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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 June 30, 1999
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 August 10, 1999 was
11,600,736 and 1,510,637, respectively.
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INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30,
1999 and December 31, 1998 3
Condensed consolidated statements of operations and
comprehensive income--Three and six months ended
June 30, 1999 and 1998 5
Condensed consolidated statements of cash flows--
Six months ended June 30, 1999 and 1998 6
Notes to unaudited condensed consolidated financial
statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Saga Communications, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 6,004 $ 6,664
Accounts receivable, net 17,479 14,445
Prepaid expenses 1,423 1,461
Other current assets 1,533 1,374
------------------------
Total current assets 26,439 23,944
Property and equipment 83,766 75,606
Less accumulated depreciation (42,176) (40,042)
------------------------
Net property and equipment 41,590 35,564
Other assets:
Excess of cost over fair value of
assets acquired, net 20,901 19,765
Broadcast licenses, net 53,803 41,190
Other intangibles, deferred
costs and investments, net 9,165 9,550
------------------------
Total other assets 83,869 70,505
========================
$151,898 $130,013
========================
See notes to unaudited condensed consolidated financial statements.
3
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Saga Communications, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
JUNE 30, DECEMBER 31,
1999 1998
-------------------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,874 $ 1,871
Other current liabilities 8,155 6,637
Current portion of long-term debt 264 181
------------------------
Total current liabilities 10,293 8,689
Deferred income taxes 5,761 5,401
Long-term debt 82,572 70,725
Broadcast program rights 200 295
Other 193 180
STOCKHOLDERS' EQUITY:
Common stock 131 128
Additional paid-in capital 41,311 37,355
Note receivable from principal stockholder (480) (648)
Retained earnings 11,898 8,755
Accumulated other comprehensive income 31 31
Treasury stock (12) (898)
------------------------
Total stockholders' equity 52,879 44,723
------------------------
$151,898 $130,013
========================
Note: The balance sheet at December 31, 1998 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.
Condensed Consolidated Statements of Operations and Comprehensive Income
(dollars in thousands except per share data)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
--------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating revenue $23,459 $20,159 $41,726 $35,779
Station operating expense:
Programming and technical 4,843 4,129 9,514 8,148
Selling 6,411 5,810 11,389 10,257
Station general and administrative 3,177 2,807 6,262 5,543
--------------------------------------------------------
Total station operating expense 14,431 12,746 27,165 23,948
--------------------------------------------------------
Station operating income before corporate
general and administrative,
depreciation and amortization 9,028 7,413 14,561 11,831
Corporate general and administrative 1,471 1,244 2,638 2,261
Depreciation and amortization 1,959 1,539 3,762 3,167
--------------------------------------------------------
Operating profit 5,598 4,630 8,161 6,403
Other (income) expense:
Interest expense 1,451 1,143 2,828 2,283
Other (320) 82 (106) 93
--------------------------------------------------------
Income before income tax 4,467 3,405 5,439 4,027
Income tax provision 1,876 1,491 2,292 1,757
========================================================
Net income and comprehensive income $ 2,591 $ 1,914 $ 3,147 $ 2,270
========================================================
Earnings per share (basic and diluted) $ .20 $ .15 $ .24 $ .18
========================================================
Weighted average common shares 13,050 12,710 12,958 12,703
========================================================
Weighted average common and common
equivalent shares 13,302 12,980 13,143 12,970
========================================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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Saga Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
Unaudited
SIX MONTHS ENDED
JUNE 30,
1999 1998
---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash provided by operating activities $ 5,677 $ 4,940
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (3,028) (2,190)
Proceeds from sale of assets 539 3
Increase in intangibles and other assets (573) (240)
Acquisition of stations (16,346) (1,930)
---------------------
Net cash used in investing activities (19,408) (4,357)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 11,750 3,500
Payments on long-term debt (139) (2,539)
Net proceeds from exercise of stock options 1,460 -
Fractional shares - five for four stock split - (2)
---------------------
Net cash provided by financing activities 13,071 959
Net increase (decrease) in cash and cash equivalents (660) 1,542
Cash and cash equivalents, beginning of period 6,664 2,209
---------------------
Cash and cash equivalents, end of period $ 6,004 $ 3,751
=====================
See notes to unaudited condensed consolidated financial statements.
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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 six months ended June 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. 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,
1998.
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. ACQUISITIONS
On January 1, 1999, the Company acquired an AM and FM radio station (KAFE-FM and
KPUG-AM), serving the Bellingham, Washington market for approximately
$6,350,000.
On January 14, 1999, the Company acquired a regional and state farm information
network (The Michigan Farm Radio Network) for approximately $1,660,000,
approximately $1,036,000 of which was paid in the Company's Class A common
stock.
On April 1, 1999 the Company acquired KAVU-TV (an ABC affiliate) and a low power
Univision affiliate, serving the Victoria, Texas market for approximately
$11,700,000, approximately $1,840,000 of which was paid in the Company's Class A
common stock. The Company also assumed an existing Local Marketing Agreement for
KVCT-TV (a Fox affiliate).
On May 1, 1999 the Company acquired an AM radio station (KIXT-AM) serving the
Bellingham, Washington market for approximately $1,000,000.
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
3. ACQUISITIONS (CONTINUED)
All acquisitions were 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 date. The excess of
consideration paid over the estimated fair value of the net assets acquired has
been recorded as broadcast licenses and excess of cost over fair value of assets
acquired.
The following unaudited pro forma results of operations of the Company for the
six months ended June 30, 1999 and 1998 assume the 1998 and 1999 acquisitions
occurred as of January 1, 1998. The pro forma results give 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 combinations been in effect on the dates indicated, or which
may occur in the future.
Pro Forma Results of Operations for Acquisitions: Six Months Ended
(In thousands except per share data) June 30,
1999 1998
--------------------
Net operating revenue $42,528 $39,572
====================
Net income $ 3,125 $ 1,868
====================
Basic earnings per share $ .24 $ .15
====================
Diluted earnings per share $ .24 $ .14
====================
4. SUBSEQUENT EVENT
On July 1, 1999, the Company acquired WXVT-TV (a CBS affiliate) serving the
Greenville, Mississippi market for approximately $5,200,000, approximately
$600,000 of which was paid in the Company's Class A common stock.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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.
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 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, 1998 and 1997, and the six month
periods ended June 30, 1999 and 1998, 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, Ohio
and Milwaukee, Wisconsin stations. For the years ended December 31, 1998 and
1997, Columbus accounted for an aggregate of 22% and 24%, respectively, and
Milwaukee accounted for an aggregate of 24%, of the Company's station operating
income. For the six months ended June 30, 1999 and 1998, Columbus accounted for
an aggregate of 14% and 22%, respectively, and Milwaukee accounted for an
aggregate of 22% and 25%, 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.
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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 six months ended
June 30, 1999 and 1998, approximately 82% 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.
As of June 30, 1998, the Company owned and operated thirty-seven radio
stations, one TV station and two radio information networks. As a result of
acquisitions, as of June 30, 1999 the Company owned and/or operated forty-two
radio stations, four TV stations, three radio information networks, and an
equity interest in six FM radio stations serving Reykjavik, Iceland.
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THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
For the three months ended June 30, 1999, the Company's net operating
revenue was $23,459,000 compared with $20,159,000 for the three months ended
June 30, 1998, an increase of $3,300,000 or 16%. Approximately $2,332,000 or 71%
of the increase was attributable to revenue generated by stations which were not
owned or operated by the Company for the comparable period in 1998. The balance
of the increase in net operating revenue represented a 5% increase in stations
owned and operated by the Company for the entire comparable period, primarily as
a result of increased advertising rates at the majority of the Company's
stations.
Station operating expense (i.e., programming, technical, selling and
station general and administrative expenses) increased by $1,685,000 or 13% to
$14,431,000 for the three months ended June 30, 1999, compared with $12,746,000
for the three months ended June 30, 1998. Of the total increase, approximately
$1,536,000 or 91% was the result of the impact of the operation of stations
which were not owned or operated by the Company for the comparable period in
1998. The remaining balance of the increase in station operating expense of
$147,000 represents a total increase of 1% in stations owned and operated by the
Company for the comparable period in 1998.
Operating profit increased by $968,000 or 21% to $5,598,000 for the three
months ended June 30, 1999, compared with $4,630,000 for the three months ended
June 30, 1998. The improvement was primarily the result of the $3,300,000
increase in net operating revenue, offset by the $1,685,000 increase in station
operating expense, a $420,000 or 27% increase in depreciation and amortization,
and a $227,000 or 18% increase in corporate general and administrative charges.
The increase in depreciation and amortization expense was principally the result
of the recent acquisitions. The increase in corporate general and administrative
charges represented additional costs due to the growth of the Company as a
result of the Company's recent acquisitions.
The Company generated net income in the amount of approximately
$2,591,000 ($0.20 per share) during the three months ended June 30, 1999,
compared with net income of $1,914,000 ($0.15 per share) for the three months
ended June 30, 1998, an increase of approximately $677,000. The increase in net
income was principally the result of the $968,000 improvement in operating
profit and a $402,000 decrease in other (income)/expense, offset by a $308,000
increase in interest expense and a $385,000 increase in income tax expense. The
decrease in other (income) expense was principally the result of non-recurring
income of $500,000 resulting from an agreement to downgrade a FCC license at one
of the Company's stations, offset by a $100,000 increase in the loss from an
equity investment. The increase in interest expense was principally the result
of the Company's additional borrowings to finance acquisitions. The increase in
income tax expense is directly associated with the improved operating
performance of the Company.
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SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
For the six months ended June 30, 1999, the Company's net operating
revenue was $41,726,000 compared with $35,779,000 for the six months ended June
30, 1998, an increase of $5,947,000 or 17%. Approximately $3,934,000 or 66% of
the increase was attributable to revenue generated by stations which were not
owned or operated by the Company for the comparable period in 1998. The balance
of the increase in net operating revenue represented an 6% increase in stations
owned and operated by the Company for the entire comparable period, primarily as
a result of increased advertising rates at the majority of the Company's
stations.
Station operating expense (i.e., programming, technical, selling and
station general and administrative expenses) increased by $3,217,000 or 13% to
$27,165,000 for the six months ended June 30, 1999, compared with $23,948,000
for the six months ended June 30, 1998. Of the total increase, approximately
$2,621,000 or 81% was the result of the impact of the operation of stations
which were not owned or operated by the Company for the comparable period in
1998. The remaining balance of the increase in station operating expense of
$594,000 represents a total increase of 3% in stations owned and operated by the
Company for the comparable period in 1998.
Operating profit increased by $1,758,000 or 27% to $8,161,000 for the six
months ended June 30, 1999, compared with $6,403,000 for the six months ended
June 30, 1998. The improvement was primarily the result of the $5,947,000
increase in net operating revenue, offset by the $3,217,000 increase in station
operating expense, a $595,000 or 19% increase in depreciation and amortization,
and a $377,000 or 17% increase in corporate general and administrative charges.
The increase in depreciation and amortization expense was principally the result
of the recent acquisitions. The increase in corporate general and administrative
charges was primarily attributable to an increase in deferred compensation
charges of $75,000 pertaining to a discretionary contribution to the 401(k)
plan, and the remaining increase of approximately $300,000 represents additional
costs due to the growth of the Company as a result of the Company's recent
acquisitions.
The Company generated net income in the amount of approximately
$3,147,000 ($0.24 per share) during the six months ended June 30, 1999, compared
with net income of $2,270,000 ($0.18 per share) for the six months ended June
30, 1998, an increase of approximately $877,000. The increase in net income was
principally the result of the $1,758,000 improvement in operating profit and a
decrease in other (income) expense of $199,000, offset by a $545,000 increase in
interest expense and a $535,000 increase in income tax expense. The decrease in
other (income) expense was principally the result of non-recurring income of
$500,000 resulting from an agreement to downgrade a FCC license at one of the
Company's stations, offset by a $320,000 increase in the loss of an
unconsolidated affiliate. The increase in interest expense was principally the
result of the Company's additional borrowings to finance acquisitions. The
increase in income tax expense is directly associated with the improved
operating performance of the Company.
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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 June 30, 1999, the Company had
$82,836,000 of long-term debt (including the current portion thereof)
outstanding and approximately $68,250,000 of unused borrowing capacity under the
Credit Agreement (as defined below).
The Company's credit agreement (the "Credit Agreement") has three
facilities (the "Facilities"): a $70,000,000 senior secured term loan (the "Term
Loan"), a $60,000,000 senior secured acquisition loan facility (the "Acquisition
Facility"), and a $20,000,000 senior secured revolving credit facility (the
"Revolving Facility"). The Facilities mature on June 30, 2006. 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 Acquisition Facility may be used for permitted acquisitions. The
Revolving Facility may be used for general corporate purposes, including working
capital, capital expenditures, permitted acquisitions (to the extent that the
Acquisition Facility has been fully utilized and limited to $10,000,000) and
permitted stock buybacks. On December 30, 2000, the Acquisition Facility will
convert to a five and a half year term loan. The outstanding amounts of the Term
Loan and the Acquisition Facility are required to be reduced quarterly in
amounts ranging from 2.5% to 7.5% of the initial commitment commencing on March
31, 2001. Any outstanding amount under the Revolving Facility will be due on the
maturity date of June 30, 2006. In addition, the Facilities may 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 1.0% to 1.75% or the Agent bank's base rate
plus 0% to .75%. 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 of 0.375% to 0.5% per annum on the aggregate
unused portion of the Acquisition and Revolving Facilities.
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.
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At June 30, 1999, 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 (5.09625% at June 30, 1999) calculated on a
notional amount of $32,000,000. Net receipts or payments under the agreement are
recognized as an adjustment to interest expense. The swap agreement expires in
December 1999. As the LIBOR increases, interest payments received and the market
value of the swap position increase. Approximately $166,000 in additional
interest expense was recognized as a result of the interest rate swap agreement
for the three months ended June 30, 1999 and an aggregate amount of $673,000 in
additional interest expense has been recognized since the inception of the
agreement.
During the six months ended June 30, 1999 and 1998, the Company had net
cash flows from operating activities of $5,677,000 and $4,940,000, 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.
On January 1, 1999, the Company acquired an AM and FM radio station
(KAFE-FM and KPUG-AM), serving the Bellingham, Washington market for
approximately $6,350,000.
On January 14, 1999, the Company acquired a regional and state farm
information network (The Michigan Farm Radio Network) for approximately
$1,660,000, approximately $1,036,000 of which was paid in the Company's Class A
common stock.
On April 1, 1999 the Company acquired KAVU-TV (an ABC affiliate) and a
low power Univision affiliate, serving the Victoria, Texas market for
approximately $11,700,000, approximately $1,840,000 of which was paid in the
Company's Class A common stock. The Company also assumed an existing Local
Marketing Agreement for KVCT-TV (a Fox affiliate).
On May 1, 1999 the Company acquired an AM radio station (KIXT-AM) serving
the Bellingham, Washington market for approximately $1,000,000.
The acquisitions during the first six months of 1999 were financed
through funds generated from operations and additional borrowings of $11,750,000
under the Credit Agreement.
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On July 1, 1999, the Company acquired WXVT-TV (a CBS affiliate) serving
the Greenville, Mississippi market for approximately $5,200,000, approximately
$600,000 of which was paid in the Company's Class A common stock.
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 Credit Agreement, additional debt or equity
financing, or a combination thereof. However, there can be no assurances that
any such financing will be available on acceptable terms, if any.
The Company's capital expenditures for the six months ended June 30, 1999
were approximately $3,028,000 ($2,190,000 in the comparable period in 1998). The
Company anticipates capital expenditures in 1999 to be approximately $4,000,000,
which it expects to finance through funds generated from operations.
IMPACT OF THE YEAR 2000
The Year 2000 Issue ("Y2K") is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to produce broadcast signals, process financial transactions, or engage in
similar normal business activities. In addition, disruptions in the economy
generally resulting from Y2K issues could also materially adversely affect the
Company. The Company could be subject to litigation for computer systems
failure, equipment shutdown or failure to properly date business records. The
amount of potential liability and lost revenue cannot be reasonably estimated at
this time.
Based on recent assessments, the Company has determined that it will be
required to modify or replace portions of its software and certain hardware so
that those systems will properly utilize dates beyond December 31, 1999. The
Company presently believes that with modifications or replacements of existing
software and certain hardware, Y2K can be mitigated. However, if such
modifications and replacements are not made, or are not timely completed, Y2K
could have a material impact on the operations of the Company.
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The Company's plan to resolve Y2K involves the following four phases:
assessment, remediation, testing, and implementation. To date, the Company has
substantially completed its assessment of all systems that could be
significantly affected by Y2K. The assessment indicated that some significant
financial and operational systems could be affected by Y2K, including: i)
accounting and financial reporting systems, ii) broadcast studio equipment and
software necessary to deliver programming, iii) certain computer hardware not
capable of recognizing a four digit code for the applicable year, iv) certain
traffic and billing software, and v) certain local area networks. The Company is
also assessing the potential external risks associated with Y2K, including Y2K
compliance status of its significant external agents. To date the Company is not
aware of any external agent with a Y2K issue that would materially impact the
Company's result of operations, liquidity or capital resources. However, the
Company has no means of ensuring that external agents will be Y2K compliant. The
inability of external agents to complete their Y2K resolution process in a
timely fashion could materially impact the Company. The effect of non-compliance
by external agents is not determinable.
The Company's remediation phase is to replace or upgrade to Y2K compliant
software and hardware if applicable for related systems based upon its findings
during the assessment phase. The Company anticipates completing this phase no
later than September 30, 1999. The Company's testing and implementation phases
will run concurrently for certain systems. Completion of the testing phase for
all significant systems is expected by September 30, 1999.
The Company will utilize both internal and external resources to replace,
upgrade, test and implement the software and operating equipment for Y2K
modifications. The total Y2K project cost is estimated at approximately
$500,000, which includes the cost of new software and hardware, most of which
will be capitalized. The project is estimated to be completed not later than
September 30, 1999, which is prior to any anticipated impact on its operating
systems.
The cost of the project and the date on which the Company believes it
will complete the Y2K modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
The Company has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual work arounds and adjusting staffing strategies.
16
<PAGE> 17
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. In addition, when used
in this Form 10-Q words such as "believes," "anticipates," "expects," and
similar expressions are intended to identify forward looking statements. The
Company cautions that a number of important factors could cause the Company's
actual results for 1999 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 personnel, dependence on key stations, U.S. and local economic
conditions, Y2K issues, the successful integration of acquired stations, and
regulatory matters. The Company 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. See "Business - Forward Looking Statements; Risk Factors" in the
Company's 1998 Form 10-K.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on May 10, 1999.
(b) Not applicable
(c) At the Annual Meeting of Stockholders, the stockholders voted on
the following matters:
(1) The six nominees for election as directors for the ensuing
year, and until their successors are elected and qualified,
received the following votes:
Name For Withheld
---- ---------- --------
Jonathan Firestone* 9,413,970 10,806
Joseph P. Misiewicz* 9,413,696 11,080
Edward K. Christian 10,924,607 10,806
Donald Alt 10,922,519 12,894
Kristin Allen 10,924,333 11,080
Gary Stevens 10,924,333 11,080
-------------------------------------------------------
* Elected by the holders of Class A Common Stock.
(2) The proposal to ratify the selection by the Board of Directors
of Ernst & Young LLP as independent auditors to audit the
Company's consolidated financial statements for the fiscal year
ending December 31, 1999 was approved with 24,525,001 votes
cast for, 6,071 votes cast against, 74 abstentions and 0 broker
non-votes.
(3) The proposal to ratify the adoption by the Board of Directors
of the Saga Communications, Inc. Employee Stock Purchase Plan
was approved with 23,600,333 votes cast for, 190,275 votes cast
against, 1,005 abstentions and 739,533 broker non-votes.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
27 Financial Data Schedule
(b) Reports on Form 8-K
None
18
<PAGE> 19
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: August 12, 1999 /s/ Samuel D. Bush
---------------------------------------
Samuel D. Bush
Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial Officer)
Date: August 12, 1999 /s/ Catherine A. Bobinski
---------------------------------------
Catherine A. Bobinski
Vice President, Corporate Controller
and Chief Accounting Officer
(Principal Accounting Officer)
19
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