UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period ended
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer |
|
|
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ | Non-accelerated filer ◻ | |
Smaller Reporting Company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s Class A Common Stock, $.01 par value, outstanding as of November 6, 2023 was
INDEX
Page | |
3 | |
3 | |
Condensed consolidated balance sheets —September 30, 2023 and December 31, 2022 | 3 |
4 | |
5 | |
Condensed consolidated statements of cash flows —Nine months ended September 30, 2023 and 2022 | 6 |
Notes to unaudited condensed consolidated financial statements | 7 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 29 |
29 | |
29 | |
29 | |
29 | |
29 | |
30 | |
31 | |
EX-10.1 | |
EX-10.2 | |
EX-10.3 | |
EX-31.1 | |
EX-31.2 | |
EX-32 | |
EX-101 INSTANCE DOCUMENT | |
EX-101 SCHEMA DOCUMENT | |
EX-101 CALCULATION LINKBASE DOCUMENT | |
EX-101 LABELS LINKBASE DOCUMENT | |
EX-101 PRESENTATION LINKBASE DOCUMENT | |
EX-101 DEFINITION LINKBASE DOCUMENT |
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SAGA COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, |
| December 31, | ||||
2023 | 2022 |
| |||||
| (Unaudited) |
| (Note) | ||||
(In thousands) | |||||||
Assets |
| ||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Short-term investments | | | |||||
Accounts receivable, net |
| |
| | |||
Prepaid expenses and other current assets |
| |
| | |||
Barter transactions |
| |
| | |||
Total current assets |
| |
| | |||
Property and equipment |
| |
| | |||
Less accumulated depreciation |
| |
| | |||
Net property and equipment |
| |
| | |||
Other assets: |
|
| |||||
Broadcast licenses, net |
| |
| | |||
Goodwill |
| |
| | |||
Other intangibles, right of use assets, deferred costs and investments, net |
| |
| | |||
Total assets | $ | | $ | | |||
|
| ||||||
Liabilities and shareholders’ equity |
|
|
| ||||
Current liabilities: |
|
|
| ||||
Accounts payable | $ | | $ | | |||
Accrued payroll and payroll taxes |
| |
| | |||
Dividend payable |
| |
| | |||
Other accrued expenses |
| |
| | |||
Barter transactions |
| |
| | |||
Total current liabilities |
| |
| | |||
Deferred income taxes |
| |
| | |||
Other liabilities |
| |
| | |||
Total liabilities |
| |
| | |||
Commitments and contingencies |
|
| |||||
Shareholders’ equity: |
|
| |||||
Common Stock |
| |
| | |||
Additional paid-in capital |
| |
| | |||
Retained earnings |
| |
| | |||
Treasury stock |
| ( |
| ( | |||
Total shareholders’ equity |
| |
| | |||
Total liabilities and shareholders' equity | $ | | $ | |
Note:
See accompanying notes to unaudited condensed consolidated financial statements.
3
SAGA COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended |
| Nine Months Ended | |||||||||
September 30, |
| September 30, | ||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
(Unaudited) | ||||||||||||
(In thousands, except per share data) | ||||||||||||
Net operating revenue | $ | |
| $ | |
| $ | |
| $ | | |
Station operating expenses |
| |
| |
|
| |
| | |||
Corporate general and administrative |
| |
| |
|
| |
| | |||
Other operating (income) expense, net | | ( | | | ||||||||
Operating income |
| |
| |
|
| |
| | |||
Interest expense |
| |
| |
|
| |
| | |||
Interest income |
| ( |
| ( |
|
| ( |
| ( | |||
Other income | — | ( | ( | ( | ||||||||
Income before income tax expense |
| |
| |
|
| |
| | |||
Income tax provision | ||||||||||||
Current | |
| |
|
| |
| | ||||
Deferred | |
| |
|
| |
| | ||||
| |
| |
|
| |
| | ||||
Net income (loss) | $ | | $ | ( |
| $ | | $ | | |||
|
|
| ||||||||||
Earnings (loss) per share: |
|
|
| |||||||||
Basic | $ | | $ | ( |
| $ | | $ | | |||
Diluted | $ | | $ | ( |
| $ | | $ | | |||
|
|
| ||||||||||
Weighted average common shares |
| |
| |
|
| |
| | |||
Weighted average common and common equivalent shares |
| |
| |
|
| |
| | |||
|
|
| ||||||||||
Dividends declared per share | $ | | $ | |
| $ | | $ | |
See accompanying notes to unaudited condensed consolidated financial statements.
4
SAGA COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the three and nine months ended September 30, 2023 and 2022
Class A | Class B | Additional | Total | |||||||||||||||||||
Common Stock | Common Stock | Paid-In | Retained | Treasury | Stockholders’ | |||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Stock |
| Equity | |||||||
(Unaudited) (In thousands) | ||||||||||||||||||||||
Balance at December 31, 2021 | | $ | | | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Net income, three months ended March 31, 2022 |
| | |
| |
| |
| |
| |
| |
| | |||||||
Dividends declared per common share |
| |
| |
| |
| |
| |
| ( |
| |
| ( | ||||||
Compensation expense related to restricted stock awards |
| |
| |
| |
| |
| | |
| |
| | |||||||
401(k) plan contribution |
| |
| |
| |
| |
| ( |
| |
| |
| | ||||||
Balance at March 31, 2022 |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net income, three months ended June 30, 2022 |
| |
| |
| |
| |
| |
| |
| |
| | ||||||
Dividends declared per common share |
| |
| |
| |
| |
| |
| ( |
| |
| ( | ||||||
Compensation expense related to restricted stock awards |
| |
| |
| |
| |
| |
| |
| |
| | ||||||
Balance at June 30, 2022 |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net loss, three months ended September 30, 2022 | | | | | | ( | | ( | ||||||||||||||
Conversion of shares from Class B to Class A |
| |
| |
| ( |
| ( |
| |
| |
| |
| | ||||||
Dividends declared per common share | | | | | | ( | | ( | ||||||||||||||
Compensation expense related to restricted stock awards | | | | | | | | | ||||||||||||||
Purchase of shares held in treasury | | | | | | | ( | ( | ||||||||||||||
Balance at September 30, 2022 | | $ | | | $ | | $ | | $ | | $ | ( | $ | |
Class A | Class B | Additional | Total | |||||||||||||||||||
| Common Stock | Common Stock | Paid-In | Retained | Treasury | Stockholders’ | ||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Stock |
| Equity | ||||||
(Unaudited) (In thousands) | ||||||||||||||||||||||
Balance at December 31, 2022 | | $ | | | $ | | $ | | $ | | $ | ( | $ | | ||||||||
Net income, three months ended March 31, 2023 |
| |
| |
| |
| |
| |
| |
| |
| | ||||||
Dividends declared per common share |
| |
| |
| |
| |
| |
| ( |
| |
| ( | ||||||
Compensation expense related to restricted stock awards |
| |
| |
| |
| |
| |
| |
| |
| | ||||||
401(k) plan contribution |
| |
| |
| |
| |
| ( |
| |
| |
| | ||||||
Balance at March 31, 2023 | | $ | |
| | $ | | $ | | $ | | $ | ( | $ | | |||||||
Net income, three months ended June 30, 2023 |
| |
| |
| |
| |
| |
| |
| |
| | ||||||
Dividends declared per common share |
| |
| |
| |
| |
| | ( |
| |
| ( | |||||||
Compensation expense related to restricted stock awards |
| |
| |
| |
| |
| |
| |
| |
| | ||||||
Balance at June 30, 2023 |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | | ||||||
Net loss, three months ended September 30, 2023 | | | | | | | | | ||||||||||||||
Dividends declared per common share | | | | | | ( | | ( | ||||||||||||||
Compensation expense related to restricted stock awards | | | | | | | | | ||||||||||||||
Balance at September 30, 2023 | | $ | | | $ | | $ | | $ | | $ | ( | $ | |
See accompanying notes to unaudited condensed consolidated financial statements.
5
SAGA COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended |
| |||||
| September 30, |
| |||||
| 2023 |
| 2022 |
| |||
(Unaudited) |
| ||||||
(In thousands) | |||||||
Statement of Cash Flows | |||||||
Cash flows from operating activities: |
| ||||||
Net income | $ | | $ | | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | | | |||||
Deferred income tax expense | | | |||||
Amortization of deferred costs | | | |||||
Compensation expense related to restricted stock awards | | | |||||
Loss on sale of assets, net | | | |||||
Other (gain) loss, net | ( | | |||||
Barter (revenue) expense, net | | ( | |||||
Deferred and other compensation | ( | | |||||
Changes in assets and liabilities: | |||||||
(Increase) decrease in receivables and prepaid expenses | ( | ( | |||||
Increase (decrease) in accounts payable, accrued expenses, and other liabilities | | | |||||
Total adjustments | | | |||||
Net cash provided by operating activities | | | |||||
Cash flows from investing activities: |
| ||||||
Purchase of short-term investments | ( | ( | |||||
Redemption of short-term investments | | | |||||
Acquisition of property and equipment (Capital Expenditures) |
| ( |
| ( | |||
Acquisition of broadcast properties |
| - |
| ( | |||
Proceeds from sale and disposal of assets | | | |||||
Other investing activities |
| |
| - | |||
Net cash used in investing activities |
| ( |
| ( | |||
Cash flows from financing activities: |
|
| |||||
Cash dividends paid |
| ( |
| ( | |||
Purchase of treasury shares |
| - |
| ( | |||
Net cash used in financing activities |
| ( |
| ( | |||
Net increase (decrease) in cash and cash equivalents |
| ( |
| ( | |||
Cash and cash equivalents, beginning of period |
| |
| | |||
Cash and cash equivalents, end of period | $ | | $ | |
See accompanying notes to unaudited condensed consolidated financial statements.
6
SAGA COMMUNICATIONS, INC.
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 September 30, 2023 and the results of operations for the three and nine months ended September 30, 2023 and 2022. Results of operations for three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
We own or operate broadcast properties in
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, 2022.
We have evaluated events and transactions occurring subsequent to the balance sheet date of September 30, 2023, for items that should potentially be recognized in these financial statements or discussed within the notes to these 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.
7
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended |
| Nine Months Ended |
| ||||||||||
September 30, |
| September 30, |
| ||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| |||||
(In thousands, except per share data) |
| ||||||||||||
Numerator: |
|
|
|
|
|
|
| ||||||
Net income (loss) | $ | | $ | ( | $ | | $ | | |||||
Less: Income allocated to unvested participating securities |
| |
| ( |
| |
| | |||||
Net income available to common shareholders | $ | | $ | ( | $ | | $ | | |||||
Denominator: |
|
|
|
|
|
| |||||||
Denominator for basic earnings per share — weighted average shares |
| |
| |
| |
| | |||||
Effect of dilutive securities: |
|
|
|
|
|
| |||||||
Common stock equivalents |
| |
| |
| |
| | |||||
Denominator for diluted earnings per share — adjusted weighted-average shares and assumed conversions |
| |
| |
| |
| | |||||
|
| ||||||||||||
Earnings (loss) per share: |
|
|
|
|
|
| |||||||
Basic | $ | | $ | ( | $ | | $ | | |||||
Diluted | $ | | $ | ( | $ | | $ | |
There were
Financial Instruments
We account for marketable securities in accordance with ASC 320, “Investments – Debt Securities,” which require that certain debt securities be classified into one of three categories: held-to-maturity, available-for-sale, or trading securities, and depending upon the classification, value the security at amortized cost or fair market value. At September 30, 2023 and December 31, 2022, we have recorded $
Our financial instruments are comprised of cash and cash equivalents, short-term investments, 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 September 30, 2023.
8
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Allowance for Doubtful Accounts
A provision for doubtful accounts is recorded based on our judgment of collectability of receivables. Amounts are written off when determined to be fully uncollectible. Delinquent accounts are based on contractual terms. We maintain a specific allowance for estimated losses resulting from the inability of certain customers to make required payments. We also consider factors external to the specific customer, including current conditions and forecasts of economic conditions, including the potential impact of uncertain economic conditions. In the event we recover amounts previously written off, we will reduce the specific allowance for credit loss. Our allowance for doubtful accounts was $
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 and permanent differences related to the compensation of our former CEO. We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period.
Segments
We serve
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
Management has considered all recent accounting pronouncements issued. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
9
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
3. Revenue
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 an 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 and online streams, 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.
Disaggregation of Revenue
Revenues from contracts with customers comprised the following for three and nine months ended September 30, 2023 and 2022:
| Three Months Ended |
| Nine Months Ended |
| |||||||||
September 30, |
| September 30, |
| ||||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
| ||||
(in thousands) |
| (in thousands) |
| ||||||||||
Types of Revenue |
|
| |||||||||||
Broadcast Advertising Revenue, net | $ | | $ | | $ | | $ | | |||||
Digital Advertising Revenue |
| |
| |
| |
| | |||||
Other Revenue |
| |
| |
| |
| | |||||
Net Revenue | $ | | $ | | $ | | $ | |
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.
10
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Transaction Price Allocated to the Remaining Performance Obligations
As the majority of our sales contracts are
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 sales contracts which have original expected durations of one year or less.4. Broadcast Licenses, Goodwill and Other Intangible Assets
We evaluate our FCC licenses for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We operate our broadcast licenses in each market as a single asset and determine the fair value by relying on a discounted cash flow approach assuming a start-up scenario in which the only assets held by an investor are broadcast licenses. The fair value calculation contains assumptions incorporating variables that are based on past experiences and judgments about future operating performance using industry normalized information for an average station within a market. These variables include, but are not limited to: (1) the forecasted growth rate of each radio market, including population, household income, retail sales and other expenditures that would influence advertising expenditures; (2) the estimated available advertising revenue within the market and the related market share and profit margin of an average station within a market; (3) estimated capital start-up costs and losses incurred during the early years; (4) risk-adjusted discount rate; (5) the likely media competition within the market area; and (6) terminal values. 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.
We also evaluate goodwill for impairment annually, or more frequently if certain circumstances are present. 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.
We evaluate amortizable intangible assets for recoverability when circumstances indicate impairment may have occurred, using an undiscounted cash flow methodology. If the future undiscounted cash flows for the intangible asset are less than net book value, then the net book value is reduced to the estimated fair value. Amortizable intangible assets are included in other intangibles, deferred costs and investments in the consolidated balance sheets.
The Company considered the current and expected future economic and market conditions, and other potential indicators of impairment and determined a triggering event had not occurred which would necessitate any interim impairment tests during the nine months ended September 30, 2023. We will continue to monitor changes in economic and market conditions, and if any event or circumstances indicate a triggering event has occurred, we will perform an interim impairment test of our intangible assets at the appropriate time.
If actual market conditions are less favorable than those estimated by us or if events occur or circumstances change that would reduce the fair value of our broadcast licenses below the carrying value, we may be required to recognize impairment charges in future periods. Such a charge could have a material effect on our consolidated financial statements.
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
11
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5. Common Stock and Treasury Stock
Our founder and former Chairman, President and CEO, Edward K. Christian, passed away on August 19, 2022. As of the date of his passing, Mr. Christian, who was also our principal shareholder, held approximately
Dividends. Shareholders are entitled to receive such dividends as may be declared by our Board of Directors out of funds legally available for such purpose. However,
Voting Rights. Holders of shares of Common Stock vote as a single class on all matters submitted to a vote of the shareholders, with each share of Class A Common Stock entitled to
Prior to Mr. Christian’s passing, in the election of directors, the holders of Class A Common Stock, voting as a separate class, were entitled to elect
The holders of the Common Stock vote as a single class with respect to any proposed “going private” transaction with the principal stockholder or an affiliate of the principal stockholder, with each share of each class of Common Stock entitled to
Under Florida law, the affirmative vote of the holders of a majority of the outstanding shares of any class of common stock is required to approve, among other things, a change in the designations, preferences and limitations of the shares of such class of common stock.
Liquidation Rights. Upon our liquidation, dissolution, or winding-up, the holders of Class A Common Stock are entitled to share ratably in accordance with the number of shares held in all assets available for distribution after payment in full of creditors.
12
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following summarizes information relating to the number of shares of our common stock issued in connection with stock transactions through September 30, 2023:
| Common Stock Issued | |||
| Class A |
| Class B | |
(Shares in thousands) | ||||
Balance, January 1, 2022 | | | ||
Conversion of shares |
| |
| ( |
Issuance of restricted stock |
| |
| |
Balance, December 31, 2022 |
| |
| |
Balance, September 30, 2023 |
| |
| |
We have a Stock Buy-Back Program to allow us to purchase up to $
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
. 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 September 30, 2023, 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 were $
Lease expense includes cost for leases with terms in excess of one year. For the three and nine months ended September 30, 2023 and 2022, our total lease expense was $
13
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
We have no financing leases and minimum annual rental commitments under non-cancellable operating leases consisted of the following at September 30, 2023 (in thousands):
Years Ending December 31, |
| ||
2023 (a) |
| $ | |
2024 |
| | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
Thereafter |
| | |
Total lease payments (b) |
| | |
Less: Interest (c) |
| | |
Present value of lease liabilities (d) | $ | |
(a) | Remaining payments are for the three-months ending December 31, 2023. |
(b) | Lease payments include options to | 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 September 30, 2023.
(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 |
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.
2023 Dispositions
On February 28, 2023, we closed on an agreement to sell WPVQ-AM located in our Greenfield, Massachusetts market to Hampden Communications Corp for $
On March 20, 2023, we submitted a request to the FCC to cancel our FCC license for WHMQ-AM located in our Greenfield, Massachusetts market. We recorded a $
14
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2022 Acquisitions
On July 12, 2021, we entered into an agreement to acquire WIZZ-AM and a translator from P. & M. Radio for $
Condensed Consolidated Balance Sheet of 2023 and 2022 Acquisitions:
The following unaudited condensed balance sheets represent the estimated fair value assigned to the related assets and liabilities of the 2023 and 2022 acquisitions.
Saga Communications, Inc.
Condensed Consolidated Balance Sheet of 2023 and 2022 Acquisitions
Acquisitions in | ||||||
| 2023 |
| 2022 | |||
(In thousands) | ||||||
Assets Acquired: | ||||||
Property and equipment | $ | |
| $ | | |
Other assets: | ||||||
Broadcast licenses |
| |
| | ||
Goodwill |
| |
| | ||
Total other assets |
| |
| | ||
Total assets acquired |
| |
| | ||
Liabilities Assumed: |
|
| ||||
Current liabilities |
| |
| | ||
Total liabilities assumed |
| |
| | ||
Net assets acquired | $ | | $ | |
8. Income taxes
An income tax expense of $
15
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
9. Stock-Based Compensation
2005 Incentive Compensation Plan
On May 13, 2019 our shareholders approved an amendment to the Second Amended and Restated Saga Communications, Inc. 2005 Incentive Compensation Plan (as amended, the “Second Restated 2005 Plan”). This plan was first approved in 2005, and subsequently re-approved in 2010 and 2013. The 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
The number of shares of Common Stock that was allowed to be issued under the Second Restated 2005 Plan was not to exceed
2023 Incentive Compensation Plan
On May 8, 2023 our shareholders approved the 2023 Incentive Compensation Plan (the “2023 Plan”). The 2023 Plan replaces the Second Restated 2005 Plan. The Board of Directors does not intend to make any further awards under the Second Restated 2005 Plan. However, each outstanding award under the Second Restated 2005 Plan will remain outstanding under the Second Restated 2005 Plan and will continue to be governed under its terms and any applicable award agreement. The 2023 Plan allows for the granting of restricted stock, restricted stock units, incentive stock options, nonqualified stock options, and performance awards, including cash to eligible employees and non-employee directors of the Company and its subsidiaries. The number of shares of Common Stock that may be issued under the 2023 Plan may not exceed
Stock-Based Compensation
All stock options granted were fully vested and expensed at December 31, 2012; therefore, there was
There were
16
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following summarizes the restricted stock transactions for the three and nine months ended September 30, 2023:
Weighted | |||||
Average | |||||
Grant Date | |||||
Fair | |||||
| Shares |
| Value | ||
Outstanding at January 1, 2023 | | $ | | ||
Vested | | | |||
Forfeited | | | |||
Non-vested and outstanding at September 30, 2023 |
| |
| $ | |
For the three and nine months ended September 30, 2023 and 2022, we had $
10. Long-Term Debt
The Company has
On December 19, 2022, we entered into a Third Amendment to our Credit Facility, (the “Third Amendment”), which extended the maturity date to December 19, 2027, reduced the lenders to JPMorgan Chase Bank, N.A., and the Huntington National Bank (the “Lenders”), established an interest rate equal to the secured overnight financing rate (“SOFR”) as administered by the SOFR Administrator (currently established as the Federal Reserve Bank of New York) as the interest base and increased the basis points.
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 $
Interest rates under the Credit Facility are payable, at our option, at alternatives equal to SOFR (
17
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 September 30, 2023) 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 $
11. Litigation
From time to time, the Company may be involved in various legal proceedings that are incidental to the Company’s business. In management’s opinion, the Company is not a party to any current legal proceedings that are material to its financial condition, either individually or in the aggregate.
12. Dividends
On
On
On
On
On
On
On
13. Other Income
During the first quarter of 2022, there was fire damage to a transmission line in our Des Moines, Iowa market. The Company’s insurance policy provided coverage for removal and replacement of the transmission line and related equipment. As part of the insurance settlement during the fourth quarter of 2022, the Company received cash proceeds of $
18
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In 2012, Congress mandated that the FCC conduct an incentive auction of broadcast television spectrum as set forth in the Middle Class Tax Relief and Job Creation Act of 2012 ("Spectrum Act"). The Spectrum Act authorized the FCC to conduct incentive auctions in which licensees could voluntarily relinquish their spectrum usage rights in order to permit the assignment by auction of new initial licenses subject to flexible use service rules, in exchange for a portion of the resulting auction proceeds. The Spectrum Act appropriated $1.75 billion to the TV Broadcaster Relocation Fund ("Reimbursement Fund") for costs reasonably incurred by Full Power and Class A broadcast television licensees reassigned to new channels ("repack"), as well as Multichannel Video Programming Distributors ("MVPDs") that incurred costs related to continuing to carry the signals of reassigned broadcast stations. The 2018 Reimbursement Expansion Act, appropriated $1 billion in additional funds for the Reimbursement Fund and expanded eligible entities for reimbursement to include FM stations affected by the repack. During 2022, the Company received approximately $
14. Commitments and Contingencies
As previously disclosed Mr. Christian passed away on August 19, 2022. As a result of his passing the Company was required to make several payments to his estate as outlined in his employment agreement, as described in our annual report on Form 10-K for the year ended December 31, 2022. In accordance with ASC 712-10-25, Nonretirement Postemployment Benefits, we accrued all necessary expenses as of September 30, 2022. However, under the agreement, the Company will be responsible to pay the estate’s income tax obligation relating to the payout of the life insurance policy. The estimate of the possible loss related to that tax obligation cannot be made at this time due to uncertainties related to the timing of the transfer.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This report contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the radio broadcasting industry, the economy, and the Company. Words such as “anticipates,” “believes,” “can,” “could,” “endeavors” “expects,” “intends,” “is likely,” “may,” “plans,” “projects,” “seeks,” “will,” “would,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. We undertake no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise.
Future Factors include, among others, adverse changes in interest rates and interest rate relationships; our financial leverage and debt service requirements; dependence on key personnel; dependence on key stations; U.S. national and local economic conditions or an economic recession; market volatility; demand for our services; the degree of competition by traditional and non-traditional competitors; our ability to successfully integrate acquired stations; regulatory requirements; governmental and regulatory policy changes; changes in tax laws; the impact of technological advances; risks associated with cyber-attacks on our computer systems and those of our vendors; the outcomes of contingencies; trends in audience behavior; damage to our reputation resulting from adverse publicity, regulatory actions, litigation, operational failures, the failure to meet client or listener expectations and other facts; changes in local real estate values; natural disasters; terrorist attacks; the wars in Ukraine and Middle East, the effects of widespread outbreak of illness or disease, inflation; increased energy costs; and risk factors described in our annual report on Form 10-K for the year ended December 31, 2022 or in this Report. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.
Introduction
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes thereto of Saga Communications, Inc. and its subsidiaries contained elsewhere herein and the audited financial statements and Management’s Discussion and Analysis contained in our annual report on Form 10-K for the year ended December 31, 2022. The following discussion is presented on a consolidated basis.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP), which require us to make estimates, judgments and assumptions that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures and contingencies. We evaluate estimates used in preparation of our financial statements on a continual basis. There have been no significant changes to our critical accounting policies that are described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in our annual report on Form 10-K for the year ended December 31, 2022.
We use certain financial measures that are not calculated in accordance with generally accepted accounting principles in the United States of America (GAAP) to assess our financial performance. For example, we evaluate the performance of our markets based on “station operating income” (operating income plus corporate general and administrative expenses, depreciation and amortization, other operating (income) expenses, and impairment of intangible assets). Station operating income is generally recognized by the broadcasting industry as a measure of performance, is used by analysts who report on the performance of the broadcasting industry and serves as an indicator of the market value of a group of stations. In addition, we use it to evaluate individual stations, market-level performance, overall operations and as a primary measure for incentive based compensation of executives and other members of management. Station operating income is not necessarily indicative of amounts that may be available to us for debt service requirements, other commitments, reinvestment or other discretionary uses. Station operating income is not a measure of liquidity or of performance in accordance with GAAP, and should be viewed as a supplement to, and not a substitute for our results of operations presented on a GAAP basis.
20
Financial Condition and Results of Operations
General
We are a broadcast company primarily engaged in acquiring, developing and operating broadcast properties. We actively seek and explore opportunities for expansion through the acquisition of additional broadcast properties. We review acquisition opportunities on an ongoing basis. For additional information with respect to acquisitions, see “Liquidity and Capital Resources” below. We own or operate broadcast properties in 27 markets, including 79 FM and 33 AM radio stations and 80 metro signals.
We anticipate our corporate general and administrative expense to decrease from 2022 significantly because of approximately $3.8 million in expenses incurred related to the passing of our former CEO, Edward Christian and payments required as a result of his death. This reduction will be partially offset, however, by an increase in directors’ fees of $312,000 and by investments we have made in additional corporate personnel directly attributable to sales and training initiatives.
Radio Stations
Our radio stations’ primary source of revenue is from the sale of advertising for broadcast on our stations. Depending on the format of a particular radio station, there are a predetermined number of advertisements available to be broadcast each hour.
Most advertising contracts are short-term and generally run for a few weeks only. The majority of our revenue is generated from local advertising, which is sold primarily by each radio market’s sales staff. For the nine months ended September 30, 2023 and 2022, approximately 90% and 90%, respectively, of our radio stations’ gross revenue was from local advertising. To generate national advertising sales, we engage independent advertising sales representative firms that specialize in national sales for each of our broadcast markets.
Our revenue varies throughout the year. Advertising expenditures, our primary source of revenue, generally have been lowest during the winter months, which include the first quarter of each year. Furthermore, we expect political revenue in 2023 to decrease from 2022 levels as a result of fewer elections at the national, state and local levels.
Our net operating revenue, station operating expense and operating income varies from market to market based upon each market’s rank or size which is based upon population and the available radio advertising revenue in that particular market.
The broadcasting industry and advertising in general, is influenced by the state of the overall economy, including unemployment rates, inflation, energy prices and consumer interest rates. Our stations primarily broadcast in small to midsize markets. Historically, such markets have been more stable than major metropolitan markets during downturns in advertising spending, but may not experience increases in such spending as significant as those in major metropolitan markets in periods of economic improvement.
Our financial results are dependent on a number of factors, the most significant of which is our 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. In a number of our markets, this is measured by periodic reports generated by independent national rating services. In the remainder of our markets it is measured by the results advertisers obtain through the actual running of an advertising schedule. Advertisers measure these results based on increased demand for their goods or services and/or actual revenues generated from such demand. 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, target marketing capability of radio compared to other advertising media, and signal strength.
21
When we acquire and/or begin to operate a station or group of stations we generally increase programming and advertising and promotion expenses to increase our share of our target demographic audience. Our strategy sometimes requires levels of spending commensurate with the revenue levels we plan on achieving in two to five years. During periods of economic downturns, or when the level of advertising spending is flat or down across the industry, this strategy may result in the appearance that our cost of operations is increasing at a faster rate than our growth in revenues, until such time as we achieve our targeted levels of revenue for the acquired station or group of stations.
The number of advertisements that can be broadcast without jeopardizing listening levels (and the resulting ratings) is limited in part by the format of a particular radio station. Our stations strive to maximize revenue by constantly managing the number of commercials available for sale and adjusting prices based upon local market conditions and ratings. While there may be shifts from time to time in the number of advertisements broadcast during a particular time of day, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. Any change in our revenue, with the exception of those instances where stations are acquired or sold, is generally the result of inventory sell-out ratios and pricing adjustments, which are made to ensure that the station efficiently utilizes available inventory.
Our radio stations employ a variety of programming formats. We periodically perform market research, including music evaluations, focus groups and strategic vulnerability studies. Because reaching a large and demographically attractive audience is crucial to a station’s financial success, we endeavor to develop strong listener loyalty. Our stations also employ audience promotions to further develop and secure a loyal following. We believe that the diversification of formats on our radio stations helps to insulate us from the effects of changes in musical tastes of the public on any particular format.
The primary operating expenses involved in owning and operating radio stations are employee salaries, sales commissions, sales survey and ratings expenses, health insurance expense, programming expenses including music licensing fees, depreciation, and advertising and promotion expenses.
The radio broadcasting industry is subject to rapid technological change, evolving industry standards and the emergence of new media technologies and services. These new technologies and media are gaining advertising share against radio and other traditional media.
We are continuing to expand our digital initiative to provide a seamless experience across multiple platforms. Our goal is to allow our listeners to connect with our brands on demand, wherever, however and whenever they choose. We continue to create and expand opportunities for revenue generation through targeted digital advertising, online community news, entertainment and events and an array of digital services that include online promotions, mobile messaging, and email marketing.
22
During the nine months ended September 30, 2023 and 2022 and the years ended December 31, 2022 and 2021, our Columbus, Ohio; Des Moines, Iowa; Milwaukee, Wisconsin; Norfolk, Virginia; and Portland, Maine markets, when combined, represented approximately 36%, 38%, 38% and 39%, respectively, of our consolidated net operating revenue. An adverse change in any of these radio markets or our relative market position in those markets could have a significant impact on our operating results as a whole.
The following table describes the percentage of our consolidated net operating revenue represented by each of these markets:
Percentage of Consolidated | Percentage of Consolidated |
| ||||||||
Net Operating Revenue for | Net Operating Revenue |
| ||||||||
the Nine Months Ended | for the Years Ended |
| ||||||||
September 30, | December 31, |
| ||||||||
| 2023 |
| 2022 |
| 2022 |
| 2021 |
|
| |
Market: |
| |||||||||
Columbus, Ohio |
| 9 | % | 10 | % | 10 | % | 10 | % |
|
Des Moines, Iowa |
| 5 | % | 5 | % | 5 | % | 6 | % |
|
Milwaukee, Wisconsin |
| 11 | % | 12 | % | 12 | % | 11 | % |
|
Norfolk, Virginia |
| 6 | % | 6 | % | 6 | % | 6 | % |
|
Portland, Maine |
| 5 | % | 5 | % | 5 | % | 6 | % |
|
During the nine months ended September 30, 2023 and 2022 and the years ended December 31, 2022 and 2021, the radio stations in our five largest markets, when combined, represented approximately 40%, 44%, 44% and 43%, respectively, of our consolidated station operating income. The following table describes the percentage of our consolidated station operating income represented by each of these markets:
Percentage of Consolidated | Percentage of Consolidated |
| ||||||||
Station Operating Income (*) | Station Operating Income(*) |
| ||||||||
for the Nine Months Ended | for the Years Ended |
| ||||||||
September 30, | December 31, |
| ||||||||
|
| 2023 |
| 2022 |
| 2022 |
| 2021 |
|
|
Market: | ||||||||||
Columbus, Ohio |
| 10 | % | 13 | % | 13 | % | 12 | % | |
Des Moines, Iowa |
| 4 | % | 4 | % | 4 | % | 5 | % | |
Milwaukee, Wisconsin |
| 13 | % | 15 | % | 14 | % | 12 | % | |
Norfolk, Virginia |
| 9 | % | 7 | % | 7 | % | 7 | % | |
Portland, Maine |
| 4 | % | 5 | % | 6 | % | 7 | % |
* | Operating income adjusted for corporate general and administrative expenses, depreciation and amortization, other operating (income) expenses, and impairment of intangible assets. |
23
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Results of Operations
The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022.
Consolidated Results of Operations
Three Months Ended |
| |||||||||||
September 30, | $ Increase | % Increase |
| |||||||||
|
| 2023 |
| 2022 |
| (Decrease) |
| (Decrease) |
| |||
(In thousands, except percentages and per share information) |
| |||||||||||
Net operating revenue | $ | 29,149 | $ | 29,980 | $ | (831) |
| (2.8) | % | |||
Station operating expenses |
| 22,760 |
| 22,295 |
| 465 |
| 2.1 | % | |||
Corporate general and administrative |
| 2,852 |
| 6,667 |
| (3,815) |
| (57.2) | % | |||
Other operating (income) expense, net | 45 | (37) | 82 |
| N/M | |||||||
Operating income |
| 3,492 |
| 1,055 |
| 2,437 |
| 231.0 | % | |||
Interest expense |
| 44 |
| 32 |
| 12 |
| 37.5 | % | |||
Interest income |
| (391) |
| (134) |
| (257) |
| N/M | ||||
Other income |
| — |
| (34) |
| 34 |
| N/M | ||||
Income before income tax expense |
| 3,839 |
| 1,191 |
| 2,648 |
| 222.3 | % | |||
Income tax provision | ||||||||||||
Current | 835 |
| 730 |
| 105 |
| 14.4 | % | ||||
Deferred | 275 |
| 565 |
| (290) |
| (51.3) | % | ||||
| 1,110 |
| 1,295 |
| (185) |
| (14.3) | % | ||||
Net income (loss) | $ | 2,729 | $ | (104) | $ | 2,833 |
| (2,724.0) | % | |||
Earnings per share (diluted) | $ | 0.45 | $ | (0.01) | $ | 0.46 |
| (4,600.0) | % |
N/M = Not Meaningful
For the three months ended September 30, 2023, consolidated net operating revenue was $29,149,000 compared with $29,980,000 for the three months ended September 30, 2022, a decrease of $831,000 or 2.8%. We had decreases in gross local revenue of $1,052,000 and gross political revenue of $624,000, partially offset by increases in gross interactive revenue of $696,000 and gross non-spot revenue of $156,000, from the third quarter of 2022. The decrease in gross local revenues was attributable to decreases at our Charleston, South Carolina; Clarksville, Tennessee; Columbus, Ohio; Milwaukee, Wisconsin; and Portland, Maine markets. The gross political revenue decreased due to a decrease in the number of national, state and local elections. The increase in gross interactive revenue is primarily due to an increase in our streaming revenue. The most significant increases in gross non-spot revenue occurred in our Asheville, North Carolina; Charleston, South Carolina; Ithaca, New York; Norfolk, Virginia and Yankton, South Dakota markets.
Station operating expense was $22,760,000 for the three months ended September 30, 2023, compared with $22,295,000 for the three months ended September 30, 2022, an increase of $465,000 or 2.1%. The increase in operating expense was primarily a result of increases in compensation-related expense, healthcare costs, sales rating survey expenses, utility expenses, building maintenance and repairs, and programming rights expenses, of $331,000, $211,000, $107,000, $87,000, $82,000 and $71,000, respectively, partially offset by a decrease in commission expenses of $360,000, from the third quarter of 2022.
24
We had operating income for the three months ended September 30, 2023 of $3,492,000 compared to $1,055,000 for the three months ended September 30, 2022, an increase of $2,437,000. The increase in operating income was the result of a decrease in corporate general and administrative expenses of $3,815,000 partially offset by a decrease in net operating revenue and increase in station operating expense, noted above, and an increase in other operating (income) expense, net of $82,000. In the third quarter of 2022, we recorded a gain on sale of fixed assets of $37,000 compared to a loss on the sale of fixed assets in the third quarter of 2023 of $45,000 in other operating (income) expense, net. The decrease in corporate general and administrative expenses was primarily due to the $3.8 million expense recorded in the third quarter of 2022 related to the employment agreement we had with our founder and former CEO, Mr. Christian, that was required upon his death. Additionally, we had a decrease of $471,000 in compensation-related expense offset by an increase of $156,000 in travel and seminar related expenses, $150,000 in other legal and consulting fees, $104,000 in directors’ fees, and $43,000 in insurance costs.
We generated net income of $2,729,000 ($0.45 per share on a fully diluted basis) during the three months ended September 30, 2023, compared to a net loss of $104,000 ( ($0.01 ) per share on a fully diluted basis) for the three months ended September 30, 2022, an increase of $2,833,000. The increase in net income is primarily due to the increase in operating income, described above, an increase in interest income of $257,000 and a decrease in income tax expense of $185,000 partially offset by an increase in interest expense of $12,000 and a decrease in other income of $34,000. The increase in interest income is related to higher rates of return on money market accounts reflected as cash equivalents and from our short-term investment accounts which began in May 2022. The decrease in our income tax expense is due to the permanent difference between book and taxable income related to the compensation paid to our founder and former CEO as described above and in footnote 8 (Income Taxes). The increase in interest expense is due to an increase in interest rates and amortization of bank fees. The decrease in other income is due to minimal other income earned in the third quarter of 2022 versus no other income earned in the third quarter of 2023.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Results of Operations
The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022.
Nine Months Ended |
| |||||||||||
September 30, | $ Increase | % Increase |
| |||||||||
|
| 2023 |
| 2022 |
| (Decrease) |
| (Decrease) |
| |||
(In thousands, except percentages and per share information) |
| |||||||||||
Net operating revenue | $ | 83,628 | $ | 84,768 | $ | (1,140) |
| (1.3) | % | |||
Station operating expenses |
| 66,870 |
| 64,649 |
| 2,221 |
| 3.4 | % | |||
Corporate general and administrative |
| 7,940 |
| 11,970 |
| (4,030) |
| (33.7) | % | |||
Other operating (income) expense, net | 125 | 3 | 122 |
| N/M | |||||||
Operating income |
| 8,693 |
| 8,146 |
| 547 |
| 6.7 | % | |||
Interest expense |
| 130 |
| 96 |
| 34 |
| 35.4 | % | |||
Interest income |
| (1,027) |
| (187) |
| (840) |
| N/M | ||||
Other income |
| (119) |
| (36) |
| (83) |
| N/M | ||||
Income before income tax expense |
| 9,709 |
| 8,273 |
| 1,436 |
| 17.4 | % | |||
Income tax provision | ||||||||||||
Current | 2,020 |
| 2,390 |
| (370) |
| (15.5) | % | ||||
Deferred | 690 |
| 960 |
| (270) |
| (28.1) | % | ||||
| 2,710 |
| 3,350 |
| (640) |
| (19.1) | % | ||||
Net income (loss) | $ | 6,999 | $ | 4,923 | $ | 2,076 |
| 42.2 | % | |||
Earnings per share (diluted) | $ | 1.15 | $ | 0.82 | $ | 0.33 |
| 40.2 | % |
N/M = Not Meaningful
25
For the nine months ended September 30, 2023, consolidated net operating revenue was $83,628,000 compared with $84,768,000 for the nine months ended September 30, 2022, a decrease of $1,140,000 or 1.3%. We had decreases in gross local revenue of $2,003,000, gross political revenue of $1,229,000, and gross barter revenue of $92,000 and an increase in agency commissions of $50,000 partially offset by increases in gross interactive revenue of $1,233,000, gross non-spot revenue of $582,000 and gross national revenue of $512,000, from 2022. The decrease in gross local revenues was attributable to decreases at our Charleston, South Carolina; Clarksville, Tennessee; Columbus, Ohio; Des Moines, Iowa; Ithaca, New York; Milwaukee, Wisconsin; Portland, Maine and Springfield, Illinois markets partially offset by increases at our Asheville, North Carolina; Bellingham, Washington; Charlottesville, Virginia and Harrisonburg, Virginia markets. The gross political revenue decreased due to a decrease in the number of national, state and local elections. The decrease in our gross barter revenue is due to minor decreases in the majority of our markets. The increase in agency commissions is due to increases in our national revenue. The increase in gross interactive revenue is primarily due to an increase in our streaming revenue. The most significant increases in gross national revenue occurred in our Charleston, South Carolina; Charlottesville, Virginia; Des Moines, Iowa; Norfolk, Virginia; Ocala, Florida and Springfield, Massachusetts markets. The most significant increases in gross non-spot revenue occurred in our Asheville, North Carolina; Bellingham, Washington; Charleston, South Carolina; Ithaca, New York and Yankton, South Dakota markets.
Station operating expense was $66,870,000 for the nine months ended September 30, 2023, compared with $64,649,000 for the nine months ended September 30, 2022, an increase of $2,221,000 or 3.4%. The increase in operating expense was primarily a result of increases in compensation-related expense, utility expenses, building maintenance and repairs, healthcare costs, sales rating survey expenses, programming rights expense, and music licensing fees, of $1,219,000, $274,000, $273,000, $213,000, $194,000, $184,000, and $89,000, respectively, partially offset by commission expenses of $199,000 for the comparable period of 2022.
We had operating income for the nine months ended September 30, 2023 of $8,693,000 compared to $8,146,000 for the nine months ended September 30, 2022, an increase of $547,000. The increase in operating income was the result of a decrease in corporate general and administrative expenses of $4,030,000 partially offset by a decrease in net operating revenue and increase in station operating expense, noted above, and an increase in other operating (income) expense, net of $122,000. We recorded a loss on sale of fixed assets of $125,000 in 2023 compared to a loss on the sale of fixed assets in the 2022 of $3,000 in other operating (income) expense, net. The decrease in corporate general and administrative expenses was primarily due to the $3.8 million expense recorded in the third quarter of 2022 related to the employment agreement we had with our founder and former CEO, Mr. Christian, that was required upon his death. Additionally, we had a decrease of $1,219,000 in compensation-related expense partially offset by an increase of $345,000 in other consulting fees, $202,000 in directors’ fees, $145,000 in insurance costs and $32,000 in travel and seminar related expenses.
We generated net income of $6,999,000 ($1.15 per share on a fully diluted basis) during the nine months ended September 30, 2023, compared to $4,923,000 ($0.82 per share on a fully diluted basis) for the nine months ended September 30, 2022 ended, an increase of $2,076,000. The increase in net income is primarily due to the increase in operating income, described above, an increase in interest income of $840,000, an increase in other income of $83,000 and a decrease in income tax expense of $640,000, partially offset by an increase in interest expense of $34,000. The increase in interest income is related to higher rates of return on money market accounts reflected as cash equivalents and from our short-term investment accounts which began in May 2022. The decrease in our income tax expense is due to the permanent difference between book and taxable income related to the compensation paid to our founder and former CEO as described above and in footnote 8 (Income Taxes). The increase in other income is due to reimbursements from the FCC related to their spectrum auction of $115,000 described in footnote 13 (Other Income) versus the minimal other income earned in 2022. The increase in interest expense is due to an increase in interest rates and amortization of bank fees.
Liquidity and Capital Resources
Debt Arrangements and Debt Service Requirements
On December 19, 2022, we entered into a Third Amendment to our Credit Facility, (the “Third Amendment”), which extended the maturity date to December 19, 2027, reduced the lenders to JPMorgan Chase Bank, N.A., and the Huntington National Bank (the “Lenders”), established an interest rate equal to the secured overnight financing rate (“SOFR”) as administered by the SOFR Administrator (currently established as the Federal Reserve Bank of New York) as the interest base and increased the basis points.
26
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 debt issuance costs related to the Credit Facility were capitalized and are being amortized over the life of the Credit Facility. These debt issuance costs are included in other assets, net in the 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. As a result of the Third Amendment, the Company incurred an additional $161,000 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.
Interest rates under the Credit Facility are payable, at our option, at alternatives equal to SOFR (5.31% at September 30, 2023), plus 1% to 2% or the base rate plus 0% to 1%. The spread over SOFR 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. Under the Third Amendment, we now pay quarterly commitment fees of 0.25% per annum on the unused portion of the Credit Facility. We previously paid 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, 2023) 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 no debt outstanding at December 31, 2022 or September 30, 2023.
We had approximately $50 million of unused borrowing capacity under the Revolving Credit Facility at both September 30, 2023 and December 31, 2022.
Sources and Uses of Cash
During the nine months ended September 30, 2023 and 2022, we had net cash flows from operating activities of $13,921,000 and $14,362,000, respectively. We believe that cash flow from operations will be sufficient to meet quarterly debt service requirements for payments of interest and principal under our Credit Facility if we borrow in the future. However, if such cash flow is not sufficient we may be required to sell additional equity securities, refinance our obligations or dispose of one or more of our properties in order to make such scheduled payments. There can be no assurance that we would be able to effect any such transactions on favorable terms, if at all.
In March 2013, our board of directors authorized an increase to our Stock Buy-Back Program (the “Buy-Back Program”) to allow us to purchase up to $75.8 million of our Class A Common Stock. From its inception in 1998 through September 30, 2023, we have repurchased 2.2 million shares of our Class A Common Stock for $57.6 million. During the three and nine months ended September 30, 2023, we did not repurchase any shares related to the Buy-Back Program. We halted the directions issued for any additional buybacks under our plan in 2020. We continue to monitor economic conditions to determine if and when it makes sense to make additional buybacks under our plan.
Our capital expenditures, exclusive of acquisitions, for the nine months ended September 30, 2023 were $3,397,000 ($4,731,000 in 2022). We anticipate capital expenditures in 2023 to be approximately $4.5 million to $5.0 million, which we expect to finance through funds generated from operations.
On July 12, 2021, we entered into an agreement to acquire WIZZ-AM and a translator from P. & M. Radio for $61,800 of which $5,000 was paid in 2021 and the remainder was paid on April 6, 2022 when we closed on the transaction. 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. The translators are start-up stations and therefore, have no pro forma revenue and expenses.
On September 27, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share on its Class A Common Stock. This dividend, totaling approximately $1,500,000 was paid on November 3, 2023 to
27
shareholders of record on October 11, 2023 and is recorded in dividends payable in our Condensed Consolidated Balance Sheet at September 30, 2023.
On May 9, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share on its Class A Common Stock. This dividend, totaling approximately $1,500,000 was paid on June 16, 2023 to shareholders of record on May 22, 2023.
On March 1, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share on its Class A Common Stock. This dividend, totaling approximately $1,500,000, was paid on April 7, 2023 to shareholders of record on March 20, 2023.
On December 7, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share and a special cash dividend of $2.00 per share on its Class A Common Stock. This dividend, totaling approximately $13,800,000, was paid on January 13, 2023 to shareholders of record on December 21, 2022.
On September 20, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share and a special cash dividend of $2.00 per share on its Class A Common Stock. This dividend, totaling approximately $13,600,000, was paid on October 21, 2022 to shareholders of record on October 3, 2022.
On June 6, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.20 per share on its Classes A and B Common Stock. This dividend, totaling approximately $1,200,000, was paid to our transfer agent on June 29, 2022. The dividend was paid by our transfer agent on July 1, 2022 to shareholders of record on June 13, 2022.
On March 1, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.16 per share on its Classes A and B Common Stock. This dividend, totaling approximately $970,000, was paid on April 8, 2022 to shareholders of record on March 21, 2022.
We continue to actively seek and explore opportunities for expansion through the acquisitions of additional broadcast properties.
We anticipate that any future acquisitions of radio stations and dividend payments will be financed through funds generated from operations, borrowings under the Credit Agreement, additional debt or equity financing, cash on hand, or a combination thereof. However, there can be no assurances that any such financing will be available on acceptable terms, if at all.
Summary Disclosures About Contractual Obligations and Commercial Commitments
We have future cash obligations under various types of contracts, including the terms of our Credit Facility, operating leases, programming contracts, employment agreements, and other operating contracts. For additional information concerning our future cash obligations see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation — Summary Disclosures About Contractual Obligations” in our annual report on Form 10-K for the year ended December 31, 2022.
We anticipate that our contractual cash obligations will be financed through funds generated from operations or additional borrowings under the Credit Facility, or a combination thereof.
Recent Accounting Pronouncements
Recent accounting pronouncements are described in Note 2 to the accompanying financial statements.
Inflation
The impact of inflation on our operations has not been significant to date. We are, however, starting to see the effects of higher inflation starting to impact costs of most goods and services. There can be no assurance that a high rate of inflation in the future would not have an adverse effect on our operations.
28
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Refer to “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk and Risk Management Policies” in our annual report on Form 10-K for the year ended December 31, 2022 for a complete discussion of our market risk. There have been no material changes to the market risk information included in our 2022 annual report on Form 10-K.
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to cause the material information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 to be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. There have been no changes in the Company’s internal controls over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may be involved in various legal proceedings that are incidental to the Company’s business. In management’s opinion, the Company is not a party to any current legal proceedings that are material to its financial condition, either individually or in the aggregate.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in response to Part 1, “Item 1A. Risk Factors,” of our annual report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Purchases of Equity Securities
The following table summarizes our repurchases of our Class A Common Stock during the three months ended September 30, 2023.
Total Number | Approximate | |||||||||
of | Dollar | |||||||||
Shares | Value of | |||||||||
Purchased | Shares | |||||||||
Total | Average | as Part of | that May Yet be | |||||||
Number | Price | Publicly | Purchased | |||||||
of Shares | Paid per | Announced | Under the | |||||||
Period |
| Purchased |
| Share |
| Program |
| Program(1) | ||
July 1 - July 31, 2023 | — | $ | — | — | $ | 18,203,509 | ||||
August 1 - August 31, 2023 | — | $ | — | $ | 18,203,509 | |||||
September 1 - September 30, 2023 | — | $ | — | — | $ | 18,203,509 | ||||
Total |
| — | $ | — |
| — | $ | 18,203,509 |
(1) | We have a Stock Buy-Back Program which allows us to purchase our Class A Common Stock. In February 2013, our Board of Directors authorized an increase in the amount committed to the Buy-Back Program from $60 million to approximately $75.8 million. |
We made no unregistered sales of equity securities during the quarter ended September 30, 2023.
29
Item 6. Exhibits
| ||
|
| |
|
| |
|
| |
101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
|
| |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
|
| |
101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document | |
|
| |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
|
| |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
|
| |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
30
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 9, 2023 | /s/ SAMUEL D. BUSH |
| Samuel D. Bush |
| Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
|
|
Date: November 9, 2023 | /s/ CATHERINE A. BOBINSKI |
| Catherine A. Bobinski |
| Senior Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer) |
31
EXHIBIT 10.2
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, made as of ________, 20__, by and between SAGA COMMUNICATIONS, INC., a Florida corporation (the “Corporation”), and [[FIRSTNAME]] [[LASTNAME]] (the “Grantee”).
W I T N E S S E T H
WHEREAS, the Grantee is now employed as an Officer, General Manager or other qualified employee by the Corporation or a subsidiary of the Corporation and the Corporation desires to have the Grantee remain in such employment and to afford Grantee the opportunity to acquire, or enlarge, Grantee’s stock ownership in the Corporation so that the Grantee may have a direct proprietary interest in the Corporation’s success.
NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows:
The Corporation grants to the Grantee, and the Grantee accepts from the Corporation, [[SHARESGRANTED]] shares of Class A Common Stock of the Corporation (“Restricted Stock”) subject to the restrictions and terms contained in this Agreement and the Saga Communications, Inc. 2023 Incentive Compensation Plan (the “Plan”), as amended from time to time. Capitalized terms used but not defined herein will have the meaning ascribed to them in the Plan.
Restricted Stock may not be transferred, pledged, assigned or otherwise alienated or hypothecated until the Restricted Stock has vested as specified in Section 3 below. Prior to the vesting of any Restricted Stock, all rights with respect to Restricted Stock shall be exercisable during the Grantee’s lifetime only by the Grantee or the Grantee’s legal representative. The shares of Restricted Stock will be issued and held in book entry form under the name of the Plan, and Grantee will be listed as the beneficial owner of the Restricted Stock that has not been forfeited, or vested and issued as provided in paragraphs 3, 4 and 5 below. Such book-entry shares may include restrictive instructions to the Corporation’s registrar and transfer agent in accordance with the Plan and the Agreement. Grantee shall have voting rights and shall be entitled to receive dividends and other distributions (provided, however, that dividends or other distributions paid in any form other than cash shall be subject to the same restrictions, forfeitability, terms and conditions as are applicable to the Restricted Stock until such time as the Restricted Stock with respect to which such distributions have been made, paid or declared, shall have vested).
Subject to the terms of this Agreement, the portions of Restricted Stock granted under this Agreement shall vest according to the following schedule:
Anniversaries of Date of Grant | Portion of Restricted Stock Which Vests |
__________, 20__ | 33 1/3% |
__________, 20__ | 33 1/3% |
__________, 20__ | 33 1/3% |
With respect to any fractional shares resulting from the application of the 33 1/3% times the total amount of the Restricted Stock, such fractional shares shall cumulate and be distributed on the last vesting date. If this is not possible, Grantee will receive the cash value of any remaining fractional shares.
If the status of Grantee as an Employee of the Corporation terminates for any reason prior to an applicable date(s) of vesting, the shares of Restricted Stock with respect to such applicable date(s) shall be forfeited by Grantee, provided, however, that the Committee, in its sole discretion, may waive or change the restrictions or add additional restrictions with respect to the Restricted Stock that would otherwise be forfeited, as it deems appropriate.
The term “subsidiary” as used in this Agreement shall mean any subsidiary of the Corporation as defined in Section 424(f) of the Code. The term “parent” as used in this Agreement shall mean any parent of the Corporation as defined in Section 424(e) of the Code.
All Restricted Stock shall become fully vested upon the occurrence of a Change in Control, if Grantee is an Employee at the time of such Change in Control. To the extent practicable, such acceleration of vesting shall occur in a manner and at a time which allows the Grantee the ability to participate in the Change in Control with respect to the shares of Class A Common Stock to be received by Grantee.
Upon the vesting of any portion of Restricted Stock, Grantee shall be entitled to issuance of such portion of the Restricted Stock (and any applicable stock distributions) in the name of the Grantee in book-entry form. Transfer by the Corporation of such shares shall occur as promptly as practicable after such vesting.
The Grantee may make an election under Code Section 83(b) (a "Section 83(b) Election") with respect to the Restricted Stock. Any such election must be made within thirty (30) days after the Grant Date. If the Grantee elects to make a Section 83(b) Election, the Grantee shall provide the Corporation with a copy of an executed version and satisfactory evidence of the timely filing of the executed Section 83(b) Election with the US Internal Revenue Service. The Grantee agrees to assume full responsibility for ensuring that the Section 83(b) Election is actually and timely filed with the US Internal Revenue Service and for all tax consequences resulting from the Section 83(b) Election.
Grantee may satisfy applicable withholding for income and employment taxes by using any of the methods set forth in Section 2.3 of the Plan as provided in Section 7.7 of the Plan.
This Agreement and the obligation of the Corporation to deliver shares hereunder, shall be subject to all applicable Federal and State laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Corporation shall not be required to issue or deliver any certificates for shares of stock prior to (a) the listing of such shares on any stock exchange in which the stock may then be listed and (b) the completion of any registration or qualification of such shares under any Federal or State law, or any rule or regulation of any government body which the Corporation shall, in its sole discretion, determine to be necessary or advisable. Moreover, the Corporation shall not be required to deliver shares if the transfer or the receipt of such shares of stock would be contrary to applicable law.
Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided; provided that, unless and until some other address is so designated, all notices or communications by the Grantee to the Corporation shall be mailed or delivered to the Corporation at its office at 73 Kercheval Avenue, Grosse Pointe Farms, MI 48236, Attention: Chief Financial Officer, and all notices or communications by the Corporation to the Grantee may be given to the Grantee personally or may be mailed to him or her at the address shown below his or her signature to this Agreement.
The provisions of Article VI of the Plan are incorporated herein.
This grant of Restricted Stock shall not confer Grantee any right with respect to continuance of employment by the Corporation or any subsidiary or parent, nor shall it interfere in any way with the right of the Grantee’s employer to terminate Grantee’s employment at any time.
Until Grantee is no longer an Employee, Grantee shall retain 50% of the Restricted Stock. For purposes of clarity, the 50% is based on the total number of shares granted and is not reduced by any shares which have vested or which are sold or transferred, but is reduced by shares which have been netted out to pay withholding taxes.
Awards made pursuant to the Plan and this Agreement are intended to be exempt from Code Section 409A and the applicable guidance promulgated thereunder. Nevertheless, the terms of the Plan and Awards made pursuant to the Plan and this Agreement shall be interpreted in a manner that is consistent with Code Section 409A and the intent to be exempt from and, to the extent not exempt from, compliant with, Code Section 409A.
By accepting an Award, Grantee is agreeing to be bound by the Corporation’s Clawback Policy which may be amended from time to time by the Corporation in its discretion (including, without limitation, to comply with (i) the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, (ii) federal securities laws, regulations and rules, and (iii) regulations or rules of NASDAQ or any other stock exchange or stock market on which the Corporation’s Class A Common Stock is listed or traded) and is further agreeing that all of Grantee’s Awards and this Agreement may be unilaterally amended by the Corporation to the extent needed to comply with the Clawback Policy.
Any dispute regarding the interpretation of this Agreement shall be submitted by the Grantee or the Corporation to the Committee for review. The resolution of such dispute by the Committee shall be final and binding on the Grantee and the Corporation.
This Agreement is subject to the Plan as approved by the Corporation's stockholders. The terms and provisions of the Plan as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
The Corporation may assign any of its rights under this Agreement. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Corporation and is binding upon Grantee.
The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity or enforceability of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and enforceable to the extent permitted by law.
The value of the Grantee’s Restricted Stock is not part of Grantee’s normal or expected compensation for purposes of calculating any severance, retirement, welfare, insurance or similar employee benefit.
This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail, or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.
The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement. The Grantee has read and understands the terms and provisions thereof, and accepts the Restricted Stock subject to all of the terms and conditions of the Plan and this Agreement. The Grantee acknowledges that there may be adverse tax consequences upon vesting of the Restricted Stock or disposition of the Restricted Stock and that the Grantee should consult a tax advisor prior to such exercise or disposition.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
SAGA COMMUNICATIONS, INC.
By:
Samuel D. Bush
SVP/Treasurer/CFO
GRANTEE
[[FIRSTNAME]] [[LASTNAME]]
[[RESADDR1]]
[[RESADDR2]]
[[RESCITY]], [[RESSTATEORPROV]] [[RESPOSTALCODE]]
EXHIBIT 10.3
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, made as of _________, 20__, by and between SAGA COMMUNICATIONS, INC., a Florida corporation (the “Corporation”), and [[FIRSTNAME]] [[LASTNAME]] (the “Grantee”).
W I T N E S S E T H
WHEREAS, the Grantee serves as a director of the Corporation or a subsidiary of the Corporation and the Corporation desires to have the Grantee remain in such service and to afford Grantee the opportunity to acquire, or enlarge, Grantee’s stock ownership in the Corporation so that the Grantee may have a direct proprietary interest in the Corporation’s success.
NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows:
The Corporation grants to the Grantee, and the Grantee accepts from the Corporation, [[SHARESGRANTED]] shares of Class A Common Stock of the Corporation (“Restricted Stock”) subject to the restrictions and terms contained in this Agreement and the Saga Communications, Inc. 2023 Incentive Compensation Plan (the “Plan”), as amended from time to time. Capitalized terms used but not defined herein will have the meaning ascribed to them in the Plan.
Restricted Stock may not be transferred, pledged, assigned or otherwise alienated or hypothecated until the Restricted Stock has vested as specified in Section 3 below. Prior to the vesting of any Restricted Stock, all rights with respect to Restricted Stock shall be exercisable during the Grantee’s lifetime only by the Grantee or the Grantee’s legal representative. The shares of Restricted Stock will be issued and held in book entry form under the name of the Plan, and Grantee will be listed as the beneficial owner of the Restricted Stock that has not been forfeited, or vested and issued as provided in paragraphs 3, 4 and 5 below. Such book-entry shares may include restrictive instructions to the Corporation’s registrar and transfer agent in accordance with the Plan and the Agreement. Grantee shall have voting rights and shall be entitled to receive dividends and other distributions (provided, however, that dividends or other distributions paid in any form other than cash shall be subject to the same restrictions, forfeitability, terms and conditions as are applicable to the Restricted Stock until such time as the Restricted Stock with respect to which such distributions have been made, paid or declared, shall have vested).
Subject to the terms of this Agreement, the portions of Restricted Stock granted under this Agreement shall vest according to the following schedule:
Anniversaries of Date of Grant | Portion of Restricted Stock Which Vests |
__________, 20__ | 33 1/3% |
__________, 20__ | 33 1/3% |
__________, 20__ | 33 1/3% |
With respect to any fractional shares resulting from the application of the 33 1/3% times the total amount of the Restricted Stock, such fractional shares shall cumulate and be distributed on the last vesting date. If this is not possible, Grantee will receive the cash value of any remaining fractional shares.
If the status of Grantee as a director of the Corporation terminates for any reason prior to an applicable date(s) of vesting, the shares of Restricted Stock with respect to such applicable date(s) shall be forfeited by Grantee, provided, however, that the Committee, in its sole discretion, may waive or change the restrictions or add additional restrictions with respect to the Restricted Stock that would otherwise be forfeited, as it deems appropriate.
The term “subsidiary” as used in this Agreement shall mean any subsidiary of the Corporation as defined in Section 424(f) of the Code. The term “parent” as used in this Agreement shall mean any parent of the Corporation as defined in Section 424(e) of the Code.
All Restricted Stock shall become fully vested upon the occurrence of a Change in Control, if Grantee is a director at the time of such Change in Control. To the extent practicable, such acceleration of vesting shall occur in a manner and at a time which allows the Grantee the ability to participate in the Change in Control with respect to the shares of Class A Common Stock to be received by Grantee.
Upon the vesting of any portion of Restricted Stock, Grantee shall be entitled to issuance of such portion of the Restricted Stock (and any applicable stock distributions) in the name of the Grantee in book-entry form. Transfer by the Corporation of such shares shall occur as promptly as practicable after such vesting.
The Grantee may make an election under Code Section 83(b) (a "Section 83(b) Election") with respect to the Restricted Stock. Any such election must be made within thirty (30) days after the Grant Date. If the Grantee elects to make a Section 83(b) Election, the Grantee shall provide the Corporation with a copy of an executed version and satisfactory evidence of the timely filing of the executed Section 83(b) Election with the US Internal Revenue Service. The Grantee agrees to assume full responsibility for ensuring that the Section 83(b) Election is actually and timely filed with the US Internal Revenue Service and for all tax consequences resulting from the Section 83(b) Election.
Grantee may satisfy applicable withholding for income and employment taxes by using any of the methods set forth in Section 2.3 of the Plan as provided in Section 7.7 of the Plan.
This Agreement and the obligation of the Corporation to deliver shares hereunder, shall be subject to all applicable Federal and State laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Corporation shall not be required to issue or deliver any certificates for shares of stock prior to (a) the listing of such shares on any stock exchange in which the stock may then be listed and (b) the completion of any registration or qualification of such shares under any Federal or State law, or any rule or regulation of any government body which the Corporation shall, in its sole discretion, determine to be necessary or advisable. Moreover, the Corporation shall not be required to deliver shares if the transfer or the receipt of such shares of stock would be contrary to applicable law.
Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided; provided that, unless and until some other address is so designated, all notices or communications by the Grantee to the Corporation shall be mailed or delivered to the Corporation at its office at 73 Kercheval Avenue, Grosse Pointe Farms, MI 48236, Attention: Chief Financial Officer, and all notices or communications by the Corporation to the Grantee may be given to the Grantee personally or may be mailed to him or her at the address shown below his or her signature to this Agreement.
The provisions of Article VI of the Plan are incorporated herein.
This grant of Restricted Stock shall not confer Grantee any right with respect to continuance of service as a director by the Corporation or any subsidiary or parent, nor shall it interfere in any way with the right of the Corporation and/or its stockholders to terminate Grantee’s services as a director of the Corporation at any time.
Until Grantee is no longer a director of the Corporation, Grantee shall retain 50% of the Restricted Stock. For purposes of clarity, the 50% is based on the total number of shares granted and is not reduced by any shares which have vested or which are sold or transferred, but is reduced by shares which have been netted out to pay withholding taxes.
Awards made pursuant to the Plan and this Agreement are intended to be exempt from Code Section 409A and the applicable guidance promulgated thereunder. Nevertheless, the terms of the Plan and Awards made pursuant to the Plan and this Agreement shall be interpreted in a manner that is consistent with Code
Section 409A and the intent to be exempt from and, to the extent not exempt from, compliant with, Code Section 409A.
By accepting an Award, Grantee is agreeing to be bound by the Corporation’s Clawback Policy which may be amended from time to time by the Corporation in its discretion (including, without limitation, to comply with (i) the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, (ii) federal securities laws, regulations and rules, and (iii) regulations or rules of NASDAQ or any other stock exchange or stock market on which the Corporation’s Class A Common Stock is listed or traded) and is further agreeing that all of Grantee’s Awards and this Agreement may be unilaterally amended by the Corporation to the extent needed to comply with the Clawback Policy.
Any dispute regarding the interpretation of this Agreement shall be submitted by the Grantee or the Corporation to the Committee for review. The resolution of such dispute by the Committee shall be final and binding on the Grantee and the Corporation.
This Agreement is subject to the Plan as approved by the Corporation's stockholders. The terms and provisions of the Plan as it may be amended from time to time are hereby incorporated herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
The Corporation may assign any of its rights under this Agreement. This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Corporation and is binding upon Grantee.
The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity or enforceability of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and enforceable to the extent permitted by law.
The value of the Grantee’s Restricted Stock is not part of Grantee’s normal or expected compensation for purposes of calculating any severance, retirement, welfare, insurance or similar employee benefit.
This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail, or by any other electronic means
intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.
The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement. The Grantee has read and understands the terms and provisions thereof, and accepts the Restricted Stock subject to all of the terms and conditions of the Plan and this Agreement. The Grantee acknowledges that there may be adverse tax consequences upon vesting of the Restricted Stock or disposition of the Restricted Stock and that the Grantee should consult a tax advisor prior to such exercise or disposition.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
SAGA COMMUNICATIONS, INC.
By:
SVP/Treasurer/CFO
GRANTEE
[[SIGNATURE]]
[[FIRSTNAME]] [[LASTNAME]]
[[RESADDR1]]
[[RESADDR2]]
[[RESCITY]], [[RESSTATEORPROV]] [[RESPOSTALCODE]]
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)
AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS AMENDED
I, Christopher S. Forgy, Chief Executive Officer of Saga Communications, Inc., certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Saga Communications, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 9, 2023 | /s/ Christopher S. Forgy |
| Christopher S. Forgy |
| Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a)
AND RULE 15d-14(a) OF THE SECURITIES EXCHANGE ACT, AS AMENDED
I, Samuel D. Bush, Chief Financial Officer of Saga Communications, Inc., certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Saga Communications, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 9, 2023 | /s/ Samuel D. Bush |
| Samuel D. Bush |
| Chief Financial Officer |
EXHIBIT 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Saga Communications, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Christopher S. Forgy, Chief Executive Officer of the Company, and Samuel D. Bush, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: November 9, 2023 | /s/ Christopher S. Forgy |
| Christopher S. Forgy |
| Chief Executive Officer |
|
|
Dated: November 9, 2023 | /s/ Samuel D. Bush |
| Samuel D. Bush |
| Chief Financial Officer |