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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period ended September 30, 2002
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 October 31, 2002 was
18,330,294 and 2,360,370, respectively.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- September 30, 2002 and
December 31, 2001 3
Condensed consolidated statements of income -- Three and nine months
ended September 30, 2002 and 2001 5
Condensed consolidated statements of cash flows--Nine months ended
September 30, 2002 and 2001 6
Notes to unaudited condensed consolidated financial statements
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 17
Item 4. Controls and Procedures 30
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 32
Certifications 33
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Saga Communications, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------- ---------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 15,066 $ 11,843
Accounts receivable, net 19,505 19,185
Prepaid expenses 1,747 2,811
Other current assets 2,180 1,680
--------- ---------
Total current assets 38,498 35,519
Property and equipment 117,456 110,172
Less accumulated depreciation (59,325) (55,003)
--------- ---------
Net property and equipment 58,131 55,169
Other assets:
Broadcast licenses, net 94,380 86,835
Goodwill, net 23,338 20,929
Other intangibles 746 1,118
Deferred costs and investments, net 4,292 3,151
--------- ---------
Total other assets 122,756 112,033
--------- ---------
$ 219,385 $ 202,721
========= =========
See notes to unaudited condensed consolidated financial statements.
3
Saga Communications, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------- ---------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 946 $ 944
Other current liabilities 12,969 10,217
Current portion of long-term debt 8,930 275
--------- ---------
Total current liabilities 22,845 11,436
Deferred income taxes 12,345 9,990
Long-term debt 96,322 105,226
Other 1,398 1,007
STOCKHOLDERS' EQUITY:
Common stock 208 166
Additional paid-in capital 44,675 43,185
Note receivable from principal stockholder -- (171)
Retained earnings 44,291 34,483
Accumulated other comprehensive income (604) (340)
Treasury stock (2,095) (2,198)
Unearned compensation on restricted stock -- (63)
--------- ---------
Total stockholders' equity 86,475 75,062
--------- ---------
$ 219,385 $ 202,721
========= =========
Note: The balance sheet at December 31, 2001 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.
4
Saga Communications, Inc.
Condensed Consolidated Statements of Income
(in thousands except per share data)
Unaudited
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net operating revenue $ 29,783 $ 26,251 $ 83,474 $ 77,058
Operating expenses:
Programming and technical 6,753 6,230 19,517 18,365
Selling 6,620 6,037 20,500 19,300
Station general and administrative 4,495 4,021 13,348 11,740
Corporate general and administrative 1,511 1,191 4,345 4,086
Depreciation 1,523 1,450 4,498 4,255
Amortization 125 1,156 375 3,213
-------- -------- -------- --------
Operating profit 8,756 6,166 20,891 16,099
Other (income) expense:
Interest expense 1,344 1,896 4,052 5,641
Other (150) (315) (147) (5)
-------- -------- -------- --------
Income before income tax 7,562 4,585 16,986 10,463
Income tax provision 3,176 1,870 7,135 4,364
-------- -------- -------- --------
Net income $ 4,386 $ 2,715 $ 9,851 $ 6,099
======== ======== ======== ========
Earnings per share:
Basic $ .21 $ .13 $ .48 $ .30
======== ======== ======== ========
Diluted $ .21 $ .13 $ .47 $ .29
======== ======== ======== ========
Weighted average common shares 20,667 20,475 20,590 20,466
======== ======== ======== ========
Weighted average common and common equivalent shares 21,016 20,910 20,990 20,869
======== ======== ======== ========
See notes to unaudited condensed consolidated financial statements.
5
Saga Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
Unaudited
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash provided by operating activities $ 20,589 $ 14,990
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (5,855) (5,130)
Proceeds from sale of assets 606 12
Increase in intangibles and other assets (1,376) (1,697)
Acquisition of stations (11,753) (18,358)
-------- --------
Net cash used in investing activities (18,378) (28,593)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- 11,250
Payments on long-term debt (249) (365)
Net proceeds from exercise of stock options 1,261 311
Purchase of shares held in treasury -- (986)
-------- --------
Net cash provided by financing activities 1,012 10,210
Net increase in cash and cash equivalents 3,223 27
Cash and cash equivalents, beginning of period 11,843 8,670
-------- --------
Cash and cash equivalents, end of period $ 15,066 $ 8,697
======== ========
See notes to unaudited condensed consolidated financial statements.
6
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 our opinion, 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, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. 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, 2001.
2. RECLASSIFICATION
Certain amounts previously reported in the 2001 financial statements have been
reclassified to conform to the 2002 presentation.
3. STOCK SPLIT
On June 15, 2002 we consummated a five-for-four split of our Class A and Class B
Common Stock, resulting in additional shares being issued of approximately
3,685,000 and 472,000, respectively, for holders of record on May 31, 2002. All
share and per share information in the accompanying financial statements has
been restated retroactively to reflect the split.
4. ADOPTION OF ACCOUNTING POLICIES
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. The
requirements of Statement 141 are effective for any business combination after
June 30, 2001. Statement 141 eliminates the pooling-of-interests method of
accounting for business combinations and changes the criteria to recognize
intangible assets apart from goodwill. We have historically used the purchase
method to account for all business combinations and therefore, the adoption of
Statement 141 did not have a material impact on our financial position, cash
flows or results of operations.
7
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
4. ADOPTION OF ACCOUNTING POLICIES (CONTINUED)
Under Statement 142, goodwill and intangible assets deemed to have indefinite
lives are no longer amortized and are 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.
We adopted Statement 142 on January 1, 2002. Reported income and earnings per
share adjusted to exclude broadcast license and goodwill amortization are as
follows:
ADJUSTED NET INCOME FOR ADOPTION OF
STATEMENT 142 (UNAUDITED) THREE MONTHS NINE MONTHS
(IN THOUSANDS EXCEPT PER SHARE DATA) ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2002 2001 2002 2001
----------------------- -----------------------
Reported net income $ 4,386 $ 2,715 $ 9,851 $ 6,099
Add back: amortization of goodwill, net of tax provision
of $126 and $380 -- 173 -- 517
Add back: amortization of broadcast licenses, net of tax
provision of $274 and $714 -- 373 -- 971
--------- --------- --------- ---------
Adjusted net income $ 4,386 $ 3,261 $ 9,851 $ 7,587
========= ========= ========= =========
Basic earnings per share:
Reported net income per share - basic $ .21 $ .13 $ .48 $ .30
Add back: amortization of goodwill, net of taxes
-- .01 -- .02
Add back: amortization of broadcast licenses, net of taxes
-- .02 -- .05
--------- --------- --------- ---------
Adjusted net income per share - basic $ .21 $ .16 $ .48 $ .37
========= ========= ========= =========
Diluted earnings per share:
Reported net income per share - diluted $ .21 $ .13 $ .47 $ .29
Add back: amortization of goodwill, net of taxes
-- .01 -- .02
Add back: amortization of broadcast licenses, net of taxes
-- .02 -- .05
--------- --------- --------- ---------
Adjusted net income per share - diluted $ .21 $ .16 $ .47 $ .36
========= ========= ========= =========
During the first quarter of 2002, we completed the required transitional
impairment test prescribed by Statement 142 for our broadcast licenses (which we
have deemed as indefinite lived since the licenses are expected to generate cash
flows indefinitely). The results of these tests indicate that there was no
impairment for these intangibles as of January 1, 2002.
8
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
4. ADOPTION OF ACCOUNTING POLICIES (CONTINUED)
During the second quarter of 2002, we completed the required transitional
impairment test prescribed by Statement 142 for goodwill. The results of these
tests indicate that there was no impairment for goodwill as of January 1, 2002.
We have recorded amortizable intangible assets at September 30, 2002 as follows:
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
--------- ---------
(In thousands)
Non-competition agreements $ 4,315 $ 4,005
Favorable lease agreements 4,807 4,371
--------- ---------
Total amortizable intangible assets $ 9,122 $ 8,376
========= =========
Aggregate amortization expense for these amortizable intangible assets for the
nine months ended September 30, 2002 was $375,000.
Effective January 1, 2002 we adopted Statement No. 144 ("Statement 144"),
Accounting for the Impairment or Disposal of Long-Lived Assets. Statement 144
provides a consistent method to value long-lived assets to be disposed of and
broadens the presentation of discontinued operations to include more disposal
transactions. The adoption of Statement 144 did not have a material effect on
our financial position, cash flows or results of operations.
5. TOTAL COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
TOTAL COMPREHENSIVE INCOME CONSISTS OF: 2002 2001 2002 2001
------- ------- ------- -------
(In thousands)
Net income $ 4,386 $ 2,715 $ 9,851 $ 6,099
Accumulated other comprehensive income:
Change in fair value of derivative instruments, net
of taxes (166) (490) (264) (490)
------- ------- ------- -------
Total comprehensive income $ 4,220 $ 2,225 $ 9,587 $ 5,609
======= ======= ======= =======
Accumulated Other Comprehensive Income is comprised solely of the changes in the
fair value of derivatives at September 30, 2002 and December 31, 2001.
9
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
6. INCOME TAXES
Our 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.
7. ACQUISITIONS
We actively seek and explore opportunities for expansion through the acquisition
of additional broadcast properties. This activity is part of our strategy to be
the leading broadcaster in the markets where we own properties.
On February 1, 2001, we 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, we 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 our 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 April 1, 2001, we acquired an AM and FM radio station (WHAI-FM and WHMQ-AM)
serving the Greenfield, Massachusetts market for approximately $2,200,000.
The following transactions have been accounted for in accordance with Statement
141 as summarized in Note 4. The effect of applying Statement 141 is immaterial
to the accompanying financial statements.
On July 1, 2001, we acquired two FM radio stations (KMIT-FM and KUQL-FM) serving
the Mitchell, South Dakota market for approximately $4,050,000.
On May 1, 2002, we acquired two FM and two AM radio stations (WKBK-AM, WKNE-FM
and WKVT-AM/FM) serving the Keene, New Hampshire and Brattleboro, Vermont
markets, respectively, for approximately $9,075,000 plus approximately $300,000
in additional transaction costs, which have been included in goodwill.
On July 1, 2002, we acquired an FM and AM radio station (WOQL-FM and WZBK-AM)
serving the Keene, New Hampshire market, for approximately $2,625,000 plus
approximately $76,000 in additional transaction costs, which have been included
in goodwill.
10
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
7. ACQUISITIONS (CONTINUED)
The consolidated statements of income include the operating results of the
acquired stations from their respective dates of acquisition. All acquisitions
were accounted for as purchases and, accordingly, the total costs were allocated
to the acquired assets and assumed liabilities based on their estimated fair
values as of the respective acquisition dates. The excess of the consideration
paid over the estimated fair value of net assets acquired have been recorded as
goodwill, which is deductible for tax purposes. The following condensed balance
sheet represents the estimated fair value assigned to the related assets and
liabilities of the 2002 and 2001 acquisitions at their respective acquisition
dates. Since we are in the process of finalizing the allocations, this
allocation is preliminary.
SAGA COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET OF 2002 AND 2001 ACQUISITIONS
(IN THOUSANDS)
2002 2001
------------ ------------
ACQUISITIONS ACQUISITIONS
----------- -----------
ASSETS ACQUIRED:
Current assets $ 403 $ 684
Property and equipment 2,014 4,737
Other assets:
Broadcast licenses 7,545 14,941
Goodwill 2,050 113
Other intangibles, deferred
costs and investments 2 227
----------- -----------
Total other assets 9,597 15,281
----------- -----------
Total assets acquired 12,014 20,702
----------- -----------
LIABILITIES ASSUMED:
Current liabilities 261 471
Deferred income taxes -- 245
----------- -----------
Total liabilities assumed 261 716
----------- -----------
Net assets acquired $ 11,753 $ 19,986
=========== ===========
The following unaudited pro forma results of our operations for the three and
nine months ended September 30, 2002 and 2001 assume the 2002 and 2001
acquisitions occurred as of January 1, 2001. 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.
11
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
7. ACQUISITIONS (CONTINUED)
PRO FORMA RESULTS OF OPERATIONS FOR ACQUISITIONS:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
CONSOLIDATED RESULTS OF OPERATIONS 2002 2001 2002 2001
-------- -------- -------- --------
(In thousands except per share data)
Net operating revenue $ 29,783 $ 27,232 $ 84,650 $ 80,703
Station operating expense 17,868 16,918 54,366 52,220
-------- -------- -------- --------
Station operating income 11,915 10,314 30,284 28,483
Corporate general and administrative 1,511 1,191 4,345 4,086
Depreciation 1,523 1,490 4,557 4,464
Amortization 125 1,156 375 3,257
-------- -------- -------- --------
Operating profit 8,756 6,477 21,007 16,676
Interest expense 1,344 1,896 4,052 5,695
Other (150) (315) (147) (5)
Income tax provision 3,176 2,002 7,184 4,587
-------- -------- -------- --------
Net income $ 4,386 $ 2,894 $ 9,918 $ 6,399
======== ======== ======== ========
Basic earnings per share $ .21 $ .14 $ .48 $ .31
======== ======== ======== ========
Diluted earnings per share $ .21 $ .14 $ .47 $ .31
======== ======== ======== ========
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
RADIO BROADCASTING SEGMENT 2002 2001 2002 2001
--------- --------- --------- ---------
(In thousands)
Net operating revenue $ 26,643 $ 24,659 $ 75,750 $ 72,962
Station operating expense 15,584 14,840 47,516 46,101
--------- --------- --------- ---------
Station operating income 11,059 9,819 28,234 26,861
Corporate general and administrative -- -- -- --
Depreciation 1,119 1,042 3,346 3,122
Amortization 119 953 357 2,721
--------- --------- --------- ---------
Operating profit $ 9,821 $ 7,824 $ 24,531 $ 21,018
========= ========= ========= =========
12
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
7. ACQUISITIONS (CONTINUED)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
TELEVISION BROADCASTING SEGMENT 2002 2001 2002 2001
------- ------- ------- -------
(In thousands)
Net operating revenue $ 3,140 $ 2,573 $ 8,900 $ 7,741
Station operating expense 2,284 2,078 6,850 6,119
------- ------- ------- -------
Station operating income 856 495 2,050 1,622
Corporate general and administrative -- -- -- --
Depreciation 354 403 1,062 1,210
Amortization 6 98 18 293
------- ------- ------- -------
Operating profit (loss) $ 496 $ (6) $ 970 $ 119
======= ======= ======= =======
8. SEGMENT INFORMATION
Our operations are aligned into two business segments: Radio and Television.
These business segments are consistent with our management of these businesses
and our financial reporting structure.
The Radio segment includes all 63 of our radio stations and three radio
information networks. The Television segment consists of 7 television stations.
The Radio and Television segments both 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.
We evaluate performance of our operating entities based on operating profit
(loss) before corporate general and administrative, depreciation and
amortization ("station operating income"). We believe 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 us for debt service requirements, other commitments, reinvestment
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.
13
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
8. SEGMENT INFORMATION (CONTINUED)
THREE MONTHS ENDED
SEPTEMBER 30,2002: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
------------ ------------ ------------ ------------
(In thousands)
Net operating revenue $ 26,643 $ 3,140 -- $ 29,783
Station operating expense 15,584 2,284 -- 17,868
------------ ------------ ------------ ------------
Station operating income 11,059 856 -- 11,915
Corporate general and
administrative -- -- $ 1,511 1,511
Depreciation 1,119 354 50 1,523
Amortization 119 6 -- 125
------------ ------------ ------------ ------------
Operating profit (loss) $ 9,821 $ 496 $ (1,561) $ 8,756
============ ============ ============ ============
THREE MONTHS ENDED
SEPTEMBER 30, 2001: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
------------ ------------ ------------ ------------
(In thousands)
Net operating revenue $ 23,678 $ 2,573 -- $ 26,251
Station operating expense 14,210 2,078 -- 16,288
------------ ------------ ------------ ------------
Station operating income 9,468 495 -- 9,963
Corporate general and
administrative -- -- $ 1,191 1,191
Depreciation 1,002 403 45 1,450
Amortization 953 98 105 1,156
------------ ------------ ------------ ------------
Operating profit (loss) $ 7,513 $ (6) $ (1,341) $ 6,166
============ ============ ============ ============
14
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
8. SEGMENT INFORMATION (CONTINUED)
NINE MONTHS ENDED
SEPTEMBER 30, 2002: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
------------ ------------ ------------ ------------
(In thousands)
Net operating revenue $ 74,574 $ 8,900 -- $ 83,474
Station operating expense 46,515 6,850 -- 53,365
------------ ------------ ------------ ------------
Station operating income 28,059 2,050 -- 30,109
Corporate general and
administrative -- -- $ 4,345 4,345
Depreciation 3,287 1,062 149 4,498
Amortization 357 18 -- 375
------------ ------------ ------------ ------------
Operating profit (loss) $ 24,415 $ 970 $ (4,494) $ 20,891
============ ============ ============ ============
Total assets $ 174,120 $ 26,375 $ 18,890 $ 219,385
============ ============ ============ ============
NINE MONTHS ENDED
SEPTEMBER 30, 2001: CORPORATE AND
RADIO TELEVISION OTHER CONSOLIDATED
------------ ------------ ------------ ------------
(In thousands)
Net operating revenue $ 69,317 $ 7,741 -- $ 77,058
Station operating expense 43,286 6,119 -- 49,405
------------ ------------ ------------ ------------
Station operating income 26,031 1,622 -- 27,653
Corporate general and
administrative -- -- $ 4,086 4,086
Depreciation 2,913 1,210 132 4,255
Amortization 2,677 293 243 3,213
------------ ------------ ------------ ------------
Operating profit (loss) $ 20,441 $ 119 $ (4,461) $ 16,099
============ ============ ============ ============
Total assets $ 159,210 $ 26,033 $ 13,339 $ 198,582
============ ============ ============ ============
15
Saga Communications, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
Unaudited
9. SUBSEQUENT EVENTS
On November 1, 2002 we acquired three FM radio stations (KDEZ-FM, KDXY-FM, and
KJBX-FM) serving the Jonesboro, Arkansas market for approximately $12,000,000
including approximately $2,000,000 of our Class A common stock.
On November 1, 2002 we entered into two time brokerage agreements for WISE-AM
and WOXL-FM serving the Asheville, North Carolina market.
On November 1, 2002 we acquired an AM and FM radio station (WJQY-AM and WJOI-FM)
serving the Springfield, Tennessee market for approximately $1,500,000.
On November 13, 2002 we entered into an agreement to acquire an FM radio station
(WODB-FM) Delaware, Ohio, serving the Columbus, Ohio market for approximately
$9,000,000 and the exchange of one of our AM radio stations (WVKO-AM) serving
the Columbus, Ohio market. The transaction is subject to the approval of the
Federal Communications Commission and is expected to close during the first
quarter 2003.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto of Saga
Communications, Inc. and its subsidiaries contained elsewhere herein.
GENERAL
Our 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 television 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, 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, 2001 and 2000 and the nine month
periods ended September 30, 2002 and 2001, 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, 2001 and 2000, Columbus
accounted for an aggregate of 15% and 16%, respectively, and Milwaukee accounted
for an aggregate of 23% and 22%, respectively, of station operating income. For
the nine months ended September 30, 2002 and 2001, Columbus accounted for an
aggregate of 15% and 15%, respectively, and Milwaukee accounted for an aggregate
of 23% and 24%, 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.
17
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 nine months ended
September 30, 2002 and 2001, approximately 81% and 82%, 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 September 30, 2001 we owned and/or operated 57 radio stations, four
TV stations, two LPTV stations, and three radio information networks. As a
result of acquisitions, as of September 30, 2002 we owned and/or operated 63
radio stations, four TV stations, three LPTV stations and three radio
information networks.
From January 1, 2001 to September 30, 2002, we have acquired the
following stations serving the markets indicated:
- 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: 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 and WHMQ-FM)
serving the Greenfield, Massachusetts market for approximately
$2,200,000.
- July 1, 2001: two FM radio stations (KMIT-FM and KUQL-FM) serving
the Mitchell, South Dakota market for approximately $4,050,000.
18
- May 1, 2002: two AM and two FM radio stations (WKBK-AM, WKNE- FM and
WKVT-AM/FM) serving the Keene, New Hampshire and Brattleboro,
Vermont markets, respectively, for approximately $9,075,000.
- July 1, 2002: an AM and FM radio station (WZBK-AM and WOQL-FM)
serving the Keene, New Hampshire markets for approximately
$2,625,000.
Since September 30, 2002, we have entered into the following transactions:
- November 1, 2002: acquired three FM radio stations (KDEZ-FM, KDXY-FM
and KJBX-FM) serving the Jonesboro, Arkansas market for
approximately $12,000,000 including approximately $2,000,000 of our
Class A common stock.
- November 1, 2002: entered into two time brokerage agreements for
WISE-AM and WOXL-FM serving the Asheville, North Carolina market.
- November 1, 2002: acquired an AM and FM radio station (WJQY-AM and
WJOI-FM) serving the Springfield, Tennessee market for approximately
$1,500,000.
- November 13, 2002: entered into an agreement to acquire an FM radio
station (WODB-FM) Delaware, Ohio, serving the Columbus, Ohio market
for approximately $9,000,000 and the exchange of one of our AM radio
stations (WVKO-AM) serving the Columbus, Ohio market. The
transaction is subject to the approval of the Federal Communications
Commission and is expected to close during the first quarter 2003.
For additional information with respect to these acquisitions, see Notes 7
and 9 of the Notes to Condensed Consolidated Financial Statements and "Liquidity
and Capital Resources" below.
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 SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
The following tables summarize our results of operations for the three
months ended September 30, 2002 and 2001. 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.
19
CONSOLIDATED RESULTS OF OPERATIONS
(In thousands of dollars)
Three Months Ended As-Reported Same Station
September 30, % Increase % Increase
2002 2001 (Decrease) (Decrease)
-------- -------- -------- --------
Net operating revenue $ 29,783 $ 26,251 13.45% 9.52%
Station operating expense * 17,868 16,288 9.70% 4.95%
-------- --------
Station operating income 11,915 9,963 19.59% 16.98%
Corporate G&A 1,511 1,191 26.87% N/A
Depreciation 1,523 1,450 5.03% 1.93%
Amortization 125 1,156 (89.19%) (89.28%)
-------- --------
Operating profit 8,756 6,166 42.00% 38.52%
Interest expense 1,344 1,896 (29.11%)
Other (income)expense (150) (315) (52.38%)
Income taxes 3,176 1,870 69.84%
-------- --------
Net income $ 4,386 $ 2,715 61.55%
======== ========
Basic earnings per share $ .21 $ .13 60.05%
======== ========
Diluted earnings per share $ .21 $ .13 60.73%
======== ========
RADIO BROADCASTING SEGMENT
(In thousands of dollars)
Three Months Ended As-Reported Same Station
September 30, % Increase % Increase
2002 2001 (Decrease) (Decrease)
--------- --------- --------- ---------
Net operating revenue $ 26,643 $ 23,678 12.52% 8.16%
Station operating expense * 15,584 14,210 9.67% 4.22%
--------- ---------
Station operating income 11,059 9,468 16.80% 14.06%
Depreciation 1,119 1,002 11.68% 7.17%
Amortization 119 953 (87.51%) (87.63%)
--------- ---------
Operating profit $ 9,821 $ 7,513 30.72% 27.87%
TELEVISION BROADCASTING SEGMENT
(In thousands of dollars)
Three Months Ended As-Reported Same Station
September 30, % Increase % Increase
2002 2001 (Decrease) (Decrease)
----------- ----------- ----------- -----------
Net operating revenue $ 3,140 $ 2,573 22.04% 22.04%
Station operating expense * 2,284 2,078 9.91% 9.91%
----------- -----------
Station operating income 856 495 72.93% 72.93%
Depreciation 354 403 (12.16%) (12.16%)
Amortization 6 98 (93.88%) (93.88%)
----------- -----------
Operating profit (loss) $ 496 $ (6) N/A N/A
* Programming, technical, selling and station general and administrative
expenses.
20
For the three months ended September 30, 2002, net operating revenue was
$29,783,000 compared with $26,251,000 for the three months ended September 30,
2001, an increase of $3,532,000 or 13%. Approximately $1,034,000 or 29% of the
increase was attributable to revenue generated by stations that we did not own
or operate for the comparable period in 2001. Net operating revenue generated by
stations that we owned and operated for the entire comparable period ("same
station") increased by approximately 10% ($2,498,000). This increase was
primarily the result of increased advertising rates at a majority of our
stations.
Station operating expense (i.e., programming, technical, selling and
station general and administrative expenses) increased by $1,580,000 or 10% to
$17,868,000 for the three months ended September 30, 2002, compared with
$16,288,000 for the three months ended September 30, 2001. Of the total
increase, approximately $776,000 or 49% was the result of the impact of the
operation of stations that we did not own or operate for the comparable period
in 2001. Station operating expense increased by approximately $804,000 or 5% on
a same station basis. The increase in station operating expense was primarily
attributable to the increase in net operating revenue.
Operating profit increased by $2,590,000 or 42% to $8,756,000 for the
three months ended September 30, 2002, compared with $6,166,000 for the three
months ended September 30, 2001. The increase was primarily the result of the
$3,532,000 increase in net operating revenue offset by the $1,580,000 increase
in station operating expense, and an $1,031,000 or 89% decrease in amortization
expense that was principally the result of the non-amortization provisions of
the adoption of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets". See Note 4 of the Notes to Condensed Consolidated Financial
Statements.
We generated net income in the amount of approximately $4,386,000 ($0.21
per share on a diluted basis) during the three months ended September 30, 2002,
compared with net income of $2,715,000 ($0.13 per share on a diluted basis) for
the three months ended September 30, 2001, an increase of approximately
$1,671,000. The increase in net income was principally the result of the
$2,590,000 increase in operating profit, a $552,000 decrease in interest expense
and a $165,000 increase in other expense, offset by a $1,306,000 increase in
income taxes. The decrease in interest expense was the result of lower interest
rates over the prior period.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER,
30, 2001
The following tables summarize our results of operations for the nine
months ended September 30, 2002 and 2001. 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.
21
CONSOLIDATED RESULTS OF OPERATIONS
(In thousands of dollars)
Nine Months Ended As-Reported Same Station
September 30, % Increase % Increase
2002 2001 (Decrease) (Decrease)
--------- --------- --------- ---------
Net operating revenue $ 83,474 $ 77,058 8.33% 3.90%
Station operating expense * 53,365 49,405 8.02% 2.77%
--------- ---------
Station operating income 30,109 27,653 8.88% 5.82%
Corporate G&A 4,345 4,086 6.34% N/A
Depreciation 4,498 4,255 5.71% (4.16%)
Amortization 375 3,213 (88.33%) (88.60%)
--------- ---------
Operating profit 20,891 16,099 29.77% 25.12%
Interest expense 4,052 5,641 (28.17%)
Other (income)expense (147) (5) N/A
Income taxes 7,135 4,364 63.50%
--------- ---------
Net income $ 9,851 $ 6,099 61.52%
========= =========
Basic earnings per share $ .48 $ .30 60.55%
========= =========
Diluted earnings per share $ .47 $ .29 60.59%
========= =========
RADIO BROADCASTING SEGMENT
(In thousands of dollars)
Nine Months Ended As-Reported Same Station
September 30, % Increase % Increase
2002 2001 (Decrease) (Decrease)
--------- --------- --------- ---------
Net operating revenue $74,574 $69,317 7.58% 2.62%
Station operating expense * 46,515 43,286 7.46% 1.40%
--------- ---------
Station operating income 28,059 26,031 7.79% 4.54%
Depreciation 3,287 2,913 12.84% (1.37%)
Amortization 357 2,677 (86.66%) (86.84%)
--------- ---------
Operating profit $24,415 $20,441 19.44% 15.99%
TELEVISION BROADCASTING SEGMENT
(In thousands of dollars)
Nine Months Ended As-Reported Same Station
September 30, % Increase % Increase
2002 2001 (Decrease) (Decrease)
--------- --------- --------- ---------
Net operating revenue $ 8,900 $ 7,741 14.97% 14.97%
Station operating expense * 6,850 6,119 11.95% 11.95%
--------- ---------
Station operating income 2,050 1,622 26.39% 26.39%
Depreciation 1,062 1,210 (12.23%) (12.23%)
Amortization 18 293 (93.86%) (93.86%)
--------- ---------
Operating profit $ 970 $ 119 715.13% 715.13%
* Programming, technical, selling and station general and administrative
expenses.
22
For the nine months ended September 30, 2002, net operating revenue was
$83,474,000 compared with $77,058,000 for the nine months ended September 30,
2001, an increase of $6,416,000 or 8%. Approximately $3,504,000 or 55% of the
increase was attributable to revenue generated by stations that we did not own
or operate for the comparable period in 2001. Net operating revenue generated by
stations that we owned and operated for the entire comparable period ("same
station") increased by approximately 4% ($2,912,000). This increase was
primarily attributable to an increase in advertising rates at a majority of our
stations.
Station operating expense (i.e., programming, technical, selling and
station general and administrative expenses) increased by $3,960,000 or 8% to
$53,365,000 for the nine months ended September 30, 2002, compared with
$49,405,000 for the nine months ended September 30, 2001. Of the total increase,
approximately $2,660,000 or 67% was the result of the impact of the operation of
stations that we did not own or operate for the comparable period in 2001.
Station operating expense increased by approximately $1,300,000 or 3% on a same
station basis primarily due to the increase in revenue.
Operating profit increased by $4,792,000 or 30% to $20,891,000 for the
nine months ended September 30, 2002, compared with $16,099,000 for the nine
months ended September 30, 2001. The increase was primarily the result of the
$6,416,000 increase in net operating revenue offset by the $3,960,000 increase
in station operating expense, and an $2,838,000 or 88% decrease in amortization
expense that was principally the result of the non-amortization provisions of
the adoption of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets". See note 4 of the Notes to Condensed Consolidated Financial
Statements.
We generated net income in the amount of approximately $9,851,000 ($0.47
per share on a diluted basis) during the nine months ended September 30, 2002,
compared with net income of $6,099,000 ($0.29 per share on a diluted basis) for
the nine months ended September 30, 2001, an increase of approximately
$3,752,000. The increase in net income was principally the result of the
$4,792,000 increase in operating profit, a $1,589,000 decrease in interest
expense and a $142,000 decrease in other expense, offset by a $2,771,000
increase in income taxes. The decrease in interest expense was the result of
lower interest rates over the prior period. The increase in income taxes was
due to higher income levels.
OUTLOOK
The following statements are forward-looking statements and should be read
in conjunction with "Forward-Looking Statements" below.
Based on the economic and market conditions as of October 29, 2002, for
the quarter ending December 31, 2002 we anticipate net operating revenue of
approximately $29,200,000, station operating expense of approximately
$18,300,000, station operating income of approximately $10,900,000, operating
profit of approximately $7,700,000, and net income of approximately $3,500,000
or $.17 per share on a fully diluted basis.
23
Based on the economic and market conditions as of October 29, 2002, for
the year ending December 31, 2002 we anticipate net operating revenue of
approximately $112,700,000, station operating expense of approximately
$71,700,000, station operating income of approximately $41,000,000, operating
profit of approximately $28,700,000, and net income of approximately $13,400,000
or $.64 per share on a fully diluted basis.
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," "plans", "expects," and similar
expressions are intended to identify forward-looking statements. These
statements are made as of the date of this report or as otherwise indicated,
based on current expectations. We undertake no obligation to update this
information. A number of important factors could cause our actual results for
2002 and beyond to differ materially from those expressed in any forward-looking
statements made by or on our behalf. Forward looking statements are not
guarantees of future performance as they involve a number of risks,
uncertainties and assumptions that may prove to be incorrect and that may cause
our actual results and experiences to differ materially from the anticipated
results or other expectations expressed in such forward-looking statements. The
risks, uncertainties and assumptions that may affect our performance include our
financial leverage and debt service requirements, dependence on key personnel,
dependence on key stations, U.S. and local economic conditions, our ability to
successfully integrate acquired stations, regulatory requirements, new
technologies, natural disasters and terrorist attacks. 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 "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward Looking Statements; Risk Factors"
in our Form 10-K for the year ended December 31, 2001.
24
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002, we had $105,252,000 of long-term debt (including
the current portion thereof) outstanding and approximately $95,000,000 of unused
borrowing capacity under our Credit Agreement.
Our Credit Agreement has 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 of
our subsidiaries, by a pledge of our subsidiaries' stock and by a guarantee of
our subsidiaries.
As of September 30, 2002 we had $105,000,000 outstanding under the Term
Loan. 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 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. Any
outstanding amount under the Revolving Facility will be due on the maturity date
of September 30, 2008. 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.
The 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.
We use interest rate swap agreements to reduce our risk of rising interest
rates. Our swap agreements are used to convert the variable Eurodollar interest
rate of a portion of our bank borrowings to a fixed interest rate.
25
At September 30, 2002, we had four interest rate swap agreements with the
following terms:
- Notional amount of $13,125,000. We pay 4.11% calculated on the
notional amount. We receive LIBOR (1.79813% at September 30, 2002)
calculated on the notional amount of $13,125,000. This agreement
expires in March 2003.
- Notional amount of $13,125,000. We pay 4.11% calculated on the
notional amount. We receive LIBOR (1.79813% at September 30, 2002)
calculated on the notional amount of $13,125,000. This agreement
expires in March 2003.
- Notional amount of $6,875,000 through March 2003, then notional
amount increases to $20,000,000. We pay 3.67% calculated on the
notional amount. We receive LIBOR (1.79813% at September 30, 2002)
calculated on the notional amount of $6,875,000 ($20,000,000 after
March 2003). This agreement expires in September 2003.
- Notional amount of $6,875,000 through March 2003, then notional
amount increases to $20,000,000. We pay 3.67% calculated on the
notional amount. We receive LIBOR (1.79813% at September 30, 2002)
calculated on the notional amount of $6,875,000 ($20,000,000 after
March 2003). This agreement expires in September 2003.
Net receipts or payments under the agreements are recognized as an
adjustment to interest expense. Approximately $614,000 in additional interest
expense was recognized as a result of these interest rate swap agreements for
the nine months ended September 30, 2002. An aggregate increase in interest
expense of approximately $759,000 has been recognized since the inception of the
agreements. The fair value of these swap agreements at September 30, 2002 was
approximately ($915,000), which has been recorded as a liability in our balance
sheet.
During the nine months ended September 30, 2002 and 2001, we had net cash
flows from operating activities of $20,589,000 and $14,990,000, respectively. We
believe 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. However, 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, if at all.
On May 1, 2002 we acquired an AM and FM radio station (WKBK-AM, WKNE-FM)
serving the Keene, New Hampshire market, and an AM and FM radio station
(WKVT-AM/FM) serving the Brattleboro, Vermont market for approximately
$9,075,000.
On July 1, 2002 we acquired an AM and FM radio station (WZBK-AM and
WOQL-FM) serving the Keene, New Hampshire market for approximately $2,625,000.
26
Additionally, on November 1, 2002 we:
-- acquired three FM radio stations (KDEZ-FM, KDXY-FM and KJBX-FM)
serving the Jonesboro, Arkansas market for approximately $12,000,000
including approximately $2,000,000 of our Class A common stock.
-- entered into two time brokerage agreements for WISE-AM and WOXL-FM
serving the Asheville, North Carolina market.
-- acquired an AM and FM radio station (WJQY-AM and WJOI-FM) serving
the Springfield, Tennessee market for approximately $1,500,000.
All of the above transactions were financed through funds generated from
operations.
On November 13, 2002 we entered into an agreement to acquire an FM radio
station (WODB-FM) Delaware, Ohio, serving the Columbus, Ohio market for
approximately $9,000,000 and the exchange of one of our AM radio stations
(WVKO-AM) serving the Columbus, Ohio market. The transaction is subject to the
approval of the Federal Communications Commission and is expected to close
during the first quarter 2003. We expect to finance this acquisition through
funds generated from operations or additional borrowings under the credit
agreement.
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 the inception of the
Stock Buy-Back program in 1998 through September 30, 2002, we have repurchased
409,065 shares of our Class A Common Stock for approximately $4,832,000.
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, exclusive of acquisitions, for the nine months
ended September 30, 2002 were approximately $5,855,000 ($5,130,000 in 2001). We
anticipate capital expenditures in 2002 to be approximately $7,500,000, which we
expect to finance through funds generated from operations or additional
borrowings under the Credit Agreement.
27
For additional information concerning our future cash obligations under
various types of contracts under the terms of our Credit Agreement, operating
leases, programming contracts, employment agreements, and other operating
contracts. There have been no material changes to such contracts/commitments
during the nine months ended September 30, 2002. We anticipate financing our
contractual cash obligations through funds generated from operations or
additional borrowings under the Credit Agreement, or a combination thereof.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States, which
require us to make estimates, judgments and assumptions that affect the reported
amounts of certain assets, liabilities, revenues, expenses and related
disclosures and contingencies. We evaluate estimates used in preparation of our
financial statements on a continual basis. Our critical accounting policies are
described in Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations - Critical Accounting Policies in our annual report on
Form 10-K for the year ended December 31, 2001.
28
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. The requirements of Statement 141 are effective for any business
combination after June 30, 2001. Statement 141 eliminates the
pooling-of-interests method of accounting for business combinations and changes
the criteria to recognize intangible assets apart from goodwill. We have
historically used the purchase method to account for all business combinations
and therefore, the adoption of Statement 141 did not have a material impact on
our financial position, cash flows or results of operations.
Under Statement 142, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized and are 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. We adopted Statement 142 on January
1, 2002.
During the first quarter of 2002, we completed the required transitional
impairment test prescribed by Statement 142 for our broadcast licenses (which we
have deemed as indefinite lived since the licenses are expected to generate cash
flows indefinitely). The results of these tests indicate that there was no
impairment for these intangibles as of January 1, 2002.
During the second quarter of 2002, we completed the required transitional
impairment test prescribed by Statement 142 for goodwill. The results of these
tests indicate that there was no impairment for these intangibles as of January
1, 2002.
Effective January 1, 2002 we adopted Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". Statement 144 provides a
consistent method to value long-lived assets to be disposed of and broadens the
presentation of discontinued operations to include more disposal transactions.
The adoption of Statement 144 did not have a material effect on our financial
position, cash flows or results of operations.
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.
29
Item 4. Controls and Procedures
(a) Based on an evaluation of the effectiveness of the Company's
disclosure controls and procedures as of November 13, 2002, both the Chief
Executive Officer and the Chief Financial Officer of the Company concluded that
the Company's disclosure controls and procedures, as defined in Rules 13a-14(c)
and 15d-14(c) promulgated under the Securities Exchange Act of 134, are
effective.
(b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation. There were no corrective actions
with regard to significant deficiencies and material weaknesses.
30
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K
None
31
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, 2002 /s/ Samuel D. Bush
---------------------------------------
Samuel D. Bush
Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial Officer)
Date: November 13, 2002 /s/ Catherine A. Bobinski
---------------------------------------
Catherine A. Bobinski
Vice President, Corporate Controller and
Chief Accounting Officer
(Principal Accounting Officer)
32
CERTIFICATIONS
I, Edward K. Christian, Chief Executive Officer of Saga Communications, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Saga Communications,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Edward K. Christian
----------------------------------
Chief Executive Officer
33
CERTIFICATIONS
--------------
I, Samuel D. Bush, Chief Financial Officer of Saga Communications, Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Saga Communications,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Samuel D. Bush
-----------------------------
Chief Financial Officer
34