<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 June 30, 2000
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 8, 2000 was
14,590,241 and 1,888,296, respectively.
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INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30, 2000
and December 31, 1999 3
Condensed consolidated statements of operations and
comprehensive income--Three and six months ended June
30, 2000 and 1999 5
Condensed consolidated statements of cash flows--Six
months ended June 30, 2000 and 1999 6
Notes to unaudited condensed consolidated financial
statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Saga Communications, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
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JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents $ 8,508 $ 11,342
Accounts receivable, net 19,301 18,121
Prepaid expenses 1,427 1,642
Other current assets 1,417 2,035
-------- --------
Total current assets 30,653 33,140
Property and equipment 92,335 88,991
Less accumulated depreciation (46,815) (44,536)
-------- --------
Net property and equipment 45,520 44,455
Other assets:
Excess of cost over fair value of assets
acquired, net 20,161 20,508
Broadcast licenses, net 57,442 53,360
Other intangibles, deferred costs and
investments, net 11,211 11,033
-------- --------
Total other assets 88,814 84,901
-------- --------
$164,987 $162,496
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
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Saga Communications, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 788 $ 1,417
Other current liabilities 8,302 8,572
Current portion of long-term debt 4,488 395
-------- --------
Total current liabilities 13,578 10,384
Deferred income taxes 7,144 6,811
Long-term debt 81,038 85,379
Broadcast program rights 544 602
Other 419 218
STOCKHOLDERS' EQUITY:
Common stock 165 165
Additional paid-in capital 42,282 42,273
Note receivable from principal stockholder (332) (486)
Retained earnings 20,125 17,268
Accumulated other comprehensive income 33 33
Treasury stock (9) (151)
-------- --------
Total stockholders' equity 62,264 59,102
-------- --------
$164,987 $162,496
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
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Saga Communications, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income
(in thousands except per share data)
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
2000 1999 2000 1999
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net operating revenue $ 26,180 $23,459 $48,222 $41,726
Station operating expense:
Programming and technical 5,461 4,843 11,059 9,514
Selling 6,872 6,411 12,613 11,389
Station general and administrative 3,170 3,177 7,150 6,262
-------- ------- ------- -------
Total station operating expense 15,503 14,431 30,822 27,165
-------- ------- ------- -------
Station operating income before corporate general and
administrative, depreciation and amortization 10,677 9,028 17,400 14,561
Corporate general and administrative 1,453 1,471 2,664 2,638
Depreciation and amortization 2,199 1,959 4,397 3,762
-------- ------- ------- -------
Operating profit 7,025 5,598 10,339 8,161
Other (income) expense:
Interest expense 1,569 1,451 3,139 2,828
Other 1,630 (320) 2,055 (106)
-------- ------- ------- -------
Income before income tax 3,826 4,467 5,145 5,439
Income tax provision 1,689 1,876 2,288 2,292
-------- ------- ------- -------
Net income and comprehensive income $ 2,137 $ 2,591 $ 2,857 $ 3,147
======== ======= ======= =======
Earnings per share (basic and diluted) $ .13 $ .16 $ .17 $ .19
======== ======= ======= =======
Weighted average common shares 16,479 16,313 16,479 16,198
======== ======= ======= =======
Weighted average common and common equivalent shares
16,868 16,628 16,868 16,429
======== ======= ======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
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Saga Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
-------- --------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Cash provided by operating activities $ 8,091 $ 5,677
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (2,697) (3,028)
Proceeds from sale of assets 2,294 539
Increase in intangibles and other assets (4,130) (573)
Acquisition of stations (6,144) (16,346)
-------- --------
Net cash used in investing activities (10,677) (19,408)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 11,750
Payments on long-term debt (248) (139)
Net proceeds from exercise of stock options - 1,460
-------- --------
Net cash provided by (used in) financing activities (248) 13,071
Net decrease in cash and cash equivalents (2,834) (660)
Cash and cash equivalents, beginning of period 11,342 6,664
-------- --------
Cash and cash equivalents, end of period $ 8,508 $ 6,004
======== ========
</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 six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. 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, 1999.
2. INCOME TAXES
The Company's effective tax rate is higher than the statutory federal 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, 2000, the Company acquired two FM and one AM radio stations
(KICD-AM/FM and KLLT-FM) serving the Spencer, Iowa market for approximately
$6,400,000. The acquisition was accounted for as a purchase and, accordingly,
the total costs were allocated to the acquired assets including broadcast
licenses and other intangibles 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.
The following unaudited pro forma results of operations of the Company for the
six months ended June 30, 2000 and 1999 assume the 1999 and 2000 acquisitions
occurred as of January 1, 1999. 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.
7
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
3. ACQUISITIONS (CONTINUED)
Pro Forma Results of Operations for Acquisitions: SIX MONTHS ENDED JUNE 30,
(In thousands except per share data) -------------------------
2000 1999
------- -------
Net operating revenue $48,222 $44,703
Net income $2,857 $3,040
Earnings per share (basic and diluted) $.17 $.19
4. SEGMENT INFORMATION
The Company's management evaluates the operating performance of its stations
individually. For purposes of business segment reporting, the Company has
aggregated operations with similar characteristics into two reportable segments:
Radio and Television.
The Radio segment includes all forty-five of the Company's radio stations and
three radio information networks. The Television segment consists of four
television stations and two low power television ("LPTV") stations. The Radio
and Television segments derive their revenue from the sale of commercial
broadcast inventory.
The category "Corporate and Other" represents the income and expense not
allocated to reportable segments.
The Company evaluates performance of its operating entities based on station
operating income before corporate general and administrative, depreciation and
amortization ("station operating income".) Management believes that station
operating income is useful because it provides a meaningful comparison of
operating performance between companies in the broadcasting industry and serves
as an indicator of the market value of a group of stations. Station operating
income is generally recognized by the broadcasting industry as a measure of
performance and is used by analysts who report on the performance of
broadcasting groups. Station operating income is not necessarily indicative of
amounts that may be available to the Company for debt service requirements,
other commitments, reinvestment in the Company or other discretionary uses.
Station operating income is not a measure of liquidity or of performance in
accordance with generally accepted accounting principles, and should be viewed
as a supplement to and not a substitute for the results of operations presented
on the basis of generally accepted accounting principles.
8
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
4. SEGMENT INFORMATION (CONTINUED)
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THREE MONTHS ENDED JUNE 30, 2000: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
--------- ---------- ------------- ------------
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Net operating revenue $ 23,090 $ 3,090 -- $ 26,180
Station operating expense 13,355 2,148 -- 15,503
--------- ------- -------- ---------
Station operating income
9,735 942 -- 10,677
Corporate general and
administrative -- -- $ 1,453 1,453
Depreciation and amortization 1,614 492 93 2,199
--------- ------- -------- ---------
Operating profit (loss) $ 8,121 $ 450 $ (1,546) $ 7,025
========= ======= ======== =========
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<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
--------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net operating revenue $ 21,115 $ 2,344 -- $ 23,459
Station operating expense 12,917 1,514 -- 14,431
--------- ------- -------- ---------
Station operating income
8,198 830 -- 9,028
Corporate general and
administrative -- -- $ 1,471 1,471
Depreciation and amortization 1,495 353 111 1,959
--------- -------- ------- ---------
Operating profit (loss) $ 6,703 $ 477 $ (1,582) $ 5,598
========= ======== ======== =========
</TABLE>
9
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
4. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net operating revenue $ 42,334 $ 5,888 -- $ 48,222
Station operating expense 26,483 4,339 -- 30,822
--------- --------- --------- ---------
Station operating income 15,851 1,549 -- 17,400
Corporate general and
administrative -- -- $ 2,664 2,664
Depreciation and amortization 3,226 985 186 4,397
--------- --------- --------- ---------
Operating profit (loss) $ 12,625 $ 564 $ (2,850) $ 10,339
========= ========= ========= =========
Total assets at June 30, 2000 $ 121,914 $ 26,981 $ 16,092 $ 164,987
========= ========= ========= =========
</TABLE>
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<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Net operating revenue $ 38,095 $ 3,631 -- $ 41,726
Station operating expense 24,727 2,438 -- 27,165
--------- --------- --------- ---------
Station operating income 13,368 1,193 -- 14,561
Corporate general and
administrative -- -- $ 2,638 2,638
Depreciation and amortization 2,970 570 222 3,762
--------- --------- --------- ---------
Operating profit (loss) $ 10,398 $ 623 $ (2,860) $ 8,161
========= ========= ========= =========
Total assets at June 30, 1999 $ 119,002 $ 12,150 $ 20,746 $ 151,898
========= ========= ========= =========
</TABLE>
10
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
5. COMMITMENT
In March 2000, the Company entered into an agreement to acquire an AM and FM
radio station (WHMP-AM/FM) serving the Northhampton, Massachusetts market for
approximately $12,000,000. The acquisition is subject to FCC approval and is
expected to close during the third quarter of 2000.
6. SUBSEQUENT EVENTS
On July 17, 2000, the Company acquired an FM radio station (WKIO-FM) serving the
Champaign-Urbana, Illinois market for approximately $7,000,000.
In July 2000, the Company entered into an agreement to acquire two FM and two AM
radio stations (WTKO-AM, WQNY-FM, WHCU-AM and WYXL-FM) serving the Ithaca, New
York market for approximately $13,360,000. The acquisition is subject to FCC
approval and is expected to close during the first quarter of 2001.
11
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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 (the "Company") 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 periodic 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 involves the cost of
acquiring certain syndicated programming.
During the years ended December 31, 1999 and 1998, and the six month
periods ended June 30, 2000 and 1999, 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, 1999 and
1998, Columbus accounted for an aggregate of 15% and 22%, respectively, and
Milwaukee accounted for an aggregate of 22% and 24%, respectively, of the
Company's station operating income. For the six months ended June 30, 2000 and
1999, Columbus accounted for an aggregate of 16% and 14%, respectively, and
Milwaukee accounted for an aggregate of 23% 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.
12
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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, 2000 and 1999, approximately 79% and 82%, respectively, of the
Company's gross revenue was from local advertising. To generate national
advertising sales, the Company engages independent advertising sales
representatives that specialize 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, 1999 the Company owned and/or operated forty-two radio
stations, four TV stations, two LPTV stations, and three radio information
networks. As a result of acquisitions, as of June 30, 2000 the Company owned
and/or operated forty-five radio stations, four TV stations, two LPTV stations,
and three radio information networks. The Company continues to actively seek and
explore opportunities for expansion through the acquisition of additional
broadcast properties.
13
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THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
For the three months ended June 30, 2000, the Company's net operating
revenue was $26,180,000 compared with $23,459,000 for the three months ended
June 30, 1999, an increase of $2,721,000 or 12%. Approximately $1,107,000 or 41%
of the increase was attributable to revenue generated by stations which were not
owned or operated by the Company for the comparable period in 1999. The balance
of the increase in net operating revenue represented a 7% 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 $1,072,000 or 7% to
$15,503,000 for the three months ended June 30, 2000, compared with $14,431,000
for the three months ended June 30, 1999. Of the total increase, approximately
$819,000 or 76% 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 1999. The
remaining balance of the increase in station operating expense of $253,000
represents a total increase of 2% in stations owned and operated by the Company
for the comparable period in 1999.
Operating profit increased by $1,427,000 or 25% to $7,025,000 for the
three months ended June 30, 2000, compared with $5,598,000 for the three months
ended June 30, 1999. The improvement was primarily the result of the $2,721,000
increase in net operating revenue, offset by the $1,072,000 increase in station
operating expense, and a $240,000 or 12% increase in depreciation and
amortization. The increase in depreciation and amortization expense was
principally the result of the recent acquisitions.
The Company generated net income in the amount of approximately $2,137,000
($0.13 per share-basic and diluted) during the three months ended June 30, 2000,
compared with net income of $2,591,000 ($0.16 per share-basic and diluted) for
the three months ended June 30, 1999, a decrease of approximately $454,000. The
decrease in net income was principally the result of the $1,427,000 improvement
in operating profit, offset by a $1,950,000 increase in other expense (income).
The increase in other expense was principally the result of a non-recurring
charge of $1,300,000 resulting from the Company's sale of their equity
investment in Reykjavik, Iceland, and a $100,000 increase in the loss related to
the Company's equity in the operating results of that equity investment.
Additionally, during the three months ended June 30, 1999, the Company had
non-recurring income of $500,000 resulting from an agreement to downgrade an FCC
license at one of the Company's stations.
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SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
For the six months ended June 30, 2000, the Company's net operating
revenue was $48,222,000 compared with $41,726,000 for the six months ended June
30, 1999, an increase of $6,496,000 or 16%. Approximately $3,346,000 or 52% of
the increase was attributable to revenue generated by stations which were not
owned or operated by the Company for the comparable period in 1999. The balance
of the increase in net operating revenue represented a 8% 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 $3,657,000 or 13% to
$30,822,000 for the six months ended June 30, 2000, compared with $27,165,000
for the six months ended June 30, 1999. Of the total increase, approximately
$2,516,000 or 69% 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
1999. The remaining balance of the increase in station operating expense of
$1,141,000 represents a total increase of 4% in stations owned and operated by
the Company for the comparable period in 1999.
Operating profit increased by $2,178,000 or 27% to $10,339,000 for the six
months ended June 30, 2000, compared with $8,161,000 for the six months ended
June 30, 1999. The improvement was primarily the result of the $6,496,000
increase in net operating revenue, offset by the $3,657,000 increase in station
operating expense, and a $635,000 or 17% increase in depreciation and
amortization. The increase in depreciation and amortization expense was
principally the result of the recent acquisitions.
The Company generated net income in the amount of approximately $2,857,000
($0.17 per share-basic and diluted) during the six months ended June 30, 2000,
compared with net income of $3,147,000 ($0.19 per share-basic and diluted) for
the six months ended June 30, 1999, a decrease of approximately $290,000. The
decrease in net income was principally the result of the $2,178,000 improvement
in operating profit offset by a $311,000 increase in interest expense and a
$2,161,000 increase in other expense (income). The increase in interest expense
was principally the result of the Company's additional borrowings to finance
acquisitions. The increase in other expense was principally the result of
non-recurring charges including a $1,300,000 loss resulting from the Company's
sale of their equity investment in Reykjavik, Iceland, a $200,000 increase in
the loss related to the Company's equity in the operating results of that equity
investment, and a $125,000 loss on the sale of a building in one of the
Company's markets. Additionally during the six months ended June 30, 1999 the
Company had non-recurring income of $500,000 resulting from an agreement to
downgrade an FCC license at one of the Company's stations.
15
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had $85,526,000 of long-term debt
(including the current portion thereof) outstanding and approximately
$65,500,000 of unused borrowing capacity under the Credit Agreement (as
described 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 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 Eurodollar plus 1.0% to 1.75% or the Agent bank's base
rate plus 0% to .75%. The spread over Eurodollar 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 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, 2000, the Company has two interest rate swap agreements with a
total notional amount of $24,500,000. Coincident with these agreements, the
Company also has sold two interest rate caps under the same terms with a fixed
price of 6.0%. The swap agreements are used to convert the variable Eurodollar
interest rate of a portion of its bank borrowings to a fixed interest rate. In
accordance with the terms of the swap agreements, the Company pays 5.685%
calculated on a $24,500,000 notional amount. The Company receives LIBOR (6.78%
at June 30, 2000) calculated on a notional amount of $24,500,000. The interest
rate cap agreements requires that if on any reset date LIBOR is greater than
6.00% the Company will pay the difference between 6.00% and the LIBOR rate at
the reset date calculated on the notional amount of $24,500,000. As a result of
this combination, the Company will pay a rate of 5.685% with benefits up to 6%.
Should LIBOR increase above 6.00%, the Company will pay LIBOR less a 31.5 basis
point benefit. Net receipts or payments under the agreements are recognized as
an adjustment to interest expense. These agreements expire in September 2001.
Approximately $11,000 in additional interest expense was recognized as a result
of the interest rate swap and cap agreements for the year ended December 31,
1999. A decrease of approximately $39,000 in interest expense was recognized as
a result of the interest rate swap agreement for the six months ended June 30,
2000 and an aggregate decrease in interest expense of $28,000 has been
recognized since the inception of the agreement.
During the six months ended June 30, 2000 and 1999, the Company had cash
flows from operating activities of $8,091,000 and $5,677,000, 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, 2000, the Company acquired two FM and one AM radio stations
(KICD-AM/FM and KLLT-FM) serving the Spencer, Iowa market for approximately
$6,400,000. The acquisition was financed through funds generated from
operations.
In March 2000, the Company entered into an agreement to acquire an AM and
FM radio station (WHMP-AM/FM) serving the Northhampton, Massachusetts market for
approximately $12,000,000. The acquisition is subject to FCC approval and is
expected to close during the third quarter of 2000.
In July 2000, the Company entered into an agreement to acquire two FM and
two AM radio stations (WTKO-AM, WQNY-FM, WHCU-AM and WYXL-FM) serving the
Ithaca, New York market for approximately $13,360,000. The acquisition is
subject to FCC approval and is expected to close during the first quarter of
2001.
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In July 2000, the Company acquired an FM radio station (WKIO-FM) serving
the Champaign-Urbana, Illinois market for approximately $7,000,000. The
acquisition was financed through funds generated from operations and additional
borrowings of $2,000,000 under the Credit Agreement.
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.
The Company continues to actively seek and explore opportunities for
expansion through the acquisition of additional broadcast properties.
The Company's capital expenditures for the six months ended June 30, 2000
were approximately $2,697,000 ($3,028,000 in the comparable period in 1999). The
Company anticipates capital expenditures in 2000 to be approximately $4,500,000,
which it expects to finance through funds generated from operations.
In March 2000, the Company modified its Stock Buy-Back Program pursuant to
which the Company may purchase up to $4,000,000 of its Class A Common Stock.
IMPACT OF THE YEAR 2000
The Company is not aware of any material problems resulting from Year 2000
issues, either with its internal systems, or the products and services of third
parties.
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.
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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. Forward
looking statements include but are not limited to management's expectations
regarding cash flows from operations, regulatory approvals of pending
acquisitions and the successful completion of these acquisitions. The Company
cautions that a number of important factors could cause the Company's actual
results for 2000 and beyond to differ materially from those expressed in any
forward looking statements made by or on behalf of the Company. Such 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, 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. For a more complete description of the prominent risks and uncertainties
inherent in the Company's business, see "Business - Forward Looking Statements;
Risk Factors" in the Company's Form 10-K for the year ended December 31, 1999.
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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 9, 2000.
(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* 8,523,069 8,760
Joseph P. Misiewicz* 8,523,069 8,760
Edward K. Christian 10,410,740 9,385
Donald Alt 10,411,365 8,760
Kristin Allen 10,411,365 8,760
Gary Stevens 10,411,365 8,760
------------------------------------------------------------------------
* 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, 2000 was approved with
27,404,572 votes cast for, 9,763 votes cast against, 454
abstentions and 0 broker non-votes.
(3) The proposal to ratify the adoption of the Chief Executive
Officer Annual Incentive Plan by the Board of Directors of
the Saga Communications, Inc. was approved with 27,276,536
votes cast for, 135,188 votes cast against, 3,065
abstentions and 0 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
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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 11, 2000 /s/ Samuel D. Bush
----------------------------------
Samuel D. Bush
Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial Officer)
Date: August 11, 2000 /s/ Catherine A. Bobinski
----------------------------------
Catherine A. Bobinski
Vice President, Corporate Controller
and Chief Accounting Officer
(Principal Accounting Officer)
21
