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Section 1: 10-K (FORM 10-K)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

(Mark one)    
     
þ    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2019
OR
¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period for          to

 

Commission file number 1-11588

 

SAGA COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 38-3042953
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
73 Kercheval Avenue  
Grosse Pointe Farms, Michigan 48236
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code:

(313) 886-7070

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol  Name of each exchange on which registered
Class A Common Stock, $.01 par value SGA  NASDAQ

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ¨      No  þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ¨      No  þ

 

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.  Yes  þ      No  ¨

 

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).    Yes  þ      No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer
¨
  
  Accelerated
filer 
þ
  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 Act).  Yes  ¨      No  þ

 

Aggregate market value of the Class A Common Stock and the Class B Common Stock (assuming conversion thereof into Class A Common Stock) held by nonaffiliates of the registrant, computed on the basis of the closing price of the Class A Common Stock on June 30, 2019 on the NASDAQ: $155,483,448.

 

The number of shares of the registrant’s Class A Common Stock, $.01 par value, and Class B Common Stock, $.01 par value, outstanding as of March 4, 2020 was 5,043,067 and 953,842, respectively.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the Proxy Statement for the 2020 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s fiscal year) are incorporated by reference in Part III hereof.

 

 

 

 

 

Saga Communications, Inc.

2019 Form 10-K Annual Report

 

Table of Contents

 

    Page
     
PART I
Item 1. Business 4
Item 1A. Risk Factors 21
Item 1B. Unresolved Staff Comments 26
Item 2. Properties 26
Item 3. Legal Proceedings 26
Item 4. Mine Safety Disclosures 26
 
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 27
Item 6. Selected Financial Data 30
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 45
Item 8. Financial Statements and Supplementary Data 45
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 45
Item 9A. Controls and Procedures 45
Item 9B. Other Information 47
 
PART III
Item 10. Directors, Executive Officers and Corporate Governance 47
Item 11. Executive Compensation 47
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 47
Item 13. Certain Relationships and Related Transactions, and Director Independence 47
Item 14. Principal Accountant Fees and Services 47
 
PART IV
Item 15. Exhibits and Financial Statement Schedules 48
Signatures   88

 

2

 

 

Forward-Looking Statements

 

Statements contained in this Form 10-K that are not historical facts are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as “believes,” “expects”, “anticipates,” “guidance,” and similar expressions are intended to identify forward-looking statements. These statements are made as of the date of this report or as otherwise indicated, based on current expectations. We undertake no obligation to update this information. A number of important factors could cause our actual results for 2020 and beyond to differ materially from those expressed in any forward-looking statements made by or on our behalf. Forward-looking statements are not guarantees of future performance as they involve a number of risks, uncertainties and assumptions that may prove to be incorrect and that may cause our actual results and experiences to differ materially from the anticipated results or other expectations expressed in such forward-looking statements. The risks, uncertainties and assumptions that may affect our performance, which are described in Item 1A of this report, include our financial leverage and debt service requirements, dependence on key personnel, dependence on key stations, global, U.S. and local economic conditions, our ability to successfully integrate acquired stations, regulatory requirements, new technologies, natural disasters, terrorist attacks, information technology and cybersecurity failures and data security breaches. We cannot be sure that we will be able to anticipate or respond timely to changes in any of these factors, which could adversely affect the operating results in one or more fiscal quarters. Results of operations in any past period should not be considered, in and of itself, indicative of the results to be expected for future periods. Fluctuations in operating results may also result in fluctuations in the price of our stock.

 

3

 

 

PART I

 

Item 1.     Business

 

We are a broadcast company primarily engaged in acquiring, developing and operating broadcast properties. On September 1, 2017 we sold our Joplin, Missouri and Victoria, Texas television stations. The television stations that were sold constituted our entire television segment. The historical results of operations for the television stations are presented as discontinued operations for all periods presented (see Note 4). As a result of the sale of our television stations and those stations being reported as discontinued operations we only have one reportable segment at December 31, 2019, 2018 and 2017. Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to our continuing operations. As of February 29, 2020, we owned seventy-nine FM, thirty-four AM radio stations and seventy-seven metro signals serving twenty-seven markets, including Bellingham, Washington; Columbus, Ohio; Norfolk, Virginia; Milwaukee, Wisconsin; Manchester, New Hampshire; and Des Moines, Iowa.

 

The following table sets forth information about our radio stations and the markets they serve as of February 29, 2020:

 

        2019     2019            
        Market     Market            
        Ranking     Ranking            
        By Radio     By Radio         Target  
Station   Market (a)   Revenue (b)     Market (b)     Station Format   Demographics  
                           
FM:                                
WKLH   Milwaukee, WI     31       41     Classic Rock     Adults 40-64  
WHQG   Milwaukee, WI     31       41     Rock     Men 18-49  
WJMR   Milwaukee, WI     31       41     Urban Adult Contemporary     Adults 25-54  
WNRG   Milwaukee, WI     31       41     Contemporary Hits     Adults 18-34  
WSNY   Columbus, OH     34       36     Adult Contemporary     Women 25-54  
WNND   Columbus, OH     34       36     Classic Hits     Adults 35-64  
WNNP   Columbus, OH     34       36     Classic Hits     Adults 35-64  
WLVQ   Columbus, OH     34       36     Classic Rock     Adults 40-64  
WVMX   Columbus, OH     34       36     Hot Adult Contemporary     Women 25-44  
WNOR   Norfolk, VA     39       45     Rock     Men 18-49  
WAFX   Norfolk, VA     39       45     Classic Rock     Adults 40-64  
KSTZ   Des Moines, IA     67       70     Hot Adult Contemporary     Women 25-44  
KSTZ-HD2   Des Moines, IA     67       70     Country Legends     Adults 45-64  
KIOA   Des Moines, IA     67       70     Classic Hits     Adults 35-64  
KIOA-HD2   Des Moines, IA     67       70     Contemporary Hits     Adults 18-34  
KAZR   Des Moines, IA     67       70     Rock     Men 18-49  
KAZR-HD2   Des Moines, IA     67       70     Oldies     Adults 45+  
KOEZ   Des Moines, IA     67       70     Soft Adult Contemporary     Women 35-64  
WMGX   Portland, ME     71       99     Hot Adult Contemporary     Women 25-44  
WYNZ   Portland, ME     71       99     Classic Hits     Adults 35-64  
WPOR   Portland, ME     71       99     Contemporary Country     Adults 25-54  
WCLZ   Portland, ME     71       99     Adult Album Alternative     Adults 25-54  
WAVF   Charleston, SC     83       78     Adult Variety Hits     Adults 25-54  
WCKN   Charleston, SC     83       78     Contemporary Country     Adults 25-54  
WMXZ   Charleston, SC     83       78     Hot Adult Contemporary     Women 25-44  
WMXZ-HD2   Charleston, SC     83       78     Urban Hits     Adults 18-34  
WXST   Charleston, SC     83       78     Urban Adult Contemporary     Adults 25-54  
WAQY   Springfield, MA     101       100     Classic Rock     Adults 40-64  
WLZX   Springfield, MA     101       100     Alternative Rock     Men 18-49  
WOGK   Ocala-Gainesville, FL     115       86     Contemporary Country     Adults 25-54  
WYND   Ocala-Gainesville, FL     115       86     Classic Rock     Adults 40-64  
WNDD   Ocala-Gainesville, FL     115       86     Classic Rock     Adults 40-64  
WNDN   Ocala-Gainesville, FL     115       86     Classic Rock     Adults 40-64  

 

(footnotes follow tables)

 

4

 

 

        2019     2019            
        Market     Market            
        Ranking     Ranking            
        By Radio     By Radio         Target  
Station   Market (a)   Revenue (b)     Market (b)     Station Format   Demographics  
                           
WZID   Manchester, NH     134       199     Adult Contemporary     Women 25-54  
WMLL   Manchester, NH     134       199     Classic Hits     Adults 35-64  
WZID-HD2   Manchester, NH     134       199     Contemporary Hits     Adults 18-34  
WZID-HD3   Manchester, NH     134       199     Classic Country     Adults 45-64  
WOXL   Asheville, NC     154       157     Adult Contemporary     Women 25-54  
WTMT   Asheville, NC     154       157     Classic Rock     Adults 40-64  
WTMT-HD2   Asheville, NC     154       157     Classic Hits     Adults 35-64  
WTMT-HD3   Asheville, NC     154       157     Country Legends     Adults 45-64  
WOXL-HD2   Asheville, NC     154       157     Adult Album Alternative     Adults 25-54  
WOXL-HD3   Asheville, NC     154       157     Oldies     Adults 45+  
WSIG   Harrisonburg, VA     170       248     Classic Country     Adults 35-64  
WQPO   Harrisonburg, VA     170       248     Contemporary Hits     Women 18-34  
WQPO-HD2   Harrisonburg, VA     170       248     Oldies     Adults 45+  
WQPD-HD3   Harrisonburg, VA     170       248     Classic Rock     Adults 40-64  
WMQR   Harrisonburg, VA     170       248     Adult Contemporary     Women 25-44  
WWRE   Harrisonburg, VA     170       248     Classic Hits     Adults 35-64  
WNAX   Yankton, SD     180       255     Contemporary Country     Adults 25-54  
WNAX-HD2   Yankton, SD     180       255     Country Legends     Adults 45-64  
KISM   Bellingham, WA     N/A       N/A     Classic Rock     Adults 40-64  
KAFE   Bellingham, WA     N/A       N/A     Adult Contemporary     Women 25-54  
WKVT   Brattleboro, VT     N/A       N/A     Classic Hits     Adults 35-64  
WRSY   Brattleboro, VT     N/A       N/A     Adult Album Alternative     Adults 25-54  
WQEL   Bucyrus, OH     N/A       N/A     Classic Hits     Adults 35-64  
WLRW   Champaign, IL     N/A       N/A     Hot Adult Contemporary     Women 25-44  
WREE   Champaign, IL     N/A       N/A     Classic Hits     Adults 35-64  
WYXY   Champaign, IL     N/A       N/A     Classic Country     Adults 45-64  
WIXY   Champaign, IL     N/A       N/A     Country     Adults 25-54  
WIXY-HD2   Champaign, IL     N/A       N/A     Rock     Men 18-49  
WIXY-HD3   Champaign, IL     N/A       N/A     Contemporary Hits     Adults 18-34  
WLRW-HD2   Champaign, IL     N/A       N/A     Oldies     Adults 45-64  
WWWV   Charlottesville, VA     N/A       N/A     Classic Rock     Adults 40-64  
WQMZ   Charlottesville, VA     N/A       N/A     Adult Contemporary     Women 25-54  
WCNR   Charlottesville, VA     N/A       N/A     Adult Album Alternative     Adults 25-54  
WCVL   Charlottesville, VA     N/A       N/A     Contemporary Country     Adults 25-54  
WCVQ   Clarksville, TN — Hopkinsville, KY     N/A       N/A     Hot Adult Contemporary     Women 25-44  
WVVR   Clarksville, TN — Hopkinsville, KY     N/A       N/A     Contemporary Country     Adults 25-54  
WZZP   Clarksville, TN — Hopkinsville, KY     N/A       N/A     Rock     Men 18-49  
WRND   Clarksville, TN — Hopkinsville, KY     N/A       N/A     Classic Hits     Adults 35-64  
WCVQ-HD2   Clarksville, TN — Hopkinsville, KY     N/A       N/A     Contemporary Christian     Adults 25-54  
WCVQ-HD3   Clarksville, TN — Hopkinsville, KY     N/A       N/A     Country Legends     Adults 45-64  
WHAI   Greenfield, MA     N/A       N/A     Adult Contemporary     Women 25-54  
WPVQ   Greenfield, MA     N/A       N/A     Contemporary Country     Adults 25-54  
WLHH   Hilton Head, SC     N/A       N/A     Classic Hits     Adults 35-64  

 

(footnotes follow tables)

 

5

 

 

          2019       2019              
          Market       Market              
          Ranking       Ranking              
          By Radio       By Radio           Target  
Station   Market (a)     Revenue (b)       Market (b)     Station Format     Demographics  
                                 
WOEZ   Hilton Head, SC     N/A       N/A     Soft Adult Contemporary     Women 35-64  
WVSC   Hilton Head, SC     N/A       N/A     Adult Variety Hits     Adults 35-64  
WVSC-HD2   Hilton Head, SC     N/A       N/A     Oldies     Adults 45-64  
WIII   Ithaca, NY     N/A       N/A     Classic Rock     Adults 40-64  
WQNY   Ithaca, NY     N/A       N/A     Contemporary Country     Adults 25-54  
WQNY-HD3   Ithaca, NY     N/A       N/A     Alternative Rock     Men 18-34  
WYXL   Ithaca, NY     N/A       N/A     Adult Contemporary     Women 25-54  
WYXL-HD2   Ithaca, NY     N/A       N/A     Adult Album Alternative     Adults 25-54  
WYXL-HD3   Ithaca, NY     N/A       N/A     Sports     Men 25-64  
WFIZ   Ithaca, NY     N/A       N/A     Contemporary Hits     Adults 18-34  
WFIZ-HD2   Ithaca, NY     N/A       N/A     Classic Hits     Adults 35-64  
KEGI   Jonesboro, AR     N/A       N/A     Classic Rock     Adults 40-64  
KDXY   Jonesboro, AR     N/A       N/A     Contemporary Country     Adults 25-54  
KJBX   Jonesboro, AR     N/A       N/A     Adult Contemporary     Women 25-54  
KJBX-HD2   Jonesboro, AR     N/A       N/A     Country Legends     Adults 45-64  
KDXY-HD2   Jonesboro, AR     N/A       N/A     Contemporary Hits     Adults 18-34  
KDXY-HD3   Jonesboro, AR     N/A       N/A     Sports ESPN     Men 35-64  
WKNE   Keene, NH     N/A       N/A     Hot Adult Contemporary     Women 25-54  
WKNE-HD2   Keene, NH     N/A       N/A     Soft Adult Contemporary     Women 25-54  
WKNE-HD3   Keene, NH     N/A       N/A     Oldies     Adults 45-64  
WSNI   Keene, NH     N/A       N/A     Adult Contemporary     Women 25-44  
WSNI-HD2   Keene, NH     N/A       N/A     Adult Album Alternative     Adults 25-54  
WINQ   Keene, NH     N/A       N/A     Contemporary Country     Adults 25-54  
WINQ-HD2   Keene, NH     N/A       N/A     Classic Country     Adults 45-64  
KMIT   Mitchell, SD     N/A       N/A     Contemporary Country     Adults 25-54  
KMIT-HD2   Mitchell, SD     N/A       N/A     Adult Contemporary     Women 25-54  
KMIT-HD3   Mitchell, SD     N/A       N/A     Sports     Men 18-64  
KUQL   Mitchell, SD     N/A       N/A     Classic Hits     Adults 40-64  
WRSI   Northampton, MA     N/A       N/A     Adult Album Alternative     Adults 25-54  
WLZX-HD2   Northampton, MA     N/A       N/A     Contemporary Hits     Adults 18-34  
WLZX-HD3   Northampton, MA     N/A       N/A     Oldies     Adults 45-64  
KICD   Spencer, IA     N/A       N/A     Contemporary Country     Adults 25-54  
KMRR   Spencer, IA     N/A       N/A     Adult Contemporary     Women 25-54  
KMRR-HD2   Spencer, IA     N/A       N/A     Oldies     Adults 45-64  
KMRR-HD3   Spencer, IA     N/A       N/A     Soft Adult Contemporary     Female 35-64  
WYMG   Springfield, IL     N/A       N/A     Classic Rock     Adults 40-64  
WDBR   Springfield, IL     N/A       N/A     Contemporary Hits     Adults 18-34  
WQQL   Springfield, IL     N/A       N/A     Classic Hits     Adults 35-64  
WLFZ   Springfield, IL     N/A       N/A     Contemporary Country     Adults 25-54  
WDBR-HD2   Springfield, IL     N/A       N/A     Country Legends     Adults 45-64  
WDBR-HD3   Springfield, IL     N/A       N/A     Oldies     Adults 45-64  

 

(footnotes follow tables)

 

6

 

 

          2019     2019            
          Market     Market            
          Ranking     Ranking            
          By Radio     By Radio           Target
Station   Market (a)     Revenue (b)     Market (b)     Station Format     Demographics
                             
AM:                                
WJYI   Milwaukee, WI     31       41       Christian     Adults 25-54
WJOI   Norfolk, VA     39       45       Adult Standards     Adults 45-64
KRNT   Des Moines, IA     67       70       Sports     Men 18-64
KPSZ   Des Moines, IA     67       70       Christian     Adults 25-54
WGAN   Portland, ME     71       99       News/Talk     Adults 35-64
WZAN   Portland, ME     71       99       Classic Country     Adults 45-64
WBAE   Portland, ME     71       99       Soft Adult Contemporary     Women 35-64
WGIN   Portland, ME     71       99       Soft Adult Contemporary     Women 35-64
WSPO   Charleston, SC     83       78       Gospel     Adults 25-54
WLZX   Springfield, MA     101       100       Alternative Rock     Men 18-49
WFEA   Manchester, NH     134       199       News/Talk     Adults 35-64
WISE   Asheville, NC     154       157       Sports/Talk     Men 18-64
WYSE   Asheville, NC     154       157       Sports/Talk     Men 18-64
WSVA   Harrisonburg, VA     170       248       News/Talk     Adults 35-64
WHBG   Harrisonburg, VA     170       248       Sports ESPN     Men 18-64
WNAX   Yankton, SD     180       255       News/Talk     Adults 35-64
KGMI   Bellingham, WA     N/A       N/A       News/Talk     Adults 35-64
KPUG   Bellingham, WA     N/A       N/A       Sports/Talk     Men 18-64
KBAI   Bellingham, WA     N/A       N/A       Classic Hits     Adults 40-64
WINQ   Brattleboro, VT     N/A       N/A       News/Talk     Adults 35-60
WBCO   Bucyrus, OH     N/A       N/A       Classic Country     Adults 45-64
WINA   Charlottesville, VA     N/A       N/A       News/Talk     Adults 35-64
WVAX   Charlottesville, VA     N/A       N/A       Sports Talk     Men 18-64
WOEZ   Clarksville, TN — Hopkinsville, KY     N/A       N/A       Soft Adult Contemporary     Women 35-64
WKFN   Clarksville, TN — Hopkinsville, KY     N/A       N/A       Sports/Talk ESPN     Men 18-64
WHMQ   Greenfield, MA     N/A       N/A       News/Talk     Adults 35-64
WPVQ   Greenfield, MA     N/A       N/A       Classic Country     Adults 45-64
WNYY   Ithaca, NY     N/A       N/A       Oldies     Adults 45-64
WHCU   Ithaca, NY     N/A       N/A       News/Talk     Adults 35-64
WKBK   Keene, NH     N/A       N/A       News/Talk     Adults 35-64
WZBK   Keene, NH     N/A       N/A       Sports Talk     Men 18-64
WHMP   Northampton, MA     N/A       N/A       News/Talk     Adults 35-64
KICD   Spencer, IA     N/A       N/A       News/Talk     Adults 35-64
WTAX   Springfield, IL     N/A       N/A       News/Talk     Adults 35-64

 

(footnotes follow tables)

 

(a) Actual city of license may differ from metropolitan market actually served.
   
(b) Derived from Investing in Radio 2019 Market Report.

 

7

 

 

 

Strategy

 

Our strategy is to operate top billing radio stations in mid-sized markets, which we define as markets ranked from 20 to 200 out of the markets summarized by Investing in Radio Market Report.

 

Programming and marketing are key components in our strategy to achieve top ratings in our radio operations. In many of our markets, the three or four most highly rated radio stations receive a disproportionately high share of the market’s advertising revenues. As a result, a station’s revenue is dependent upon its ability to maximize its number of listeners/viewers within an advertiser’s given demographic parameters. In certain cases we use attributes other than specific market listener data for sales activities. In those markets where sufficient alternative data is available, we do not subscribe to an independent listener rating service.

 

The radio stations that we own and/or operate employ a variety of programming formats, including Classic Hits, Adult Hits, Top 40, Country, Country Legends, Mainstream/Hot/Soft Adult Contemporary, Pure Oldies, Classic Rock, and News/Talk. We regularly perform extensive market research, including music evaluations, focus groups and strategic vulnerability studies. Our stations also employ audience promotions to further develop and secure a loyal following.

 

The television stations that we owned and/or operated, prior to their sale, during 2017, were comprised of two CBS affiliates, one ABC affiliate, two Fox affiliates, one Univision affiliate, one NBC affiliate, one Telemundo affiliate and one Cozi TV affiliate. In addition to securing network programming, we carefully selected available syndicated programming to maximize viewership. We also developed local programming, including a strong local news franchise in each of our television markets.

 

We concentrate on the development of strong decentralized local management, which is responsible for the day-to-day operations of the stations we own and/or operate. We compensate local management based on the station’s financial performance, as well as other performance factors that are deemed to affect the long-term ability of the stations to achieve financial performance objectives. Corporate management is responsible for long-range planning, establishing policies and procedures, resource allocation and monitoring the activities of the stations.

 

Under the Telecommunications Act of 1996 (the “Telecommunications Act”), we are permitted to own as many as eight radio stations in a single market. See “Federal Regulation of Radio and Television Broadcasting”. We seek to acquire reasonably priced broadcast properties with significant growth potential that are located in markets with well-established and relatively stable economies. We often focus on local economies supported by a strong presence of state or federal government or one or more major universities. Future acquisitions will be subject to the availability of financing, the terms of our credit facility, and compliance with the Communications Act of 1934 (the “Communications Act”) and Federal Communications Commission (“FCC”) rules.

 

Advertising Sales

 

Our 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 broadcast each hour. The number of advertisements broadcast on our television stations were limited by certain network affiliation and syndication agreements and, with respect to children’s programs, federal regulation. We determine the number of advertisements broadcast hourly that can maximize a station’s available revenue dollars without jeopardizing listening/viewing levels. While there may be shifts from time to time in the number of advertisements broadcast during a particular time of the 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 pricing adjustments, which are made to ensure that the station efficiently utilizes available inventory.

 

Advertising rates charged by radio and television stations are based primarily on a station’s ability to attract audiences in the demographic groups targeted by advertisers, the number of stations in the market competing for the same demographic group, the supply of and demand for radio and television advertising time, and other qualitative factors including rates charged by competing radio and television stations within a given market. Radio rates are generally highest during morning and afternoon drive-time hours, while television advertising rates are generally higher during prime time evening viewing periods. Most advertising contracts are short-term, generally running for only a few weeks. This allows broadcasters the ability to modify advertising rates as dictated by changes in station ownership within a market, changes in listener/viewer ratings and changes in the business climate within a particular market.

 

8

 

 

Approximately $116,474,000 or 88% of our gross revenue for the year ended December 31, 2019 (approximately $116,386,000 or 87% in fiscal 2018 and approximately $124,809,000 or 87% in fiscal 2017) was generated from the sale of local advertising for both continuing operations and discontinued operations. Additional revenue is generated from the sale of national advertising, network compensation payments, barter and other miscellaneous transactions. In all of our markets, we attempt to maintain a local sales force that is generally larger than our competitors. The principal goal in our sales efforts is to develop long-standing customer relationships through frequent direct contacts, which we believe represents a competitive advantage. We also typically provide incentives to our sales staff to seek out new opportunities resulting in the establishment of new client relationships, as well as new sources of revenue, not directly associated with the sale of broadcast time.

 

Each of our stations also engages independent national sales representatives to assist us in obtaining national advertising revenues. These representatives obtain advertising through national advertising agencies and receive a commission from us based on our net revenue from the advertising obtained. Total gross revenue resulting from national advertising for both continuing operations and discontinued operations in fiscal 2019 was approximately $15,914,000 or 12% of our gross revenue (approximately $18,110,000 or 13% in fiscal 2018 and approximately $18,151,000 or 13% in fiscal 2017).

 

Competition

 

Both radio and television broadcasting are highly competitive businesses. Our stations compete for listeners/viewers and advertising revenues directly with other radio and/or television stations, as well as other media, within their markets. Our radio stations (and prior to their sale, our television stations) compete for listeners/viewers primarily on the basis of program content and by employing on-air talent which appeals to a particular demographic group. By building a strong listener/viewer base comprised of a specific demographic group in each of our markets, we are able to attract advertisers seeking to reach these listeners/viewers.

 

Other media, including broadcast television and/or radio (as applicable), cable television, newspapers, magazines, direct mail, the Internet, coupons and billboard advertising, also compete with us for advertising revenues.

 

The radio and television broadcasting industries are also subject to competition from new media technologies, such as the delivery of audio programming by cable and satellite television systems, satellite radio systems, direct reception from satellites, and streaming of audio on the Internet.

 

Seasonality

 

Our revenue varies throughout the year. Advertising expenditures, our primary source of revenue, is generally lowest in the first quarter.

 

Environmental Compliance

 

As the owner, lessee or operator of various real properties and facilities, we are subject to various federal, state and local environmental laws and regulations. Historically, compliance with these laws and regulations has not had a material adverse effect on our business. There can be no assurance, however, that compliance with existing or new environmental laws and regulations will not require us to make significant expenditures of funds.

 

Employees

 

As of December 31, 2019, we had approximately 663 full-time employees and 339 part-time employees, none of whom are represented by unions. We believe that our relations with our employees are good.

 

We employ several high-profile personalities with large loyal audiences in their respective markets. We have entered into employment and non-competition agreements with our President and with most of our on-air personalities, as well as non-competition agreements with our commissioned sales representatives.

 

9

 

 

Available Information

 

You can find more information about us at our Internet website www.sagacommunications.com. Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports are available free of charge on our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”).

 

Federal Regulation of Radio Broadcasting

 

Introduction.   The ownership, operation and sale of radio stations, including those licensed to us, are subject to the jurisdiction of the FCC, which acts under authority granted by the Communications Act. Among other things, the FCC assigns frequency bands for broadcasting; determines the particular frequencies, locations and operating power of stations; issues, renews, revokes and modifies station licenses; determines whether to approve changes in ownership or control of station licenses; regulates equipment used by stations; adopts and implements regulations and policies that directly or indirectly affect the ownership, operation and employment practices of stations; and has the power to impose penalties for violations of its rules or the Communications Act. For additional information on the impact of FCC regulations and the introduction of new technologies on our operations, see “Forward Looking Statements” and “Risk Factors” contained elsewhere herein.

 

The following is a brief summary of certain provisions of the Communications Act and of specific FCC regulations and policies. Reference should be made to the Communications Act, FCC rules and the public notices and rulings of the FCC for further information concerning the nature and extent of federal regulation of broadcast stations.

 

License Renewal.   Radio broadcasting licenses are granted for maximum terms of eight years, and are subject to renewal upon application to the FCC. Under its “two-step” renewal process, the FCC must grant a renewal application if it finds that during the preceding term the licensee has served the public interest, convenience and necessity, and there have been no serious violations of the Communications Act or the FCC’s rules which, taken together, would constitute a pattern of abuse. If a renewal applicant fails to meet these standards, the FCC may either deny its application or grant the application on such terms and conditions as are appropriate, including renewal for less than the full 8-year term. In making the determination of whether to renew the license, the FCC may not consider whether the public interest would be served by the grant of a license to a person other than the renewal applicant. If the FCC, after notice and opportunity for a hearing, finds that the licensee has failed to meet the requirements for renewal and no mitigating factors justify the imposition of lesser sanctions, the FCC may issue an order denying the renewal application, and only thereafter may the FCC accept applications for a construction permit specifying the broadcasting facilities of the former licensee. Petitions may be filed to deny the renewal applications of our stations, but any such petitions must raise issues that would cause the FCC to deny a renewal application under the standards adopted in the “two-step” renewal process. All the Company’s licenses have been renewed for their regular terms. In the future, we intend to timely file renewal applications, as required for the Company’s stations. Radio station licenses generally expire along with the licenses of all other radio stations in a given state. The FCC accepts renewal applications for various groups of radio stations every two months, the current cycle having begun in June 2019. We have filed applications for renewal of license of our radio stations in Virginia, North Carolina, South Carolina and Florida, which applications have been routinely granted. Applications for renewal of license of our radio stations in Arkansas are pending. In January 2018, the FCC designated the renewal applications of two AM radio stations for hearing based on the stations’ records of extended periods of silence during and following their respective license renewal terms. Under the Communications Act, if a broadcast station fails to transmit signals for any consecutive 12-month period, the FCC license expires at the end of that period, unless the FCC exercises its discretion to extend or reinstate the license “to promote equity and fairness.” The FCC, to date, has rarely exercised such discretion. Further, the FCC has recently revoked the licenses of broadcast stations that failed to pay regulatory fees. The Company is current in the payment of regulatory fees to the FCC.

 

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The following table sets forth the market and broadcast power of each of the broadcast stations that we own or operate with an attributable interest and the date on which each such station’s FCC license expires:

 

          Power     Expiration Date of
Station     Market (1)   (Watts) (2)     FCC Authorization
                 
  FM:                  
  WOXL     Asheville, NC     50,000     December 1, 2027
  WTMT     Asheville, NC     50,000     December 1, 2027
  KISM     Bellingham, WA     100,000     February 1, 2022
  KAFE     Bellingham, WA     100,000     February 1, 2022
  WRSY     Brattleboro, VT     3,000     April 1, 2022
  WKVT     Brattleboro, VT     6,000     April 1, 2022
  WQEL     Bucyrus, OH     3,000     October 1, 2020
  WLRW     Champaign, IL     50,000     December 1, 2020
  WIXY     Champaign, IL     25,000     December 1, 2020
  WREE     Champaign, IL     25,000     December 1, 2020
  WYXY     Champaign, IL     50,000     December 1, 2020
  WAVF     Charleston, SC     100,000     December 1, 2027
  WCKN     Charleston, SC     100,000     December 1, 2027
  WMXZ     Charleston, SC     50,000     December 1, 2027
  WXST     Charleston, SC     100,000     December 1, 2027
  WWWV     Charlottesville, VA     50,000     October 1, 2027
  WQMZ     Charlottesville, VA     6,000     October 1, 2027
  WCNR     Charlottesville, VA     6,000     October 1, 2027
  WCVL     Charlottesville, VA     6,000     October 1, 2027
  WCVQ     Clarksville, TN/Hopkinsville, KY     100,000     August 1, 2020
  WZZP     Clarksville, TN/Hopkinsville, KY     6,000     August 1, 2020
  WVVR     Clarksville, TN/Hopkinsville, KY     100,000     August 1, 2020
  WRND     Clarksville, TN/Hopkinsville, KY     6,000     August 1, 2020
  WSNY     Columbus, OH     50,000     October 1, 2020
  WNNP     Columbus, OH     6,000     October 1, 2020
  WNND     Columbus, OH     6,000     October 1, 2020
  WVMX     Columbus, OH     6,000     October 1, 2020
  WLVQ     Columbus, OH     50,000     October 1, 2020
  KSTZ     Des Moines, IA     100,000     February 1, 2021
  KIOA     Des Moines, IA     100,000     February 1, 2021
  KAZR     Des Moines, IA     100,000     February 1, 2021
  KOEZ     Des Moines, IA     100,000     February 1, 2021
  WHAI     Greenfield, MA     3,000     April 1, 2022
  WPVQ     Greenfield, MA     3,000     April 1, 2022
  WMQR     Harrisonburg, VA     25,000     October 1, 2027
  WQPO     Harrisonburg, VA     50,000     October 1, 2027
  WSIG     Harrisonburg, VA     25,000     October 1, 2027
  WWRE     Harrisonburg, VA     6,000     October 1, 2027
  WOEZ     Hilton Head Island, SC     25,000     December 1, 2027
  WLHH     Hilton Head Island, SC     25,000     December 1, 2027
  WVSC     Hilton Head Island, SC     25,000     December 1, 2027
  WYXL     Ithaca, NY     50,000     June 1, 2022
  WQNY     Ithaca, NY     50,000     June 1, 2022
  WIII     Ithaca, NY     50,000     June 1, 2022
  WFIZ     Ithaca, NY     6,000     June 1, 2022

 

(footnotes follow tables)

 

11

 

 

          Power     Expiration Date of
Station     Market (1)   (Watts) (2)     FCC Authorization
                 
  KEGI     Jonesboro, AR     50,000     June 1, 2020 (4)
  KDXY     Jonesboro, AR     25,000     June 1, 2020 (4)
  KJBX     Jonesboro, AR     25,000     June 1, 2020 (4)
  WKNE     Keene, NH     50,000     April 1, 2022
  WSNI     Keene, NH     6,000     April 1, 2022
  WINQ     Keene, NH     6,000     April 1, 2022
  WZID     Manchester, NH     50,000     April 1, 2022
  WMLL     Manchester, NH     6,000     April 1, 2022
  WKLH     Milwaukee, WI     50,000     December 1, 2020
  WHQG     Milwaukee, WI     50,000     December 1, 2020
  WNRG     Milwaukee, WI     6,000     December 1, 2020
  WJMR     Milwaukee, WI     6,000     December 1, 2020
  KMIT     Mitchell, SD     100,000     April 1, 2021
  KUQL     Mitchell, SD     100,000     April 1, 2021
  WNOR     Norfolk, VA     50,000     October 1, 2027
  WAFX     Norfolk, VA     100,000     October 1, 2027
  WOGK     Ocala, FL     100,000     February 1, 2028
  WYND     Ocala, FL     6,000     February 1, 2028
  WNDD     Ocala, FL     6,000     February 1, 2028
  WNDN     Ocala, FL     6,000     February 1, 2028
  WRSI     Northampton, MA     3,000     April 1, 2022
  WPOR     Portland, ME     50,000     April 1, 2022
  WCLZ     Portland, ME     50,000     April 1, 2022
  WMGX     Portland, ME     50,000     April 1, 2022
  WYNZ     Portland, ME     25,000     April 1, 2022
  KICD     Spencer, IA     100,000     February 1, 2021
  KMRR     Spencer, IA     25,000     February 1, 2021
  WLZX     Springfield, MA     6,000     April 1, 2022
  WAQY     Springfield, MA     50,000     April 1, 2022
  WYMG     Springfield, IL     50,000     December 1, 2020
  WLFZ     Springfield, IL     50,000     December 1, 2020
  WDBR     Springfield, IL     50,000     December 1, 2020
  WQQL     Springfield, IL     25,000     December 1, 2020
  WNAX     Yankton, SD     100,000     April 1, 2021
                     
  AM:                  
  WISE     Asheville, NC     5,000     December 1, 2027
  WYSE     Asheville, NC     5,000 (3)   December 1, 2027
  KGMI     Bellingham, WA     5,000     February 1, 2022
  KPUG     Bellingham, WA     10,000     February 1, 2022
  KBAI     Bellingham, WA     1,000     February 1, 2022
  WINQ     Brattleboro, VT     1,000     April 1, 2022
  WBCO     Bucyrus, OH     500 (3)   October 1, 2020
  WSPO     Charleston, SC     5,000     December 1, 2027
  WINA     Charlottesville, VA     5,000     October 1, 2027
  WVAX     Charlottesville, VA     1,000     October 1, 2027
  WQEZ     Clarksville, TN/Hopkinsville, KY     1,000 (3)   August 1, 2020
  WKFN     Clarksville, TN     4,000 (3)   August 1, 2020
  KRNT     Des Moines, IA     5,000     February 1, 2021
  KPSZ     Des Moines, IA     10,000     February 1, 2021
  WHMQ     Greenfield, MA     1,000     April 1, 2022
  WPVQ     Greenfield, MA     2,500 (3)   April 1, 2022
  WSVA     Harrisonburg, VA     5,000     October 1, 2027
  WHBG     Harrisonburg, VA     1,000 (3)   October 1, 2027

 

(footnotes follow tables)

 

12

 

 

          Power     Expiration Date of
Station     Market (1)   (Watts) (2)     FCC Authorization
                 
  WHCU     Ithaca, NY     5,000     June 1, 2022
  WNYY     Ithaca, NY     5,000     June 1, 2022
  WKBK     Keene, NH     5,000     April 1, 2022
  WZBK     Keene, NH     1,000     April 1, 2022
  WFEA     Manchester, NH     5,000     April 1, 2022
  WJYI     Milwaukee, WI     1,000     December 1, 2020
  WJOI     Norfolk, VA     1,000     October 1, 2027
  WHMP     Northampton, MA     1,000     April 1, 2022
  WGAN     Portland, ME     5,000     April 1, 2022
  WZAN     Portland, ME     5,000     April 1, 2022
  WBAE     Portland, ME     1,000     April 1, 2022
  WGIN     Portland, ME     1,000     April 1, 2022
  KICD     Spencer, IA     1,000     February 1, 2021
  WLZX     Springfield, MA     2,500 (3)   April 1, 2022
  WTAX     Springfield, IL     1,000     December 1, 2020
  WNAX     Yankton, SD     5,000     April 1, 2021

 

(1) Some stations are licensed to a different community located within the market that they serve.

 

(2) Some stations are licensed to operate with a combination of effective radiated power (“ERP”) and antenna height, which may be different from, but provide equivalent coverage to, the power shown. WHBG, WYSE, WISE, KPSZ, KPUG, KGMI, KBAI, WZBK, WBCO, WQEZ, WKFN, WPVQ(AM), WNYY, WHCU, WINQ(AM), WSVA and WLZX(AM) operate with lower power at night than the power shown.

 

(3)

Operates daytime only or with greatly reduced power at night.

 

(4) An application for renewal of license was timely filed and is pending.

 

Ownership Matters.   The Communications Act prohibits the assignment of a broadcast license or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant or renew a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with the Communications Act’s limitations on alien ownership; compliance with various rules limiting common ownership of broadcast, cable and newspaper properties; and the “character” and other qualifications of the licensee and those persons holding “attributable or cognizable” interests therein.

 

Under the Communications Act (Section 310(b)), broadcast licenses may not be granted to any corporation having more than one-fifth of its issued and outstanding capital stock owned or voted by aliens (including non-U.S. corporations), foreign governments or their representatives (collectively, “Aliens”). The Communications Act also prohibits a corporation, without FCC waiver, from holding a broadcast license if that corporation is controlled, directly or indirectly, by another corporation in which more than 25% of the issued and outstanding capital stock is owned or voted by Aliens. The FCC has issued interpretations of existing law under which these restrictions in modified form apply to other forms of business organizations, including partnerships. We serve as a holding company for our various radio station subsidiaries (where we could not have more than 25% of our stock owned or voted by Aliens).

 

The FCC has adopted rules to extend to broadcast licensees the same rules and procedures that common carrier wireless licensees use to seek approval for foreign ownership, with broadcast-specific modifications.

 

13

 

 

 

The revised rules and procedures allow a broadcast licensee to request in a petition for declaratory ruling under Title 47 U.S.C. Section 310(b)(4):

 

  (1) approval of up to and including 100 percent aggregate foreign ownership of its controlling U.S. parent;
  (2) approval for a proposed, controlling foreign investor to increase its equity and/or voting interests in the U.S. parent up to and including 100 percent at some future time without filing a new petition—this applies where the foreign investor would acquire an initial controlling interest of less than 100 percent; and
  (3) approval for a non-controlling foreign investor named in the petition to increase its equity and/or voting interests in the U.S. parent at some future time, up to and including a non-controlling 49.99 percent equity and/or voting interest.

 

The revised rules would require the Company to seek specific approval only of foreign individuals or entities with a greater than 5 percent ownership interest (or, in certain situations, an interest greater than 10 percent).

 

The revised rules allow broadcast licensees that have foreign ownership rulings to apply those rulings to all radio and television broadcast licenses then held or subsequently proposed to be acquired by the same licensee and its covered subsidiaries and affiliates, regardless of the broadcast service (e.g., AM, FM, or TV) or the geographic area in which the stations are located.

 

The revised methodology provides a framework for a publicly traded licensee or controlling U.S. parent to ascertain its foreign ownership using information that is “known or reasonably should be known” to the company in the ordinary course of business.

 

For publicly traded licensees and U.S. parent companies (like the Company), the revised rules formalize the current equitable practice of recognizing a licensee’s good faith efforts to comply with Section 310(b) where the non-compliance was due solely to circumstances beyond the licensee’s control that were not known or reasonably foreseeable to the licensee.

 

We are permitted to own an unlimited number of radio stations on a nationwide basis (subject to the local ownership restrictions described below).

 

Under the rules, the number of radio stations one party may own in a local Nielsen Audio-rated radio market is determined by the number of full-power commercial and noncommercial radio stations in the market as determined by Nielsen Audio and BIA/Kelsey. Radio markets that are not Nielsen Audio rated are determined by analysis of the broadcast coverage contours of the radio stations involved.

 

Under the Communications Act, and the FCC’s “Local Ownership Rule,” we are permitted to own radio stations (without regard to the audience shares of the stations) based upon the number of full-power radio stations in the relevant radio market as follows:

 

Number of Stations    
In Radio Market   Number of Stations We Can Own
     
14 or Fewer   Total of 5 stations, not more than 3 in the same service (AM or FM), except the Company cannot own more than 50% of the stations in the market.
15-29   Total of 6 stations, not more than 4 in the same service (AM or FM).
30-44   Total of 7 stations, not more than 4 in the same service (AM or FM).
45 or More   Total of 8 stations, not more than 5 in the same service (AM or FM).

 

14

 

 

In a decision of the United States Court of Appeals for the Third Circuit in Prometheus Radio Project v. FCC, 939 F.3d 567 (3d Cir. 2019) (“Prometheus”), the court vacated and remanded the Commission’s 2010/2014 Quadrennial Review Order on Reconsideration, 32 FCC Rcd 9802 (2017), which had modified the Commission’s media ownership rules by: (1) eliminating the newspaper/broadcast cross-ownership and radio/television cross-ownership rules; (2) revising the local television ownership rule by eliminating the “eight voices” test and permitting applicants to seek the combination of two top-four ranked stations in a given market on a case-by-case basis; and (3) deeming joint sales agreements between television stations to be non-attributable. By vacating the Order on Reconsideration, the Prometheus decision abrogated these rule changes and reinstated the prior media ownership rules adopted in the 2010/2014 Quadrennial Review Order, 31 FCC Rcd 9864 (2016). The court also vacated the Commission’s definition of an “eligible entity,” which had been adopted in the 2010/2014 Quadrennial Review Order. The reinstated rules (1) prohibit the common ownership of a daily print newspaper and a full-power broadcast station (AM, FM or TV) if the station’s service contour encompasses the newspaper’s community of publication); (2) prohibit an entity from owning two or more television stations and one radio station in the same market, unless the market met certain size criteria; (3) reinstituted the so-called “Eight-Voices Test” and the “Top-Four Prohibition”; (4) disposed of a presumption for certain embedded markets (smaller markets, as defined by Nielsen Audio, that are included in a larger parent market) transactions; and (5) reinstated the attribution rule for television joint sales agreements. The disclosure requirement for shared service agreements involving commercial television stations was unchanged. The Court decision vacated a proposed “incubator” program to promote ownership diversity. In December 2018, the FCC adopted an NPRM to initiate the 2018 Quadrennial Review of its media ownership rules. The three rules subject to review are the Local Radio Ownership Rule, the Local Television Ownership Rule, and the dual network rule (which permits a television station to affiliate with an entity maintaining two or more broadcast television networks unless the two or more networks consist of two or more of the major networks (i.e., ABC, CBS, NBC and Fox) or one of these four networks and either the UPN or WB television network.) The FCC is seeking comment on whether, given the current state of the media marketplace, the FCC should retain, modify, or eliminate any of these rules. Whether Prometheus will affect this NPRM, inter alia, The Company cannot predict what, if any action, the FCC may take as a result of its review.

 

New rules to be promulgated under the Communications Act may permit us to own, operate, control or have a cognizable interest in additional radio broadcast stations if the FCC determines that such ownership, operation, control or cognizable interest will result in an increase in the number of radio stations in operation. No firm date has been established for initiation of this rule-making proceeding. New rules could restrict the Company’s ability to acquire additional radio and television stations in some markets. The Court and FCC proceedings are ongoing and we cannot predict what action, if any, the Court or the FCC may take to further modify its rules. Due to changes in local radio markets, the ownership of some of our radio stations, in the future, could exceed the current ownership limits imposed by the Local Ownership Rule. Their current ownership structure is “grandfathered” by the FCC. Absent a waiver, it might not be possible to sell all of them as currently configured in “clusters” to a single purchaser. The statements herein are based solely on the FCC’s multiple ownership rules in effect as of the date hereof and do not include any forward-looking statements concerning compliance with any future multiple ownership rules.

 

The FCC generally applies its ownership limits to “attributable” interests held by an individual, corporation, partnership or other association. In the case of corporations holding broadcast licenses, the interests of officers, directors and those who, directly or indirectly, have the right to vote 5% or more of the corporation’s stock (or 20% or more of such stock in the case of certain passive investors that are holding stock for investment purposes only) are generally attributable, as are positions of an officer or director of a corporate parent of a broadcast licensee. Currently, one of our directors has an attributable interest or interests in companies applying for or licensed to operate broadcast stations other than us.

 

The FCC’s ownership attribution rules (a) apply to limited liability companies and registered limited liability partnerships the same attribution rules that the FCC applies to limited partnerships; and (b) include an equity/debt plus (“EDP”) rule that attributes the other media interests of an otherwise passive investor if the investor is (1) a “major-market program supplier” that supplies over 15% of a station’s total weekly broadcast programming hours, or (2) a same-market media entity subject to the FCC’s multiple ownership rules (including broadcasters, cable operators and newspapers) so that its interest in a licensee or other media entity in that market will be attributed if that interest, aggregating both debt and equity holdings, exceeds 33% of the total asset value (equity plus debt) of the licensee or media entity. We could be prohibited from acquiring a financial interest in stations in markets where application of the EDP rule would result in us having an attributable interest in the stations. In reconsidering its rules, the FCC also eliminated the “single majority shareholder exemption” which provides that minority voting shares in a corporation where one shareholder controls a majority of the voting stock are not attributable; however, the FCC “suspended” the elimination of this exemption until the FCC resolved issues concerning cable television ownership.

 

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In addition to the FCC’s multiple ownership rules, the Antitrust Division of the United States Department of Justice and the Federal Trade Commission and some state governments have the authority to examine proposed transactions for compliance with antitrust statutes and guidelines. The Antitrust Division has issued “civil investigative demands” and obtained consent decrees requiring the divestiture of stations in a particular market based on antitrust concerns.

 

Programming and Operation.   The Communications Act requires broadcasters to serve the “public interest.” Licensees are required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. Complaints from listeners concerning a station’s programming often will be considered by the FCC when it evaluates renewal applications of a licensee, although such complaints may be filed at any time and generally may be considered by the FCC at any time. Stations also must follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identification, the advertisement of contests and lotteries, obscene and indecent broadcasts, and technical operations, including limits on radio frequency radiation. The FCC now requires the owners of antenna supporting structures (towers) to register them with the FCC. As an owner of such towers, our subsidiaries are subject to the registration requirements. On January 13, 2020, the FCC released an Order confirming a Consent Decree whereby the owner of several antenna structures agreed to pay the government a civil penalty of $1,130,000 and develop a Compliance Plan requiring reports for two years as a result of (1) failing to conduct required daily inspections of the lighting systems at 10 tower, (2) failing to completely log lighting failures at 7 towers, and (3) failing to timely notify the FCC of its acquisition of 2 towers. In 2017, the FCC eliminated the broadcast main studio rule. The FCC retained the requirement that stations maintain a local or toll-free telephone number to ensure consumers have ready access to their local stations. The FCC’s rules require cable operators, direct satellite TV providers, broadcast radio licensees, and satellite radio licensees to post public inspection files to the FCC's online database rather than maintaining them in a local public inspection file. The Company’s radio stations post their public inspection files to the FCC’s website. Posting these files to the FCC’s online database renders the materials more widely accessible to the public. The FCC has warned licensees of possible enforcement action if these files are found not to be in compliance at the time of license renewal.

 

 

The Company is required to pay (1) FCC filing fees in connection with its applications and an (2) annual regulatory fee determined by the number and character of the radio stations the Company owns as of October 1 of each prior year.

 

Equal Employment Opportunity Rules.   Equal employment opportunity (EEO) rules and policies for broadcasters prohibit discrimination by broadcasters and multichannel video programming distributors. They also require broadcasters to provide notice of job vacancies and to undertake additional outreach measures, such as job fairs and scholarship programs. The rules mandate a “three prong” outreach program; i.e., Prong 1: widely disseminate information concerning each full-time (30 hours or more) job vacancy, except for vacancies filled in exigent circumstances; Prong 2: provide notice of each full-time job vacancy to recruitment organizations that have requested such notice; and Prong 3: complete two (for broadcast employment units with five to ten full-time employees or that are located in smaller markets) or four (for employment units with more than ten full-time employees located in larger markets) longer-term recruitment initiatives within a two-year period. These include, for example, job fairs, scholarship and internship programs, and other community events designed to inform the public as to employment opportunities in broadcasting. The rules mandate extensive record keeping and reporting requirements. In 2017, the FCC issued a Declaratory Ruling permitting broadcast stations to use the internet for job postings as third sole means of recruiting employees (so long as the postings reach all segments of the station’s community. The EEO rules are enforced through review at renewal time, and through random audits and targeted investigations resulting from information received as to possible violations. The FCC has not yet decided on whether and how to apply the EEO rule to part-time positions. Failure to observe these or other rules and policies can result in the imposition of various sanctions, including monetary forfeitures, the grant of “short” (less than the full eight-year) renewal terms or, for particularly egregious violations, the denial of a license renewal application or the revocation of a license. In an NPRM released June 21, 2019 (MB Docket No. 19-177), the FCC is reviewing the EEO rules. In the NPRM, the FCC seeks comment on its track record on EEO enforcement, whether the agency should make improvements to EEO compliance and enforcement, and invites comment on its audit program. The Company cannot predict whether, or if changes may be made as a result of this NPRM.

 

Time Brokerage Agreements.   As is common in the industry, we have previously entered into what have commonly been referred to as Time Brokerage Agreements (“TBAs”) which are sometimes termed “Local Marketing Agreements.” Such arrangements are an extension of the concept of agreements under which a licensee of a station sells blocks of time on its station to an entity or entities which purchase the blocks of time and which sell their own commercial advertising announcements during the time periods in question. While these agreements may take varying forms, under a typical TBA, separately owned and licensed radio or television stations agree to enter into cooperative arrangements of varying sorts, subject to compliance with the requirements of antitrust laws and with the FCC’s rules and policies. Under these types of arrangements, separately-owned stations agree to function cooperatively in terms of programming, advertising sales, and other matters, subject to the licensee of each station maintaining independent control over the financing, programming and station operations of its own station. One typical type of TBA is a programming agreement between two separately-owned radio or television stations serving a common service area, whereby the licensee of one station purchases substantial portions of the broadcast day on the other licensee’s station, subject to ultimate editorial and other controls being exercised by the latter licensee, and sells advertising time during such program segments.

 

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The FCC’s rules provide that a station purchasing (brokering) time on another station serving the same market will be considered to have an attributable ownership interest in the brokered station for purposes of the FCC’s multiple ownership rules. As a result, under the rules, a broadcast station will not be permitted to enter into a time brokerage agreement giving it the right to purchase more than 15% of the broadcast time, on a weekly basis, of another local station that it could not own under the local ownership rules of the FCC’s multiple ownership rules. The FCC’s rules also prohibit a broadcast licensee from simulcasting more than 25% of its programming on another station in the same broadcast service (i.e., AM-AM or FM-FM) whether it owns the stations or through a TBA arrangement, where the brokered and brokering stations serve substantially the same geographic area. The Company currently has no TBAs.  In an NPRM released November 25, 2019 (MB Docket Nos. 17-105 and 19-310), the FCC is seeking comment on whether to modify or eliminate the radio simulcasting rule.

 

Other FCC Requirements.

 

Low Power FM Radio and “Franken FM” Stations.   There exists a “low power radio service” on the FM band (“LPFM”) in which the FCC authorizes the construction and operation of noncommercial educational FM stations with up to 100 watts ERP with antenna height above average terrain (“HAAT”) at up to 30 meters (100 feet). This combination is calculated to produce a service area radius of approximately 3.5 miles. The FCC’s rules will not permit any broadcaster or other media entity subject to the FCC’s ownership rules to control or hold an attributable interest in an LPFM station or enter into related operating agreements with an LPFM licensee. Thus, absent a waiver, we could not own or program an LPFM station. LPFM stations are allocated throughout the FM broadcast band, (i.e., 88.1 to 107.9 MHz), although they must operate with a noncommercial format. The FCC has established allocation rules that require FM stations to be separated by specified distances to other stations on the same frequency, and stations on frequencies on the first, second and third channels adjacent to the center frequency. The FCC has granted construction permits and licenses for LPFM stations. As required by the Local Community Radio Act of 2010, the FCC in 2012 modified its rules to maintain its existing minimum distance separation requirements for full-service FM stations, FM translator stations, and FM booster stations that broadcast radio reading services via an analog subcarrier frequency to avoid potential interference by LPFM stations; and when licensing new FM translator stations, FM booster stations, and LPFM stations, to ensure that: (i) licenses are available to FM translator stations, FM booster stations, and LPFM stations; (ii) such decisions are made based on the needs of the local community; and (iii) FM translator stations, FM booster stations, and LPFM stations remain equal in status and secondary to existing and modified full-service FM stations. By NPRM released July 30, 2019 (MB Dockets No. 17-105, 19-193), the FCC proposed to amend the rules for the LPFM service to (1) allow LPFM licensees expanded use of directional antennas and to use custom models; (2) eliminate TV6 protections entirely on July 13, 2021, and institute a waiver process in the interim; (3) allow LPFM stations to move to any rule-compliant location provided that the current and proposed service contours overlap; and (4) permit LPFM/FM booster cross-ownership subject to guidelines similar to those currently applicable to LPFM/FM translator cross-ownership. The Company cannot predict whether these proposals will become effective.

 

On January 5, 2012, the FCC released a Report to Congress on the impact that LPFM stations would have on full-service commercial FM stations. The FCC “found no statistically reliable evidence that low-power FM stations have a substantial or consistent economic impact on full-service commercial FM stations,” and that “low-power FM stations generally do not have, and in the future are unlikely to have, a demonstrable economic impact on full-service commercial FM radio stations.” Some LPFM stations that broadcast commercial announcements in violation of the law could have a negative economic impact on the Company’s stations. Although rule-compliant LPFM stations compete for audience with the Company’s full-power and FM translator stations, the Company cannot predict whether there will be future negative economic impact on its stations.

 

As part of the transition from analog to digital operations, the FCC sought comment in a 2014 NPRM on whether to allow LPTV stations (so-called “Franken FM” radio stations) on digital television channel 6 to continue to operate these analog FM radio-type services on an ancillary or supplementary basis. In December 2019, the FCC asked parties to update the record on this issue. No Franken FM stations operate in any radio markets where the Company operates radio stations.

 

Digital Audio Radio Satellite Service and Internet Radio.   In adopting its rules for the Digital Audio Radio Satellite Service (“DARS”) in the 2310-2360 MHz frequency band, the FCC stated, “although healthy satellite DARS systems are likely to have some adverse impact on terrestrial radio audience size, revenues and profits, the record does not demonstrate that licensing satellite DARS would have such a strong adverse impact that it threatens the provision of local service.” The FCC granted two nationwide licenses, one to XM Satellite Radio, which began broadcasting in May 2001, and a second to Sirius Satellite Radio, which began broadcasting in February 2002. The satellite radio systems provide multiple channels of audio programming in exchange for the payment of a subscription fee. The FCC approved the application of Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. to transfer control of the licenses and authorizations held by the two companies to one company, which is now known as Sirius XM Radio, Inc. Various companies have introduced devices that permit the reception of audio programming streamed over the Internet on home computers, on portable receivers, such as cell phones, in automobiles. And through so-called “smart speakers” like Amazon’s Alexa service. A number of digital music providers have developed and are offering their product through the Internet. Terrestrial radio operators (including the Company) are also making their product available through the Internet. To date, the Company has not perceived negative economic impact from DARS or Internet-streamed audio on the Company’s full-service stations and FM translators, possibly due, in part, to the possibility of confusion in the digital advertising market, but the Company cannot predict whether there will be future negative economic impact.

 

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In-Band On-Channel “Hybrid Digital” Radio.   The FCC’s rules permit radio stations to broadcast using in-band, on-channel (IBOC) as the technology that allows AM and FM stations to operate using the IBOC systems developed by iBiquity Digital Corporation. This technology has become commonly known as “hybrid digital” or HD radio. Stations broadcast the same main channel program material in both analog and digital modes. HD radio technology permits “hybrid” operations, the simultaneous transmission of analog and digital signals with a single AM and FM channel. HD radio technology can provide near CD-quality sound on FM channels and FM quality on AM channels. HD radio technology also permits the transmission of up to three additional program streams over the radio stations (which streams do not count as separate radio stations under the multiple ownership rules.) At the present time, we are configured to broadcast in HD radio on 51 stations.

 

Use of FM Translators by AM Stations and Digital Program Streams.   FM translator stations are relatively low power radio stations (maximum ERP: 250 Watts) that rebroadcast the programs of full-power AM and FM stations on a secondary basis, meaning they must terminate or modify their operation if they cause interference to a full-power station. The FCC permits AM stations to be rebroadcast on FM translator stations in order to improve reception of programs broadcast by AM stations. The Company intends to continue to use some of its existing FM translators in connection with some of its AM stations. The Company is using some of its existing FM translators to rebroadcast HD radio program streams generated by some of its FM stations, which is permitted by the FCC. In a 2015 Report and Order, Revitalization of the AM Service, the FCC announced an opportunity, restricted to AM licensees and permittees, to apply for and receive authorizations to relocate existing FM translator stations within 250 miles for the sole and limited purpose of enhancing their existing service to the public. To implement this policy, the FCC opened “filing windows,” the last one closing October 31, 2016. Some of the Company’s subsidiaries that are AM licensees, acquired FM translators during the filing window, and relocated them to their local markets to pair with some of the Company’s AM broadcast stations. The FM translators so acquired must rebroadcast the related AM station for at least four years, not counting any periods of silence. The FCC later opened two windows for the filing of applications for construction permits for new FM translators, the final window closing January 31, 2018. In the filing windows, qualifying AM licensees could apply for one, and only one, new FM translator station, in the non-reserved FM band to be used solely to re-broadcast the licensee’s AM signal to provide fill-in and/or nighttime service on a permanent basis. The Company filed applications in both windows and obtained some construction permits as a result. If the Company should decide that a subsidiary should sell or suspend operations of an AM station with such an FM construction permit or license, the subsidiary would also be required to sell or suspend operations of the FM translator. The FCC has adopted new rules regarding FM translator interference effective July 15, 2019 (1) allowing FM translators to resolve interference issues by changing channels to any available same-band frequency using a minor modification application; (2) standardizing the information that must be compiled and submitted by a station claiming interference from an FM translator, including a required minimum number of listener complaints; (3) establishing interference complaint resolution procedures; and (4) establishing an outer contour limit for the affected station within which interference complaints will be considered actionable while providing for a process to waive that limit in special circumstances.

 

Hart-Scott-Rodino Antitrust Improvements Act of 1976.   The Federal Trade Commission and the Department of Justice, the federal agencies responsible for enforcing the federal antitrust laws, may investigate certain acquisitions. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, an acquisition meeting certain size thresholds requires the parties to file Notification and Report Forms with the Federal Trade Commission and the Department of Justice and to observe specified waiting period requirements before consummating the acquisition. Any decision by the Federal Trade Commission or the Department of Justice to challenge a proposed acquisition could affect our ability to consummate the acquisition or to consummate it on the proposed terms. We cannot predict whether the FCC will adopt rules that would restrict our ability to acquire additional stations.

 

Changes to Application and Assignment Procedures.   The FCC has adopted rules that give Native American tribes a priority to obtain broadcast radio licenses in tribal communities. The rules provide an opportunity for tribes to establish new service specifically designed to offer programming that meets the needs of tribal citizens. In addition, the rules modified the FCC’s radio application and assignment procedures, assisting qualified applicants to more rapidly introduce new radio service to the public. These modifications (1) Prohibit an AM applicant that obtains a construction permit through a dispositive Section 307(b) preference from downgrading the service level that led to the dispositive preference; (2) Require technical proposals for new or major change AM facilities filed with Form 175 (i.e., FCC “short-form” Auction) applications to meet certain minimum technical standards to be eligible for further auction processing; and (3) Give FCC operating bureaus authority to cap filing window applications. In 2011, the FCC released its Third Report and Order which limits eligibility for authorizations associated with allotments added to the FM Table of Allotments using the “Tribal Priority” to the tribes whom the Tribal Priority was intended to benefit. In October 2018, the FCC released a “Second Further Notice of Proposed Rulemaking” as part of its ongoing effort to assist AM broadcast stations in providing full-time service to their communities. The FCC is seeking comment on technical proposals to reduce nighttime interference afforded to wide-area “Class A” AM radio stations to enable more local AM stations to increase their nighttime service. The Company has no Class A AM radio stations, but has Class B, Class C and Class D AM radio stations, some of which might benefit if the FCC’s changes its rules as proposed. In a NPRM released November 22, 2019 (MB Dockets 13-249 and 19-311), the FCC proposed to allow AM broadcasters to broadcast an all-digital signal using the HD Radio in-band on-channel (IBOC) mode known as “MA3,” and sought comment on proposed operating standards for all-digital stations and the impact of such operations on existing analog stations and listeners.

 

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The Company pays for the use of music broadcast on its stations by obtaining licenses from organizations called performing rights societies, e.g. Broadcast Music, Inc. (“BMI”), which, in turn pay composers, authors and publishers for their works. Another organization, Global Music Rights, has begun issuing licenses for the composers, authors and publishers that it represents. Federal law grants a performance right for sound recordings in favor of recording companies and performing artists for non-interactive digital transmissions and Internet radio. As a result, users of music, including the Company, are required to pay royalties for these uses through Sound Exchange, a non-profit performance rights organization. Periodically, bills have been introduced in Congress, that if passed, would have required the Company to pay additional fees to an organization called MusicFirst which would distribute the money to other entities. Efforts continue by certain organizations to persuade Congress to enact a law that would require such payments. Periodically, bills have been introduced in Congress that, if adopted, would require the Company to pay additional fees to one or more organizations that would distribute the money to performers or other entities. In late 2018, Congress passed the “Music Modernization Act” which was signed into law by the President. The law (1) improves compensation to songwriters and streamlining how their music is licensed; (2) enables legacy artists (who recorded music before 1972) to be paid royalties when their music is played on digital radio; and (3) provides a consistent legal process for studio professionals, including record producers and engineers to receive royalties for their contributions to music that they help to create. The law creates a blanket license for digital music providers to make permanent downloads, limited downloads, and interactive streams, creates a collective to administer the blanket license, and makes various improvements to royalty rate proceedings. This new law could impose an additional financial burden on the Company, but the extent of the burden would depend on how the fee payment requirement was structured. The Ask Musicians for Music (AM/FM) Act of 2019 was introduced on November 14, 2019 in both houses of Congress and would require broadcasters to obtain permission before transmitting content owned by another person. The Company cannot predict whether this legislation will be enacted into law, and if so, whether there would be adverse impact on the Company’s business.

 

On January 3, 2013, the FCC released the Sixth Further Notice of Proposed Rulemaking , which sought comment on the requirement that persons with attributable interests in broadcast licensees and other entities filing an FCC Ownership Report provide an “FCC Registration Number” (“FRN”) linked to their social security numbers. Questions had been raised about the security of the FCC’s Registration System where this data would be stored. On January 20, 2016, the FCC released its Report and Order, Second Report and Order and Order on Reconsideration that implemented a Restricted Use FRN (RUFRN) that individuals may use solely for the purpose of broadcast ownership report filings. The FCC stated its belief that the RUFRN would allow for sufficient unique identification of individuals listed on broadcast ownership reports without necessitating the disclosure to the FCC of individuals’ full Social Security Numbers (SSNs). The FCC eliminated the availability of the Special Use FRN (SUFRN) for broadcast station ownership reports, except in very limited circumstances. On January 4, 2017, the FCC’s Media Bureau issued an Order or Reconsideration denying petitions for reconsideration of the requirement. On February 2, 2017, the FCC set aside the Order on Reconsideration and returned the petitions for reconsideration to pending status to be considered by the full FCC. The FCC is also seeking comment on whether to expand the biennial ownership reporting requirement to include interests, entities and individuals that are not attributable because of (a) the single majority shareholder exemption and (b) the exemption for interests held in eligible entities pursuant to the higher EDP threshold. The Company has utilized the single majority shareholder exemption in reporting ownership interests in the Company. The Company cannot predict whether these proposals will be adopted, and if so, whether information provided by those persons with a reportable attributable interest in the Company will be secure.

 

Proposed Changes.   The FCC has under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect us and the operation and ownership of our broadcast properties. Application processing rules adopted by the FCC might require us to apply for facilities modifications to our standard broadcast stations in future “window” periods for filing applications or result in the stations being “locked in” with their present facilities. The FCC is authorized to use auctions for the allocation of radio broadcast spectrum frequencies for commercial use. The implementation of this law could require us to bid for the use of certain frequencies.

 

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Executive Officers

 

Our current executive officers are:

 

Name   Age     Position
           
Edward K. Christian     75     President, Chief Executive Officer and Chairman; Director
Samuel D. Bush     62     Senior Vice President, Treasurer and Chief Financial Officer
Marcia K. Lobaito     71     Senior Vice President, Corporate Secretary, and Director of Business Affairs
Catherine A. Bobinski     60     Senior Vice President/Finance, Chief Accounting Officer and Corporate Controller
Christopher S. Forgy     59     Senior Vice President of Operations

 

Officers are elected annually by our Board of Directors and serve at the discretion of the Board. Set forth below is information with respect to our executive officers.

 

Mr. Christian has been President, Chief Executive Officer and Chairman since our inception in 1986.

 

Mr. Bush has been Senior Vice President since 2002 and Chief Financial Officer and Treasurer since September 1997. He was Vice President from 1997 to 2002. From 1988 to 1997 he held various positions with the Media Finance Group at AT&T Capital Corporation, including senior vice president.

 

Ms. Lobaito has been Senior Vice President since 2005, Director of Business Affairs and Corporate Secretary since our inception in 1986 and Vice President from 1996 to 2005. In January 2020, we issued a press release announcing that Ms. Lobaito had informed us that she will be retiring as Senior Vice President and Director of Business Affairs, effective March 13, 2020. At our request, Ms. Lobaito will continue to serve as Corporate Secretary.

 

Ms. Bobinski has been Senior Vice President/Finance since March 2012 and Chief Accounting Officer and Corporate Controller since September 1991. She was Vice President from March 1999 to March 2012. Ms. Bobinski is a certified public accountant.

 

Mr. Forgy has been Senior Vice President of Operations since May 2018. He was President/General Manager of our Columbus, Ohio market from 2010 to 2018 and was Director of Sales of our Columbus, Ohio market from 1995 to 2006. He has been with Saga for 20 years.

 

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Item 1A. Risk Factors

 

The more prominent risks and uncertainties inherent in our business are described in more detail below. However, these are not the only risks and uncertainties we face. Our business may face additional risks and uncertainties that are unknown to us at this time.

 

Global Economic Conditions and Uncertainties May Continue to Affect our Business

 

We derive revenues from the sale of advertising and expenditures by advertisers tend to be cyclical and are reflective of economic conditions. Periods of a slowing economy, recession or economic uncertainty may be accompanied by a decrease in advertising. The global economic downturn that began in 2008 caused a decline in advertising and marketing by our customers, which had an adverse effect on our revenue, profit margins and cash flows. Global economic conditions have been slow to recover and remain uncertain. There can be no assurance that any of the recent economic improvements will be broad based and sustainable, or that they will enhance conditions in markets relevant to us. If economic conditions do not continue to improve, economic uncertainty increases or economic conditions deteriorate again; global economic conditions may once again adversely impact our business. Due to the continued uncertain pace of economic growth, we cannot predict future revenue trends. Further, there can be no assurance that we will not experience future adverse effects that may be material to our cash flows, competitive position, financial condition, results of operations, or our ability to access capital.

 

The volatility in global financial markets may also limit our ability to access the capital markets at a time when we would like, or need, to do so, which could have an impact on our flexibility to react to changing economic and business conditions. Accordingly, if the economy does not fully recover or worsens, our business, results of operations and financial condition could be materially and adversely affected.

 

We Have Substantial Indebtedness and Debt Service Requirements

 

At December 31, 2019 our long-term debt was approximately $10,000,000. We have borrowed and expect to continue to borrow to finance acquisitions and for other corporate purposes. Because of our indebtedness, a portion of our cash flow from operations is required for debt service. Our leverage could make us vulnerable to an increase in interest rates, a downturn in our operating performance, or a decline in general economic conditions. The credit facility is subject to mandatory prepayment requirements, including but not limited to, certain sales of assets, certain insurance proceeds, certain debt issuances and certain sales of equity. Any outstanding balance under the credit facility will be due on the maturity date of June 27, 2023. We believe that cash flows from operations will be sufficient to meet our debt service requirements for interest and scheduled payments of principal under the credit facility. 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. We cannot be sure that we would be able to affect any such transactions on favorable terms, if at all.

 

The expected LIBOR phase-out may have unpredictable impacts on contractual mechanics in the credit markets or the broader financial markets, which could have an adverse effect on our results of operations.

 

The U.K. Financial Conduct Authority, which regulates LIBOR, intends to cease encouraging or requiring banks to submit rates for the calculation of LIBOR after 2021. It is unclear whether LIBOR will cease to exist after that date, and there is currently no global consensus on what rate or rates will become acceptable alternatives. In the United States, the U.S. Federal Reserve Board-led industry group, the Alternative Reference Rates Committee, selected the Secured Overnight Financing Rate ("SOFR") as an alternative to LIBOR for U.S. dollar-denominated LIBOR-benchmarked obligations. SOFR is a broad measure of the cost of borrowing cash in the overnight U.S treasury repo market, and the Federal Reserve Bank of New York has published the daily rate since 2018. Nevertheless, because SOFR is a fully secured overnight rate and LIBOR is a forward-looking unsecured rate, SOFR is likely to be lower than LIBOR on most dates, and any spread adjustment applied by market participants to alleviate any mismatch during a transition period will be subject to methodology that remains undefined.

 

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Our Debt Covenants Restrict our Financial and Operational Flexibility

 

Our credit facility contains a number of financial covenants 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. Our ability to meet these financial ratios can be affected by operating performance or other events beyond our control, and we cannot assure you that we will meet those ratios. Certain events of default under our credit facility could allow the lenders to declare all amounts outstanding to be immediately due and payable and, therefore, could have a material adverse effect on our business. 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.

 

We Depend on Key Personnel

 

Our business is partially dependent upon the performance of certain key individuals, particularly Edward K. Christian, our President and CEO. Although we have entered into employment and non-competition agreements with Mr. Christian, which terminate on March 31, 2025, and certain other key personnel, including on-air personalities, we cannot be sure that such key personnel will remain with us. We can give no assurance that all or any of these employees will remain with us or will retain their audiences. Many of our key employees are at-will employees who are under no legal obligation to remain with us. Our competitors may choose to extend offers to any of these individuals on terms which we may be unwilling to meet. In addition, any or all of our key employees may decide to leave for a variety of personal or other reasons beyond our control. Furthermore, the popularity and audience loyalty of our key on-air personalities is highly sensitive to rapidly changing public tastes. A loss of such popularity or audience loyalty is beyond our control and could limit our ability to generate revenues.

 

We Depend on Key Stations

 

Historically our top five markets when combined represented 39%, 41%, and 41% of our net operating revenue for the years ended December 31, 2019, 2018 and 2017, respectively. Accordingly, we may have greater exposure to adverse events or conditions that affect the economy in any of these markets, which could have a material adverse effect on our revenue, results of operations and financial condition.

 

Local and National Economic Conditions May Affect our Advertising Revenue

 

Our financial results are dependent primarily on our ability to generate advertising revenue through rates charged to advertisers. The advertising rates a station is able to charge are affected by many factors, including the general strength of the local and national economies. Generally, advertising declines during periods of economic recession or downturns in the economy. Our revenue has been and is likely to be adversely affected during such periods, whether they occur on a national level or in the geographic markets in which we operate. During such periods we may also be required to reduce our advertising rates in order to attract available advertisers. Such a decline in advertising rates could also have a material adverse effect on our revenue, results of operations and financial condition.

 

Our Stations Must Compete for Advertising Revenues in Their Respective Markets

 

Radio broadcasting is a highly competitive business. Our stations compete for listeners and advertising revenues within their respective markets directly with other radio stations, as well as with other media, such as broadcast radio (as applicable), cable television and/or radio, satellite television and/or satellite radio systems, newspapers, magazines, direct mail, the Internet, coupons and billboard advertising. Audience ratings and market shares are subject to change, and any change in a particular market could have a material adverse effect on the revenue of our stations located in that market. While we already compete in some of our markets with other stations with similar programming formats, if another radio station in a market were to convert its programming format to a format similar to one of our stations, if a new station were to adopt a comparable format or if an existing competitor were to strengthen its operations, our stations could experience a reduction in ratings and/or advertising revenue and could incur increased promotional and other expenses. Other radio broadcasting companies may enter into the markets in which we operate or may operate in the future. These companies may be larger and have more financial resources than we have. We cannot assure you that any of our stations will be able to maintain or increase their current audience ratings and advertising revenues.

 

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Our Success Depends on our Ability to Identify, Consummate and Integrate Acquired Stations

 

As part of our strategy, we have pursued and may continue to pursue acquisitions of additional radio stations, subject to the terms of our credit facility. Broadcasting is a rapidly consolidating industry, with many companies seeking to consummate acquisitions and increase their market share. In this environment, we compete and will continue to compete with many other buyers for the acquisition of radio stations. Some of those competitors may be able to outbid us for acquisitions because they have greater financial resources. As a result of these and other factors, our ability to identify and consummate future acquisitions is uncertain.

 

Our consummation of all future acquisitions is subject to various conditions, including FCC and other regulatory approvals. The FCC must approve any transfer of control or assignment of broadcast licenses. Such acquisitions could be delayed by shutdowns of the U.S. Government. In addition, acquisitions may encounter intense scrutiny under federal and state antitrust laws. Our future acquisitions may be subject to notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and to a waiting period and possible review by the Department of Justice and the Federal Trade Commission. Any delays, injunctions, conditions or modifications by any of these federal agencies could have a negative effect on us and result in the abandonment of all or part of attractive acquisition opportunities. We cannot predict whether we will be successful in identifying future acquisition opportunities or what the consequences will be of any acquisitions.

 

Certain of our acquisitions may prove unprofitable and fail to generate anticipated cash flows. In addition, the success of any completed acquisition will depend on our ability to effectively integrate the acquired stations. The process of integrating acquired stations may involve numerous risks, including difficulties in the assimilation of operations, the diversion of management’s attention from other business concerns, risk of entering new markets, and the potential loss of key employees of the acquired stations.

 

Future Impairment of our FCC Broadcasting Licenses Could Affect our Operating Results

 

As of December 31, 2019, our FCC broadcasting licenses represented 37.8% of our total assets. We are required to test our FCC broadcasting licenses for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that our FCC broadcasting licenses might be impaired which may result in future impairment losses. For further discussion, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates included with this Form 10-K. On January 24, 2020, the President signed into law the “PIRATE” Act which authorizes the FCC to fine illegal broadcasters up to $2 million.

 

Our Business is Subject to Extensive Federal Regulation

 

The broadcasting industry is subject to extensive federal regulation which, among other things, requires approval by the FCC of transfers, assignments and renewals of broadcasting licenses, limits the number of broadcasting properties that may be acquired within a specific market, and regulates programming and operations. For a detailed description of the material regulations applicable to our business, see “Federal Regulation of Radio and Television Broadcasting” and “Other FCC Requirements” in Item 1 of this Form 10-K. Failure to comply with these regulations could, under certain circumstances and among other things, result in the denial or revocation of FCC licenses, shortened license renewal terms, monetary forfeitures or other penalties which would adversely affect our profitability. Changes in ownership requirements could limit our ability to own or acquire stations in certain markets.

 

23

 

 

New Federal Regulations or Fees Could Affect our Broadcasting Operations

 

There has been proposed legislation in the past and there could be again in the future that requires radio broadcasters to pay additional fees such as a spectrum fee for the use of the spectrum or a royalty fee to record labels and performing artists for use of their recorded music. Currently, we pay royalties to song composers, publishers, and performers indirectly through third parties. Any proposed legislation that is adopted into law could add an additional layer of royalties to be paid directly to the record labels and artists. While this proposed legislation did not become law, it has been the subject of considerable debate and activity by the broadcast industry and other parties affected by the legislation. It is currently unknown what impact any potential required royalty payments would have on our results of operations, cash flows or financial position.

 

The FCC’s Vigorous Enforcement of Indecency Rules Could Affect our Broadcasting Operations

 

Federal law regulates the broadcast of obscene, indecent or profane material. The FCC has increased its enforcement efforts relating to the regulation of indecency violations, and Congress has increased the penalties for broadcasting obscene, indecent or profane programming, and these penalties may potentially subject broadcasters to license revocation, renewal or qualification proceedings in the event that they broadcast such material. The maximum forfeiture penalty for an indecency violation is $414,454 per incident and $3,825,726 for a continuing violation arising from a single act or failure to act. In March 2015, the FCC issued a Notice of Apparent Liability for the then maximum forfeiture amount of $325,000 against a television station for violation of the indecency laws. In addition, the FCC’s heightened focus on the indecency regulations against the broadcast industry may encourage third parties to oppose our license renewal applications or applications for consent to acquire broadcast stations. Because the FCC may investigate indecency complaints prior to notifying a licensee of the existence of a complaint, a licensee may not have knowledge of a complaint unless and until the complaint results in the issuance of a formal FCC letter of inquiry or notice of apparent liability for forfeiture. We may in the future become subject to inquiries or proceedings related to our stations’ broadcast of obscene, indecent or profane material. To the extent that any inquiries or other proceedings result in the imposition of fines, a settlement with the FCC, revocation of any of our station licenses or denials of license renewal applications, our result of operations and business could be materially adversely affected.

 

New Technologies May Affect our Broadcasting Operations

 

The FCC has and is considering ways to introduce new technologies to the broadcasting industry, including satellite and terrestrial delivery of digital audio broadcasting and the standardization of available technologies which significantly enhance the sound quality of AM broadcasters. We are unable to predict the effect such technologies may have on our broadcasting operations. The capital expenditures necessary to implement such technologies could be substantial.

 

24

 

 

The Company is Controlled by our President, Chief Executive Officer and Chairman

 

As of March 4, 2020, Edward K. Christian, our President, Chief Executive Officer and Chairman, holds approximately 65% of the combined voting power of our Common Stock (not including options to acquire Class B Common Stock and based on Class B shares generally entitled to ten votes per share). As a result, Mr. Christian generally is able to control the vote on most matters submitted to the vote of stockholders and, therefore, is able to direct our management and policies, except with respect to (i) the election of the two Class A directors, (ii) those matters where the shares of our Class B Common Stock are only entitled to one vote per share, and (iii) other matters requiring a class vote under the provisions of our certificate of incorporation, bylaws or applicable law. For a description of the voting rights of our Common Stock, see Note 12 of the Notes to Consolidated Financial Statements included with this Form 10-K. Without the approval of Mr. Christian, we will be unable to consummate transactions involving an actual or potential change of control, including transactions in which stockholders might otherwise receive a premium for their shares over then-current market prices.

 

We May Experience Volatility in the Market Price of our Common Stock

 

The market price of our common stock has fluctuated in the past and may continue to be volatile. In addition to stock market fluctuations due to economic or other factors, the volatility of our shares may be influenced by lower trading volume and concentrated ownership relative to many of our publicly-held competitors. Because several of our shareholders own significant portions of our outstanding shares, our stock is relatively less liquid and therefore more susceptible to price fluctuations than many other companies’ shares. If these shareholders were to sell all or a portion of their holdings of our common stock, then the market price of our common stock could be negatively affected. Investors should be aware that they could experience short-term volatility in our stock if such shareholders decide to sell all or a portion of their holdings of our common stock at once or within a short period of time.

 

Information technology and cybersecurity failures or data security breaches could harm our business

 

Any internal technology error or failure impacting systems hosted internally or externally, or any large-scale external interruption in technology infrastructure we depend on, such as power, telecommunications or the Internet, may disrupt our technology network. Any individual, sustained or repeated failure of technology could impact our customer service and result in increased costs or reduced revenues. Our technology systems and related data also may be vulnerable to a variety of sources of interruption due to events beyond our control, including natural disasters, terrorist attacks, telecommunications failures, computer viruses, hackers and other security issues. While we have in place, and continue to invest in, technology security initiatives and disaster recovery plans, these measures may not be adequate or implemented properly to prevent a business disruption and its adverse financial and consequences to our business' reputation.

 

In addition, as a part of our ordinary business operations, we may collect and store sensitive data, including personal information of our clients, listeners and employees. The secure operation of the networks and systems on which this type of information is stored, processed and maintained is critical to our business operations and strategy. Any compromise of our technology systems resulting from attacks by hackers or breaches due to employee error or malfeasance could result in the loss, disclosure, misappropriation of or access to clients’, listeners’, employees’ or business partners’ information. Any such loss, disclosure, misappropriation or access could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations and damage our reputation, any or all of which could adversely affect our business.

 

25

 

 

Item 1B.   Unresolved Staff Comments

 

None.

 

Item 2.    Properties

 

Our corporate headquarters is located in Grosse Pointe Farms, Michigan. The types of properties required to support each of our stations include offices, studios, and transmitter and antenna sites. A station’s studios are generally housed with its offices in business districts. The transmitter sites and antenna sites are generally located so as to provide maximum market coverage for our stations’ broadcast signals.

 

As of December 31, 2019, the studios and offices of 25 of our 28 operating locations, including our corporate headquarters in Michigan, are located in facilities we own. The remaining studios and offices are located in leased facilities with lease terms that expire in 2.5 years to 5 years. We own or lease our transmitter and antenna sites, with lease terms that expire in 6 months to 71 years. We do not anticipate any difficulties in renewing those leases that expire within the next five years or in leasing other space, if required.

 

No one property is material to our overall operations. We believe that our properties are in good condition and suitable for our operations.

 

We own substantially all of the equipment used in our broadcasting business.

 

Item 3.    Legal Proceedings

 

The Company is subject to various outstanding claims which arise in the ordinary course of business and to other legal proceedings. Management anticipates that any potential liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s financial statements.

 

Item 4.    Mine Safety Disclosures

 

Not applicable.

 

26

 

 

 

PART II

 

Item 5.     Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Our Class A Common Stock trades on the NASDAQ Global Market of the NASDAQ Stock Market LLC under the ticker symbol SGA. There is no public trading market for our Class B Common Stock.

  

The closing price for our Class A Common Stock on March 4, 2020 as reported by the NASDAQ was $27.41. As of March 4, 2020, there were approximately 170 holders of record of our Class A Common Stock, and one holder of our Class B Common Stock.

 

Dividends

 

During 2019, our Board of Directors declared four quarterly cash dividends totaling $1.20 per share on its Classes A and B shares. These dividends totaling approximately $7.1 million were accrued or paid during 2019. See Note 1 of the financial statements for specific details on the dividends.

 

During 2018, our Board of Directors declared four quarterly cash dividends and a special cash dividend totaling $1.45 per share on its Classes A and B shares. These dividends totaling approximately $8.6 million were accrued or paid during 2018. See Note 1 of the financial statements for specific details on the dividends.

 

During 2017, our Board of Directors declared four quarterly cash dividends and a special cash dividend totaling $2.00 per share on its Classes A and B shares. These dividends totaling approximately $11.8 million were accrued or paid during 2017. See Note 1 of the financial statements for specific details on the dividends.

 

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Securities Authorized for Issuance Under Equity Compensation Plan Information

 

The following table sets forth as of December 31, 2019, the number of securities outstanding under our equity compensation plans, the weighted average exercise price of such securities and the number of securities available for grant under these plans:

 

   (a)   (b)   (c) 
   Number of       Number of
Securities
Remaining
 
   Shares to       Available for 
   be Issued Upon
Exercise of
   Weighted-Average    Future Issuance
Under Equity
 
   Outstanding
Options
   Exercise Price of
Outstanding Options,
   Compensation
Plans
 
Plan Category  Warrants, and
Rights
   Warrants
and Rights
   (Excluding
Column (a))
 
Equity Compensation Plans Approved by Stockholders:               
Employees’ 401(k) Savings and Investment Plan      $    520,665 
2005 Incentive Compensation Plan   128,224(1)  $0.00(2)   326,650 
Equity Compensation Plans Not Approved by Stockholders:               
None             
Total   128,224         847,315 

 

  (1) All 128,224 shares are restricted stock.

 

  (2) Weighted-Average Exercise Price of Outstanding Options is $0.00 as they are all restricted stock.

 

Recent Sales of Unregistered Securities

 

Not applicable.

 

Issuer Purchases of Equity Securities

 

The following table summarizes our repurchases of our Class A Common Stock during the three months ended December 31, 2019. Shares repurchased during the quarter were from the retention of shares for the payment of withholding taxes related to the vesting of restricted stock.

 

               Approximate 
           Total Number   Dollar 
           of   Value of 
           Shares   Shares 
           Purchased   that May Yet 
       Average   as Part of   be 
   Total Number   Price   Publicly   Purchased 
   of Shares   Paid per   Announced   Under the 
Period  Purchased   Share   Program   Program(a) 
October 1 – October 31, 2019   138   $29.840       $19,799,944 
November 1 – November 30, 2019   18,676   $30.290       $19,234,248 
December 1 – December 31, 2019      $       $19,234,248 
Total   18,814   $30.287       $19,234,248 

 

  (a) 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.

 

 

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Performance Graph

 

COMMON STOCK PERFORMANCE

 

Set forth below is a line graph comparing the cumulative total stockholder return for the years ended December 31, 2015, 2016, 2017, 2018 and 2019 of our Class A Common Stock against the cumulative total return of our Index the NASDAQ Stock Market (US Companies) and a Peer Group selected by us consisting of the following radio broadcast companies: Beasley Broadcast Group, Inc., Cumulus Media Inc., Emmis Communications Corp., Entercom Communications Corp., Entravision Communications Corp., iHeart Communications, Inc., The Nielsen Company, Radio One Inc., Saga Communications, Inc., Salem Communications Corp., Sirius XM Radio Inc., Spanish Broadcasting System, Inc., and Townsquare Media, Inc. The graph and table assume that $100 was invested on December 31, 2014, in each of our Class A Common Stock, the NASDAQ Stock Market (US Companies) and the Peer Group and that all dividends were reinvested.   The information contained in this graph shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.

 

 

 

  Legend
  Symbol  Total Return For:   12/14   12/15   12/16   12/17   12/18   12/19
     Saga Communications Inc.   100.00   90.93   122.57   103.08   88.08   83.72 
                               
     CRSP Nasdaq Stock Market US   100.00   107.71   118.26   152.91   150.41   204.71 
                               
     Peer Group   100.00   106.77   109.50   117.51   106.26   124.23 

 

The comparisons in the above table are required by the SEC. This table is not intended to forecast or to be indicative of any future return of our Class A Common Stock.

 

29

 

 

Item 6.    Selected Financial Data

 

   Years Ended December 31, 
   2019 (1)   2018   2017 (3)(4)   2016 (3)(5)   2015 (3)(6) 
   (In thousands except per share amounts) 
OPERATING DATA:                         
Net Operating Revenue  $123,072   $124,829   $118,149   $118,955   $111,792 
Station Operating Expense   92,692    93,727    87,759    86,799    83,188 
Corporate General and Administrative   11,460    11,359    11,657    10,980    10,091 
Other Operating (Income) Expense, net   112    61    55    (1,351)   509 
Impairment of Intangible Assets           1,449        874 
Operating Income From Continuing Operations  $18,808   $19,682   $17,229   $22,527   $17,130 
Interest Expense  $735   $946   $903   $744   $855 
Net Income:                         
From Continuing Operations  $13,279   $13,690   $22,246   $12,910   $9,146 
From Discontinued Operations           32,471    5,276    4,268 
Net Income  $13,279   $13,690   $54,717   $18,186   $13,414 
Basic Earnings (Loss) Per Share:                         
From Continuing Operations  $2.23   $2.30   $3.77   $2.20   $1.58 
From Discontinued Operations           5.50    0.90    0.73 
Earnings Per Share  $2.23   $2.30   $9.27   $3.10   $2.31 
Weighted Average Common Shares   5,834    5,829    5,803    5,761    5,706 
Diluted Earnings (Loss) Per Share:                         
From Continuing Operations  $2.23   $2.30   $3.77   $2.19   $1.56 
From Discontinued Operations           5.50    0.90    0.73 
Earnings Per Share  $2.23   $2.30   $9.27   $3.09   $2.29 
Weighted Average Common and Common Equivalent Shares   5,834    5,829    5,807    5,771    5,740 
Cash Dividends Declared Per Common Share  $1.20    1.45    2.00    1.30    1.10 

 

   December 31, 
   2019   2018 (2)   2017 (3)(4)   2016 (3)(5)   2015 (3)(6) 
   (In thousands) 
BALANCE SHEET DATA:                         
Working Capital  $49,219   $45,430   $55,269   $36,727   $32,450 
Net Property and Equipment  $58,711   $59,103   $56,235   $49,174   $50,277 
Net Intangible and Other Assets  $126,963   $120,779   $116,360   $118,052   $106,399 
Total Assets  $252,394   $248,477   $248,769   $219,998   $203,464 
Long-term Debt Including Current Portion  $10,000   $20,000   $25,000   $35,287   $35,287 
Stockholders’ Equity  $192,352   $184,999   $179,465   $134,982   $122,816 

 

(1) Reflects the results of WOGK-FM, WNDT-FM, WNDD-FM, and WNDN-FM acquired on December 31, 2018.
   
(2) Reflects the assets and liabilities of WOGK-FM, WNDT-FM, WNDD-FM, and WNDN-FM acquired on December 31, 2018.
   
(3) On September 1, 2017, the Company sold the Joplin, Missouri and Victoria, Texas television stations. The historical results of operations for the television stations are presented in the discontinued operations for all periods presented.
   
(4) Reflects the results of WCVL-FM operated under the terms of an LMA from February 1, 2015 until acquired on April 18, 2017.  Reflects the results of WCKN-FM, WMXF-FM, WXST-FM, WAVF-FM, WSPO-AM, W261-DG, W257BQ, WVSC-FM, WLHH-FM, WOEX-FM, W256CB, W293BZ acquired on September 1, 2017.
   
(5) Reflects the results of WLVQ-FM operated under the terms of an LMA from November 16, 2015 until acquired in February 2016.
   
(6) Reflects the results of WSVA-AM, WHBG-AM, WQPO-FM, WWRE-FM, and WMQR-FM acquired in August 2015 and WSIG-FM acquired in September 2015. Reflects the results of WLVQ-FM operated under the terms of an LMA effective November 2015. In December 2015, the Company disposed of the Illinois Radio Network.

 

30

 

 

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with Item 1. Business, Item 6. Selected Financial Data and the consolidated financial statements and notes thereto of Saga Communications, Inc. and its subsidiaries contained elsewhere herein. The following discussion is presented on both a consolidated and segment basis. Corporate general and administrative expenses, interest expense, write-off debt issuance costs, other (income) expense, and income tax provision are managed on a consolidated basis and are reflected only in our discussion of consolidated results.

 

On September 1, 2017 the Company sold its Joplin, Missouri and Victoria, Texas television stations. The historical results of operations for the television stations are presented in the discontinued operations for all periods presented (see Note 4). As a result of the Company’s television stations being reported as discontinued operations the Company only has one reportable segment at December 31, 2019, 2018 and 2017. Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to the Company’s continuing operations. The discussion of our operating performance focuses on operating income because we manage our stations primarily on operating income. Operating performance is evaluated for each individual market.

 

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 it 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.

 

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.

 

Continuing Operations - Radio Stations

 

Our radio station’s 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 markets’ sales staff. For the years ended December 31, 2019, 2018 and 2017, approximately 88%, 87% and 88%, respectively, of our radio station’s 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. Political revenue significantly decreased in 2019 and 2017 due to the decreased number of national, state, and local elections in most of our markets as compared to 2018.

 

31

 

 

Our net operating revenue, station operating expense and operating income vary from market to market based upon the 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 broadcast primarily in small to midsize markets. Historically, these 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.

 

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 are 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 by 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 the 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, programming expenses, 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 opportunities through targeted digital advertising and an array of digital services that include online promotions, mobile messaging, and email marketing.

 

32

 

 

During the years ended December 31, 2019, 2018 and 2017, our Columbus, Ohio; Des Moines, Iowa; Manchester, New Hampshire; Milwaukee, Wisconsin and Norfolk, Virginia markets, when combined, represented approximately 39%, 41%, and 41%, respectively, of our consolidated net operating revenue. An adverse change in any of these radio markets or relative market position in those markets could have a significant impact on our operating results as a whole.

 

The following tables describe the percentage of our consolidated net operating revenue represented by each of these markets:

 

   Percentage of Consolidated 
   Net Operating Revenue 
   for the Years 
   Ended December 31, 
   2019   2018   2017 
Market:               
Columbus, Ohio   11%   11%   11%
Des Moines, Iowa   6%   7%   7%
Manchester, New Hampshire   5%   5%   5%
Milwaukee, Wisconsin   11%   12%   12%
Norfolk, Virginia   6%   6%   6%

 

During the years ended December 31, 2019, 2018 and 2017, the radio stations in our five largest markets when combined, represented approximately 45%, 48% and 48%, respectively, of our consolidated station operating income. The following tables describe the percentage of our consolidated station operating income represented by each of these markets:

 

   Percentage of 
   Consolidated Station 
   Operating Income (*) 
   for the Years 
   Ended December 31, 
   2019   2018   2017 
Market:               
Columbus, Ohio   15%   16%   15%
Des Moines, Iowa   6%   6%   7%
Manchester, New Hampshire   6%   6%   6%
Milwaukee, Wisconsin   12%   14%   14%
Norfolk, Virginia   6%   6%   6%

 

  (*) Operating income plus corporate general and administrative expenses, depreciation and amortization, other operating (income) expenses, and impairment of intangible assets.

 

33

 

 

Discontinued Operations - Television Stations

 

We sold our television stations on September 1, 2017. All historical results of operations for the television stations are reported in the discontinued operations for all periods presented.

 

Our television station’s primary source of revenue was from the sale of advertising for broadcast on our stations. The number of advertisements available for broadcast on our television stations were limited by network affiliation and syndicated programming agreements and, with respect to children’s programs, federal regulation. Our television stations’ local market managers determined the number of advertisements to be broadcast in locally produced programs only, which were primarily news programming and occasionally local sports or information shows.

 

Our net operating revenue, station operating expense and operating income vary from market to market based upon the market’s rank or size, which was based upon population, available television advertising revenue in that particular market, and the popularity of programming being broadcast.

 

Our financial results were dependent on a number of factors, the most significant of which was our ability to generate advertising revenue through rates charged to advertisers. The rates a station was able to charge were, in large part, based on a station’s ability to attract audiences in the demographic groups targeted by its advertisers, as measured principally by periodic reports by independent national rating services. 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 through locally produced news, sports and weather and as a result of syndication and network affiliation agreements, local market competition, the ability of television broadcasting to reach a mass appeal market compared to other advertising media, and signal strength including cable/satellite coverage, and government regulation and policies.

 

Our stations strived to maximize revenue by constantly adjusting prices for our commercial spots based upon local market conditions, advertising demands and ratings. While there may have been 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 station generally did not vary significantly from year to year. Any change in our revenue, with the exception of those instances where stations were acquired or sold, was generally the result of pricing adjustments, which were made to ensure that the station efficiently utilized available inventory.

 

Because audience ratings in the local market are crucial to a station’s financial success, we endeavored to develop strong viewer loyalty by providing locally produced news, weather and sports programming. We believe that this emphasis on the local market provided us with the viewer loyalty we were trying to achieve.

 

Most of our revenue was generated from local advertising, which was sold primarily by each television markets’ sales staff. For the 8 months ended August 31, 2017 approximately 83%, of our television segment’s gross revenue was from local advertising. To generate national advertising sales, we engaged independent advertising sales representatives that specialize in national sales for each of our television 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. Political revenue significantly decreased in 2017 due to the increased number of national, state, and local elections in most of our markets as compared to the previous year.

 

The primary operating expenses involved in owning and operating television stations were employee salaries, sales commissions, programming expenses, including news production and the cost of acquiring certain syndicated programming, depreciation, and advertising and promotion expenses.

 

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Results of Operations

 

The following tables summarize our results of operations for the three years ended December 31, 2019, 2018 and 2017.

 

Consolidated Results of Operations

 

               2019 vs. 2018   2018 vs. 2017 
   Years Ended December 31,   $ Increase   % Increase   $ Increase   % Increase 
   2019   2018   2017   (Decrease)   (Decrease)   (Decrease)   (Decrease) 
   (In thousands, except %’s and per share information) 
Net operating revenue  $123,072   $124,829   $118,149   $(1,757)   (1.4)%  $6,680    5.7%
Station operating expense   92,692    93,727    87,759    (1,035)   (1.1)%   5,968    6.8%
Corporate G&A   11,460    11,359    11,657    101    0.9%   (298)   (2.6)%
Other operating expense (income), net   112    61    55    51    N/M    6    N/M 
Impairment of intangible assets           1,449            (1,449)   N/M 
Operating income from continuing operations   18,808    19,682    17,229    (874)   (4.4)%   2,453    14.2%
Interest expense   735    946    903    (211)   (22.3)%   43    4.8%
Interest (income)   (610)   (631)       21    (3.3)%   (631)   N/M 
Other (income) expense   (16)   (23)       7    N/M    (23)   N/M 
Income from continuing operations before taxes   18,699    19,390    16,326    (691)   (3.6)%   3,064    18.8%
Income tax expense (benefit)   5,420    5,700    (5,920)   (280)   (4.9)%   11,620    N/M 
Income from continuing operations, net of tax   13,279    13,690    22,246    (411)    (3.0)%   (8,556)   (38.5)%
Income from discontinued operations, net of tax           32,471            (32,471)   N/M 
Net income  $13,279   $13,690   $54,717   $(411)   (3.0)%  $(41,027)   N/M 
Earnings per share:                                   
From continuing operations  $2.23   $2.30   $3.77   $(0.07)   (3.0)%  $(1.47)   39.0%
From discontinued operations           5.50            (5.50)   N/M 
Earnings per share (diluted)  $2.23   $2.30   $9.27   $(0.07)   (3.0)%  $(6.97)   N/M 

 

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Results of Discontinued Operations

 

       2019 vs. 2018   2018 vs. 2017 
   Years Ended December 31,   $ Increase   % Increase   $ Increase   % Increase 
   2019   2018   2017(1)   (Decrease)   (Decrease)   (Decrease)   (Decrease) 
   (In thousands, except %’s and per share information)     
Net operating revenue  $   $   $14,238   $       $(14,238)    N/M 
Station operating expense           9,757            (9,757)    N/M 
Other operating expense (income)           31            (31)    N/M 
Operating income from discontinued operations           4,450            (4,450)    N/M 
Interest expense           21            (21)    N/M 
Other income                            
Income before income taxes from discontinued operations           4,429            (4,429)    N/M 
Pretax gain on the disposal of discontinued operations           50,842                   (50,842)    N/M 
Total pretax gain on discontinued operations           55,271            (55,271)    N/M 
Income tax expense           22,800            (22,800)    N/M 
Income from discontinued operations  $   $   $32,471   $       $(32,471)    N/M 

 

  (1) Results of operations for the Television stations are reflected through August 31, 2017. The effective date of the sale was September 1, 2017.

 

N/M = Not Meaningful

 

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Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

 

For the year ended December 31, 2019, consolidated net operating revenue was $123,072,000 compared with $124,829,000 for the year ended December 31, 2018, a decrease of $1,757,000 or 1.4%. We had an increase of approximately $4,210,000 that was attributable to stations that we did not own or operate for the entire comparable period, and a decrease of $5,967,000 generated by stations we owned or operated for the comparable period in 2018 (“same station”). The decrease in same station revenue was primarily the result of decreases in gross local revenue of $3,373,000, gross political revenue of $1,987,000 and gross national revenue of $1,321,000 from 2018 partially offset by an increase in gross non-spot revenue of $649,000 and a decrease in agency commissions of $645,000. The decrease in gross local revenue is due to decreases in our Brattleboro, Vermont; Champaign, Illinois; Charlottesville, Virginia; and Des Moines, Iowa markets. The decrease in gross political revenue was due to a lower number of national, state and local elections in our Bellingham, Washington; Columbus, Ohio; and Milwaukee, Wisconsin markets. The decrease in gross national revenue is due to decreases in our Champaign, Illinois; Charleston, South Carolina; Milwaukee, Wisconsin and Norfolk, Virginia markets. The increase in gross non-spot revenue is due to increases in our Champaign, Illinois; Columbus, Ohio; and Ithaca, New York markets. The decrease in agency commissions was due to lower local agency revenue.

 

Station operating expense was $92,692,000 for the year ended December 31, 2019, compared with $93,727,000 for the year ended December 31, 2018, a decrease of $1,035,000 or 1.1%. We had an increase of approximately $3,653,000 that was attributable to stations that we did not own or operate for the entire comparable period, and a decrease of approximately $4,688,000 generated by stations we owned or operated for the comparable period in 2018. The decrease is primarily attributable to a decrease in healthcare costs of $1,358,000, a decrease compensation related costs of $1,121,000, a decrease in local commission expense of $758,000, a decrease in amortization expenses of $402,000 related to intangible assets, a decrease of $267,000 in national rep commissions, a decrease in trade expense of $266,000 and a decrease of $201,000 in music license fees.

 

Operating income for the year ended December 31, 2019 was $18,808,000 compared to $19,682,000 for the year ended December 31, 2018, a decrease of $874,000 or 4.4%. The decrease was a result of the decrease in net operating revenue partially offset by the decrease in station operating expense, described above, an increase in our corporate general and administrative expenses of $101,000 or less than 1%, and an increase in other operating expense of $51,000 from 2018.

 

We generated net income of $13,279,000 ($2.23 per share on a fully diluted basis) during the year ended December 31, 2019, compared to $13,690,000 ($2.30 per share on a fully diluted basis) for the year ended December 31, 2018, a decrease of $411,000 or 3%. The decrease in net income is due to the decrease of operating income, described above, a decrease in interest income of $21,000, and a decrease in other income of $7,000 offset by a decrease in income taxes of $280,000 and a decrease in interest expense of $211,000. The decrease in interest expense is due to the decrease in our debt outstanding partially offset by an increase in our interest rates.

 

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Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

 

For the year ended December 31, 2018, consolidated net operating revenue was $124,829,000 compared with $118,149,000 for the year ended December 31, 2017, an increase of $6,680,000 or 5.7%. We had an increase of approximately $5,440,000 that was attributable to stations that we did not own or operate for the entire comparable period, and an increase of $1,240,000 generated by stations we owned or operated for the comparable period in 2017 (“same station”). The increase in same station revenue was primarily the result of increases in gross national revenue of $1,321,000, gross political revenue of $1,279,000, and gross non-spot revenue of $458,000 from 2017 partially offset by a decrease in gross local revenue of $1,811,000. The increase in gross national revenue is due to increases in our Champaign, Illinois; Manchester, New Hampshire; Milwaukee, Wisconsin and Norfolk, Virginia markets. The increase in gross political revenue was due to a higher number of national, state and local elections in most of our markets. The increase in gross non-spot revenue is due to increases in our Ithaca, New York and Yankton, South Dakota markets. The decrease in gross local revenue was due to decreases in our Champaign, Illinois; Des Moines, Iowa; Harrisonburg, Virginia; Jonesboro, Arkansas; Northampton, Massachusetts and Springfield, Massachusetts markets.

 

Station operating expense was $93,727,000 for the year ended December 31, 2018, compared with $87,759,000 for the year ended December 31, 2017, an increase of $5,968,000 or 6.8%. We had an increase of approximately $5,326,000 that was attributable to stations that we did not own or operate for the entire comparable period, and an increase of approximately $642,000 generated by stations we owned or operated for the comparable period in 2017. The increase is primarily attributable to an increase in healthcare costs of $365,000 and an increase in music licensing fees of $283,000 related to a credit we received in the third quarter of 2017 resulting from SESAC arbitration.

 

Operating income for the year ended December 31, 2018 was $19,682,000 compared to $17,229,000 for the year ended December 31, 2017, an increase of $2,453,000 or 14.2%. The increase was a result of the increase in net operating revenue partially offset by the increase in station operating expense, described above, a decrease in our corporate general and administrative expenses of $298,000 or 2.6%, an increase in other operating expense of $6,000 from 2017 and an impairment charge of $1,449,000 in 2017. The decrease in corporate expenses is due to a decrease in key man life insurance of $220,000, and a decrease of $100,000 in compensation costs.

 

Income from continuing operations, net of tax for the year ended December 31, 2018 was $13,690,000 compared to $22,246,000 for the year ended December 31, 2017, a decrease of $8,556,000 or 38.5%. The decrease in income from continuing operations, net of tax is primarily due to the income tax benefit of approximately $11.5 million in 2017 due to a decrease in the deferred tax rate for federal income tax from 35% to 21% as a result of the Tax Cuts and Jobs Act, partially offset by the increase in operating income in 2018, described above, an increase in interest expense of $43,000 due to an increase in our interest rates, an increase in interest income of $631,000 and an increase in other income of $23,000. See Note 7 of the financial statements for more information on the impact of the Tax Cuts and Jobs Act. The increase in interest income is attributable to an increase in interest and dividend income earned on cash and cash equivalents. The increase in other income is due to insurance proceeds resulting from damage to the roof of our building in our Bellingham, Washington market.

 

We generated net income of $13,690,000 ($2.30 per share on a fully diluted basis) during the year ended December 31, 2018, compared to $54,717,000 ($9.27 per share on a fully diluted basis) for the year ended December 31, 2017, a decrease of $41,027,000. This is a direct result of the decrease in income from continuing operations, net of tax of $8,556,000 and a decrease in income from discontinued operations, net of tax of $32,471,000 due to the sale of the television stations in September 2017 and the related gain recognized on the sale.

 

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Liquidity and Capital Resources

 

Debt Arrangements and Debt Service Requirements

 

On August 18, 2015, we entered into a new credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A., The Huntington National Bank, Citizens Bank, National Association and J.P. Morgan Securities LLC. In connection with the execution of the Credit Facility, the credit agreement in place at June 30, 2015 (the “Old Credit Agreement”) was terminated, and all outstanding amounts were paid in full. The Credit Facility consists of a $100 million five-year revolving facility (the “Revolving Credit Facility”) and initially matured on August 18, 2020. On June 27, 2018, we entered into a Second Amendment to our Credit Facility, which had first been amended on September 1, 2017, extending the revolving credit maturity date under the Credit Agreement for five years after the date of the amendment to June 27, 2023. On July 1, 2019, we elected to reduce our Revolving Credit Facility to $70 million.

 

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. 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 LIBOR (1.75% at December 31, 2019), plus 1% to 2% or the base rate plus 0% to 1%. The spread over LIBOR and the base rate vary from time to time, depending upon our financial leverage. Letter of credit issued under the Credit Facility will be subject to a participation fee (which is equal to the interest rates applicable to Eurocurrency Loans, as defined in the Credit Agreement) payable to each of the Lenders and a fronting fee equal to 0.25% per annum payable to the issuing bank. We also pay quarterly commitment fees of 0.2% to 0.3% per annum on the unused portion of the Revolving Credit Facility.

 

The Credit Facility contains a number of financial covenants (all of which we were in compliance with at December 31, 2019) which, among other things, require us to maintain specified financial ratios and impose certain limitations on us with respect to investments, additional indebtedness, dividends, distributions, guarantees, liens and encumbrances.

 

On June 7, 2019, we used $5,000,000 from funds generated by operations to voluntarily pay down a portion of our Revolving Credit Facility.

 

On February 4, 2019, we used $5,000,000 from funds generated by operations to voluntarily pay down a portion of our Revolving Credit Facility and it is presented in current portion of long-term debt in our balance sheet at December 31, 2018.

 

On September 4, 2018, we used $5,000,000 from funds generated by operations to voluntarily pay down a portion of our Revolving Credit Facility.

 

We had approximately $60 million of unused borrowing capacity under the Revolving Credit Facility at December 31, 2019.

 

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Sources and Uses of Cash

 

During the years ended December 31, 2019, 2018 and 2017, we had net cash flows from operating activities from continuing operations of $25,335,000, $25,559,000 and $23,912,000, respectively. We believe that cash flow from operations will be sufficient to meet quarterly debt service requirements for interest and scheduled payments of principal under the Credit Facility. 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 December 31, 2019, we have repurchased 2.1 million shares of our Class A Common Stock for $56.5 million. During the year ended December 31, 2019, approximately 21,000 shares were repurchased for $606,000 under our stock buy-back program and 19,000 shares were retained for payment of withholding taxes for $566,000 related to the vesting of restricted stock.

 

Our capital expenditures, exclusive of acquisitions, for the year ended December 31, 2019 were $5,732,000 ($5,922,000 in 2018). We anticipate capital expenditures in 2020 to be approximately $5.0 million to $5.5 million, which we expect to finance through funds generated from operations.

 

On January 9, 2019, the Company closed on an agreement to purchase WPVQ-AM and W222CH from County Broadcasting Company, LLC for an aggregate purchase price of $210 thousand using funds generated from operations. 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.

 

On October 29, 2018, the Company entered into an agreement to purchase WOGK-FM, WNDT-FM, WNDD-FM and WNDN-FM, from Ocala Broadcasting Corporation. The Company closed this transaction effective December 31, 2018 using funds generated from operations of $9.84 million, which included the purchase price of $9.3 million, the purchase of $566 thousand in accounts receivable by certain closing adjustments and transactional costs of approximately $25 thousand, of which $553 thousand was paid in January 2019.

 

On May 9, 2017 we entered into a definitive agreement to sell our Joplin, Missouri and Victoria, Texas television stations for approximately $66.6 million, subject to certain adjustments, to Evening Telegram Company d/b/a Morgan Murphy Media (the “Television Sale”). The Television Sale was completed on September 1, 2017 and the Company received net proceeds of $69.5 million which included the sales price of $66.6 million, the sales of accounts receivable of approximately $3.4 million, offset by certain closing adjustments and transactional costs of $500 thousand. The Company recognized a pretax gain of $50.8 million as a result of the Television Sale in the third quarter of 2017. The gain net of tax for the Television Sale was $29.9 million. Effective September 1, 2017, the Company used $24.2 million of the proceeds from the Television Sale to finance the acquisition of radio stations in South Carolina (as described in Note 10). On October 5, 2017 and November 3, 2017, the Company used $5,287,000 and $5,000,000, respectively of the proceeds from the Television Sale to pay down a portion of its Revolving Credit Facility (as defined and described in Note 5).

 

On May 9, 2017, the Company entered into an Asset Purchase Agreement with Apex Media Corporation and Pearce Development, LLC f/k/a Apex Real Property, LLC to purchase, for approximately $23 million (subject to certain purchase price adjustments) plus the right to air certain radio commercials, substantially all the assets related to the operation of the following radio stations principally serving the South Carolina area: WCKN (FM), WMXF(FM), WXST(FM), WAVF(FM), WSPO(AM), W261DG, W257BQ, WVSC(FM), WLHH(FM), WOEZ(FM), W256CB, W293BZ. The Company closed this transaction effective September 1, 2017, simultaneously with the closing of the Television Sale using funds generated from the Television Sale.

 

On January 16, 2017, we entered into an asset purchase agreement to purchase an FM radio station (WCVL) from WUVA, Incorporated, serving the Charlottesville, Virginia market for approximately $1,650,000. Simultaneously, we entered into a TBA to begin operating the station on February 1, 2017. We completed this acquisition on April 18, 2017. This acquisition was financed through funds generated from operations.

 

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On March 4, 2020, the Company’s Board of Directors declared a regular cash dividend of $0.32 per share on its Classes A and B Common Stock. This dividend, totaling approximately $1.9 million, will be paid on April 10, 2020 to shareholders of record on March 16, 2020.

 

On December 11, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.30 per share on its Classes A and B shares. This dividend totaling approximately $1.8 million was paid on January 17, 2020 to shareholders of record on December 27, 2019 and funded by cash on the Company’s balance sheet.

 

On September 12, 2019, the Company’s Board of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling approximately $1.8 million, was paid on October 11, 2019 to shareholders of record on September 23, 2019 and funded by cash on the Company’s balance sheet.

 

On May 30, 2019, the Company’s Board of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling approximately $1.8 million, was paid on July 5, 2019 to shareholders of record on June 14, 2019 and funded by cash on the Company’s balance sheet.

 

On February 26, 2019, the Company’s Board of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling approximately $1.8 million, was paid on March 29, 2019 to shareholders of record on March 12, 2019 and funded by cash on the Company’s balance sheet.

 

On June 7, 2019, the Company used $5,000,000 from funds generated by operations to voluntarily pay down a portion of its Revolving Credit Facility.

 

On February 4, 2019, the Company used $5,000,000 from funds generated by operations to voluntarily pay down a portion of its Revolving Credit Facility and it is presented in current portion of long-term debt in our balance sheet at December 31, 2018.

 

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 and television stations and dividend payments will be financed through funds generated from operations, borrowings under the Credit Agreement, additional debt or equity financing, or a combination thereof. However, there can be no assurances that any such financing will be available on acceptable terms, if at all.

 

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Summary Disclosures About Contractual Obligations

 

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. The following table reflects a summary of our contractual cash obligations and other commercial commitments as of December 31, 2019:

 

   Payments Due By Period 
       Less Than           More Than 
Contractual Obligations:  Total   1 Year   1 to 3 Years   4 to 5 Years   5 Years 
   (In thousands) 
Long-Term Debt Obligations(1)  $10,000   $   $   $10,000   $ 
Interest Payments on Long-Term Debt(2)   1,404    403    805    196     
Operating Leases   8,193    1,689    3,091    1,909    1,504 
Purchase Obligations(3)   33,137    13,750    11,340    6,611    1,436 
Other Long-Term Liabilities                    
                          
Total Contractual Cash Obligations  $52,734   $15,842   $15,236   $18,716   $2,940 

 

  (1) Under our Credit Facility, the maturity on outstanding debt of $10 million could be accelerated if we do not maintain certain covenants. (See Note 5 of the Notes to Consolidated Financial Statements).
  (2) Interest payments on the long-term debt are based on scheduled debt maturities and the interest rates are held constant over the remaining terms.
  (3) Includes $21,721,000 in obligations under employment agreements and contracts with on-air personalities, other employees, and our President, CEO, and Chairman, Edward K. Christian.

 

We anticipate that the above contractual cash obligations will be financed through funds generated from operations or additional borrowings under our Credit Facility, or a combination thereof.

 

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Critical Accounting Policies and Estimates

 

Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, 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, including estimates related to the following:

 

Revenue Recognition:   Revenue from the sale of commercial broadcast time to advertisers is recognized when commercials are broadcast. Revenue is reported net of advertising agency commissions. Agency commissions, when applicable, are based on a stated percentage applied to gross billing. All revenue is recognized in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Topic 13, Revenue Recognition Revised and Updated and the Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers.

 

Carrying Value of Accounts Receivable and Related Allowance for Doubtful Accounts:   We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us (e.g., bankruptcy filings, credit history, etc.), we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize reserves for bad debts based on past loss history and the length of time the receivables are past due, ranging from 50% for amounts 90 days outstanding to 100% for amounts over 120 days outstanding. If our evaluations of the collectability of our accounts receivable differ from actual results, additional bad debt expense and allowances may be required. Our historical estimates have been a reliable method to estimate future allowances and our reserves have averaged approximately 2-4% of our outstanding receivables. The effect of an increase in our allowance of 1% of our outstanding receivables as of December 31, 2019, from 3.7% to 4.7% or from $671,000 to $845,000 would result in a decrease in net income of $128,000, net of taxes for the year ended December 31, 2019.

 

Purchase Accounting:   We account for our acquisitions under the purchase method of accounting. The total cost of acquisitions is allocated to the underlying net assets, based on their respective estimated fair values as of the acquisition date. The excess of consideration paid over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair values of the net assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items.

 

Broadcast Licenses and Goodwill:   As of December 31, 2019, we have recorded approximately $95,311,000 in broadcast licenses and $18,963,000 in goodwill, which represents 45.3% of our total assets. In assessing the recoverability of these assets, we must conduct impairment testing and charge to operations an impairment expense only in the periods in which the carrying value of these assets is more than their fair value. We perform an annual impairment test on October 1 of each year.

 

There was no impairment of broadcast licenses in 2019 or 2018.

 

During the fourth quarter of 2017, we recognized a $1,449,000 impairment charge for broadcast licenses primarily due to a decline in available market revenue, market revenue share, profit margins and estimated long-term growth rates in our Springfield, Illinois market. There were no impairment indicators for goodwill. Please refer to Note 3 — Broadcast Licenses, Goodwill and Other Intangible Assets, in the accompanying notes to the consolidated financial statements for a discussion of several key assumptions used in the fair value estimate of our broadcast licenses during our fourth quarter annual impairment test.

 

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We believe our estimate of the value of our broadcast licenses is a critical accounting estimate as the value is significant in relation to our total assets, and our estimate of the value uses assumptions that incorporate variables based on past experiences and judgments about future operating performance of our stations. These variables include but are not limited to: (1) the forecast growth rate of each radio and television market, including population, household income, retail sales and other expenditures that would influence advertising expenditures; (2) 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. Changes in our estimates of the fair value of these assets could result in material future period write-downs in the carrying value of our broadcast licenses. For illustrative purposes only, had the fair values of each of our broadcasting licenses been lower by 10% as of December 31, 2019, we would have recorded an additional broadcast license impairment of approximately $1.8 million; had the fair values of each of our broadcasting licenses been lower by 20% as of December 31, 2019, we would have recorded an additional broadcast license impairment of approximately $6.1 million; and had the fair value of our broadcasting licenses been lower by 30% as of December 31, 2019, we would have recorded an additional broadcast license impairment of approximately $12.4 million.

 

Stock Based Compensation:   We use a Black-Scholes valuation model to estimate the fair value of stock option awards. Under the fair value method, stock based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the vesting period. Determining the fair value of share-based awards at grant date requires assumptions and judgments about expected volatility and forfeiture rates, among other factors. If actual results differ significantly from these assumptions, then stock based compensation expense may differ materially in the future from that previously recorded.

 

The fair value of restricted stock awards is determined based on the closing market price of the Company’s Class A Common Stock on the grant date and is adjusted at each reporting date based on the amount of shares ultimately expected to vest. We had no stock options outstanding at December 31, 2019 or 2018.

 

Litigation and Contingencies:   On an ongoing basis, we evaluate our exposure related to litigation and contingencies and record a liability when available information indicates that a liability is probable and estimable. We also disclose significant matters that are reasonably possible to result in a loss or are probable but not estimable.

 

Market Risk and Risk Management Policies

 

Our earnings are affected by changes in short-term interest rates as a result of our long-term debt arrangements. If market interest rates averaged 1% more in 2019 than they did during 2019, our interest expense would increase, and income before taxes would decrease by $126,000. These amounts are determined by considering the impact of the hypothetical interest rates on our borrowing cost. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our financial structure.

 

Inflation

 

The impact of inflation on our operations has not been significant to date. There can be no assurance that a high rate of inflation in the future would not have an adverse effect on our operations.

 

Recent Accounting Pronouncements

 

Recent accounting pronouncements are described in Note 1 to the accompanying financial statements.

 

44

 

 

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.

 

Information appearing under the caption “Market Risk and Risk Management Policies” in Item 7 is hereby incorporated by reference.

 

Item 8.   Financial Statements and Supplementary Data

 

The financial statements attached hereto are filed as part of this annual report.

 

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A.   Controls and Procedures

 

Evaluation of Disclosure 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 its 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 (the “Exchange Act”). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures over financial reporting were effective to ensure that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act to be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework as set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2019. Our internal control over financial reporting as of December 31, 2019 has been audited by UHY LLP, an independent registered public accounting firm, as stated in its report which appears below.

 

45

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and the Board of Directors Saga Communications, Inc.

 

Opinion on Internal Control over Financial Reporting

 

We have audited Saga Communications, Inc.’s (the Company’s) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Saga Communications, Inc. as of December 31, 2019 and 2018, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019 and the related notes and financial statement schedule, and our report dated March 13, 2020 expressed an unqualified opinion thereon.

 

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ UHY LLP  
Farmington Hills, Michigan  
March 13, 2020  

 

46

 

 

Item 9B.   Other Information

 

None.

 

PART III

 

Item 10.   Directors, Executive Officers and Corporate Governance

 

The information required by this item is incorporated by reference to the information contained in our Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the Company’s fiscal year. See also Item 1. Business — Executive Officers.

 

Item 11.   Executive Compensation

 

The information required by this item is incorporated by reference to the information contained in our Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the Company’s fiscal year.

 

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information required by this item is incorporated by reference to the information contained in our Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the Company’s fiscal year. In addition, the information contained in the “Securities Authorized for Issuance Under Equity Compensation Plan Information” subheading under Item 5 of this report is incorporated by reference herein.

 

Item 13.   Certain Relationships and Related Transactions, and Director Independence

 

The information required by this item is incorporated by reference to the information contained in our Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the Company’s fiscal year.

 

Item 14.   Principal Accountant Fees and Services

 

The information required by this item is incorporated by reference to the information contained in our Proxy Statement for the 2020 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the Company’s fiscal year.

 

47

 

 

PART IV

 

Item 15.   Exhibits and Financial Statement Schedules

 

(a) 1.  Financial Statements

 

The following consolidated financial statements attached hereto are filed as part of this annual report:

 

Report of Independent Registered Public Accounting Firm   49
Consolidated Financial Statements:    
—  Consolidated Balance Sheets as of December 31, 2019 and 2018   50
—  Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017   51
—  Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017   52
—  Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017   53
Notes to Consolidated Financial Statements   54

 

2. Financial Statement Schedules

 

Schedule II Valuation and Qualifying Accounts is disclosed in Note 1 to the Consolidated Financial Statements attached hereto and filed as part of this annual report. All other schedules for which provision are made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

 

3. Exhibits

 

The Exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index, which is incorporated herein by reference.

 

48

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and the Board of Directors of Saga Communications, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Saga Communications, Inc. (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement Schedule II, Valuation and Qualifying Accounts listed in the index at item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of Saga Communications, Inc. at December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 13, 2020 expressed an unqualified opinion thereon.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ UHY LLP  

 

We have served as the Company’s auditor since 2015.

 

Farmington Hills, Michigan

March 13, 2020

 

49

 

 

Saga Communications, Inc.

 

Consolidated Balance Sheets

(In thousands, except par value)

 

   December 31, 
   2019   2018 
ASSETS          
Current assets:          
Cash and cash equivalents  $44,034   $44,729 
Accounts receivable, less allowance of $671 ($759 in 2018)   18,962    19,984 
Prepaid expenses and other current assets   2,478    2,556 
Barter transactions   1,246    1,326 
Total current assets   66,720    68,595 
Net property and equipment   58,711    59,103 
Other assets:          
Broadcast licenses, net   95,311    95,250 
Goodwill   18,963    18,839 

Other intangibles, right of use assets, deferred costs and investments, net of accumulated amortization

of $14,711 ($13,682 in 2018)

   12,689    6,690 
   $252,394   $248,477 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $2,117   $2,613 
Accrued expenses:          
Payroll and payroll taxes   7,439    7,899 
Dividend payable   1,797    3,274 
Other   4,996    3,072 
Barter transactions   1,152    1,307 
Current portion of long-term debt       5,000 
Total current liabilities   17,501    23,165 
Deferred income taxes   25,152    23,732 
Long-term debt   10,000    15,000 
Other liabilities   7,389    1,581 
Total liabilities   60,042    63,478 
Commitments and contingencies        
Stockholders’ equity:          
Preferred stock, 1,500 shares authorized, none issued and outstanding Common stock:        
Class A common stock, $.01 par value, 35,000 shares authorized, 6,771 issued (6,732 in 2018)   68    67 

Class B common stock, $.01 par value, 3,500 shares authorized, 954 issued and outstanding (923 in

2018)

   9    9 
Additional paid-in capital   66,811    64,795 
Retained earnings   162,822    156,689 
Treasury stock (1,735 shares in 2019 and 1,703 in 2018, at cost)   (37,358)   (36,561)
Total stockholders’ equity   192,352    184,999 
   $252,394   $248,477 

 

See accompanying notes.

 

50

 

 

Saga Communications, Inc.

 

Consolidated Statements of Income

 

   Years Ended December 31, 
   2019   2018   2017 
   (In thousands, except per share data) 
Net operating revenue  $123,072   $124,829   $118,149 
Operating expenses:               
Station operating expense   92,692    93,727    87,759 
Corporate general and administrative   11,460    11,359    11,657 
Other operating expense, net   112    61    55 
Impairment of intangible assets           1,449 
    104,264    105,147    100,920 
Operating income from continuing operations   18,808    19,682    17,229 
Other (income) expenses:               
Interest expense   735    946    903 
Interest income   (610)   (631)    
Other income   (16)   (23)    
Income from continuing operations before income taxes   18,699    19,390    16,326 
Income tax provision:               
Current   4,000    3,040    2,290 
Deferred   1,420    2,660    (8,210)
    5,420    5,700    (5,920)
Income from continuing operations, net of tax   13,279    13,690    22,246 
Income from discontinued operations, net of tax           32,471 
Net income  $13,279   $13,690   $54,717 
                
Basic earnings per share:               
From continuing operations  $2.23   $2.30   $3.77 
From discontinued operations           5.50 
Basic earnings per share  $2.23   $2.30   $9.27 
Weighted average common shares   5,834    5,829    5,803 
                
Diluted earnings per share:               
From continuing operations  $2.23   $2.30   $3.77 
From discontinued operations           5.50 
Diluted earnings per share  $2.23   $2.30   $9.27 
Weighted average common and common equivalent shares   5,834    5,829    5,807 
Dividends declared per share  $1.20   $1.45   $2.00 

 

See accompanying notes.

 

51

 

 

Saga Communications, Inc.

 

Consolidated Statements of Stockholders’ Equity

Years ended December 31, 2019, 2018 and 2017

 

   Class A   Class B   Additional           Total 
   Common Stock   Common Stock   Paid-In   Retained   Treasury   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Earnings   Stock   Equity 
   (In thousands) 
Balance at January 1, 2017   6,638   $66    878   $8   $59,557   $108,733   $(33,382)  $134,982 
Net income                            54,717         54,717 
Conversion of shares from Class B to Class A   17        (17)                    
Issuance of restricted stock   19        29    1    (1)            
Forfeiture of restricted stock   (1)                             
Net proceeds from exercised options   21    1    8        826        (826)   1 
Dividends declared per common share                       (11,842)       (11,842)
Compensation expense related to restricted stock awards                   2,279            2,279 
Purchase of shares held in treasury                           (946)   (946)
401(k) plan contribution                   14        260    274 
Balance at December 31, 2017   6,694   $67    898   $9   $62,675   $151,608   $(34,894)  $179,465 
Net income                            13,690         13,690 
Conversion of shares from Class B to Class A   12        (12)                    
Issuance of restricted stock   27        37                     
Forfeiture of restricted stock   (1)                            
Dividends declared per common share                       (8,609)       (8,609)
Compensation expense related to restricted stock awards                   2,201            2,201 
Purchase of shares held in treasury                           (2,000)   (2,000)
401(k) plan contribution                   (81)       333    252 
Balance at December 31, 2018   6,732   $67    923   $9   $64,795   $156,689   $(36,561)  $184,999 
Net income                            13,279         13,279 
Conversion of shares from Class B to Class A   13        (13)                    
Issuance of restricted stock   29    1    44                    1 
Forfeiture of restricted stock   (3)                            
Dividends declared per common share                       (7,146)       (7,146)