Note: The balance sheet at December 31, 2015 has been derived
from the audited financial statements at that date but does not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States for annual financial
statements.
In our opinion, the accompanying financial
statements include all adjustments of a normal, recurring nature considered necessary for a fair presentation of our financial
position as of March 31, 2016 and the results of operations for the three months ended March 31, 2016 and 2015. Results of operations
for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2016.
For further information, refer to the consolidated
financial statements and footnotes thereto included in the Saga Communications, Inc. Annual Report on Form 10-K for the year ended
December 31, 2015.
The Company has evaluated events and transactions
occurring subsequent to the balance sheet date of March 31, 2016, for items that should potentially be recognized in these financial
statements or discussed within the notes to the financial statements.
Earnings Per Share Information
Earnings per share is calculated using
the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class
of common stock and participating security. The Company has participating securities related to restricted stock units, granted
under the Company’s Second Amended and Restated 2005 Incentive Compensation Plan, that earn dividends on an equal basis with
common shares. In applying the two-class method, earnings are allocated to both common shares and participating securities.
The following table sets forth the computation
of basic and diluted earnings per share:
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands, except per share
data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,024
|
|
|
$
|
2,131
|
|
Less: Net income allocated to unvested participating securities
|
|
|
56
|
|
|
|
32
|
|
Net income available to common stockholders
|
|
$
|
2,968
|
|
|
$
|
2,099
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share— weighted average shares
|
|
|
5,751
|
|
|
|
5,710
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
8
|
|
|
|
52
|
|
Denominator for diluted earnings per share — adjusted weighted-average shares and assumed conversions
|
|
|
5,759
|
|
|
|
5,762
|
|
Basic earnings per share
|
|
$
|
0.52
|
|
|
$
|
0.37
|
|
Diluted earnings per share
|
|
$
|
0.52
|
|
|
$
|
0.36
|
|
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The number of stock options outstanding
that had an antidilutive effect on our earnings per share calculation, and therefore have been excluded from diluted earnings per
share calculation, was 0 and 45,000 for the three months ended March 31, 2016 and 2015, respectively. The actual effect of these
shares, if any, on the diluted earnings per share calculation will vary significantly depending on the fluctuation in the stock
price.
Financial Instruments
Our financial instruments are comprised
of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying value of cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to their short maturities. The carrying value of long-term
debt approximates fair value as it carries interest rates that either fluctuate with the euro-dollar rate, prime rate or have been
reset at the prevailing market rate at March 31, 2016.
Income Taxes
Our effective tax rate is higher than the
federal statutory rate as a result of the inclusion of state taxes in the income tax amount.
Time Brokerage Agreements/Local Marketing
Agreements
We have entered into Time Brokerage Agreements
(“TBA’s”) or Local Marketing Agreements (“LMA’s”) in certain markets. In a typical TBA/LMA,
the FCC licensee of a station makes available, for a fee, blocks of air time on its station to another party that supplies programming
to be broadcast during that air time and sells their own commercial advertising announcements during the time periods specified.
Revenue and expenses related to TBA’s/LMA’s are included in the accompanying unaudited Condensed Consolidated Statements
of Income.
2. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In September 2015, the FASB issued Accounting
Standards Update No. 2015-16,
“Business Combinations (Topic 805), Simplifying the Accounting for Measurement Period Adjustments”,
(“ASU 2015-16”), which eliminated the requirement that an acquirer in a business combination account for measurement-period
adjustments retrospectively. Instead an acquirer will recognize a measurement-period adjustment during the period in which it determines
the amount of the adjustment, including the effect on earnings of any amounts it would have recorded in previous periods if the
accounting had been completed at the acquisition date. This amendment was adopted on January 1, 2016 and did not have a material
impact on our consolidated financial statements.
In April 2015, the FASB issued Accounting
Standards Update No. 2015-05, “
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s
Accounting for Fees Paid in a Cloud Computing Arrangement
” (“ASU 2015-05”), with new guidance on whether
a cloud computing arrangement includes a software license and the accounting for such an arrangement. If a cloud computing arrangement
includes a software license, then the software license element of the arrangement should be accounted for consistently with the
acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the agreement should
be accounted for as a service contract. This amendment was adopted on January 1, 2016 and did not have a material impact on our
consolidated financial statements.
In April 2015, the FASB issued Accounting
Standards Update No. 2015-03, “
Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt
Issuance Costs
” (“ASU 2015-03”), and in August 2015 the FAS issued ASU 2015-15,
“Presentation and
Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”.
These ASUs require debt issuance
costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount
of that debt consistent with debt discounts. The presentation and subsequent measurement of debt issuance costs associated with
line of credit, may be presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless
of whether there are outstanding borrowings on the arrangement. We currently present deferred financing costs related to our line
of credit within Other assets. These amendments were adopted on January 1, 2016 and did not have a material impact on our consolidated
financial statements.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
In February 2015, the FASB issued Accounting
Standards Update No. 2015-02, “
Consolidation (Topic 810), Amendments to the Consolidation Analysis
” (“ASU
2015-02”)
,
which amended the consolidation requirements in ASC 810, primarily related to limited partnerships and
VIEs. This amendment was adopted on January 1, 2016 and did not have a material impact on our consolidated financial statements.
In January 2015, the FASB issued Accounting
Standards Update No. 2015-01, “
Income Statement-Extraordinary and Unusual Items
” (“ASU 2015-01”),
which simplified income statement presentation by eliminating the need to determine whether to classify an item as an extraordinary
item. This amendment was adopted on January 1, 2016 and did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
– Not Yet Adopted
In March 2016, the FASB issued ASU No.
2016-09,
"Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting"
("ASU 2019-09"), which includes multiple amendments intended to simplify aspects of share-based payment accounting. Amendments
to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, and forfeitures will be applied
using a modified retrospective transition method through a cumulative-effect adjustment to equity as of the beginning of the period
of adoption. Amendments to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares
to meet the minimum statutory withholding requirement will be applied retrospectively, and amendments requiring the recognition
of excess tax benefits and tax deficiencies in the income statement are to be applied prospectively. ASU 2016-09 will be effective
for annual reporting periods beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating
the impact that the standard will have on our consolidated financial statements.
In February 2016, the FASB issued Accounting
Standards Update No. 2016-02,
“Leases (Topic 842)”
(“ASU 2016-02”)¸which requires that all
leases with a term of more than one year, covering leased assets such as real estate, broadcasting towers and equipment, be reflected
on the balance sheet as assets and liabilities for the rights and obligations created by these leases. ASU 2016-02 is effective
for fiscal years fiscal years and interim periods beginning after December 15, 2018. The Company is currently evaluating the impact
of the provisions of this new standard on our consolidated financial statements.
In November 2015, the FASB issued Accounting
Standards Update No. 2015-17,
“Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes”
(“ASU
2015-17”), which requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet
instead of separating deferred taxes into current and noncurrent amounts. ASU 2015-17 is effective for fiscal years and interim
periods beginning after December 15, 2016. The Company is currently evaluating the impact of the provisions of this new standard
on our consolidated financial statements.
In August 2014, the FASB issued Accounting
Standards Update No. 2014-15, “
Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern
”
(“ASU 2014-15”), which requires management to evaluate, at each annual and interim reporting period, whether there
are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern and provide
related disclosures. ASU 2014-15 is effective for annual reporting the first interim period within annual reporting periods beginning
after December 15, 2016 and is not expected to have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued Accounting
Standards Update No. 2014-09,
“Revenue from Contracts with Customers”
(“ASU 2014-09”), which provides
guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede
virtually all of the current revenue recognition guidance under GAAP. In March 2016, the FASB issued Accounting Standards Update
No. 2016-08, “
Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue
Gross versus Net)”
(“ASU 2016-08”), which clarifies how an entity should identify the unit of accounting
for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. ASU 2014-09
and ASU 2016-08 are effective for the first interim period within annual reporting periods beginning after December 15, 2016. In
July 2015, the FASB made a decision to defer the effective date of ASU 2014-09 for one year and permit early adoption as of the
original effective date. As a result, the standard is effective for us for fiscal and interim periods beginning January 1,
2018. The Company is currently evaluating the impact of the provisions of this standard on our consolidated financial statements.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
3. Intangible Assets
We evaluate our FCC licenses and goodwill
for impairment annually as of October 1
st
or more frequently if events or circumstances indicate that the asset might
be impaired. FCC licenses are evaluated for impairment at the market level using a direct method. If the carrying amount of FCC
licenses is greater than their estimated fair value in a given market, the carrying amount of FCC licenses in that market is reduced
to its estimated fair value. If the carrying amount of goodwill in a reporting unit is greater than the implied value of goodwill
determined by completing a hypothetical purchase price allocation using estimated fair value of the reporting unit, the carrying
amount of goodwill in that reporting unit is reduced to its implied value.
Intangible assets that have finite lives
are amortized over their useful lives using the straight-line method. Favorable lease agreements are amortized over the lives of
the leases ranging from four to twenty-six years. Other intangibles are amortized over one to eleven years.
4. Common Stock and Treasury Stock
The following summarizes information relating
to the number of shares of our common stock issued in connection with stock transactions through March 31, 2016:
|
|
Common Stock Issued
|
|
|
|
Class A
|
|
|
Class B
|
|
|
|
(Shares in thousands)
|
|
Balance, January 1, 2015
|
|
|
6,446
|
|
|
|
843
|
|
Exercised options
|
|
|
93
|
|
|
|
32
|
|
Conversion of shares
|
|
|
40
|
|
|
|
(40
|
)
|
Issuance of restricted stock
|
|
|
26
|
|
|
|
30
|
|
Forfeiture of restricted stock
|
|
|
(2
|
)
|
|
|
—
|
|
Balance, December 31, 2015
|
|
|
6,603
|
|
|
|
865
|
|
Balance, March 31, 2016
|
|
|
6,603
|
|
|
|
865
|
|
We have a Stock Buy-Back Program to allow
us to purchase up to $75.8 million of our Class A Common Stock. As of March 31, 2016 we have remaining authorization of $24.9 million
for future repurchases of our Class A Common Stock.
5. Acquisitions and Dispositions
We actively seek and explore opportunities
for expansion through the acquisition of additional broadcast properties. The consolidated statements of income include the operating
results of the acquired stations from their respective dates of acquisition. All acquisitions were accounted for as purchases and,
accordingly, the total purchase consideration was 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
have been recorded as goodwill. The Company accounts for acquisition under the provisions of FASB ASC Topic 805,
Business Combinations
.
Management assigned fair values to the
acquired property and equipment through a combination of cost and market approaches based upon each specific asset’s replacement
cost, with a provision for depreciation, and to the acquired intangibles, primarily an FCC license, based on the Greenfield valuation
methodology, a discounted cash flow approach.
2016 Acquisitions
On November 2, 2015, we entered into an
agreement to acquire an FM radio station (WLVQ) from Wilks Broadcast - Columbus, LLC, serving the Columbus, Ohio market for approximately
$13,791,000, which included $734,000 in accounts receivable and $57,000 in transactional costs. We completed this acquisition on
February 3, 2016. We operated this station under an LMA from November 16, 2015 through our completion of the acquisition. This acquisition
was financed through funds generated from operations. Management attributes the goodwill recognized in the acquisition to the power
of the existing brands in the Columbus, Ohio market as well as the synergies and growth opportunities expected through the combination
with the Company’s existing stations.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
On March 16, 2016 we acquired an FM translator
serving the Portland, Maine market for approximately $50,000.
On March 25, 2016 we acquired an FM translator
serving the Milwaukee, Wisconsin market for approximately $50,000.
2015 Acquisitions and Dispositions
On July 13, 2015 we acquired an FM translator
serving the Manchester, New Hampshire market for approximately $45,000.
On August 1, 2015 we acquired two AM and
three FM stations and one FM translator (WSVA-AM, WHBG-AM, WQPO-FM, WMQR-FM, WWRE-FM and WQPO-HD3) from M. Belmont VerStandig,
Inc., serving the Harrisonburg, Virginia market for approximately $10,131,000, which included $128,000 in transactional costs.
Cash was utilized to fund the acquisition. Management attributes the goodwill recognized in the acquisition to the power of the
existing brands in the Harrisonburg, Virginia market as well as the synergies and growth opportunities expected through the combination
with the Company’s existing stations.
On August 26, 2015 we acquired an FM translator
serving the Asheville, North Carolina market for approximately $125,000.
On
September 1, 2015 we acquired two FM stations (WSIG-FM and WBOP-FM) from Gamma Broadcasting, LLC, serving the Harrisonburg, Virginia
market for approximately $1,558,000, which included $92,000 in transactional costs. Cash was utilized to fund the acquisition.
FCC multiple ownership rules prohibit us from owning both of these stations. In order to satisfy the multiple ownership requirements
and receive FCC approval for this acquisition, we simultaneously donated WBOP-FM to Liberty University, Inc, a charitable organization.
In exchange for donating WBOP-FM, including the Station, the FCC License and the Assets, we received an FM Translator W267BA, the
FM Translator Assets, and the FM Translator FCC license, valued at approximately $50,000. We incurred a pre-tax loss of $400,000
as a result of this donation. This loss is recorded in other operating (income), expense, net on the Company’s Condensed
Consolidated Statements of Income and reported in cash flows from operating activities on the Condensed Consolidated Statement
of Cash Flows. Management attributes the goodwill recognized in the acquisition to the power of the existing brands in the Harrisonburg,
Virginia market as well as the synergies and growth opportunities expected through the combination with the Company’s existing
stations.
On October 23, 2015 we acquired an FM translator
serving the Charlottesville, Virginia market for approximately $30,000.
On November 12, 2015 we acquired an FM
translator serving the Bucyrus, Ohio market for approximately $30,000.
On November 23, 2015 we acquired an FM
translator serving the Charlottesville, Virginia market for approximately $150,000.
On December 31, 2015 we donated the Illinois
Radio Network (“the network”) to the Illinois Policy Institute. The net book value of the network was approximately
$7,000.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Condensed Consolidated Balance Sheet of 2016 and 2015
Acquisitions:
The following unaudited condensed
balance sheets represent the estimated fair value assigned to the related assets and liabilities of the 2016 and 2015 acquisitions
at their respective acquisition dates. The allocation of the purchase price for the 2016 and 2015 acquisitions is preliminary at
March 31, 2016.
Saga Communications, Inc.
Condensed Consolidated Balance Sheet
of 2016 and 2015 Acquisitions
|
|
Acquisitions in
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Assets Acquired:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
814
|
|
|
$
|
977
|
|
Property and equipment
|
|
|
376
|
|
|
|
4,614
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Broadcast licenses-Radio segment
|
|
|
8,010
|
|
|
|
2,218
|
|
Broadcast licenses-Television segment
|
|
|
—
|
|
|
|
—
|
|
Goodwill-Radio segment
|
|
|
4,277
|
|
|
|
2,548
|
|
Goodwill-Television segment
|
|
|
—
|
|
|
|
—
|
|
Other intangibles, deferred costs and investments
|
|
|
398
|
|
|
|
1,623
|
|
Total other assets
|
|
|
12,685
|
|
|
|
6,389
|
|
Total assets acquired
|
|
|
13,875
|
|
|
|
11,980
|
|
Liabilities Assumed:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
41
|
|
|
|
82
|
|
Total liabilities assumed
|
|
|
41
|
|
|
|
82
|
|
Net assets acquired
|
|
$
|
13,834
|
|
|
$
|
11,898
|
|
Pro Forma Results of Operations for Acquisitions
and Dispositions (Unaudited)
The following unaudited pro forma results
of our operations for the three months ended March 31, 2016 and 2015 assume the 2016 and 2015 acquisitions and dispositions occurred
as of January 1, 2015. The translators are start-up stations and therefore, have no pro forma revenue and expenses. 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.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands, except per share data)
|
|
Pro forma Consolidated Results of Operations
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
32,745
|
|
|
$
|
31,015
|
|
Station operating expense
|
|
|
24,700
|
|
|
|
24,457
|
|
Corporate general and administrative
|
|
|
2,717
|
|
|
|
2,482
|
|
Operating income
|
|
|
5,328
|
|
|
|
4,076
|
|
Interest expense
|
|
|
189
|
|
|
|
241
|
|
Other (income) expense, net
|
|
|
—
|
|
|
|
(8
|
)
|
Income before income tax expense
|
|
|
5,139
|
|
|
|
3,843
|
|
Income tax expense
|
|
|
2,124
|
|
|
|
1,557
|
|
Net income
|
|
$
|
3,015
|
|
|
$
|
2,286
|
|
Basic earnings per share
|
|
$
|
0.52
|
|
|
$
|
0.40
|
|
Diluted earnings per share
|
|
$
|
0.52
|
|
|
$
|
0.40
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Radio Broadcasting Segment
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
27,464
|
|
|
$
|
26,230
|
|
Station operating expense
|
|
|
21,155
|
|
|
|
21,114
|
|
Other operating income
|
|
|
(3
|
)
|
|
|
—
|
|
Operating income
|
|
$
|
6,312
|
|
|
$
|
5,116
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
Television Broadcasting Segment
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
5,281
|
|
|
$
|
4,785
|
|
Station operating expense
|
|
|
3,545
|
|
|
|
3,343
|
|
Other operating expense
|
|
|
3
|
|
|
|
—
|
|
Operating income
|
|
$
|
1,733
|
|
|
$
|
1,442
|
|
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
Reconciliation of pro forma segment operating income to
pro forma consolidated operating income:
|
|
Radio
|
|
|
Television
|
|
|
Corporate
and Other
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
Three Months Ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
27,464
|
|
|
$
|
5,281
|
|
|
$
|
—
|
|
|
$
|
32,745
|
|
Station operating expense
|
|
|
21,155
|
|
|
|
3,545
|
|
|
|
—
|
|
|
|
24,700
|
|
Corporate general and administrative
|
|
|
—
|
|
|
|
—
|
|
|
|
2,717
|
|
|
|
2,717
|
|
Other operating (income) expense, net
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
Operating income (loss)
|
|
$
|
6,312
|
|
|
$
|
1,733
|
|
|
$
|
(2,717
|
)
|
|
$
|
5,328
|
|
|
|
Radio
|
|
|
Television
|
|
|
Corporate
and Other
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
Three Months Ended March 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
26,230
|
|
|
$
|
4,785
|
|
|
$
|
—
|
|
|
$
|
31,015
|
|
Station operating expense
|
|
|
21,114
|
|
|
|
3,343
|
|
|
|
—
|
|
|
|
24,457
|
|
Corporate general and administrative
|
|
|
—
|
|
|
|
—
|
|
|
|
2,482
|
|
|
|
2,482
|
|
Operating income (loss)
|
|
$
|
5,116
|
|
|
$
|
1,442
|
|
|
$
|
(2,482
|
)
|
|
$
|
4,076
|
|
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
6. Stock-Based Compensation
2005 Incentive Compensation Plan
On October 16, 2013 our stockholders approved
the Second Amended and Restated Saga Communications, Inc. 2005 Incentive Compensation Plan (the “Second Restated 2005 Plan”).
The 2005 Incentive Compensation Plan was first approved by stockholders in 2005 and replaced our 2003 Stock Option Plan (the “2003
Plan”). The 2005 Incentive Compensation Plan was re-approved by stockholders in 2010. The changes made in the Second Restated
2005 Plan (i) increases the number of authorized shares by 233,334 shares of Common Stock, (ii) extends the date for making awards
to September 6, 2018, (iii) includes directors as participants, (iv) targets awards according to groupings of participants based
on ranges of base salary of employees and/or retainers of directors, (v) requires participants to retain 50% of their net annual
restricted stock awards during their employment or service as a director, and (vi) includes a clawback provision. The Second Restated
2005 Plan allows for the granting of restricted stock, restricted stock units, incentive stock options, nonqualified stock options,
and performance awards to eligible employees and non-employee directors.
The number of shares of Common Stock that
may be issued under the Second Restated 2005 Plan may not exceed 280,000 shares of Class B Common Stock, 900,000 shares of Class
A Common Stock of which up to 620,000 shares of Class A Common Stock may be issued pursuant to incentive stock options and 280,000
Class A Common Stock issuable upon conversion of Class B Common Stock. Awards denominated in Class A Common Stock may be granted
to any employee or director under the Second Restated 2005 Plan. However, awards denominated in Class B Common Stock may only be
granted to Edward K. Christian, President, Chief Executive Officer, Chairman of the Board of Directors, and the holder of 100%
of the outstanding Class B Common Stock of the Company. Stock options granted under the Second Restated 2005 Plan may be for terms
not exceeding ten years from the date of grant and may not be exercised at a price which is less than 100% of the fair market value
of shares at the date of grant.
Stock-Based Compensation
All stock options granted were fully vested
and expensed at December 31, 2012, therefore there was no compensation expense related to stock options for the three months ended
March 31, 2015 and 2016, respectively.
The following summarizes the stock option
transactions for the Second Restated 2005 and 2003 Plans for the three months ended March 31, 2016:
|
|
Number of
|
|
|
Weighted
Average
|
|
|
Weighted Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
(Years)
|
|
|
Value
|
|
Outstanding at January 1, 2016
|
|
|
29,035
|
|
|
$
|
28.47
|
|
|
|
1.4
|
|
|
$
|
289,769
|
|
Outstanding at March 31, 2016
|
|
|
29,035
|
|
|
$
|
28.47
|
|
|
|
1.1
|
|
|
$
|
336,516
|
|
Exercisable at March 31, 2016
|
|
|
29,035
|
|
|
$
|
28.47
|
|
|
|
1.1
|
|
|
$
|
336,516
|
|
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The following summarizes the restricted
stock transactions for the three months ended March 31, 2016:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Grant Date
Fair
|
|
|
|
Shares
|
|
|
Value
|
|
Outstanding at January 1, 2016
|
|
|
106,789
|
|
|
$
|
40.28
|
|
Forfeited
|
|
|
(262
|
)
|
|
|
38.11
|
|
Non-vested and outstanding at March 31, 2016
|
|
|
106,527
|
|
|
$
|
40.28
|
|
For the three months ended March 31, 2016
and 2015, we had $528,000 and $462,000, respectively, of total compensation expense related to restricted stock-based compensation
arrangements. This expense is included in corporate general and administrative expenses in our results of operations. The associated
tax benefit recognized for the three months ended March 31, 2016 and 2015 was $211,000 and $185,000, respectively.
7. Long-Term Debt
Long-term debt consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
35,287
|
|
|
$
|
35,287
|
|
Secured debt of affiliate
|
|
|
1,078
|
|
|
|
1,078
|
|
|
|
|
36,365
|
|
|
|
36,365
|
|
Amounts payable within one year
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
36,365
|
|
|
$
|
36,365
|
|
On August 18, 2015, we entered into a new
credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A., The Huntington National Bank, Citizens Bank,
National Association and J.P. Morgan Securities LLC. In connection with the execution of the Credit Facility, the credit agreement
in place at June 30, 2015 (the “Old Credit Agreement”) was terminated, and all outstanding amounts were paid in full.
The Credit Facility consists of a $100 million five-year revolving facility (the “Revolving Credit Facility”) and matures
on August 18, 2020.
We have pledged substantially all
of our assets (excluding our FCC licenses and certain other assets) in support of the Credit Facility and each of our subsidiaries
has guaranteed the Credit Facility and has pledged substantially all of their assets (excluding their FCC licenses and certain
other assets) in support of the Credit Facility.
The proceeds from the Credit Facility
were used to repay all amounts outstanding on our Old Credit Agreement and pay transactional fees. The unused portion of the Revolving
Credit Facility is available for general corporate purposes, including working capital, capital expenditures, permitted acquisitions
and related transaction expenses and permitted stock buybacks. We wrote-off unamortized debt issuance costs relating to the Old
Credit Agreement of approximately $557,000, pre-tax, due to entering into this new agreement during the quarter ended September
30, 2015.
Approximately $266,000 of transaction
fees related to the Credit Facility were capitalized and are being amortized over the life of the Credit Facility. Those deferred
debt costs are included in other assets, net in the condensed consolidated balance sheets.
Interest rates under the Credit Facility
are payable, at our option, at alternatives equal to LIBOR (0.5% at March 31, 2016), plus 1% to 2% or the base rate plus 0% to
1%. The spread over LIBOR and the base rate vary from time to time, depending upon our financial leverage. Letter of credit issued
under the Credit Facility will be subject to a participation fee (which is equal to the interest rate applicable to Eurocurrency
Loans, as defined in the Credit Agreement) payable to each of the Lenders and a fronting fee equal to 0.25% per annum payable to
the issuing bank. We also pay quarterly commitment fees of 0.2% to 0.3% per annum on the unused portion of the Revolving Credit
Facility.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
The Credit Facility contains a number of
financial covenants (all of which we were in compliance with at March 31, 2016) which, among other things, require us to maintain
specified financial ratios and impose certain limitations on us with respect to investments, additional indebtedness, dividends,
distributions, guarantees, liens and encumbrances.
We had approximately $65 million of unused
borrowing capacity under the Revolving Credit Facility at March 31, 2016.
The loan agreement of approximately
$1.1 million of secured debt of affiliate was amended in April, 2014 to extend the due date of the loan for three years to mature
on May 1, 2017.
8. Segment Information
We evaluate the operating performance of
our markets individually. For purposes of business segment reporting, we have aligned operations with similar characteristics into
two business segments: Radio and Television.
The Radio segment includes twenty-four
markets, which includes all ninety-nine of our radio stations. The Television segment includes two markets and consists of four
television stations and five low power television (“LPTV”) stations. The Radio and Television segments derive their
revenue from the sale of commercial broadcast inventory. The category “Corporate general and administrative” represents
the income and expense not allocated to reportable segments.
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Radio
|
|
|
Television
|
|
|
and Other
|
|
|
Consolidated
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Three Months Ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
27,464
|
|
|
$
|
5,281
|
|
|
$
|
—
|
|
|
$
|
32,745
|
|
Station operating expense
|
|
|
21,140
|
|
|
|
3,545
|
|
|
|
—
|
|
|
|
24,685
|
|
Corporate general and administrative
|
|
|
—
|
|
|
|
—
|
|
|
|
2,717
|
|
|
|
2,717
|
|
Other operating (income) expense, net
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
Operating income (loss)
|
|
$
|
6,327
|
|
|
$
|
1,733
|
|
|
$
|
(2,717
|
)
|
|
$
|
5,343
|
|
Depreciation and amortization
|
|
$
|
1,346
|
|
|
$
|
321
|
|
|
$
|
69
|
|
|
$
|
1,736
|
|
Total assets
|
|
$
|
163,401
|
|
|
$
|
23,655
|
|
|
$
|
22,671
|
|
|
$
|
209,727
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Radio
|
|
|
Television
|
|
|
and Other
|
|
|
Consolidated
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Three Months Ended March 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
24,276
|
|
|
$
|
4,785
|
|
|
$
|
—
|
|
|
$
|
29,061
|
|
Station operating expense
|
|
|
19,422
|
|
|
|
3,343
|
|
|
|
—
|
|
|
|
22,765
|
|
Corporate general and administrative
|
|
|
—
|
|
|
|
—
|
|
|
|
2,482
|
|
|
|
2,482
|
|
Operating income (loss)
|
|
$
|
4,854
|
|
|
$
|
1,442
|
|
|
$
|
(2,482
|
)
|
|
$
|
3,814
|
|
Depreciation and amortization
|
|
$
|
1,174
|
|
|
$
|
347
|
|
|
$
|
68
|
|
|
$
|
1,589
|
|
Total assets
|
|
$
|
139,354
|
|
|
$
|
22,665
|
|
|
$
|
33,529
|
|
|
$
|
195,548
|
|
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
9. Subsequent Events
On March 2, 2016, the Company’s Board
of Directors declared a regular quarterly cash dividend of $0.25 per share on its Classes A and B Common Stock. This dividend,
totaling $1.5 million, which is recorded within Other accrued expenses as of March 31, 2016, was paid on April 15, 2016 to shareholders
of record on March 28, 2016.