-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KJ/NYd0Tl3eKjJL3k2fLNGhg5exPySkDiSDewEhyIPSRDcoAbt9qLe/YQMF3bcR4 MnE1CDmnRzwTKJ6ryJhojA== 0000950135-97-004587.txt : 19971117 0000950135-97-004587.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950135-97-004587 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAGA COMMUNICATIONS INC CENTRAL INDEX KEY: 0000886136 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 383042953 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11588 FILM NUMBER: 97718492 BUSINESS ADDRESS: STREET 1: 73 KERCHEVAL AVE CITY: GROSSE POINTE FARMS STATE: MI ZIP: 48236 BUSINESS PHONE: 3138867070 MAIL ADDRESS: STREET 1: 73 KERCHEVAL AVE STREET 2: 73 KERCHEVAL AVE CITY: GROSSE POINTE FARMS STATE: MI ZIP: 48236 10-Q 1 SAGA COMMUNICATION, INC. 1 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q (MARK ONE) [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period ended September 30, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ Commission file number 1-11588 Saga Communications, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 38-3042953 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 73 Kercheval Avenue - -------------------------------------------------------------------------------- Grosse Pointe Farms, Michigan 48236 (Address of principal executive offices) (Zip Code) (313) 886-7070 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- The number of shares of the registrant's Class A Common Stock, $.01 par value, and Class B Common Stock, $.01 par value, outstanding as of October 31, 1997 was 8,947,256 and 1,208,510, respectively. 2 INDEX PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated balance sheets--September 30, 1997 and December 31, 1996 3 Condensed consolidated statements of income --Three and nine months ended September 30, 1997 and 1996 5 Condensed consolidated statements of cash flows -- Nine months ended September 30, 1997 and 1996 6 Notes to unaudited condensed consolidated financial statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18 2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Saga Communications, Inc. Condensed Consolidated Balance Sheets (dollars in thousands) SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------------------------- (UNAUDITED) ASSETS Current assets: Cash and temporary investments $ 3,188 $ 4,339 Accounts receivable, net 12,202 11,629 Prepaid expenses 1,273 1,100 Other current assets 1,230 1,007 -------------------------- Total current assets 17,893 18,075 Property and equipment 69,757 63,031 Less accumulated depreciation (35,677) (33,327) -------------------------- Net property and equipment 34,080 29,704 Other assets: Excess of cost over fair value of assets acquired, net 19,554 20,047 Broadcast licenses, net 32,083 20,906 Other intangibles, net 6,533 7,683 -------------------------- Total other assets 58,170 48,636 -------------------------- $110,143 $ 96,415 ========================== See notes to unaudited condensed consolidated financial statements. 3 4 Saga Communications, Inc. Condensed Consolidated Balance Sheets (dollars in thousands) SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------------------------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 650 $ 1,008 Other current liabilities 6,040 4,671 Current portion of long-term debt 6,813 1,399 ------------------------- Total current liabilities 13,503 7,078 Deferred income taxes 3,986 3,408 Long-term debt 55,481 52,355 Broadcast program rights 325 461 STOCKHOLDERS' EQUITY: Common stock 101 100 Additional paid-in capital 36,513 35,864 Note receivable from principal stockholder (790) (790) Retained earnings (deficit) 1,024 (2,061) ------------------------- Total stockholders' equity 36,848 33,113 ------------------------- $110,143 $96,415 ========================= Note: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to unaudited condensed consolidated financial statements. 4 5 Saga Communications, Inc. Condensed Consolidated Statements of Income (in thousands except per share data) Unaudited
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 1997 1996 1997 1996 ------------------------- ------------------------- Net operating revenue $17,091 $15,021 $48,114 $39,979 Station operating expense: Programming and technical 3,928 3,583 11,282 9,399 Selling 4,317 3,750 13,247 10,766 Station general and administrative 2,486 2,223 7,441 6,007 -------------------------------------------------------------- Total station operating expense 10,731 9,556 31,970 26,172 -------------------------------------------------------------- Station operating income before corporate general and administrative, depreciation and amortization 6,360 5,465 16,144 13,807 Corporate general and administrative 959 994 2,840 2,634 Depreciation and amortization 1,520 1,450 4,252 4,022 -------------------------------------------------------------- Operating profit 3,881 3,021 9,052 7,151 Other expenses: Interest expense 1,325 1,154 3,708 2,667 Loss (gain) on the sale of assets - (3) 7 17 -------------------------------------------------------------- Income before income tax 2,556 1,870 5,337 4,467 Income tax provision 1,077 800 2,252 1,910 -------------------------------------------------------------- Net income $ 1,479 $ 1,070 $ 3,085 $ 2,557 ============================================================== Net income per common share (primary and fully diluted) $ .14 $ .10 $ .30 $ .25 ============================================================== Weighted average common and common equivalents outstanding (Note 3) 10,329 10,259 10,296 10,234 ==============================================================
See notes to unaudited condensed consolidated financial statements. 5 6 Saga Communications, Inc. Condensed Consolidated Statements of Cash Flows (dollars in thousands) Unaudited NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash provided by operating activities $ 8,139 $ 5,968 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (2,121) (1,285) Proceeds from sale of assets 304 20 Increase in intangibles and other assets (522) (4,118) Acquisition of stations (15,383) (16,982) ----------------------- Net cash used in investing activities (17,722) (22,365) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 11,250 19,384 Payments on long-term debt (3,210) (2,874) Net proceeds from exercise of stock options 392 159 ----------------------- Net cash provided by financing activities 8,432 16,669 ----------------------- Net increase (decrease) in cash and temporary investments (1,151) 272 Cash and temporary investments, beginning of period 4,339 3,221 ----------------------- Cash and temporary investments, end of period $ 3,188 $ 3,493 ======================= See notes to unaudited condensed consolidated financial statements. 6 7 Saga Communications, Inc. Notes to Condensed Consolidated Financial Statements Unaudited 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Saga Communications, Inc. Annual Report (Form 10-K) for the year ended December 31, 1996. In February, 1997 SFAS No. 128 "Earnings Per Share" was issued effective for fiscal years beginning after December 15, 1997. Adoption of this statement is not expected to have a material effect on the Company. The Company enters into interest-rate swap agreements to modify the interest characteristics of its outstanding debt. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of the interest expense related to the debt (the accrual accounting method). The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair values of the swap agreements are not recognized in the financial statements. Gains and losses on terminations of interest-rate swap agreements are deferred as an adjustment to interest expense related to the debt over the remaining term of the original contract life of the terminated swap agreement. In the event of the early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment. Any swap agreements that are not designated with outstanding debt or notional amounts (or durations) of interest-rate swap agreements in excess of the principal amounts (or maturities) of the underlying debt obligations are recorded as an asset or liability at fair value, with changes in fair value recorded in other income or expense (the fair value method). 7 8 Saga Communications, Inc. Notes to Condensed Consolidated Financial Statements (Continued) Unaudited 2. INCOME TAXES The Company's effective tax rate is higher than the statutory rate as a result of certain non-deductible depreciation and amortization expenses and the inclusion of state taxes in the income tax amount. 3. STOCK SPLIT On April 1, 1997 the Company consummated a five-for-four split of its Class A and Class B Common Stock, resulting in additional shares being issued of 1,772,004 and 241,702, respectively, for holders of record on March 17, 1997. All share and per share information in the accompanying financial statements has been restated retroactively to reflect the split. The common stock and accumulated deficit accounts at December 31, 1996 reflect the retroactive capitalization of the split. 4. COMMITMENTS On July 7, 1997, the Company entered into an agreement to purchase an FM radio station (WQLL-FM) serving the Manchester, New Hampshire market for approximately $3,300,000. The transaction is subject to the approval of the Federal Communications Commission. The Company began operating the radio station under the terms of a local market agreement on July 1, 1997, which is expected to remain in effect until such time as the Company concludes its pending acquisition of the station. 5. SUBSEQUENT EVENTS On October 22, 1997 the Company signed a letter of intent to acquire the assets of a regional and state news and sports information network (The Illinois Radio Network) serving more than 45 radio stations throughout the state of Illinois for $1,750,000. The transaction is subject to certain conditions, including the completion of a definitive asset purchase agreement, and is expected to close during the fourth quarter of 1997. 8 9 Saga Communications, Inc. Notes to Condensed Consolidated Financial Statements (Continued) Unaudited 5. STATION ACQUISITIONS The Company acquired an FM radio station (KAZR-FM) serving the Des Moines, Iowa market on March 14, 1997. The purchase price was approximately $2,700,000. 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. The Company acquired an FM radio station (KLTI-FM) serving the Des Moines, Iowa market on April 17, 1997. The purchase price was approximately $3,200,000. The Company began operating the radio station under the terms of a local market agreement on January 1, 1997, which remained in effect until such closing. The Company acquired two AM and two FM radio stations (WTAX-AM, WDBR-FM, WVAX-AM, and WYXY-FM) serving the Springfield, Illinois market on May 5, 1997. The purchase price was approximately $6,000,000. The Company began operating the radio stations under the terms of a local market agreement on July 1, 1996, which remained in effect until such closing. The Company acquired two FM radio stations (WFMR-FM and WXPT-FM) serving the Milwaukee, Wisconsin market on May 9, 1997. The purchase price was approximately $5,000,000. The 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 consideration paid over the estimated fair value of net assets acquired has been recorded as broadcast licenses. The condensed consolidated statements of income include the operating results of the acquired businesses from their respective dates of acquisition or operation under the terms of local market agreements. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto of Saga Communications, Inc. and its subsidiaries contained elsewhere herein. In June, 1996, the Company acquired two radio stations in Yankton, South Dakota serving the Sioux City, Iowa market and two radio stations in Portland, Maine. In March, 1997 the Company acquired an FM radio station serving the Des Moines, Iowa market. In April, 1997 the Company acquired another FM radio station serving the Des Moines, Iowa market. In May, 1997 the Company acquired four radio stations serving the Springfield, Illinois market, and two radio stations serving the Milwaukee, Wisconsin market. In July, 1997 the Company entered into an agreement to purchase a radio station serving the Manchester, New Hampshire market. In October, 1997 the Company signed a letter of intent to purchase a regional and state news and sports information network serving more than 45 radio stations throughout the state of Illinois. 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 quarterly 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 and 1995, 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 and 1995, Columbus accounted for an aggregate of 22% and 30%, respectively, and Milwaukee accounted for an aggregate of 23% and 22%, respectively, of the Company's station operating income. For the nine month periods ended September 30, 1997 and 1996, none of the Company's 10 11 operating locations represented more that 15% of the Company's station operating income, other than the Columbus and Milwaukee stations. For the nine months ended September 30, 1997 and 1996, Columbus accounted for an aggregate of 25% and 22%, respectively, and Milwaukee accounted for an aggregate of 26% and 25%, respectively, of the Company's station operating income. While radio revenues in each of the Columbus and Milwaukee markets have remained relatively stable historically, an adverse change in these radio markets or these locations' relative market position could have a significant impact on the Company's operating results 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. Most advertising contracts are short-term, and generally run only for a few weeks. Most of the Company's revenue is generated from local advertising, which is sold primarily by each station's sales staff. For the nine months ended September 30, 1997 and 1996, approximately 81% and 83%, respectively, 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. 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. THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996 For the three months ended September 30, 1997, the Company's net operating revenue was $17,091,000 compared with $15,021,000 for the three months ended September 30, 1996, an increase of $2,070,000 or 14%. Approximately $807,000 or 39% of the increase was attributable to revenue generated by stations which were not owned or operated by the Company for the comparable period in 1996. The balance of the increase in net operating revenue represented an 8.4% increase in stations owned and operated by the Company for the entire comparable period, primarily as a result of increased advertising rates at the majority of the Company's stations. 11 12 Station operating expense (i.e., programming, technical, selling and station general and administrative expenses) increased by $1,175,000 or 12% to $10,731,000 for the three months ended September 30, 1997, compared with $9,556,000 for the three months ended September 30, 1996. Of the total increase, approximately $816,000 or 69% was the result of the impact of the operation of stations which were not owned or operated by the Company for the entire comparable period in 1996. The remaining balance of the increase in station operating expense of $360,000 represents a total increase of 3.8% in stations owned and operated by the Company for the entire comparable period in 1996, as a result of the related increase in revenue. Operating profit increased by $860,000 or 28.5% to $3,881,000 for the three months ended September 30, 1997, compared with $3,021,000 for the three months ended September 30, 1996. The improvement was primarily the result of the $2,070,000 increase in net operating revenue, offset by the $1,175,000 increase in station operating expense and a $70,000 increase in depreciation and amortization expense, and a $35,000 decrease in corporate general and administrative charges. The increase in depreciation and amortization expense was principally the result of the Company's recent acquisitions. The decrease in corporate general and administrative charges was primarily attributable to a decrease in non-recurring charges associated with certain employee benefit related matters incurred in 1996, offset by deferred compensation charges and additional costs due to the growth of the Company as a result of the recent acquisitions. The Company generated net income in the amount of approximately $1,479,000 ($0.14 per share) during the three months ended September 30, 1997, compared with net income of $1,070,000 ($0.10 per share) for the three months ended September 30, 1996, an increase of $409,000 or 38%. The increase in net income was principally the result of the $860,000 improvement in operating profit offset by a $171,000 increase in interest costs resulting primarily from an increase in borrowed funds to finance the Company's recent acquisitions, and a $277,000 increase in income taxes directly associated with the improved operating performance of the Company. NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 For the nine months ended September 30, 1997, the Company's net operating revenue was $48,114,000 compared with $39,979,000 for the nine months ended September 30, 1996, an increase of $8,135,000 or 20%. Approximately $5,356,000 or 66% of the increase was attributable to revenue generated by stations which were not owned or operated by the Company for the entire comparable period in 1996. The balance of the increase in net operating revenue represented a 7% increase in stations owned and operated by the Company for the entire comparable period, primarily as a result of increased advertising rates at the majority of the Company's stations. 12 13 Station operating expense (i.e., programming, technical, selling and station general and administrative expenses) increased by $5,798,000 or 22% to $31,970,000 for the nine months ended September 30, 1997, compared with $26,172,000 for the nine months ended September 30, 1996. Of the total increase, approximately $4,709,000 or 81% was the result of the impact of the operation of stations which were not owned or operated by the Company for the entire comparable period in 1996. The remaining balance of the increase in station operating expense of $1,089,000 represents a total increase of 4% in stations owned and operated by the Company for the comparable period in 1996, as a result of the related increase in revenue. Operating profit increased by $1,901,000 or 27% to $9,052,000 for the nine months ended September 30, 1997, compared with $7,151,000 for the nine months ended September 30, 1996. The improvement was primarily the result of the $8,135,000 increase in net operating revenue, offset by the $5,798,000 increase in station operating expense, a $206,000 increase in corporate general and administrative charges and a $230,000 increase in depreciation and amortization expense. The increase in corporate general and administrative charges was primarily attributable to deferred compensation charges and additional costs due to the growth of the Company as a result of the recent acquisitions. The increase in depreciation and amortization expense was principally the result of the Company's recent acquisitions. The Company generated net income in the amount of approximately $3,085,000 ($0.30 per share) during the nine months ended September 30, 1997, compared with net income of $2,557,000 ($0.25 per share) for the nine months ended September 30, 1996, an increase of $528,000 or 21%. The increase in net income was principally the result of the $1,901,000 improvement in operating profit offset by a $1,041,000 increase in interest costs resulting primarily from an increase in borrowed funds to finance the Company's recent acquisitions, and a $342,000 increase in income taxes directly associated with the improved operating performance of the Company. 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 September 30, 1997, the Company had $62,294,000 of long-term debt (including the current portion thereof) outstanding and approximately $47,250,000 of unused borrowing capacity under the Revolving Loan (as defined below). The Company has a bank credit agreement (the "Credit Agreement") which provides two financing 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 September 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. 13 14 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 is required to be reduced quarterly in amounts ranging from 1.25% to 5% of the initial commitment. In addition, the Facilities may be further reduced by specified percentages of Excess Cash Flow (as defined in the Credit Agreement) based on leverage ratios. Interest rates under the Facilities are payable, at the Company's option, at alternatives equal to 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. At September 30, 1997, 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 (5.7% at September 30, 1997) 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 $123,000 in additional interest expense was recognized as a result of the interest rate swap agreement for the nine months ended September 30, 1997 and an aggregate amount of $323,000 in additional interest expense has been recognized since the inception of the agreement. During the years ended December 31, 1996 and 1995, the Company had net cash flows from operating activities of $7,679,000, and $9,483,000, respectively. During the nine months ended September 30, 1997 and 1996, the Company had net cash flows from operating activities of $8,139,000 and $5,968,000, 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. 14 15 In June, 1996, the Company acquired an AM and FM radio station in Yankton, South Dakota, serving the Sioux City, Iowa market for approximately $7,000,000 and 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. The Company acquired an FM radio station (KAZR-FM) serving the Des Moines, Iowa market on March 14, 1997, an FM radio station (KLTI-FM) serving the Des Moines, Iowa market on April 17, 1997, two AM and two FM radio stations (WTAX-AM, WDBR-FM, WVAX-AM, and WYXY-FM) serving the Springfield, Illinois market on May 5, 1997, and two FM radio stations (WFMR-FM and WXPT-FM) serving the Milwaukee, Wisconsin market on May 9, 1997. The purchase price of these acquisitions was approximately $2,700,000, $3,200,000, $6,000,000 and $5,000,000, respectively. These acquisitions were financed through funds generated from operations and additional borrowings of $11,250,000 under the Revolving Loan. On July 7, 1997, the Company entered into an agreement to purchase an FM radio station (WQLL-FM) serving the Manchester, New Hampshire market for approximately $3,300,000. The transaction is subject to the approval of the Federal Communications Commission. The Company began operating the radio station under the terms of a local market agreement on July 1, 1997, which is expected to remain in effect until such time as the Company concludes it pending acquisition of the station. On October 22, 1997 the Company signed a letter of intent to acquire the assets of a regional and state news and sports information network (The Illinois Radio Network) serving more than 45 radio stations throughout the state of Illinois for $1,750,000. The transaction is subject to certain conditions, including the completion of a definitive asset purchase agreement, and is expected to close during the fourth quarter of 1997. 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. 15 16 The Company's capital expenditures for the nine months ended September 30, 1997 were approximately $2,121,000 ($1,285,000 in the comparable period in 1996). 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-Q that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, when used in this Form 10-Q, words such as "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. 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, the successful integration of acquired stations, and regulatory matters. The Company cannot assure that it will be able to anticipate or respond timely to changes in any of the factors listed above, which could adversely affect the operating results in one or more fiscal quarters. Results of operations in any past period should not be considered, in and of itself, indicative of the results to be expected for future periods. Fluctuations in operating results may also result in fluctuations in the price of the Company's stock. 16 17 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) EXHIBITS 27 Financial Data Schedule (b) Reports on Form 8-K None 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SAGA COMMUNICATIONS, INC. Date: November 14, 1997 /s/ Samuel D. Bush ------------------------------------------ Samuel D. Bush Chief Financial Officer, Vice President, and Treasurer (Principal Financial Officer) Date: November 14, 1997 /s/ Catherine A. Bobinski ------------------------------------------ Catherine A. Bobinski Corporate Controller and Chief Accounting Officer (Principal Accounting Officer) 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 3,188 0 12,202 0 0 17,893 69,757 (35,677) 110,143 13,503 0 0 0 101 36,747 110,143 48,114 48,114 0 31,970 7,099 0 3,708 5,337 2,252 3,085 0 0 0 3,085 .30 .30
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