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 if disclosure of
delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendments to this Form 10-K.
þ
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.
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, 2018 on the NYSE
American: $191,974,321.
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,
2019 was 5,025,256 and 922,918, respectively.
Portions of the Proxy Statement for the
2019 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.
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 2019 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.
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, 2018 and 2017. Unless indicated otherwise, the information in the Notes to Consolidated
Financial Statements relates to our continuing operations. As of February 28, 2019, we owned seventy-nine FM and
thirty-four AM radio stations 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 28, 2019:
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
Ranking
|
|
|
Ranking
|
|
|
|
|
|
|
|
|
|
|
By Radio
|
|
|
By Radio
|
|
|
|
|
Target
|
|
Station
|
|
Market (a)
|
|
Revenue (b)
|
|
|
Market (b)
|
|
|
Station Format
|
|
Demographics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WKLH
|
|
Milwaukee, WI
|
|
|
30
|
|
|
|
41
|
|
|
Classic Rock
|
|
|
Men 40-64
|
|
WHQG
|
|
Milwaukee, WI
|
|
|
30
|
|
|
|
41
|
|
|
Rock
|
|
|
Men 18-49
|
|
WJMR
|
|
Milwaukee, WI
|
|
|
30
|
|
|
|
41
|
|
|
Urban Adult Contemporary
|
|
|
Women 25-54
|
|
WNRG
|
|
Milwaukee, WI
|
|
|
30
|
|
|
|
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
|
|
|
Men 40-64
|
|
WVMX
|
|
Columbus, OH
|
|
|
34
|
|
|
|
36
|
|
|
Hot Adult Contemporary
|
|
|
Women 25-44
|
|
WNOR
|
|
Norfolk, VA
|
|
|
40
|
|
|
|
45
|
|
|
Rock
|
|
|
Men 18-49
|
|
WAFX
|
|
Norfolk, VA
|
|
|
40
|
|
|
|
45
|
|
|
Classic Rock
|
|
|
Men 35-64
|
|
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 45-64
|
|
KIOA-HD2
|
|
Des Moines, IA
|
|
|
67
|
|
|
|
70
|
|
|
Contemporary Hits
|
|
|
Adults 18-34
|
|
KAZR
|
|
Des Moines, IA
|
|
|
67
|
|
|
|
70
|
|
|
Rock
|
|
|
Men 25-49
|
|
KAZR-HD2
|
|
Des Moines, IA
|
|
|
67
|
|
|
|
70
|
|
|
Oldies
|
|
|
Adults 45+
|
|
KMYR
|
|
Des Moines, IA
|
|
|
67
|
|
|
|
70
|
|
|
Soft Adult Contemporary
|
|
|
Women 25-54
|
|
WMGX
|
|
Portland, ME
|
|
|
72
|
|
|
|
97
|
|
|
Hot Adult Contemporary
|
|
|
Women 25-44
|
|
WYNZ
|
|
Portland, ME
|
|
|
72
|
|
|
|
97
|
|
|
Classic Hits
|
|
|
Adults 45-64
|
|
WPOR
|
|
Portland, ME
|
|
|
72
|
|
|
|
97
|
|
|
Contemporary Country
|
|
|
Adults 25-54
|
|
WCLZ
|
|
Portland, ME
|
|
|
72
|
|
|
|
97
|
|
|
Adult Album Alternative
|
|
|
Adults 25-54
|
|
WAVF
|
|
Charleston, SC
|
|
|
86
|
|
|
|
78
|
|
|
Adult Contemporary
|
|
|
Adults 25-54
|
|
WCKN
|
|
Charleston, SC
|
|
|
86
|
|
|
|
78
|
|
|
Contemporary Country
|
|
|
Adults 25-54
|
|
WMXZ
|
|
Charleston, SC
|
|
|
86
|
|
|
|
78
|
|
|
Hot Adult Contemporary
|
|
|
Women 25-44
|
|
WMXZ-HD2
|
|
Charleston, SC
|
|
|
86
|
|
|
|
78
|
|
|
Urban Hits
|
|
|
Adults 18-34
|
|
WXST
|
|
Charleston, SC
|
|
|
86
|
|
|
|
78
|
|
|
Urban Adult Contemporary
|
|
|
Adults 25-54
|
|
WAQY
|
|
Springfield, MA
|
|
|
97
|
|
|
|
100
|
|
|
Classic Rock
|
|
|
Men 35-54
|
|
WLZX
|
|
Springfield, MA
|
|
|
97
|
|
|
|
100
|
|
|
Alternative Rock
|
|
|
Men 18-49
|
|
WOGK
|
|
Ocala-Gainesville, FL
|
|
|
118
|
|
|
|
87
|
|
|
Contemporary Country
|
|
|
Adults 25-54
|
|
WYND
|
|
Ocala-Gainesville, FL
|
|
|
118
|
|
|
|
87
|
|
|
Classic Rock
|
|
|
Men 40-64
|
|
WNDD
|
|
Ocala-Gainesville, FL
|
|
|
118
|
|
|
|
87
|
|
|
Classic Rock
|
|
|
Men 40-64
|
|
WNDN
|
|
Ocala-Gainesville, FL
|
|
|
118
|
|
|
|
87
|
|
|
Classic Rock
|
|
|
Men 40-64
|
|
(footnotes follow tables)
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
Ranking
|
|
|
Ranking
|
|
|
|
|
|
|
|
|
|
|
By Radio
|
|
|
By Radio
|
|
|
|
|
Target
|
|
Station
|
|
Market (a)
|
|
Revenue (b)
|
|
|
Market (b)
|
|
|
Station Format
|
|
Demographics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WZID
|
|
Manchester, NH
|
|
|
133
|
|
|
|
201
|
|
|
Adult Contemporary
|
|
|
Women 25-54
|
|
WMLL
|
|
Manchester, NH
|
|
|
133
|
|
|
|
201
|
|
|
Classic Hits
|
|
|
Adults 45-64
|
|
WZID-HD2
|
|
Manchester, NH
|
|
|
133
|
|
|
|
201
|
|
|
Contemporary Hits
|
|
|
Adults 18-34
|
|
WZID-HD3
|
|
Manchester, NH
|
|
|
133
|
|
|
|
201
|
|
|
Classic Country
|
|
|
Adults 45-64
|
|
WOXL
|
|
Asheville, NC
|
|
|
153
|
|
|
|
157
|
|
|
Adult Contemporary
|
|
|
Women 25-54
|
|
WTMT
|
|
Asheville, NC
|
|
|
153
|
|
|
|
157
|
|
|
Classic Rock
|
|
|
Men 40-64
|
|
WTMT-HD2
|
|
Asheville, NC
|
|
|
153
|
|
|
|
157
|
|
|
Classic Hits
|
|
|
Adults 45-64
|
|
WTMT-HD3
|
|
Asheville, NC
|
|
|
153
|
|
|
|
157
|
|
|
Country Legends
|
|
|
Adults 45-64
|
|
WOXL-HD2
|
|
Asheville, NC
|
|
|
153
|
|
|
|
157
|
|
|
Adult Album Alternative
|
|
|
Adults 25-54
|
|
WOXL-HD3
|
|
Asheville, NC
|
|
|
153
|
|
|
|
157
|
|
|
Oldies
|
|
|
Adults 45+
|
|
WSIG
|
|
Harrisonburg, VA
|
|
|
168
|
|
|
|
253
|
|
|
Classic Country
|
|
|
Adults 35-64
|
|
WQPO
|
|
Harrisonburg, VA
|
|
|
168
|
|
|
|
253
|
|
|
Contemporary Hits
|
|
|
Women 18-34
|
|
WQPO-HD2
|
|
Harrisonburg, VA
|
|
|
168
|
|
|
|
253
|
|
|
Oldies
|
|
|
Adults 45+
|
|
WQPD-HD3
|
|
Harrisonburg, VA
|
|
|
168
|
|
|
|
253
|
|
|
Classic Rock
|
|
|
Male 40-64
|
|
WMQR
|
|
Harrisonburg, VA
|
|
|
168
|
|
|
|
253
|
|
|
Adult Contemporary
|
|
|
Female 25-44
|
|
WWRE
|
|
Harrisonburg, VA
|
|
|
168
|
|
|
|
253
|
|
|
Classic Hits
|
|
|
Adults 45-64
|
|
WNAX
|
|
Yankton, SD
|
|
|
182
|
|
|
|
260
|
|
|
Contemporary Country
|
|
|
Adults 25-54
|
|
WNAX-HD2
|
|
Yankton, SD
|
|
|
182
|
|
|
|
260
|
|
|
Country Legends
|
|
|
Adults 45-64
|
|
WWWV
|
|
Charlottesville, VA
|
|
|
191
|
|
|
|
209
|
|
|
Classic Rock
|
|
|
Men 40-64
|
|
WQMZ
|
|
Charlottesville, VA
|
|
|
191
|
|
|
|
209
|
|
|
Adult Contemporary
|
|
|
Women 25-54
|
|
WCNR
|
|
Charlottesville, VA
|
|
|
191
|
|
|
|
209
|
|
|
Adult Album Alternative
|
|
|
Adults 25-54
|
|
WCVL
|
|
Charlottesville, VA
|
|
|
191
|
|
|
|
209
|
|
|
Contemporary Country
|
|
|
Adults 25-54
|
|
WLHH
|
|
Hilton Head, SC
|
|
|
248
|
|
|
|
224
|
|
|
Classic Hits
|
|
|
Adults 45-64
|
|
WOEZ
|
|
Hilton Head, SC
|
|
|
248
|
|
|
|
224
|
|
|
Adult Contemporary
|
|
|
Women 35-64
|
|
WVSC
|
|
Hilton Head, SC
|
|
|
248
|
|
|
|
224
|
|
|
Soft Adult Contemporary
|
|
|
Women 35-64
|
|
WVSC-HD2
|
|
Hilton Head, SC
|
|
|
248
|
|
|
|
224
|
|
|
Oldies/Classic Hits
|
|
|
Adults 45-64
|
|
KISM
|
|
Bellingham, WA
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Classic Rock
|
|
|
Men 40-64
|
|
KAFE
|
|
Bellingham, WA
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Adult Contemporary
|
|
|
Women 25-54
|
|
WKVT
|
|
Brattleboro, VT
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Classic Hits
|
|
|
Adults 40-64
|
|
WRSY
|
|
Brattleboro, VT
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Adult Album Alternative
|
|
|
Adults 25-54
|
|
WQEL
|
|
Bucyrus, OH
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Classic Hits
|
|
|
Adults 40-64
|
|
WLRW
|
|
Champaign, IL
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Hot Adult Contemporary
|
|
|
Women 25-44
|
|
WREE
|
|
Champaign, IL
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Classic Hits
|
|
|
Adults 40-64
|
|
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/Classic Hits
|
|
|
Adults 45-64
|
|
WCVQ
|
|
Clarksville, TN — Hopkinsville, KY
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Hot Adult Contemporary
|
|
|
Women 25-54
|
|
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 40-64
|
|
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
|
|
(footnotes follow tables)
|
|
|
|
|
|
|
2018
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ranking
|
|
|
|
Ranking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Radio
|
|
|
|
By Radio
|
|
|
|
|
|
Target
|
|
Station
|
|
|
|
Market (a)
|
|
|
Revenue (b)
|
|
|
|
Market (b)
|
|
|
Station Format
|
|
|
Demographics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WPVQ
|
|
|
|
Greenfield, MA
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Contemporary Country
|
|
|
Adults 25-54
|
|
WIII
|
|
|
|
Ithaca, NY
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Iconic Rock
|
|
|
Men 40-64
|
|
WQNY
|
|
|
|
Ithaca, NY
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Contemporary Country
|
|
|
Adults 25-54
|
|
WQNY-HD3
|
|
|
|
Ithaca, NY
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Alternative
|
|
|
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
|
|
|
Oldies/Classic Hits
|
|
|
Adults 40-64
|
|
KEGI
|
|
|
|
Jonesboro, AR
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Classic Rock
|
|
|
Men 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
|
|
|
Adult Album Alternative
|
|
|
Adults 25-54
|
|
WKNE-HD3
|
|
|
|
Keene, NH
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Classic Country
|
|
|
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/Oldies
|
|
|
Adults 45-64
|
|
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+
|
|
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+
|
|
KMRR-HD3
|
|
|
|
Spencer, IA
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Soft Adult Contemporary
|
|
|
Female 35-64
|
|
WYMG
|
|
|
|
Springfield, IL
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Classic Rock
|
|
|
Men 25-54
|
|
WDBR
|
|
|
|
Springfield, IL
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Contemporary Hits
|
|
|
Adults 18-34
|
|
WQQL
|
|
|
|
Springfield, IL
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Classic Hits/Oldies
|
|
|
Adults 45-64
|
|
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+
|
|
(footnotes follow tables)
|
|
|
|
|
2018
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
Ranking
|
|
|
Ranking
|
|
|
|
|
|
|
|
|
|
|
|
By Radio
|
|
|
By Radio
|
|
|
|
|
|
Target
|
Station
|
|
Market (a)
|
|
|
Revenue (b)
|
|
|
Market (b)
|
|
|
Station Format
|
|
|
Demographics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WJYI
|
|
Milwaukee, WI
|
|
|
30
|
|
|
|
41
|
|
|
|
Christian
|
|
|
Adults 25-54
|
WJOI
|
|
Norfolk, VA
|
|
|
40
|
|
|
|
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
|
|
|
72
|
|
|
|
97
|
|
|
|
News/Talk
|
|
|
Adults 35-64
|
WZAN
|
|
Portland, ME
|
|
|
72
|
|
|
|
97
|
|
|
|
Talk/Sports
|
|
|
Men 18-64
|
WBAE
|
|
Portland, ME
|
|
|
72
|
|
|
|
97
|
|
|
|
Soft Adult Contemporary
|
|
|
Female 35-64
|
WGIN
|
|
Portland, ME
|
|
|
72
|
|
|
|
97
|
|
|
|
News/Talk
|
|
|
Adults 35-64
|
WSPO
|
|
Charleston, SC
|
|
|
86
|
|
|
|
78
|
|
|
|
Gospel
|
|
|
Adults 25-54
|
WHNP
|
|
Springfield, MA
|
|
|
97
|
|
|
|
100
|
|
|
|
News/Talk
|
|
|
Adults 35-64
|
WFEA
|
|
Manchester, NH
|
|
|
133
|
|
|
|
201
|
|
|
|
News/Talk
|
|
|
Adults 35-64
|
WISE
|
|
Asheville, NC
|
|
|
153
|
|
|
|
157
|
|
|
|
Sports/Talk
|
|
|
Men 18-64
|
WYSE
|
|
Asheville, NC
|
|
|
153
|
|
|
|
157
|
|
|
|
Sports/Talk
|
|
|
Men 18-64
|
WSVA
|
|
Harrisonburg, VA
|
|
|
168
|
|
|
|
253
|
|
|
|
News/Talk
|
|
|
Adults 35-64
|
WHBG
|
|
Harrisonburg, VA
|
|
|
168
|
|
|
|
253
|
|
|
|
Sports ESPN
|
|
|
Men 18-64
|
WNAX
|
|
Yankton, SD
|
|
|
180
|
|
|
|
260
|
|
|
|
News/Talk
|
|
|
Adults 35-64
|
WINA
|
|
Charlottesville, VA
|
|
|
191
|
|
|
|
209
|
|
|
|
News/Talk
|
|
|
Adults 35-64
|
WVAX
|
|
Charlottesville, VA
|
|
|
191
|
|
|
|
209
|
|
|
|
Sports Talk
|
|
|
Men 18-64
|
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
|
WKVT
|
|
Brattleboro, VT
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
News/Talk
|
|
|
Adults 35-64
|
WBCO
|
|
Bucyrus, OH
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
Country Legends
|
|
|
Adults 45-64
|
WRND
|
|
Clarksville, TN — Hopkinsville, KY
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
Classic Hits
|
|
|
Adults 40-64
|
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+
|
WNYY
|
|
Ithaca, NY
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
Oldies
|
|
|
Adults 45+
|
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 2018 Market Report.
|
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.
Approximately $116,386,000 or 87% of our
gross revenue for the year ended December 31, 2018 (approximately $124,809,000 or 87% in fiscal 2017 and approximately $131,233,000
or 85% in fiscal 2016) 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 2018
was approximately $18,110,000 or 13% of our gross revenue (approximately $18,151,000 or 13% in fiscal 2017 and approximately $23,545,000
or 15% in fiscal 2016 which includes $5,183,000 in national political sales or 3%).
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, 2018, we had approximately
687 full-time employees and 344 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.
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, beginning in June 2019,
when we must file applications for renewal of license of our radio stations in Virginia. 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.
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, 2019
|
|
WTMT
|
|
|
Asheville, NC
|
|
|
50,000
|
|
|
December 1, 2019
|
|
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, 2019
|
|
WCKN
|
|
|
Charleston, SC
|
|
|
100,000
|
|
|
December 1, 2019
|
|
WMXZ
|
|
|
Charleston, SC
|
|
|
50,000
|
|
|
December 1, 2019
|
|
WXST
|
|
|
Charleston, SC
|
|
|
100,000
|
|
|
December 1, 2019
|
|
WWWV
|
|
|
Charlottesville, VA
|
|
|
50,000
|
|
|
October 1, 2019
|
|
WQMZ
|
|
|
Charlottesville, VA
|
|
|
6,000
|
|
|
October 1, 2019
|
|
WCNR
|
|
|
Charlottesville, VA
|
|
|
6,000
|
|
|
October 1, 2019
|
|
WCVL
|
|
|
Charlottesville, VA
|
|
|
6,000
|
|
|
October 1, 2019
|
|
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
|
|
KMYR
|
|
|
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, 2019
|
|
WQPO
|
|
|
Harrisonburg, VA
|
|
|
50,000
|
|
|
October 1, 2019
|
|
WSIG
|
|
|
Harrisonburg, VA
|
|
|
25,000
|
|
|
October 1, 2019
|
|
WWRE
|
|
|
Harrisonburg, VA
|
|
|
6,000
|
|
|
October 1, 2019
|
|
WOEZ
|
|
|
Hilton Head Island, SC
|
|
|
25,000
|
|
|
December 1, 2019
|
|
WLHH
|
|
|
Hilton Head Island, SC
|
|
|
25,000
|
|
|
December 1, 2019
|
|
WVSC
|
|
|
Hilton Head Island, SC
|
|
|
25,000
|
|
|
December 1, 2019
|
|
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)
|
|
|
|
|
Power
|
|
|
Expiration Date of
|
Station
|
|
|
Market (1)
|
|
(Watts) (2)
|
|
|
FCC Authorization
|
|
|
|
|
|
|
|
|
|
|
KEGI
|
|
|
Jonesboro, AR
|
|
|
50,000
|
|
|
June 1, 2020
|
|
KDXY
|
|
|
Jonesboro, AR
|
|
|
25,000
|
|
|
June 1, 2020
|
|
KJBX
|
|
|
Jonesboro, AR
|
|
|
25,000
|
|
|
June 1, 2020
|
|
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, 2019
|
|
WAFX
|
|
|
Norfolk, VA
|
|
|
100,000
|
|
|
October 1, 2019
|
|
WOGK
|
|
|
Ocala, FL
|
|
|
100,000
|
|
|
February 1, 2020
|
|
WYND
|
|
|
Ocala, FL
|
|
|
6,000
|
|
|
February 1, 2020
|
|
WNDD
|
|
|
Ocala, FL
|
|
|
6,000
|
|
|
February 1, 2020
|
|
WNDN
|
|
|
Ocala, FL
|
|
|
6,000
|
|
|
February 1, 2020
|
|
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, 2019
|
|
WYSE
|
|
|
Asheville, NC
|
|
|
5,000
|
(3)
|
|
December 1, 2019
|
|
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, 2019
|
|
WINA
|
|
|
Charlottesville, VA
|
|
|
5,000
|
|
|
October 1, 2019
|
|
WVAX
|
|
|
Charlottesville, VA
|
|
|
1,000
|
|
|
October 1, 2019
|
|
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, 2019
|
|
WHBG
|
|
|
Harrisonburg, VA
|
|
|
1,000
|
(3)
|
|
October 1, 2019
|
(footnotes follow tables)
|
|
|
|
|
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, 2019
|
|
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.
|
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.
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).
|
In November 2017, the FCC ended its 2010/2014 Quadrennial Review
proceeding wherein (effective February 7,2018) it (1) eliminated the newspaper/broadcast cross-ownership rule (which prohibited
the common ownership of a daily print newspaper and a full-power broadcast station (AM, FM or TV) if the station’s service
contour encompassed the newspaper’s community of publication); (2) eliminated the radio/television cross-ownership rule (which
prohibited 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) revised the “Local Television Ownership Rule” to eliminate the so called – “Eight-Voices
Test” and to modify the “Top-Four Prohibition” to better reflect the competitive conditions in local markets;
(4) declined to modify the market definitions relied on in the “Local Radio Ownership Rule” (discussed above), but
provided a presumption for certain embedded markets (smaller markets, as defined by Nielsen Audio, that are included in a larger
parent market) transactions; (5) eliminated the attribution rule for television joint sales agreements; and (6) retained the disclosure
requirement for shared service agreements involving commercial television stations. The FCC also adopted a Notice of Proposed Rule
Making (“NPRM”) to seek comment on an “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. 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.
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. 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. The EEO rules are enforced through review at renewal time, at mid-term for
larger broadcasters (which the FCC has proposed to eliminate), 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.
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.
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.
Other FCC Requirements
.
Low Power FM Radio.
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.
On January 5, 2012, the FCC released a Report to Congress on
the impact that LPFM stations will 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.” We cannot predict what, if any, impact the LPFM stations will have on the
Company’s full-service stations and FM translators
.
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, and in automobiles. 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. We cannot predict whether, or the extent to which, such competing reception devices and
DARS will have an adverse impact on our business.
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 53 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 and 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. In May 2018, the FCC
adopted an NPRM proposing to streamline the rules relating to interference caused by FM translators and expedite the translator
interference complaint resolution process. The proposals, if implemented, could limit or avoid protracted and contentious interference
resolution disputes, provide translator licensees both additional flexibility to remediate interference and additional investment
certainty, and allow expedited resolution of interference claims by affected stations. The rule changes proposed in the NPRM, among
other things, would require more definite information in listener complaints and that listener complaints beyond a certain contour
would not be actionable
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 threshholds 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.
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.
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.
Executive Officers
Our current executive officers are:
Name
|
|
Age
|
|
|
Position
|
|
|
|
|
|
|
Edward K. Christian
|
|
|
74
|
|
|
President, Chief Executive Officer and Chairman; Director
|
Samuel D. Bush
|
|
|
61
|
|
|
Senior Vice President, Treasurer and Chief Financial Officer
|
Marcia K. Lobaito
|
|
|
70
|
|
|
Senior Vice President, Corporate Secretary, and Director of Business Affairs
|
Catherine A. Bobinski
|
|
|
59
|
|
|
Senior Vice President/Finance, Chief Accounting Officer and Corporate Controller
|
Christopher S. Forgy
|
|
|
58
|
|
|
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.
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.
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, 2018 our long-term
debt, including a current portion of $5,000,000, was approximately $20,000,000. 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.
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 41%, 41%, and 43% of our net operating revenue for the years ended December 31, 2018,
2017 and 2016, 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.
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, 2018, our FCC broadcasting
licenses represented 38.3% 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.
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.
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.
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.
The Company is Controlled by our President, Chief Executive
Officer and Chairman
As of March 2, 2019, 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.
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, 2018, 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 3.5
years to 6 years. We own or lease our transmitter and antenna sites, with lease terms that expire in 2 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.
Notes to Consolidated Financial Statements
|
1.
|
Summary of Significant
Accounting Policies
|
Nature of Business
Saga Communications, Inc. is a
broadcasting company whose business is devoted to acquiring, developing and operating broadcast properties. As of
December 31, 2018, we owned or operated seventy-nine FM and thirty-three AM radio stations, serving twenty-seven markets
throughout the United States. 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, 2018 and 2017. Unless indicated otherwise, the information in the Notes to Consolidated
Financial Statements relates to the Company’s continuing operations.
Principles of Consolidation
The consolidated financial statements include
the accounts of Saga Communications, Inc. and our wholly-owned subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements
in conformity with accounting principles generally accepted in the United States (GAAP) requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying notes. While we do not believe that the ultimate
settlement of any amounts reported will materially affect our financial position or results of future operations, actual results
may differ from estimates provided.
Concentration of Risk
Certain cash deposits with financial institutions
may at times exceed FDIC insurance limits.
Our top five markets when combined
represented 41%, 41% and 43% of our net operating revenue for the years ended December 31, 2018, 2017 and 2016,
respectively.
We sell advertising to local and national
companies throughout the United States. We perform ongoing credit evaluations of our customers and generally do not require collateral.
We maintain an allowance for doubtful accounts at a level which we believe is sufficient to cover potential credit losses.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash
on hand and time deposits with original maturities of three months or less. We did not have any time deposits at December 31, 2018
and 2017.
Financial Instruments
Our financial instruments are comprised
of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying value of cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to their short maturities. The carrying value of long-term
debt approximates fair value as it carries interest rates that either fluctuate with the euro-dollar rate, prime rate or have been
reset at the prevailing market rate at December 31, 2018.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Allowance for Doubtful Accounts
A provision for doubtful accounts is recorded
based on our judgment of the collectability of receivables. Amounts are written off when determined to be fully uncollectible.
Delinquent accounts are based on contractual terms. The activity in the allowance for doubtful accounts during the years ended
December 31, 2018, 2017 and 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Write Off of
|
|
|
|
|
|
|
Balance
|
|
|
Charged to
|
|
|
Allowance
|
|
|
Uncollectible
|
|
|
Balance at
|
|
|
|
at Beginning
|
|
|
Costs and
|
|
|
From
|
|
|
Accounts, Net of
|
|
|
End of
|
|
Year Ended
|
|
of Period
|
|
|
Expenses
|
|
|
Acquisitions
|
|
|
Recoveries
|
|
|
Period
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
$
|
727
|
|
|
$
|
444
|
|
|
$
|
25
|
|
|
$
|
(437
|
)
|
|
$
|
759
|
|
December 31, 2017
|
|
$
|
518
|
|
|
$
|
333
|
|
|
$
|
181
|
|
|
$
|
(305
|
)
|
|
$
|
727
|
|
December 31, 2016
|
|
$
|
614
|
|
|
$
|
195
|
|
|
$
|
—
|
|
|
$
|
(291
|
)
|
|
$
|
518
|
|
Barter Transactions
Our radio and television stations trade
air time for goods and services used principally for promotional, sales and other business activities. An asset and a liability
are recorded at the fair market value of goods or services received. Barter revenue is recorded when commercials are broadcast,
and barter expense is recorded when goods or services received are used.
Property and Equipment
Property and equipment are carried at cost.
Expenditures for maintenance and repairs are expensed as incurred. When property and equipment is sold or otherwise disposed of,
the related cost and accumulated depreciation is removed from the respective accounts and the gain or loss realized on disposition
is reflected in earnings. Depreciation is provided using the straight-line method based on the estimated useful life of the assets.
We review our property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of
an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted
cash flows the assets are expected to generate. If the assets are considered to be impaired, the impairment to be recognized equals
the amount by which the carrying value of the assets exceeds its fair market value. We did not record any impairment of property
and equipment during 2018, 2017 and 2016.
Property and equipment consisted of the
following:
|
|
Estimated
|
|
|
December 31,
|
|
|
|
Useful Life
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Land and land improvements
|
|
|
—
|
|
|
$
|
14,402
|
|
|
$
|
13,594
|
|
Buildings
|
|
|
31.5 years
|
|
|
|
35,812
|
|
|
|
34,905
|
|
Towers and antennae
|
|
|
7-15 years
|
|
|
|
25,959
|
|
|
|
24,538
|
|
Equipment
|
|
|
3-15 years
|
|
|
|
53,752
|
|
|
|
52,534
|
|
Furniture, fixtures and leasehold improvements
|
|
|
7-20 years
|
|
|
|
6,740
|
|
|
|
6,822
|
|
Vehicles
|
|
|
5 years
|
|
|
|
3,555
|
|
|
|
3,463
|
|
|
|
|
|
|
|
|
140,220
|
|
|
|
135,856
|
|
Accumulated depreciation
|
|
|
|
|
|
|
(81,117
|
)
|
|
|
(79,621
|
)
|
Net property and equipment
|
|
|
|
|
|
$
|
59,103
|
|
|
$
|
56,235
|
|
Depreciation expense for continuing operations
for the years ended December 31, 2018, 2017 and 2016 was $5,692,000, $5,391,000 and $5,234,000, respectively. Depreciation
expense for discontinued operations for the years ended December 31, 2018, 2017 and 2016 was $0, $445,000 and $1,387,000,
respectively.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Intangible Assets
Intangible assets deemed to have indefinite
useful lives, which include broadcast licenses and goodwill, are not amortized and are subject to impairment tests which are conducted
as of October 1 of each year, or more frequently if impairment indicators arise.
We have 112 broadcast licenses serving
27 markets, which require renewal over the period of 2019-2022. In determining that the Company’s broadcast licenses qualified
as indefinite-lived intangible assets, management considered a variety of factors including our broadcast licenses may be renewed
indefinitely at little cost; our broadcast licenses are essential to our business and we intend to renew our licenses indefinitely;
we have never been denied the renewal of an FCC broadcast license nor do we believe that there will be any compelling challenge
to the renewal of our broadcast licenses; and we do not believe that the technology used in broadcasting will be replaced by another
technology in the foreseeable future.
Separable intangible assets that have finite
lives are amortized over their useful lives using the straight-line method. Favorable lease agreements are amortized over the leases
length, ranging from five to twenty-six years. Other intangibles are amortized over one to fifteen years. Customer relationships
are amortized over three years.
Deferred Costs
The costs related to the issuance of debt
are capitalized and amortized to interest expense over the life of the debt. 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. During the years ended December 31, 2018, 2017 and 2016,
we recognized interest expense related to the amortization of debt issuance costs of $51,000, $53,000 and $53,000, respectively.
At December 31, 2018 and 2017 the
net book value of debt issuance costs related to our line of credit was $207,000, and $138,000, respectively, and was presented
in other intangibles, deferred costs and investments in our Consolidated Balance Sheets.
Treasury Stock
In March 2013, our board of directors authorized
an increase in the amount committed to our Stock Buy-Back Program (the “Buy-Back Program”) from $60 million to $75.8
million. The Buy-Back Program allows us to repurchase our Class A Common Stock. As of December 31, 2018, we had remaining authorization
of $20.4 million for future repurchases of our Class A Common Stock.
Repurchases of shares of our Common Stock
are recorded as Treasury stock and result in a reduction of Stockholders’ equity. During 2018, 2017 and 2016, we acquired
53,713 shares at an average price of $37.24 per share, 37,141 shares at an average price of $47.72 per share and 18,612 shares
at an average price of $40.06 per share, respectively.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
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
.
Local Marketing Agreements
We have entered into Time Brokerage Agreements
(“TBAs”) or Local Marketing Agreements (“LMAs”) in certain markets. In a typical TBA/LMA, the FCC licensee
of a station makes available, for a fee, blocks of air time on its station to another party that supplies programming to be broadcast
during that air time and sells its own commercial advertising announcements during the time periods specified. Revenue and expenses
related to TBAs/LMAs are included in the accompanying Consolidated Statements of Income. Assets and liabilities related to the
TBAs/LMAs are included in the accompanying Consolidated Balance Sheets.
Advertising and Promotion Costs
Advertising and promotion costs are expensed
as incurred. Such costs related to our continuing operations amounted to $2,438,000, $2,441,000 and $2,633,000 for the years ended
December 31, 2018, 2017 and 2016, respectively. Advertising and promotion costs related to our discontinued operations amounted
to $0, $240,000 and $341,000 for the years ended December 31, 2018, 2017 and 2016, respectively.
Income Taxes
The provision for income taxes is calculated
using the asset and liability method, under which deferred tax assets and liabilities are determined based on temporary differences
between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that
are expected to be in effect when the differences are expected to reverse. In assessing the realizability of deferred tax assets,
we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization
of deferred tax assets is primarily dependent upon the generation of future taxable income. Our effective tax rate is higher than
the federal statutory rate as a result of the inclusion of state taxes in the income tax amount.
Dividends
On November 28, 2018, the Company’s
Board of Directors declared a quarterly cash dividend of $0.30 per share and a special cash dividend of $0.25 per share on its
Classes A and B shares. This dividend totaling approximately $3.3 million was paid on January 4, 2019 to shareholders of record
on December 10, 2018 and funded by cash on the Company’s balance sheet.
On August 14, 2018, the Company’s
Board of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling
approximately $1.8 million was paid on September 14, 2018 to shareholders of record on August 31, 2018 and funded by cash on the
Company’s balance sheet.
On May 15, 2018, the Company’s Board
of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling approximately
$1.8 million, was paid on June 22, 2018 to shareholders of record on May 31, 2018 and funded by cash on the Company’s balance
sheet.
On February 28, 2018, the Company’s
Board of Directors declared a regular quarterly cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend,
totaling approximately $1.8 million, was paid on March 30, 2018 to shareholders of record on March 12, 2018 and funded by cash
on the Company’s balance sheet.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
On December 7, 2017, the Company’s
Board of Directors declared a quarterly cash dividend of $0.30 per share and a special cash dividend of $0.80 per share on its
Classes A and B shares. This dividend totaling approximately $6.5 million was paid on January 5, 2018 to shareholders of record
on December 18, 2017 and funded by cash on the Company’s balance sheet.
On September 13, 2017, 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 13, 2017 to shareholders of record on September 25, 2017 and funded by cash on the
Company’s balance sheet.
On May 3, 2017, the Company’s Board
of Directors declared a regular cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend, totaling approximately
$1.8 million, was paid on June 9, 2017 to shareholders of record on May 22, 2017 and funded by cash on the Company’s balance
sheet.
On March 3, 2017, the Company’s Board
of Directors declared a regular quarterly cash dividend of $0.30 per share on its Classes A and B Common Stock. This dividend,
totaling approximately $1.8 million, was paid on April 14, 2017 to shareholders of record on March 28, 2017 and funded by cash
on the Company’s balance sheet.
On November 21, 2016 the Company’s
Board of Directors declared a quarterly cash dividend of $0.30 per share and a special cash dividend of $0.20 per share on its
Classes A and B shares. This dividend totaling $2.9 million was paid on December 23, 2016 to shareholders of record on December
5, 2016 and funded by cash on the Company’s balance sheet.
On August 30, 2016, 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
$1.8 million was paid on September 30, 2016 to shareholders of record on September 14, 2016 and funded by cash on the Company’s
balance sheet.
On June 1, 2016, the Company’s Board
of Directors declared a regular cash dividend of $0.25 per share on its Classes A and B Common Stock. This dividend, totaling $1.5
million, was paid on July 8, 2016 to shareholders of record on June 15, 2016 and funded by cash on the Company’s balance
sheet.
On March 2, 2016, the Company’s Board
of Directors declared a regular quarterly cash dividend of $0.25 per share on its Classes A and B Common Stock. This dividend,
totaling $1.5 million, was paid on April 15, 2016 to shareholders of record on March 28, 2016 and funded by cash on the Company’s
balance sheet.
Stock-Based Compensation
Stock-based compensation cost for stock
option awards is estimated on the date of grant using a Black-Scholes valuation model and is expensed on a straight-line method
over the vesting period of the options. Stock-based compensation expense is recognized net of estimated forfeitures. 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. See Note 8 —
Stock-Based Compensation for further details regarding the expense calculated under the fair value based method.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Earnings Per Share
Earnings per share is calculated using
the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class
of common stock and participating security. The Company has participating securities related to restricted stock units, granted
under the Company’s Second Amended and Restated 2005 Incentive Compensation Plan, that earn dividends on an equal basis with
common shares. In applying the two-class method, earnings are allocated to both common shares and participating securities.
The following table sets forth the computation
of basic and diluted earnings per share:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
13,690
|
|
|
$
|
22,246
|
|
|
$
|
12,910
|
|
Less: Income allocated to unvested participating securities
|
|
|
256
|
|
|
|
370
|
|
|
|
231
|
|
Income from continuing operations available to common stockholders
|
|
$
|
13,434
|
|
|
$
|
21,876
|
|
|
$
|
12,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
—
|
|
|
$
|
32,471
|
|
|
$
|
5,276
|
|
Less: Income allocated to unvested participating securities
|
|
|
—
|
|
|
|
541
|
|
|
|
94
|
|
Income from discontinued operations available to common stockholders
|
|
$
|
—
|
|
|
$
|
31,930
|
|
|
$
|
5,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
13,434
|
|
|
$
|
53,806
|
|
|
$
|
17,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share-weighted average shares
|
|
|
5,829
|
|
|
|
5,803
|
|
|
|
5,761
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
—
|
|
|
|
4
|
|
|
|
10
|
|
Denominator for diluted earnings per share — adjusted weighted-average shares and assumed conversions
|
|
|
5,829
|
|
|
|
5,807
|
|
|
|
5,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
2.30
|
|
|
$
|
3.77
|
|
|
$
|
2.20
|
|
From discontinued operations
|
|
|
—
|
|
|
|
5.50
|
|
|
|
0.90
|
|
Basic earnings per share
|
|
$
|
2.30
|
|
|
$
|
9.27
|
|
|
$
|
3.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
2.30
|
|
|
$
|
3.77
|
|
|
$
|
2.19
|
|
From discontinued operations
|
|
|
—
|
|
|
|
5.50
|
|
|
|
0.90
|
|
Diluted earnings per share
|
|
$
|
2.30
|
|
|
$
|
9.27
|
|
|
$
|
3.09
|
|
There were no stock options outstanding
that had an antidilutive effect on our earnings per share calculation for the years ended December 31, 2018, 2017, and 2016, respectively.
The actual effect of these shares, if any, on the diluted earnings per share calculation will vary significantly depending on fluctuations
in the stock price.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued Accounting
Standards Update No. 2014-09,
“Revenue from Contracts with Customers”
(“ASU 2014-09”), which provides
guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede
virtually all of the current revenue recognition guidance under GAAP. The FASB has also issued a number of updates to this standard.
This amendment and all updates, which established Accounting Standards Codification (“ASC”) Topic 606 (the “new
revenue standard”) were adopted on January 1, 2018. The Company adopted the new revenue standard using the modified retrospective
method. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue standard, while prior
period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605. Impacts
of the new revenue standard do not have a material impact on our consolidated financial statements.
In August 2016, the FASB issued ASU
No. 2016-15, “
Classification of Certain Cash Receipts and Cash Payments (Topic 230): Statement of Cash Flows”
(“ASU
2016-15”), which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash
flows. ASU 2016-15 also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects
of more than one class of cash flows. ASU 2016-15 was adopted on January 1, 2018 and did not have a material impact on our consolidated
financial statements.
Recent Accounting Pronouncements
– Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04,
“
Intangibles – Goodwill and Other (Topic 350)”
(“ASU 2017-04”) which removes step 2 from the
goodwill impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds it fair value, an entity
will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated
to that reporting unit. ASU 2017-04 will be applied prospectively and is effective for fiscal years and interim impairment tests
performed in periods beginning after December 15, 2019 with early adoption permitted. The Company is currently evaluating the impact
of adopting this standard on our consolidated financial statements.
In June 2016, the FASB issued ASU
No. 2016-13, “
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”
(“ASU 2016-13”), which amends guidance on reporting credit losses for assets held at amortized cost basis and available
for sale debt securities. ASU 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. The
Company is currently evaluating the impact that this standard will have on our consolidated financial statements.
In February 2016,
the FASB issued Accounting Standards Update No. 2016-02,
“Leases (Topic 842)”
(“ASU 2016-02”) which
requires that all leases with a term of more than one year, covering leased assets such as real estate, broadcasting towers and
equipment, be reflected on the balance sheet as assets and liabilities for the rights and obligations created by these leases.
ASU 2016-02 is effective for fiscal years fiscal years and interim periods beginning after December 15, 2018. In 2018, the FASB
issued several updates to address certain practical expedients, codification improvements, and targeted improvements to the original
guidance. Upon adoption, we expect to recognize a right-of-use asset and a lease liability approximately $7 million to reflect
the present value of remaining lease payments under the existing leasing arrangements. While the recognition of such lease assets
and liabilities will impact our consolidated balance sheet, we do not expect a material impact on our consolidated statements of
income or cash flows. We have elected to apply the modified retrospective transition approach without restatement of comparative
periods financial information, as permitted by the transition guidance.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Adoption of the new revenue standard
We adopted the new revenue standard on January 1, 2018, using
the modified retrospective method with no impact on our financial statements. The cumulative effect of initially adopting the new
guidance had no impact on the opening balance of retained earnings as of January 1, 2018. There was no material impact on the condensed
consolidated balance sheets as of December 31, 2018, or on the condensed consolidated statement of income for the year ended December
31, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new revenue standard, while prior
periods amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
Disaggregation of Revenue
The following table presents revenues disaggregated by revenue
source:
|
|
Twelve Months Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
Types of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast Advertising Revenue, net
|
|
$
|
114,929
|
|
|
$
|
109,175
|
|
|
$
|
110,053
|
|
Digital Advertising Revenue
|
|
|
3,900
|
|
|
|
3,610
|
|
|
|
3,567
|
|
Other Revenue
|
|
|
6,000
|
|
|
|
5,364
|
|
|
|
5,335
|
|
Net Revenue
|
|
$
|
124,829
|
|
|
$
|
118,149
|
|
|
$
|
118,955
|
|
Nature of goods and services
The following is a description of principal activities from
which we generate our revenue:
Broadcast Advertising Revenue
Our primary source of revenue is from the sale of advertising
for broadcast on our stations. We recognize revenue from the sale of advertising as performance obligations are satisfied upon
airing of the advertising; therefore, revenue is recognized at a point in time when each advertising spot is transmitted. Agency
commissions are calculated based on a stated percentage applied to gross billing revenue for our advertising inventory placed by
agency and are reported as a reduction of advertising revenue.
Digital Advertising Revenue
We recognize revenue from our digital initiatives across multiple
platforms such as targeted digital advertising, online promotions, advertising on our websites, mobile messaging, email marketing
and other e-commerce. Revenue is recorded when each specific performance obligation in the digital advertising campaign takes place,
typically within a one month period.
Other Revenue
Other revenue includes revenue from concerts, promotional events,
tower rent and other miscellaneous items. Revenue is generally recognized when the event is completed, as the promotional events
are completed or as each performance obligation is satisfied.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Contract Liabilities
Payment is generally due within 30 days although certain advertisers
are required to pay in advance. When a customer pays for the services in advance of the performance obligations and therefore these
prepayments are recorded as contract liabilities. Typical contract liabilities relate to prepayments for advertising spots not
yet run; prepayments from sponsors for events that have not yet been held; and gift cards sold on our websites used to finance
a broadcast advertising campaign. Generally all contract liabilities are expected to be recognized within one year and are included
in Accounts payable in the Company’s Consolidated Financial Statements and are immaterial.
Transaction Price Allocated to the Remaining Performance
Obligations
As the majority of our contracts are one year or less, we have
utilized the optional exemption under ASC 606-10-50-14 and will not disclose information about the remaining performance obligations
for contracts which have original expected durations of one year or less.
|
3.
|
Broadcast Licenses,
Goodwill and Other Intangible Assets
|
We evaluate our FCC licenses for impairment
annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. We operate our broadcast
licenses in each market as a single asset and determine the fair value by relying on a discounted cash flow approach assuming a
start-up scenario in which the only assets held by an investor are broadcast licenses. The fair value calculation contains assumptions
incorporating variables that are based on past experiences and judgments about future operating performance using industry normalized
information for an average station within a market. These variables include, but are not limited to: (1) the forecasted growth
rate of each radio or television market, including population, household income, retail sales and other expenditures that would
influence advertising expenditures; (2) the estimated available advertising revenue within the market and the related market
share and profit margin of an average station within a market; (3) estimated capital start-up costs and losses incurred during
the early years; (4) risk-adjusted discount rate; (5) the likely media competition within the market area; and (6) terminal
values. If the carrying amount of FCC licenses is greater than their estimated fair value in a given market, the carrying amount
of FCC licenses in that market is reduced to its estimated fair value.
We also evaluate goodwill in each of its
reporting units (reportable segment) for impairment annually, or more frequently if certain circumstances are present. If the carrying
amount of goodwill in a reporting unit is greater than the implied value of goodwill determined by completing a hypothetical purchase
price allocation using estimated fair value of the reporting unit, the carrying amount of goodwill in that reporting unit is reduced
to its implied value.
We utilize independent appraisals in testing
FCC licenses for impairment when indicators of impairment are present.
We evaluate amortizable intangible assets
for recoverability when circumstances indicate impairment may have occurred, using an undiscounted cash flow methodology. If the
future undiscounted cash flows for the intangible asset are less than net book value, then the net book value is reduced to the
estimated fair value. Amortizable intangible assets are included in other intangibles, deferred costs and investments in the consolidated
balance sheets.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Broadcast Licenses
We have recorded the changes to broadcast
licenses for the years ended December 31, 2018 and 2017 as follows:
|
|
Continuing
Operations
|
|
|
Discontinued
Operations
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2017
|
|
$
|
86,622
|
|
|
$
|
9,607
|
|
|
$
|
96,229
|
|
Acquisitions
|
|
|
8,086
|
|
|
|
—
|
|
|
|
8,086
|
|
Dispositions
|
|
|
—
|
|
|
|
(9,607
|
)
|
|
|
(9,607
|
)
|
Impairment charge
|
|
|
(1,449
|
)
|
|
|
—
|
|
|
|
(1,449
|
)
|
Balance at December 31, 2017
|
|
$
|
93,259
|
|
|
$
|
—
|
|
|
$
|
93,259
|
|
Acquisitions
|
|
|
1,991
|
|
|
|
—
|
|
|
|
1,991
|
|
Balance at December 31, 2018
|
|
$
|
95,250
|
|
|
$
|
—
|
|
|
$
|
95,250
|
|
2018 Impairment Test
We completed our annual impairment test
of broadcast licenses during the fourth quarter of 2018 and determined that the fair value of the broadcast licenses was greater
than the carrying value recorded for each of our markets and, accordingly, no impairment was recorded.
The following table reflects certain key
estimates and assumptions used in the impairment test in the fourth quarter of 2018, 2017 and 2016. The ranges for operating profit
margin and market long-term revenue growth rates vary by market. In general, when comparing between 2018, 2017 and 2016: (1) the
market specific operating profit margin range remained relatively consistent; (2) the market long-term revenue growth rates
were relatively consistent; (3) the discount rate remained relatively consistent; and (4) current year revenues were 3.9%
lower than previously projected for 2018.
|
|
Fourth
Quarter
2018
|
|
Fourth
Quarter
2017
|
|
Fourth
Quarter
2016
|
Discount rates
|
|
12.0% - 12.0%
|
|
12.4% - 12.5%
|
|
12.3% - 12.4%
|
Operating profit margin ranges
|
|
19.0% - 36.4%
|
|
19.0% - 36.4%
|
|
19.5% - 36.4%
|
Market long-term revenue growth rates
|
|
0.5% - 2.9%
|
|
1.1% - 3.5 %
|
|
1.0% - 2.9 %
|
If actual market conditions are less favorable
than those estimated by us or if events occur or circumstances change that would reduce the fair value of our broadcast licenses
below the carrying value, we may be required to recognize additional impairment charges in future periods. Such a charge could
have a material effect on our consolidated financial statements.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
2017 Impairment Test
We completed our annual impairment test
of broadcast licenses during the fourth quarter of 2017 and determined that the fair value of the broadcast licenses were less
than the amount reflected in the balance sheet for one of the Company’s radio markets, Springfield, Illinois, and recorded
non-cash impairment charge of $1,449,000 to reduce the carrying value of these assets to the estimated fair market value. The reasons
for the impairment to the broadcasting licenses recognized in the fourth quarter of 2017 were primarily due to declines in available
market revenue, market revenue share, profit margins and estimated long-term growth rates in our Springfield, Illinois market.
2016 Impairment Test
During the fourth quarter of 2016, we completed
our annual impairment test of broadcast licenses and determined that the fair value of the broadcast licenses was greater than
the carrying value recorded for each of our markets and, accordingly, no impairment was recorded.
Goodwill
During the fourth quarter of 2018, the
Company performed its annual impairment test of its goodwill in accordance with ASC 350 and determined under the first step that
the fair value of our continuing operations was in excess of its carrying value.
We have recorded the changes to goodwill
for each of the years ended December 31, 2018 and 2017 as follows:
|
|
Total
|
|
|
|
(in thousands)
|
|
|
|
|
|
Balance at January 1, 2017
|
|
$
|
7,407
|
|
Acquisitions
|
|
|
8,151
|
|
Balance at December 31, 2017
|
|
$
|
15,558
|
|
Acquisitions
|
|
|
3,281
|
|
Balance at December 31, 2018
|
|
$
|
18,839
|
|
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Other Intangible Assets
We have recorded amortizable intangible
assets at December 31, 2018 as follows:
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
Non-competition agreements
|
|
$
|
3,861
|
|
|
$
|
3,861
|
|
|
$
|
—
|
|
Favorable lease agreements
|
|
|
5,965
|
|
|
|
5,504
|
|
|
|
461
|
|
Customer relationships
|
|
|
4,660
|
|
|
|
2,634
|
|
|
|
2,026
|
|
Other intangibles
|
|
|
1,943
|
|
|
|
1,683
|
|
|
|
260
|
|
Total amortizable intangible assets
|
|
$
|
16,429
|
|
|
$
|
13,682
|
|
|
$
|
2,747
|
|
We have recorded amortizable intangible
assets at December 31, 2017 as follows:
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
Non-competition agreements
|
|
$
|
3,861
|
|
|
$
|
3,861
|
|
|
$
|
—
|
|
Favorable lease agreements
|
|
|
5,965
|
|
|
|
5,468
|
|
|
|
497
|
|
Customer relationships
|
|
|
3,546
|
|
|
|
1,529
|
|
|
|
2,017
|
|
Other intangibles
|
|
|
1,834
|
|
|
|
1,630
|
|
|
|
204
|
|
Total amortizable intangible assets
|
|
$
|
15,206
|
|
|
$
|
12,488
|
|
|
$
|
2,718
|
|
Aggregate amortization expense for these
intangible assets for the years ended December 31, 2018, 2017 and 2016, was $1,094,000, $860,000 and $642,000, respectively.
Our estimated annual amortization expense for the years ending December 31, 2019, 2020, 2021, 2022 and 2023 is $1,029,000,
$813,000, $387,000, $39,000 and $35,000, respectively.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
|
4.
|
Discontinued Operations
|
On May 9, 2017 we entered into a definitive
agreement to sell our Joplin, Missouri and Victoria, Texas television stations (“Television Sale”) for approximately
$66.6 million, subject to certain adjustments, to Evening Telegram Company d/b/a Morgan Murphy Media. 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
sale 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, which included the purchase price
of $23 million, the purchase of $1.3 million in accounts receivable offset by certain closing adjustments and transactional costs
of approximately $50,000 (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).
In accordance with authoritative guidance
we have reported the results of operations of the Joplin, Missouri and Victoria, Texas television stations as discontinued operations
in the accompanying consolidated financial statements. For all previously reported periods, certain amounts in the consolidated
financial statements have been reclassified. All of the assets and liabilities of the Joplin, Missouri and Victoria, Texas television
stations have been classified as discontinued operations and the net results of operations have been reclassified from continuing
operations to discontinued operations. These were previously included in the Company’s television segment.
The following table shows the components
of the results from discontinued operations associated with the Television Sale as reflected in the Company’s Consolidated
Statements of Operations (in thousands):
|
|
Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
(4)
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
—
|
|
|
$
|
14,238
|
|
|
$
|
23,636
|
|
Station operating expense
(1)
|
|
|
—
|
|
|
|
9,757
|
|
|
|
14,743
|
|
Other operating (income) expense
|
|
|
—
|
|
|
|
31
|
|
|
|
(42
|
)
|
Operating income
|
|
|
—
|
|
|
|
4,450
|
|
|
|
8,935
|
|
Interest expense
(2)
|
|
|
—
|
|
|
|
21
|
|
|
|
32
|
|
Income before income taxes
|
|
|
—
|
|
|
|
4,429
|
|
|
|
8,903
|
|
Pretax gain on the disposal of discontinued operations
|
|
|
—
|
|
|
|
50,842
|
|
|
|
—
|
|
Total pretax gain on discontinued operations
|
|
|
—
|
|
|
|
55,271
|
|
|
|
8,903
|
|
Income tax expense
(3)
|
|
|
—
|
|
|
|
22,800
|
|
|
|
3,627
|
|
Income from discontinued operations, net of tax
|
|
$
|
—
|
|
|
$
|
32,471
|
|
|
$
|
5,276
|
|
|
(1)
|
No depreciation expense was recorded by the Company beginning May 9, 2017, the date the Television segment assets’ were held for sale.
|
|
(2)
|
Interest expense related to the Surtsey debt that is guaranteed by the Television stations. Our affiliate repaid this loan when the television stations were sold on September 1, 2017.
|
|
(3)
|
The effective tax rates on pretax income from discontinued operations were approximately 41%.
|
|
(4)
|
Results of operations for the Television stations are reflected through August 31, 2017. The effective date of the sale was September 1, 2017.
|
SAGA COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS — (Continued)
The following table represents the components of the results
from discontinued operations associated with the Television Sale as reflected in the Company’s unaudited Condensed Consolidated
Statements of Cash Flows (in thousands):
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
32
|
|
Income taxes
|
|
|
—
|
|
|
|
23,260
|
|
|
|
2,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant operating non-cash items
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(1)
|
|
$
|
—
|
|
|
$
|
445
|
|
|
$
|
1,387
|
|
Broadcast program rights amortization
|
|
|
—
|
|
|
|
418
|
|
|
|
628
|
|
Barter revenue, net
|
|
|
—
|
|
|
|
18
|
|
|
|
32
|
|
Acquisition of property and equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
43
|
|
Loss (gain) on sale of assets
|
|
|
—
|
|
|
|
31
|
|
|
|
(42
|
)
|
Pretax gain on television sale
|
|
|
—
|
|
|
|
50,842
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant investing items
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
$
|
—
|
|
|
$
|
335
|
|
|
$
|
894
|
|
Proceeds from sale and disposal of assets
|
|
|
—
|
|
|
|
—
|
|
|
|
(59
|
)
|
Net proceeds from sale of television stations
(2)
|
|
|
—
|
|
|
|
69,528
|
|
|
|
—
|
|
Proceeds from insurance claim
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(1)
|
No depreciation expense was recorded by the Company beginning May 9, 2017, the date the Television segment assets’ were held for sale.
|
|
(2)
|
Net proceeds from the sale of the television stations reflect the sales price of $66.6 million, the sale of accounts receivable of approximately $3.4 million, offset by certain closing adjustments and transactional costs of approximately $500 thousand.
|
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Long-term debt consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
|
|
|
|
Credit Facility:
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
|
$
|
20,000
|
|
|
$
|
25,000
|
|
Amounts payable within one year
|
|
|
(5,000
|
)
|
|
|
—
|
|
|
|
$
|
15,000
|
|
|
$
|
25,000
|
|
Future maturities of long-term debt are
as follows:
Year Ending
December 31,
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
|
|
|
2019
|
|
$
|
5,000
|
|
2020
|
|
|
—
|
|
2021
|
|
|
—
|
|
2022
|
|
|
—
|
|
2023
|
|
|
15,000
|
|
Thereafter
|
|
|
—
|
|
|
|
$
|
20,000
|
|
On August 18, 2015, we entered into a new
credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A., The Huntington National Bank, Citizens Bank,
National Association and J.P. Morgan Securities LLC. In connection with the execution of the Credit Facility, the credit agreement
in place at June 30, 2015 (the “Old Credit Agreement”) was terminated, and all outstanding amounts were paid in full.
The Credit Facility consists of a $100 million five-year revolving facility (the “Revolving Credit Facility”) and matures
on August 18, 2020. On June 27, 2018, the Company entered into a Second Amendment to its Credit Facility, dated August 18, 2015,
and amended on September 1, 2017, extending the revolving credit maturity date under the Credit Agreement for five years after
the date of the amendment to June 27, 2023.
We have pledged substantially all of our
assets (excluding our FCC licenses and certain other assets) in support of the Credit Facility and each of our subsidiaries has
guaranteed the Credit Facility and has pledged substantially all of their assets (excluding their FCC licenses and certain other
assets) in support of the Credit Facility.
Approximately $266,000 of 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.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Interest rates under the Credit Facility
are payable, at our option, at alternatives equal to LIBOR (2.4375% at December 31, 2018), plus 1% to 2% or the base rate plus
0% to 1%. The spread over LIBOR and the base rate vary from time to time, depending upon our financial leverage. Letters of credit
issued under the Credit Facility will be subject to a participation fee (which is equal to the interest rate applicable to Eurocurrency
Loans, as defined in the Credit Agreement) payable to each of the Lenders and a fronting fee equal to 0.25% per annum payable to
the issuing bank. We also pay quarterly commitment fees of 0.2% to 0.3% per annum on the unused portion of the Revolving Credit
Facility.
The Credit Facility contains a number
of financial covenants (all of which we were in compliance with at December 31, 2018) which, among other things, require us to
maintain specified financial ratios and impose certain limitations on us with respect to investments, additional indebtedness,
dividends, distributions, guarantees, liens and encumbrances.
We had approximately $80 million of unused
borrowing capacity under the Revolving Credit Facility at December 31, 2018.
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.
On September 4, 2018, the Company used
$5,000,000 from funds generated by operations to pay down a portion of its Revolving Credit Facility.
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.
The loan agreement of approximately
$1.1 million of secured debt of affiliate was amended in April, 2017 to extend the due date of the loan for three years to mature
on May 1, 2020. Our affiliate repaid this loan when the television stations were sold on September 1, 2017.
|
6.
|
Supplemental Cash Flow
Information
|
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
884
|
|
|
$
|
850
|
|
|
$
|
636
|
|
Income taxes
|
|
$
|
2,864
|
|
|
$
|
2,420
|
|
|
$
|
6,555
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Barter revenue
|
|
$
|
3,570
|
|
|
$
|
3,618
|
|
|
$
|
3,471
|
|
Barter expense
|
|
$
|
3,677
|
|
|
$
|
3,367
|
|
|
$
|
3,217
|
|
Purchase of treasury shares in connection with exercise of stock options
|
|
$
|
—
|
|
|
$
|
826
|
|
|
$
|
—
|
|
Acquisition of property and equipment
|
|
$
|
11
|
|
|
$
|
8
|
|
|
$
|
49
|
|
Use of treasury shares for 401(k) match
|
|
$
|
252
|
|
|
$
|
274
|
|
|
$
|
258
|
|
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
On December 22, 2017, the U.S. government
enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act
makes broad and complex changes to the U.S. tax code, including, but not limited to, the following that impact us: (1) reducing
the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) eliminating the corporate alternative minimum tax
(“AMT”) and changing how existing AMT credits can be realized; (3) creating a new limitation on deductible interest
expense; (4) repealing the domestic production activities deduction; (5) limiting the deductibility of certain executive compensation;
and (6) limiting certain other deductions.
The SEC staff issued Staff Accounting Bulletin
No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides for
a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting
relating to the Tax Act under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects
of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain
income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional
estimate in its financial statements. If a company cannot determine a provisional estimate to be included in its financial statements,
it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment
of the Tax Act.
As a result of our initial analysis of
the impact of the Tax Act, we recorded a provisional amount of net tax benefit of $11.5 million in 2017 related to the remeasurement
of our deferred tax balance and other effects. We completed our accounting for the income tax effects of the Tax Act in 2018, and
no material adjustments were required to the provisional amounts initially recorded.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets are as
follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
5,145
|
|
|
$
|
4,333
|
|
Intangible assets
|
|
|
19,324
|
|
|
|
17,640
|
|
Prepaid expenses
|
|
|
350
|
|
|
|
317
|
|
Total deferred tax liabilities
|
|
|
24,819
|
|
|
|
22,290
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
118
|
|
|
|
116
|
|
Compensation
|
|
|
906
|
|
|
|
1,058
|
|
Other accrued liabilities
|
|
|
63
|
|
|
|
44
|
|
|
|
|
1,087
|
|
|
|
1,218
|
|
Less: valuation allowance
|
|
|
—
|
|
|
|
—
|
|
Total net deferred tax assets
|
|
|
1,087
|
|
|
|
1,218
|
|
Net deferred tax liabilities
|
|
$
|
23,732
|
|
|
$
|
21,072
|
|
Current portion of deferred tax assets
|
|
$
|
303
|
|
|
$
|
300
|
|
Non-current portion of deferred tax liabilities
|
|
|
(24,035
|
)
|
|
|
(21,372
|
)
|
Net deferred tax liabilities
|
|
$
|
(23,732
|
)
|
|
$
|
(21,072
|
)
|
Deferred tax assets are required to be
reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.
At December 31, 2018 and December 31, 2017, we do not have a valuation allowance for net deferred tax assets.
At December 31, 2018 and 2017, net deferred
tax liabilities include a deferred tax asset of $1,087,000 and $1,175,000, respectively, relating to deferred compensation, stock-based
compensation expense, accrued compensation, the allowance for doubtful accounts, and other accrued expenses.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
The significant components of the provision
for income taxes are as follows:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,205
|
|
|
$
|
2,545
|
|
|
$
|
5,616
|
|
State
|
|
|
835
|
|
|
|
(255
|
)
|
|
|
1,010
|
|
Total current
|
|
|
3,040
|
|
|
|
2,290
|
|
|
|
6,626
|
|
Total deferred
|
|
|
2,660
|
|
|
|
(8,210
|
)
|
|
|
2,247
|
|
Total Income Tax Provision
|
|
$
|
5,700
|
|
|
$
|
(5,920
|
)
|
|
$
|
8,873
|
|
In addition, we recognized a tax expense
(benefit) of $0, ($100,000), and $0 as a result of stock option exercises for the difference between compensation expense for financial
statement and income tax purposes for the years ended December 31, 2018, 2017 and 2016, respectively.
The reconciliation of income tax at the
U.S. federal statutory tax rates to income tax expense (benefit) is as follows:
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense at U.S. statutory rates
|
|
$
|
4,017
|
|
|
$
|
5,716
|
|
|
$
|
7,665
|
|
State tax expense (benefit), net of federal benefit
|
|
|
1,134
|
|
|
|
(769
|
)
|
|
|
926
|
|
Other, net
|
|
|
549
|
|
|
|
633
|
|
|
|
282
|
|
Federal tax reform - deferred tax rate change
|
|
|
—
|
|
|
|
(11,500
|
)
|
|
|
—
|
|
|
|
$
|
5,700
|
|
|
$
|
(5,920
|
)
|
|
$
|
8,873
|
|
The 2018 and 2016 effective tax rates exceed
the federal statutory rate primarily due to state income taxes. The 2017 effective tax rate differs from the federal statutory
rate primarily due to the impacts of the Tax Act and state income tax benefit on 2017’s earnings.
The Company files income taxes in the U.S.
federal jurisdiction, and in various state and local jurisdictions. The Company is no longer subject to U.S. federal examinations
by the Internal Revenue Service (IRS) for years prior to 2015. During the first quarter of 2015, the IRS commenced an examination
of the Company’s 2013 U.S. federal income tax return which was completed in the first quarter of 2016 and resulted in no
changes to the return. The Company is subject to examination for income and non-income tax filings in various states.
As of December 31, 2018, and 2017 there
were no accrued balances recorded related to uncertain tax positions.
We classify income tax-related interest
and penalties that are related to income tax liabilities as a component of income tax expense. For the years ended December 31,
2018, 2017 and 2016, we had $31,000, $0, and $0, respectively, tax-related interest and penalties and had $0 accrued at December
31, 2018 and 2017.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
|
8.
|
Stock-Based Compensation
|
2005 Incentive Compensation Plan
On October 16, 2013 our stockholders approved
the Second Amended and Restated Saga Communications, Inc. 2005 Incentive Compensation Plan, which was amended in 2018 after
approval of the amendment by our stockholders at our 2018 annual meeting (as amended, the “Second Restated 2005 Plan”).
The 2005 Incentive Compensation Plan was first approved by stockholders in 2005 and replaced our 2003 Stock Option Plan (the “2003
Plan”), subsequently this plan was re-approved by stockholders in 2010. The changes made in 2013 in the Second Restated 2005
Plan (i) increased the number of authorized shares by 233,334 shares of Common Stock, (ii) extended the date for making awards
to September 6, 2018, (iii) includes directors as participants, (iv) targets awards according to groupings of participants based
on ranges of base salary of employees and/or retainers of directors, (v) requires participants to retain 50 % of their net annual
restricted stock awards during their employment or service as a director, and (vi) includes a clawback provision. The 2018 amendment
to the Second Restated 2005 Plan (i) extended the date for making awards to September 6, 2023 and (ii) increased the number of
authorized shares under the Plan by 90,000 shares of Class B Common Stock. The Second Restated 2005 Plan allows for the granting
of restricted stock, restricted stock units, incentive stock options, nonqualified stock options, and performance awards to eligible
employees and non-employee directors.
The number of shares of Common Stock that
may be issued under the Second Restated 2005 Plan may not exceed 370,000 shares of Class B Common Stock, 990,000 shares
of Class A Common Stock of which up to 620,000 shares of Class A Common Stock may be issued pursuant to incentive stock
options and 370,000 Class A Common Stock issuable upon conversion of Class B Common Stock. Awards denominated in Class A
Common Stock may be granted to any employee or director under the Second Restated 2005 Plan. However, awards denominated in Class B
Common Stock may only be granted to Edward K. Christian, President, Chief Executive Officer, Chairman of the Board of Directors,
and the holder of 100% of the outstanding Class B Common Stock of the Company. Stock options granted under the Second Restated
2005 Plan may be for terms not exceeding ten years from the date of grant and may not be exercised at a price which is less than
100% of the fair market value of shares at the date of grant.
Stock-Based Compensation
The Company’s stock-based compensation
expense is measured and recognized for all stock-based awards to employees using the estimated fair value of the award. Compensation
expense is recognized over the period during which an employee is required to provide service in exchange for the award. For these
awards, we have recognized compensation expense using a straight-line amortization method. Accounting guidance requires that stock-based
compensation expense be based on awards that are ultimately expected to vest; therefore stock-based compensation has been adjusted
for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behaviors as well as trends of actual
option forfeitures.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
All stock options were fully vested and
expensed at December 31, 2012, therefore there was no compensation expense related to stock options for the years ended December
31, 2018, 2017 and 2016. We calculated the fair value of each option award on the date of grant using the Black-Scholes option
pricing model. The estimated expected volatility, expected term of options and estimated annual forfeiture rate were determined
based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting
schedules and expectations of future employee behavior. The risk-free interest rate was based on the U.S. Treasury yield curve
in effect at the time of grant.
The following summarizes the stock option
transactions for the Second Restated 2005 Plan, and the 2003 Plan for the year ended December 31:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Term (Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2016
|
|
|
29,035
|
|
|
$
|
28.47
|
|
|
|
1.4
|
|
|
$
|
289,769
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited/canceled/expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
29,035
|
|
|
$
|
28.47
|
|
|
|
0.4
|
|
|
$
|
633,834
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(29,035
|
)
|
|
|
28.47
|
|
|
|
|
|
|
|
|
|
Forfeited/canceled/expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited/canceled/expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Vested and Exercisable at December 31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
The total intrinsic value of stock options
exercised during the years ended December 31, 2018, 2017 and 2016 was $0, $664,321, and $0, respectively. Cash received from
stock options exercised during the years ended December 31, 2018, 2017 and 2016 was $0, $354 and $0, respectively.
There were no options granted during 2018,
2017 and 2016 and there were no stock options outstanding as of December 31, 2018.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
The following summarizes the restricted
stock transactions for the year ended December 31:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2016
|
|
|
106,789
|
|
|
$
|
40.28
|
|
Granted
|
|
|
48,471
|
|
|
|
48.60
|
|
Vested
|
|
|
(51,368
|
)
|
|
|
41.20
|
|
Forfeited/canceled/expired
|
|
|
(630
|
)
|
|
|
38.83
|
|
Outstanding at December 31, 2016
|
|
|
103,262
|
|
|
$
|
43.73
|
|
Granted
|
|
|
48,780
|
|
|
|
44.20
|
|
Vested
|
|
|
(54,598
|
)
|
|
|
42.13
|
|
Forfeited/canceled/expired
|
|
|
(805
|
)
|
|
|
46.23
|
|
Outstanding at December 31, 2017
|
|
|
96,639
|
|
|
$
|
44.85
|
|
Granted
|
|
|
63,811
|
|
|
|
37.37
|
|
Vested
|
|
|
(49,493
|
)
|
|
|
43.98
|
|
Forfeited/canceled/expired
|
|
|
(1,781
|
)
|
|
|
45.39
|
|
Non-vested and outstanding at December 31, 2018
|
|
|
109,176
|
|
|
$
|
40.87
|
|
Weighted average remaining contractual life (in years)
|
|
|
2.3
|
|
|
|
|
|
The weighted average grant date fair value
of restricted stock that vested during 2018, 2017 and 2016 was $2,385,000, $2,300,000 and $2,116,000, respectively. The net value
of unrecognized compensation cost related to unvested restricted stock awards aggregated $4,166,000, $4,063,000 and $4,223,000
at December 31, 2018, 2017 and 2016, respectively.
For the years ended December 31, 2018,
2017 and 2016 we had $2,201,000, $2,279,000 and $2,101,000, respectively, of total compensation expense related to restricted stock-based
arrangements. The expense is included in corporate general and administrative expenses in our results of operations. The associated
tax benefit recognized for the years ended December 31, 2018, 2017 and 2016 was $251,000, $912,000 and $840,000, respectively.
|
9.
|
Employee Benefit Plans
|
401(k) Plan
We have a defined contribution pension
plan (“401(k) Plan”) that covers substantially all employees. Employees can elect to have a portion of their wages
withheld and contributed to the plan. The 401(k) Plan also allows us to make a discretionary contribution. Total administrative
expense under the 401(k) Plan was $1,100, $1,700 and $1,200 in 2018, 2017 and 2016, respectively. The Company’s discretionary
contribution to the plan was approximately $265,000, $255,000 and $275,000 for the years ended December 31, 2018, 2017 and 2016,
respectively.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Deferred Compensation Plan
In 1999 we established a Nonqualified Deferred
Compensation Plan which allows officers and certain management employees to annually elect to defer a portion of their compensation,
on a pre-tax basis, until their retirement. The retirement benefit to be provided is based on the amount of compensation deferred
and any earnings thereon. Deferred compensation expense for the years ended December 31, 2018, 2017 and 2016 was $149,000,
$211,000 and $184,000, respectively. We invest in company-owned life insurance policies to assist in funding these programs. The
cash surrender values of these policies are in a rabbi trust and are recorded as our assets.
Split Dollar Officer Life Insurance
The Company provides split dollar insurance
benefits to certain executive officers and records an asset equal to the cumulative premiums paid on the related policies, as the
Company will fully recover these premiums under the terms of the plan. The Company retains a collateral assignment of the cash
surrender values and policy death benefits payable to insure recovery of these premiums.
|
10.
|
Acquisitions and Dispositions
|
We actively seek and explore opportunities
for expansion through the acquisition of additional broadcast properties. The consolidated statements of income include the operating
results of the acquired stations from their respective dates of acquisition. All acquisitions were accounted for as purchases and,
accordingly, the total purchase consideration was allocated to the acquired assets and assumed liabilities based on their estimated
fair values as of the acquisition dates. The excess of the consideration paid over the estimated fair value of net assets acquired
have been recorded as goodwill. The Company accounts for acquisition under the provisions of FASB ASC Topic 805,
Business Combinations
.
Management assigned fair values to the
acquired property and equipment through a combination of cost and market approaches based upon each specific asset’s replacement
cost, with a provision for depreciation, and to the acquired intangibles, primarily an FCC license, based on the Greenfield valuation
methodology, a discounted cash flow approach.
2018 Acquisitions
On October 29, 2018, the Company entered
into an agreement to purchase WOGK-FM, WNDT-FM, WNDD-FM and WNDN-FM, from Ocala Broadcasting Corporation, LLC for an aggregate
purchase price of $9.3 million, subject to certain purchase price adjustments. The Company closed this transaction effective December
31, 2018 using funds generated from operations of $9.84 million, which included the purchase price of $9.3 million, the purchase
of $566 thousand in accounts receivable by certain closing adjustments and transactional costs of approximately $25 thousand, of
which $552 thousand was paid in January 2019. Management attributes the goodwill recognized in the acquisition to the power of
the existing brands in the Ocala, Florida market as well as synergies and growth opportunities expected through the combination
with the Company’s existing stations.
2017 Acquisitions and Dispositions
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 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 sale of accounts receivable
of approximately $3.4 million, offset by certain closing adjustments and transactional costs of approximately $500 thousand.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
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 radio
stations principally serving the South Carolina area 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:
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 of $24.2 million, which included the purchase price of $23 million, the purchase of $1.3 million in accounts
receivable offset by certain closing adjustments and transactional costs of approximately $50,000. Management attributes the goodwill
recognized in the acquisition to the power of the existing brands in the Charleston, South Carolina and Hilton Head, South Carolina
market as well as synergies and growth opportunities expected through the combination with the Company’s existing stations.
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 $1,658,000, which included $8,000 in transactional costs. Simultaneously, we entered into a LMA 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. Unaudited proforma results of operations for this acquisition are not required, as such information
is not material to our financial statements and therefore is not presented in the pro forma tables in the following pages.
Condensed Consolidated Balance Sheet of 2018 and 2017
Acquisitions:
The following condensed balance sheets
represent the estimated fair value assigned to the related assets and liabilities of the 2018 and 2017 acquisitions at their respective
acquisition dates.
Condensed Consolidated Balance Sheet
of 2018 and 2017 Acquisitions
|
|
Acquisitions in
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands)
|
|
Assets Acquired:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
559
|
|
|
$
|
1,390
|
|
Property and equipment
|
|
|
3,007
|
|
|
|
6,678
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
|
|
1,991
|
|
|
|
8,086
|
|
Goodwill
|
|
|
3,281
|
|
|
|
8,151
|
|
Other intangibles, deferred costs and investments
|
|
|
1,123
|
|
|
|
2,019
|
|
Total other assets
|
|
|
6,395
|
|
|
|
18,256
|
|
Total assets acquired
|
|
|
9,961
|
|
|
|
26,324
|
|
Liabilities Assumed:
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
120
|
|
|
|
468
|
|
Total liabilities assumed
|
|
|
120
|
|
|
|
468
|
|
Net assets acquired
|
|
$
|
9,841
|
|
|
$
|
25,856
|
|
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Pro Forma Results of Operations for
Acquisitions (Unaudited)
The following unaudited pro forma results
of our operations for the years ended December 31, 2018 and 2017 assume the 2018 and 2017 acquisitions occurred as of January 1,
2017. The translators are start-up stations and therefore, have no pro forma revenue and expenses. The pro forma results give effect
to certain adjustments, including depreciation, amortization of intangible assets, increased interest expense on acquisition debt
and related income tax effects. The pro forma results have been prepared for comparative purposes only and do not purport to indicate
the results of operations which would actually have occurred had the combinations been in effect on the dates indicated or which
may occur in the future.
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands, except per share data)
|
|
Pro forma Consolidated Results of Operations
|
|
|
|
|
|
|
|
|
Net operating revenue
|
|
$
|
129,228
|
|
|
$
|
128,180
|
|
Station operating expense
|
|
|
97,314
|
|
|
|
96,218
|
|
Corporate general and administrative
|
|
|
11,359
|
|
|
|
11,657
|
|
Other operating expenses
|
|
|
61
|
|
|
|
55
|
|
Impairment of intangible assets
|
|
|
—
|
|
|
|
1,449
|
|
Operating income
|
|
|
20,494
|
|
|
|
18,801
|
|
Interest expense
|
|
|
946
|
|
|
|
903
|
|
Interest income
|
|
|
(631
|
)
|
|
|
—
|
|
Other income
|
|
|
(23
|
)
|
|
|
—
|
|
Income from continuing operations before income tax expense
|
|
|
20,202
|
|
|
|
17,898
|
|
Income tax expense (benefit) expense
|
|
|
5,944
|
|
|
|
(5,276
|
)
|
Income from continuing operations, net of tax
|
|
|
14,258
|
|
|
|
23,174
|
|
Income from discontinued operations, net of tax
|
|
|
—
|
|
|
|
32,471
|
|
Net income
|
|
$
|
14,258
|
|
|
$
|
55,645
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
2.40
|
|
|
$
|
3.93
|
|
From discontinued operations
|
|
|
—
|
|
|
|
5.50
|
|
Basic earnings per share
|
|
$
|
2.40
|
|
|
$
|
9.43
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
2.40
|
|
|
$
|
3.93
|
|
From discontinued operations
|
|
|
—
|
|
|
|
5.50
|
|
Diluted earnings per share
|
|
$
|
2.40
|
|
|
$
|
9.43
|
|
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
|
11.
|
Related Party Transactions
|
Principal Stockholder Employment Agreement
In June 2011, we entered into
a new employment agreement with Edward K. Christian, Chairman, President and CEO, which became effective as of
June 1, 2011, and replaces and supersedes his prior employment agreement. We entered into amendments to the agreement on
February 12, 2016 (the “First Amendment”) and February 26, 2019 (the “Second Amendment”). The First Amendment extended
the term of the employment agreement to March 31, 2021. The First Amendment also states that on each anniversary of the
effective date of the employment agreement, the Company’s Compensation committee shall determine in its discretion the
amount of any annual increases (which shall not be less than the greater of 4 % or a defined cost of living increase).
Mr. Christian may defer any or all of his annual salary. The Second Amendment extends the term of the employment agreement from March
31, 2021 to March 31, 2025 and also makes certain clarifying modifications to the employment agreement.
Under the agreement, Mr. Christian
is eligible for discretionary and performance bonuses, stock options and/or stock grants in amounts determined by the Compensation
Committee and will continue to participate in the Company’s benefit plans. The Company will maintain insurance policies,
will furnish an automobile, will pay for an executive medical plan and will maintain an office for Mr. Christian at its principal
executive offices and in Sarasota County, Florida. The First Amendment adds that the Company is authorized to pay for Mr. Christian’s
tax preparation services on an annual basis and that this amount will be subject to income tax as additional compensation. The
agreement provides certain payments to Mr. Christian in the event of his disability, death or a change in control. Upon a
change in control, Mr. Christian may terminate his employment. The agreement also provides generally that, upon a change in
control, the Company will pay Mr. Christian an amount equal to 2.99 times the average of his total annual salary and bonuses for
each of the three immediately preceding periods of twelve consecutive months, plus an additional amount for tax liabilities, related
to the payment. For the three years ended December 31, 2018 Mr. Christian’s average annual compensation, as defined
by the employment agreement was approximately $1,898,000.
In addition, if Mr. Christian’s
employment is terminated for any reason, other than for cause, the Company will continue to provide health insurance and medical
reimbursement and maintain existing life insurance policies for a period of ten years, and the current split dollar life insurance
policy shall be transferred to Mr. Christian and his wife, and the Company shall reimburse Mr. Christian for any tax
consequences of such transfer. The agreement contains a covenant not to compete restricting Mr. Christian from competing with
the Company in any of its markets if he voluntarily terminates his employment with the Company or is terminated for cause, for
a three year period thereafter. The first amendment also entitles Mr. Christian to receive severance pay equal to 100% of his then
base salary for 24 months payable in equal monthly installments and after the date upon which notice of termination is given, any
unvested or time-vested stock options previously granted to Mr. Christian by the Company shall become immediately one hundred percent
(100%) vested to the extent permitted by law.
On December 13, 2016, Mr. Christian agreed
to defer approximately $100,000 of his 2017 salary to which was paid 100% on January 5, 2018. On December 5, 2017, Mr. Christian
agreed to defer approximately $100,000 of his 2018 salary which was paid 100% on January 4, 2019. On December 14, 2018, Mr. Christian
agreed to defer approximately $100,000 of his 2019 salary to be paid 100% on January 3, 2020.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Change in Control Agreements
In December 2007, Samuel D. Bush, Senior
Vice President and Chief Financial Officer, Marcia K. Lobaito, Senior Vice President, Corporate Secretary and Director of Business
Affairs, and Catherine Bobinski, Senior Vice President/Finance, Chief Accounting Officer and Corporate Controller, entered into
Change in Control Agreements. In September 2018, Christopher S. Forgy, Senior Vice President of Operations entered into a Change
in Control Agreement. A change in control is defined to mean the occurrence of (a) any person or group becoming the beneficial
owner, directly or indirectly, of more than 30% of the combined voting power of the Company’s then outstanding securities
and Mr. Christian ceasing to be Chairman and CEO of the Company; (b) the consummation of a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation which results in the voting securities of the Company
outstanding immediately prior thereto continuing to represent more than 50% of the combined voting securities of the Company or
such surviving entity; or (c) the approval of the stockholders of the Company of a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of all or substantially all of its assets.
If there is a change in control, the Company
shall pay a lump sum payment within 45 days thereof of 1.5 times the average of the executive’s last three full calendar
years of such executive’s base salary and any annual cash bonus paid. In the event that such payment constitutes a “parachute
payment” within the meaning of Section 280G subject to an excise tax imposed by Section 4999 of the Internal Revenue
Code, the Company shall pay the executive an additional amount so that the executive will receive the entire amount of the lump
sum payment before deduction for federal, state and local income tax and payroll tax. In the event of a change in control (other
than the approval of plan of liquidation), the Company or the surviving entity may require as a condition to receipt of payment
that the executive continue in employment for a period of up to six months after consummation of the change in control. During
such six months, executive will continue to earn his pre-existing salary and benefits. In such case, the executive shall be paid
the lump sum payment upon completion of the continued employment. If, however, the executive fails to remain employed during this
period of continued employment for any reason other than (a) termination without cause by the Company or the surviving entity,
(b) death, (c) disability or (d) breach of the agreement by the Company or the surviving entity, then executive
shall not be paid the lump sum payment. In addition, if the executive’s employment is terminated by the Company without cause
within six months prior to the consummation of a change in control, then the executive shall be paid the lump sum payment within
45 days of such change in control.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Transactions with Affiliate and Other Related Party Transactions
Until the Television Sale (discussed in
Note 4) Surtsey Media, LLC (“Surtsey Media”) owned the assets of television station KVCT in Victoria, Texas. Surtsey
Media is a multi-media company 100%-owned by the daughter of Mr. Christian, our President, Chief Executive Officer and Chairman.
We operated KVCT under a Time Brokerage Agreement (“TBA”) with Surtsey Media which we entered into in May 1999. Under
the FCC’s ownership rules, we were prohibited from owning or having an attributable or cognizable interest in this station.
In January 2012, the TBA was amended. Pursuant to the amendment, (i) the term was extended nine years commencing from June 1, 2013,
with rights to extend for two additional eight year terms, (ii) we paid Surtsey Media an extension fee of $27,950 upon execution
of the amendment, (iii) the monthly fees, payable to Surtsey Media were increased for each extension period, and (iv) we had an
exclusive option, while the TBA was in effect, to purchase all of the assets of station KVCT, subject to certain conditions, based
on a formula. Under the amended TBA, prior to the Television Sale, during 2017, and 2016 we paid Surtsey Media fees of approximately
$3,800 and $3,900 per month, respectively plus accounting fees and reimbursement of expenses actually incurred in operating the
station. The TBA was terminated at the time of the completion of the Television Sale of September 1, 2017.
In March 2003, we entered into an agreement
of understanding with Surtsey Media whereby we had guaranteed up to $1,250,000 of the debt incurred, in Surtsey Media closing the
acquisition of a construction permit for KFJX-TV station in Pittsburg, Kansas, a full power Fox affiliate serving Joplin, Missouri.
In consideration for the guarantee, Surtsey Media entered into various agreements with us relating to the station, including a
Shared Services Agreement, Technical Services Agreement, and Agreement for the Sale of Commercial Time and Broker Agreement (the
“Station Agreements”). The station went on the air for the first time on October 18, 2003. Under the FCC’s ownership
rules we were prohibited from owning or having an attributable or cognizable interest in this station. In January 2012, the Station
Agreements were amended. Pursuant to the amendment, (i) the Broker Agreement and the Technical Services Agreement were terminated,
(ii) the terms of the continuing Station Agreements were extended nine years commencing from June 1, 2013 , with rights to extend
for two additional eight year terms, (iii) we paid Surtsey Media $37,050 upon execution of the amendment, (iv) the monthly fees
payable to Surtsey Media were increased for each extension period, and (v) we had an exclusive option, while the Agreement for
the Sale of Commercial Time and Shared Services Agreement were in effect, to purchase all of the assets of Station KFJX subject
to certain conditions, based on a formula, together with a payment of $1.2 million. Under the amended Station Agreements, prior
to the Television Sale, during 2017 and 2016 we paid fees of approximately $5,200, and $5,100 per month, respectively, plus accounting
fees and reimbursement of expenses actually incurred in operating the station. We generally prepaid Surtsey quarterly for its estimated
expenses. As part of completion of the Television Sale, the debt we guaranteed was paid in full and the amended Station Agreements
were terminated.
Surtsey Productions, Inc., the parent company
of Surtsey Media, leases office space in a building owned by us, and paid us rent of $3,000 and $6,000 during the first eight months
of the year ended December 31, 2017 prior to the Television Sale and the year ended December 31, 2016, respectively.
Saga Quad States, our fully owned
subsidiary, completed the acquisition from Apex Media Corporation, a South Carolina corporation (“AMC”), and
Pearce Development, LLC f/k/a Apex Real Property, LLC, a South Carolina limited liability company (“ARP” and
together with AMC, “Seller”), of substantially all of Seller’s assets related to the operation of certain
radio and translator stations, upon the satisfaction of certain closing conditions described in the Asset Purchase Agreement
dated May 9, 2017 (the “Apex Agreement”) by and among Seller, Saga Quad States, and, solely in his role as
guarantor under the Apex Agreement, G. Dean Pearce, as further described in the Form 8-K filed by Saga on May 10, 2017. Mr.
Pearce is President of AMC and ARP, and currently serves on the Board of Directors of Saga. The purchase price under the Apex
Agreement was $23,000,000.00, subject to certain purchase price adjustments, payable in cash. The purchase price was
determined through arm’s-length negotiations, and was approved by the Saga Board, and Finance and Audit Committee, in
accordance with the requirements of Saga’s Corporate Governance Guidelines for the review of related party
transactions. In connection with this agreement, we received 500 hours of service from New Pointe Systems, a subsidiary
of Pearce Development and have agreed to provide 1,000, 30 second, spots of airtime to Pearce Development. As of December 31,
2018, we have used the hours of service from New Pointe Systems, and we have approximately 1,000, 30 second
spots left to provide to Pearce Development. During 2018 and 2017, we also paid approximately $4,100 and $3,300 rent per
month, respectively to Pearce Development for our Hilton Head studio and office space beginning September 1, 2017.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
Dividends.
Stockholders
are entitled to receive such dividends as may be declared by our Board of Directors out of funds legally available for such purpose.
However, no dividend may be declared or paid in cash or property on any share of any class of Common Stock unless simultaneously
the same dividend is declared or paid on each share of the other class of common stock. In the case of any stock dividend, holders
of Class A Common Stock are entitled to receive the same percentage dividend (payable in shares of Class A Common Stock)
as the holders of Class B Common Stock receive (payable in shares of Class B Common Stock).
Voting Rights.
Holders
of shares of Common Stock vote as a single class on all matters submitted to a vote of the stockholders, with each share of Class A
Common Stock entitled to one vote and each share of Class B Common Stock entitled to ten votes, except (i) in the election
for directors, (ii) with respect to any “going private” transaction between the Company and the principal stockholder,
and (iii) as otherwise provided by law.
In the election of directors, the holders
of Class A Common Stock, voting as a separate class, are entitled to elect twenty-five percent, or two, of our directors.
The holders of the Common Stock, voting as a single class with each share of Class A Common Stock entitled to one vote and
each share of Class B Common Stock entitled to ten votes, are entitled to elect the remaining directors. The Board of Directors
consisted of seven members at December 31, 2018. Holders of Common Stock are not entitled to cumulative voting in the election
of directors.
The holders of the Common Stock vote as
a single class with respect to any proposed “going private” transaction with the principal stockholder or an affiliate
of the principal stockholder, with each share of each class of Common Stock entitled to one vote per share.
Under Delaware law, the affirmative vote
of the holders of a majority of the outstanding shares of any class of common stock is required to approve, among other things,
a change in the designations, preferences and limitations of the shares of such class of common stock.
Liquidation Rights.
Upon
our liquidation, dissolution, or winding-up, the holders of Class A Common Stock are entitled to share ratably with the holders
of Class B Common Stock in accordance with the number of shares held in all assets available for distribution after payment
in full of creditors.
In any merger, consolidation, or business
combination, the consideration to be received per share by the holders of Class A Common Stock and Class B Common Stock
must be identical for each class of stock, except that in any such transaction in which shares of common stock are to be distributed,
such shares may differ as to voting rights to the extent that voting rights now differ among the Class A Common Stock and
the Class B Common Stock.
Other Provisions.
Each
share of Class B Common Stock is convertible, at the option of its holder, into one share of Class A Common Stock at
any time. One share of Class B Common Stock converts automatically into one share of Class A Common Stock upon its sale
or other transfer to a party unaffiliated with the principal stockholder or, in the event of a transfer to an affiliated party,
upon the death of the transferor.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
|
13.
|
Commitments and Contingencies
|
Leases
We lease certain land, buildings and equipment
under noncancellable operating leases. Rent expense for our continuing operations for the year ended December 31, 2018 was
$1,603,000 ($1,558,000 and $1,519,000 for the years ended December 31, 2017 and 2016, respectively).
Minimum annual rental commitments under
noncancellable operating leases consisted of the following at December 31, 2018 (in thousands):
2019
|
|
$
|
1,562
|
|
2020
|
|
|
1,369
|
|
2021
|
|
|
1,235
|
|
2022
|
|
|
1,067
|
|
2023
|
|
|
707
|
|
Thereafter
|
|
|
2,023
|
|
|
|
$
|
7,963
|
|
Performance Fees
The Company incurs fees from performing
rights organizations (“PRO”) to license the Company’s public performance of the musical works contained in each
PRO’s repertory. The Radio Music Licensing Committee, of which the Company is a represented participant, (1) entered
into an industry-wide settlement with American Society of Composers, Authors and Publishers that was effective January 1,
2017 for a five-year term; (2) is currently seeking reasonable industry-wide fees from Broadcast Music, Inc. effective January 1,
2017; (3) reached an agreement with the Society of European Stage Authors and Composers that is retroactive to January 1,
2016; and (4) filed in November 2016 a motion in the U.S. District Court in Pennsylvania against Global Music Rights (“GMR”)
arguing that GMR is a monopoly demanding monopoly prices and asking the Court to subject GMR to an antitrust
consent decree. In January 2017, the Company obtained an interim license from GMR for fees effective January 1,
2017 to avoid any infringement claims by GMR for using GMR’s repertory without a license.
Contingencies
In 2003, in connection with our acquisition
of one FM radio station, WJZK-FM serving the Columbus, Ohio market, we entered into an agreement whereby we would pay the seller
up to an additional $1,000,000 if we obtain approval from the FCC for a city of license change.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
|
14.
|
Fair Value Measurements
|
As defined in ASC Topic 820, fair value
is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy
prioritizes the inputs to valuation methodologies used to measure fair value:
Level 1 — Quoted prices
in active markets for identical assets or liabilities.
Level 2 — Observable inputs
other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets
or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market
data.
Level 3 — Unobservable
inputs in which there is little or no market data available, which requires management to develop its own assumptions in pricing
the asset or liability.
Our assets and liabilities disclosed at
fair value are summarized below ($000’s omitted):
|
|
|
|
Fair Value
|
|
Financial Instrument
|
|
Fair Value
Hierarchy
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Cash and cash equivalents
|
|
Level 1
|
|
$
|
44,729
|
|
|
$
|
53,030
|
|
Revolving Credit Facility
|
|
Level 2
|
|
|
20,000
|
|
|
|
25,000
|
|
Our financial instruments are comprised
of cash and cash equivalents, and long-term debt. The carrying value of cash and cash equivalents approximate fair value due to
their short maturities. The fair value of cash and cash equivalents is derived from quoted market prices and are considered a level
1. Interest on the Credit Facility is at a variable rate, and as such the debt obligation outstanding approximates fair value and
is considered a level 2.
Non-Recurring Fair Value Measurements
The Company has certain assets that are
measured at fair value on a non-recurring basis under the circumstances and events described in Note 3 — Broadcast
Licenses and Other Intangibles, and are adjusted to fair value only when the carrying values are more than the fair values.
During the fourth quarter of 2018, the
Company reviewed the fair value of the assets that are measured at fair value on a non-recurring basis and concluded that these
assets were not impaired as the fair value of these assets equaled or exceeded their carrying values.
During the fourth quarter of 2017, as a
result of our annual impairment test, the Company wrote down broadcast licenses with a carrying value of $3,649,000 to their fair
value of $2,200,000, resulting in a non-cash impairment charge of $1,449,000, which is included in net income for the year ended
December 31, 2017. The categorization of the framework used to price the assets is considered a level 3, due to the
subjective nature of the unobservable inputs used to determine the fair value. (See Note 2 for the disclosure of certain key
assumptions used to develop the unobservable inputs.)
During the fourth quarter of 2016, the
Company reviewed the fair value of the assets that are measured at fair value on a non-recurring basis and concluded that these
assets were not impaired as the fair value of these assets equaled or exceeded their carrying values.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
|
15.
|
Quarterly Results of
Operations (Unaudited)
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017*
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(In thousands, except per share data)
|
|
Net operating revenue
|
|
$
|
28,009
|
|
|
$
|
26,155
|
|
|
$
|
32,234
|
|
|
$
|
30,261
|
|
|
$
|
31,648
|
|
|
$
|
30,269
|
|
|
$
|
32,938
|
|
|
$
|
31,464
|
|
Station operating expenses
|
|
|
23,397
|
|
|
|
21,340
|
|
|
|
23,140
|
|
|
|
21,426
|
|
|
|
23,429
|
|
|
|
21,755
|
|
|
|
23,761
|
|
|
|
23,238
|
|
Corporate G&A
|
|
|
2,544
|
|
|
|
2,863
|
|
|
|
2,848
|
|
|
|
2,880
|
|
|
|
2,813
|
|
|
|
3,132
|
|
|
|
3,154
|
|
|
|
2,782
|
|
Other operating expense (income), net
|
|
|
(251
|
)
|
|
|
(21
|
)
|
|
|
213
|
|
|
|
79
|
|
|
|
85
|
|
|
|
(127
|
)
|
|
|
14
|
|
|
|
124
|
|
Impairment of intangible assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,449
|
|
Operating income from continuing operations
|
|
|
2,319
|
|
|
|
1,973
|
|
|
|
6,033
|
|
|
|
5,876
|
|
|
|
5,321
|
|
|
|
5,509
|
|
|
|
6,009
|
|
|
|
3,871
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
219
|
|
|
|
208
|
|
|
|
255
|
|
|
|
229
|
|
|
|
243
|
|
|
|
254
|
|
|
|
229
|
|
|
|
212
|
|
Interest
(income)
|
|
|
(89
|
)
|
|
|
—
|
|
|
|
(188
|
)
|
|
|
—
|
|
|
|
(167
|
)
|
|
|
—
|
|
|
|
(187
|
)
|
|
|
—
|
|
Other
(income) expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
Income from continuing operations before income
taxes
|
|
|
2,189
|
|
|
|
1,765
|
|
|
|
5,966
|
|
|
|
5,647
|
|
|
|
5,270
|
|
|
|
5,255
|
|
|
|
5,965
|
|
|
|
3,659
|
|
Income tax provision (benefit)
|
|
|
660
|
|
|
|
718
|
|
|
|
1,795
|
|
|
|
2,272
|
|
|
|
1,575
|
|
|
|
2,290
|
|
|
|
1,670
|
|
|
|
(11,200
|
)
|
Income from continuing operations, net of tax
|
|
|
1,529
|
|
|
|
1,047
|
|
|
|
4,171
|
|
|
|
3,375
|
|
|
|
3,695
|
|
|
|
2,965
|
|
|
|
4,295
|
|
|
|
14,859
|
|
Income (loss) from discontinued
operations, net of tax
|
|
|
—
|
|
|
|
891
|
|
|
|
—
|
|
|
|
1,159
|
|
|
|
—
|
|
|
|
30,451
|
|
|
|
—
|
|
|
|
(30
|
)
|
Net income
|
|
$
|
1,529
|
|
|
$
|
1,938
|
|
|
$
|
4,171
|
|
|
$
|
4,534
|
|
|
$
|
3,695
|
|
|
$
|
33,416
|
|
|
$
|
4,295
|
|
|
$
|
14,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.26
|
|
|
$
|
0.18
|
|
|
$
|
0.70
|
|
|
$
|
0.57
|
|
|
$
|
0.62
|
|
|
$
|
0.50
|
|
|
$
|
0.72
|
|
|
$
|
2.52
|
|
From discontinued
operations
|
|
|
—
|
|
|
|
0.15
|
|
|
|
—
|
|
|
|
0.20
|
|
|
|
—
|
|
|
|
5.16
|
|
|
|
—
|
|
|
|
(0.01
|
)
|
Basic earnings per share
|
|
$
|
0.26
|
|
|
$
|
0.33
|
|
|
$
|
0.70
|
|
|
$
|
0.77
|
|
|
$
|
0.62
|
|
|
$
|
5.66
|
|
|
$
|
0.72
|
|
|
$
|
2.51
|
|
Weighted average common shares
|
|
|
5,842
|
|
|
|
5,795
|
|
|
|
5,834
|
|
|
|
5,803
|
|
|
|
5,822
|
|
|
|
5,807
|
|
|
|
5,820
|
|
|
|
5,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
0.26
|
|
|
$
|
0.18
|
|
|
$
|
0.70
|
|
|
$
|
0.57
|
|
|
$
|
0.62
|
|
|
$
|
0.50
|
|
|
$
|
0.72
|
|
|
$
|
2.52
|
|
From discontinued
operations
|
|
|
—
|
|
|
|
0.15
|
|
|
|
—
|
|
|
|
0.20
|
|
|
|
—
|
|
|
|
5.16
|
|
|
|
—
|
|
|
|
(0.01
|
)
|
Diluted earnings per share
|
|
$
|
0.26
|
|
|
$
|
0.33
|
|
|
$
|
0.70
|
|
|
$
|
0.77
|
|
|
$
|
0.62
|
|
|
$
|
5.66
|
|
|
$
|
0.72
|
|
|
$
|
2.51
|
|
Weighted average common and common equivalent
shares
|
|
|
5,842
|
|
|
|
5,808
|
|
|
|
5,834
|
|
|
|
5,806
|
|
|
|
5,822
|
|
|
|
5,807
|
|
|
|
5,820
|
|
|
|
5,815
|
|
* March 31, 2017 quarterly data have been reclassified to conform
with current presentation.
Saga Communications, Inc.
Notes to Consolidated Financial Statements — (Continued)
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.
During the third quarter of 2016, the Company
sold a tower in our Norfolk, Virginia market for approximately $1,619,000 to SBA Towers IX, LLC (“SBA”). Subsequently,
we entered into a ten year lease for tower space from SBA with three renewal periods of five years each. The transactions described
have been accounted for as a sale-leaseback transaction. Accordingly, the Company recognized a gain on the sale of assets of approximately
$1,415,000, which is the amount of the gain on sale in excess of present value of future lease payments and will recognize the
remaining approximately $65,000 in proportion to the related gross rental charged to expense over the term of the lease. The gain
is recorded in the other operating (income) expense, net in the Company’s Consolidated Statements of Income.
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, will be paid on March 29, 2019 to shareholders of record on March 12, 2019.