1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): June 11, 1996 - -------------------------------------------------------------------------------- Saga Communications, Inc. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware - -------------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation) 1-11588 38-3042953 - -------------------------------------------------------------------------------- (Commission File Number) (IRS Employer Identification No.) 73 Kercheval Avenue, Grosse Pointe Farms, Michigan 48236 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (313) 886-7070 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code)
2 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. ---------------------------------- (a) Financial Statements of Business Acquired ----------------------------------------- WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.): ---------------------------------------------- Report of Independent Auditors Balance Sheet at December 31, 1995 Statement of Operations for the year ended December 31, 1995 Statement of Division Control for the year ended December 31, 1995 Statement of Cash Flows for the year ended December 31, 1995 Notes to Financial Statements Unaudited Condensed Balance Sheet at March 31, 1996 Unaudited Condensed Statement of Income for the three month periods ended March 31, 1996 and 1995 Unaudited Condensed Statement of Cash Flows for the three month periods ended March 31, 1996 and 1995 Notes to Unaudited Financial Statements Ocean Coast Properties: ----------------------- Report of Independent Auditors Balance Sheets at December 31, 1995 and December 25, 1994 Statements of Earnings and Retained Earnings for the years ended December 31, 1995 and December 25, 1994 Statement of Cash Flows for the years ended December 31, 1995 and December 25, 1994 Notes to Financial Statements 2
3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (CONTINUED). ---------------------------------------------- Unaudited Condensed Balance Sheet at March 31, 1996 Unaudited Condensed Statement of Income for the three month periods ended March 31, 1996 and 1995 Unaudited Condensed Statement of Cash Flows for the three month periods ended March 31, 1996 and 1995 Notes to Unaudited Financial Statements (b) Pro Forma Financial Statements ------------------------------ Pro Forma Combined Condensed Financial Statements (Unaudited): -------------------------------------------------------------- Unaudited Pro Forma Combined Condensed Balance Sheet at March 31, 1996 Unaudited Pro Forma Combined Condensed Statement of Operations For the year ended December 31, 1995 and the three month period ended March 31, 1996 Notes to Pro Forma Combined Condensed Financial Statements (Unaudited) (c) Exhibits -------- See exhibit index annexed hereto. 3
4 Exhibit Index ------------- Item 601 Exhibit Table Reference Exhibit Title --------- ------------- (23)(a) Consent of Ernst & Young LLP (23)(b) Consent of Baker Newman & Noyes LLC - -------------------------------------------------------------------------------- 4
5 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SAGA COMMUNICATIONS, INC. Registrant By:/s/ Norman L. McKee ----------------------------------- Norman L. McKee Senior Vice President, Chief Financial Officer and Treasurer Dated: August 13, 1996 5
6 Financial Statements WNAX, A Division of Roy H. Park Brodcasting of the Midwest, Inc. Period beginning January 1, 1995 and ending May 10, 1995 and Period beginning May 11, 1995 and ending December 31, 1995 with Report of Independent Auditors [LOGO] ERNST & YOUNG LLP
7 Report of Independent Auditors The Board of Directors and Stockholders Saga Communications, Inc. We have audited the accompanying balance sheet of WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) as of December 31, 1995, and the related statements of operations, division control, and cash flows for the period beginning May 11, 1995 and ending December 31, 1995 and for the period beginning January 1, 1995 and ending May 10, 1995 of WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc. (predecessor company)). These financial statements are the responsibility of WNAX's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) at December 31, 1995, and the results of its operations and its cash flows for the period beginning May 11, 1995 and ending December 31, 1995 in conformity with generally accepted accounting principles and the results of operations and cash flows of WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc. (predecessor company)) for the period beginning January 1, 1995 and ending May 10, 1995 in conformity with generally accepted accounting principles. Detroit, Michigan June 7, 1996 /s/ Ernst & Young LLP
8 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Balance Sheet December 31, 1995 ASSETS Current assets: Cash $ 26,873 Accounts receivable, less allowance for doubtful accounts of $1,077 290,119 Prepaid expenses and other assets 28,584 Barter transactions 21,390 Income tax receivable 30,829 ----------- Total current assets 397,795 Property and equipment: Land 130,000 Buildings and land improvements 542,362 Broadcast equipment 425,339 Towers and antennae 326,100 Transmitters 61,200 Furniture and fixtures 197,648 Vehicles 69,100 Construction in progress 1,962 ----------- 1,753,711 Less accumulated depreciation (103,484) ----------- Net property and equipment 1,650,227 Intangible assets: Identifiable, principally broadcast licenses, net of accumulated amortization of $125,470 6,251,678 Excess of cost over fair value of assets acquired, net of accumulated amortization of $43,790 2,677,924 ----------- Net intangible assets 8,929,602 ----------- Total assets $10,977,624 =========== 2
9 LIABILITIES AND DIVISION CONTROL Current liabilities: Accounts payable $ 8,798 Accrued expenses: Interest 387,632 Payroll and payroll related 20,345 Property taxes 21,600 Other 2,245 Intercompany payable, Park Broadcasting, Inc. 85,417 Barter transactions 319,275 ----------- Total current liabilities 845,312 Noncurrent liabilities: Debt allocated from Park Acquisition Company 8,527,629 Deferred income taxes 2,438,964 ----------- Total noncurrent liabilities 10,966,593 Division control (834,281) ----------- Total liabilities and division control $10,977,624 =========== See accompanying notes. 3
10 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Statements of Operations TWELVE MONTHS ENDED DECEMBER 31, 1995 JANUARY 1, 1995- MAY 11, 1995 - (MEMORANDUM MAY 10, 1995 DECEMBER 31, 1995 ONLY) ----------------------------------------------------------------- (PREDECESSOR) Net operating revenue $1,070,280 $1,629,575 $2,699,855 Operating expenses: Programming and technical 281,228 559,407 840,635 Selling 116,836 232,338 349,174 General and administrative 200,370 392,288 592,658 Depreciation 49,415 103,484 152,899 Amortization 3,886 169,258 173,144 ----------------------------------------------------------------- Total operating expenses 651,735 1,456,775 2,108,510 Operating profit 418,545 172,800 591,345 Other income and expenses: Interest expense - (807,866) (807,866) Other income 749 3,678 4,427 Loss on sale of assets - (1,620) (1,620) ----------------------------------------------------------------- Loss before income tax 419,294 (633,008) (213,714) Income tax provision (benefit) 146,126 (207,524) (61,398) ----------------------------------------------------------------- Net loss $ 273,168 $ (425,484) $ (152,316) ================================================================= See accompanying notes. 4
11 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Statements of Division Control Balance, December 31, 1994 $ 2,851,242 Net income 273,168 ----------- Balance, May 10, 1995 3,124,410 Purchase of predecessor company (3,124,410) Net loss (425,484) Dividend to Park Broadcasting, Inc. (Note 1) (408,797) ----------- Balance, December 31, 1995 $ (834,281) =========== See accompanying notes. 5
12 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Statements of Cash Flows TWELVE MONTHS ENDED DECEMBER 31, 1995 JANUARY 1, 1995- MAY 11, 1995 - (MEMORANDUM MAY 10, 1995 DECEMBER 31, 1995 ONLY) ---------------------------------------------------------------- PREDECESSOR CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 273,168 $(425,484) $(152,316) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 53,301 272,742 326,043 Barter revenues, net of barter expenses (110,902) (110,902) Loss on sale of assets (1,620) (1,620) Increase (decrease) in deferred taxes 3,029 (2,719) 310 Changes in assets and liabilities: (Increase) decrease in receivables and prepaids (88,373) 129,991 41,618 Increase (decrease) in accounts payable and accrued expenses (28,382) 241,409 213,027 -------------------------------------------------------------- Total adjustments (60,425) 528,901 468,476 -------------------------------------------------------------- Net cash provided by operating activities 212,743 103,417 316,160 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment, net (85,504) (25,367) (110,871) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from parent company transfers (176,703) (78,264) (254,967) -------------------------------------------------------------- Net decrease in cash (49,464) (214) (49,678) Cash, beginning of period 76,551 27,087 76,551 -------------------------------------------------------------- Cash, end of period $ 27,087 $ 26,873 $ 26,873 ============================================================== See accompanying notes. 6
13 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Notes to Financial Statements December 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS WNAX is an AM and FM radio station which broadcasts from Yankton, South Dakota. The station serves the South Dakota, Nebraska, Iowa, Minnesota, and North Dakota markets. OWNERSHIP AND BASIS OF PRESENTATION WNAX is a division of Roy H. Park Broadcasting of the Midwest, Inc. which is a subsidiary of Park Broadcasting, Inc. (Park) and is not a separate legal entity. The intercompany account contains all activity with Park, and since May 11, 1995, bears interest at approximately 5-6%. Park Broadcasting, Inc. is a subsidiary of Park Communications, Inc. On May 11, 1995, Park Communications, Inc., formerly a public company, was acquired by Park Acquisition Company through a 100% stock purchase, and became a private company. Park Broadcasting, Inc. maintained control of WNAX after the acquisition. The acquisition by Park Acquisition Company resulted in a change in control of WNAX and Park Acquisition has elected to allocate the purchase price to the operations of the entities acquired, including WNAX. The accompanying financial statements include the operations of WNAX from the date of purchase (May 11, 1995) through December 31, 1995, as well as the predecessor's operations from January 1, 1995 through May 10, 1995. The combined operations and cash flows for the twelve month period ended December 31, 1995, are shown in the financial statements for presentation purposes only and are not intended to represent the results of operations or cash flows in accordance with generally accepted accounting principles. 7
14 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The purchase accounting adjustment allocated to WNAX based on the estimated fair value of assets and liabilities was as follows: Property and equipment $ 459,389 Intangible assets 8,811,650 Intercompany account (1,611,561) Allocated debt (8,527,629) Deferred taxes (2,256,259) Retained earnings 3,124,410 The debt allocation was based on the net assets of WNAX with interest at 13.5%, 10.5% payable semiannually, with the remainder due when the debt was retired. The original term of the debt was 20 years with no principal due until the third year. The debt was secured by the net assets of WNAX and was eliminated in 1996 increasing the intercompany account payable. In 1995, WNAX paid management fees of $132,000 to Park. USE OF ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation is provided using the straight-line method over three to forty years. INTANGIBLE ASSETS Intangibles are being amortized over twenty-three to forty years on a straight-line basis. 8
15 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) BARTER TRANSACTIONS WNAX trades air time for goods and services used principally for promotional, sales and other business activities. An asset and a liability is recorded at the fair market value of goods or services received. Barter revenue is recorded when commercials are broadcast, and barter expense is recorded when goods or services are received or used. In 1995, Park transferred a barter liability to WNAX for which no goods or services were received by WNAX. The barter transfer has been recorded as a dividend to the parent company in the amount of $408,797. Barter revenue and expense for the year ended December 31, 1995 was as follows: Barter revenue $187,751 Barter expense 66,015 REVENUE RECOGNITION POLICY Revenue is recognized as commercials are broadcast. INCOME TAXES WNAX is included in the consolidated tax returns of Park. Tax expense has been allocated to WNAX based on their own results of operations. These financial statements reflect a provision for income taxes on a stand-alone basis at statutory rates. The effective rate differs from the statutory rate primarily due to non-deductible amortization. The related current income tax liability is settled through the intercompany account and does not represent a cash transaction. The major component of the deferred tax liability is the financial reporting and tax basis differences for property and equipment and identifiable intangibles. 2. CONCENTRATION OF CREDIT RISK WNAX sells advertising to local and national companies throughout the United States. WNAX performs ongoing credit evaluations of its customers and generally does not require collateral. WNAX maintains an allowance for doubtful accounts at a level which management believes is sufficient to cover potential credit losses. 9
16 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Notes to Financial Statements 3. COMMITMENTS WNAX leases certain land, buildings, and equipment under noncancellable operating leases. Rent expense for the year ended December 31, 1995 was $7,770. Minimum annual rental commitments under noncancellable operating leases consist of the following: 1996 $ 7,380 1997 1,200 1998 1,200 1999 1,200 2000 1,200 Thereafter 105,000 -------- $117,180 ======== 4. SUBSEQUENT EVENTS (UNAUDITED) On June 11, 1996, the WNAX AM and FM broadcast licenses and property and equipment were sold for $7,000,000 cash to Saga Communications, Inc. The carrying value of assets sold amounted to $10,500,000 resulting in a $2,300,000 loss to Park net of Federal income tax benefit of $1,200,000. 10
17 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Condensed Balance Sheet March 31, 1996 (dollars in thousands) Unaudited ASSETS Current assets: Cash and temporary investments $ 26 Accounts receivable, net 480 Prepaid expenses 24 Other current assets 91 ------- Total current assets 621 Property and equipment 1,846 Less accumulated depreciation (153) ------- Net property and equipment 1,693 Intangible assets: Excess of cost over fair value of assets acquired, net 2,661 Identifiable, principally broadcast license, net 6,200 ------- Net intangible assets: 8,861 ------- Total assets $11,175 ======= See notes to unaudited condensed financial statements.
18 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Condensed Balance Sheet March 31, 1996 (dollars in thousands) Unaudited LIABILITIES AND DIVISION CONTROL Current liabilities Accounts payable $ 38 Accrued expenses: Interest 675 Other 62 Barter transactions 263 ------- Total current liabilities 1,038 Non-current liabilities Deferred income taxes 2,439 Debt allocated from Park Acquisition Company 8,527 Division control (829) ------- Total liabilities and division control $11,175 ======= See notes to unaudited condensed financial statements. 2
19 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Condensed Statements of Income (dollars in thousands) Unaudited THREE MONTHS ENDED MARCH 31, ----------- 1996 1995 ----------- Net operating revenue $911 $823 Operating expenses: Programming and technical 229 189 Selling 106 91 Station general and administrative 154 151 Depreciation and amortization 118 37 ----------- 607 468 ----------- Operating profit 304 355 Other expenses: Interest expense 288 - ----------- Income before income tax 16 355 Income tax provision 11 122 ----------- Net income $ 5 $233 =========== See notes to unaudited condensed financial statements. 3
20 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Condensed Statements of Cash Flows (dollars in thousands) Unaudited THREE MONTHS ENDED MARCH 31, 1996 1995 ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5 $ 233 Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 118 37 Barter revenue, net of barter expense (70) (5) Increase in deferred taxes 12 (211) Change in assets and liabilities: Increase in receivables and prepaids (186) (144) Increase in accounts payable and accrued expenses 334 370 --------------- Total adjustments 208 47 --------------- Net cash provided by operating activities $ 213 $ 280 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (92) (78) CASH FLOWS FROM FINANCING ACTIVITIES: Net payments to parent company (122) (251) --------------- Net decrease in cash and temporary investments (1) (49) Cash and temporary investments, beginning of period 27 77 --------------- Cash and temporary investments, end of period $ 26 $ 28 =============== See notes to unaudited condensed financial statements. 4
21 WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) Notes to Condensed Financial Statements Unaudited 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the audited financial statements and footnotes thereto of WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc. contained elsewhere herein. 2 SUBSEQUENT EVENT On June 11, 1996, substantially all of the assets of WNAX AM/FM were acquired by Saga Communications, Inc. for approximately $7,000,000. 5
22 [LOGO] BAKER NEWMAN & NOYES LIMITED LIABILITY COMPANY CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Ocean Coast Properties We have audited the accompanying balance sheets of Ocean Coast Properties as of December 31, 1995 and December 25, 1994, and the related statements of earnings and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of Ocean Coast Properties at December 31, 1995 and December 25, 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Baker Newman & Noyes February 1, 1996 Limited Liability Company 1 ONE HUNDRED MIDDLE STREET, P.O. BOX 507, PORTLAND, MAINE 04112 * 207-774-5871 * 207-774-1793
23 OCEAN COAST PROPERTIES BALANCE SHEETS December 31, 1995 and December 25, 1994 ASSETS ------ 1995 1994 ---- ---- Current assets: Cash $ 33,295 $ 72,408 Accounts receivable, less allowance for doubtful accounts of $42,007 in 1995 and $35,279 in 1994 (note 5) 485,301 450,323 Prepaid expenses 13,099 13,725 ---------- ---------- Total current assets 531,695 536,456 Property and equipment: Building 410,370 410,370 Transmitting equipment 283,096 256,803 Studio and technical equipment 127,588 125,165 Other equipment 199,365 197,219 Leasehold improvements 4,128 4,128 Vehicles 63,990 50,748 ---------- ---------- 1,088,537 1,044,433 Less accumulated depreciation and amortization 690,357 681,913 ---------- ---------- Net property and equipment 398,180 362,520 Intangible assets 108,665 108,665 ---------- ---------- $1,038,540 $1,007,641 ========== ========== See accompanying notes. 2
24 LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ 1995 1994 ---- ---- Current liabilities: Accounts payable $ 59,304 $ 31,482 Accrued payroll 34,706 21,375 Other accrued liabilities 13,633 19,023 ---------- ---------- Total current liabilities 107,643 71,880 Commitments (note 3) Stockholders' equity: Common stock, $100 par value. Authorized 2,000 shares; issued and outstanding 1,600 shares 160,000 160,000 Paid-in capital 50,000 50,000 Retained earnings 720,897 725,761 ---------- ---------- Total stockholders' equity 930,897 935,761 ---------- ---------- $1,038,540 $1,007,641 ========== ========== See accompanying notes. 3
25 OCEAN COAST PROPERTIES STATEMENTS OF EARNINGS AND RETAINED EARNINGS Years Ended December 31, 1995 and December 25, 1994 1995 1994 ---- ---- Operating revenue (note 5): Broadcasting, net of commissions (note 4) $ 2,985,081 $ 2,911,345 Other 100,136 105,940 ----------- ----------- 3,085,217 3,017,285 Operating expenses: Technical 15,585 14,801 Programming 476,394 440,048 Selling 852,450 830,844 General and administrative 730,527 711,812 ----------- ----------- 2,074,956 1,997,505 ----------- ----------- Operating income 1,010,261 1,019,780 Other income (expense): Gain on sale of vehicle 7,650 - Interest income 3,038 5,958 Interest expense (113) - ----------- ----------- 10,575 5,958 ----------- ----------- Net earnings 1,020,836 1,025,738 Retained earnings, beginning of year 725,761 717,023 Dividends paid (1,025,700) (1,017,000) ----------- ----------- Retained earnings, end of year $ 720,897 $ 725,761 =========== =========== Earnings per common share $ 638.02 $ 641.09 =========== =========== See accompanying notes. 4
26 OCEAN COAST PROPERTIES STATEMENTS OF CASH FLOWS Years Ended December 31, 1995 and December 25, 1994 1995 1994 ---- ---- Cash flows from operating activities: Net earnings $ 1,020,836 $ 1,025,738 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 37,454 41,101 Gain on sale of vehicle (7,650) -- Provision for doubtful accounts 19,035 18,254 Changes in operating assets and liabilities: Increase in accounts receivable (54,013) (75,318) Decrease in prepaid expenses 626 146 Increase in accounts payable and accrued expenses 35,763 89 ----------- ----------- Net cash provided by operating activities 1,052,051 1,010,010 Cash flows from investing activities: Proceeds from sale of vehicle 7,650 -- Purchase of property and equipment (73,114) (24,862) ----------- ----------- Net cash used in investing activities (65,464) (24,862) Cash flows from financing activities: Dividends paid (1,025,700) (1,017,000) ----------- ----------- Net cash used by financing activities (1,025,700) (1,017,000) ----------- ----------- Net decrease in cash (39,113) (31,852) Cash at beginning of year 72,408 104,260 ----------- ----------- Cash at end of year $ 33,295 $ 72,408 =========== =========== Supplemental Disclosure of Cash Flows - ------------------------------------- Cash paid for interest during the years ended December 31, 1995 and December 25, 1994 was $113 and $-0-, respectively. See accompanying notes. 5
27 OCEAN COAST PROPERTIES NOTES TO FINANCIAL STATEMENTS December 31, 1995 and December 25, 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Operations ---------- The Company operates an AM and FM radio station in Portland, Maine. The Company operates on a 52/53 week year, ending on the last Sunday in December. 1995 had 53 weeks. Substantially all revenue is generated through sales of advertising time to customers in Southern Maine. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Advertising Costs ----------------- Advertising costs are expensed as incurred. Property and Equipment ---------------------- Property and equipment is stated at cost. Depreciation is provided over the estimated lives of the assets using the straight-line method. Repair and maintenance costs are expensed as incurred. Intangible Assets ----------------- Intangible assets represent the excess of cost over the underlying value of the net operating assets of the radio station acquired by the Company prior to October 17, 1970, the effective date of Accounting Principles Board Opinion No. 17. These intangible assets are not being amortized since, in the opinion of management, there has been no reduction in their value. Income Taxes ------------ The Company has elected S-corporation status under the provisions of the Internal Revenue Code. As an S-corporation, the income or loss is included in the tax returns of the stockholders and, accordingly, the Company has not provided for federal or state income taxes. Earnings Per Common Share ------------------------- Earnings per common share is computed based on the weighted average number of common shares outstanding during the year. 6
28 OCEAN COAST PROPERTIES NOTES TO FINANCIAL STATEMENTS December 31, 1995 and December 25, 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ------------------------------------------------------ Statement of Cash Flow ---------------------- For purposes of the statement of cash flows, cash includes cash in bank and money market accounts. Fair Values of Financial Instruments ------------------------------------ In 1995, the Company adopted Statement of Financial Accounting Standards No. 107 Disclosures About Fair Values of Financial Instruments which requires disclosures about the fair values of financial instruments whether or not these items are recognized on the balance sheet. The fair value is defined as the amount at which an instrument could be exchanged in a transaction between willing parties; financial instruments, in general, are items which can be converted into, or settled with, cash. Due to the short-term nature of the Company's financial instruments, the carrying value of cash, accounts receivable, accounts payable, accrued payroll, and other accrued liabilities approximates their fair value. 2. NOTES PAYABLE ------------- The Company maintains an unsecured line of credit agreement. The Company may borrow up to $400,000. The note, which bears interest at prime, is due on demand and expires April 30, 1996. The Company had no outstanding balance on December 31, 1995 or December 25, 1994. 3. COMMITMENTS ----------- The Company rents space for transmitting facilities under a five year lease which expires in December 1997. The lease calls for future minimum rentals of $22,800 yearly for 1994 through 1997. The lease contains four additional renewal options of five years each. Rental expense was approximately $22,800 for 1995 and 1994. 4. NONMONETARY TRANSACTIONS ------------------------ The Company trades unsold advertising time in exchange for goods and services. For the most part, the amount of revenue recorded is based upon the fair market value of the goods or services received. Revenue is recognized when the advertising is aired and expenses are recorded when the goods or services are received. Differences are recorded as receivables or payables. During the years ended December 31, 1995 and December 25, 1994, earned revenue through trade sales was $77,798 and $83,208, respectively. 7
29 OCEAN COAST PROPERTIES NOTES TO FINANCIAL STATEMENTS December 31, 1995 and December 25, 1994 5. CONCENTRATIONS OF CREDIT RISK ----------------------------- Concentrations of credit risk for the Company pertains mainly to operating revenue and accounts receivable. At December 31, 1995 and December 25, 1994, the following industries comprise the major concentrations of revenue. % of Industry Operating Revenue -------- ----------------- 1995 1994 ---- ---- Auto dealers and rentals 16% 21% Department stores 13% 10% At December 31, 1995 and December 25, 1994, the following industries comprise the major concentration of accounts receivable: % of Industry Accounts Receivable -------- ------------------- 1995 1994 ---- ---- Auto dealers and rentals 8.6% 12.6% Department stores 19.3% 10.9% 8
30 Ocean Coast Properties Condensed Balance Sheet March 31, 1996 (dollars in thousands) Unaudited ASSETS Current assets: Cash and temporary investments $ 17 Accounts receivable, net 370 Prepaid expenses 22 ------ Total current assets 409 Property and equipment 1,120 Less accumulated depreciation (701) ------ Net property and equipment 419 Intangible assets 109 ------ Total assets $ 937 ====== See notes to unaudited condensed financial statements.
31 Ocean Coast Properties Condensed Balance Sheet March 31, 1996 (dollars in thousands) Unaudited LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 22 Accrued payroll 22 Other accrued expenses 47 Notes payable 40 ---- Total current liabilities 131 Stockholders' equity: Common stock 160 Paid-in capital 50 Retained earnings 596 ---- Total stockholders' equity 806 ---- Total liabilities and stockholders' equity $937 ==== See notes to unaudited condensed financial statements. 2
32 Ocean Coast Properties Condensed Statements of Income (dollars in thousands) Unaudited THREE MONTHS ENDED MARCH 31, ------------ 1996 1995 ------------ Net operating revenue $535 $494 Operating expenses: Programming and technical 120 117 Selling 113 106 Station general and administrative 135 133 Corporate general and administrative 36 36 Depreciation and amortization 10 10 ----------- 414 402 ----------- Operating profit 121 92 Other expenses: Interest expense - - ----------- Net income $121 $ 92 =========== See notes to unaudited condensed financial statements. 3
33 Ocean Coast Properties Condensed Statements of Cash Flows (dollars in thousands) Unaudited THREE MONTHS ENDED MARCH 31, 1996 1995 ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 121 $ 92 Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 10 10 Change in assets and liabilities: Decrease in receivables and prepaids 107 53 Increase (decrease) in accounts payable and accrued expenses (17) 19 ------------- Total adjustments 100 82 ------------- Net cash provided by operating activities $ 221 $ 174 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (31) (7) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from bank borrowings 40 25 Dividends paid (246) (251) ------------- Net cash used in financing activities (206) (226) Net decrease in cash and temporary investments (16) (59) Cash and temporary investments, beginning of period 33 72 ------------- Cash and temporary investments, end of period $ 17 $ 13 ============= See notes to unaudited condensed financial statements. 4
34 Ocean Coast Properties Notes to Condensed Financial Statements Unaudited 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the audited financial statements and footnotes thereto of Ocean Coast Properties contained elsewhere herein. 2. INCOME TAXES The Company has elected S-corporation status under the provisions of the Internal Revenue Code. As an S-corporation, the income or loss is included in the tax returns of the stockholders and, accordingly, the Company has not provided for federal or state income taxes. 3. SUBSEQUENT EVENT On June 18, 1996, substantially all of the assets of Ocean Coast Properties were acquired by Saga Communications, Inc. for approximately $10,000,000. 5
35 Saga Communications, Inc., WNAX and WPOR Pro Forma Combined Condensed Balance Sheet March 31, 1996 (dollars in thousands) Unaudited SAGA COMMUNICATIONS, WNAX WPOR PRO FORMA PRO FORMA INC. ADJUSTMENTS COMBINED -------------------------------------------------------------------------- ASSETS Current assets: Cash and temporary investments $ 2,468 $ 26 $ 17 $ (43) (1) $ 2,468 Accounts receivable, net 7,550 480 370 (850) (1) 7,550 Prepaid expenses 833 24 22 (46) (1) 833 Other current assets 1,008 91 - (67) (1) 1,032 Lease receivable 650 - - 650 ---------------------------------------------------------------------- Total current assets 12,509 621 409 (1,006) 12,533 Property and equipment 57,000 1,846 1,120 1,537 (2) 61,503 Less accumulated depreciation (30,914) (153) (701) 854 (2) (30,914) ---------------------------------------------------------------------- Net property and equipment 26,086 1,693 419 2,391 30,589 Other assets: Excess of cost over fair value of assets acquired, net 20,540 2,661 109 (2,770) (1) 20,540 Broadcast licenses, net 8,750 6,200 - 6,313 (2) 21,263 Other intangibles, net 4,852 - - 283 (2) 5,135 ---------------------------------------------------------------------- Total other assets 34,142 8,861 109 3,826 46,938 ---------------------------------------------------------------------- $ 72,737 $11,175 $ 937 $ 5,211 $ 90,060 ====================================================================== See notes to unaudited pro forma combined condensed financial statements.
36 Saga Communications, Inc., WNAX and WPOR Pro Forma Combined Condensed Balance Sheet March 31, 1996 (dollars in thousands) Unaudited SAGA COMMUNICATIONS, WNAX WPOR PRO FORMA PRO FORMA INC. ADJUSTMENTS COMBINED ------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 590 $ 38 $ 22 $ (60) (1) $ 590 Other current liabilities 3,592 1,000 69 (746) (1) 3,915 Current portion of long-term debt 6,449 - 40 (40) (1) 6,449 -------------------------------------------------------------------- Total current liabilities 10,631 1,038 131 (846) 10,954 Deferred income taxes 2,699 2,439 - (2,439) (1) 2,699 Long-term debt 29,605 8,527 - 8,473 (3) 46,605 Broadcast program rights 624 - - 624 STOCKHOLDERS' EQUITY: Common stock 80 - 160 (160) (1) 80 Additional paid-in capital 35,637 - 50 (50) (1) 35,637 Note receivable from principal stockholder (756) - - (756) Accumulated deficit (5,783) (829) 596 233 (1) (5,783) -------------------------------------------------------------------- Total stockholders' equity 29,178 (829 806 23 29,178 -------------------------------------------------------------------- $72,737 $11,175 $937 $ 5,211 $90,060 ==================================================================== See notes to unaudited pro forma combined condensed financial statements.
37 Saga Communications, Inc., WNAX and WPOR Pro Forma Combined Condensed Statement of Income For The Three Months Ended March 31, 1996 (in thousands except per share data) Unaudited SAGA COMMUNICATIONS, WNAX WPOR PRO FORMA PRO FORMA INC. ADJUSTMENTS COMBINED ------------------------------------------------------------------------ Net operating revenue $10,955 $911 $535 $12,401 Operating expenses: Programming and technical 2,872 229 120 3,221 Selling 3,094 106 113 3,313 Station general and administrative 1,897 154 135 $( 34)(7) 2,152 Corporate general and administrative 748 - 36 (36)(7) 748 Depreciation and amortization 1,269 118 10 188 (4) 1,585 -------------------------------------------------------------------- 9,880 607 414 118 11,019 -------------------------------------------------------------------- Operating profit 1,075 304 121 (118) 1,382 Other expenses: Interest expense 733 288 - 20 (5) 1,041 Loss on the sale of assets 3 - - 3 -------------------------------------------------------------------- Income before income tax 339 16 121 (138) 338 Income tax provision 145 11 - (11)(6) 145 -------------------------------------------------------------------- Net income $ 194 $ 5 $121 $(127) $ 193 ==================================================================== Net earnings per common and equivalent share (primary and fully diluted) $ .02 $ .02 ======= ======= Shares used in computing earnings per share 8,153 8,153 ======= ======= See notes to unaudited pro forma combined condensed financial statements.
38 Saga Communications, Inc., WNAX and WPOR Pro Forma Combined Condensed Statement of Income For The Year Ended December 31, 1995 (in thousands except per share data) Unaudited SAGA COMMUNICATIONS, WNAX WPOR PRO FORMA PRO FORMA INC. ADJUSTMENTS COMBINED ----------------------------------------------------------------------- Net operating revenue $49,699 $2,704 $3,085 $55,488 Operating expenses: Programming and technical 11,114 841 492 $ (13)(7) 12,434 Selling 14,255 349 852 (1)(7) 15,455 Station general and administrative 7,067 593 693 (299)(7) 8,054 Corporate general and administrative 2,816 - - 2,816 Depreciation and amortization 6,551 326 37 898 (4) 7,812 ------------------------------------------------------------------- 41,803 2,109 2,074 585 46,571 ------------------------------------------------------------------- Operating profit 7,896 595 1,011 (585) 8,917 Other expenses: Interest expense 3,319 808 (3) 424 (5) 4,548 (Gain) loss on the sale of assets (221) 1 (7) (227) ------------------------------------------------------------------- Income before income tax 4,798 (214) 1,021 (1,009) 4,596 Income tax provision (benefit) 2,120 (61) - (28)(6) 2,031 ------------------------------------------------------------------- Net income (loss) $ 2,678 $ (153) $1,021 $(981) $ 2,565 =================================================================== Net earnings per common and equivalent share (primary and fully diluted) $ .33 $ .32 ======= ======= Shares used in computing earnings per share 8,121 8,121 ======= ======= See notes to unaudited pro forma combined condensed financial statements.
39 Saga Communications, Inc. Notes to Pro Forma Combined Condensed Financial Statements Unaudited 1. BASIS OF PRESENTATION The unaudited Pro Forma Combined Condensed Statement of Income for the year ended December 31, 1995 and the three months ended March 31, 1996 reflect the acquisitions of WNAX AM/FM and WPOR AM/FM by Saga Communications, Inc. (Saga) as if they had occurred at the beginning of the period presented. The unaudited Pro Forma Combined Condensed Balance Sheet at March 31, 1996 reflects the acquisitions of WNAX AM/FM and WPOR AM/FM by Saga as if they had occurred on that date. 2. PRO FORMA FINANCIAL STATEMENTS The pro forma information for the year ended December 31, 1995 and the three months ended March 31, 1996 is based on historical financial statements of Saga, WNAX and WPOR after giving effect to the transactions and the adjustments described in Note 3. The pro forma financial statements may not be indicative of the results that actually would have occurred if the transactions had occurred on the dates assumed and do not project Saga's financial position or results of operations at any future date or period then ended. The pro forma financial statements should be read in conjunction with the financial statements and related notes of WNAX (a division of Roy H. Park Broadcasting of the Midwest, Inc.) and Ocean Coast Properties (WPOR) contained elsewhere herein and the financial statements and related notes of Saga included in Saga's Annual Report on Form 10-K for the year ended December 31, 1995. 3. PRO FORMA ADJUSTMENTS The accompanying pro forma combined condensed financial statements include adjustments to increase or (decrease) the pro forma combined condensed balance sheet, as follows: 1. Elimination of excluded assets, liabilities, common stock, additional paid in capital and retained earnings (accumulated deficit) from historical WNAX and WPOR financial statements. Other current assets reflects a net addition due to reclassification of deferred barter to conform with Saga's presentation. Other current liabilities reflects a net addition due to the inclusion of legal and other start up fees. 2. Fair value adjustment of $17,299,000 to acquired property, equipment, broadcast license and other intangibles (primarily start up costs). 3. Proceeds from the draws on the term loan facility.
40 Saga Communications, Inc. Notes to Pro Forma Combined Condensed Financial Statements Unaudited 3. PRO FORMA ADJUSTMENTS (CONTINUED) 4. Additional depreciation and amortization to reflect the fair value of acquired property, equipment and intangible assets. Property and equipment is depreciated over periods ranging from 5 to 31 years; intangible assets are amortized over periods ranging from 5 to 40 years. 5. Incremental interest on the $17 million draw on the term loan facility at 7.25%. 6. Estimated Federal and State income tax effect of combined historical operations of WNAX, WPOR and pro forma adjustments. 7. Reclassification of depreciation to conform with Saga's presentation and elimination of directors fees and corporate management fee from historical WPOR and WNAX financial statements.
1 EXHIBIT (23)(a) CONSENT OF ERNST & YOUNG LLP ---------------------------- We consent to the incorporation by reference in the Registration Statements (Form S-8) effective March 12, 1993 and May 25, 1994 pertaining to the Saga Communications, Inc. 1992 Stock Option Plan and in the related Prospectus of our report dated June 7, 1996, with respect to the financial statements of WNAX, (a division of Roy H. Park Broadcasting of the Midwest, Inc.) for the year ended December 31, 1995 included in this Current Report on Form 8-K/A. Detroit, Michigan /S/ Ernst & Young LLP August 12, 1996
1 EXHIBIT (23)(b) CONSENT OF BAKER NEWMAN & NOYES LLC ----------------------------------- The Board of Directors and Stockholders Ocean Coast Properties: We consent to the inclusion of our report dated February 1, 1996, with respect to the balance sheets of Ocean Coast Properties as of December 31, 1995 and December 25, 1994, and the related statements of earnings and retained earnings, and cash flows for the years then ended, which report appears in the Form 8-K/A of Saga Communications, Inc. dated August 13, 1996. We also consent to the incorporation by reference in the Registration Statements (Form S-8) effective March 12, 1993 and May 25, 1994 pertaining to the Saga Communications, Inc. 1992 Stock Option Plan and in the related Prospectus of our report dated February 1, 1996, with respect to the balance sheets of Ocean Coast Properties as of December 31, 1995 and December 25, 1994, and the related statements of earnings and retained earnings, and cash flows for the years then ended. Portland, Maine /S/ Baker Newman & Noyes August 12, 1996 Limited Liability Company