Saga Communications, Inc. — Q1 2012 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2012, compared with Q1 2011. Saga operates radio stations and television stations, earning primarily advertising revenue.
Key financial results
Amounts in $ millions, except per-share data and percentages.
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net operating revenue | $29.934 | $28.708 | +4.3% |
| Operating income | $5.017 | $4.032 | +24.4% |
| Net income | $2.705 | $1.662 | +62.8% |
| Diluted EPS | $0.64 | $0.39 | +$0.25 |
| Cash provided by operating activities | $8.798 | $5.885 | +$2.913 |
| Capital expenditures | $1.189 | $1.145 | +$0.044 |
| Cash and cash equivalents, at period end | $6.695 | $12.754 | Down from Dec. 2011 $6.991 |
| Total debt, at period end | $61.328 | Not stated here | Down from Dec. 2011 $69.078 |
Operating margin was approximately 16.8%, versus 14.0% a year earlier; net margin was approximately 9.0%, versus 5.8%. Operating cash flow less capital expenditures was approximately $7.609 million. Current assets were $28.120 million and current liabilities $12.687 million at March 31, 2012.
Material changes and segment performance
- Radio revenue increased 2.8% to $25.199 million; segment operating income rose 11.8% to $5.845 million.
- Television revenue increased 12.7% to $4.735 million; segment operating income rose 50.7% to $1.121 million.
- Revenue growth reflected higher local advertising, presidential-primary political advertising, and retransmission-consent revenue. National advertising revenue declined.
- Operating income benefited from revenue growth and lower interest expense. Interest expense fell 54.4% to $0.528 million, attributed to lower average interest rates, lower average debt, and lower amortization of financing costs.
- Station operating expenses rose 1.0%. Higher salaries and commissions were partly offset by lower health-care, music-licensing, and advertising costs; television also incurred $0.127 million of retransmission fees.
Liquidity, debt, and outlook
- The credit facility has $117.8 million of total availability and matures June 13, 2016. At March 31, approximately $57.5 million of revolving capacity remained unused. The company reported compliance with all financial covenants and no required term-loan amortization payment at quarter-end.
- Q1 financing activities included $7.750 million of debt payments and $0.080 million of treasury-share purchases; cash decreased $0.296 million during the quarter.
- Management said operating cash flow should be sufficient for quarterly debt service, but noted that inadequate cash flow could require equity issuance, refinancing, or property sales. These alternatives may not be available on favorable terms.
- Management expected 2012 capital expenditures of approximately $4.0–$4.5 million, funded from operations, and anticipated significantly higher political advertising in 2012. Television retransmission-consent revenue was expected to be approximately $1.9 million in 2012, with about $0.550 million remitted to network partners.
- After quarter-end, Saga agreed to sell WXVT, its Greenville, Mississippi television station, for $3 million subject to adjustments and FCC approval. Closing was expected in Q3 2012; management did not anticipate a material financial-statement effect.
Risks, contingencies, and other disclosures
- Management identified exposure to economic and advertising conditions, financial leverage and debt service, key personnel and stations, competition, technology, regulation, natural disasters, and terrorist attacks.
- Milwaukee radio revenue had declined amid competitive pricing, a soft economy, changes in ratings methodology, demand for shorter advertising spots, and lower spending in certain categories. The four largest radio markets represented about 27% of consolidated revenue in Q1 2012.
- The filing reports routine litigation but no proceeding management believed likely to have a material adverse effect. FCC broadcast licenses are evaluated for impairment annually or when circumstances warrant.
- Disclosure controls were concluded to be effective; no material change in internal control over financial reporting was reported for the quarter. The filing states Q1 results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether local, political, and retransmission-consent revenue growth continues, and whether national advertising weakness persists.
- Progress and final terms of the WXVT sale, including FCC approval and closing timing.
- Debt repayments, available revolver capacity, covenant compliance, and the effect of interest rates on debt service.
- Delivery of the $4.0–$4.5 million capital-expenditure plan and the expected retransmission revenue after network-partner payments.
- Performance in Milwaukee and other major markets, and the extent to which Q1 political advertising compares with later quarters.