<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, 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 November 6, 2000 was
14,423,849 and 1,888,296, respectively.
<PAGE> 2
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--September 30,
2000 and December 31, 1999 3
Condensed consolidated statements of operations and
comprehensive income--Three and nine months ended
September 30, 2000 and 1999 5
Condensed consolidated statements of cash flows--
Nine months ended September 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 13
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Saga Communications, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,616 $ 11,342
Accounts receivable, net 18,609 18,121
Prepaid expenses 1,638 1,642
Other current assets 1,590 2,035
--------- ---------
Total current assets 27,453 33,140
Property and equipment 95,743 88,991
Less accumulated depreciation (48,085) (44,536)
--------- ---------
Net property and equipment 47,658 44,455
Other assets:
Excess of cost over fair value of assets
acquired, net 19,988 20,508
Broadcast licenses, net 73,644 53,360
Other intangibles, deferred costs and
investments, net 8,280 11,033
--------- ---------
Total other assets 101,912 84,901
--------- ---------
$ 177,023 $ 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>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 924 $ 1,417
Other current liabilities 9,655 8,572
Current portion of long-term debt 7,419 395
--------- ---------
Total current liabilities 17,998 10,384
Deferred income taxes 7,442 6,811
Long-term debt 87,295 85,379
Broadcast program rights 533 602
Other 400 218
STOCKHOLDERS' EQUITY:
Common stock 165 165
Additional paid-in capital 42,290 42,273
Note receivable from principal stockholder (341) (486)
Retained earnings 23,193 17,268
Accumulated other comprehensive income -- 33
Treasury stock (1,952) (151)
--------- ---------
Total stockholders' equity 63,355 59,102
--------- ---------
$ 177,023 $ 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 NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net operating revenue $ 25,478 $ 23,882 $ 73,700 $ 65,608
Station operating expense:
Programming and technical 5,769 5,399 16,828 14,913
Selling 5,677 5,434 18,290 16,823
Station general and administrative 3,419 3,290 10,569 9,552
-------- -------- -------- --------
Total station operating expense 14,865 14,123 45,687 41,288
-------- -------- -------- --------
Station operating income before corporate general and
administrative, depreciation and amortization 10,613 9,759 28,013 24,320
Corporate general and administrative 1,239 1,128 3,903 3,766
Depreciation and amortization 2,286 2,138 6,683 5,900
-------- -------- -------- --------
Operating profit 7,088 6,493 17,427 14,654
Other (income) expense:
Interest expense 1,781 1,566 4,920 4,394
Other (13) 198 2,042 92
-------- -------- -------- --------
Income before income tax 5,320 4,729 10,465 10,168
Income tax provision 2,252 1,983 4,540 4,275
-------- -------- -------- --------
Net income and comprehensive income $ 3,068 $ 2,746 $ 5,925 $ 5,893
======== ======== ======== ========
Earnings per share:
Basic $ .19 $ .17 $ .36 $ .36
======== ======== ======== ========
Diluted $ .18 $ .16 $ .35 $ .36
======== ======== ======== ========
Weighted average common shares 16,479 16,403 16,479 16,266
======== ======== ======== ========
Weighted average common and common equivalent shares 16,871 16,766 16,869 16,598
======== ======== ======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE> 6
Saga Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
Unaudited
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash provided by operating activities $ 15,985 $ 11,577
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (4,092) (4,194)
Proceeds from sale of assets 2,294 599
Increase in intangibles and other assets (1,658) (1,495)
Acquisition of stations (25,137) (20,870)
-------- --------
Net cash used in investing activities (28,593) (25,960)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 13,523 14,500
Payments on long-term debt (4,634) (185)
Purchase of shares held in treasury (2,007) --
Net proceeds from exercise of stock options -- 1,738
-------- --------
Net cash provided by financing activities 6,882 16,053
Net increase (decrease) in cash and cash equivalents (5,726) 1,670
Cash and cash equivalents, beginning of period 11,342 6,664
-------- --------
Cash and cash equivalents, end of period $ 5,616 $ 8,334
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE> 7
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 nine months ended September 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.
On July 17, 2000, the Company acquired an FM radio station (WKIO-FM) serving the
Champaign-Urbana, Illinois market for approximately $7,000,000.
On August 30, 2000, the Company acquired an AM and FM radio station (WHMP-AM and
WLZX-FM) serving the Northampton, Massachusetts market for approximately
$12,000,000.
The acquisitions were accounted for as purchases 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.
7
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
3. ACQUISITIONS (CONTINUED)
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.
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 following unaudited pro forma results of operations of the Company for the
nine months ended September 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.
Pro Forma Results of Operations for Acquisitions: NINE MONTHS ENDED
(In thousands except per share data) SEPTEMBER 30,
2000 1999
------- -------
Net operating revenue $75,884 $72,021
Net income $5,459 $5,601
Earnings per share (basic and diluted) $.33 $.34
8
<PAGE> 9
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
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-eight 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.
9
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
4. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED CORPORATE
SEPTEMBER 30, 2000: RADIO TELEVISION AND OTHER CONSOLIDATED
-------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Net operating revenue $ 22,371 $ 3,107 -- $ 25,478
Station operating expense 12,821 2,044 -- 14,865
-------- -------- -------- --------
Station operating income 9,550 1,063 -- 10,613
Corporate general and
administrative -- -- $ 1,239 1,239
Depreciation and amortization 1,699 493 94 2,286
-------- -------- -------- --------
Operating profit (loss) $ 7,851 $ 570 $ (1,333) $ 7,088
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED CORPORATE
SEPTEMBER 30, 1999: RADIO TELEVISION AND OTHER CONSOLIDATED
-------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Net operating revenue $ 20,889 $ 2,993 -- $ 23,882
Station operating expense 12,083 2,040 -- 14,123
-------- -------- -------- --------
Station operating income 8,806 953 -- 9,759
Corporate general and
administrative -- -- $ 1,128 1,128
Depreciation and amortization 1,543 484 111 2,138
-------- -------- -------- --------
Operating profit (loss) $ 7,263 $ 469 $ (1,239) $ 6,493
======== ======== ======== ========
</TABLE>
10
<PAGE> 11
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
4. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED CORPORATE
SEPTEMBER 30, 2000: RADIO TELEVISION AND OTHER CONSOLIDATED
-------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Net operating revenue $ 64,705 $ 8,995 -- $ 73,700
Station operating expense 39,304 6,383 -- 45,687
-------- -------- -------- --------
Station operating income 25,401 2,612 -- 28,013
Corporate general and
administrative -- -- $ 3,903 3,903
Depreciation and amortization 4,925 1,478 280 6,683
-------- -------- -------- --------
Operating profit (loss) $ 20,476 $ 1,134 $ (4,183) $ 17,427
======== ======== ======== ========
Total assets at
September 30, 2000 $139,974 $ 26,759 $ 10,290 $177,023
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED CORPORATE
SEPTEMBER 30, 1999: RADIO TELEVISION AND OTHER CONSOLIDATED
-------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Net operating revenue $ 58,984 $ 6,624 -- $ 65,608
Station operating expense 36,810 4,478 -- 41,288
-------- -------- -------- --------
Station operating income 22,174 2,146 -- 24,320
Corporate general and
administrative -- -- $ 3,766 3,766
Depreciation and amortization 4,513 1,054 333 5,900
-------- -------- -------- --------
Operating profit (loss) $ 17,661 $ 1,092 $ (4,099) $ 14,654
======== ======== ======== ========
Total assets at
September 30, 1999 $117,574 $ 28,584 $ 13,957 $160,115
======== ======== ======== ========
</TABLE>
11
<PAGE> 12
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
5. COMMITMENTS
In July 2000, the Company entered into an interest rate swap agreement,
effective on September 30, 2000, with a total notional amount of $24,500,000.
Coincident with this agreement, the Company also sold an interest rate cap under
the same terms with a fixed price of 7.45%. The swap agreement will be 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
agreement, the Company pays 6.875% calculated on a $24,500,000 notional amount.
The Company receives LIBOR (6.66% at September 30, 2000) calculated on a
notional amount of $24,500,000. The interest rate cap agreement requires that if
on any reset date LIBOR is greater than 7.45% the Company will pay the
difference between 7.45% 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 6.875% with benefits up to 7.45%. Should LIBOR increase above
7.45%, the Company will pay LIBOR less a 31.5 basis point benefit. Net receipts
or payments under the agreement will be recognized as an adjustment to interest
expense. This agreement expires in September 2001.
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.
In September 2000, the Company entered into an agreement to acquire one FM and
two AM radio stations (WCVQ-FM, WABD-AM, and WDXN-AM) and a construction permit
for a new FM radio station serving the Clarksville, Tennessee - Fort Campbell,
Kentucky - Hopkinsville, Kentucky market, for approximately $6,700,000.
In September 2000, the Company entered into an agreement to acquire one FM radio
station serving the Clarksville, Tennessee - Fort Campbell, Kentucky -
Hopkinsville, Kentucky market, (WVVR-FM) for approximately $7,000,000, including
approximately $1,000,000 of the Company's Class A common stock.
The acquisitions are subject to FCC approval and are expected to close during
the first quarter of 2001.
In September 2000, the Company modified its Stock Buy-Back program pursuant to
which the Company may purchase up to $6,000,000 of its Class A Common Stock.
Since inception of the Stock Buy-Back program in 1998 through September 30, 2000
the Company has repurchased approximately $3,300,000 of its Class A Common
Stock.
12
<PAGE> 13
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 nine month
periods ended September 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 nine months
ended September 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.
13
<PAGE> 14
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, 2000 and 1999, approximately 80% and 81%, 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 September 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 September 30, 2000 the Company
owned and/or operated forty-eight 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.
14
<PAGE> 15
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
For the three months ended September 30, 2000, the Company's net operating
revenue was $25,478,000 compared with $23,882,000 for the three months ended
September 30, 1999, an increase of $1,596,000 or 7%. Approximately $958,000 or
60% 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 3% 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 $742,000 or 5% to
$14,865,000 for the three months ended September 30, 2000, compared with
$14,123,000 for the three months ended September 30, 1999. Of the total
increase, approximately $625,000 or 84% 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 $117,000 represents a total increase of 1% in stations
owned and operated by the Company for the comparable period in 1999.
Operating profit increased by $595,000 or 9% to $7,088,000 for the three
months ended September 30, 2000, compared with $6,493,000 for the three months
ended September 30, 1999. The improvement was primarily the result of the
$1,596,000 increase in net operating revenue, offset by the $742,000 increase in
station operating expense, a $148,000 or 7% increase in depreciation and
amortization and a $111,000 increase in corporate general and administrative
expense. The increase in depreciation and amortization expense was principally
the result of the recent acquisitions. The increase in corporate general and
administrative expense 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 $3,068,000
($0.18 per share on a fully diluted basis) during the three months ended
September 30, 2000, compared with net income of $2,746,000 ($0.16 per share on a
fully diluted basis) for the three months ended September 30, 1999, an increase
of approximately $322,000 or 12%. The increase in net income was principally the
result of the $595,000 improvement in operating profit, a decrease in other
expense of $211,000, offset by a $215,000 increase in interest expense and a
$269,000 increase in income tax expense. The decrease in other expense is
attributable to the Company's equity in the operating loss of an investment in
Reykjavik, Iceland during the comparable period in 1999 that was sold in the
second quarter of 2000. The increase in interest expense was principally the
result of increased debt due to the Company's recent acquisitions.
15
<PAGE> 16
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
For the nine months ended September 30, 2000, the Company's net operating
revenue was $73,700,000 compared with $65,608,000 for the nine months ended
September 30, 1999, an increase of $8,092,000 or 12%. Approximately $4,419,000
or 55% 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 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 $4,399,000 or 11% to
$45,687,000 for the nine months ended September 30, 2000, compared with
$41,288,000 for the nine months ended September 30, 1999. Of the total increase,
approximately $3,202,000 or 73% 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 $1,197,000 represents a total increase of 3% in stations owned and
operated by the Company for the comparable period in 1999.
Operating profit increased by $2,773,000 or 19% to $17,427,000 for the
nine months ended September 30, 2000, compared with $14,654,000 for the nine
months ended September 30, 1999. The improvement was primarily the result of the
$8,092,000 increase in net operating revenue, offset by the $4,399,000 increase
in station operating expense, a $783,000 or 13% increase in depreciation and
amortization, and a $137,000 or 4% increase in corporate general and
administrative expense. 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 $5,925,000
($0.35 per share on a fully diluted basis) during the nine months ended
September 30, 2000, compared with net income of $5,893,000 ($0.36 per share on a
fully diluted basis) for the nine months ended September 30, 1999, an increase
of approximately $32,000. The increase in net income was principally the result
of the $2,773,000 improvement in operating profit offset by a $526,000 increase
in interest expense, a $1,950,000 increase in other expense (income) and a
$265,000 increase in income tax expense. 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 in an investment in Reykjavik, Iceland, and a $125,000 loss
on the sale of a building in one of the Company's markets. Additionally during
the nine months ended September 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.
16
<PAGE> 17
OUTLOOK
As of October 20, 2000 gross revenue (before agency commissions) for the fourth
quarter were pacing approximately 9% ahead of the same date last year on a same
station basis. Specifically, as of October 22, 1999 gross revenue booked for the
fourth quarter was $21.5 million compared to $23.3 million on October 20, 2000.
Revenue pacings should only be used as an indication of the direction revenue
growth rates are heading as of a specific date. Due to the nature of the current
media buying habits including the vagaries of national advertising dollars the
pacings will vary over time. They are however, an indication that the Company
expects the revenue growth rate for the fourth quarter to be stronger than those
for the third quarter.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had $94,714,000 of long-term debt
(including the current portion thereof) outstanding and approximately
$56,250,000 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. However, the Company is currently
negotiating an amendment to the Credit Agreement which would provide for the
extension or modification of the conversion date. The Company anticipates
completion of the amendment in the first quarter of 2001. 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.
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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.
In July 2000, the Company entered into an interest rate swap agreement,
effective on September 30, 2000, with a total notional amount of $24,500,000. In
connection with this agreement, the Company also sold an interest rate cap under
the same terms with a fixed price of 7.45%. The swap agreement will be 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
agreement, the Company pays 6.875% calculated on a $24,500,000 notional amount.
The Company receives LIBOR (6.66% at September 30, 2000) calculated on a
notional amount of $24,500,000. The interest rate cap agreement requires that if
LIBOR is greater than 7.45% on any reset date the Company will pay the
difference between 7.45% 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 6.875% with benefits up to 7.45%. Should LIBOR increase above
7.45%, the Company will pay LIBOR less a 31.5 basis point benefit.
At September 30, 2000, the Company had two other interest rate swap
agreements with a total notional amount of $24,500,000. In connection with these
agreements, the Company also 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
(6.66% at September 30, 2000) calculated on a notional amount of $24,500,000.
The interest rate cap agreements requires that if LIBOR is greater than 6.00% on
any reset date 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 6.00%. Should LIBOR increase above 6.00%, the Company will pay LIBOR less
a 31.5 basis point benefit.
Net receipts or payments under the swap and cap 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 $59,000 in interest expense was recognized as
a result of the interest rate swap and cap agreements for the nine months ended
September 30, 2000 and an aggregate decrease in interest expense of $48,000 has
been recognized since the inception of the agreements.
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During the nine months ended September 30, 2000 and 1999, the Company had
cash flows from operating activities of $15,985,000 and $11,577,000,
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.
On July 17, 2000, the Company acquired an FM radio station (WKIO-FM)
serving the Champaign-Urbana, Illinois market for approximately $7,000,000.
On August 30, 2000, the Company acquired an AM and FM radio station
(WHMP-AM and WLZX-FM) serving the Northampton, Massachusetts market for
approximately $12,000,000.
The acquisitions during the first nine months of 2000 were financed
through funds generated from operations and additional borrowings of $13,500,000
under the credit agreement.
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.
In September 2000, the Company entered into an agreement to acquire one FM
and two AM radio stations (WCVQ-FM, WABD-AM, and WDXN-AM) and a construction
permit for a new FM radio station serving the Clarksville, Tennessee - Fort
Campbell, Kentucky - Hopkinsville, Kentucky market, for approximately
$6,700,000.
In September 2000, the Company entered into an agreement to acquire one FM
radio station serving the Clarksville, Tennessee - Fort Campbell, Kentucky -
Hopkinsville, Kentucky market, (WVVR-FM) for approximately $7,000,000, including
approximately $1,000,000 of the Company's Class A common stock.
The pending acquisitions are subject to FCC approval and are expected to
close during the first quarter of 2001.
In September 2000, the Company modified its Stock Buy-Back program
pursuant to which the Company may purchase up to $6,000,000 of its Class A
Common Stock. Since inception of the Stock Buy-Back program in 1998 through
September 30, 2000 the Company has repurchased approximately $3,300,000 of its
Class A Common Stock.
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The Company anticipates that the above and any future acquisitions of
radio and television stations and purchases of Class A Common Stock under the
Stock Buy-Back program 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 nine months ended September 30,
2000 were approximately $4,092,000 ($4,194,000 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.
NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
138 becomes effective for all fiscal quarters for all fiscal years beginning
after June 30, 2000 (effective January 1, 2001 for the Company). SFAS No. 133 is
not currently expected to have a material effect on the Company as the Company
does not significantly utilize derivative instruments except for the interest
rate swap and cap agreements previously discussed.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements". SAB 101 provides guidance for revenue recognition under certain
circumstances. The accounting and disclosures prescribed by SAB 101 will be
effective for the fourth quarter of fiscal year 2000. The Company believes that
there will be no material impact resulting from the application of SAB 101.
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 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: November 13, 2000 /s/ Samuel D. Bush
------------------------------------
Samuel D. Bush
Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial Officer)
Date: November 13, 2000 /s/ Catherine A. Bobinski
------------------------------------
Catherine A. Bobinski
Vice President, Corporate Controller
and Chief Accounting Officer
(Principal Accounting Officer)
23
