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, 2001
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.
(Exact name of registrant as specified in its charter)
Delaware 38-3042953
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
73 Kercheval Avenue
Grosse Pointe Farms, Michigan 48236
(Address of principal executive offices) (Zip Code)
(313) 886-7070
(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 July 31, 2001 was
14,628,599 and 1,888,296, respectively.
2
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- June 30, 2001
and December 31, 2000
3
Condensed consolidated statements of income -- Three
and six months ended June 30, 2001 and 2000 5
Condensed consolidated statements of cash flows--Six
months ended June 30, 2001 and 2000 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 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
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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,
2001 2000
------------------------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 3,625 $ 8,670
Accounts receivable, net 20,484 19,747
Prepaid expenses 1,520 1,531
Other current assets 1,764 1,414
------------------------------------
Total current assets 27,393 31,362
Property and equipment 103,610 97,015
Less accumulated depreciation (52,105) (49,343)
------------------------------------
Net property and equipment 51,505 47,672
Other assets:
Broadcast licenses, net 84,696 73,256
Excess of cost over fair value of assets acquired,
net 19,428 19,788
Other intangibles, deferred costs and investments,
net 12,133 7,828
------------------------------------
Total other assets 116,257 100,872
------------------------------------
$ 195,155 $ 179,906
====================================
See notes to unaudited condensed consolidated financial statements.
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Saga Communications, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
JUNE 30, DECEMBER 31,
2001 2000
-------------------------------------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 842 $ 933
Other current liabilities 9,909 9,246
Current portion of long-term debt 275 390
-------------------------------------------
Total current liabilities 11,026 10,569
Deferred income taxes 7,937 8,569
Long-term debt 105,275 94,251
Other 984 899
STOCKHOLDERS' EQUITY:
Common stock 165 165
Additional paid-in capital 42,793 42,325
Note receivable from principal stockholder (180) (335)
Retained earnings 29,304 25,918
Treasury stock (2,044) (2,307)
Unearned compensation on restricted stock (105) (148)
-------------------------------------------
Total stockholders' equity 69,933 65,618
-------------------------------------------
$195,155 $179,906
===========================================
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
See notes to unaudited condensed consolidated financial statements.
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Saga Communications, Inc.
Condensed Consolidated Statements of Income
(in thousands except per share data)
Unaudited
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-----------------------------------------------------------
2001 2000 2001 2000
-----------------------------------------------------------
Net operating revenue $ 28,014 $26,180 $50,807 $48,222
Station operating expense:
Programming and technical 6,075 5,461 12,135 11,059
Selling 7,361 6,872 13,263 12,613
Station general and administrative 3,743 3,170 7,719 7,150
-----------------------------------------------------------
Total station operating expense 17,179 15,503 33,117 30,822
-----------------------------------------------------------
Station operating income before corporate general and
administrative, depreciation and amortization
10,835 10,677 17,690 17,400
Corporate general and administrative 1,539 1,453 2,895 2,664
Depreciation and amortization 2,486 2,199 4,862 4,397
-----------------------------------------------------------
Operating profit 6,810 7,025 9,933 10,339
Other (income) expense:
Interest expense 1,942 1,569 3,745 3,139
Other (48) 1,630 310 2,055
-----------------------------------------------------------
Income before income tax 4,916 3,826 5,878 5,145
Income tax provision 2,066 1,689 2,494 2,288
-----------------------------------------------------------
Net income $ 2,850 $ 2,137 $ 3,384 $ 2,857
===========================================================
Earnings per share:
Basic $ .17 $ .13 $ .21 $ .17
===========================================================
Diluted $ .17 $ .13 $ .20 $ .17
===========================================================
Weighted average common shares 16,386 16,479 16,370 16,479
===========================================================
Weighted average common and common equivalent shares
16,708 16,868 16,691 16,868
===========================================================
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,
2001 2000
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash provided by operating activities $ 7,519 $ 8,091
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (3,406) (2,697)
Proceeds from sale of assets 3 2,294
Increase in intangibles and other assets (5,242) (4,130)
Acquisition of stations (14,407) (6,144)
----------------------------
Net cash used in investing activities (23,052) (10,677)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 11,250 --
Payments on long-term debt (341) (248)
Net proceeds from exercise of stock options 304 --
Purchase of shares held in treasury (725) --
----------------------------
Net cash provided by (used in) financing activities 10,488 (248)
Net decrease in cash and cash equivalents (5,045) (2,834)
Cash and cash equivalents, beginning of period 8,670 11,342
----------------------------
Cash and cash equivalents, end of period $ 3,625 $ 8,508
============================
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 six months ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. 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, 2000.
2. INCOME TAXES
The Company's effective tax rate is higher than the federal 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 April 1, 2001, the Company acquired an AM and FM radio station (WHAI-AM/FM)
serving the Greenfield, Massachusetts market for approximately $2,200,000.
On February 1, 2001, the Company acquired two FM and two AM radio stations
(WCVQ-FM, WZZP-FM, WDXN-AM and WJMR-AM) serving the Clarksville, Tennessee /
Hopkinsville, Kentucky market for approximately $6,700,000.
On February 1, 2001, the Company acquired an FM radio station (WVVR-FM) serving
the Clarksville, Tennessee / Hopkinsville, Kentucky market for approximately
$7,000,000, including approximately $1,000,000 of the Company's Class A Common
Stock. The radio station was owned by a company in which a member of our Board
of Directors had a 35% beneficial ownership interest. The purchase price was
determined on an arm's length basis. We also obtained an opinion from an
independent appraiser that the purchase price was fair from a financial point of
view.
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.
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
3. ACQUISITIONS (CONTINUED)
On July 17, 2000, the Company acquired an FM radio station (WKIO-FM) serving the
Champaign-Urbana, Illinois market for approximately $6,800,000.
On January 1, 2000, the Company acquired two FM and one AM radio station
(KICD-AM/FM and KLLT-FM) serving the Spencer, Iowa market for approximately
$6,400,000.
The 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.
The following unaudited pro forma results of operations of the Company for the
six months ended June 30, 2001 and 2000 assume the 2000 and 2001 acquisitions
occurred as of January 1, 2000. 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,
2001 2000
--------------------------
Net operating revenue $51,173 $51,857
Net income $3,277 $2,404
Earnings per share (diluted) $.20 $.14
4. SEGMENT INFORMATION
The Company's operations are aligned into two business segments: Radio and
Television. These business segments are consistent with the Company's management
of these businesses and its financial reporting structure.
The Radio segment includes all 55 of the Company's radio stations and three
radio information networks. The Television segment consists of 6 television
stations. The Radio and Television segments derive their revenue from the sale
of commercial broadcast inventory.
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
4. SEGMENT INFORMATION (CONTINUED)
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.
THREE MONTHS ENDED JUNE 30, 2001: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
---------------------------------------------------------------
Net operating revenue $25,316 $2,698 -- $28,014
Station operating expense 15,203 1,976 -- 17,179
---------------------------------------------------------------
Station operating income 10,113 722 -- 10,835
Corporate general and administrative
-- -- $ 1,539 1,539
Depreciation and amortization
1,854 501 131 2,486
---------------------------------------------------------------
Operating profit (loss) $ 8,259 $ 221 $(1,670) $ 6,810
===============================================================
THREE MONTHS ENDED JUNE 30, 2000: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
---------------------------------------------------------------
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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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
4. SEGMENT INFORMATION (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2001: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
---------------------------------------------------------------------
Net operating revenue $ 45,639 $ 5,168 -- $ 50,807
Station operating expense 29,076 4,041 -- 33,117
---------------------------------------------------------------------
Station operating income 16,563 1,127 -- 17,690
Corporate general and administrative
-- -- $ 2,895 2,895
Depreciation and amortization
3,635 1,002 225 4,862
---------------------------------------------------------------------
Operating profit (loss) $ 12,928 $ 125 $ (3,120) $ 9,933
---------------------------------------------------------------------
Total assets at June 30, 2001 $156,270 $26,077 $ 12,808 $195,155
=====================================================================
SIX MONTHS ENDED JUNE 30, 2000: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
---------------------------------------------------------------------
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
=====================================================================
5. SUBSEQUENT EVENT
On July 1, 2001 the Company acquired two FM radio stations (KMIT-FM and KGGK-FM)
serving the Mitchell, South Dakota market for approximately $4,050,000. The
purchase price for this acquisition was funded in escrow in June 2001, and is
included in "Other intangibles, deferred costs and investments, net" in the
Company's Balance Sheet at June 30, 2001.
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
6. ADOPTION OF ACCOUNTING POLICY
The Company uses interest rate swap agreements to reduce the risk of rising
interest rates. Statement of Financial Accounting Standards No. 133 (SFAS No.
133), Accounting for Derivative Instruments and Hedging Activities, was adopted
by the Company effective January 1, 2001. SFAS No. 133 requires that all
derivatives be recognized on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
the derivative will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings.
Upon adoption, the Company recorded a loss from the cumulative effect of an
accounting change of approximately $93,000, net of an applicable tax benefit of
approximately $50,000 in the statement of income.
Through March 30, 2001, the interest rate swap agreements contained cap
agreements which disqualified their treatment as a hedge. Accordingly, the
change in the fair value of the swaps were recognized through income and
amounted to $262,000 for the period from January 1, 2001 to March 30, 2001.
Effective March 30, 2001, the cap agreements were terminated and a hedging memo
was put in place which qualified the swap agreements as a cash flow hedge.
Changes in the fair value were recognized in other comprehensive income. There
was no material change in fair value of the swap agreements between March 30,
2001 and June 30, 2001.
The Company has recorded a liability on the balance sheet to record the fair
value of the swap agreements at June 30, 2001.
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Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
7. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 ("Statement 141"), Business Combinations,
and No. 142 ("Statement 142"), Goodwill and Other Intangible Assets. Statement
141 eliminates the pooling-of-interests method of accounting for business
combinations and changes the criteria to recognize intangible assets apart from
goodwill. The requirements of Statement 141 are effective for any business
combination accounted for by the purchase method that is completed after June
30, 2001. Under Statement 142, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized but will be subject to annual (or more
frequent if impairment indicators arise) impairment tests. Separable intangible
assets that have finite lives will continue to be amortized over their useful
lives. The amortization provisions of Statement 142 apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, the amortization provisions of
Statement 142 are effective upon adoption (January 1, 2002 for the Company).
We currently record a significant amount of amortization of goodwill and
indefinite lived intangible assets as a non-cash expense. As a result, the new
Statements will have a material impact on our 2002 financial statements. During
2002, the Company will also perform the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of January 1, 2002. We
have not yet determined what the effect of these tests will be on the earnings
and financial position of the Company.
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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 together with the unaudited
condensed consolidated financial statements and notes of Saga Communications,
Inc. and its subsidiaries contained in this Form 10-Q.
GENERAL
Our financial results are dependent on a number of factors, the most
significant of which is our ability to generate advertising revenue through
rates charged to advertisers. The rates a station is able to charge are based in
a large part, 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, 2000 and 1999, and the six month
periods ended June 30, 2001 and 2000 our Columbus, Ohio and Milwaukee, Wisconsin
stations were the only operating locations representing more than 15% of our
station operating income (i.e., net operating revenue less station operating
expense). For the years ended December 31, 2000 and 1999, Columbus accounted for
an aggregate of 16% and 15%, respectively, and Milwaukee accounted for an
aggregate of 22% of station operating income. For the six months ended June 30,
2001 and 2000, Columbus accounted for an aggregate of 16% and Milwaukee
accounted for an aggregate of 24% and 23%, respectively, of 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 in the relative market position of these locations could have a
significant impact on our operating results as a whole.
Because audience ratings in the local market are crucial to a station's
financial success, we endeavor to develop strong listener/viewer loyalty. We
believe that the diversification of formats on our radio stations helps to
insulate us from the effects of changes in musical tastes of the public on any
particular format.
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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. Our 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. We minimize our use of trade agreements and historically have sold over
95% of our advertising time for cash.
Most advertising contracts are short-term, and generally run only for a
few weeks. Most of our revenue is generated from local advertising, which is
sold primarily by each station's sales staff. For the six months ended June 30,
2001 and 2000, approximately 81% and 79%, respectively, of our gross revenue was
from local advertising. To generate national advertising sales, we engage
independent advertising sales representatives that specialize in national sales
for each of our stations.
Our revenue varies throughout the year. Advertising expenditures, our
primary source of revenue, generally have been lowest during the winter months,
which comprise the first quarter.
As of June 30, 2000 we owned and/or operated forty-five radio stations,
four TV stations, two LPTV stations and three radio information networks. As a
result of acquisitions, as of June 30, 2001 we owned and/or operated fifty-five
radio stations, four TV stations, two LPTV stations, and three radio information
networks.
Since January 1, 2000, we have acquired the following stations serving
the markets indicated:
- January 1, 2000: two FM and one AM radio stations (KICD-AM/FM
and KLLT-FM) serving the Spencer, Iowa market for
approximately $6,400,000.
- July 17, 2000: an FM radio station (WKIO-FM) serving the
Champaign-Urbana, Illinois market for approximately
$6,800,000.
- August 30, 2000: an AM and FM radio station (WHMP-AM and
WLZX-FM) serving the Northampton, Massachusetts market for
approximately $12,000,000.
- February 1, 2001: two FM and two AM radio stations (WCVQ-FM,
WZZP-FM, WDXN-AM, and WJMR-AM) serving the Clarksville,
Tennessee / Hopkinsville, Kentucky market for approximately
$6,700,000.
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- February 1, 2001: one FM radio station (WVVR-FM) serving the
Clarksville, Tennessee / Hopkinsville, Kentucky market for
approximately $7,000,000, including approximately $1,000,000
of the Company's Class A Common Stock.
- April 1, 2001: an AM and FM radio station (WHAI-AM/FM) serving
the Greenfield, Massachusetts market for approximately
$2,200,000.
- July 1, 2001: two FM radio stations (KMIT-FM and KGGK-FM)
serving the Mitchell, South Dakota market for approximately
$4,050,000.
For additional information with respect to these acquisitions, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.
We actively seek and explore opportunities for expansion through the
acquisition of additional broadcast properties. We review acquisition
opportunities on an ongoing basis.
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
The following tables summarize our results of operations for the three
months ended June 30, 2001 and 2000. The as-reported percentages reflect our
historical financial results and include the results of operations for stations
that we did not own for the entire comparable period. The same station
percentages reflect the results of operations for stations that we owned for the
entire comparable period.
CONSOLIDATED RESULTS OF OPERATIONS
(In thousands of dollars)
Three Months Ended As-Reported Same Station
June 30, % Increase % Increase
2001 2000 (Decrease) (Decrease)
------------------------------------------------------------------------
Net operating revenue $28,014 $26,180 7.01% .34%
Station operating expense * 17,179 15,503 10.81% .33%
----------------------------
Station operating income 10,835 10,677 1.48% .37%
Corporate G&A 1,539 1,453 5.92% N/A
Depreciation and amortization 2,486 2,199 13.05% (1.86%)
----------------------------
Operating profit 6,810 7,025 (3.06%) (.09%)
Interest expense 1,942 1,569 23.77%
Other expense (income) (48) 1,630 (102.94%)
Income taxes 2,066 1,689 22.32%
----------------------------
Net income $ 2,850 $ 2,137 33.36%
============================
Earnings per share (diluted) $.17 $.13 30.77%
============================
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RADIO BROADCASTING SEGMENT
(In thousands of dollars)
Three Months Ended As-Reported Same Station
June 30, % Increase % Increase
2001 2000 (Decrease) (Decrease)
------------------------------------------------------------------
Net operating revenue $25,316 $23,090 9.64% 2.09%
Station operating expense * 15,203 13,355 13.84% 1.67%
----------------------------
Station operating income 10,113 9,735 3.88% 2.66%
Depreciation and amortization 1,854 1,614 14.87% (5.45%)
----------------------------
Operating profit $ 8,259 $ 8,121 1.70% 4.27%
============================
TELEVISION BROADCASTING SEGMENT
(In thousands of dollars)
Three Months Ended As-Reported Same Station
June 30, % Increase % Increase
2001 2000 (Decrease) (Decrease)
------------------------------------------------------------------
Net operating revenue $2,698 $3,090 (12.69%) (12.69%)
Station operating expense * 1,976 2,148 (8.01%) (8.01%)
----------------------------
Station operating income 722 942 (23.35%) (23.35%)
Depreciation and amortization 501 492 1.83% 1.83%
----------------------------
Operating profit (loss) $ 221 $ 450 (50.89%) (50.89%)
============================
- --------------
* Programming, technical, selling and station general and administrative
expenses.
For the three months ended June 30, 2001, net operating revenue was
$28,014,000 compared with $26,180,000 for the three months ended June 30, 2000,
an increase of $1,834,000 or 7%. Approximately $1,744,000 or 95% of the increase
was attributable to revenue generated by stations that we did not own or operate
for the comparable period in 2000. Net operating revenue generated by stations
that we owned and operated for the entire comparable period ("same station")
increased by approximately 0.3% ($90,000). This slight increase was primarily
the result of a general slowdown in the economy which primarily impacted our
television segment.
Station operating expense (i.e., programming, technical, selling and
station general and administrative expenses) increased by $1,676,000 or 11% to
$17,179,000 for the three months ended June 30, 2001, compared with $15,503,000
for the three months ended June 30, 2000. Approximately $1,625,000 or 97% of the
increase was the result of the impact of the operation of stations that we did
not own or operate for the comparable period in 2000. Station operating expense
increased by approximately $51,000 or 0.3% on a same station basis.
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Operating profit decreased by $215,000 or 3% to $6,810,000 for the three
months ended June 30, 2001, compared with $7,025,000 for the three months ended
June 30, 2000. The decrease was primarily the result of a $287,000 or 13%
increase in depreciation and amortization resulting principally from the recent
acquisitions and a $86,000 increase in corporate general and administrative
charges, partially offset by the increase in Station operating income.
We generated net income of approximately $2,850,000 ($0.17 per share on a
diluted basis) during the three months ended June 30, 2001, compared with
$2,137,000 ($0.13 per share on a diluted basis) for the three months ended June
30, 2000, an increase of approximately $713,000. The increase was principally
the result of a decrease in other expense (income) of $1,678,000, partially
offset by the $215,000 decrease in operating profit, a $373,000 increase in
interest expense, and a $377,000 increase in income taxes. Other expense in 2000
included non recurring charges consisting of a $1,300,000 loss resulting from
the sale of our equity in an investment in a group of radio stations in
Reykjavik, Iceland and a $300,000 loss related to our equity in the operating
results of that investment. The increase in interest expense was principally the
result of additional borrowings to finance acquisitions.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
The following tables summarize our results of operations for the six
months ended June 30, 2001 and 2000. The as-reported percentages reflect our
historical financial results and include the results of operations for stations
that we did not own for the entire comparable period. The same station
percentages reflect the results of operations for stations that we owned for the
entire comparable period.
CONSOLIDATED RESULTS OF OPERATIONS
(In thousands of dollars)
Six Months Ended As-Reported Same Station
June 30, % Increase % Increase
2001 2000 (Decrease) (Decrease)
---------------------------------------------------------------------------
Net operating revenue $50,807 $48,222 5.36% (.30%)
Station operating expense * 33,117 30,822 7.45% (1.06%)
--------------------------------
Station operating income 17,690 17,400 1.67% 1.04%
Corporate G&A 2,895 2,664 8.67% N/A
Depreciation and amortization 4,862 4,397 10.58% (2.64%)
--------------------------------
Operating profit 9,933 10,339 (3.93%) .64%
Interest expense 3,745 3,139 19.31%
Other expense (income) 310 2,055 (84.91%)
Income taxes 2,494 2,288 9.00%
--------------------------------
Net income $ 3,384 $ 2,857 18.45%
--------------------------------
Earnings per share (diluted) $.20 $.17 17.65%
================================
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RADIO BROADCASTING SEGMENT
(In thousands of dollars)
Six Months Ended As-Reported Same Station
June 30, % Increase % Increase
2001 2000 (Decrease) (Decrease)
-------------------------------------------------------------------
Net operating revenue $45,639 $42,334 7.81% 1.36%
Station operating expense * 29,076 26,483 9.79% (.11%)
-------------------------------
Station operating income 16,563 15,851 4.49% 3.80%
Depreciation and amortization 3,635 3,226 12.68% (5.33%)
-------------------------------
Operating profit $12,928 $12,625 2.40% 6.14%
===============================
TELEVISION BROADCASTING SEGMENT
(In thousands of dollars)
Six Months Ended As-Reported Same Station
June 30, % Increase % Increase
2001 2000 (Decrease) (Decrease)
-------------------------------------------------------------------
Net operating revenue $5,168 $5,888 (12.23%) (12.23%)
Station operating expense * 4,041 4,339 (6.87%) (6.87%)
-------------------------------
Station operating income 1,127 1,549 (27.24%) (27.24%)
Depreciation and amortization 1,002 985 1.73% 1.73%
-------------------------------
Operating profit (loss) $ 125 $ 564 (77.84%) (77.84%)
===============================
- ---------------
* Programming, technical, selling and station general and administrative
expenses.
For the six months ended June 30, 2001, net operating revenue was
$50,807,000 compared with $48,222,000 for the six months ended June 30, 2000, an
increase of $2,585,000 or 5.36%. Approximately $2,731,000 or 106% of the
increase was attributable to revenue generated by stations that we did not own
or operate for the comparable period in 2000. Net operating revenue generated by
stations that we owned and operated for the entire comparable period ("same
station") decreased by approximately 0.3% ($146,000). This decrease was
primarily the result of a general slowdown in the economy, which primarily
impacted our television segment.
Station operating expense (i.e., programming, technical, selling and
station general and administrative expenses) increased by $2,295,000 or 7.45%,
to $33,117,000 for the six months ended June 30, 2001, compared with $30,822,000
for the six months ended June 30, 2000. Approximately $2,622,000 or 114% of the
increase was the result of the impact of the operation of stations that we did
not own or operate for the comparable period in 2000. Station operating expense
decreased by approximately $327,000 or 1% on a same station basis, primarily due
to the decline in revenue.
Operating profit decreased by $406,000 or 4% to $9,933,000 for the six
months ended June 30, 2001, compared with $10,339,000 for the six months ended
June 30, 2000. The decrease was primarily the result of a $465,000 or 11%
increase in depreciation and amortization resulting principally from the recent
acquisitions and a $231,000 increase in corporate general and administrative
charges, partially offset by the increase in Station operating income.
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We generated net income of approximately $3,384,000 ($0.20 per share on a
diluted basis) during the six months ended June 30, 2001, compared with
$2,857,000 ($0.17 per share on a diluted basis) for the six months ended June
30, 2000, an increase of approximately $527,000. The increase was principally
the result of a $1,745,000 decrease in other expense partially offset by the
$406,000 decrease in operating profit, a $606,000 increase in interest expense,
and a $206,000 increase in income taxes. Other expense in 2000 included non
recurring charges consisting of a $1,300,000 loss resulting from the sale of our
equity in an investment in a group of radio stations in Reykjavik, Iceland, a
$600,000 loss related to our equity in the operating results of that investment,
and a $125,000 loss on the sale of a building in one of our markets. Other
expense of $310,000 in 2001 was primarily attributable to marking to market our
swap agreements. The increase in interest expense was principally the result of
additional borrowings to finance acquisitions.
OUTLOOK
The following statements are forward-looking statements and should be
read in conjunction with "Forward-Looking Statements" below.
Based on economic and market conditions as of July 24, 2001, for the
quarter ending September 30, 2001 we anticipate net operating revenue of
approximately $26,800,000, station operating expense of approximately
$15,400,000, station operating income of approximately $11,400,000, operating
profit of approximately $7,600,000, and net income of approximately $3,200,000
or $.19 per share on a diluted basis.
Based on economic and market conditions as of July 24, 2001, for the year
ending December 31, 2001 we anticipate net operating revenue of approximately
$106,600,000, station operating expense of approximately $65,500,000, station
operating income of approximately $41,100,000, operating profit of approximately
$25,800,000, and net income of approximately $10,100,000 or $.61 per share on a
fully diluted basis.
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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, words such
as "believes," "anticipates," "estimates," "expects," and similar expressions
are intended to identify forward-looking statements. These statements are made
as of the date of this report based on current expectations. We undertake no
obligation to update this information. A number of important factors could cause
our actual results for 2001 and beyond to differ materially from those expressed
in any forward-looking statements made by or on our behalf. Forward looking
statements involve a number of risks and uncertainties including, but not
limited to, our 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. We
cannot be sure that we will be able to anticipate or respond timely to changes
in any of these factors, 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 our stock.
For a more complete description of the prominent risks and uncertainties
inherent in our business, see "Business - Forward Looking Statements; Risk
Factors" in our Form 10-K for the year ended December 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, we had $105,550,000 of long-term debt (including the
current portion thereof) outstanding and approximately $95,000,000 of unused
borrowing capacity under our Credit Agreement.
Under our Credit Agreement we have three financing facilities (the
"Facilities"): a $105,000,000 senior secured term loan (the "Term Loan"), a
$75,000,000 senior secured acquisition loan facility (the "Acquisition
Facility"), and a $20,000,000 senior secured revolving credit facility (the
"Revolving Facility"). The Facilities mature September 30, 2008. Our
indebtedness under the Facilities is secured by a first priority lien on
substantially all of our assets and the assets of our subsidiaries, by a pledge
of our subsidiaries' stock and by a guarantee of our subsidiaries.
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The Acquisition Facility may be used for permitted acquisitions and to
pay related transaction expenses. 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 March 28,
2003, the Acquisition Facility will convert to a five and a half year term loan.
The outstanding amount of the Term Loan is required to be reduced quarterly in
amounts ranging from 3.125% to 7.5% of the initial commitment commencing on
March 31, 2003. The outstanding amount of the Acquisition Facility is required
to be reduced quarterly in amounts ranging from 3.125% to 7.5% commencing on
March 31, 2003. 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 our option, at
alternatives equal to LIBOR plus 1.25% to 2.0% or the Agent bank's base rate
plus .25% to 1.0%. The spread over LIBOR and the base rate vary from time to
time, depending upon our financial leverage. We also pay quarterly commitment
fees of 0.375% to 0.625% per annum on the aggregate unused portion of the
Acquisition and Revolving Facilities.
Our Credit Agreement contains a number of financial covenants which,
among other things, require us to maintain specified financial ratios and impose
certain limitations on us with respect to investments, additional indebtedness,
dividends, distributions, guarantees, liens and encumbrances.
At June 30, 2001, we had three interest rate swap agreements under the
following terms:
- Notional amount of $24,500,000. We pay 6.875% calculated on
the notional amount. We receive LIBOR (3.71% at June 30, 2001)
calculated on the notional amount of $24,500,000.
- Notional amount of $12,250,000. We pay 5.685% calculated on
the notional amount. We receive LIBOR (3.71% at June 30, 2001)
calculated on the notional amount of $12,250,000.
- Notional amount of $12,250,000. We pay 5.685% calculated on
the notional amount. We receive LIBOR (3.71% at June 30, 2001)
calculated on the notional amount of $12,250,000.
The swap agreements will be used to convert the variable Eurodollar
interest rate of a portion of our bank borrowings to a fixed interest rate. The
swap agreements were entered into to reduce our risk of rising interest rates.
Net receipts or payments under the agreements are recognized as an adjustment to
interest expense. The swap agreements expire in September 2001.
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Approximately $181,000 in additional interest expense was recognized as a
result of the interest rate swap agreements for the six months ended June 30,
2001. An aggregate increase in interest expense of approximately $127,000 has
been recognized since the inception of the agreements.
During the six months ended June 30, 2001 and 2000, we had net cash flows
from operating activities of $7,519,000 and $8,091,000, respectively. We believe
that cash flow from operations will be sufficient to meet our quarterly debt
service requirements for interest and scheduled payments of principal under the
Credit Agreement. If such cash flow is not sufficient we may be required to sell
additional equity securities, refinance our obligations or dispose of one or
more of our properties in order to make such scheduled payments. There can be no
assurance that we would be able to effect any such transactions on favorable
terms.
The following acquisitions in 2001 were financed through funds generated
from operations, additional borrowings of $7,500,000 under the Credit Agreement,
and the re-issuance of approximately $1,000,000 of our Class A Common Stock from
Treasury shares:
- April 1, 2001: an AM and FM radio station (WHAI-AM/FM) serving
the Greenfield, Massachusetts market for approximately
$2,200,000.
- February 1, 2001: two FM and two AM radio stations (WCVQ-FM,
WZZP-FM, WDXN-AM, and WJMR-AM) serving the Clarksville,
Tennessee / Hopkinsville, Kentucky market for approximately
$6,700,000.
- February 1, 2001: an FM radio station (WVVR-FM) serving the
Clarksville, Tennessee / Hopkinsville, Kentucky market for
approximately $7,000,000, including approximately $1,000,000
of the Company's Class A Common Stock. The radio station was
owned by a company in which a member of our Board of Directors
had a 35% beneficial ownership interest. The purchase price
was determined on an arm's length basis. We also obtained an
opinion from an independent appraiser that the purchase price
was fair from a financial point of view.
On July 1, 2001 we acquired two FM radio stations (KMIT-FM and KGGK-FM)
serving the Mitchell, South Dakota market for approximately $4,050,000.
We continue to actively seek and explore opportunities for expansion
through the acquisition of additional broadcast properties.
In September 2000, we modified our Stock Buy-Back Program so that we may
purchase up to $6,000,000 of our Class A Common Stock. From its inception in
1998 through June 30, 2001 we have repurchased approximately $4,552,000 of our
Class A Common Stock.
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We anticipate that 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.
Our capital expenditures for the six months ended June 30, 2001 were
approximately $3,406,000 ($2,697,000 in the comparable period in 2000). We
anticipate our capital expenditures in 2001 to be approximately $6,000,000,
which we expect to finance through funds generated from operations and/or
additional borrowings under the Credit Agreement.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. Statement 141 eliminates the
pooling-of-interests method of accounting for business combinations and changes
the criteria to recognize intangible assets apart from goodwill. The
requirements of Statement 141 are effective for any business combination
accounted for by the purchase method that is completed after June 30, 2001.
Under Statement 142, goodwill and intangible assets deemed to have indefinite
lives are no longer amortized but will be subject to annual (or more frequent if
impairment indicators arise) impairment tests. Separable intangible assets that
have finite lives will continue to be amortized over their useful lives. The
amortization provisions of Statement 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the amortization provisions of Statement 142 are
effective upon adoption (January 1, 2002 for the Company).
We currently record a significant amount of amortization of goodwill and
indefinite lived intangible assets as a non-cash expense. As a result, the new
Statements will have a material impact on our 2002 financial statements. During
2002, the Company will also perform the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of January 1, 2002. We
have not yet determined what the effect of these tests will be on the earnings
and financial position of the Company.
INFLATION
The impact of inflation on our 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 our operations.
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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 14, 2001.
(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* 13,767,569 11,359
Joseph P. Misiewicz* 13,767,569 11,359
Edward K. Christian 15,088,916 578,308
Donald Alt 15,654,037 13,187
Kristin Allen 15,655,860 11,364
Gary Stevens 15,655,865 11,359
Robert Maccini 15,655,865 11,359
------------------------------------------------
* 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 our consolidated financial
statements for the fiscal year ending December 31,
2001 was approved with 32,588,053 votes cast for,
72,432 votes cast against, 1,403 abstentions and 0
broker non-votes.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(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 13, 2001 /s/ Samuel D. Bush
-----------------------------
Samuel D. Bush
Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial Officer)
Date: August 13, 2001 /s/ Catherine A. Bobinski
-----------------------------
Catherine A. Bobinski
Vice President, Corporate
Controller and Chief Accounting
Officer
(Principal Accounting Officer)
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