SGA

Saga Communications Inc. - 10-Q Summary (Period Ended Sep 30, 2001)

Business Context and Reporting Period

This is a quarterly report (Form 10-Q) for Saga Communications Inc., a radio and television broadcasting company, for the period ended September 30, 2001. The company operates 57 radio stations, 4 television stations, 2 low-power TV stations, and 3 radio information networks. The reporting period covers the three and nine months ended September 30, 2001, compared to the same periods in 2000.

Key Financial Metrics

Segment Performance (Nine Months): The Radio segment generated $69.32 million in revenue and $20.44 million in operating profit. The Television segment generated $7.74 million in revenue and $0.12 million in operating profit.

Material Changes vs. Prior Period

• Revenue: Consolidated revenue increased 3.0% for the quarter and 4.6% for the nine-month period. However, "same station" revenue (excluding new acquisitions) decreased 2.7% for the quarter and 1.1% for the nine months, attributed to a general economic slowdown and the impact of the September 11 terrorist attacks.
• Expenses: Station operating expenses increased 9.6% for the quarter and 8.1% for the nine months, primarily driven by the inclusion of newly acquired stations. On a same-station basis, expenses were relatively flat.
• Profitability: Operating profit decreased 13.0% for the quarter and 7.6% for the nine months. Net income decreased 11.5% for the quarter but increased 2.9% for the nine months, aided by a significant reduction in "other expense" in 2001 compared to non-recurring charges in 2000.
• Acquisitions: The company acquired seven stations in 2001 (including markets in South Dakota, Massachusetts, and Tennessee/Kentucky) for approximately $20 million, financed through operations, debt, and stock.

Guidance, Outlook, and Risks

• 2001 Full-Year Guidance: Management anticipates full-year 2001 net revenue of approximately $104.3 million, operating profit of $22.7 million, and net income of $8.8 million ($0.53 diluted EPS).
• Q4 2001 Outlook: Anticipated Q4 net revenue is $27.2 million with net income of $2.8 million ($0.17 diluted EPS).
• Accounting Changes: The adoption of FAS 142 (Goodwill and Other Intangible Assets) in 2002 is expected to eliminate approximately $3.0 million in annual amortization expense, significantly impacting future earnings. Impairment tests will be required.
• Liquidity: The company has $105.5 million in long-term debt and approximately $95 million in unused borrowing capacity under its credit agreement. Cash flow from operations is deemed sufficient for debt service.
• Risks: Key risks include dependence on advertising revenue, economic conditions, integration of acquisitions, and regulatory matters. The company noted that the September 11 attacks resulted in commercial-free broadcasting days and contract cancellations.

Investor Verification Checklist

• Same-Station Trends: Verify the sustainability of the "same station" revenue decline (-2.7% Q/Q) amidst the post-9/11 economic environment.
• Debt Service: Confirm the company's ability to meet quarterly principal reductions on the Term Loan and Acquisition Facility commencing March 31, 2003.
• Accounting Impact: Monitor the 2002 financial statements for the impact of FAS 142 on amortization expenses and potential goodwill impairment charges.
• Acquisition Integration: Assess the performance of the seven stations acquired in 2001 to ensure they meet projected revenue and operating income targets.
• Interest Rate Exposure: Review the effectiveness of the interest rate swap agreements in managing variable rate debt costs.