the years ended December 31, 1995 and 1994, Columbus
accounted for an aggregate of 30% and 32%, respectively, and Milwaukee accounted
for an aggregate of 22% of the Company's station operating income. For the nine
months ended September 30, 1996 and 1995, Columbus accounted for an aggregate of
22% and 29%, respectively, and Milwaukee accounted for an aggregate of 25% and
22%, respectively, of the Company's station operating income. While radio
revenues in each of the Columbus and Milwaukee markets have remained relatively
stable historically, an adverse change in these radio markets or these
location's relative market position could have a significant impact on the
Company's operating results as a whole. The Company has recently experienced a
revenue decrease at the Columbus, Ohio stations, the effect of which is
discussed below.
10
<PAGE> 11
Because audience ratings in the local market are crucial to a station's
financial success, the Company endeavors to develop strong listener/viewer
loyalty. The Company believes that the diversification of formats on its radio
stations helps the Company to insulate itself from the effects of changes in
musical tastes of the public on any particular format.
The number of advertisements that can be broadcast without jeopardizing
listening/viewing levels (and the resulting ratings) is limited in part by the
format of a particular radio station and, in the case of television stations, by
restrictions imposed by the terms of certain network affiliation and syndication
agreements. The Company's stations strive to maximize revenue by constantly
managing the number of commercials available for sale and adjusting prices based
upon local market conditions. In the broadcasting industry, stations often
utilize trade (or barter) agreements to generate advertising time sales in
exchange for goods or services used or useful in the operation of the stations,
instead of for cash. The Company minimizes its use of trade agreements and
historically has sold over 95% of its advertising time for cash.
Most advertising contracts are short-term, and generally run only for a
few weeks. Most of the Company's revenue is generated from local advertising,
which is sold primarily by each station's sales staff. For the nine months ended
September 30, 1996 and 1995, approximately 83% of the Company's gross revenue
was from local advertising. To generate national advertising sales, the Company
engages an independent advertising sales representative that specializes in
national sales for each of its stations.
The Company's revenue varies throughout the year. Advertising
expenditures, the Company's primary source of revenue, generally have been
lowest during the winter months which comprise the first quarter.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
For the three months ended September 30, 1996, the Company's net operating
revenue was $15,021,000 compared with $12,839,000 for the three months ended
September 30, 1995, an increase of $2,182,000 or 17%. Approximately $1,758,000
(or 81%) of the increase was attributable to revenue generated by stations which
were not owned or operated by the Company for the comparable period in 1995. The
balance of the increase in net operating revenue represented a 3.3% increase in
stations owned and operated by the Company for the entire comparable period,
primarily as a result of increased advertising rates.
The net increase in comparable station net operating revenue was
reflective of an overall increase of 5.1% or $538,000 in the Company's markets
excluding Columbus, Ohio. The overall increase in markets other than Columbus,
Ohio, was offset by a $114,000, or 4.8%, decrease in net operating revenue in
the Columbus market, representing an improvement over the 12.7% decrease in net
operating revenue experienced in the Columbus market during the three months
ended June 30, 1996, when compared to the comparable period in 1995. The
decreases in revenue in the Columbus stations were primarily the result of
aggressive competitive pricing efforts by certain competing stations within the
Columbus market. The Company has no reason to believe the negative competitive
pricing pressure in this market to be other than temporary in nature.
11
<PAGE> 12
Station operating expense (i.e., programming, technical, selling, and
station general and administrative expenses) increased by $1,709,000, or 22%, to
$9,556,000 for the three months ended September 30, 1996, compared with
$7,847,000 for the three months ended September 30, 1995. Of the total increase,
approximately $1,501,000 (or 88%) was attributable to the operation of stations
which were not owned or operated by the Company for the comparable period in
1995. The remainder of the Company's markets experienced an overall increase in
station operating expense of $208,000 or 3% for the three months ended September
30, 1996 compared to the three months ended September 30, 1995 on a comparable
station basis.
Operating profit for the three months ended September 30, 1996 was
$3,021,000, compared to $2,603,000 for the three months ended September 30,
1995, an increase of $418,000 or 16%. The increase was primarily the result of
the $2,182,000 increase in net operating revenue, offset by the $1,709,000
increase in station operating expense, a $203,000 decrease in depreciation and
amortization, and a $258,000 increase in corporate general and administrative
charges. The decrease in depreciation and amortization charges was the result of
certain assets in the Company's New England markets becoming fully depreciated.
The increase in corporate general and administrative charges included
approximately $215,000 of non-recurring charges associated with certain employee
benefit related matters.
The Company generated net income in the amount of approximately $1,070,000
($0.13 per share) during the three months ended September 30, 1996, compared
with net income of $1,135,000 ($0.14 per share) for the three months ended
September 30, 1995, a decrease of approximately $65,000 or 5.7%. The decrease in
net income was principally the result of the $418,000 improvement in operating
profit offset by an increase in interest expense of $274,000 and a $214,000
decrease in gain on the sale of assets. The increase in interest expense is due
primarily to an increase in borrowed funds to finance the Company's 1996
acquisitions. The gain on the sale of assets occurring during the three months
ended September 30, 1995 was primarily due to the sale of unused land in the
Company's Springfield, Massachusetts market.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
For the nine months ended September 30, 1996, the Company's net operating
revenue was $39,979,000 compared with $37,146,000 for the nine months ended
September 30, 1995, an increase of $2,833,000 or 7.6%. Approximately $1,963,000
(or 69%)of the increase was attributable to revenue generated by stations which
were not owned or operated by the Company for the comparable period in 1995. The
balance of the increase in net operating revenue represented a 2.3% increase in
stations owned and operated by the Company for the entire comparable period,
primarily as a result of increased advertising rates.
12
<PAGE> 13
The net increase in comparable station net operating revenue was
reflective of an overall increase of 5.4% or $1,637,000 in the Company's markets
excluding Columbus, Ohio. The overall increase in markets other than Columbus,
Ohio, was offset by a $767,000, or 10.8%, decrease in net operating revenue in
the Columbus market, which represents an improvement over the 14% decrease in
net operating revenue experienced in the Columbus market during the six months
ended June 30, 1996, when compared to the comparable period in 1995. The
decreases in revenue in the Columbus stations were primarily the result of
aggressive competitive pricing efforts by certain competing stations within the
Columbus market. The Company has no reason to believe the negative competitive
pricing pressure in this market to be other than temporary in nature.
Station operating expense (i.e., programming, technical, selling, and
station general and administrative expenses) increased by $1,851,000, or 7.6%,
to $26,172,000 for the nine months ended September 30, 1996, compared with
$24,321,000 for the nine months ended September 30, 1995. Of the total increase,
approximately $1,658,000 (or 90%) was attributable to the operation of stations
which were not owned or operated by the Company for the comparable period in
1995. The remainder of the Company's markets experienced an overall increase in
station operating expense of $193,000 or .8% for the nine months ended September
30, 1996 compared to the nine months ended September 30, 1995 on a comparable
station basis.
Operating profit for the nine months ended September 30, 1996 was
$7,151,000, compared to $5,897,000 for the nine months ended September 30, 1995,
an increase of $1,254,000 or 21%. The improvement was primarily the result of
the $2,833,000 increase in net operating revenue, offset by the $1,851,000
increase in station operating expense, a $904,000 decrease in depreciation and
amortization, a $632,000 increase in corporate general and administrative
charges. The decrease in depreciation and amortization charges was the result of
certain assets in the Company's New England markets becoming fully depreciated.
The increase in corporate general and administrative charges primarily relates
to certain employee benefit related matters.
The Company generated net income in the amount of approximately $2,557,000
($0.31 per share) during the nine months ended September 30, 1996, compared with
net income of $1,973,000 ($0.24 per share) for the nine months ended September
30, 1995, an increase of approximately $584,000 or 30%. The increase in net
income was principally the result of the $1,254,000 improvement in operating
profit offset by an increase in interest expense of $96,000, a $234,000 decrease
in gain on the sale of assets, and a $340,000 increase in income taxes. The
increase in interest expense is due primarily to an increase in borrowed funds
to finance the Company's 1996 acquisitions. The gain on the sale of assets
occuring during the nine months ended September 30, 1995 was primarily due to
the sale of unused land in the Company's Springfield, Massachusetts market. The
increase in income taxes is directly associated with the improved operating
performance of the Company.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Company's policy is generally to repay its long-term debt with excess
cash on hand to reduce its financing costs. As of September 30, 1996, the
Company had $53,779,000 of long-term debt (including the current portion
thereof) outstanding and approximately $56,000,000 of unused borrowing capacity
under the Revolving Loan (as defined below).
On June 17, 1996 the Company entered into an agreement (the "Credit
Agreement") with The First National Bank of Boston; The Bank of New York; Fleet
Bank, N.A.; Mellon Bank, N.A.; and Union Bank of California, N.A. (collectively,
the "Lenders"), to refinance the Company's financing facilities with two
facilities (the "Facilities"): a $54,000,000 senior secured term loan (the "Term
Loan") and a $56,000,000 senior secured reducing revolving/term loan facility
(the "Revolving Loan"). The Facilities mature June 30, 2003. The Company's
indebtedness under the Facilities is secured by a first priority lien on
substantially all the assets of the Company and its subsidiaries, by a pledge of
its subsidiaries' stock and by a guarantee of its subsidiaries.
The Term Loan was used to refinance the Company's existing bank
indebtedness, and to principally finance the acquisition of WPOR AM/FM, in
Portland, Maine, and WNAX AM/FM, in Yankton, South Dakota. The Revolving Loan
has a total commitment of $56,000,000, of which $51,000,000 may be used for
permitted acquisitions and related transaction expenses and $5,000,000 may be
used for working capital needs and stand-by letters of credit. On June 30, 1998
the Revolving Loan will convert to a five year term loan. The outstanding amount
of the Term Loan is required to be reduced quarterly in amounts ranging from
2.5% to 5% of the initial commitment and the outstanding amount of the Revolving
Loan will be required to be reduced quarterly commencing in 1997 in amounts
ranging from 1.25% to 5% of the initial commitment. In addition, commencing
March 30, 1997, the Facilities will be further reduced by specified percentages
of Excess Cash Flow (as defined in the Credit Agreement) based on leverage
ratios.
Interest rates under the Facilities are payable, at the Company's option,
at alternatives equal to LIBOR plus 1.125% to 1.75% or the prime rate plus 0% to
.5%. The spread over LIBOR and the prime rate vary from time to time, depending
upon the Company's financial leverage. The Company also pays quarterly
commitment fees equal to 1/2% per annum on the aggregate unused portion of the
Revolving Loan.
The Credit Agreement contains a number of financial covenants which, among
other things, require the Company to maintain specified financial ratios and
impose certain limitations on the Company with respect to investments,
additional indebtedness, dividends, distributions, guarantees, liens and
encumbrances.
At September 30, 1996, the Company had an interest rate swap agreement
with a total notional amount of $32,000,000 that it uses to convert the variable
Eurodollar interest rate of a portion of its bank borrowings to a fixed interest
rate. The swap agreement was entered into to reduce the risk to the Company of
rising interest rates. In accordance with the terms of the swap agreement, dated
November 21, 1995, the Company pays 6.15% calculated on a $32,000,000 notional
amount. The Company receives LIBOR (5.65625% at September 30, 1996) calculated
on a notional amount of $32,000,000. Net receipts or payments under the
agreement are recognized as an adjustment to interest expense.
14
<PAGE> 15
The swap agreement expires in December 1999. As the LIBOR increases, interest
payments received and the market value of the swap position increase.
Approximately $149,000 in additional interest expense was recognized as a result
of the interest rate swap agreement for the nine months ended September 30, 1996
and an aggregate amount of $156,000 in additional interest expense has been
recognized since the inception of the agreement.
During the years ended December 31, 1995 and 1994, the Company had net
cash flows from operating activities after provisions for income taxes of
$9,483,000 and $6,991,000, respectively. During the nine months ended September
30, 1996 and 1995, the Company had net cash flows from operating activities of
$5,968,000 and $6,940,000, respectively. The Company believes that cash flow
from operations will be sufficient to meet quarterly debt service requirements
for interest and scheduled payments of principal under the Credit Agreement. If
such cash flow is not sufficient to meet such debt service requirements, the
Company may be required to sell additional equity securities, refinance its
obligations or dispose of one or more of its properties in order to make such
scheduled payments. There can be no assurance that the Company would be able to
effect any such transactions on favorable terms.
In connection with the 1993 acquisition of an AM and FM station in Des
Moines, Iowa, the Company entered into an agreement to lease the acquired
building to an unrelated third party for 18 months at an annual lease rate of
approximately $50,000. On February 6, 1995 the Company agreed to extend the
terms for an additional 24 months at an annual lease rate of approximately
$60,000. Upon expiration of the lease, the lessee has agreed to purchase the
building for approximately $650,000.
On June 11, 1996, the Company acquired an AM and FM radio station serving
the Yankton, South Dakota market for approximately $7,000,000. On June 18, 1996,
the Company acquired an AM and FM radio station serving the Portland, Maine
market for approximately $10,000,000. The acquisitions were financed by
borrowings under the Company's Term Loan. See Note 5 of Condensed Consolidated
Financial Statements.
On July 1, 1996 the Company entered into an agreement to purchase two AM
and two FM radio stations in Springfield, Illinois for approximately $6,000,000.
The transaction is subject to the final approval of the Federal Communications
Commission. The Company began operating the radio stations under the terms of a
local market agreement on July 1, 1996, which will remain in effect until such
time as the Company concludes its pending acquisition of the stations.
On July 31, 1996 the Company signed a letter of intent to purchase an FM
radio station in Des Moines, Iowa for approximately $2,700,000. The transaction
is subject to the completion of a definitive purchase agreement and the final
approval of the Federal Communications Commission. The Company began operating
the radio station under the terms of a local market agreement on August 1, 1996,
which will remain in effect until such time as the Company concludes its pending
acquisition of the station.
15
<PAGE> 16
On August 29, 1996 the Company signed a letter of intent to purchase an FM
radio station in Des Moines, Iowa for approximately $3,200,000. The transaction
is subject to the completion of a definitive purchase agreement and the final
approval of the Federal Communications Commission.
The Company anticipates that the above and any future acquisitions of
radio and television stations will be financed through funds generated from
operations, borrowings under the Revolving Loan, additional debt or equity
financing, or a combination thereof. However, there can be no assurances that
any such financing will be available.
The Company's capital expenditures for the nine months ended September 30,
1996 were approximately $1,285,000 ($1,905,000 in 1995). The Company anticipates
capital expenditures in 1996 to be approximately $2,200,000, which it expects to
finance through funds generated from operations.
INFLATION
The impact of inflation on the Company's operations has not been
significant to date. There can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operations.
FORWARD-LOOKING STATEMENTS
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company cautions
that a number of important factors could cause the Company's actual results for
1996 and beyond to differ materially from those expressed in any forward looking
statements made by, or on behalf of the Company. Forward looking statements
involve a number of risks and uncertainties including, but not limited to, the
Company's financial leverage and debt service requirements, dependence on key
stations, U.S. and local economic conditions, and regulatory matters. While the
Company believes it has and will continue to make reasonable efforts, it cannot
assure that it will be able to anticipate or respond timely to changes in any of
the factors listed above, which could adversely affect the operating results in
one or more fiscal quarters. Results of operations in any past period should not
be considered, in and of itself, indicative of the results to be expected for
future periods. Fluctuations in operating results may also result in
fluctuations in the price of the Company's stock.
16
<PAGE> 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
1 A report on Form 8-K was filed July 2, 1996 reporting
the acquisition of the assets of radio stations WPOR
AM/FM serving Portland, Maine and the Company's
Refinancing Agreement.
2 A report on Form 8-K/A was filed August 13, 1996
reporting the acquisition of the assets of radio
stations WNAX AM/FM serving Yankton, South Dakota, WPOR
AM/FM serving Portland, Maine and the Company's
Refinancing Agreement.
17
<PAGE> 18
SIGNATURES
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.
SAGA COMMUNICATIONS, INC.
Date: November 14, 1996 /s/ Norman L. McKee
--------------------------------------
Norman L. McKee
Senior Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial Officer)
Date: November 14, 1996 /s/ Catherine A. Bobinski
--------------------------------------
Catherine A. Bobinski
Corporate Controller and
Chief Accounting Officer
(Principal Accounting Officer)
18
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