Note: The balance sheet at December 31, 2018 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. Certain prior period amounts have been reclassified
to conform to the current year presentation.
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 June 30, 2019 and the results of operations for the three and six months ended June 30, 2019 and 2018. Results of
operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2019.
We own or operate broadcast properties
in 27 markets, including 79 FM and 34 AM radio stations.
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, 2018.
The Company has evaluated events and transactions
occurring subsequent to the balance sheet date of June 30, 2019, for items that should potentially be recognized in these financial
statements or discussed within the notes to the financial statements.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
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
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands, except per share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,734
|
|
|
$
|
4,171
|
|
|
$
|
6,104
|
|
|
$
|
5,700
|
|
Less: Income allocated to unvested participating securities
|
|
|
88
|
|
|
|
71
|
|
|
|
114
|
|
|
|
97
|
|
Net income available to common stockholders
|
|
$
|
4,646
|
|
|
$
|
4,100
|
|
|
$
|
5,990
|
|
|
$
|
5,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share — weighted average shares
|
|
|
5,844
|
|
|
|
5,834
|
|
|
|
5,843
|
|
|
|
5,838
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Denominator for diluted earnings per share — adjusted weighted-average shares and assumed conversions
|
|
|
5,844
|
|
|
|
5,834
|
|
|
|
5,843
|
|
|
|
5,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.80
|
|
|
$
|
.70
|
|
|
$
|
1.03
|
|
|
$
|
.96
|
|
Diluted
|
|
$
|
.80
|
|
|
$
|
.70
|
|
|
$
|
1.03
|
|
|
$
|
.96
|
|
There were no stock options outstanding
that had an antidilutive effect on our earnings per share for the three and six months ended June 30, 2019 and 2018. 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.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
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 June 30, 2019.
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
(“TBAs”) or Local Marketing Agreements (“LMAs”) 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 TBAs/LMAs are included in the accompanying unaudited Condensed Consolidated Statements of Income. Assets and liabilities
related to the TBAs/LMAs are included in the accompanying unaudited Condensed Consolidated Balance Sheets.
2. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
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 and interim periods beginning after December 15, 2018. In 2018, the FASB
issued several updates to address certain practical expedients, codification improvements, and targeted improvements to the original
guidance. This standard and all updates (the “new lease standard”) were adopted on January 1, 2019. The Company adopted
the new lease standard using the modified retrospective method. Prior year financial statements were not recast under the new standard
and, therefore, have not been reflected as such on our December 31, 2018 balance sheet. We elected the package of transition practical
expedients, which allowed us to carryforward our historical assessment of (1) whether contracts are or contain leases, (2) lease
classification, and (3) initial direct costs. We elected to not separate lease and non-lease components, for all leases. We also
elected to make the accounting policy election for short-term leases resulting in lease payments being recorded as an expense on
a straight-line basis over the lease term. As a result of the adoption of the new lease standard we recorded right of use assets
and lease liabilities of approximately $6.7 million on January 1, 2019 on our condensed consolidated balance sheet. The adoption
of the new lease standard had no impact on retained earnings and had no impact on the statement of cash flows. See Note 6 “Leases”
for additional information about this adoption.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
Recent Accounting Pronouncements
– Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04,
“
Intangibles – Goodwill and Other (Topic 355)”
(“ASU 2017-04”) which removes step 2 from the
goodwill impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds it fair value, an entity
will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated
to that reporting unit. ASU 2017-04 will be applied prospectively and is effective for fiscal years and interim impairment tests
performed in periods beginning after December 15, 2019 with early adoption permitted. The Company is currently evaluating the impact
of adopting this standard on our consolidated financial statements.
In June 2016, the FASB issued ASU
No. 2016-13, “
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
(“ASU 2016-13”), which amends guidance on reporting credit losses for assets held at amortized cost basis and available
for sale debt securities. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. The
Company is currently evaluating the impact that this standard will have on our consolidated financial statements.
3. Revenue
Adoption of ASC 606, Revenue from Contract
with Customers (Topic 606)
We adopted Topic 606 on January 1, 2018,
using the modified retrospective method with no impact on our financial statements. The cumulative effect of initially adopting
Topic 606 guidance had no impact on the opening balance of retained earnings as of January 1, 2018. Results for reporting periods
beginning after January 1, 2018 are presented under Topic 606 revenue standard, while prior period amounts are not adjusted and
continue to be reported in accordance with our historic accounting under Topic 605.
Disaggregation of Revenue
The following table presents revenues disaggregated
by revenue source:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Types of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast Advertising Revenue, net
|
|
$
|
29,492
|
|
|
$
|
29,798
|
|
|
$
|
54,683
|
|
|
$
|
55,556
|
|
Digital Advertising Revenue
|
|
|
1,015
|
|
|
|
1,001
|
|
|
|
1,890
|
|
|
|
1,951
|
|
Other Revenue
|
|
|
1,684
|
|
|
|
1,435
|
|
|
|
3,434
|
|
|
|
2,736
|
|
Net Revenue
|
|
$
|
32,191
|
|
|
$
|
32,234
|
|
|
$
|
60,007
|
|
|
$
|
60,243
|
|
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
Nature of goods and services
The following is a description of principal
activities from which we generate our revenue:
Broadcast Advertising
Revenue
Our primary source of revenue is from the
sale of advertising for broadcast on our stations. We recognize revenue from the sale of advertising as performance obligations
are satisfied upon airing of the advertising; therefore, revenue is recognized at a point in time when each advertising spot is
transmitted. Agency commissions are calculated based on a stated percentage applied to gross billing revenue for our advertising
inventory placed by agency and are reported as a reduction of advertising revenue.
Digital Advertising
Revenue
We recognize revenue from our digital initiatives
across multiple platforms such as targeted digital advertising, online promotions, advertising on our websites, mobile messaging,
email marketing and other e-commerce. Revenue is recorded when each specific performance obligation in the digital advertising
campaign takes place, typically within a one month period.
Other Revenue
Other revenue includes revenue from concerts,
promotional events, tower rent and other miscellaneous items. Revenue is generally recognized when the event is completed, as the
promotional events are completed or as each performance obligation is satisfied.
Contract Liabilities
Payments from our advertisers are generally
due within 30 days although certain advertisers are required to pay in advance. When an advertiser pays for the services in advance
of the performance obligations these prepayments are recorded as contract liabilities. Typical contract liabilities relate to prepayments
for advertising spots not yet run; prepayments from sponsors for events that have not yet been held; and gift cards sold on our
websites used to finance a broadcast advertising campaign. Generally, all contract liabilities are expected to be recognized within
one year and are included in accounts payable in the Company’s Condensed Consolidated Financial Statements and are immaterial.
Transaction
Price Allocated to the Remaining Performance Obligations
As the majority of our contracts are one
year or less, we have utilized the optional exemption under ASC 606-10-50-14 and will not disclose information about the remaining
performance obligations for contracts that have original expected durations of one year or less.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
4. Intangible Assets
We evaluate our FCC licenses 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 five to twenty-six years. Other intangibles are amortized over one to fifteen years. Customer relationships
are amortized over three years.
5. 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 June 30, 2019:
|
|
Common Stock Issued
|
|
|
|
Class A
|
|
|
Class B
|
|
|
|
(Shares in thousands)
|
|
Balance, January 1, 2018
|
|
|
6,694
|
|
|
|
898
|
|
Conversion of shares
|
|
|
12
|
|
|
|
(12
|
)
|
Issuance of restricted stock
|
|
|
27
|
|
|
|
37
|
|
Forfeiture of restricted stock
|
|
|
(1
|
)
|
|
|
—
|
|
Balance, December 31, 2018
|
|
|
6,732
|
|
|
|
923
|
|
Balance, June 30, 2019
|
|
|
6,732
|
|
|
|
923
|
|
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 June 30,
2019, we have remaining authorization of $20.1 million for future repurchases of our Class A Common Stock. On September 14,
2017, the Board of Directors authorized the repurchase of our Class A Common Stock under our trading plan adopted pursuant to
Securities and Exchange Commission Rule 10b5-1.
The Rule 10b5-1 repurchase plan allows us to
repurchase our shares during periods when we would normally not be active in the market due to our internal trading blackout
periods. Under the plan, we may repurchase our Class A Common Stock in any combination of open market, block
transactions and privately negotiated transactions subject to market conditions, legal requirements including applicable SEC
regulations (which include certain price, market, volume and timing constraints), specific repurchase instructions and other
corporate considerations. Purchases under the plan will be funded by cash on our balance sheet. The plan does
not obligate us to acquire any particular amount of Class A Common Stock. The authorization was effective until
September 1, 2018.
During the three and six months ended June 30, 2019 and June 30, 2018, approximately 8,600, 11,100,
12,000 and 14,500 shares, respectively, were repurchased for $247,000, $327,000, $454,000 and $547,000 respectively,
related to the Stock Buy-Back Program.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
6. Leases
We lease certain land, buildings and equipment
for use in our operations. We recognize lease expense for these leases on a straight-line basis over the lease term and combine
lease and non-lease components for all leases. Right-of-use (“ROU”) assets and lease liabilities are recorded on the
balance sheet for all leases with an expected term of at least one year. Some leases include one or more options to renew. The
exercise of lease renewal options is generally at our discretion. The depreciable lives of ROU assets are limited to the expected
lease term. Our lease agreements do not contain any residual value guarantees or material restrictive covenants. As of June 30,
2019, we do not have any non-cancellable operating lease commitments that have not yet commenced.
ROU assets are classified within
other intangibles, deferred costs and investments, net on the condensed consolidated balance sheet while current lease
liabilities are classified within other accrued expenses and long-term lease liabilities are classified within other
liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet. ROU assets and lease
liabilities were $5.9 million and $6.1 million at June 30, 2019, respectively. Payments on lease liabilities during the three
and six months ended June 30, 2019 totaled $405 thousand and $816 thousand, respectively.
Lease expense includes cost for leases
with terms in excess of one year. For the three and six months ended June 30, 2019, our total lease expense was $423 thousand and
$852 thousand, respectively. Short-term lease costs are de minimus.
We have no financing leases and minimum
annual rental commitments under non-cancellable operating leases consisted of the following at June 30, 2019 (in thousands):
Years Ending December 31,
|
|
|
|
|
2019
(a)
|
|
$
|
824
|
|
2020
|
|
|
1,450
|
|
2021
|
|
|
1,313
|
|
2022
|
|
|
1,124
|
|
2023
|
|
|
777
|
|
Thereafter
|
|
|
1,840
|
|
Total lease payments
(b)
|
|
|
7,328
|
|
Less: Interest
(c)
|
|
|
1,195
|
|
Present value of lease liabilities
(d)
|
|
$
|
6,133
|
|
|
(a)
|
Remaining payments are for the six-months ending December 31, 2019.
|
|
(b)
|
Lease payments include options to extend lease terms that are reasonably certain of being exercised. There were no legally
binding minimum lease payments for leases signed but not yet commenced at June 30, 2019.
|
|
(c)
|
Our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our discount rate for such leases
to determine the present value of lease payments at the lease commencement date.
|
|
(d)
|
The weighted average remaining lease term and weighted average discount rate used in calculating our lease liabilities were
6.9 years and 4.8%, respectively, at June 30, 2019.
|
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
7. 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 acquisitions 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.
2019 Acquisitions
On January 9, 2019, the Company closed
on an agreement to purchase WFAT and W222CH from County Broadcasting Company, LLC for an aggregate purchase price of $210 thousand.
Management attributes the goodwill recognized in the acquisition to the power of the existing brands in the Greenfield, Massachusetts
market as well as synergies and growth opportunities expected through the combination with the Company’s existing stations.
2018 Acquisitions
On October 29, 2018, the Company entered
into an agreement to purchase WOGK-FM, WNDT-FM, WNDD-FM and WNDN-FM, from Ocala Broadcasting Corporation, LLC for an aggregate
purchase price of $9.3 million, subject to certain purchase price adjustments. The Company closed this transaction effective December
31, 2018 using funds generated from operations of $9.84 million, which included the purchase price of $9.3 million, the purchase
of $566 thousand in accounts receivable by certain closing adjustments and transactional costs of approximately $25 thousand, of
which $553 thousand was paid in January 2019. Management attributes the goodwill recognized in the acquisition to the power of
the existing brands in the Ocala, Florida market as well as 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)
Condensed Consolidated Balance Sheet of 2019 and 2018
Acquisitions:
The following unaudited condensed balance
sheets represent the estimated fair value assigned to the related assets and liabilities of the 2019 and 2018 acquisitions at their
respective acquisition dates.
Saga Communications, Inc.
Condensed Consolidated Balance Sheet
of 2019 and 2018 Acquisitions
|
|
Acquisitions in
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Assets Acquired:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
—
|
|
|
$
|
559
|
|
Property and equipment
|
|
|
25
|
|
|
|
3,007
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
|
|
61
|
|
|
|
1,991
|
|
Goodwill
|
|
|
124
|
|
|
|
3,281
|
|
Other intangibles, deferred costs and investments
|
|
|
—
|
|
|
|
1,123
|
|
Total other assets
|
|
|
185
|
|
|
|
6,395
|
|
Total assets acquired
|
|
|
210
|
|
|
|
9,961
|
|
Liabilities Assumed:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
—
|
|
|
|
120
|
|
Total liabilities assumed
|
|
|
—
|
|
|
|
120
|
|
Net assets acquired
|
|
$
|
210
|
|
|
$
|
9,841
|
|
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
Pro Forma Results of Operations for Acquisitions
(Unaudited)
The following unaudited pro forma
results of our operations for the three and six months ended June 30, 2019 and 2018 assume the 2018 acquisitions occurred as
of January 1, 2018. 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 that would actually have occurred had the combinations
been in effect on the dates indicated or which may occur in the future.
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
ProForma Results of Operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
32,191
|
|
|
$
|
33,473
|
|
|
$
|
60,007
|
|
|
$
|
62,448
|
|
Station operating expense
|
|
|
22,879
|
|
|
|
24,064
|
|
|
|
46,042
|
|
|
|
48,296
|
|
Corporate general and administrative
|
|
|
2,706
|
|
|
|
2,848
|
|
|
|
5,391
|
|
|
|
5,392
|
|
Other operating (income) expense, net
|
|
|
(2
|
)
|
|
|
213
|
|
|
|
1
|
|
|
|
(38
|
)
|
Operating income
|
|
|
6,608
|
|
|
|
6,348
|
|
|
|
8,573
|
|
|
|
8,798
|
|
Interest expense
|
|
|
184
|
|
|
|
255
|
|
|
|
392
|
|
|
|
474
|
|
Interest income
|
|
|
(160
|
)
|
|
|
(188
|
)
|
|
|
(323
|
)
|
|
|
(277
|
)
|
Income before income tax expense
|
|
|
6,584
|
|
|
|
6,281
|
|
|
|
8,504
|
|
|
|
8,601
|
|
Income tax expense
|
|
|
1,850
|
|
|
|
1,890
|
|
|
|
2,400
|
|
|
|
2,589
|
|
Net income
|
|
$
|
4,734
|
|
|
$
|
4,391
|
|
|
$
|
6,104
|
|
|
$
|
6,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.80
|
|
|
$
|
.74
|
|
|
$
|
1.03
|
|
|
$
|
1.01
|
|
Diluted
|
|
$
|
.80
|
|
|
$
|
.74
|
|
|
$
|
1.03
|
|
|
$
|
1.01
|
|
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
8. Income taxes
On December 22, 2017, the U.S. government
enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act
makes broad and complex changes to the U.S. tax code, including, but not limited to, the following that impact us: (1) reducing
the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) eliminating the corporate alternative minimum tax
(“AMT”) and changing how existing AMT credits can be realized; (3) creating a new limitation on deductible interest
expense; (4) repealing the domestic production activities deduction; (5) limiting the deductibility of certain executive compensation;
and (6) limiting certain other deductions.
The SEC staff issued Staff Accounting Bulletin
No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides for
a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting
relating to the Tax Act under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects
of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain
income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional
estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements,
it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment
of the Tax Act.
As a result of our initial analysis of
the impact of the Tax Act, we recorded a provisional amount of net tax benefit of $11.5 million in 2017 related to the remeasurement
of our deferred tax balance and other effects. We completed our accounting for the income tax effects of the Tax Act in 2018, and
no material adjustments were required to the provisional amounts initially recorded.
9. 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, which was amended in
2018 after approval of the amendment by our stockholders at our 2018 annual meeting (as amended, the “Second Restated
2005 Plan”). The 2005 Incentive Compensation Plan, which replaced our 2003 Stock Option Plan, was first approved by
stockholders in 2005, subsequently re-approved by stockholders in 2010. The changes in the Second Restated 2005 Plan approved
in 2013 (i) increased the number of authorized shares by 233,334 shares of Common Stock, (ii) extended the date for making
awards to September 6, 2018, (iii) included directors as participants, (iv) targeted awards according to groupings
of participants based on ranges of base salary of employees and/or retainers of directors, (v) required participants to
retain 50 % of their net annual restricted stock awards during their employment or service as a director, and (vi) included
a clawback provision. The 2018 amendment to the Second Restated 2005 Plan (i) extended the date for making awards to
September 6, 2023 and (ii) increased the number of authorized shares under the Plan by 90,000 shares of Class B Common Stock.
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 370,000 shares of Class B Common Stock, 990,000 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 370,000 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.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
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 and six months
ended June 30, 2019 and June 30, 2018, respectively.
There were no options granted during 2019
and 2018 and there were no stock options outstanding as of June 30, 2019. All outstanding stock options were exercised in 2017.
The following summarizes the restricted
stock transactions for the six months ended June 30, 2019:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Grant Date
Fair
|
|
|
|
Shares
|
|
|
Value
|
|
Outstanding at January 1, 2019
|
|
|
109,176
|
|
|
$
|
40.87
|
|
Non-vested and outstanding at June 30, 2019
|
|
|
109,176
|
|
|
$
|
40.87
|
|
For the three and six months ended June
30, 2019 and the three and six months ended June 30, 2018, we had $565,000, $1,124,000, $554,000 and $1,105,000, 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 and six months
ended June 30, 2019 and the three and six months ended June 30, 2018, was $62,000, $125,000, $63,000 and $126,000, respectively.
10. Long-Term Debt
Long-term debt consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(In thousands)
|
|
Revolving credit facility
|
|
$
|
10,000
|
|
|
$
|
20,000
|
|
Amounts payable within one year
|
|
|
—
|
|
|
|
(5,000
|
)
|
|
|
$
|
10,000
|
|
|
$
|
15,000
|
|
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 originally
matured on August 18, 2020. On June 27, 2018, the Company entered into a Second Amendment to its Credit Facility, dated August
18, 2015, which had previously been amended on September 1, 2017, extending the revolving credit maturity date under the Credit
Agreement for five years after the date of the amendment to June 27, 2023.
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.
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. As a result of the Second Amendment, the
Company incurred an additional $120,000 of transaction fees related to the Credit Facility that were capitalized. The cumulative
transaction fees are being amortized over the remaining life of the Credit Facility.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
Interest rates under the Credit Facility
are payable, at our option, at alternatives equal to LIBOR (2.4375% at June 30, 2019), 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. Letters 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.
The Credit Facility contains a number of
financial covenants (all of which we were in compliance with at June 30, 2019) 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.
On June 7, 2019, we used $5,000,000
from funds generated by operations to voluntarily pay down a portion of our Revolving Credit Facility.
On February 4, 2019, we
used $5,000,000 from funds generated by operations to voluntarily pay down a portion of our Revolving Credit Facility which
is presented in the current portion of long-term debt on our balance sheet at December 31, 2018.
On September 4, 2018, we used
$5,000,000 from funds generated by operations to pay down a portion of our Revolving Credit Facility.
We had approximately $90 million of unused
borrowing capacity under the Revolving Credit Facility at June 30, 2019.
On July 1, 2019, we elected to
reduce our Revolving Credit Facility to $70 million. As a result, we had approximately $60 million of unused borrowing capacity
at July 1, 2019.
11. Litigation
The Company is subject to various outstanding
claims which arise in the ordinary course of business and to other legal proceedings. Management anticipates that any potential
liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s
financial statements.
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
12. Dividends
On May 30, 2019, the Company’s Board
of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling approximately
$1.8 million, was paid on July 5, 2019 to shareholders of record on June 14, 2019 and funded by cash on the Company’s balance
sheet.
On February 26, 2019, the Company’s
Board of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling
approximately $1.8 million, was paid on March 29, 2019 to shareholders of record on March 12, 2019 and funded by cash on the Company’s
balance sheet.
On November 28, 2018, the Company’s
Board of Directors declared a quarterly cash dividend of $0.30 per share and a special cash dividend of $0.25 per share on its
Classes A and B shares. This dividend totaling approximately $3.3 million was paid on January 4, 2019 to shareholders of record
on December 10, 2018 and funded by cash on the Company’s balance sheet.
On August 14, 2018, the Company’s
Board of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling
approximately $1.8 million was paid on September 14, 2018 to shareholders of record on August 31, 2018 and funded by cash on the
Company’s balance sheet.
On May 15, 2018, the Company’s Board
of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling approximately
$1.8 million, was paid on June 22, 2018 to shareholders of record on May 31, 2018 and funded by cash on the Company’s balance
sheet.
On February 28, 2018, the Company’s
Board of Directors declared a regular quarterly cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend,
totaling approximately $1.8 million, was paid on March 30, 2018 to shareholders of record on March 12, 2018 and funded by cash
on the Company’s balance sheet.