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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period for __________ to __________
Commission file number 1-11588
SAGA COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-3042953
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
73 Kercheval Avenue
Grosse Pointe Farms, Michigan 48236
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 886-7070
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
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Class A Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
Aggregate market value of the Class A Common Stock and the Class B Common
Stock (assuming conversion thereof into Class A Common Stock) held by
nonaffiliates of the registrant, computed on the basis of $21.75 per share (the
closing price of the Class A Common Stock on March 17, 1997 on the American
Stock Exchange): $152,761,843.
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 March 17, 1996 was
7,088,426 and 966,808, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
1. Proxy Statement for the 1997 Annual Meeting of Stockholders (to be filed with
the Securities and Exchange Commission on or before April 30, 1997) is
incorporated by reference in Part III hereof.
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PART I
ITEM 1. BUSINESS
RECENT DEVELOPMENTS
On June 11, 1996 the Company acquired an AM and an FM radio station in
Yankton, South Dakota, serving Sioux City, Iowa for approximately $7,000,000.
On June 18, 1996 the Company acquired an AM and an FM radio station serving
Portland, Maine for approximately $10,000,000.
On July 1, 1996, the Company entered into an agreement to purchase two AM
and two FM radio stations serving the Springfield, Illinois market for
approximately $6,000,000. The transaction is subject to the approval of the
Federal Communications Commission ("FCC"). The Company began operating the
radio stations under the terms of a local market agreement on July 1, 1996,
which will remain in effect until such time as the Company concludes its
pending acquisition of the stations.
On December 11, 1996, the Company entered into an agreement to purchase an
FM radio station serving the Des Moines, Iowa market for approximately
$2,700,000. The Company closed on this transaction on March 14, 1997. The
Company began operating the radio station under the terms of a local market
agreement on August 1, 1996, which remained in effect until such closing.
On December 19, 1996, the Company entered into an agreement to purchase an
FM radio station serving the Des Moines, Iowa market for approximately
$3,200,000. The Company has received approval of the FCC and expects to close
on this transaction during the second quarter of 1997. The Company began
operating the radio station under the terms of a local market agreement on
January 1, 1997, which will remain in effect until such time as the Company
concludes its pending acquisition of the station.
On March 4, 1997, the Company signed a letter of intent to purchase two FM
radio stations serving the Milwaukee, Wisconsin market for approximately
$5,000,000. The transaction is subject to the completion of a definitive
purchase agreement and the final approval of the FCC.
For additional information with respect to these acquisitions, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.
On February 25, 1997 the Company declared a five-for-four split of its
Class A and Class B Common Stock, effective April 1, 1997, which will result in
additional shares being issued of approximately 1,772,000 and 242,000,
respectively, for holders of record on March 17, 1997. All share and per share
information included herein has been restated to retroactively reflect the
split.
BUSINESS
The Company is a broadcast company whose business is exclusively devoted to
acquiring, developing and operating radio and television stations. The Company
currently owns and/or operates one television station, as well as twenty-one FM
and thirteen AM radio stations serving eleven markets primarily in the Midwest
and along the Eastern Seaboard, including Columbus, Ohio; Norfolk, Virginia; and
Milwaukee, Wisconsin.
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The Company's television station KOAM-TV, serving the Joplin,
Missouri/Pittsburg, Kansas market, which ranked as market 145 by number of
television households, is one of four television stations in the market. The
station is a CBS affiliate and the number one rated television station, by
number of viewers, in the market. (All of the above information was derived from
Investing in Television Market Report 1996, based on A.C. Nielson ratings and
data.)
The following table sets forth certain information about the Company's current
radio stations and their markets:
1996
Market Target
Ranking Demographics
by Radio Ranking (by Target
Station Market (a) Revenue (b) Station Format listeners) (c) Demographics
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FM:
WKLH Milwaukee, WI 28 Classic Hits 2 Men 25-49
WLZR Milwaukee, WI 28 Album Oriented Rock 1(d) Men 18-34
WSNY Columbus, OH 29 Adult Contemporary N/S Women 25-54
WNOR Norfolk, VA 35 Album Oriented Rock N/S(d) Men 18-34
WAFX Norfolk, VA 35 Classic Hits N/S Men 25-49
KSTZ Des Moines, IA 64 Hot Adult Contemporary 2 Women 18-34
KIOA Des Moines, IA 64 Oldies 1(d) Men 35-54
KAZR Des Moines, IA 64 Album Oriented Rock 1 Men 18-34
KLTI-FM * Des Moines, IA 64 Soft Adult Contemporary 9 Women 35-54
WMGX Portland, ME 83 Classic Hits 1 Women 25-54
WYNZ Portland, ME 83 Oldies 5 Men 35-54
WPOR Portland, ME 83 Country 1(d) Adults 35+
WAQY Springfield, MA 85 Album Oriented Rock 1(d) Men 18-49
WZID Manchester, NH 137 Adult Contemporary 1 Adults 25-54
WYMG Springfield, IL 142 Classic Rock 2 Men 18-49
WQQL Springfield, IL 142 Oldies 5(e) Adults 25-54
WDBR * Springfield, IL 142 Contemporary Hits 1(e) Women 18-34
WYXY * Springfield, IL 142 Country 7 Adults 25-49
WLRW Champaign, IL 163 Hot Adult Contemporary 1 Women 18-49
WIXY Champaign, IL 163 Country 1 Adults 25-54
WNAX Sioux City IA 233 Oldies 1 Men 35-54
AM:
WLZR Milwaukee, WI 28 Album Oriented Rock 1(d) Men 18-34
WVKO Columbus, OH 29 Gospel N/S Adults 35+
WNOR Norfolk, VA 35 Album Oriented Rock N/S Men 18-34
KRNT Des Moines, IA 64 Nostalgia/Sports 4 Adults 35+
KXTK Des Moines, IA 64 Talk/Sports 14 Adults 35+
WGAN Portland, ME 83 News/Talk 2 Adults 35+
WZAN Portland, ME 83 News/Talk 3 Men 35-54
WPOR Portland, ME 83 Country 1(d) Adults 35+
WAQY Springfield, MA 85 Album Oriented Rock 1(d) Men 18-49
WFEA Manchester, NH 137 Nostalgia/Talk 3 Adults 35+
WTAX * Springfield, IL 142 News/Talk 2 Adults 35+
WVAX * Springfield, IL 142 News/Talk N/R Adults 35+
WNAX Yankton, SD N/A Full Service/Country 1 Adults 35+
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The following refers to the table on the previous page about the Company's
current radio stations and their markets:
(a) Actual city of license may differ from metro market actually served.
(b) Derived from Investing in Radio 1996 Market Report.
(c) Information derived from most recent available Arbitron Radio Market Report
except for Columbus and Norfolk, for which information was derived from
Investing in Radio 1996 Market Report.
(d) AM and FM stations are simulcast. Accordingly, ranking information pertains
to the combined stations.
(e) Tied for position.
N/A Information currently not available.
N/R Station does not appear in Arbitron Radio Market Report.
N/S Non Subscriber - Station does not currently subscribe to Arbitron Radio
Market Report.
* Station currently being operated under the terms of a Time Brokerage
Agreement. Closing of acquisition of this station is subject to approval
of the FCC.
COMPANY STRATEGY
The Company's strategy is to operate top billing radio and television
stations in mid-sized markets. The Company prefers to operate in mid-sized
markets, which it defines as markets ranked (by market revenues) from 20 to 200
out of the markets summarized by Investing in Radio Market Report and Investing
in Television Market Report. The Company owns and/or operates at least one of
the top four billing stations in each of its radio markets for which
independent data exists. Nineteen of the 21 FM stations and 11 of the 13 AM
stations owned and/or operated by the Company subscribe to independent listener
rating services.
Based on the most recent information available, 11 of the 21 FM radio
stations and 3 of the 13 AM radio stations owned and/or operated by the Company
were ranked number one (by number of listeners), and its television station was
ranked number one (by number of viewers), in their target demographic markets.
Programming and marketing are key components in the Company's strategy to
achieve top ratings in both its radio and television operations. In many of the
Company's markets, the three or four most highly rated stations (radio and/or
television) receive a disproportionately high share of the market's advertising
revenues. As a result, a station's revenue is dependent upon its ability to
maximize its number of listeners/viewers within an advertiser's given
demographic parameters. In certain cases it is the practice of the Company to
use attributes other than specific market listener data for sales activities.
In those markets where sufficient alternative data is available, the Company
does not subscribe with an independent listener rating service.
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The Company's radio stations employ a variety of programming formats,
including but not limited to Classic Hits, Adult Contemporary, Album Oriented
Rock, and Country. The Company regularly performs extensive market research,
including music evaluations, focus groups and strategic vulnerability studies.
The Company's stations also employ audience promotions to further develop and
secure a loyal following.
The Company's television station is a CBS affiliate. In addition to
securing network programming, the Company also carefully selects available
syndicated programming to maximize viewership. The Company also develops local
programming, including a strong local news franchise.
In operating its stations, the Company concentrates on the development of
strong decentralized local management, which is responsible for the day-to-day
operations of the station and is compensated based on the station's financial
performance, as well as other performance factors that are deemed to effect the
long-term ability of the stations to achieve financial performance objectives.
Corporate management is responsible for long-range planning, establishing
policies and procedures, resource allocation and monitoring the activities of
the stations.
The Company continues to actively seek and explore opportunities for
expansion through the acquisition of additional broadcast properties. During
1996, with passage of the Telecommunications Act of 1996 (the
"Telecommunications Act") (see "Federal Regulation of Radio and Television
Broadcasting"), a company is now able to own as many as 8 radio stations in a
single market. Previously the Company was limited to no more than 2 FM and 2 AM
stations in a single market. Another significant provision of the
Telecommunications Act was the lifting of the limitations on the number of
radio stations one organization can own in total. Previously the Company was
limited to owning no more than 20 FM and 20 AM stations. The Company seeks to
acquire reasonably priced broadcast properties with significant growth
potential that are located in markets with well-established and relatively
stable economies. The Company often focuses on local economies supported by a
strong presence of state or federal government or one or more major
universities. Future acquisitions will be subject to the availability of
financing and compliance with the Communications Act of 1934 (the
"Communications Act") and FCC rules. Although the Company reviews acquisition
opportunities on an ongoing basis, it has no other present understandings,
agreements or arrangements to acquire or sell any radio or television stations,
other than those discussed herein.
ADVERTISING SALES
Virtually all of the Company's revenues are generated from the sale of
advertising for broadcast on its stations. Depending on the format of a
particular radio station, there are a predetermined number of advertisements
broadcast each hour. In the case of the Company's television station, the
number of advertisements broadcast may be limited by certain network
affiliation and syndication agreements and with respect to programs designed
for children, federal regulation. The Company determines the number of
advertisements broadcast hourly that can maximize a station's available revenue
dollars without jeopardizing listening/viewing levels. While there may be
shifts from time to time in the number of advertisements broadcast during a
particular time of the day, the total number of advertisements broadcast on a
particular station generally does not vary significantly from year to year. Any
change in the Company's revenue, with the exception of those instances where
stations are acquired or sold, is generally the result of pricing adjustments
which are made to ensure that the station efficiently utilizes available
inventory.
Advertising rates charged by radio and television stations are generally
based primarily on a station's ability to attract audiences in the demographic
groups targeted by advertisers (as measured by rating service surveys
quantifying the number of listeners/viewers tuned to the station at various
times); the number of stations in the market competing for the same demographic
group; the supply of and demand for radio advertising time; and other
qualitative factors, including rates
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charged by competing radio stations within a given market. Radio rates are
generally highest during morning and afternoon drive-time hours, while
television advertising rates are generally higher during prime time evening
viewing periods. Most advertising contracts are short-term, generally running
for only a few weeks, providing broadcasters the ability to modify advertising
rates as dictated by such variables as changes in station ownership within a
market, changes in listener/viewer ratings and changes in the business climate
within a particular market, any of which may have a significant impact on the
available advertising time on a particular station.
Approximately 83% of the Company's revenue in fiscal 1996 was generated
from the sale of local advertising. Additional revenue is generated from the
sale of national advertising, network compensation payments, barter and other
miscellaneous transactions. In all its markets, the Company attempts to maintain
a local sales force which is generally larger than that of its competitors. In
its sales efforts, the Company's principal goal is to develop long-standing
customer relationships through frequent direct contacts, which the Company
believes represents a competitive advantage. The Company also typically provides
incentive to its sales staff to seek out new opportunities resulting in the
establishment of new client relationships, as well as new sources of revenue,
not directly associated with the sale of broadcast time.
Each of the Company's stations also engage national independent sales
representatives to assist it in obtaining national advertising revenues. These
representatives obtain advertising through national advertising agencies and
receive a commission from the Company based on the Company's gross revenue from
the advertising obtained. Total revenue resulting from national advertising in
fiscal 1996 was approximately $10,587,000 or 17%.
COMPETITION
Although radio and television broadcasting are highly competitive
businesses, such competition is subject to the inherent limitations implied by
the finite number of commercial broadcasting licenses available in each market
(see "Federal Regulation of Radio and Television Broadcasting"). The Company's
stations compete for listeners/viewers and advertising revenues directly with
other radio and/or television stations, as well as other media, within their
markets. The Company's radio and television stations compete for
listeners/viewers primarily on the basis of program content and by employing
on-air talent which appeals to a particular demographic group. By building a
strong listener/viewer base comprised of a specific demographic group in each of
its markets, the Company is able to attract advertisers seeking to reach these
listeners/viewers.
Other media, including broadcast television and/or radio (as applicable),
cable television, newspapers, magazines, direct mail, coupons and billboard
advertising, also compete with the Company's stations for advertising revenues.
The radio and television broadcasting industries are also subject to
competition from new media technologies that may be developed or introduced,
such as the delivery of audio programming by cable television systems or direct
reception from satellites. Although the Company recognizes that technological
advances within the broadcast industry can be significant, it is not aware of
any such advances or developments that it has not already implemented that
would have an effect on its competitive position within its markets. The
Company cannot predict the effect, if any, that any such new technologies may
have on the broadcasting industry taken as a whole.
EMPLOYEES
As of December 31, 1996, the Company had approximately 479 full-time
employees and 221 part-time employees, none of whom are represented by unions.
The Company believes that its relations with its employees are good.
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The Company employs several high-profile personalities with large loyal
audiences in their respective markets. The Company has entered into employment
and non-competition agreements with its President and with most of its
high-profile on-air personalities, as well as non-competition agreements with
its commissioned sales representatives.
FEDERAL REGULATION OF RADIO AND TELEVISION BROADCASTING
INTRODUCTION. The ownership, operation and sale of radio and television
stations, including those licensed to the Company, are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
determines whether to approve changes in ownership or control of station
licenses; regulates equipment used by stations; adopts and implements
regulations and policies that directly or indirectly affect the ownership,
operation and employment practices of stations; and has the power to impose
penalties for violations of its rules or the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Reference
should be made to the Communications Act, FCC rules and the public notices and
rulings of the FCC for further information concerning the nature and extent of
federal regulation of broadcast stations.
RECENT DEVELOPMENTS. On February 8, 1996, President Clinton signed into law
the Telecommunications Act which substantially revised portions of the
Communications Act. Effective March 15, 1996 the FCC conformed its radio and
television multiple ownership rules with the Telecommunications Act.
LICENSE RENEWAL. Radio and television broadcasting licenses are granted for
maximum terms of eight years, and are subject to renewal upon application to
the FCC. On April 12,1996, the FCC revised its rules to conform to new section
309(k) which governs the license renewal process of the Telecommunications Act.
Comparative hearings between incumbent licensees and mutually-exclusive
applicants for new stations were eliminated with respect to renewal
applications filed after May 1, 1995. Under the new "two-step" renewal process,
the FCC must grant a renewal application if it finds that during the preceding
term the licensee has served the public interest, convenience and necessity,
and there have been no serious violations of the Communications Act or the
FCC's rules which, taken together, would constitute a pattern of abuse. If a
renewal applicant fails to meet these standards, the FCC may either deny its
application or grant the application on such terms and conditions as are
appropriate, including renewal for less than the full 8-year term. In making
the determination of whether to renew the license, the FCC may not consider
whether the public interest would be served by the grant of a license to a
person other than the renewal applicant. If the FCC, after notice and
opportunity for a hearing finds that the licensee has failed to meet the
requirements for renewal and no mitigating factors justify the imposition of
lesser sanctions, the FCC may issue an order denying the renewal application,
and only thereafter may the FCC accept applications for a construction permit
specifying the broadcasting facilities of the former licensee. The
Telecommunications Act also made the standard for filing petitions to deny
renewal applications conform to the statutory renewal standards. Thus,
petitions may be filed to deny renewal applications the renewal applications of
any of the Company's stations, but any such petitions must raise issues that
would cause the FCC to deny a renewal application under the standards adopted
in the new "two-step" renewal process. Under the Telecommunications Act, if a
broadcast station fails to transmit signals for any consecutive 12-month
period, the FCC license expires at the end of that period.
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The Company owns television station KOAM-TV, channel 7, serving the Joplin,
Missouri/Pittsburg, Kansas market, operating at a power of 316,000 watts
(visual), and 61,600 watts (aural). The expiration date of FCC authorization is
June 1, 1998.
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The following table sets forth the market and broadcast power of each of the
Company's radio stations and the date on which each such station's FCC license
expires:
Expiration
Date of FCC
Station Market(1) Power (Watts)(2) Authorization
FM:
WSNY Columbus, OH 50,000 October 1, 2003
WKLH Milwaukee, WI 50,000 December 1, 2003
WLZR Milwaukee, WI 50,000 December 1, 2003
WNOR Norfolk, VA 50,000 October 1, 2002(3)
WAFX Norfolk, VA 100,000 October 1, 2002
KSTZ Des Moines, IA 100,000 February 1, 2004
KIOA Des Moines, IA 100,000 February 1, 2004
KAZR Des Moines, IA 100,000 February 1, 2004
KLTI-FM Des Moines, IA 100,000 February 1, 2004(4)
WAQY Springfield, MA 50,000 April 1, 1998
WMGX Portland, ME 100,000 April 1, 1998
WYNZ Portland, ME 25,000 April 1, 1998
WPOR Portland, ME 50,000 April 1, 1998
WYMG Springfield, IL 50,000 December 1, 2003
WQQL Springfield, IL 50,000 December 1, 2003
WDBR Springfield, IL 50,000 December 1, 1996(4)(5)
WYXY Lincoln, IL 3,000 December 1, 1996(4)(5)
WZID Manchester, NH 50,000 April 1, 1998
WLRW Champaign, IL 50,000 December 1, 2003
WIXY Champaign, IL 25,000 December 1, 2003
WNAX Yankton, SD 97,000 April 1, 1997(5)
AM:
WVKO Columbus, OH 1,000 October 1, 2003
WLZR Milwaukee, WI 1,000 December 1, 2003
WNOR Norfolk, VA 1,000 October 1, 2002(3)
KRNT Des Moines, IA 5,000 February 1, 2004
KXTK Des Moines, IA 10,000 February 1, 1997(5)
WAQY Springfield, MA 2,500(6) April 1, 1998
WGAN Portland, ME 5,000 April 1, 1998
WZAN Portland, ME 5,000 April 1, 1998
WPOR Portland, ME 1,000 April 1, 1998
WTAX Springfield, IL 1,000 December 1, 1996(4)(5)
WVAX Lincoln, IL 1,000(6) December 1, 1996(4)(5)
WFEA Manchester, NH 5,000 April 1, 1998
WNAX Yankton, SD 5,000 April 1, 1997(5)
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The following information pertains to the table on the previous page that sets
forth the market and broadcast power of each of the Company's radio stations and
the date on which each such station's FCC license expires:
(1) Some stations are licensed to a different community located within the
market that they serve.
(2) Some stations are licensed to operate with a combination of effective
radiated power and antenna height which may be different from, but provide
equivalent coverage to, the power shown. WVKO(AM) and KIOA(AM) operate with
lower power at night than the power shown.
(3) License renewed subject to EEO reporting conditions. The Company has sought
reconsideration of the FCC's action.
(4) Company purchases time on this station through a time brokerage agreement.
The FCC has approved Company's purchase of this station, but the closing
has not yet occurred.
(5) Timely-filed application for renewal of license of this station is pending
before the FCC, which extends the licensee's authority to operate the
station.
(6) Operates daytime only or with greatly reduced power at night.
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OWNERSHIP MATTERS. The Communications Act prohibits the assignment of a
broadcast license or the transfer of control of a broadcast licensee without the
prior approval of the FCC. In determining whether to grant or renew a broadcast
license, the FCC considers a number of factors pertaining to the licensee,
including compliance with the Communications Act's limitations on alien
ownership; compliance with various rules limiting common ownership of broadcast,
cable and newspaper properties; and the "character" and other qualifications of
the licensee and those persons holding "attributable or cognizable" interests
therein.
Under the Communications Act, as amended by the Telecommunications Act,
broadcast licenses may not be granted to any corporation having more than
one-fifth of its issued and outstanding capital stock owned or voted by aliens
(including non-U.S. corporations), foreign governments or their representatives
(collectively, "Aliens"). The Telecommunications Act also prohibits a
corporation, without FCC waiver, from holding a broadcast license if that
corporation is controlled, directly or indirectly, by another corporation where
more than one-fourth of the issued and outstanding capital stock of which is
owned or voted by Aliens. The FCC has issued interpretations of existing law
under which these restrictions in modified form apply to other forms of business
organizations, including partnerships. As a result of these statutory
requirements and the FCC's rulings thereunder, the Company, which serves as a
holding company for its various radio station subsidiaries, cannot have more
than 25% of its stock owned or voted by Aliens.
The Communications Act and FCC rules also generally prohibit or restrict
the common ownership, operation or control of a radio broadcast station and a
television broadcast station serving the same geographic market, and of a radio
broadcast station and a daily newspaper serving the same geographic market.
Additionally, the Communications Act and FCC rules also generally prohibit or
restrict the common ownership, operation or control of a television broadcast
station and a radio broadcast station serving the same geographic market, of a
television broadcast station and a daily newspaper serving the same geographic
market, and of a television broadcast station and a cable television system
serving the same geographic market. Under these rules, absent waivers, the
Company would not be permitted to acquire any newspaper or television broadcast
station (other
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than low power television) in a geographic market in which it now owns any radio
broadcast properties, or acquire any newspaper, television broadcast station,
radio broadcast station, or cable television system in a geographic market in
which it now owns any television broadcast station. The FCC's rules provide for
the liberal grant of waiver of the rule prohibiting ownership of radio and
television stations in the same geographic market in the top 25 television
markets if certain conditions are satisfied. Under the Telecommunications Act,
the FCC is directed to extend its waiver policy (one-to-a-market policy) to any
of the top 50 television markets. The Telecommunications Act also requires the
FCC to conduct a rule-making to determine whether to retain, modify, or
eliminate limits on the number of TV stations an entity may own, operate,
control or have a cognizable interest in, within the same television market. In
November 1996, the FCC adopted a Further Notice of Proposed Rule Making to
implement this section of the Telecommunications Act. The FCC expects to act on
these matters in the first quarter of 1997. Effective March 15, 1996, the FCC
revised its rules to permit a television station to affiliate with two or more
major networks of television broadcast stations under certain conditions. (Major
existing networks are still subject to the FCC's dual network ban). The
Telecommunications Act requires the FCC to revise its rules to permit a person
to own or control a network of broadcasting stations and a cable system. In
March 1996, the FCC adopted an order revising Section 73.658(g) of its Rules to
permit cable system and television station cross-ownership.
The Company is permitted to own an unlimited number of radio stations on a
nationwide basis (subject to local ownership restrictions described below), and
an unlimited number of television stations on a nationwide basis so long as the
ownership of the stations would not result in an aggregate national audience
reach (i.e., the total number of television households in the Arbitron Area of
Dominant Influence (ADI) markets in which the relevant stations are located
divided by the total national television households as measured by ADI data at
the time of a grant, transfer or assignment of a license) of 35%. The FCC
currently has pending a proceeding to analyze the current market conditions and
to consider whether further to relax the local and national television ownership
limitations.
Under the Telecommunications Act, the Company is permitted to own radio
stations (without regard to the audience shares of the stations) based upon the
number of radio stations in the relevant radio market as follows:
Number of Stations Number of Stations
In Radio Market Company Can Own
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14 or Fewer Total of 5 stations, not more than 3 in the
same service (AM or FM) except the Company
cannot own more than 50% of the stations
in the market.
15-29 Total of 6 stations, not more than 4 in the
same service (AM or FM).
30-44 Total of 7 stations, not more than 4 in the
same service (AM or FM).
45 or More Total of 8 stations, not more than 5 in the
same service (AM or FM).
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Notwithstanding the limitations described above, new rules to be
promulgated under the Telecommunications Act also will permit the Company to
own, operate, control or have a cognizable interest in additional radio
broadcast stations if the FCC determines that such ownership, operation, control
or cognizable interest will result in an increase in the number of radio
stations in operation. No firm date has been established for initiation of this
proceeding.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations holding broadcast licenses, the interests of officers,
directors and those who, directly or indirectly, have the right to vote 5% or
more of the corporation's stock (or 10% or more of such stock in the case of
insurance companies, mutual funds, bank trust departments and certain other
passive investors that are holding stock for investment purposes only) are
generally attributable, as are positions of an officer or director of a
corporate parent of a broadcast licensee. Currently, only two of the Company's
officers and directors have an attributable interest in any company licensed to
operate broadcast stations other than the Company.
On November 5, 1996, the FCC released another further notice of proposed
rulemaking proposing to liberalize the national television ownership limits, to
relax or to eliminate the prohibition of ownership of two or more television
stations with overlapping grade B contours to grade A, and to eliminate the
radio-television cross-ownership rule and apply existing radio Local Market
Agreement (LMA) guidelines (as discussed below) to television stations. The
Company cannot predict whether any of these proposals will ultimately be adopted
by the FCC.
On March 12, 1992, the FCC initiated an inquiry and rulemaking proceeding
in which it solicited comment on whether it should alter its ownership
attribution rules by (a) raising the basic benchmark for attributing ownership
in a corporate licensee from 5% to 10% of the licensee's voting stock; (b)
increasing the attribution benchmark for "passive investors" in corporate
licensees from 10% to 20% of the licensee's voting stock; (c) broadening the
class of investors eligible for "passive investor" status to include Small
Business and Minority Enterprise Small Business Investment Companies; and (d)
exempting certain widely-held limited partnership interests from attribution
where each individual interest represents an insignificant percentage of total
partnership equity. On January 12, 1995, the FCC released a Further Notice of
Proposed Rulemaking wherein it sought to undertake a thorough review of its
attribution rules. The FCC incorporated by reference those comments filed in
response to its earlier Notice of Inquiry and asked for updated information on
all of issues raised therein. The FCC also sought comments on the following
additional issues:(a) the relevance of its attribution rules as applied to other
communications services (such as cable, multi-point distribution systems,
personal communications services, and specialized mobile radio); (b) the
relevance of other agencies' attribution benchmarks; (c) whether non-voting
stock should be attributed in certain circumstances; (d) how to treat limited
liability companies for attribution purposes; (e) whether to eliminate its
cross-interest policy; and (f) whether certain business interrelationships (such
as debt-holders) warrant attribution. On November 5, 1996, the FCC adopted
another Further Notice of Proposed Rule Making to inquire into these matters.
The Company cannot predict whether any of these proposals will ultimately be
adopted by the FCC.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest". Since the late 1970s, the FCC gradually has relaxed
or eliminated many of the more formalized procedures it developed to promote the
broadcast of certain types of programming responsive to the needs of a station's
community of license. However, licensees continue to be required to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming often will be considered by the FCC
when it evaluates renewal applications of a licensee, although such complaints
may be filed at any time and generally may be considered by the FCC at any time.
Stations also must follow various rules promulgated under the Communications Act
that regulate, among other things, political advertising, sponsorship
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identification, the advertisement of contests and lotteries, obscene and
indecent broadcasts, and technical operations, including limits on radio
frequency radiation. In addition, licensees must develop and implement
affirmative action programs designed to promote equal employment opportunities,
and must submit reports to the FCC with respect to these matters on an annual
basis and in connection with a renewal application. The FCC now requires the
owners of antenna supporting structures (towers) to register them with the FCC.
The Company owns such towers that are subject to the registration requirements.
The Children's Television Act of 1990 and the FCC's rules promulgated thereunder
require television broadcasters to limit the amount of commercial matter which
may be aired in children's programming to 10.5 minutes per hour on weekends and
12 minutes per hour on weekdays.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
"short" (less than the full eight-year) renewal terms or, for particularly
egregious violations, the denial of a license renewal application or the
revocation of a license.
LOCAL MARKET AGREEMENTS. A number of radio stations, including the
Company's stations, have entered into what have commonly been referred to as
"Local Market Agreements", or "LMAs". While these agreements may take varying
forms, under a typical LMA, separately owned and licensed radio stations agree
to enter into cooperative arrangements of varying sorts, subject to compliance
with the requirements of antitrust laws and with the FCC's rules and policies.
Under these types of arrangements, separately-owned stations could agree to
function cooperatively in terms of programming, advertising sales, etc., subject
to the licensee of each station maintaining independent control over the
programming and station operations of its own station. One typical type of LMA
is a programming agreement among two separately-owned radio stations serving a
common service area, whereby the licensee of one station purchases substantial
portions of the broadcast day on the other licensee's station, subject to
ultimate editorial and other controls being exercised by the latter licensee,
and sells advertising time during such program segments. Such arrangements are
an extension of the concept of "time brokerage" agreements, under which a
licensee of a station sells blocks of time on its station to an entity or
entities which purchase the blocks of time and which sell their own commercial
advertising announcements during the time periods in question.
In the past, the FCC has determined that issues of joint advertising sales
should be left to antitrust enforcement and has specifically revised its
so-called "cross-interest" policy to exempt time brokerage arrangements from the
scope of its applicability. Furthermore, the staff of the FCC's Mass Media
Bureau has held that such agreements are not contrary to the Communications Act
provided that the licensee of the station from which time is being purchased by
another entity maintains complete responsibility for and control over operations
of its broadcast station and assures compliance with applicable FCC rules and
policies.
The FCC's rules provide that a station purchasing (brokering) time on
another station serving the same market will be considered to have an
attributable ownership interest in the brokered station for purposes of the
FCC's multiple ownership rules. As a result, under the rules, a broadcast
station will not be permitted to enter into a time brokerage agreement giving it
the right to purchase more than 15% of the broadcast time, on a weekly basis, of
another local station which it could not own under the local ownership rules of
the FCC's multiple ownership rules. The FCC's rules also prohibit a broadcast
licensee from simulcasting more than 25% of its programming on another station
in the same broadcast service (i.e., AM-AM or FM-FM) whether it owns the
stations or through a time brokerage or LMA arrangement, where the brokered and
brokering stations serve substantially the same geographic area.
OTHER RECENT CHANGES. The Telecommunications Act also implements
legislation to permit certain programs to be blocked (the so-called "V-Chip"
legislation). The broadcast industry has, as a
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preliminary step, established classifications for television programs according
to their appropriateness for certain audiences. As a part of the legislation,
television station licensees are required to attach as an exhibit to their
applications for license renewal a summary of written comments and suggestions
received from the public and maintained by the licensee that comment on the
licensee's programming characterized as violent. On another front, on December
24, 1996, the FCC adopted a Report and Order establishing digital television
("DTV") (formerly advanced television or "ATV") standards. On July 25, 1996, the
FCC adopted a Notice of Proposed Rule-Making to allot new DTV channels. The
Telecommunications Act provides that if the FCC grants additional licenses for
DTV service, the FCC should limit initial eligibility for such licenses to
television broadcast licensees, and if the FCC grants an additional license to a
television station, the station must in the future surrender to the FCC either
the additional license or the original license for the station. The Company's
television station expects to receive such a DTV channel and if the station were
issued an additional license for DTV use, the Company would not be able to keep
both licenses indefinitely.
PROPOSED CHANGES. The FCC has under consideration, and may in the future
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect the operation and
ownership of the Company and its broadcast properties. Such matters include a
pending proceeding to revise the Commission's equal employment opportunity
requirements for broadcast stations and a proposal to streamline some of the
Commission's regulatory processes. On March 3, 1997, the FCC adopted rules for
the Digital Audio Radio Satellite Service ("DARS") in the 2310-2360 MHZ
frequency band. In adopting the rules, the FCC stated, "although healthy
satellite DARS systems are likely to have some adverse impact on terrestrial
radio audience size, revenues and profits, the record does not demonstrate that
licensing satellite DARS would have such a strong adverse impact that it
threatens the provision of local service." Because the DARS service is novel,
the Company cannot predict whether it will have an adverse impact on its
business. Various proposals are pending in the United States Congress to use
auctions for the allocation of radio spectrum frequencies for commercial use,
which if implemented could require the Company to bid for the use of certain
frequencies. The Company cannot predict what other changes might be considered
in the future, nor can it judge in advance what impact, if any, such changes
might have on its business.
EXECUTIVE OFFICERS
The current executive officers of the Company are as follows:
Name Age Position
---- --- --------
Edward K. Christian 52 President, Chief
Executive Officer and
Chairman; Director
Steven J. Goldstein 40 Executive Vice
President and Group
Program Director
Norman L. McKee 41 Senior Vice President,
Chief Financial Officer
and Treasurer; Director
Catherine A. Bobinski 37 Corporate Controller
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Officers are elected annually by the Board of Directors and serve at the
discretion of the Board. Set forth below is certain information with respect to
the Company's executive officers.
MR. CHRISTIAN has been President, Chief Executive Officer and Chairman
since the Company's inception in 1986.
MR. GOLDSTEIN has been Executive Vice President and Group Program Director
since 1988. Mr. Goldstein has been employed by the Company since its inception
in 1986.
MR. MCKEE has been Senior Vice President since 1994 and Vice President,
Chief Financial Officer and Treasurer since 1988. Mr. McKee has been employed by
the Company since its inception in 1986. Mr. McKee is a certified public
accountant.
MS. BOBINSKI has been Corporate Controller since September 1991. Ms.
Bobinski is a certified public accountant.
ITEM 2. PROPERTIES
- - -------------------
The Company's corporate headquarters is located in Grosse Pointe Farms,
Michigan. The types of properties required to support each of the Company's
stations include offices, studios, transmitter sites and antenna sites. A
station's studios are generally housed with its offices in downtown or business
districts. The transmitter sites and antenna sites are generally located so as
to provide maximum market coverage.
The studios and offices of nine of the Company's twelve station locations,
as well as its corporate headquarters in Michigan, are located in facilities
owned by the Company. The remaining studios and offices are located in leased
facilities with lease terms that expire in 3 to 8 years. The Company owns or
leases its transmitter and antenna sites, with lease terms that expire in 1 to
92 years. The Company does not anticipate any difficulties in renewing those
leases that expire within the next five years or in leasing other space, if
required.
No one property is material to the Company's overall operations. The
Company believes that its properties are in good condition and suitable for its
operations.
The Company owns substantially all of the equipment used in its
broadcasting business.
The Company's bank indebtedness is secured by a first priority lien on all
of the assets of the Company and its subsidiaries.
ITEM 3. LEGAL PROCEEDINGS
- - --------------------------
In the opinion of management of the Company, there are no material legal
proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------------------------------------------------------------
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- - ------------------------------------------------------------------------------
On May 16, 1995 the Company consummated a public offering of 1,132,812
shares of its Class A Common Stock. All of the Shares were sold by certain
stockholders of the Company and, as a result, the Company did not receive any of
the proceeds from the sale of such stock.
In connection with its initial public offering in December 1992, the
Company issued Class A Common Stock and warrants to purchase Class A Common
Stock at the rate of 2/5 of a warrant with each share of Class A Common Stock.
Each warrant entitled its holder to purchase one share of Class A Common Stock
for $7.68 on or before June 18, 1995. At the closing of the offering, the
Company acquired for $669,600, warrants from a stockholder identical to those
offered to the public on substantially the same terms as offered to the public.
On June 16, 1995, the Company exercised 1,589,164 (the amount exercised by the
public) of the 1,595,000 total warrants with the stockholder. Thus the exercise
of the warrants did not have a dilutive effect on the shares of the Company's
stock outstanding.
On February 25, 1997 the Company declared a five-for-four split of its
Class A and Class B Common Stock, effective April 1, 1997, which will result in
additional shares being issued of approximately 1,772,000 and 242,000,
respectively, for holders of record on March 17, 1997.
On April 30, 1996 the Company consummated a five-for-four split of its
Class A and Class B Common Stock, resulting in additional shares being issued of
1,417,263 and 193,361, respectively, for holders of record on April 17, 1996.
On July 31, 1995 the Company consummated a five-for-four split of its Class
A and Class B Common Stock, resulting in additional shares being issued of
1,129,626 and 154,689, respectively, for holders of record on July 17, 1995.
The Company's Class A Common Stock trades on the American Stock Exchange;
there is no public trading market for the Company's Class B Common Stock. The
following table sets forth the high and low sales prices of the Class A Common
Stock as reported by Tradeline for the calendar quarters indicated:
Year High Low
-------------------- -------- --------
1995:
First Quarter $ 9.47 $ 7.30
Second Quarter $10.75 $ 8.96
Third Quarter $11.58 $ 9.60
Fourth Quarter $10.88 $ 8.96
1996:
First Quarter $13.76 $10.16
Second Quarter $17.50 $13.68
Third Quarter $19.90 $14.60
Fourth Quarter $18.40 $15.30
As of March 17, 1997, there were approximately 158 holders of record of the
Company's Class A Common Stock, and one holder of the Company's Class B Common
Stock.
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The Company has not paid any cash dividends on its Common Stock during the
three most recent fiscal years. The Company intends to retain future earnings
for use in its business and does not anticipate paying any dividends on shares
of its Common Stock in the foreseeable future. The Company is prohibited by the
terms of its bank loan agreement from paying dividends on its Common Stock
without the banks' prior consent. See "Management's Discussion and Analysis of
Financial Position and Results of Operations - Liquidity and Capital Resources".
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ITEM 6. SELECTED FINANCIAL DATA
- - -------------------------------
Years Ended
December 31,
----------------------------------------------------------------------------------
1996(1)(4) 1995(1) 1994(1)(3) 1993(1)(2) 1992(1)(6)
---- ---- ---- ---- ----
(In thousands except per share amounts)
OPERATING DATA:
Net Operating Revenue $56,240 $49,699 $44,380 $34,604 $31,010
Station Operating Expense (excluding
depreciation, amortization, corporate
general and administrative) 36,629 32,436 28,878 23,075 20,410
----------------------------------------------------------------------------------
Station Operating Income (excluding
depreciation, amortization, corporate
general and administrative) 19,611 17,263 15,502 11,529 10,600
Depreciation and amortization 5,508 6,551 5,781 4,753 4,529
Corporate General and Administrative 3,299 2,816 2,639 2,334 1,295
----------------------------------------------------------------------------------
Operating Profit 10,804 7,896 7,082 4,442 4,776
Interest Expense 3,814 3,319 2,867 2,707 4,461
Net Income (loss) $ 3,935 $ 2,678 $ 2,306 $ 757 $ (697)
Net Income (loss) applicable to common and
common equivalents $ 3,935 $ 2,678 $ 2,306 $ 757 $(1,301)
Net Income (loss) per common share $ .38 $ .26 $ .23 $ .08 $ (.25)
Cash Dividends Declared per common share
- - - - -
Weighted Average Common Shares and Common
Equivalents 10,253 10,151 10,113 9,422 5,273
OTHER DATA:
After-tax cash flow (5) $10,143 $ 9,564 $ 8,052 $ 5,331 $ 3,474
After-tax cash flow per share $ .99 $ .94 $ .80 $ .57 $ .66
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December 31,
------------------------------------------------------------------------------
1996(4) 1995 1994(3) 1993(2) 1992(6)
---- ---- ---- ---- -------
(In thousands)
BALANCE SHEET DATA:
Working Capital $10,997 $ 3,582 $ 3,828 $ 2,564 $ 4,246
Net Fixed Assets 29,704 26,403 28,640 18,438 17,619
Net Intangible Assets 48,636 34,399 35,923 29,214 27,637
Total Assets 96,415 74,944 78,170 57,647 54,932
Long-term Debt Excluding Current
Portion 52,355 32,131 39,969 24,191 32,440
Equity 33,113 28,882 26,328 24,023 14,894
- - ---------------------
(1) All periods presented include the weighted average shares from public
offerings and common equivalents related to certain stock options. In
April, 1997, May, 1996 and July, 1995 the Company consummated or will
consummate a five-for-four split of its Class A and Class B common stock.
All share and per share information has been restated to reflect the
retroactive equivalent change in the weighted average shares.
(2) Reflects the results of KIOA AM/FM, acquired in June, 1993; WYNZ and WZAN,
acquired in July, 1993; WQQL, acquired in November, 1993; and the results
of a local market agreement for WAFX which began in November, 1993.
(3) Reflects the results of WLZR AM/FM, acquired in April, 1994; WAFX, acquired
in April 1994; and KOAM TV, acquired October, 1994.
(4) Reflects the results of WNAX AM/FM, acquired in June, 1996; WPOR AM/FM,
acquired in June 1996; the results of a local market agreement for WDBR,
WYXY, WTAX, and WVAX which began in July, 1996; and the results of a local
market agreement for KAZR which began in August, 1996.
(5) Defined as net income plus depreciation, amortization (excluding film
rights), loss on the sale of assets, and deferred taxes.
(6) On December 10, 1992, a reorganization was completed which had the effect
of combining the then Saga Communications, Inc. ("Saga") with Saga
Communications Limited Partnership (the "Partnership") (a related
partnership formed in 1990 and which in April 1991 acquired six radio
stations in three New England markets) into a single entity, Saga
Communications, Inc. The reorganization has been accounted for in a manner
similar to a pooling of interests
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ITEM 7. 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 "Selected
Financial Data" and the financial statements and notes thereto of Saga
Communications, Inc. and its subsidiaries contained elsewhere herein.
GENERAL
The Company's financial results are dependent on a number of factors, the
most significant of which is the ability to generate advertising revenue through
rates charged to advertisers. The rates a station is able to charge are, in
large part, based on a station's ability to attract audiences in the demographic
groups targeted by its advertisers, as measured principally by 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 involve the cost of acquiring
certain syndicated programming.
During the years ended December 31, 1996, 1995 and 1994, none of the
Company's operating locations represented more than 15% of the Company's station
operating income (i.e., net operating revenue less station operating expense),
other than the Columbus and Milwaukee stations. For the years ended December 31,
1996, 1995 and 1994, Columbus accounted for an aggregate of 22%, 30% and 32%,
respectively, and Milwaukee accounted for an aggregate of 23%, 22% and 22%,
respectively, of the Company's station operating income. While radio revenues in
each of the Columbus and Milwaukee markets have remained relatively stable
historically, an adverse change in either radio market or either location's
relative market position could have a significant impact on the Company's
operating results as a whole. During 1996, a negative change occurred in the
relative market revenue share of the Company's Columbus stations. As a result,
the Columbus station operating income decreased 17% from approximately
$5,111,000 for the year ended December 31, 1995, to $4,258,000 for the
comparable period in 1996. This decrease is believed to be temporary in nature
and not representative of a trend affecting either the Columbus market or the
Company as a whole.
Because audience ratings in the local market are crucial to a station's
financial success, the Company endeavors to develop strong listener/viewer
loyalty. The Company believes that the diversification of formats on its radio
stations helps the Company to insulate itself from the effects of changes in
musical tastes of the public on any particular format.
The number of advertisements that can be broadcast without jeopardizing
listening/viewing levels (and the resulting ratings) is limited in part by the
format of a particular radio station and, in the case of television stations, by
restrictions imposed by the terms of certain network affiliation and syndication
agreements. The Company's stations strive to maximize revenue by constantly
managing the number of commercials available for sale and adjusting prices based
upon local market conditions. In the broadcasting industry, stations often
utilize trade (or barter) agreements to generate advertising time sales in
exchange for goods or services used or useful in the operation of the stations,
instead of for cash. The Company minimizes its use of trade agreements and
historically has sold over 95% of its advertising time for cash.
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21
Most advertising contracts are short-term, and generally run only for a few
weeks. Most of the Company's revenue is generated from local advertising, which
is sold primarily by each station's sales staff. In 1996, approximately 83% of
the Company's gross revenue was from local advertising. To generate national
advertising sales, the Company engages an independent advertising sales
representative that specializes in national sales for each of its stations. See
"Business - Advertising Sales."
The Company's revenue varies throughout the year. Advertising expenditures,
the Company's primary source of revenue, generally have been lowest during the
winter months which comprise the first quarter.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
For the year ended December 31, 1996, the Company's net operating revenue
was $56,240,000 compared with $49,699,000 for the year ended December 31, 1995,
an increase of $6,541,000 or 13%. Approximately $2,532,000 or 39% of the
increase was attributable to stations owned and operated by the Company for at
least two years, representing a 5% increase in comparable station/comparable
period net operating revenue. Improvements were noted in each market on a
comparable station/comparable period basis, with the exception of the Company's
Columbus, Ohio market, where there was a 7.8% ($737,000) decrease in net
revenue. The overall increase in comparable station/comparable period revenue
was primarily the result of increased advertising rates at a majority of the
Company's stations. The balance of the increase in net operating revenue of
approximately $4,009,000 was primarily the result of the impact of stations the
Company acquired and/or began operating during 1996.
The decrease in revenue in the Columbus stations was primarily the
result of aggressive competitive pricing efforts by certain competing stations
within the Columbus market. Although the stations' combined revenue was below
1995 levels, WSNY-FM remained the top billing station in the Columbus market,
based on information available from an independent market revenue reporting
service. The Company believes the competitive pressure which negatively
impacted its revenue growth in this market to be temporary in nature and does
not anticipate that such effects on revenue will persist beyond 1996. During
the quarterly reporting period for the three months ended December 31, 1996,
the net revenue from the Columbus stations increased slightly (1.3%) over the
comparable period in 1995.
Station operating expense (i.e., programming, technical, selling, and
station general and administrative expenses) increased by $4,193,000 or 13% to
$36,629,000 for the year ended December 31, 1996, compared with $32,436,000 for
the year ended December 31, 1995. Of the total increase, approximately
$3,440,000 or 82% was the result of the impact of the operation of stations the
Company acquired and/or began operating during 1996. The remaining balance of
the increase in station operating expense of $753,000 represents a total
increase in same station operating expense of 2.3% for the year ended December
31, 1996 compared to the year ended December 31, 1995 on a comparable
station/comparable period basis.
Operating profit for the year ended December 31, 1996 was $10,804,000,
compared to $7,896,000 for the year ended December 31, 1995, an increase of
$2,908,000 or 37%. The improvement was primarily the result of the $6,541,000
increase in net operating revenue and a $1,043,000 decrease in depreciation and
amortization, offset by the $4,193,000 increase in station operating expenses,
and a $483,000, or 17%, increase in corporate general and administrative
charges. The decrease in depreciation and amortization charges was primarily the
result of assets in the Company's New England markets becoming fully
depreciated. The increase in corporate general and administrative expenses was
the result of approximately $280,000 of non-recurring charges
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22
associated with certain employee benefit related matters, and approximately
$100,000 pertaining to option grants primarily to local station management. The
remaining increase in corporate general and administrative expenses of
approximately $103,000 represents an increase of approximately 4% in ordinary
recurring expenses.
The Company generated net income in the amount of approximately $3,935,000
($0.38 per share) during the year ended December 31, 1996, compared with
$2,678,000 ($0.26 per share) for the year ended December 31, 1995, an increase
of approximately $1,257,000 or 47%. The increase in net income was principally
the result of the $2,908,000 improvement in operating profit, offset by a
$918,000 increase in income taxes directly associated with the improved
operating performance of the Company, a $495,000 increase in interest costs
resulting primarily from an increase in borrowed funds to finance the Company's
1996 acquisitions, and a $221,000 gain on the sale of assets recorded in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
For the year ended December 31, 1995, the Company's net operating revenue
was $49,699,000 compared with $44,380,000 for the year ended December 31, 1994,
an increase of $5,319,000 or 12%. Approximately $1,115,000 or 21% of the
increase was attributable to stations owned and operated by the Company for at
least two years, representing a 3% increase in comparable station/comparable
period net operating revenue. Improvements were noted in each market on a
comparable station/comparable period basis, with the exception of the Company's
Springfield, Illinois market, where there was a 10.3% ($220,000) decrease in net
revenue, and the Company's Columbus, Ohio market, where there was a 0.3%
($29,000) decrease in net revenue. The overall increase in comparable
station/comparable period revenue was primarily the result of increased
advertising rates at the majority of the Company's stations. The balance of the
increase in net operating revenue of approximately $4,204,000 was primarily the
result of the full year impact by stations the Company acquired and began
operating during 1994.
The slight decrease in revenue in the Columbus stations (0.3% or $29,000)
was primarily the result of aggressive competitive pricing efforts by certain
competing stations within the Columbus market. Although the stations' revenue
was slightly below 1994 levels, WSNY-FM remained the top billing station in the
Columbus market, as well as the top rated station (in terms of number of
listeners) within its target demographics.
The Company's Springfield, Illinois stations suffered a 10.3% ($220,000)
decrease in revenue as a result of a decline in listener ratings at one of its
stations. The Company has subsequently made certain programming, promotional and
management changes at the station which it believes will improve listener
ratings and thus, ultimately, revenue of the affected station as well.
Station operating expense (i.e., programming, technical, selling, and
station general and administrative expenses) increased by $3,558,000 or 12.3% to
$32,436,000 for the year ended December 31, 1995, compared with $28,878,000 for
the year ended December 31, 1994. Of the total increase, approximately
$3,183,000 or 89.5% was the result of the full year impact of the operation of
stations the Company acquired and/or began operating during 1994. The remaining
balance of the increase in station operating expense of $375,000 or 10.5%
represents a total increase in same station operating expense of 1.4% for the
year ended December 31, 1995 compared to the year ended December 31, 1994 on a
comparable station/comparable period basis.
Operating profit for the year ended December 31, 1995 was $7,896,000,
compared to $7,082,000 for the year ended December 31, 1994, an increase of
$814,000 or 11.5%. The improvement was primarily the result of the $5,319,000
increase in net operating revenue, offset by the $3,558,000 increase in station
operating expenses, a $770,000 increase in depreciation and
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23
amortization charges, and a $177,000 or 6.7% increase in corporate general and
administrative charges. The increase in depreciation and amortization charges
was the result of the acquisition of stations during 1994.
The Company generated net income in the amount of approximately $2,678,000
($0.26 per share) during the year ended December 31, 1995, compared with
$2,306,000 ($0.23 per share) for the year ended December 31, 1994, an increase
of approximately $372,000 or 16%. The increase in net income was principally the
result of the $814,000 improvement in operating profit and a gain on the sale of
certain real estate totaling approximately $221,000, offset by a $210,000
increase in income taxes directly associated with the improved operating
performance of the Company, and by a $452,000 increase in interest costs
resulting primarily from an increase in borrowed funds to finance the Company's
1994 acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's policy is generally to repay its long-term debt with excess
cash on hand to reduce its financing costs. As of December 31, 1996, the Company
had $53,754,000 of long-term debt (including the current portion thereof)
outstanding and approximately $56,000,000 of unused borrowing capacity under the
Revolving Loan (as defined below).
On June 17, 1996 the Company entered into an agreement (the "Credit
Agreement") with The First National Bank of Boston; The Bank of New York; Fleet
Bank, N.A.; Mellon Bank, N.A.; and Union Bank of California, N.A. (collectively,
the "Lenders"), to refinance the Company's financing facilities with two
facilities (the "Facilities"): a $54,000,000 senior secured term loan (the "Term
Loan") and a $56,000,000 senior secured reducing revolving/term loan facility
(the "Revolving Loan"). The Facilities mature June 30, 2003. The Company's
indebtedness under the Facilities is secured by a first priority lien on
substantially all the assets of the Company and its subsidiaries, by a pledge of
its subsidiaries' stock and by a guarantee of its subsidiaries.
The Term Loan was used to refinance the Company's existing bank
indebtedness and to principally finance the acquisition of WPOR AM/FM, in
Portland, Maine, and WNAX AM/FM, in Yankton, South Dakota. The Revolving Loan
has a total commitment of $56,000,000, of which $51,000,000 may be used for
permitted acquisitions and related transaction expenses and $5,000,000 may be
used for working capital needs and stand-by letters of credit. On June 30, 1998
the Revolving Loan will convert to a five year term loan. The outstanding amount
of the Term Loan is required to be reduced quarterly in amounts ranging from
2.5% to 5% of the initial commitment and the outstanding amount of the Revolving
Loan will be required to be reduced quarterly commencing September 30, 1997 in
amounts ranging from 1.25% to 5% of the initial commitment. In addition,
commencing March 30, 1997, the Facilities will be further reduced by specified
percentages of Excess Cash Flow (as defined in the Credit Agreement) based on
leverage ratios.
Interest rates under the Facilities are payable, at the Company's option,
at alternatives equal to LIBOR plus 1.125% to 1.75% or the prime rate plus 0% to
.5%. The spread over LIBOR and the prime rate vary from time to time, depending
upon the Company's financial leverage. The Company also pays quarterly
commitment fees equal to 1/2% per annum on the aggregate unused portion of the
Revolving Loan.
The Credit Agreement contains a number of financial covenants which, among
other things, require the Company to maintain specified financial ratios and
impose certain limitations on the Company with respect to investments,
additional indebtedness, dividends, distributions, guarantees, liens and
encumbrances.
-23-
24
At December 31, 1996, the Company had an interest rate swap agreement with
a total notional amount of $32,000,000 that it uses to convert the variable
Eurodollar interest rate of a portion of its bank borrowings to a fixed interest
rate. The swap agreement was entered into to reduce the risk to the Company of
rising interest rates. In accordance with the terms of the swap agreement, dated
November 21, 1995, the Company pays 6.15% calculated on a $32,000,000 notional
amount. The Company receives LIBOR (5.5% at December 31, 1996) calculated on a
notional amount of $32,000,000. Net receipts or payments under the agreement are
recognized as an adjustment to interest expense. The swap agreement expires in
December 1999. As the LIBOR increases, interest payments received and the market
value of the swap position increase. Approximately $193,000 in additional
interest expense was recognized as a result of the interest rate swap agreement
for the year ended December 31, 1996 and an aggregate amount of $200,000 in
additional interest expense has been recognized since the inception of the
agreement.
During the years ended December 31, 1996, 1995 and 1994, the Company had
net cash flows from operating activities of $7,679,000, $9,483,000 and
$6,991,000, respectively. The Company believes that cash flow from operations
will be sufficient to meet quarterly debt service requirements for interest and
scheduled payments of principal under the Credit Agreement. If such cash flow is
not sufficient to meet such debt service requirements, the Company may be
required to sell additional equity securities, refinance its obligations or
dispose of one or more of its properties in order to make such scheduled
payments. There can be no assurance that the Company would be able to effect any
such transactions on favorable terms.
On June 11, 1996, the Company acquired an AM and FM radio station serving
the Yankton, South Dakota market for approximately $7,000,000. On June 18, 1996,
the Company acquired an AM and FM radio station serving the Portland, Maine
market for approximately $10,000,000. The acquisitions were financed by
borrowings under the Company's Term Loan.
On July 1, 1996, the Company entered into an agreement to purchase two AM
and two FM radio stations serving the Springfield, Illinois market for
approximately $6,000,000. The transaction is subject to the final approval of
the FCC. The Company began operating the radio stations under the terms of a
local market agreement on July 1, 1996, which will remain in effect until such
time as the Company concludes its pending acquisition of the stations.
On December 11, 1996, the Company entered into an agreement to purchase an
FM radio station serving the Des Moines, Iowa market for approximately
$2,700,000. The Company closed on this transaction on March 14, 1997. The
Company began operating the radio station under the terms of a local market
agreement on August 1, 1996, which remained in effect until such closing.
On December 19, 1996, the Company entered into an agreement to purchase an
FM radio station serving the Des Moines, Iowa market for approximately
$3,200,000. The Company has received final approval of the FCC and expects to
close on this transaction during the second quarter of 1997. The Company began
operating the radio station under the terms of a local market agreement on
January 1, 1997, which will remain in effect until such time as the Company
concludes its pending acquisition of the station.
On March 4, 1997, the Company signed a letter of intent to purchase two FM
radio stations serving the Milwaukee, Wisconsin market for approximately
$5,000,000. The transaction is subject to the completion of a definitive
purchase agreement and the final approval of the FCC.
The Company anticipates that the above and any future acquisitions of radio
and television stations will be financed through funds generated from
operations, borrowings under the Revolving Loan, additional debt or equity
financing, or a combination thereof. However, there can be no assurances that
any such financing will be available.
-24-
25
The Company's capital expenditures for the year ended December 31, 1996
were approximately $2,107,000 ($2,325,000 in 1995). The Company anticipates
capital expenditures in 1997 to be approximately $2,500,000, which it expects to
finance through funds generated from operations.
INFLATION
The impact of inflation on the Company's operations has not been
significant to date. There can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operations.
FORWARD-LOOKING STATEMENTS
Statements contained in this Form 10-K 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. The Company cautions
that a number of important factors could cause the Company's actual results for
1997 and beyond to differ materially from those expressed in any forward looking
statements made by or on behalf of the Company. Forward looking statements
involve a number of risks and uncertainties including, but not limited to, the
Company's financial leverage and debt service requirements, dependence on key
stations, U.S. and local economic conditions, and regulatory matters. While the
Company believes it has and will continue to make reasonable efforts, it cannot
assure that it will be able to anticipate or respond timely to changes in any of
the factors listed above, which could adversely affect the operating results in
one or more fiscal quarters. Results of operations in any past period should not
be considered, in and of itself, indicative of the results to be expected for
future periods. Fluctuations in operating results may also result in
fluctuations in the price of the Company's stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ---------------------------------------------------
The financial statements attached hereto are filed as part of this annual
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- - -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- - --------------------
None.
-25-
26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - -----------------------------------------------------------
"Election of Directors" and "Compensation of Directors and Officers -
Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 1997 are hereby
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
- - -------------------------------
"Compensation of Directors and Officers" in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission on or before April 30, 1997 is hereby incorporated by
reference herein. Such incorporation by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - -----------------------------------------------------------------------
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission on or before April 30, 1997 is
hereby incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - -------------------------------------------------------
"Certain Transactions" in the Company's Proxy Statement for the 1997 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
on or before April 30, 1997 is hereby incorporated by reference herein.
-26-
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- - -------------------------------------------------------------------------
(a) 1. Financial Statements
--------------------
The financial statements attached hereto pursuant to Item 8
hereof are filed as part of this annual report.
2. Financial Statement Schedules
-----------------------------
II -Valuation and Qualifying Accounts
All other schedules for which provision are made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable and therefore have been omitted.
3. Exhibits
--------
Exhibit No. Description
- - ----------- -----------
3(a) Amended and Restated Certificate of Incorporation (3(a))*
3(b) By-laws, as amended (3(b))**
4(a) Plan of Reorganization (2)*
4(b) Credit Agreement dated as of May 12, 1994 between the Company and
The First National Bank of Boston, as Agent for the lenders
(4)***
Executive Compensation Plans and Arrangements
- - ---------------------------------------------
10(a) Employment Agreement of Edward K. Christian, as amended (10(8)
and 10(8)(a))*
10(b) Saga Communications, Inc. 1992 Stock Option Plan (10(9))*
10(c) Summary of Executive Insured Medical Reimbursement Plan (10(2))*
Other Material Agreements
- - -------------------------
10(e)(1) Promissory Note of Edward K. Christian dated December 10, 1992
(10(l)(a))*
10(e)(2) Amendment to Promissory Note of Edward K. Christian dated
December 23, 1995
10(f) Pledge Agreement of Edward K. Christian dated December 10, 1992
(10(l)(b))*
(21) Subsidiaries (22)*
(23) Consent of Ernst & Young LLP
27 Financial Data Schedules
- - ---------------------
-27-
28
* Exhibit indicated in parenthesis of the Company's Registration
Statement on Form S-1 (File No. 33-47238) incorporated by
reference herein.
** Exhibit indicated in parenthesis of the Company's Form 10-K for
the year ended December 31, 1992 incorporated by reference
herein.
*** Exhibit indicated in parenthesis of the Company's Form 10-Q for
the quarter ended March 31, 1994 incorporated by reference
herein.
(b) Reports on Form 8-K
-------------------
(1) A report on Form 8-K was filed July 2, 1996 reporting the
acquisition of the assets of radio stations WPOR AM/FM serving
Portland, Maine and the Company's Refinancing Agreement.
(2) A report on Form 8-K/A was filed August 13,1996 reporting the
acquisition of the assets of radio stations WNAX AM/FM serving
Yankton, South Dakota, WPOR AM/FM serving Portland, Maine and the
Company's Refinancing Agreement.
-28-
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 28,1997.
SAGA COMMUNICATIONS, INC.
By: /S/ Edward K. Christian
----------------------------------
Edward K. Christian
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 28, 1997.
Signatures
----------
/S/ Edward K. Christian President, Chief Executive
-------------------------- Officer, and Chairman of the Board
Edward K. Christian
/S/ Norman L. McKee Senior Vice President, Chief
-------------------------- Financial Officer and Treasurer; Director
Norman L. McKee
/S/ Catherine Bobinski Corporate Controller and
-------------------------- Chief Accounting Officer
Catherine Bobinski
/S/ William P. Collatos Director
--------------------------
William P. Collatos
/S/ Jonathan Firestone Director
--------------------------
Jonathan Firestone
/S/ Joseph P. Misiewicz Director
--------------------------
Joseph P. Misiewicz
/S/ Gary Stevens Director
--------------------------
Gary Stevens
-29-
30
SAGA COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - --------------------------------------------------------------------------------
Years ended December 31,
-------------------------------
1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------
(in thousands)
Cash Flows From Operating Activities:
Net income $ 3,935 $ 2,678 $ 2,306
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,508 6,551 5,781
Barter revenue, net of barter expenses (81) (109) (177)
Broadcast program rights amortization 256 248 59
Increase (decrease) in deferred taxes 683 556 (35)
Loss (gain) on sale of assets 17 (221) (1)
Changes in assets and liabilities:
Decrease (increase) in receivables and prepaids (2,889) 317 (2,466)
Payments for broadcast program rights (253) (257) (54)
Increase (decrease) in accounts payable and accrued
expenses 503 (280) 1,578
- - ---------------------------------------------------------------------------------------------------------
Total adjustments 3,744 6,805 4,685
- - ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,679 9,483 6,991
Cash Flows From Investing Activities:
Acquisition of property and equipment (2,107) (2,325) (2,055)
Increase in intangibles and other assets (4,796) (123) (1,196)
Acquisition of stations (Note 4) (16,956) -- (19,131)
Proceeds from sale of assets 701 675 23
- - ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (23,158) (1,773) (22,359)
Cash Flows From Financing Activities:
Proceeds from long-term debt 19,348 -- 20,350
Payments on long-term debt (2,898) (6,703) (4,332)
Net proceeds (costs) from common stock offering -- (122) --
Net proceeds from exercise of stock options 147 41 --
- - ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 16,597 (6,784) 16,018
- - ---------------------------------------------------------------------------------------------------------
Net increase in cash and temporary investments 1,118 926 650
Cash and temporary investments, beginning of year 3,221 2,295 1,645
- - ---------------------------------------------------------------------------------------------------------
Cash and temporary investments, end of year $ 4,339 $ 3,221 $ 2,295
=========================================================================================================
See accompanying notes.
15
31
SAGA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Saga Communications, Inc. is a broadcasting company which currently owns
and/or operates thirty-four radio stations and a television station serving
eleven markets throughout the Midwest and along the Eastern Seaboard including
Columbus, Ohio; Milwaukee, Wisconsin; and Norfolk, Virginia.
BASIS OF PRESENTATION
On February 25, 1997 the Company declared a five-for-four split of its
Class A and Class B Common Stock, effective April 1, 1997 which will result in
additional shares being issued of approximately 1,772,000 and 242,000,
respectively, for holders of record on March 17, 1997.
On April 30, 1996 the Company consummated a five-for-four split of its
Class A and Class B Common Stock, resulting in additional shares being issued of
1,412,000 and 193,000, respectively, for holders of record on April 17, 1996.
On July 31, 1995 the Company consummated a five-for-four split of its Class
A and Class B Common Stock, resulting in additional shares being issued of
1,130,000 and 155,000, respectively, for holders of record on July 17, 1995.
All share and per share information in the accompanying financial
statements has been restated retroactively to reflect the splits. The common
stock and accumulated deficit accounts at December 31, 1996 reflect the
retroactive capitalization of the 1997 split.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Saga
Communications, Inc. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The computation of primary earnings per share is based on the weighted
average number of outstanding common shares during the period plus, when their
effect is dilutive, common equivalents consisting of certain shares subject to
stock options. The number of incremental shares used in the fully diluted
earnings per share calculation is based on the common stock price at the end of
the period when it exceeds the average price for the period. Fully diluted
earnings per share amounts are not reported separately as the effects are not
material.
The primary weighted average number of common and equivalent shares
outstanding was 10,253,000, 10,151,000, and 10,113,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. The fully diluted weighted
average number of common and equivalent shares outstanding was 10,256,000,
10,161,000, and 10,118,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over five to thirty-one and one-half years.
16
32
SAGA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
INTANGIBLE ASSETS
Other assets are amortized using the straight-line method. Favorable lease
agreements are amortized over the lives of the leases. The excess of cost over
fair value of identifiable assets acquired and broadcast licenses are amortized
over forty years. Other intangibles are amortized over five to forty years.
The excess of cost over the fair value of net assets acquired (or goodwill)
is reviewed if the facts and circumstances suggest that it may be impaired. If
this review indicates that goodwill will not be recoverable, as determined based
on the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of goodwill would be reduced
by the estimated shortfall of discounted cash flows. To date, no such reductions
in goodwill have been recorded.
BARTER TRANSACTIONS
The Company trades air time for goods and services used principally for
promotional, sales and other business activities. An asset and a liability are
recorded at the fair market value of goods or services received. Barter revenue
is recorded when commercials are broadcast, and barter expense is recorded when
goods or services are received or used.
BROADCAST PROGRAM RIGHTS
The Company records the capitalized costs of broadcast program rights when
the license period begins and the programs are available for use. Amortization
of the program rights is recorded using the straight-line method over the
license period or based on the number of showings. Amortization of broadcast
program rights is included in station operating expense. Unamortized broadcast
program rights are classified as current or non-current based on estimated usage
in future years.
REVENUE RECOGNITION POLICY
Revenue is recognized as commercials are broadcast.
FINANCIAL INSTRUMENTS
The Company's financial instruments are comprised of cash and temporary
investments and long-term debt. The carrying value of long-term debt
approximates fair value as it carries interest rates that either fluctuate with
prime or have been reset at the prevailing market rate at December 31, 1996.
The Company also has an interest rate swap agreement which is its only
derivative. See Note 3.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
December 31,
-----------------------
1996 1995
- - -------------------------------------------------------------------------------------------------------
(In thousands)
Land and land improvements $ 7,049 $ 6,498
Buildings 9,219 7,948
Towers and antennae 10,456 9,297
Equipment 30,961 28,248
Furniture, fixtures and leasehold improvements 4,168 3,756
Vehicles 1,178 806
- - -------------------------------------------------------------------------------------------------------
63,031 56,553
Accumulated depreciation (33,327) (30,150)
- - -------------------------------------------------------------------------------------------------------
Net property and equipment $29,704 $26,403
=======================================================================================================
17
33
SAGA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
3. LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
----------------------------------
1996 1995
- - ---------------------------------------------------------------------------------------------------------
(In thousands)
Senior secured term loan facility (total commitment of
$53,112,000) secured by all assets of the Company and subsidiary
stock and guarantees. Interest at a Eurodollar rate (5.6172% at
December 31, 1996) plus an applicable margin (ranging from
1.125% to 1.75%). All interest is due quarterly. The maximum
commitment under the facility reduces by 2.5% in 1997, 15% in
1998, 15% in 1999, 17.5% in 2000, 20% in 2001, 20% in 2002, and
10% in 2003, based on the original commitment of $53,112,000 and
matures on June 30, 2003. Commencing March 30, 1997, the Senior
secured term loan facility will be further reduced by specified
percentages of Excess Cash Flow (as defined in the Credit
Agreement) based on leverage ratios. $ 53,112 --
Senior secured term loan facility (total commitment of
$29,094,000) secured by all assets of the Company and subsidiary
stock and guarantees. Interest at a Eurodollar rate (5.875% at
December 31, 1995) plus an applicable margin (ranging from 1.5%
to 2.25%). All interest is due quarterly. Principal and interest
were paid in full on June 17, 1996. -- $ 29,094
Senior secured reducing revolving term loan facility (total
commitment of $30,000,000) secured by all assets of the Company
and subsidiary stock and guarantees. Principal and interest were
paid in full on June 17, 1996. The facility consisted of:
Eurodollar rate loans, interest at a Eurodollar rate (5.9375%
at December 31, 1995) plus an applicable margin (ranging
from 1.5% to 2.25%). -- 7,500
Subordinated promissory note. Payments are due monthly including
interest at 10%. The note matures in 2004. $ 539 $ 567
Other, primarily covenants not to compete. 103 107
- - ---------------------------------------------------------------------------------------------------------
53,754 37,268
Amounts due within one year 1,399 5,137
- - ---------------------------------------------------------------------------------------------------------
$ 52,355 $ 32,131
=========================================================================================================
Future maturities of long-term debt are as follows:
Year ending
December 31,
- - -------------------------------------------------------
(In thousands)
1997 $ 1,399
1998 8,039
1999 8,048
2000 9,383
2001 10,711
Thereafter 16,174
- - -------------------------------------------------------
$ 53,754
=======================================================
18
34
SAGA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
The Company also has available a senior secured reducing revolving term
loan facility (total commitment of $56,000,000) secured by all assets of the
Company and subsidiary stock and guarantees. All interest is due quarterly. The
loan agreement requires a commitment fee of 1/2% per annum on the daily average
amount of the available revolving credit commitment. The maximum commitment
under the facility reduces by 15% in 1998, 20% in 1999, 20% in 2000, 20% in
2001, 20% in 2002 and 5% in 2003 based on the original commitment of $56,000,000
and matures on June 30, 2003. Interest rates under this facility are payable at
the Company's option, at alternatives equal to LIBOR plus 1.125% to 1.75% or the
prime rate plus 0% to 0.5%. The spread over LIBOR and the prime rate vary from
time to time, depending upon the Company's financial leverage.
The senior secured term and revolving term loans contain a number of
covenants (all of which the Company was in compliance with at December 31, 1996)
that, among other things, require the Company to maintain specified financial
ratios and impose certain limitations on the Company with respect to (i) the
incurrence of additional indebtedness; (ii) acquisitions, except under specified
conditions; (iii) the incurrence of additional liens, except those relating to
capital leases and purchase money indebtedness; (iv) the disposition of assets;
(v) the payment of cash dividends; and (vi) mergers, changes in business and
management, investments and transactions with affiliates. The loan agreement
prohibits the payment of dividends without the banks' prior consent.
At December 31, 1996, the Company had an interest rate swap agreement with
a total notional amount of $32,000,000 that it used to convert the variable
Eurodollar interest rate of a portion of its bank borrowings to a fixed interest
rate. The swap agreement was entered into to reduce the risk to the Company of
rising interest rates. In accordance with the terms of the swap agreement, the
Company pays 6.15% calculated on the $32,000,000 notional amount. The Company
receives LIBOR (5.5% at December 31, 1996) calculated on a notional amount of
$32,000,000. Net payments under the agreement are recognized as an adjustment to
interest expense. The swap agreement expires in December, 1999. As the LIBOR
increases, interest payments received and the market value of the swap position
increase. The fair value of the swap agreement at December 31, 1996 was
($1,589,809), estimated using discounted cash flows analyses, based on a
discount rate equivalent to a U.S. Treasury security with a comparable remaining
maturity plus a 50 basis point spread for credit risk and other factors.
4. SUPPLEMENTAL CASH FLOW INFORMATION
For the purposes of the statements of cash flows, cash includes temporary
investments with maturities of three months or less.
Year ended December 31,
--------------------------------
1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------
(In thousands)
Cash paid during the period for:
Interest $ 4,181 $3,377 $ 2,450
Income taxes 2,261 1,430 2,125
Supplemental non-cash activities:
Barter revenue $ 1,842 $2,062 $ 1,936
Barter expense 1,761 1,953 1,759
Non-cash acquisition of fixed assets 45 113 103
In conjunction with the acquisition of the net assets of radio and
television broadcasting companies, liabilities were assumed as follows:
Fair value of assets acquired $ 17,098 $ -- $ 19,697
Cash paid (16,956) -- (19,131)
- - ---------------------------------------------------------------------------------------------------------
Liabilities assumed $ 142 $ -- $ 566
=========================================================================================================
19
35
SAGA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
December 31,
---------------------
1996 1995
- - -------------------------------------------------------------------------------------------------------
(In thousands)
Deferred tax liabilities:
Fixed asset basis differences $2,674 $2,257
Intangible asset basis differences 734 430
- - -------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 3,408 2,687
Deferred tax asset:
Allowance for doubtful accounts 108 100
Compensation expense 166 136
- - -------------------------------------------------------------------------------------------------------
Total deferred tax assets 274 236
- - -------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $3,134 $2,451
=======================================================================================================
The significant components of the provision for income taxes are as
follows:
Year ended December 31,
----------------------------
1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------
(In thousands)
Current:
Federal $1,677 $1,156 $1,513
State 678 408 432
- - ---------------------------------------------------------------------------------------------------------
Total current 2,355 1,564 1,945
Deferred (benefit):
Federal 683 556 (35)
- - ---------------------------------------------------------------------------------------------------------
$3,038 $2,120 $1,910
=========================================================================================================
The reconciliation of income tax at the U. S. federal statutory tax rates
to income tax expense is as follows:
Year ended December 31,
----------------------------
1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------
(In thousands)
Tax at U.S. statutory rates $2,371 $1,631 $1,433
State taxes, net of federal benefit 447 269 285
Amortization of excess of cost over fair value of assets acquired 186 186 186
Other, net 34 34 6
- - ---------------------------------------------------------------------------------------------------------
$3,038 $2,120 $1,910
=========================================================================================================
6. STOCK OPTION PLAN
In 1992, the Company adopted the 1992 Stock Option Plan (the Plan) pursuant
to which key employees of the Company, including directors who are employees,
are eligible to receive grants of options to purchase Class A Common Stock or
Class B
20
36
SAGA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
Common Stock. 1,167,969 shares of common stock are reserved for issuance under
the Plan. Options granted under the Plan may be either incentive stock options
(within the meaning of Section 422A of the Internal Revenue Code of 1986) or
non-qualified options. Incentive stock options granted under the Plan may be for
terms not exceeding ten years from the date of grant, except in the case of
incentive stock options granted to persons owning more than 10% of the total
combined voting power of all classes of stock of the Company, which may be
granted for terms not exceeding five years. These options may not be granted at
a price which is less than 100% of the fair market value of shares at the time
of grant (110% in the case of persons owning more than 10% of the combined
voting power of all classes of stock of the Company). In the case of
non-qualified stock options granted pursuant to the Plan, the terms and price
shall be determined by the Compensation Committee.
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related interpretations, in
accounting for its employee stock options. Under APB 25, when the exercise price
of the Company's employee stock options equals or exceeds the market price of
the underlying stock on the date of grant, no compensation expense is
recognized. Total compensation costs recognized in the income statement for
stock based employee compensation awards for the years ended December 31, 1996,
1995 and 1994, was $203,000, $101,000 and $273,000, respectively.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." This new standard defines a fair value based method of accounting
for an employee stock option or similar equity instrument.
The fair value of the Company's stock options were estimated as of the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996 and 1995: risk-free interest rates of
6.4%; a dividend yield of 0%; expected volatility of 27.9%; and a weighted
average expected life of the options of 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of the pro forma disclosures required under Statement 123, the
estimated fair value of the options is amortized to expense over the options'
vesting period. For 1996 and 1995, net income and earnings per share on a pro
forma basis do not differ significantly from that determined under APB 25. The
1996 and 1995 pro forma effect on net income is not necessarily representative
of the effect in future years because it does not take into consideration pro
forma compensation expense related to grants made prior to 1995.
21
37
SAGA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
The following summarizes the stock option transactions for the three years
ended December 31, 1996.
Weighted
Number of Exercise Price Average Price
Options Per Share Per Share
- - --------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1993 281,250 $ 5.31 $5.31
Granted 230,859 $ .005 to 7.81 5.93
Exercised -- -- --
- - --------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1994 512,109 .005 to 7.81 5.59
Granted 43,357 2.71 2.71
Exercised (7,812) 5.31 5.31
Forfeited (27,343) 5.31 to 7.81 6.14
- - --------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1995 520,311 .005 to 7.81 5.32
Granted 46,750 5.300 to 11.39 7.58
Exercised (35,078) .005 to 7.81 4.21
Forfeited (4,388) 2.71 to 7.81 5.32
- - --------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1996 527,595 $ .005 to $11.39 $5.60
==============================================================================================================
Options exercisable at December 31:
1996 267,105
1995 203,984
1994 118,359
Available for grant at December 31:
1996 296,688
1995 339,063
1994 355,078
Stock options outstanding at December 31, 1996 are summarized as follows:
Weighted Average
Exercise Options Options Remaining
Price Outstanding Exercisable Contractual Life
- - -----------------------------------------------------------------------
$ 0.005 17,577 17,577 7.0
$ 2.714 39,060 5,938 8.2
$ 5.304 357,018 211,717 6.4
$ 7.808 96,440 31,873 7.2
$11.392 17,500 -- 9.2
------------------------------------------------
527,595 267,105 6.8
------------------------------------------------
Weighted Average
Exercise Price $ 5.595 $ 5.196
===========================
7. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
STATION ACQUISITIONS
The Company acquired two radio stations (WNAX AM/FM) in Yankton, South
Dakota on June 11, 1996 and two radio stations (WPOR AM/FM) in Portland, Maine
on June 18, 1996. The purchase prices of these acquisitions were approximately
$7,000,000 and $10,000,000, respectively.
22
38
SAGA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
The Company acquired two radio stations in Milwaukee, Wisconsin on April
15, 1994; one radio station in Norfolk, Virginia, on April 29, 1994; and one
television station serving the Joplin, Missouri/Pittsburg, Kansas market on
October 12, 1994. The purchase prices of these acquisitions were approximately
$7,000,000, $4,000,000 and $8,550,000, respectively, plus the assumption of
certain liabilities.
All acquisitions have been 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 dates. The excess of the
consideration paid over the estimated fair value of net assets acquired has been
recorded as broadcast licenses and other intangibles. The consolidated
statements of income includes the operating results of the acquired businesses
from their respective dates of acquisition.
The following unaudited pro forma results of operations of the Company for
the years ended December 31, 1996 and 1995 assume the 1996 acquisitions occurred
as of the beginning of the respective periods. The following unaudited pro forma
results of operations of the Company for the year ended December 31, 1994 assume
the 1994 acquisitions occurred as of the beginning of the period. 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.
1996 1995 1994
- - ---------------------------------------------------------------------------------------------------------
(In thousands except per share data)
Pro Forma Results of Operations for Acquisitions:
Net operating revenue $58,780 $55,163 $48,439
Net income $ 3,975 $ 2,863 $ 2,043
=========================================================================================================
Net income applicable to common and common equivalents per
share (primary and fully diluted) $.39 $.28 $.20
=========================================================================================================
8. CONCENTRATION OF CREDIT RISK
The Company sells advertising to local and national companies throughout
the United States. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains an
allowance for doubtful accounts at a level which management believes is
sufficient to cover potential credit losses.
9. NOTE RECEIVABLE FROM PRINCIPAL STOCKHOLDER
The loan from the Company to the principal stockholder is on a non-recourse
basis and bears interest at a rate per annum equal to the lowest rate necessary
to avoid the imputation of income for federal income tax purposes, with
principal and interest due and payable in a single payment on December 31, 2002.
During 1994 and 1993 the principal stockholder made cash payments approximating
the interest charged on the note. The note is secured by the Class B Common
Stock currently owned by the principal stockholder.
10. WARRANTS EXERCISED
In connection with its initial public offering in December 1992, the
Company issued Class A Common Stock and warrants to purchase Class A Common
Stock at the rate of 2/5 of a warrant with each share of Class A Common Stock.
Each warrant entitled its holder to purchase one share of Class A Common Stock
for $7.68 on or before June 18, 1995. At the closing of the offering, the
Company acquired for $669,600, warrants from a stockholder identical to those
offered to the public on substantially the same terms as offered to the public.
On June 16, 1995, the Company exercised 1,589,164 (the amount exercised by the
public) of the 1,595,000 total warrants with the stockholder. Thus, the exercise
of the warrants did not have a dilutive effect on the shares of the Company's
stock outstanding.
23
39
SAGA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
11. COMMON STOCK
Dividends. Stockholders are entitled to receive such dividends as may be
declared by the Company's Board of Directors out of funds legally available for
such purpose. No dividend may be declared or paid in cash or property on any
share of any class of Common Stock, however, unless simultaneously the same
dividend is declared or paid on each share of the other class of common stock.
In the case of any stock dividend, holders of Class A Common Stock are entitled
to receive the same percentage dividend (payable in shares of Class A Common
Stock) as the holders of Class B Common Stock receive (payable in shares of
Class B Common Stock). The payment of dividends is prohibited by the terms of
the Company's bank loan agreement, without the banks' prior consent.
Voting Rights. Holders of shares of Common Stock vote as a single class on
all matters submitted to a vote of the stockholders, with each share of Class A
Common Stock entitled to one vote and each share of Class B Common Stock
entitled to ten votes, except (i) in the election for directors, (ii) with
respect to any "going private" transaction between the Company and the principal
stockholder, and (iii) as otherwise provided by law.
In the election of directors, the holders of Class A Common Stock, voting
as a separate class, are entitled to elect two of the Company's directors. The
holders of the Common Stock, voting as a single class with each share of Class A
Common Stock entitled to one vote and each share of Class B Common Stock
entitled to ten votes, are entitled to elect the remaining directors. The Board
of Directors consists of six members. Holders of Common Stock are not entitled
to cumulative votes in the election of directors.
The holders of the Common Stock vote as a single class with respect to any
proposed "going private" transaction with the principal stockholder, with each
share of each class of Common Stock entitled to one vote per share.
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding shares of any class of common stock is required to approve,
among other things, a change in the designations, preferences and limitations of
the shares of such class of common stock.
Liquidation Rights. Upon liquidation, dissolution, or winding-up of the
Company, the holders of Class A Common Stock are entitled to share ratably with
the holders of Class B Common Stock in all assets available for distribution
after payment in full of creditors.
Other Provisions. Each share of Class B Common Stock is convertible, at
the option of its holder, into one share of Class A Common Stock at any time.
One share of Class B Common Stock converts automatically into one share of Class
A Common Stock upon its sale or other transfer to a party unaffiliated with the
principal stockholder or, in the event of a transfer to an affiliated party,
upon the death of the transferor.
12. COMMITMENTS
The Company leases certain land, buildings and equipment under
noncancellable operating leases. Rent expense for the year ended December 31,
1996 was $977,000 ($911,000 and $898,000 for the years ended December 31, 1995
and 1994, respectively). Minimum annual rental commitments under noncancellable
operating leases consisted of the following at December 31, 1996:
Operating
Leases
- - ---------------------------------------------------------------------------------------------------------
(In thousands)
1997 $ 921
1998 598
1999 317
2000 273
2001 100
Thereafter 414
- - ---------------------------------------------------------------------------------------------------------
$2,623
=========================================================================================================
24
40
SAGA COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
The Company has entered into contracts for broadcast program rights that
expire at various dates during the next five years. The aggregate minimum
payments relating to these commitments consisted of the following at December
31, 1996:
Broadcast
Program
Rights
- - ---------------------------------------------------------------------------------------------------------
(In thousands)
1997 $234
1998 201
1999 179
2000 81
- - ---------------------------------------------------------------------------------------------------------
$695
Amounts due within one year (included in accounts payable) 234
- - ---------------------------------------------------------------------------------------------------------
$461
=========================================================================================================
On July 1, 1996 the Company entered into an agreement to purchase two AM
and two FM radio stations serving the Springfield, Illinois market for
approximately $6,000,000. The transaction is subject to the final approval of
the Federal Communications Commission. The Company began operating the radio
stations under the terms of a local market agreement on July 1, 1996, which will
remain in effect until such time as the Company concludes its pending
acquisition of the stations.
On December 11, 1996 the Company entered into an agreement to purchase an
FM radio station serving the Des Moines, Iowa market for approximately
$2,700,000. The Company closed on this transaction on March 14, 1997. The
Company began operating the radio station under the terms of a local market
agreement on August 1, 1996, which remained in effect until such closing.
On December 19, 1996 the Company entered into an agreement to purchase an
FM radio station serving the Des Moines, Iowa market for approximately
$3,200,000. The Company has received final approval of the Federal
Communications Committee and expects to close on this transaction during the
second quarter of 1997. The Company began operating the radio station under the
terms of a local market agreement on January 1, 1997, which will remain in
effect until such time as the Company concludes its pending acquisition of the
station.
13. SUBSEQUENT EVENTS
On March 4, 1997, the Company signed a letter of intent to purchase two FM
radio stations, WFMR FM and WFMI FM, serving Milwaukee, Wisconsin from their
cities of license in Menomonee Falls and Brookfield, Wisconsin, respectively,
for approximately $5,000,000. The transaction is subject to the completion of a
definitive purchase agreement and the final approval of the Federal
Communications Commission.
25
41
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
March 31, June 30, September 30, December 31,
----------------- ----------------- ----------------- -----------------
1996 1995 1996 1995 1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Net operating revenue $10,955 $10,564 $14,003 $13,743 $15,021 $12,839 $16,261 $12,553
Station operating expenses:
Programming and technical 2,872 2,769 2,944 2,672 3,583 2,894 3,656 2,779
Selling 3,094 3,165 3,922 4,191 3,750 3,236 4,431 3,663
Station general and
administrative 1,897 1,898 1,887 1,779 2,223 1,717 2,370 1,673
- - ----------------------------------------------------------------------------------------------------------------
Total station operating expenses: 7,863 7,832 8,753 8,642 9,556 7,847 10,457 8,115
- - ----------------------------------------------------------------------------------------------------------------
Station operating income before
corporate general and
administrative, depreciation
and amortization 3,092 2,732 5,250 5,101 5,465 4,992 5,804 4,438
Corporate general and
administrative 748 658 892 608 994 736 665 814
Depreciation and amortization 1,269 1,619 1,303 1,654 1,450 1,653 1,486 1,625
- - ----------------------------------------------------------------------------------------------------------------
Operating profit 1,075 455 3,055 2,839 3,021 2,603 3,653 1,999
Other expenses:
Interest expense 733 885 780 806 1,154 880 1,147 748
Loss (gain) on the sale of
assets 3 -- 17 -- (3) (217) -- (4)
- - ----------------------------------------------------------------------------------------------------------------
Income (loss) before income tax 339 (430) 2,258 2,033 1,870 1,940 2,506 1,255
Income tax provision (benefit) 145 (57) 965 822 800 805 1,128 550
- - ----------------------------------------------------------------------------------------------------------------
Net income (loss) $ 194 $ (373) $ 1,293 $ 1,211 $ 1,070 $ 1,135 $ 1,378 $ 705
================================================================================================================
Net income (loss) per share
(primary and fully diluted) $ .02 $ (.04) $ .13 $ .12 $ .10 $ .11 $ .13 $ .07
================================================================================================================
Weighted average common and
common equivalents outstanding 10,191 10,123 10,246 10,155 10,259 10,171 10,268 10,159
================================================================================================================
27
42
SAGA COMMUNICATIONS
Item 14. Financial Statement Schedule
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
- - -------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1996
Allowance for doubtful accounts $ 295 $ 365 $341 (1) $ 319
====== ====== ==== ======
Accumulated amortization -
Favorable lease agreement $3,056 $ 311 $3,367
====== ====== ======
Accumulated amortization - Excess
of cost over fair value of assets
purchased $5,575 $ 657 $6,232
====== ====== ======
Accumulated amortization -
Broadcast license $ 422 $ 418 $ 840
====== ====== ======
Accumulated amortization - Other
intangibles $4,671 $ 845 $5,516
====== ====== ======
Year Ended December 31, 1995
Allowance for doubtful accounts $ 274 $ 534 $513 (1) $ 295
====== ====== ==== ======
Accumulated amortization -
Favorable lease agreement $2,716 $ 389 $ 49 (2) $3,056
====== ====== ==== ======
Accumulated amortization - Excess
of cost over fair value of assets
purchased $4,918 $ 657 $5,575
====== ====== ======
Accumulated amortization -
Broadcast license $ 148 $ 225 $49 (2) $ 422
====== ====== === ======
Accumulated amortization - Other
intangibles $3,612 $1,059 $4,671
====== ====== ======
Year Ended December 31, 1994
Allowance for doubtful accounts $ 144 $ 340 $210 $ 274
====== ====== ==== ======
Accumulated amortization -
Favorable lease agreement $2,337 $ 379 $2,716
====== ====== ======
Accumulated amortization - Excess
of cost over fair value of assets
purchased $4,261 $ 657 $4,918
====== ====== ======
Accumulated amortization -
Broadcast license $ 130 $18 (3) $ 148
====== === ======
Accumulated amortization - Other
intangibles $2,574 $1,056 $ 18 (3) $3,612
====== ====== ==== ======
(1) Write-off of uncollectible accounts, net of recoveries.
(2) Represents the reclass of accumulated amortization of favorable lease.
(3) Represents the reclass of accumulated amortization of broadcast license.